<PAGE>
As filed with the Securities and Exchange Commission on October 26, 1999
SEC File No. 333-87623
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Pre-Effective
Amendment No. 1
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
EXPEDIA, INC.
(Exact name of Registrant as specified in its charter)
---------------
Washington 4700 91-1996083
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
4200 150th Ave. NE
Redmond, Washington 98052
(425) 705-5161
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
---------------
Richard N. Barton
President and Chief Executive Officer
Expedia, Inc.
4200 150th Ave. NE
Redmond, Washington 98052
(425) 705-5161
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of all communications to:
Richard B. Dodd Frank H. Golay, Jr.
Mark S. Britton Sullivan & Cromwell
Maja D. Chaffe 1888 Century Park East
Preston Gates & Ellis LLP Los Angeles, California 90067
701 Fifth Avenue, Suite 5000 (310) 712-6600
Seattle, Washington 98104-7078
(206) 623-7580
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement as the
underwriters shall determine.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Amount Maximum Maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered per share(1) offering price(1) fee(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares par value $0.01............. 5,980,000 shares $12.00 $71,760,000 $19,950(1)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for purposes of calculating amount of registration fee. $20,850 was
previously paid with original filing.
---------------
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 of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject to Completion. Dated October 26, 1999.
5,200,000 Shares
[EXPEDIA, INC. LOGO]
Common Stock
------------
This is an initial public offering of shares of common stock of Expedia,
Inc. This prospectus relates to an offering of 4,160,000 shares in the United
States. In addition, 1,040,000 shares are being offered outside the United
States in an international offering. All of the 5,200,000 shares of common
stock are being sold by Expedia.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $10.00 and $12.00. Application has been made for
quotation of the common stock on the Nasdaq National Market under the symbol
"EXPE."
See "Risk Factors" beginning on page 8 to read about factors you should
consider before buying shares of the common stock.
------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to Expedia........................... $ $
</TABLE>
To the extent that the underwriters sell more than 5,200,000 shares of
common stock, the underwriters have the option to purchase up to an additional
780,000 shares from Expedia at the initial public offering price less the
underwriting discount.
------------
The underwriters expect to deliver the shares in New York, New York on
, 1999.
------------
Joint Book-Running Managers
Goldman, Sachs & Co. Morgan Stanley Dean Witter
------------
Prospectus dated , 1999.
<PAGE>
INSIDE FRONT COVER
[ARTWORK]
The Expedia Travel Marketplace
Consumers
Leisure Travelers
Small Business Travelers
Corporate Travelers
[Expedia, Inc. Logo]
Suppliers
Airlines
Hotels
Car Rental Companies
Vacation Packagers
Cruise Lines
Destination Services Merchants
[horizontal rule]
Global Reach and Presence
United States
Launched in October 1996
[Expedia.com logo]
[Image of USA flag]
Canada
Launched in April 1997
[Expedia.ca logo]
[Image of Canada flag]
United Kingdom
Launched in November 1998
[Expedia.co.uk logo]
[Image of Union Jack flag]
Germany
Launched in August 1999
[Expedia.de logo]
[Image of German flag]
<PAGE>
INSIDE GATEFOLD
[ARTWORK in background is version of Expedia, Inc. logo]
Commerce
Expedia.com offers one-stop travel shopping and reservation services, providing
access to schedule, pricing and availability information [screenshot of home
page of Expedia.com]
Community
Expedia.com community features enable consumers to make choices on their travel
purchases. Our Fare Compare feature allows consumers to review fares that other
Expedia.com customers have found on similar flights.
[screenshot of Fare Compare, with heading that says Deals found by other
Expedia.com customers]
Customer Service
Expedia.com offers customers 24-hour access to toll-free telephone and email
customer service.
[screenshot of Customer Service area on Expedia.com, with a photograph of
customer service agent]
Content
Expedia.com consumers use our editorial content to research destinations, read
travel tips provided by other Expedia travelers, and gain more insight before
leaving on a trip.
[screenshot of places to go page with a photograph and caption titled The Grand
Canal]
[Expedia, Inc. Logo]
Expedia.com and Expedia are either registered trademarks or trademarks of
Expedia, Inc. in the United States and/or other countries.
<PAGE>
SUMMARY
This summary may not contain all the information that may be important to
you. You should read this entire prospectus before making an investment
decision.
In this prospectus, the terms "Expedia," "the Company" and "we" refer to
Expedia, Inc. and our subsidiaries and our predecessor, the travel business
unit of Microsoft Corporation, except where it is clear that such terms mean
only Expedia, Inc.
Expedia, Inc.
We are a leading provider of branded online travel services for leisure and
small business travelers. We operate our own website, located at Expedia.com,
with localized versions in the United Kingdom, Germany and Canada. We offer
one-stop travel shopping and reservation services, providing reliable, real-
time access to schedule, pricing and availability information for over
450 airlines, 40,000 hotels and all major car rental companies.
The Internet is dramatically changing the way that consumers and businesses
communicate, share information and buy and sell goods and services. The
Internet reduces inefficiencies in markets characterized by the presence of
large numbers of geographically dispersed buyers and sellers and purchase
decisions involving large amounts of information from multiple sources. We
believe that the worldwide travel industry, which exemplifies these
characteristics, is especially well-suited to benefit from increased Internet
and electronic commerce adoption. As a result, travel has already become the
largest online retail category with estimated online transactions of $7.8
billion in 1999, growing to $32 billion in 2004, according to Forrester
Research.
To address this market opportunity, we attract a large global base of
consumers and travel suppliers to our Internet-based travel marketplace and
enable them to research, buy and sell travel-related services online. Our
global travel marketplace offers consumers a convenient, comprehensive and
personalized source of travel information and services. At the same time, our
marketplace enables travel suppliers to reach a large, global audience of
consumers who are actively engaged in planning and purchasing travel services.
In our marketplace, suppliers can pursue a range of innovative, targeted
merchandising and advertising strategies designed to increase revenues, while
reducing overall transaction and customer service costs.
We have built an underlying technology infrastructure that enables both
buyers and sellers to transact through our websites in a reliable, scalable and
secure environment. In addition to generating revenues from transactions and
advertising on our websites, we also license key components of our technology
and editorial content to selected airlines as a platform for their electronic
commerce websites.
Since launching our online travel service in October 1996, we have
experienced significant growth in our traffic and the amount of travel
purchased through our websites. As of September 30, 1999, over $790 million in
airline ticket purchases and hotel and car rental reservations had been made
through our websites by over 930,000 consumers and 7.5 million users had
registered on our websites. In addition, as of September 30, 1999, over $500
million in airline ticket purchases and hotel and car rental reservations had
been made through the websites of our licensees by over 470,000 customers and
5.5 million users had registered on the websites of our licensees. According to
Media Metrix, Expedia.com was the #1 most visited website for travel services
for each of the six months ended September 30, 1999.
We are located at 4200 150th Avenue NE, Redmond, Washington 98052, and our
phone number is (425) 705-5161.
3
<PAGE>
Our Strategy
Our objective is to enhance our position as a leading online travel
marketplace. The key elements of our strategy are as follows:
Increase brand awareness. We plan to pursue an aggressive brand development
strategy that will include a substantial advertising presence in both online
media and traditional media, such as print, radio and television. We will also
continue to offer co-branded promotions with selected suppliers.
Enhance supplier relationships. Investing in and building on strong
supplier relationships are crucial to the success of our business. We will
continue to work with suppliers to develop new advertising and travel services
for our websites and new tools to facilitate suppliers' entry of pricing,
availability and description information directly into our marketplace.
Enhance technology platform and product functionality. We plan to continue
to enhance the underlying infrastructure and functionality of our websites. The
operation of our own websites and those of our licensees has given us extensive
experience at handling rapid increases in transaction volumes. In addition to
continuously updating software features and editorial content, we believe that
increasing the level of personalization in our marketplace is critical to
providing a rich consumer experience.
Expand internationally. We operate localized websites in the United
Kingdom, Germany and Canada. We selected these countries due to their large
travel markets and the rapid growth of online commerce in these markets. We
plan to expand our international presence by entering other important travel
markets, after evaluating both the size of the local travel market and the
popularity of online commerce. In developing customized websites in these and
other international markets, we will continue to draw on our experience in the
United States with technology, user interface and supplier relationships while
tailoring our international websites to specific characteristics of each local
marketplace.
Broaden our marketplace into new travel services categories. We plan to
expand our travel service offerings to include more complex travel products and
destination service offerings. Currently, the majority of our commerce revenues
are derived from sales of airline tickets, with a smaller percentage
represented by hotel reservations and car rentals. We plan to extend our
offerings in each of these core segments and expand the range of offerings into
other segments, such as cruises and vacation packages.
4
<PAGE>
Our Relationship with Microsoft Corporation
In October 1996, Microsoft launched its online travel services through
Expedia. On October 1, 1999, Microsoft separated the Expedia assets and
contributed them to us in exchange for 33,000,000 shares of common stock or
100% of our outstanding common stock at that date. After giving effect to this
offering, Microsoft will own approximately 86.4% of our outstanding common
stock, or approximately 84.7% if the underwriters' over-allotment options are
exercised in full. Microsoft will continue to include us in its consolidated
federal tax returns as long as it owns at least 80% of our outstanding stock
and will continue to include our financial data in its consolidated financial
reports as long as it maintains control of our outstanding common stock.
Microsoft will cancel all of the unvested options of Microsoft employees
who choose to join Expedia prior to this offering and we will replace the
canceled options with Expedia options, that will have equivalent vesting
schedules and in-the-money values and comparable other terms as the canceled
Microsoft options. As a result, we will incur a non-cash charge in the range of
$100 million to $150 million.
We have also entered into a number of other agreements which were necessary
to separate the Expedia assets from Microsoft and to facilitate the operation
of the Expedia assets after such separation. One of these agreements provides
that for a three-year period Microsoft will not compete directly or indirectly
in the business of offering an online service for reserving or purchasing
travel services. These agreements were not negotiated on an arm's length basis.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Expedia
U.S. offering................ 4,160,000 shares
International offering....... 1,040,000 shares
Total...................... 5,200,000 shares
Common stock to be outstanding
after this offering........... 38,200,000 shares
Use of proceeds................ Working capital and general corporate
purposes
Nasdaq National Market symbol.. "EXPE"
</TABLE>
In addition to the shares of common stock to be outstanding after this
offering, we may issue additional shares of common stock under the following
plans and arrangements:
. shares issuable upon exercise of outstanding options at a
weighted average exercise price of $ per share as of , 1999.
The number of options and their price will be determined only at the
pricing date of this offering and will be reflected in the final
prospectus. We estimate that, at the pricing date, there will be
approximately 18.5 million shares issuable upon the exercise of
outstanding options at a weighted average exercise price of
approximately $4.50 per share.
. 4,435,000 shares available for future issuance upon exercise of options
not yet granted or for future issuance under our various stock plans.
6
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
Three
months ended
Years ended June 30, September 30,
-------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
----- ------- -------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ 2,742 $ 13,827 $ 38,699 $ 6,057 $15,268
Cost of revenues........ -- -- 3,279 9,692 15,950 3,177 5,364
----- ------- -------- -------- -------- ------- -------
Gross profit (loss)..... -- -- (537) 4,135 22,749 2,880 9,904
Operating expenses:
Product development... 818 6,263 16,211 18,506 21,180 4,977 5,393
Sales and marketing... -- 17 8,820 10,823 14,888 2,060 6,732
General and
administrative....... 145 1,520 3,353 4,284 6,283 1,050 2,729
----- ------- -------- -------- -------- ------- -------
Total operating
expenses........... 963 7,800 28,384 33,613 42,351 8,087 14,854
----- ------- -------- -------- -------- ------- -------
Loss from operations and
net loss............... $(963) $(7,800) $(28,921) $(29,478) $(19,602) $(5,207) $(4,950)
===== ======= ======== ======== ======== ======= =======
Pro forma basic and
diluted net loss per
share.................. $ (.59) $ (.15)
======== =======
Shares used in computing
pro forma net loss per
share.................. 33,000 33,000
======== =======
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, 1999
---------------------
As
Actual adjusted
--------- ----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital........................................... $ 2,608 $ 54,004
Total assets.............................................. 7,018 58,414
Accumulated deficit....................................... (91,714) (91,714)
Total owner's net deficit/stockholders' equity............ (373) 51,023
</TABLE>
The as adjusted amounts reflect the receipt by Expedia of the estimated net
proceeds of $51.4 million from the sale of the 5,200,000 shares of common stock
offered by Expedia in this offering after deducting the estimated offering
expenses and underwriting discounts and commissions, based upon an assumed
public offering price of $11.00 per share.
Unless we note otherwise, all of the information that we have included in
this prospectus assumes that the underwriters have not exercised their over-
allotment options. See "Underwriting" for a discussion of the over-allotment
options.
7
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider the following factors carefully before deciding to purchase
shares of common stock. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business operations.
Our operating results are volatile and difficult to predict. If we fail to
meet the expectations of securities analysts or investors, the market price of
our common stock may decline significantly.
Our 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 our control. Because our operating results are volatile
and difficult to predict, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. It
is likely that in some future quarter our operating results will fall below
the expectations of securities analysts or investors. In this event, the
trading price of our common stock may decline significantly.
Factors that may cause us to fail to meet the expectations of securities
analysts or investors include the following:
. our inability to obtain new customers at reasonable cost, retain
existing customers or encourage repeat purchases
. decreases in the number of visitors to our websites or our inability
to convert visitors to our websites into customers
. our inability to adequately maintain, upgrade and develop our
websites, the systems that we use to process customers' orders and
payments or our computer network
. our inability to retain existing airlines, hotels, rental car
companies and other suppliers of travel services ("travel suppliers")
or to obtain new travel suppliers
. our inability to obtain travel products on satisfactory terms from our
travel suppliers
. the ability of our competitors to offer new or enhanced websites,
services or products
. 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 our
operations
. economic conditions specific to the Internet, online commerce and the
travel industry
Because we have a limited operating history, it is difficult to evaluate our
business and prospects.
Our business began operations in July 1994 and we launched our online
travel service in October 1996. As a result, we have only a limited operating
history from which you can evaluate our historical business. It is also
difficult to evaluate our prospective business because we face the risks
frequently encountered by early stage companies using new and unproven
business models and entering new and rapidly evolving markets, such as online
commerce. These risks include our potential failure to:
. attract additional travel suppliers and consumers to our service
. maintain and enhance our brand
8
<PAGE>
. expand our service offerings
. operate, expand and develop our operations and systems efficiently
. maintain adequate control of our expenses
. raise additional capital
. attract and retain qualified personnel
. respond to technological changes
. respond to competitive market conditions
We depend on our relationships with travel suppliers, licensees and computer
reservation systems; adverse changes in these relationships could affect our
inventory of travel offerings and license revenues.
Our business model relies on relationships with travel suppliers, and it
would be negatively affected by adverse changes in these relationships. We
depend on travel suppliers to enable us to offer our customers comprehensive
access to travel services and products. Consistent with industry practices, we
currently have few agreements with our travel suppliers obligating them to
sell services or products through our 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 our
access to their inventory, either of which could significantly decrease the
amount or breadth of our inventory of available travel offerings. We also
depend on travel suppliers for advertising revenues. Adverse changes in any of
these relationships could reduce the amount of inventory which we are able to
offer through our websites.
In addition to our relationships with travel suppliers, our business model
relies on our relationships with licensees and computer reservations systems.
Our license revenues are generated through a small number of licensees and our
computer reservation systems, particularly Worldspan, L.P. and Pegasus
Systems, Inc., provide us access to travel suppliers. Adverse changes in any
of these relationships could have a material adverse effect on the revenue
which we generate from these licenses.
A decline in commission rates or the elimination of commissions could reduce
our revenues.
A substantial majority of our online revenues depends on the commissions
paid by travel suppliers for bookings made through our online travel service.
Generally, we do not have written commission agreements with our suppliers. As
is standard practice in the travel industry, we rely on informal arrangements
for the payment of commissions. Travel suppliers are not obligated to pay any
specified commission rate for bookings made through our websites. We cannot
assure you that airlines, hotel chains or other travel suppliers will not
reduce current industry commission rates or eliminate commissions entirely,
either of which could reduce our revenues.
For example, in 1995, most of the major airlines placed a cap on per-
ticket commissions payable to all travel agencies for domestic airline travel.
In September 1997, the major United States airlines reduced the commission
rate payable to traditional travel agencies from 10% to 5%. In 1997, the major
United States airlines reduced the commission rate payable for online
reservations from 8% to 5%. In addition, since 1998, many airlines have
implemented a fixed-rate commission of $10.00 for domestic online roundtrip
ticket sales. Because a high percentage of our business relates to airline
ticket sales, a further reduction in airline ticket commissions could reduce
our revenues.
9
<PAGE>
Consumers, travel suppliers and advertisers may not accept our websites as
valuable commercial tools, which would harm the growth of our business.
For us to achieve significant growth, consumers, travel suppliers and
advertisers must accept our websites as valuable commercial tools. Consumers
who have historically purchased travel products using traditional commercial
channels, such as local travel agents and calling airlines directly, must
instead purchase these products through our websites. Consumers frequently use
our websites for route pricing and other travel information and then choose to
purchase airline tickets or make other reservations directly from travel
suppliers or other travel agencies. If this practice increases, it could limit
our growth.
Similarly, travel suppliers and advertisers will also need to accept or
expand their use of our websites. Travel suppliers will need to view our
websites as efficient and profitable channels of distribution for their travel
products. Advertisers will need to view our websites as effective ways to
reach their potential customers.
In order to achieve the acceptance of consumers, travel suppliers and
advertisers contemplated by our business plan, we will need to continue to
make substantial investments in our technology and brand. However, we cannot
assure you that these investments will be successful. Our failure to make
progress in these areas will harm the growth of our business.
We expect our losses and negative cash flows to continue.
We have incurred substantial net losses and negative cash flows on both an
annual and interim basis. For the fiscal year ended June 30, 1999, we had a
net loss of $19.6 million and negative cash flow from operating and investing
activities of $18.0 million. For the quarter ended September 30, 1999, we had
a net loss of $5.0 million and negative cash flow from operating and investing
activities of $6.3 million. As of September 30, 1999, we also had an
accumulated deficit of $91.7 million. In addition, we expect to incur a non-
cash charge in the range of $100 million to $150 million related to the
issuance of stock options to our employees to replace their unvested Microsoft
options. This charge will be amortized over the vesting period of the new
options. We expect to continue to incur net losses and negative cash flows for
the foreseeable future and we cannot assure you that we will ever achieve
profitability or generate positive cash flows.
We expect to grow our operating expenses significantly, especially in the
areas of sales and marketing and operations. These increased expenses will
result primarily from our launch of a significant advertising campaign in
fiscal 2000, extension of the coverage of our advertising sales force and
expansion of our domestic and international operations. In addition, we may
experience an increase in general and administrative expenses as we develop
and purchase resources in areas where we currently rely on Microsoft to
provide services and in other areas required to operate as a stand-alone
entity. As a result, we will need to increase our revenues to become
profitable. If our revenues do not grow as expected, or if increases in our
expenses are not in line with our plans, there could be a material adverse
effect on our business, operating results and financial condition.
Intense competition could reduce our market share and harm our financial
performance.
The markets for the products and services offered by us are intensely
competitive. We compete with other online travel reservation services,
traditional travel agencies, travel suppliers offering their services directly
and international travel service providers competing in critical national or
regional markets, such as the United Kingdom, Germany and Canada. We also
compete with many of the same parties and others in the licensing of
technology to airlines and corporate travel agencies.
10
<PAGE>
We compete with a variety of companies with respect to each product or
service we offer. These competitors include:
. Internet travel agents such as Travelocity, which is operated by The
Sabre Group Holdings, Inc., a majority-owned subsidiary of American
Airlines, and Preview Travel, Inc.; Travelocity has recently announced
its intention to acquire Preview Travel
. local, regional, national and international traditional travel
agencies
. consolidators and wholesalers of airline tickets and other travel
products, including online consolidators such as Cheaptickets.com and
Priceline.com
. individual airlines, hotels, rental car companies, cruise operators
and other travel service providers, some of which are suppliers to our
websites
. 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 we do business. Suppliers also sell their own
services directly to consumers, predominantly by telephone. As the market for
online travel services grows, we believe that travel suppliers, traditional
travel agencies, travel industry information providers and other companies
will increase their efforts to develop services that compete with our services
by selling inventory from a wide variety of suppliers. We cannot assure you
that our online operations will compete successfully with any current or
future competitors.
Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial,
marketing and other resources than we have and may enter into strategic or
commercial relationships with larger, more established and better-financed
companies. Some of our 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 we are 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. We cannot
assure you that we will be able to compete successfully against current and
future competitors. Competitive pressures faced by us could have a material
adverse effect on our business, operating results and financial condition.
If we fail to increase our brand recognition among consumers, we may not be
able to attract and expand our online traffic.
We believe that establishing, maintaining and enhancing the Expedia brand
is a critical aspect of our efforts to attract and expand our online traffic.
The number of Internet sites that offer competing services increases the
importance of establishing and maintaining brand recognition. Many of these
Internet sites already have well-established brands in online services or the
travel industry generally. Promotion of the Expedia brand will depend largely
on our success in providing a high-quality online experience supported by a
high level of customer service. In addition, we intend to increase our
spending substantially on marketing and advertising with the intention of
expanding our brand recognition to attract and retain online users and to
respond to competitive pressures. However, we cannot assure you that these
expenditures will be effective to promote our brand or that our marketing
efforts generally will achieve our goals.
11
<PAGE>
If we are unable to introduce and sell new products and services, our brand
could be damaged.
We need to broaden the range of travel products and services and increase
the availability of products and services that we offer in order to enhance
our service. We will incur substantial expenses and use significant resources
trying to expand the range of products and services that we offer. However, we
may not be able to attract sufficient travel suppliers and other participants
to provide desired products and services to our consumers. In addition,
consumers may find that delivery through our service is less attractive than
other alternatives. If we launch new products and services and they are not
favorably received by consumers, our reputation and the value of the Expedia
brand could be damaged.
Our relationships with consumers and travel suppliers are mutually
dependent since consumers will not use a service that does not offer a broad
range of travel services. Similarly, travel suppliers will not use a service
unless consumers actively make travel purchases through it. We cannot predict
whether we will be successful in expanding the range of products and services
that we offer. If we are unable to expand successfully, this could also damage
our brand.
We may be unable to plan and manage our operations and growth effectively
after our separation from Microsoft.
Our growth to date has placed, and our anticipated future operations will
continue to place, a significant strain on our management, systems and
resources. We continue to increase the scope of our operations and the size of
our workforce. In addition to needing to train and manage our workforce, we
will need to continue to improve and develop our financial and managerial
controls and our reporting systems and procedures. A failure to plan,
implement and integrate these systems successfully could adversely affect our
business.
In the past, we have used Microsoft's resources in technology, systems,
administration and other areas. Following this offering we will have a
services agreement with Microsoft, but we will need to develop our own
resources in these areas over time.
Our growth may increase our expense levels and the difficulties we face in
managing our operations and our separation from Microsoft.
Declines or disruptions in the travel industry generally could reduce our
revenues.
We rely 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 our 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
. bad weather
12
<PAGE>
Interruptions in service from third parties could impair the quality of our
service.
We rely 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 our transactions are processed through the Worldspan and Pegasus
systems. We rely on Online Fulfillment Services, a subsidiary of World Travel
Partners, L.P., to provide telephone and email customer support, as well as to
print and deliver airline tickets as necessary. Microsoft will also service
substantially all of our information systems as part of a services agreement.
Any interruption in these third-party services or a deterioration in their
performance could impair the quality of our service. If our arrangement with
any of these third parties is terminated, we 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 our business.
Our success depends on maintaining the integrity of our systems and
infrastructure.
In order to be successful, we must provide reliable, real-time access to
our systems for our customers and suppliers. As our operations grow in both
size and scope, domestically and internationally, we will need to improve and
upgrade our systems and infrastructure to offer an increasing number of
customers and travel suppliers enhanced products, services, features and
functionality. The expansion of our systems and infrastructure will require us
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 our business,
operating results and financial condition.
In this regard, our operations face the risk of systems failures. Our
product development and information management systems, as well as computer
and communications hardware, are hosted by Microsoft in facilities in and
around the Seattle, Washington area. Our systems and operations are vulnerable
to damage or interruption from fire, flood, power loss, telecommunications
failure, break-ins, earthquake and similar events. Our business interruption
insurance may not adequately compensate us for losses that may occur. The
occurrence of a natural disaster or unanticipated problems at our leased
facilities in Seattle, Washington could cause interruptions or delays in our
business, loss of data or render us unable to process reservations. In
addition, the failure of our computer and communications systems to provide
the data communications capacity required by us, as a result of human error,
natural disaster or other operational disruptions, could result in
interruptions in our service. The occurrence of any or all of these events
could adversely affect our reputation, brand and business.
Rapid technological changes may render our technology obsolete or decrease the
competitiveness of our services.
To remain competitive in the online travel industry, we must continue to
enhance and improve the functionality and features of our 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, our existing
websites and proprietary technology and systems may become obsolete. Our
future success will depend on our ability to do the following:
. enhance our existing services
13
<PAGE>
. develop and license new services and technologies that address the
increasingly sophisticated and varied needs of our prospective
customers and suppliers
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis
Developing our websites and other proprietary technology entails
significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our websites, transaction-processing
systems and network infrastructure to customer requirements or emerging
industry standards. If we face material delays in introducing new services,
products and enhancements, our customers and suppliers may forego the use of
our services and use those of our competitors.
The success of our business will depend on continued growth of online commerce
and the Internet.
Because we do not intend to provide our service through any commercial
medium other than the Internet, our future revenues and profits depend upon
the widespread acceptance and use of the Internet and online services as a
medium for commerce. Rapid growth in the use of the Internet and online
services is a recent phenomenon. This growth may not continue. A sufficiently
broad base of consumers may not accept, or continue to use, the Internet as a
medium of commerce. Demand for and market acceptance of recently introduced
products and services over the Internet are subject to a high level of
uncertainty.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a
reliable network backbone with the necessary speed, data capacity and security
and the timely development of complementary products for providing reliable
Internet access and services. Major online service providers and the Internet
itself have experienced outages and other delays as a result of software and
hardware failures and could face such outages and delays in the future.
Outages and delays are likely to affect the level of Internet usage and the
processing of transactions on our websites. In addition, the Internet could
lose its viability because of delays in the development or adoption of new
standards to handle increased levels of activity or of increased government
regulation. The adoption of new standards or government regulation may require
us to incur substantial compliance costs.
We are substantially controlled by Microsoft, which may impede our business
development and may prevent a takeover of Expedia, irrespective of whether it
is beneficial to our shareholders.
Microsoft beneficially owns 33,000,000 shares of common stock, which after
giving effect to this offering will represent approximately 86.4% of the
outstanding shares of common stock. As long as Microsoft controls a
significant percentage of the common stock, it will be able to control all
matters requiring approval by our common shareholders, including the election
of directors and the ability to cause or prevent a change of control of
Expedia. In addition, there are no limits on the ability of Microsoft to
purchase shares of common stock in the open market.
As part of our separation from Microsoft, we have entered into various
agreements with Microsoft relating to the provision of services to us by
Microsoft, our licensing of intellectual property from Microsoft and the
sharing of taxes and purchasing of services. In one of these agreements,
Microsoft has agreed not to compete with us for a period of three years, and
we may face competition from Microsoft after this period. These agreements
were not negotiated on an arm's length basis and potentially give Microsoft a
further ability to influence our operations.
14
<PAGE>
Because we are a Microsoft-affiliated entity, some potential strategic
customers and vendors may not wish to enter, or may even be contractually
prohibited from entering, into strategic relationships with us. If too many
potential strategic partners were to decline strategic relationships with us,
it could have an adverse impact on our strategy and business development.
Microsoft's voting control and provisions of Washington law affecting
acquisitions and business combinations applicable to us may discourage
transactions involving an actual or potential change of control of Expedia,
including transactions in which our shareholders might receive a premium for
their shares over the then-prevailing market price. This voting control and
these provisions of Washington law may also have a negative effect on the
market price of the common stock.
Our 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, we rely on encryption and authentication technology.
Unanticipated events or developments could result in a compromise or breach of
the systems we use to protect customer transaction data. Furthermore, our
servers may also be vulnerable to viruses transmitted via the Internet. While
we proactively check for intrusions into our infrastructure, a new and
undetected virus could cause a service disruption.
To date, our results have been impacted due to reservations placed with
fraudulent credit card data. Under current credit card practices, we may be
held liable for fraudulent credit card transactions and other payment disputes
with customers. A failure to control fraudulent credit card transactions
adequately would adversely affect our business.
Our international operations involve risks relating to travel patterns and
practices and Internet-based commerce.
We operate in the United Kingdom, Germany and Canada and may expand our
operations to other countries. In order to achieve wide-spread acceptance in
each country we enter, we believe that we must tailor our 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 our failure to do so could slow our growth
in those countries.
We also face risks specific to Internet-based commerce in foreign markets.
Our international risks include:
. 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
15
<PAGE>
. potential adverse tax consequences
. exchange rate fluctuations
. increased risk of piracy and limits on our ability to enforce our
intellectual property rights
Any of these factors could harm our business. We do not currently hedge our
foreign currency exposures.
We may be found to have infringed on intellectual property rights of others
which could expose us to substantial damages and restrict our operations.
We could be subject to claims that we have infringed the patents,
copyrights or other intellectual property rights of others. In addition, we
may be required to indemnify travel suppliers for claims made against them.
Any claims against us could require us 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 us could have a material adverse effect on our
business, operating results and financial condition.
We are a defendant, along with Microsoft, in a lawsuit filed by
Priceline.com that alleges that our Hotel Price Matcher service infringes on a
patent held by them. See "Business--Legal Proceedings."
Because our market is seasonal, our quarterly results will fluctuate.
Our limited operating history and rapid growth make it difficult for us to
assess the impact of seasonal factors on our business. Nevertheless, we expect
our business to be subject to seasonal fluctuations, reflecting seasonal
trends for the products and services offered by our 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 our
revenues to fluctuate from quarter to quarter. Our results may also be
affected by seasonal fluctuations in the inventory made available to our
service by travel suppliers. Airlines, for example, typically enjoy high
demand for tickets through traditional distribution channels for travel during
holiday periods. As a result, during these periods, airlines may either have
less inventory to offer through our service or available tickets may be less
competitively priced. These same factors are expected to affect rental cars,
hotels and other travel products and services.
Our success depends in large part on the continuing efforts of a few
individuals and our ability to continue to attract, retain and motivate highly
skilled employees.
We depend substantially on the continued services and performance of our
senior management, particularly Richard N. Barton, our Chief Executive Officer
and President. These individuals may not be able to fulfill their
responsibilities adequately and may not remain with us. The loss of the
services of any executive officers or other key employees could hurt our
business.
As of September 30, 1999, we employed a total of 149 full-time Microsoft
employees. As of October 25, 1999, 138 previous Microsoft employees have
accepted offers of employment with us. Pursuant to our services agreement with
Microsoft, we have contracted the services of seven employees who remain
employed by Microsoft, until the earlier of May 20, 2000 or our notice that we
no longer require the service of the employees. We intend to hire new
personnel to replace these contracted employees during this period; however,
competition for personnel throughout the Internet industry is intense. If we
do not succeed in attracting new employees and retaining and motivating our
current personnel, our business will be adversely affected.
16
<PAGE>
Our websites rely on intellectual property, and we cannot be sure that this
intellectual property is protected from copy or use by others, including
potential competitors.
We regard much of our content and technology as proprietary and try to
protect our proprietary technology by relying on trademarks, copyrights, trade
secret laws and confidentiality agreements with consultants. In connection
with our license agreements with third parties, we seek to control access to
and distribution of our 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 our proprietary technology without
our authorization or to develop similar technology independently. Effective
trademark, copyright and trade secret protection may not be available in every
country in which our services are made available through the Internet, and
policing unauthorized use of our proprietary information is difficult and
expensive. We cannot be sure that the steps we have taken will prevent
misappropriation of our proprietary information. This misappropriation could
have a material adverse effect on our business. In the future, we may need to
go to court to enforce our intellectual property rights, to protect our 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.
We currently license from third parties, including Microsoft, some of the
technologies incorporated into our websites. As we continue to introduce new
services that incorporate new technologies, we may be required to license
additional technology from Microsoft and others. We cannot be sure that these
third-party technology licenses will continue to be available on commercially
reasonable terms, if at all.
Regulatory and legal changes may impose taxes or other burdens on our
business.
The laws and regulations applicable to the travel industry affect us and
our travel suppliers. We must comply with laws and regulations relating to the
sale of travel services, including those prohibiting unfair and deceptive
practices and those requiring us to register as a seller of travel, comply
with disclosure requirements and participate in state restitution funds. In
addition, many of our travel suppliers and computer reservation systems
providers are heavily regulated by the United States and other governments.
Our services are indirectly affected by regulatory and legal uncertainties
affecting the businesses of our travel suppliers and computer reservation
systems providers.
We must also comply with laws and regulations applicable to businesses
generally and online commerce. Currently, few laws and regulations directly
apply to the Internet and commercial online services. Moreover, there is
currently great uncertainty about whether or how existing laws governing
issues such as property ownership, sales and other taxes, libel and personal
privacy apply to the Internet and commercial online services. It is possible
that laws and regulations may be adopted to address these and other issues.
Further, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws. New laws or
different applications of existing laws would likely impose additional burdens
on companies conducting business online and may decrease the growth of the
Internet or commercial online services. In turn, this could decrease the
demand for our products and services or increase our cost of operations.
Federal legislation imposing limitations on the ability of states to tax
Internet-based sales was enacted in 1998. The Internet Tax Freedom Act, as
this legislation is known, exempts certain types of sales transactions
conducted over the Internet from multiple or discriminatory state and local
taxation through October 21, 2001. It is possible that this legislation will
not be renewed when it terminates in October 2001. Failure to renew this
legislation could allow state and local governments to impose taxes on
Internet-based sales, and these taxes could decrease the demand for our
products and services or increase our costs of operations.
17
<PAGE>
Our common stock price may be volatile.
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following:
. actual or anticipated variations in our quarterly operating results
. announcements of technological innovations or new services by us or
our competitors
. changes in financial estimates by securities analysts
. conditions or trends in the Internet or online commerce industries
. changes in the economic performance or market valuations of other
Internet, online commerce or travel companies
. announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments
. additions or departures of key personnel
. release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock
. potential litigation
The market prices of the securities of Internet-related and online
commerce companies have been especially volatile. Broad market and industry
factors may adversely affect the market price of our common stock, regardless
of our actual operating performance. In the past, following periods of
volatility in the market price of their stock, many companies have been the
subject of securities class action litigation. If we were sued in a securities
class action, it could result in substantial costs and a diversion of
management's attention and resources and would adversely affect our stock
price.
At various times after this offering, there will be a significant amount of
common stock eligible for sale, which could cause our stock price to fall.
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of this offering, we will have outstanding 38,200,000
shares of common stock. Of these shares, the 5,200,000 shares sold in this
offering, plus any shares issued upon exercise of the underwriters' over-
allotment options, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates," as that term is defined
in Rule 144 under the Securities Act. In general, affiliates include officers,
directors or 10% stockholders.
The remaining 33,000,000 shares outstanding are "restricted securities"
within the meaning of Rule 144. These restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 under the Securities Act. These
rules are summarized under "Shares Eligible for Future Sale." Sales of the
restricted securities in the public market, or the availability of these
shares for sale, could adversely affect the market price of the common stock.
18
<PAGE>
Microsoft, Expedia and our directors and officers have entered into lock-
up agreements in connection with this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our common stock or any securities exercisable for or
convertible into our common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of Goldman,
Sachs & Co. and Morgan Stanley & Co. Incorporated.
As discussed in "Certain Relationships and Related Transactions--Our
Relationship with Microsoft; Shareholder Agreement," Microsoft has entered
into an agreement with Expedia that it will not offer, sell, contract to sell
or grant any option to purchase or otherwise dispose of our common stock, or
any securities exercisable for or convertible into our common stock, owned by
it for a period of one year after the date of this offering without the prior
approval of Expedia. After this time Microsoft will have the ability to sell
some or all of its common stock. We have agreed to file registration
statements under the Securities Act to register the common stock held by
Microsoft.
In addition, we intend to file immediately after the effectiveness of this
offering a registration statement on Form S-8 under the Securities Act
covering all shares of common stock reserved for issuance under our stock
plans. Shares registered under this registration statement would be available
for sale in the open market unless these shares are subject to vesting
restrictions with Expedia or the contractual restrictions described above.
Within 180 days of the date of this prospectus, we estimate that approximately
2.3 million shares of common stock will become exercisable under outstanding
options held by employees who are not subject to lock-up agreements.
In the future we may need to raise additional capital in order to remain
competitive in the online travel services industry. This capital may not be
available on acceptable terms, if at all.
We will not be able to fund our growth if we lack adequate resources.
Based on our current operating plan, we anticipate that the net proceeds of
this offering will be sufficient to satisfy our anticipated needs for working
capital, capital expenditures and business expansion for the next twelve
months. After that time, we may need additional capital. If we raise
additional funds by issuing equity or convertible debt securities, the
percentage ownership of our stockholders will be diluted. Any securities could
have rights, preferences and privileges senior to those of the common stock.
We currently do not have any commitments for additional financing. We
cannot be certain that additional financing will be available in the future on
acceptable terms or at all. In this regard, it is important to note that even
though Microsoft will own a controlling interest in our common stock after
this offering, Microsoft has made no commitment to us for additional
financing.
You will experience immediate and substantial dilution.
The initial public offering price is expected to be substantially higher
than book value per share of the common stock. Investors purchasing shares of
common stock will incur immediate substantial dilution that we estimate will
amount to $9.66 per share. In addition, investors purchasing shares in this
offering will incur additional dilution when outstanding options are
exercised.
Our management has broad discretion in the application of proceeds, which may
increase the risk that the proceeds will not be applied effectively.
Our management will have broad discretion in determining how to spend the
proceeds of this offering. Accordingly, we could spend the proceeds from this
offering in ways which may be ineffective or with which the stockholders may
not agree.
19
<PAGE>
We would lose revenues and incur significant costs if our systems or those
operated by third parties with which we do business are not year 2000
compliant.
In the year 2000, we could encounter system and processing failures of
date-related data because our computer-controlled systems may use two digits
rather than four to define the applicable year. This could result in system
failure or miscalculations. If this were to happen, we would experience
disruptions of our operations including a temporary inability for us to
process reservations on our websites or to engage in similar normal business
activities.
Our operations could also be harmed if the information technology systems
or other systems that we operate or that are operated by third parties are not
year 2000 compliant. We rely on information technology supplied by third
parties, and our travel suppliers are also heavily dependent on information
technology systems and on their own third party vendors' systems. Year 2000
problems experienced by us or any such third parties could hurt our business
in various ways, including:
. lost sales
. increased operating costs
. loss of customers or persons accessing our websites
. business interruptions of a material nature
. claims of mismanagement, misrepresentation or breach of contract
Finally, our operations in the short term could be affected by any public
reaction to the upcoming turn of the century and the reluctance to travel
anytime on or near January 1, 2000. This reluctance could have a short-term
effect on our results of operations.
This prospectus includes forward-looking statements relating to our industry
and our operations, which are inherently uncertain.
Some statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are forward-looking statements. These forward-looking statements
include, but are not limited to, statements about our industry, plans,
objectives, expectations, intentions, assumptions and other statements
contained in this prospectus that are not historical facts. When used in this
prospectus, the words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties relating to our industry and our operations including
those described in this "Risk Factors" section, actual results may differ
materially from those expressed or implied by these forward-looking
statements. This is particularly true for a company with a limited operating
history such as Expedia and for a young and rapidly evolving industry such as
the online travel industry.
Market data and forecasts relating to our operations which are used in
this prospectus have been obtained from independent industry sources. We have
not independently verified these data and results may be materially different
from these forecasts.
20
<PAGE>
USE OF PROCEEDS
Our net proceeds, after deducting estimated underwriting discounts and
offering expenses, from the sale of the 5,200,000 shares of common stock we
are offering at the assumed public offering price of $11.00 per share are
estimated to be $51.4 million, or $59.4 million if the underwriters' over-
allotment options are exercised in full. We intend to use the proceeds from
this offering for our working capital and general corporate purposes. While we
have not decided how we will allocate the proceeds from this offering, we
expect to use a combination of these proceeds and our ongoing revenue to fund
our business development. In particular, we intend to increase our focus and
spending on brand development, sales and marketing, product development,
website content and strategic relationships. Pending application of the net
proceeds, we will invest the cash in investment grade debt securities,
commercial paper, certificates of deposit and other short-term investments.
While the principal reason for this offering is to raise capital, we
anticipate receiving additional benefits from this offering which include:
Greater strategic focus and flexibility. As a result of having a separate
board of directors and management team from Microsoft, we expect to have
sharper focus on our business and strategic opportunities and greater
flexibility to address the needs of our customers and suppliers.
More directly aligned incentives for employees. We expect that the
motivation of our employees and the focus of our management will be
strengthened by incentive compensation programs tied to the market performance
of our common stock.
Direct access to capital markets. We will have direct access to the
capital markets and an increased ability to grow through acquisitions and
strategic relationships.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock or
other securities. We currently anticipate that we will retain all of our
future earnings for use in the expansion and operation of our business and do
not anticipate paying cash dividends in the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on an actual basis, on a pro forma basis to give effect to the capitalization
of Expedia, Inc. and on a pro forma as adjusted basis to give effect to the
sale of 5,200,000 shares of common stock at an assumed offering price of
$11.00 per share after deducting the estimated expenses and underwriting
discounts and commissions payable by Expedia. This table should be read
together with our financial statements and notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------
Pro forma
Actual Pro forma as adjusted
-------- --------- -----------
(in thousands except share and
per share data)
<S> <C> <C> <C>
Owner's net deficit/stockholders' equity
(deficit):
Preferred stock, $.01 par value, 10,000,000
shares authorized; no shares issued or
outstanding pro forma and pro forma as
adjusted.................................... $ -- $ -- $ --
Common stock, $.01 par value, 120,000,000
shares authorized; no shares issued or
outstanding; 33,000,000 shares issued and
outstanding, pro forma; 38,200,000 shares
issued and outstanding, pro forma as
adjusted.................................... -- 330 382
Net contribution from owner/additional paid-
in capital.................................. 91,341 91,011 142,355
Accumulated deficit.......................... (91,714) (91,714) (91,714)
-------- -------- --------
Total owner's net deficit/stockholders'
equity (deficit).......................... (373) (373) 51,023
-------- -------- --------
Total capitalization....................... $ (373) $ (373) $ 51,023
======== ======== ========
</TABLE>
In addition to the shares of common stock to be outstanding after this
offering, we may issue additional shares of common stock under the following
plans and arrangements:
. shares issuable upon exercise of outstanding options at a
weighted average exercise price of $ per share as of , 1999. The
number of options and their price will be determined only at the
pricing date of this offering and will be reflected in the final
prospectus. We estimate that, at the pricing date, there will be
approximately 18.5 million shares issuable upon the exercise of
outstanding options at a weighted average exercise price of
approximately $4.50 per share.
. 4,435,000 shares available for future issuance upon exercise of options
not yet granted or for future issuance under our various stock plans.
22
<PAGE>
DILUTION
As of September 30, 1999, our historical net tangible book value was a
deficit of approximately $0.4 million or $.01 per share of common stock. Net
tangible book value per share represents total tangible assets less total
liabilities divided by 33,000,000 shares of common stock. After giving effect
to our receipt of the net proceeds from our sale of the 5,200,000 shares of
common stock offered hereby at the assumed offering price of $11.00 per share,
the pro forma net tangible book value at September 30, 1999 would have been
approximately $51.0 million or $1.34 per share. This represents an immediate
increase in net tangible book value of $1.35 per share to our sole existing
shareholder and an immediate dilution of $9.66 per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed public price per share....................................... $11.00
Net tangible book value per share after this offering................ 1.34
------
Dilution per share to new investors.................................. $ 9.66
======
</TABLE>
The following table summarizes, as of September 30, 1999, the differences
between the number and percentage of shares of common stock issued to
Microsoft, our sole existing shareholder, and new investors purchasing shares
of common stock in this offering, at the assumed initial public offering price
of $11.00 per share, as well as the aggregate consideration and the average
price per share paid by them:
<TABLE>
<CAPTION>
Shares Total
purchased consideration Average
------------------ -------------------- price per
Number Percent Amount Percent share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholder.......... 33,000,000 86.4% $ 91,341,000 61.5% $ 2.77
New investors................. 5,200,000 13.6 57,200,000 38.5 11.00
---------- ----- ------------ -----
Total......................... 38,200,000 100.0% $148,541,000 100.0%
========== ===== ============ =====
</TABLE>
In addition to the shares of common stock to be outstanding after this
offering, we may issue additional shares of common stock under the following
plans and arrangements:
. shares issuable upon exercise of outstanding options at a
weighted average exercise price of $ per share as of , 1999.
The number of options and their price will be determined only at the
pricing date of this offering and will be reflected in the final
prospectus. We estimate that, at the pricing date, there will be
approximately 18.5 million shares issuable upon the exercise of
outstanding options at a weighted average exercise price of
approximately $4.50 per share.
. 4,435,000 shares available for future issuance upon exercise of options
not yet granted or for future issuance under our various stock plans.
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read together with our
financial statements and notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. The statement of operations data for the years ended June 30,
1997, 1998 and 1999 and the balance sheet data as of June 30, 1998 and 1999
are derived from our audited financial statements included elsewhere in this
prospectus which have been audited by Deloitte & Touche LLP, independent
auditors, whose report thereon is also included elsewhere in this prospectus.
The statement of operations data for the years ended June 30, 1995 and
1996 and the balance sheet data as of June 30, 1995, 1996 and 1997 are derived
from unaudited financial statements not included herein. The statement of
operations data for the three months ended September 30, 1998 and 1999 and the
balance sheet data as of September 30, 1999 are derived from our unaudited
financial statements included elsewhere in this prospectus. In the opinion of
management, these statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of the results
for these periods.
<TABLE>
<CAPTION>
Three months
ended
Years ended June 30, September 30,
-------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
----- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ 2,742 $ 13,827 $ 38,699 $ 6,057 $15,268
Cost of revenues........ -- -- 3,279 9,692 15,950 3,177 5,364
----- ------- -------- -------- -------- ------- -------
Gross profit (loss)..... -- -- (537) 4,135 22,749 2,880 9,904
----- ------- -------- -------- -------- ------- -------
Operating expenses:
Product development... 818 6,263 16,211 18,506 21,180 4,977 5,393
Sales and marketing... -- 17 8,820 10,823 14,888 2,060 6,732
General and
administrative....... 145 1,520 3,353 4,284 6,283 1,050 2,729
----- ------- -------- -------- -------- ------- -------
Total operating
expenses........... 963 7,800 28,384 33,613 42,351 8,087 14,854
----- ------- -------- -------- -------- ------- -------
Loss from operations.... (963) (7,800) (28,921) (29,478) (19,602) (5,207) (4,950)
Provision for income
taxes.................. -- -- -- -- -- -- --
----- ------- -------- -------- -------- ------- -------
Net loss................ $(963) $(7,800) $(28,921) $(29,478) $(19,602) $(5,207) $(4,950)
===== ======= ======== ======== ======== ======= =======
Pro forma basic and
diluted net loss per
share.................. $ (.59) $ (.15)
======== =======
Shares used in computing
pro forma net loss per
share.................. 33,000 33,000
======== =======
</TABLE>
<TABLE>
<CAPTION>
As of June 30, As of
------------------------------------------- Sept. 30,
1995 1996 1997 1998 1999 1999
----- ------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Balance Sheet Data:
Working capital......... $ -- $ -- $ 658 $ 4,814 $ 1,390 $ 2,608
Total assets............ 28 601 1,645 8,333 5,756 7,018
Unearned revenue, net of
current................ -- -- -- 5,820 3,851 4,102
Accumulated deficit..... (963) (8,763) (37,684) (67,162) (86,764) (91,714)
Total owner's investment
(deficit).............. 991 601 (721) (92) (1,675) (373)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section has been derived from our
financial statements and should be read together with our financial statements
and related notes included elsewhere in this prospectus. The discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those expressed or implied in these
forward-looking statements as a result of various factors, including those set
forth under "Risk Factors" and elsewhere in this prospectus.
Overview
We are a leading provider of branded online travel services for leisure
and small business travelers. We operate our own websites, including
Expedia.com and international versions of Expedia.com, and we license
components of our technology to provide the platform for travel websites with
Continental Airlines, Northwest Airlines and American Express Travel Related
Services. We derive our revenues from commissions from transactions on our
websites, sales of advertisements on our websites and licensing fees.
In the past, we conducted business as an operating unit of Microsoft. Our
statements of operations and balance sheets are derived from the historic
books and records of Microsoft and include cost allocations from Microsoft.
Although these allocations are not necessarily indicative of the costs that
would have been incurred by us on a stand-alone basis, we believe that the
allocated amounts are reasonable. Prior to the closing of this offering,
assets, liabilities and operations that comprise our business will be
contributed by Microsoft to us.
Commission revenues are derived from airline ticket transactions and hotel
and car rental reservations. Our commissions and related revenues accounted
for 80% of our total net revenues in fiscal 1997, 71% of our total net
revenues in fiscal 1998, 69% of our total net revenues in fiscal 1999 and 66%
of our total net revenues for the three months ended September 30, 1999. A
substantial majority of these revenues are derived from airline ticket
transactions. Airline ticket commissions are determined by individual airlines
and billed and collected through the Airline Reporting Corporation, an
industry-administered clearinghouse. As is customary in the travel industry,
travel suppliers are not obligated to pay any specified commission rate for
bookings made through our websites. We recognize commission revenues on air
transactions when the reservation is made and secured by a credit card, net of
an allowance for cancellations. We recognize commission revenues on hotel and
car rental reservations either on the receipt of our commission payment or on
notification of entitlement by a third party.
In addition to commissions, we derive revenues from the sales of
advertisements on our websites and fees from the licensing of software to our
airline and corporate customers such as Continental Airlines, Northwest
Airlines and American Express. We recognize advertising revenues either on
display of each individual advertisement or ratably over the advertising
period, depending on the terms of the advertising contract. Revenues from
software license agreements are recognized ratably over the license term.
Advertising revenues accounted for 17% of our total net revenues in fiscal
1997, 15% of our total net revenues in fiscal 1998, 18% of our total net
revenues in fiscal 1999 and 19% of our total net revenues for the three months
ended September 30, 1999. License revenues accounted for 3% of our total net
revenues in fiscal 1997, 14% of our total net revenues in fiscal 1998, 13% of
our total net revenues in fiscal 1999 and 15% of our total net revenues for
the three months ended September 30, 1999.
We launched our websites in Canada in fiscal 1997, in the United Kingdom
in fiscal 1999 and in Germany in fiscal 2000. Revenues from our international
websites amounted to less than 2% of our total net revenues in fiscal 1999 and
increased to 4% of our total net revenues for the three months ended
25
<PAGE>
September 30, 1999. As a result of increased activity from these websites and
future websites in other markets we may enter, we expect international
revenues to continue to increase.
Cost of revenues consists primarily of fees paid to our fulfillment
vendors for the costs associated with issuing airline tickets and related
customer services, fees paid to Worldspan for use of their computer
reservation and information services system, allocated and direct costs for
the operation of our data center and costs related to insertion of banner and
other advertisements.
Our direct product development expenses consist primarily of compensation
for personnel. Our direct sales and marketing expenses consist primarily of
personnel-related costs as well as advertising, distribution and public
relations expenses. In addition to these direct expenses, we have historically
been allocated certain product development, sales and marketing and general
and administrative costs from Microsoft. These costs include allocations for
real estate, legal, treasury, human resources, information technology and
other general services. These allocations were not materially different from
the costs that we would have incurred as a stand-alone entity.
In conjunction with this offering, we will enter into a services agreement
with Microsoft. Accordingly, we will no longer be allocated costs from
Microsoft. Under the services agreement, Microsoft will continue to provide us
with the types of services described above. In return, we will pay Microsoft
fees based on the total cost of the services. The services agreement is for an
initial period ending December 31, 2000 with one-year renewals if the parties
agree on fees. The agreement is cancelable by us upon 30 days written notice
and by Microsoft upon 180 days written notice. Following this offering we
intend to develop our own resources in these areas over time.
All permanent Microsoft employees who transfer to Expedia prior to this
offering will cancel their unvested options to purchase Microsoft common stock
and concurrently receive new options to acquire Expedia's common stock. The
number of Expedia options which will replace each Microsoft option will depend
on the offering price of the Expedia common stock and the market price of the
Microsoft common stock on the date of the offering, which will also be the
date on which Expedia issues the options. The Expedia options will have
equivalent vesting schedules, in-the-money value and comparable other terms as
the canceled Microsoft options. For example, if an employee has 1,000 unvested
Microsoft options which have an exercise price of $40 per share, and if the
Microsoft stock price is $100 per share and the Expedia offering price is $10
per share, then the employee's Microsoft options would convert to 10,000
Expedia options ((100/10) x 1000) with an exercise price of $4 per share
(40/(100/10)). This issuance of Expedia options will be treated as a new grant
of stock options. As a result we will incur a non-cash charge because the
exercise price of the new options will be significantly less than the initial
public offering price of our common stock. The amount of the charge will
depend on the market price of Microsoft common stock as referred to above. We
estimate that the charge will be in the range of $100 million to $150 million.
This non-cash charge will be amortized over the vesting period of the Expedia
options, generally between one and 54 months.
We have incurred and expect to continue to incur substantial losses and
negative cash flows on both an annual and interim basis. In particular, we
intend to increase our focus and spending on brand development, sales and
marketing, product development, website content and strategic relationships.
Additionally, our revenues are impacted by the seasonality of the travel
industry, particularly leisure travel. These factors could adversely affect
our future financial condition and operating results.
Our fiscal years end on June 30 of each year. References to a fiscal year,
such as fiscal 1999, are to the twelve months ended June 30 of that year.
26
<PAGE>
Results of Operations
The following table sets forth our results of operations as a percentage
of net revenues.
<TABLE>
<CAPTION>
As a Percentage of Net Revenues
-----------------------------------------
Years ended Three months
June 30, ended Sept. 30,
-------------------- ------------------
1997 1998 1999 1998 1999
------ ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100% 100% 100% 100% 100%
------ ---- --- ------- -------
Cost of revenues................... 120 70 41 52 35
------ ---- --- ------- -------
Gross profit (loss)................ (20) 30 59 48 65
Operating expenses:
Product development.............. 591 134 55 82 35
Sales and marketing.............. 322 78 38 34 44
General and administrative....... 122 31 16 18 18
------ ---- --- ------- -------
Total operating expenses....... 1,035 243 109 134 97
Loss from operations............... (1,055) (213) (51) (86) (32)
Provision for income taxes......... -- -- -- -- --
------ ---- --- ------- -------
Net loss........................... (1,055)% (213)% (51)% (86)% (32)%
====== ==== === ======= =======
</TABLE>
Three months ended September 30, 1998 and 1999
Net Revenues. Our net revenues increased 152% from $6.1 million in the
three months ended September 30, 1998 to $15.3 million in the three months
ended September 30, 1999. Approximately $5.9 million of the increase in net
revenues was due to increases in commissions and related revenues. This
increase was primarily attributable to an increase in the number of airline-
related transactions partially offset by a decrease in certain air ticket
commission rates. Increased advertising revenues accounted for approximately
$2.1 million of the increase in net revenues. The increase in advertising
revenues was due to new advertising contracts entered into in fiscal 1999.
Cost of Revenues. Cost of revenues increased 69% from $3.2 million the
three months ended September 30, 1998 to $5.4 million in the three months
ended September 30, 1999. As a percentage of net revenues, our cost of
revenues decreased from 52% in the three months ended September 30, 1998 to
35% in the three months ended September 30, 1999. This decrease was due to
efficiencies associated with an increased transaction volume, the allocation
of fixed costs, such as operation of our data center, over a larger revenue
base and the growth in higher margin advertising revenues.
Product Development. Product development costs increased 8% from $5.0
million in the three months ended September 30, 1998 to $5.4 million in the
three months ended September 30, 1999. This increase resulted from an increase
in personnel related costs as compared to the year-earlier quarter. Product
development costs as a percentage of net revenues decreased from 82% in the
three months ended September 30, 1998 to 35% in the three months ended
September 30, 1999, primarily due to an increase in our revenue base.
Sales and Marketing. Sales and marketing costs increased 227% from $2.1
million in the three months ended September 30, 1998 to $6.7 million in the
three months ended September 30, 1999. Sales and marketing costs as a
percentage of net revenues increased from 34% in the three months ended
27
<PAGE>
September 30, 1998 to 44% in the three months ended September 30, 1999. This
increase was primarily attributable to increased promotional activities
intended to drive traffic to our websites, such as radio and paper media
advertising.
General and Administrative. General and administrative costs increased
160% from $1.1 million in the three months ended September 30, 1998 to $2.7
million in the three months ended September 30, 1999. The increase was
primarily due to an increase of $1.1 million of allocated costs from
Microsoft. General and administrative costs as a percentage of net revenues
were 18% in the three months ended September 30, 1998 and the three months
ended September 30, 1999.
Income Taxes. We are included in Microsoft's consolidated returns for
federal income tax purposes. In certain states we will file unitary or
combined tax returns with Microsoft and its subsidiaries. No tax benefits for
our net operating losses have been recognized as we will not be allowed to
utilize such losses generated by us as an operating unit of Microsoft. We have
entered into a tax allocation agreement with Microsoft.
Fiscal 1997, 1998 and 1999
Net Revenues. Our net revenues increased 404% from $2.7 million in fiscal
1997 to $13.8 million in fiscal 1998 and increased a further 180% to $38.7
million in fiscal 1999. Approximately $7.6 million of the increase in net
revenues from fiscal 1997 to fiscal 1998 and $16.7 million of the increase in
net revenues from fiscal 1998 to fiscal 1999 were due to increases in
commissions and related revenues. These increases were primarily attributable
to increases in the number of airline-related transactions. Increases in
advertising revenues accounted for approximately $1.6 million of the increase
in net revenues from fiscal 1997 to fiscal 1998 and $4.8 million of the
increase in net revenues from fiscal 1998 to fiscal 1999.
Cost of Revenues. Cost of revenues increased 196% from $3.3 million in
fiscal 1997 to $9.7 million in fiscal 1998 and increased a further 65% to
$16.0 million in fiscal 1999. As a percentage of net revenues, our cost of
revenues decreased from 120% in fiscal 1997 to 70% in fiscal 1998 and to 41%
in fiscal 1999. These decreases are due to efficiencies associated with
increased transaction volume, the allocation of fixed costs, such as operation
of our data center, over a larger revenue base and growth in higher margin
advertising revenues.
In September 1999, we introduced the Hotel Price Matcher reservation
service. As the merchant of record for transactions through our Hotel Price
Matcher service, we will record the entire value of these transactions as
revenues rather than only the commission amount. Likewise, we will record as
cost of revenues the entire cost of the transaction. As such, the gross margin
percentage that we derive from Hotel Price Matcher transactions will be lower
than our recent historical gross margin percentage.
Product Development. Product development costs increased 14% from $16.2
million in fiscal 1997 to $18.5 million in fiscal 1998 and increased a further
14% to $21.2 million in fiscal 1999. The increase in product development costs
from fiscal 1997 to fiscal 1998 resulted primarily from an increase in
personnel and consultant costs of $3.7 million offset by a decrease in product
development allocations from Microsoft of $1.7 million. The increase in
product development costs from fiscal 1998 to fiscal 1999 resulted primarily
from an increase in product development allocations from Microsoft of $2.5
million. Product development costs as a percentage of net revenues decreased
from 591% in fiscal 1997 to 134% in fiscal 1998 and to 55% in fiscal 1999,
primarily due to increases in our revenue base in the
28
<PAGE>
applicable periods. We believe our product development efforts are critical to
the success of our strategic objectives, and accordingly, we expect to
increase the absolute dollar amount of product development expenditures in
future periods.
Sales and Marketing. Sales and marketing costs increased 23% from $8.8
million in fiscal 1997 to $10.8 million in fiscal 1998 and increased a further
38% to $14.9 million in fiscal 1999. The increase in sales and marketing costs
from fiscal 1997 to fiscal 1998 resulted primarily from an increase in
personnel and consultant costs of $1.4 million. The increase from fiscal 1998
to fiscal 1999 was attributable to a $4.8 million increase in the cost of
direct promotional activities intended to drive traffic to Expedia.com, and to
establish, enhance and maintain the Expedia brand, partially offset by a
decrease in marketing and advertising allocations from Microsoft of $0.5
million. Sales and marketing costs as a percentage of net revenues decreased
from 322% in fiscal 1997 to 78% in fiscal 1998 and to 38% in fiscal 1999,
primarily due to increases in our revenue base in the applicable periods. We
believe that establishing, maintaining and enhancing the Expedia brand is a
critical aspect of our efforts to attract and expand online traffic.
Accordingly, we expect to launch a significant advertising campaign in fiscal
2000 and to extend the national coverage of our advertising sales force, both
of which will increase substantially the amount we spend on sales and
marketing in future periods.
General and Administrative. General and administrative costs increased 28%
from $3.4 million in fiscal 1997 to $4.3 million in fiscal 1998 and increased
a further 47% to $6.3 million in fiscal 1999. These increases primarily relate
to increases in general and administrative cost allocations from Microsoft as
we expanded our operations. As a percentage of net revenues, general and
administrative costs decreased from 122% in fiscal 1997 to 31% in fiscal 1998
and to 16% in fiscal 1999 as a result of increases in our revenue base. We may
incur additional general and administrative expenses in future periods as we
transition from being an operating unit of Microsoft to a stand-alone public
company.
29
<PAGE>
Quarterly Unaudited Results of Operations
The following table sets forth our unaudited quarterly results of
operations, in dollars and as a percentage of net revenues, for the periods
presented.
We have prepared this unaudited information on the same basis as the
audited financial statements. This information includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary
for a fair presentation of our financial position and operating results for
the quarters presented. The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future
period and you should not rely on them as such.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30
1998 1998 1999 1999 1999
-------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues............... $ 6,057 $ 7,851 $11,219 $13,572 $15,268
Cost of revenues........... 3,177 4,132 3,983 4,658 5,364
------- ------- ------- ------- -------
Gross profit............... 2,880 3,719 7,236 8,914 9,904
Operating expenses:
Product development...... 4,977 5,083 5,254 5,866 5,393
Sales and marketing...... 2,060 2,516 3,119 7,193 6,732
General administrative... 1,050 1,568 1,571 2,094 2,729
------- ------- ------- ------- -------
Total operating
expenses............... 8,087 9,167 9,944 15,153 14,854
------- ------- ------- ------- -------
Loss before income taxes... (5,207) (5,448) (2,708) (6,239) (4,950)
Provision for income
taxes..................... -- -- -- -- --
------- ------- ------- ------- -------
Net loss................... $(5,207) $(5,448) $(2,708) $(6,239) $(4,950)
======= ======= ======= ======= =======
<CAPTION>
As a Percentage of Net Revenues
---------------------------------------------------
Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30,
1998 1998 1999 1999 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues............... 100% 100% 100% 100% 100%
Cost of revenues........... 52 52 35 34 35
------- ------- ------- ------- -------
Gross profit............... 48 48 65 66 65
Operating expenses:
Product development...... 82 65 47 43 35
Sales and marketing...... 34 32 28 53 44
General administrative... 18 20 14 16 18
------- ------- ------- ------- -------
Total operating
expenses............... 134 117 89 112 97
------- ------- ------- ------- -------
Loss before income taxes... (86) (69) (24) (46) (32)
Provision for income
taxes..................... -- -- -- -- --
------- ------- ------- ------- -------
Net loss................... (86)% (69)% (24)% (46)% (32)%
======= ======= ======= ======= =======
</TABLE>
Net Revenues. Our net revenues increased sequentially in each quarter
during fiscal 1999 and the first quarter of fiscal 2000, primarily due to
increases in airline transaction and advertising revenues. Advertising
revenues increased as a percentage of total net revenues from 14% in the first
quarter to 19% in the first quarter of fiscal 2000.
30
<PAGE>
Cost of Revenues. Cost of revenues generally increased in absolute dollars
and decreased as a percentage of net revenues in each quarter of fiscal 1999
and in the first quarter of fiscal 2000, as a result of efficiencies
associated with increased transaction volume, the allocation of fixed costs
over a larger revenue base and growth in higher margin advertising revenues.
The decrease in cost of revenues from December 31, 1998 to March 31, 1999 and
the corresponding increase in gross profit as a percentage of net revenues are
due primarily to a decreases in data center costs allocated from Microsoft and
in per unit airline ticket fulfillment costs.
Operating Expenses. Operating expenses increased in absolute dollars in
each quarter of fiscal 1999 as we continued to increase our product
development and sales and marketing activities. Operating expenses as a
percentage of net revenues decreased in the first three quarters of fiscal
1999, primarily due to our increasing revenue base over prior quarters. The
increase in operating expenses during the fourth quarter of fiscal 1999 and
the first quarter of fiscal 2000 resulted from increased sales and marketing
expenses primarily attributable to product marketing promotions.
Liquidity and Capital Resources
Historically, we have financed our activities exclusively through
contributions from Microsoft. Although we have been an operating unit of
Microsoft in the past, and Microsoft has made a net contribution to our
operations of $91.3 million through September 30, 1999, Microsoft will not
continue to be a source of liquidity for us following this offering. We had an
accumulated deficit of $91.7 million at September 30, 1999. We anticipate that
our liquidity needs over the next twelve months will be met with proceeds
generated from this offering. We do not have a credit facility and are not
currently negotiating with any party to obtain a credit facility.
Net cash used in operations of $27.1 million in fiscal 1997, $29.5 million
in fiscal 1998, $17.4 million in fiscal 1999 and $5.7 million in the three
months ended September 30, 1999 resulted primarily from net losses of $28.9
million, $29.5 million, $19.6 million and $5.0 million, respectively. Net cash
used in investing activities of $519,000 in fiscal 1997, $631,000 in fiscal
1998, $650,000 in fiscal 1999 and $599,000 in the three months ended September
30, 1999 resulted from capital expenditures on personal computers and servers
that support our online travel operations. At September 30, 1999, we had no
material commitments for capital expenditures, but we expect our capital
expenditures for fiscal 2000 to be approximately $4.0 million.
We have multi-year agreements with certain travel service providers that
make available the services accessed through our websites. Under these
agreements, we pay monthly service fees to the service providers based on the
volume of activity. Additionally, we are party to a cooperative advertising
agreement with one of our airline licensees that requires us to set aside a
portion of the proceeds from transactions to be used for joint advertising
initiatives. These commitments amounted to $87,000 in fiscal 1998 and $245,000
in fiscal 1999.
We are a party to a carriage and cross-promotion agreement with Microsoft
for premium placement of Expedia.com on the Microsoft Network internet site
("MSN"). We are required to make payments of $167,000 per month under this
agreement. We are also party to a services agreement with Microsoft which
requires us to make minimum payments of approximately $365,000 per month. In
addition, we will be obligated to pay additional amounts based on our
headcount and usage of services under the services agreement. These additional
amounts would approximate $450,000 per month based on our headcount of
approximately 150 employees at September 30, 1999. These additional payments
may increase if our headcount increases. Net payments to Microsoft for
operating and allocated expenses have historically been recorded as a
contribution from owner. Following the consummation of this offering, we will
be
31
<PAGE>
required to pay Microsoft for the services received under the services
agreement and begin managing our own working capital. As a result, the levels
of recorded accounts payable and accrued expenses will be higher than those in
the historical financial statements. See "Certain Relationships and Related
Transactions--Our Relationship with Microsoft."
We have never held derivative financial instruments nor had debt
outstanding at any time. Accordingly, we have not been exposed to near-term
adverse changes in interest rates, foreign currency exchange rates or other
market prices. We may however be subject to such adverse changes if we incur
debt or hold derivative financial instruments in the future. Additionally, we
do not expect inflation to have a material effect on our results of
operations.
Year 2000 Issues
In the year 2000, we could encounter system and processing failures of
date-related data because our computer-controlled systems may use two digits
rather than four to define the applicable year. This could result in system
failure or miscalculations. If this were to happen, we would experience
disruptions of our operations including a temporary inability for us to
process reservations on our websites or to engage in similar normal business
activities.
Our operations could also be harmed if the information technology systems
or other systems that we operate or that are operated by third parties are not
year 2000 compliant. We have completed an assessment of our internal and
external information technology and other systems. This assessment included
joint large scale tests with our key service providers, Worldspan and Online
Fulfillment Services. We have also already processed travel reservations for
travel in the year 2000 across many hundreds of different travel suppliers.
Based on the results of our assessment, we are not aware of any year 2000
problems relating to our systems or third parties' systems that would have a
material effect on our business, results of operations or financial condition.
We are aware of one issue that could have a material effect on our corporate
travel booking product, which is scheduled to be corrected by the end of
November 1999.
We anticipate that costs associated with fixing any information technology
or other systems will not exceed $100,000. To date, our costs for assessing,
remediating and developing a remediation plan relating to year 2000 issues
have not been significant. We do not currently expect that our financial
condition or results of operations will be adversely affected by the year 2000
issue. However, our financial condition or results of operations could be
adversely affected if:
. our systems are not converted in a timely manner
. the systems of other companies on which our systems rely are not
converted in a timely manner
. other companies do not convert their systems at all or in a manner
compatible with our systems
If our assessment is finalized and there are no additional material
systems we operate or that are operated by third parties that are found to be
non-compliant, the worst case year 2000 scenario is a systemic failure beyond
our control. This failure could include a prolonged telecommunications,
Internet or electrical failure. Such a failure could affect our business by:
. preventing us from operating our business
. preventing users from accessing our websites
. changing the behavior of advertising customers or persons accessing
our websites
32
<PAGE>
If such a failure were to happen, we believe that the primary business
risks would include any or all of the following:
. lost sales
. increased operating costs
. loss of customers or persons accessing our websites
. business interruptions of a material nature
. claims of mismanagement, misrepresentation or breach of contract
Any of the above business risks could have a material adverse effect on
our business, results of operations and financial condition. We do not intend
to create a contingency plan to address such risks.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 will be effective for fiscal 2000. SOP 98-1 provides
guidance on accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. We will begin capitalizing these costs in fiscal
2000 although we do not expect them to be material.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 is effective for fiscal 2000. This SOP provides
guidance on the financial reporting of start-up costs and organization costs.
It requires the costs of start-up activities and organization costs to be
expensed as incurred. We were incorporated in fiscal 2000 and our organization
costs were expensed as incurred.
33
<PAGE>
BUSINESS
Business Overview
We are a leading provider of branded online travel services for leisure
and small business travelers. We operate our own website, located at
Expedia.com, with localized versions in the United Kingdom, Germany and
Canada. We offer one-stop travel shopping and reservation services, providing
reliable, real-time access to schedule, pricing and availability information
for over 450 airlines, 40,000 hotels and all major car rental companies. Our
websites' consumer-oriented interfaces enable consumers to make informed
choices about their travel purchases by providing quick and easy access to
travel information and content, 24 hours a day, 7 days a week.
Our global travel marketplace enables travel service suppliers to extend
their marketing reach online. Through our websites, suppliers can reach a
large, global audience of consumers who are actively engaged in planning and
purchasing travel. Suppliers can pursue a range of innovative, targeted
merchandising and advertising strategies designed to increase revenues, while
at the same time reducing transaction and customer service costs. We also
license components of our technology and editorial content to selected
airlines and American Express as a platform for their websites.
Since launching our online travel service in October 1996, we have
experienced significant growth in our traffic and the amount of travel
purchased through our websites. As of September 30, 1999, over $790 million in
airline ticket purchases and hotel and car rental reservations had been made
through our websites by over 930,000 customers and 7.5 million users had
registered on our websites. In addition, as of September 30, 1999, over $500
million in airline ticket purchases and hotel and car rental reservations had
been made through the websites of our licensees by over 470,000 customers and
5.5 million users had registered on the websites of our licensees.
Industry Background
Growth of the Internet and Online Commerce
The Internet is dramatically changing the way that consumers and
businesses communicate, share information and buy and sell goods and services.
The Internet's broadly distributed and easily accessible environment creates
the ideal foundation for new online marketplaces, which provide increased
search efficiency, comprehensive information and competitive pricing. In an
online environment, consumers have access to information and software tools
that enable them to evaluate and compare product and service offerings,
community forums within which to discuss relevant experiences and preferences
and tools to complete e-commerce transactions. In addition, suppliers can
extend their online marketing reach to a larger base of potential customers
and can efficiently target those customers who are most likely to buy their
products and services. The Internet brings efficiencies to markets
characterized by the presence of large numbers of geographically dispersed
buyers and sellers and purchase decisions involving large amounts of
information from multiple sources. We believe that the worldwide travel
industry, which exemplifies these characteristics, is especially well-suited
to benefit from increased Internet and e-commerce adoption.
The Worldwide Travel Industry
The travel industry is very large in terms of both dollars spent and
number of participants. According to the United States Department of
Transportation, there will be over 700 million air passengers worldwide in
1999, rising to one billion air passengers in 2010. The World Travel and
Tourism Council estimates that spending on travel and tourism worldwide will
reach $3.7 trillion in 1999, growing to $7.5 trillion in 2010. According to
the World Travel and Tourism Council, approximately 72% of the revenues in
this market are attributable to personal travel and tourism.
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Consumers planning and purchasing a trip generally engage in a predictable
process that begins with consideration of destinations, dates and budgets and
progresses to a series of purchase decisions involving transportation,
accommodations and destination activities. This planning and purchasing
process is inefficient due in large part to the limitations of the
infrastructure of the traditional worldwide travel industry, which causes
consumers to spend a significant amount of time piecing together the
information they need to plan and purchase a trip. One critical reason for
this inefficiency is the absence of a central source of comprehensive travel
information that addresses all stages of the planning process and incorporates
a reliable and secure purchasing process. As a result, consumers, especially
to the extent they are price sensitive, frequently consult multiple sources,
such as guidebooks, magazines, travel agents, friends, co-workers and
disparate travel suppliers, to shop for each element of their trip.
Travel suppliers located around the world compete for business from travel
consumers. This supplier community includes hundreds of airlines, thousands of
hotels, dozens of car rental companies, numerous vacation packagers and cruise
lines and hundreds of thousands of destination services merchants such as
restaurants, attractions, and local transportation and tour providers. These
suppliers spend substantial amounts of money to reach and attract potential
purchasers. For example, according to the Air Transport Association, the
combined revenue of United States airlines in 1997 was $109 billion, and the
airlines spent an average of 13% of total revenues on promotions and sales
expenses. The fragmented nature of the global consumer travel market makes it
difficult and inefficient for suppliers to target those consumers with the
greatest propensity to purchase travel services. Traditional advertising
channels, such as print, television and radio, do not eliminate inefficiency
because only a limited portion of any traditional advertising audience is
planning a trip at the time the advertisement is run.
Consumers and suppliers have traditionally relied on travel agents as
intermediaries. However, traditional travel agents are often unable to reduce
the inefficiencies of the travel market. We believe that many traditional
travel agents cannot provide consumers with a reliable, personalized source
for comprehensive travel information. Although traditional travel agents
generally have access to comprehensive information on the availability and
pricing of airline seats through computer reservations systems such as
Worldspan, Sabre and Apollo, time and resource constraints frequently make it
difficult for travel agents to provide consumers with the full set of options
available in a given computerized reservation system. Furthermore, due to
budgetary or time constraints, traditional travel agents often have limited
access to other sources of travel information such as consumer ratings,
editorial content or information about destination services. In addition,
productivity demands often restrict the amount of time traditional travel
agents can spend with any single customer to learn about preferences and
tailor recommendations. As a result, many consumers hesitate to rely solely on
traditional travel agents and consult multiple sources to plan and purchase
trips.
The traditional travel agency channel also does not provide suppliers with
an efficient distribution network. Computerized reservation systems are
effective in maintaining information about travel inventory, such as airline
seats or rental cars, that does not require extensive description. However,
these databases are not well-suited to maintaining detailed information about
travel inventory such as resorts, cruises and vacation packages that is
difficult to understand and sell in the absence of more descriptive editorial
or visual material. In addition, it is difficult and inefficient for suppliers
to use traditional travel agents as a distribution channel because the travel
agency market is fragmented and the cost of training and servicing travel
agents is high.
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Our Opportunity
The emergence of the Internet provides new opportunities for travelers and
suppliers to find one another. Travel has already become the largest online
retail category with users making an estimated $7.8 billion in airline ticket
purchases and hotel and car rental reservations through travel websites in
1999, growing to $32 billion in 2004, according to Forrester Research. Travel
suppliers are beginning to sell their inventory directly from their websites,
and third-party providers of travel services have emerged online. Some of
these third parties attempt to replicate the traditional travel agency
experience on the Internet, some focus on providing travel-related content and
others offer a less comprehensive travel service as a part of a larger e-
commerce effort. Each of these solutions is incomplete because it does not
address fundamental consumer requirements for comprehensive information and
reliable service integrated with a secure and efficient means to complete a
purchase.
A significant opportunity exists for a new online global travel
marketplace that brings consumers and travel suppliers together, enables
consumers to find and act more easily upon a diverse selection of travel
information and enables suppliers to market and distribute their products and
services more efficiently. To be successful, this new travel marketplace must
offer consumers a blend of content, community, commerce and customer service,
delivered in a highly reliable and personalized manner. It must scale to
accommodate growth in users and it must be international in scope and
localized by region, creating a new and efficient channel for local and global
travel suppliers to reach consumers who are actively engaged in travel
planning and purchasing.
Our Solution
We have created a leading online marketplace for researching, buying and
selling travel-related services. Our Internet-based travel marketplace offers
consumers a convenient, comprehensive and personalized source of travel
information and services and satisfies the needs of a broad range of travel
suppliers to market and sell their services cost-effectively to a large,
global audience that is actively engaged in planning and purchasing travel
services. We have built an underlying technology infrastructure that enables
buyers and sellers to transact in a reliable, scalable and secure environment.
Leading Travel Services Marketplace
Expedia.com, our travel website aimed at the United States consumer
market, brings together a large base of consumers and travel suppliers.
According to Media Metrix, Expedia.com was the #1 most visited Internet travel
site in each month from April 1999 through September 1999, and in September
attracted approximately 4.1 million unique visitors. On our websites, we
feature the services of more than 450 airlines, 40,000 hotels and all major
car rental companies. We also offer consumers access to dozens of vacation and
cruise suppliers and to an increasing number of local destination services
providers. In the fiscal quarter ended September 30, 1999, approximately $193
million in airline ticket purchases and hotel and car rental reservations were
made through our websites. In addition, for the fiscal quarter ended September
30, 1999, approximately $129 million in airline ticket purchases and hotel and
car rental reservations were made through the websites of our licensees.
Compelling Value for Consumers
We believe that consumers value Expedia services because we provide the
control, flexibility and access to information necessary for them to identify
competitive prices for a wide range of travel options, to evaluate and
purchase travel-related services at any time of day or night and to enhance
the travel planning experience with high-quality editorial content. Our travel
marketplace is also designed to be
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more convenient, comprehensive and personalized and delivers a higher quality
of service than alternative travel planning and purchase methods. Expedia.com
and our localized international websites offer a unique blend of content,
community, commerce and customer service, enabling consumers to easily
identify, evaluate and purchase travel services in a single location and a
secure, reliable transactional environment.
Compelling Value for Travel Suppliers
Recognizing the limitations of traditional travel solutions for suppliers,
we have worked with our suppliers to design our websites to address their
specific needs on both a local and multinational basis. Through our websites,
suppliers worldwide can reach a large audience of consumers who are actively
engaged in planning and purchasing travel. Suppliers can pursue a range of
innovative, targeted merchandising and advertising strategies designed to
increase revenues while at the same time reducing transaction and customer
service costs. Suppliers can also use remote inventory management tools
located on our ExpediaPartners.com website, to introduce new products,
services and promotions quickly and easily. In addition, we are creating an
aggregated, secure database of customer purchase and shopping patterns that
will allow suppliers to offer more tailored services through our marketplace
while preserving consumer privacy.
Global Reach and Presence
We designed our travel marketplace to be global. Localized versions of our
websites accommodate not only differences in language and culture, but also
differences in travel purchase behavior and supplier inventory preferences.
These localized websites, such as Expedia.co.uk in the United Kingdom and
Expedia.de in Germany, are designed to replicate Expedia.com's success in
addressing the needs of both consumers and suppliers in the United States
market. For example, because negotiated fares are important to consumers in
the United Kingdom, we developed a custom airfare pricing engine that allows
us to offer unique integration of negotiated fares with published fares in a
single display.
Reliable, Secure and Scalable Technology Platform
We have designed our platform to provide a high level of reliability,
security and scalability. Our multi-layered platform design allows us to
deliver a high-performance website capable of managing high transaction
volumes and ensuring reliable access for our customers and suppliers. We also
offer advanced security features, maintain excess capacity to handle peak
traffic loads in the rapidly expanding online travel market and have built
dedicated distributed storage for critical data such as customer profile
information. Our technology leadership and the scalability of our platform
have enabled us to generate revenue by licensing core parts of our platform to
Continental Airlines, Northwest Airlines and American Express.
Superior Business Model
We have created a multi-dimensional business model, which we believe has
several advantages relative to traditional and other online travel vendors.
Because our marketplace is Internet-based, we are able to support substantial
growth in transactions with a smaller staff than required by a traditional
travel agency experiencing similar growth and without a large network of
physical retail outlets. We also have a more diversified stream of revenues
than our principle online competitors. Our revenues come from transactions,
advertising and licensing, creating multiple growth opportunities.
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Strategy
Our objective is to enhance our position as a leading online global travel
marketplace. The key elements of our strategy are as follows:
Increase Brand Awareness
We plan to increase brand awareness among consumers by pursuing an
aggressive brand development strategy. We have not yet pursued a substantial
brand-building campaign and less than 10 percent of our traffic reaches our
websites through our advertisements. To build on this success, we intend to
launch a brand-building campaign that will include a substantial advertising
presence in both online media and traditional media, such as print, radio and
television. We will also continue to offer co-branded promotions with selected
suppliers and to pursue targeted press coverage.
Enhance Supplier Relationships
Investing in and building on strong supplier relationships are crucial to
the success of our business. We will continue to work with suppliers to
develop new advertising and promotional inventory for our websites and new
tools, such as our Vacation and Cruise Wizards, to facilitate suppliers' entry
of pricing, availability and description information directly into our
marketplace. We will also work with suppliers to develop new distribution
channels that address their needs. For example, in September 1999, we launched
our new Hotel Price Matcher service. This service allows hotels in major
markets to fill unsold rooms in a way that minimizes the impact on their
existing rate structures. We have also addressed supplier needs specific to
our international websites, such as specific supplier offers on our Holiday
Shop section of our United Kingdom website. In addition, to extend our share
of the emerging online advertising market, we are establishing a dedicated
media advertising sales force to service the United States and international
markets to raise our worldwide profile in the advertising and travel
industries.
Enhance Technology Platform and Product Functionality
We plan to continue to enhance the underlying infrastructure and
functionality of our websites.
. Scalability, Security and Reliability. We have invested heavily in
core infrastructure with the objective of eliminating downtime on our
websites. The operation of our own websites and those of our licensees
has given us extensive experience at handling rapid increases in
transaction volumes. We are also planning to move certain mission-
critical processing activity from the mainframes of computerized
reservation systems to more flexible and cost-effective servers based
on the Windows NT platform.
. Feature Differentiation. We will continuously update new software
features and editorial content to our websites. We believe increasing
the level of personalization in our marketplace is critical to
providing a rich consumer experience and more efficient and targeted
merchandising and advertising opportunities for suppliers. We will
also continue to develop features that meet the needs of specific
market segments, such as small business travelers. We are improving
the accessibility of our websites through various Internet access
channels, such as wireless hand-held devices, and are providing
multimedia applications.
Expand Internationally
We operate localized websites in the United Kingdom, Germany and Canada.
We selected these countries due to their large travel markets and the rapid
growth of online commerce in these markets. According to the World Travel and
Tourism Council, spending on travel and tourism is expected to be $209 billion
in the United Kingdom, $301 billion in Germany and $111 billion in Canada in
1999, rising
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to $380 billion in the United Kingdom, $557 billion in Germany and $212
billion in Canada in 2010. We plan to extend our international presence by
entering other important travel markets, after evaluating both the size of the
local travel market and the popularity of online commerce. Potential markets
for expansion include other major European markets, Japan and other Far
Eastern markets. In developing customized websites in these and other
international markets, we will continue to draw on our experience in the
United States with technology, user interface and supplier relationships while
tailoring our international websites to specific characteristics of each local
marketplace.
Broaden our Marketplace Into New Travel Services Categories
We plan to expand our travel service offerings to include more complex
travel products and destination service offerings. Currently, the majority of
our transaction revenues are derived from sales of airline tickets, with a
smaller percentage represented by hotel reservations and car rentals. We plan
to extend our offerings in each of these core segments and expand the range of
offerings into other segments. For example, we intend to enable online booking
for cruises and vacation packages, including proprietary vacation packages.
Other new travel services categories may include offering additional price
matching features, retailing travel-related goods such as luggage and
accessories, selling travel insurance and entering into strategic
relationships with third-party providers of ground transportation, tours and
similar services.
Our Websites
Expedia.com
Through our Expedia.com website, customers can easily access the wide
selection of our online travel services to shop for and book airline tickets,
car rentals and hotel reservations, and to search and book the offerings of
selected vacation packagers, cruise lines, specialty lodging providers and
travel-related retailers.
For consumers engaging in travel planning, we feature extensive editorial
content covering over 350 popular destinations, travel advice and
recommendations from acknowledged industry experts, feature articles on
specific destinations and specialty travel sections geared to the needs of
specific groups such as families and business travelers. Consumers looking for
advice from fellow travelers can take advantage of extensive community
interaction, including bulletin boards and chat rooms. To accommodate the
needs of consumers who are searching for price and availability information,
we complement our core flight, hotel and car rental shopping and purchase
functionality with a number of powerful comparison shopping tools. After
building a specific itinerary, customers can complete the purchase of airline
tickets, hotel rooms or car rentals by entering credit card and address
information. Customers instantly receive email confirmation of the purchase
and are directed via links on our website to explore relevant destination
information and take advantage of our proprietary Expedia Maps. We also
provide a twenty-four hour toll-free customer service center that customers
can call for assistance.
Using our websites, consumers and suppliers engage in a heavy volume of
transactions across multiple systems and networks. We rely on third-party
computer systems and third-party service providers, including the computerized
central reservation systems of the airline, hotel and car rental industries.
The nature and size of the reservation process require frequent expansion of
our operations, and upgrades of our systems and infrastructure in order to
deal with the increasing number of customers and travel suppliers. Upgrades
are also required to enable the enhanced features and functionality which we
need to compete in our industry. The complexity of these processes and the
multiple parties involved result inevitably in our customers and suppliers
occasionally encountering problems in accessing or distributing information
through our marketplace or in completing transactions.
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Commerce
The core Expedia.com feature set provides consumers with access to
purchase information such as reliable price comparisons, availability and
itinerary details, an integrated purchase path and post-purchase confirmation.
. Flight, Hotel and Car Wizards. Consumers can search for and
compare airline, rental car and hotel room pricing and
availability information and can also purchase tickets, make
reservations and obtain additional information on hotels in our
hotel directory.
. Vacation and Cruise Wizards. These tools search a proprietary
database of vacation and cruise packages. The content of this
database is regularly updated by suppliers using the inventory
management tools offered on ExpediaPartners.com.
. Hotel Price Matcher. This shopping tool offers consumers the
ability to request specific prices for hotel rooms in popular
cities, such as New York, San Francisco and Las Vegas. We search
our proprietary database of negotiated hotel rates for available
rooms that can fulfill consumer requests.
. Fare Tracker. This service enables subscribers to specify three
routes and receive updates on special fares and offers via weekly
email as well as via a personalized summary on our website. As of
September 30, 1999, we had over 3.9 million Fare Tracker
subscribers.
. My Travel. This personalization feature enables consumers to
define a personal travel page which provides easy access to
existing travel itineraries and personal profiles. My Travel
encourages consumers to return to Expedia.com and build an ongoing
customer relationship.
. Mileage Miner. Working with a third-party partner, Expedia.com
helps consumers manage their frequent flyer programs online.
Content
Consumers can use our editorial content extensively at the beginning of
the travel planning and purchase process for researching destinations and
travel tips. Consumers can also use content more extensively after they have
purchased travel as a way to gain more insight before their trip begins. Some
examples of content include:
. World Guide. Expedia.com offers consumers a library of destination
information on over 350 popular destinations around the world,
based on content purchased from the publishers of the Fieldings
and Moon guidebook series and updated by the Expedia.com editorial
staff.
. Expedia Maps. We maintain a proprietary database of street maps of
the United States and highway maps for the rest of the world that
we offer as stand-alone applications and that we integrate with
other features such as the Hotel Wizard.
. Specialty Travel Sections. Expedia.com has recently launched two
new editorial sections that target families and business
travelers. We intend to launch new editorial sections that target
other consumer groups in response to perceived consumer and
advertiser demand.
. Travel Features. We provide travel content that uses multimedia
technologies such as 360-degree photography and video clips. We
also offer editorial features on travel destinations and other
special interest travel topics.
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. Travel News. We provide regularly updated information on fare
sales, changing travel conditions and specific weather and
security advisories.
. Flight Information. Consumers can use this feature to check the
expected arrival times of flights in progress.
. Directory of Web Links. To extend our own travel research tools,
we offer consumers a selection of links to useful travel-related
and destination-related websites.
. Expedia Radio. We work with a licensee that produces a travel-
related radio show, Expedia Radio, that is broadcast in 40 markets
in the United States. Expedia.com visitors can play Expedia Radio
audio content from our website.
. Search. Our proprietary search engine allows consumers to generate
a quick list of information relating to a particular destination
or travel theme, such as Hawaii or scuba diving.
Community
Because one of the best resources for travel recommendations is other
travelers, we have developed features to encourage a sense of community among
the four million consumers who visit Expedia.com in a typical month. Some
examples of our community services are as follows:
. Fare Compare. This benchmarking feature allows consumers to review
airfares that other Expedia.com consumers have found on particular
routes.
. Chat Rooms. Expedia.com visitors can communicate directly with one
another in chat rooms maintained by Microsoft through MSN.com.
. Bulletin Boards. Travelers can post their questions and answers on
bulletin boards maintained by Microsoft through MSN.com and
moderated by travel experts on contract to Expedia.com.
. From Experience. This section of our website contains feedback
from travelers organized according to destination.
Customer Service
We strive to provide superior service to our customers to enhance their
experience and to assist them with travel plans.
. Telephone and Email Service Center. Expedia contracts with Online
Fulfillment Services to provide toll-free 24-hour telephone and
email customer service. Over 200 trained travel agents and service
personnel staff the customer service center.
Supplier Functionality
We offer an array of functionality to address the specific needs of our
travel suppliers.
. Promotional and Advertising Inventory. We provide advertising
banners and other placements throughout the website. Suppliers
participating in the Expedia Travel Network have access to a wide
variety of promotional opportunities, including front-page
placement, travel category targeting, inclusion in our Special
Deals database and access to our Vacation and Cruise Wizard
database.
. Inventory Management Tools. We enable selected suppliers to upload
information related to vacation and cruise packages into a
proprietary database maintained at ExpediaPartners.com. This
inventory is then available on our website.
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. Email Promotions. We work with suppliers to tailor email-based
promotions for selected segments of our customer base.
International Websites
We offer localized websites in the United Kingdom, Germany and Canada.
Expedia.co.uk
In the United Kingdom, we operate a leading online travel service at
Expedia.co.uk. This marketplace offers a number of features customized to the
needs of consumers and suppliers in the United Kingdom, such as:
. Negotiated Fares. We offer fares negotiated with airlines by MTG
Limited UK (Thomas Cook) and integrate both negotiated and
published fares in a single display.
. Holiday Shop. This service allows customers in the United Kingdom
to browse vacation package offerings leaving from the United
Kingdom.
. Localized Customer Service. Expedia.co.uk customer service is
provided by MTG Limited UK (Thomas Cook) in the United Kingdom and
is tailored to the needs of United Kingdom travelers.
. Localized Editorial Content. The editorial advice and feature
articles offered on the United Kingdom website are developed with
a British point of view. Though we use content developed for the
United States market where appropriate, our goal is to offer a
local product to the United Kingdom travel market.
. United Kingdom Strategic Relationships. We have developed
strategic relationships in the United Kingdom with British
Airways, MTG Limited UK (Thomas Cook) and the local service of
AOL, among others. These relationships enable us to expand our
localization features such as negotiated fares, provide local
editorial content and extend our regional distribution channels.
. Travel Insurance. We offer travelers the ability to purchase
travel insurance in the United Kingdom through our website.
Expedia.de
In Germany, we recently launched a new website at Expedia.de. In addition
to relevant language and currency changes, other features on our website
include:
. Package Tours Database. Because package tours are a popular
vacation purchase in Germany, we provide customers with an
interface to a third-party database of packaged tour inventory.
. Negotiated Fares. We offer fares negotiated with airlines by
Deutsches Reiseburo and integrate negotiated and published fares
in a single display on our website.
. Localized Customer Service. Expedia.de customer service is
provided by Deutsches Reiseburo in Germany and is tailored to the
needs of German travelers.
. Localized Editorial Content. The editorial advice and feature
articles offered on Expedia.de are developed with a German point
of view. Therefore, most of our feature articles and editorials
are not translations of articles that run on Expedia.com but
instead are original German articles.
. German Strategic Relationships. We have developed strategic
relationships in Germany with Lufthansa, Touristik Union
International and Deutsches Reiseburo, among others.
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. Travel Insurance. We offer travelers the ability to purchase
travel insurance in Germany through our website.
Expedia.ca
In Canada, we operate Expedia.ca, which is similar to Expedia.com, with
localized currency and date formats. This website offers a number of features
to address the needs of the Canadian marketplace, including localized customer
service.
Licensing of Expedia Products
We license components of our technology and editorial content to selected
airlines and American Express as a platform for their websites. We may in the
future offer licenses to additional airlines, other travel suppliers and other
corporate travel agencies. Licensing selected components of our technology
allows us to participate in online bookings whether they are placed through
airline websites and corporate travel agencies or on our websites.
Licensing of Travel Website Technology to Airlines
Our current airline licensees include Continental Airlines and Northwest
Airlines. Airlines license technology from us in order to take advantage of
our reliable, scalable infrastructure, to leverage our large development
investment and to avoid the cost of building and maintaining dedicated
internal development and testing teams. We deliver a subset of the features
included on our websites and develop some features specifically to address the
needs of suppliers distributing inventory directly from their own websites.
Some examples of functionality provided to licensees include:
. Core Shopping and Purchasing Technology. Licensees use our technology
to enable shopping and purchasing of airline tickets and making of car
rental and hotel reservations.
. Broad Customization. Licensees are able to control the setting of over
200 parameters to customize their websites.
. Electronic Coupon Redemption. Selected airline licensees have the
ability to redeem coupons electronically.
. Selected Editorial Information. Licensees have access to our World
Guide library of destination information, but not to our daily news
features and other editorial content that is closely identified with
the Expedia brand.
Licensing of Travel Website Technology to Corporate Travel Agencies
Our initial corporate travel agency licensee is American Express.
Corporate travel agencies can use our technology to increase efficiency by
providing automated travel policy enforcement and negotiated rate management
tools. In addition to a substantial subset of the features included on our
websites, we also deliver features designed to address the needs of corporate
travel agencies. Some examples of functionality provided to licensees include:
. Core Shopping and Purchasing Technology. Licensees use our technology
to enable shopping and purchasing of airline tickets and making of car
rental and hotel reservations.
. Negotiated Rate Management. Corporate travel managers can upload
negotiated rate agreements with airline, hotel and rental car
suppliers in order to have those rates available to employees.
. Policy Enforcement Tools. Corporate travel managers can incorporate
travel policies into the displays used by employees to book business-
related travel. Employees attempting to book travel that conflicts
with corporate policy can be notified online, asked for explanations
and offered alternatives.
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. Shared Itinerary Management. Employees can designate travel arrangers,
typically administrative assistants, and can make selected itineraries
available for intracompany use in order to facilitate group and small
meeting travel.
. Selected Editorial Information. Licensees have access to our World
Guide library of destination information, but not to our daily news
features and other editorial content that is closely identified with
the Expedia brand.
Strategic Relationships
We pursue strategic relationships to increase our access to online
customers, to build brand recognition and to expand our online presence. To
date, we have established the following alliances, among others, for
distribution and product enhancement:
Strategic Customers
. Continental and Northwest. We license components of the technology
underlying our websites to these airlines to run transaction engines
on their websites.
. American Express. American Express licenses components of the
technology underlying our websites on a non-exclusive basis to over
140 of its large corporate customers as "AXI--American Express
Interactive."
Strategic Vendors
. Worldspan. Worldspan, our primary computer reservation service
provider, processes a substantial majority of airline ticket and car
rental reservations for Expedia.com, a portion of airline ticket and
car rental reservations for our websites in the United Kingdom,
Germany and Canada, and a portion of the hotel reservations for our
websites.
. World Travel Partners. World Travel Partners' subsidiary, Online
Fulfillment Services, provides telephone and email customer support
and provides mailing and other fulfillment services for Expedia.com.
World Travel Partners was the fourth largest travel agency in the
United States in 1998, according to Travel Weekly, focusing on
corporate travel services.
. Pegasus. Pegasus is our primary provider of connectivity to hotel
reservation systems for both our Hotel Wizard reservations channel and
our Hotel Price Matcher service.
. MTG Limited UK (Thomas Cook). Thomas Cook, a leading travel agency in
the United Kingdom, is our primary customer service and negotiated
rates provider in the United Kingdom.
. Deutsches Reiseburo. Deutsches Reiseburo, a leading travel agency and
tour operator in Germany, is our primary customer service and
negotiated rates provider in the German market.
. Microsoft. Microsoft supplies us with premium placement on the MSN.com
website, the Hotmail email service and the WebTV platform. Microsoft
also supplies us with technology and systems infrastructure under
license agreements. MSN.com is the third most visited site on the
Internet, attracting over 28 million unique visitors in August 1999
according to Media Metrix. Hotmail, with over 30 million active
monthly users in August 1999, is one of the largest email systems in
the world, and WebTV is one of the largest providers of television-
based Internet access.
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Technology
We believe that the quality of our technology differentiates our websites
from those of our competitors. Our goal has been to build a reliable, scalable
and secure environment for consumers to plan and purchase travel. Since
inception, we have supported substantial growth in traffic, commerce and
advertising inventory with our present architecture.
A single software code base supports our United States and international
websites, including those of our licensees. This approach allows us to
efficiently distribute central code base improvements to benefit multiple
services where appropriate. Our core booking engine connects to each of the
four major computer reservations systems: Worldspan, Sabre, Apollo and
Amadeus, giving our websites and our licensees the ability to choose which
computerized reservation system to support.
We have built a multi-layered system using powerful and expandable
Internet hardware and software. From inception, we have distributed
functionality across multiple layers of our platform. One layer handles the
demands of serving webpages. Another layer manages the demands of high-volume
message traffic between our servers and those of our suppliers and
intermediaries. A third layer manages storage of critical data such as
customer profiles, marketing database information and editorial content. Our
hardware consists of multiple Compaq Proliant servers. Our data center is
connected to the Internet through the equivalent of eight T3 connections.
Microsoft Back Office technology, including Windows NT, SQL Server and
Internet Information Server, is the foundation for our operating service
software. Multiple redundant servers support each key layer of the
architecture to help manage heavy user traffic. Microsoft hosts substantially
all of our systems, software and hardware.
Consumer Marketing
We believe that important drivers of our business are our ability to
attract visitors to our websites, our ability to convert those visitors into
purchasing customers and our ability to convert first-time purchasers into
repeat customers. We plan to continue to attract new visitors to our websites
by increasing our brand enhancement efforts and promotional advertising, both
online and in traditional television, radio and print media, and by continuing
to work with influential press and industry analysts. Our strategy to convert
visitors into purchasers includes a combination of broad purchase-related
promotions, increased emphasis on merchandising of available offers and
increased efforts to work with our travel suppliers to offer superior
selection and quality of travel inventory. We plan to convert first-time
purchasers to repeat customers by focusing on enhanced customer satisfaction
and new personalization features and launching a loyalty program.
Sales and Supplier Relations
Our sales efforts are directed toward building long-term relationships
with the travel supplier community and key advertising partners, including
advertising agencies. We are expanding our sales force to extend our national
sales coverage and to build a dedicated advertising sales force. Our
salespeople make frequent sales calls at advertiser and supplier offices and
attend trade shows, conferences and other industry events. Our sales efforts
are complemented by public relations and other channel marketing efforts,
including advertisement placements in industry trade publications.
We have contracted with a third party to sell hotel listings in our hotel
directory. We are working to resolve an issue that relates to whether the
party is entitled to a portion of our revenues from hotel advertising sales in
other areas of our websites under the terms of the applicable agreement.
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Competition
The online travel services market is new, rapidly evolving and intensely
competitive, and we expect competition to increase. We compete on the basis of
service, merchandising, reliability, amount and accessibility of information
and breadth of products and services offered. We make available to our
customers a wide range of products and prices offered by our travel suppliers.
In the United States, we compete primarily with online travel services and
with traditional travel agent distribution channels. In the online travel
services market, we compete with other entities that maintain commercial
websites providing online travel services, such as Travelocity (operated by
Sabre), Preview Travel, CheapTickets.com, Cendant Corporation, TravelWeb
(operated by Pegasus), GetThere.com, Biztravel.com (operated by Rosenbluth
Travel) and Trip.com. Travelocity has recently announced its intention to
acquire Preview Travel. We also compete with companies that offer travel as
part of a larger electronic commerce portfolio, such as Priceline.com and
Yahoo. Several traditional travel agencies, including larger travel agencies
such as Uniglobe Travel and Carlson Wagonlit Travel, have established, or may
establish in the future, commercial websites offering online travel services.
We also compete with many of these same parties and others in the licensing of
technology to airlines and corporate travel agencies.
Internationally we compete with a different set of participants in each
market, ranging from traditional travel agents, market-specific websites and
global competitors, including Travelocity, GetThere.com and Leisure Planet,
which have expanded beyond the United States market. In the United Kingdom,
local online competitors include Deckchair.com, e-bookers and A2Btravel. In
Germany, local online competitors include Travelchannel.de and iFAO.
As the market for online travel services grows, we believe that the range
of companies involved in the online travel services industry, including travel
suppliers, traditional travel agencies, travel industry information providers,
online portals and e-commerce providers, will increase their efforts to
develop services that compete with our websites. Many airlines and other
travel suppliers offer travel services directly through their own websites,
including services from other travel suppliers. We are unable to anticipate
which companies will offer competitive services in the future. As the market
for online travel service grows, we believe that companies involved in the
travel services industry will increase their efforts to develop services that
compete with our services. We cannot assure you that our online operations
will compete successfully with any current or future competitors.
Proprietary Rights
Our intellectual property rights relate to trademarks and domain names
associated with the name "Expedia" and copyrights and other rights associated
with our websites, our software and other aspects of our business and
technology. We rely on trademark and trade secret protection law, copyright
law and confidentiality and/or license agreements with our employees,
customers, partners and others to protect our proprietary rights. We pursue
the regulation of certain of our key trademarks and service marks in the
United States and internationally.
We license the right to use some of Microsoft's retail products and other
technology pursuant to our license agreements with Microsoft. In addition, we
license, on a perpetual and royalty-free basis, patent rights from Microsoft
that relate to our business. See "Certain Relationships and Related
Transactions-- Our Relationship with Microsoft; License Agreements."
We license components of our travel website technology and editorial
content to selected airlines and American Express. In addition, we license
trademark rights to the Expedia brand to a third party who operates Expedia
Radio and to Microsoft for use with some of its software products. We may
license other intellectual property rights to third parties in the future.
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<PAGE>
Government Regulation
The laws and regulations applicable to the travel industry affect us and
our travel suppliers. We must comply with laws and regulations relating to the
sale of travel services, including those prohibiting unfair and deceptive
practices and requiring us to register as a seller of travel, to comply with
disclosure requirements and to participate in state restitution funds. In
addition, many of our travel suppliers and computer reservation systems
providers are heavily regulated by the United States and other governments.
Our services are indirectly affected by regulatory and legal uncertainties
affecting the businesses of our travel suppliers and computer reservation
systems providers.
We must also comply with laws and regulations applicable to businesses
generally and online commerce specifically. Currently, few laws and
regulations apply directly to the Internet and commercial online services.
Moreover, there is currently great uncertainty whether or how existing laws
governing issues such as property ownership, sales and other taxes, libel and
personal privacy apply to the Internet and commercial online services. It is
possible that laws and regulations may be adopted to address these and other
issues. Further, the growth and development of the market for online commerce
may prompt calls for more stringent consumer protection laws. New laws or
different applications of existing laws would likely impose additional burdens
on companies conducting business online and may decrease the growth of the
Internet or commercial online services. In turn, this could decrease the
demand for our products and services or increase our cost of doing business.
Federal legislation imposing limitations on the ability of states to
impose taxes on Internet-based sales was enacted in 1998. The Internet Tax
Freedom Act, as this legislation is known, exempts certain types of sales
transactions conducted over the Internet from multiple or discriminatory state
and local taxation through October 21, 2001. It is possible this legislation
will not be renewed when it terminates in October 2001. Failure to renew this
legislation could allow state and local governments to impose taxes on
Internet-based sales, and these taxes could decrease the demand for our
products and services or increase our cost of operations.
Employees
As of September 30, 1999, we employed a total of 149 full-time Microsoft
employees. As of October 25, 1999, 138 previous Microsoft employees have
accepted offers of employment from us. Pursuant to our services agreement with
Microsoft, we have contracted the services of seven employees who remain
employed by Microsoft, until the earlier of May 20, 2000 or our notice that we
no longer require the service of the employees. We intend to hire new
personnel to replace these contracted employees during this period. In
addition, we contract for the services of 45 employees of temporary staffing
firms.
Our ability to attract and retain highly qualified employees will be
important to our success in maintaining online leadership. We have a policy of
using equity-based compensation programs to reward and motivate significant
contributors among our employees. Competition for qualified personnel in our
industry is intense. Our employees are not presently represented by a labor
union. We have not experienced any work stoppages and consider our relations
with our employees to be good.
Our employees will continue to participate in Microsoft's various benefit
plans. We plan to adopt our own benefit plans for our employees, some of which
we will adopt prior to this offering and some of which will be adopted
effective January 1, 2000. Our employees who were previously employees of
Microsoft will transition into our employee benefit plans over time. Prior to
the effective date of these plans, these employees will continue to be
eligible for Microsoft's plans.
47
<PAGE>
Properties
We are headquartered in Redmond, Washington, in space leased from
Microsoft. We expect to move in December 1999 to leased space in Bellevue,
Washington. This new leased space will consist of approximately 67,000 square
feet, housing our principal administrative, sales and marketing, customer
service and computer and communications systems facilities. Our lease for this
space expires in five years with an option to renew for an additional five-
year term.
Legal Proceedings
On October 13, 1999, Priceline.com Incorporated filed a patent
infringement lawsuit against Microsoft and Expedia in the United States
District Court for the District of Connecticut. The lawsuit alleges that our
Hotel Price Matcher service infringes on a patent held by Priceline.com. The
suit also alleges that Microsoft and Expedia engaged in unfair and deceptive
acts or practices in violation of the Connecticut Unfair Trade Practices Act.
The suit seeks:
. unspecified damages, including treble and punitive damages
. an injunction against further alleged infringement
. an injunction from continuing to operate our Hotel Price Matcher or
any similar service
. interest and costs, attorneys' fees and an accounting of the revenue
received by Microsoft and Expedia relating to Internet travel services
We do not believe that the claims made by Priceline.com have merit.
Accordingly, we intend to vigorously defend ourselves in this lawsuit. Since
the lawsuit was recently filed and discovery has not yet commenced, we are not
presently able to estimate the likelihood of an adverse result or the range of
possible loss relating to this matter. In the event of an adverse result, we
could be required to do one or more of the following:
. pay substantial damages, including treble and punitive damages
. permanently cease use of our Hotel Price Matcher service and any
similar service
. obtain a license for the technology or spend significant resources to
develop noninfringing technology
Any limitation on our ability to market our Hotel Price Matcher service or
the costs and potential delays associated with redesigning this service would
seriously harm our business, financial condition, results of operation and
cash flows.
On October 7, 1999, Reed Elsevier Inc. filed a complaint in the United
States District Court for the District of New Jersey against Microsoft and
Expedia. The suit alleges that Microsoft and Expedia materially breached an
agreement between Microsoft and Reed Elsevier relating to the development by
Microsoft of a hotel directory for the Internet and the sale of Internet
advertising in that directory. The suit also alleges conversion and
misappropriation of Reed Elsevier's proprietary database, unfair competition,
breach of implied covenant of good faith and fair dealing and interference
with a business relationship. The suit seeks:
. unspecified damages, including punitive damages
. a permanent injunction requiring us to comply with the agreement
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<PAGE>
. a permanent injunction prohibiting us from offering or selling
Internet advertising in the hotel directory or competing with Reed
Elsevier in connection with the sale of advertising in the hotel
directory and from utilizing a joint database developed pursuant to
the parties' agreement.
. rescission of the agreement, return of all payments made by and all
information given by Reed Elsevier under the agreement
. costs and attorneys' fees
Since this lawsuit was recently filed and discovery has not yet commenced,
we are not presently able to estimate the likelihood of an adverse result or
the range of possible loss relating to this matter. We intend to vigorously
defend ourselves in this lawsuit and do not expect the outcome of this lawsuit
to have a material adverse effect on our business.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The names, ages and positions of our executive officers and directors as
of September 10, 1999 are listed below along with their business experience
during the past five years. The business address of all of our executive
officers is 4200 150th Ave. NE, Redmond, Washington 98052. Directors will be
elected to serve until they resign or are removed, or are otherwise
disqualified to serve, or until their successors are elected and qualified.
Executive officers of Expedia are appointed by the Board of Directors. No
family relationships exist among any of the directors or executive officers of
Expedia.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Richard N. Barton.......... 32 President, Chief Executive Officer and Director
Byron D. Bishop............ 35 Vice President, Product Development
Erik C. Blachford.......... 32 Vice President, Marketing
Simon J. Breakwell......... 34 Vice President, Sales
Kathleen K. Dellplain...... 40 Vice President, Human Resources
Seth E. Eisner............. 40 Vice President, Operations
Gregory S. Stanger......... 35 Vice President and Chief Financial Officer
Gregory B. Maffei.......... 39 Chairman of the Board
Brad Chase................. 39 Director
Gerald Grinstein........... 67 Director
Laurie McDonald Jonsson.... 50 Director
Richard D. Nanula.......... 39 Director
</TABLE>
Richard N. Barton founded Expedia in 1994. He has served as a Director of
Expedia 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. Mr. Barton also serves as a director of
VacationSpot.com, Inc.
Byron D. Bishop joined Expedia in 1994 as a founding member, with the
principal focus of building and managing Expedia's product development team.
Mr. Bishop has been a Microsoft employee since 1986. During this time, he
created and managed three other development groups within Microsoft, including
the "Windows for Pen Computing" operating system and Microsoft's first
handheld operating system. Mr. Bishop received a B.S. in computer science and
mathematics from the University of Washington.
Erik C. Blachford joined Expedia in 1995. Previously, he served as General
Manager at Kroll Travel Watch, a travel information services division of Kroll
Associates Inc. from 1994 to 1995. Prior to this, he held various marketing
and new product development positions at Butterfield & Robinson Travel Inc.
from 1989 to 1992. Mr. Blachford received a B.A. from Princeton University and
an M.B.A. from Columbia Business School.
Simon J. Breakwell joined Expedia in 1997. Previously, Mr. Breakwell held
various sales positions at British Airways from 1987 to 1993 and various
senior sales management positions from 1993 to 1997. During this period, Mr.
Breakwell managed sales strategy, distribution, sales technology and
commercial agreements with British Airways corporate customers in the United
Kingdom. Mr. Breakwell received an Honors Politics Degree from Portsmouth
Polytechnic and an M.B.A. from Lancaster University.
Kathleen K. Dellplain joined Expedia in September 1999. Previously, Ms.
Dellplain served as Vice President, Human Resources, for IDX Systems
Corporation, a healthcare information technology company, from 1997 to 1999.
Prior to this, Ms. Dellplain was the Senior Director, Human Resources, for
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PHAMIS, Inc., from 1990 until its merger with IDX Systems Corporation in 1997.
She has over 15 years experience in various human resources management
positions in health care information systems, health care and manufacturing
industries. Ms. Dellplain received a B.B.A. from the University of Hawaii,
Honolulu and an M.B.A. from the University of Washington.
Seth E. Eisner joined Expedia in 1998. Before joining Expedia, Mr. Eisner
spent two and a half years within Microsoft's Information Technology Group,
serving as Director of Development, and later as Corporate Data Manager. Mr.
Eisner also managed all technical and business operations for Sidewalk,
Microsoft's Local City Guide from 1997 to 1998. Mr. Eisner joined Microsoft in
1994. Mr. Eisner's work history includes 18 years of experience with IT
systems and, in particular, construction and deployment of high performance,
real-time transactional systems. Mr. Eisner received a B.S. in mathematics
from Washington University, St Louis.
Gregory S. Stanger joined Expedia in September 1999. Prior to joining
Expedia, he served as Senior Director, Corporate Development at Microsoft from
1998 to 1999. Prior to this, he held various positions in Microsoft's
Corporate Development department from 1993 to 1998, and elsewhere within
Microsoft's Finance Organization from 1991 to 1993. Prior to joining
Microsoft, Mr. Stanger worked as an investment banker with PaineWebber from
1987 to 1989. Mr. Stanger received a B.A. from Williams College and an M.B.A.
from the University of California at Berkeley. Mr. Stanger serves on the board
of directors of E-Stamp Corporation.
Gregory B. Maffei has served as Chairman of the Board of Directors and a
Director of Expedia since September 1999. Since 1997 he has been Senior Vice
President, Finance & Administration and Chief Financial Officer of Microsoft
Corporation. Previously, Mr. Maffei has held a number of positions at
Microsoft, including Vice President of Corporate Development, Treasurer, and
Director, Business Development & 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. degree from Dartmouth College and an M.B.A. from
Harvard Business School, where he was a Baker Scholar. Mr. Maffei serves on
the board of directors of Ragen MacKenzie and Starbucks.
Brad Chase has served as a Director of Expedia since October 1999. Since
April 1999 he has been Senior Vice President of the Consumer and Commerce
Group of Microsoft Corporation. Prior to his current position, since July 1987
Mr. Chase held a number of positions at Microsoft, most recently managing the
Windows Marketing and Developer Relations Group. Previously, he managed the
marketing and development teams for Microsoft Plus!, served as General Manager
for MS-DOS and served in a variety of other management roles at Microsoft in
the applications division. 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.
Gerald Grinstein has served as a Director of Expedia since October 1999.
Mr. Grinstein has been non-Executive Chairman of Agilent Technologies since
1999 and non-Executive Chairman of the Board of Delta Air Lines, Inc. since
1997. 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. and served as Chairman and Chief
Executive Officer from 1991 until his retirement in 1995. He is also a
director of 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.
Laurie McDonald Jonsson has served as a Director of Expedia since October
1999. Since 1987 she has served as Chairperson and CEO of Stellar Travel, a
Seattle-based travel agency specializing in
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family, business and cruise vacation travel, and President and CEO 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. In 1999, she was named one of the leading
Women Entrepreneurs of the World by IBM, Fortune Magazine, Merrill Lynch and
Lucent Technologies. 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 has served as a Director of Expedia since October 1999.
He 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.
Board Composition
Our Bylaws currently provide for a Board of Directors consisting of at
least 3 and no more than 11 members. All directors hold office until the next
annual meeting of our stockholders and until their successors have been
elected and qualified. Our officers are appointed annually and serve at the
discretion of the Board of Directors. We anticipate appointing one additional
independent director to the board.
Board of Directors Committees
Expedia has an Audit Committee and a Compensation Committee. Our Audit
Committee, which will consist of Messrs. Grinstein, Maffei and Nanula, reviews
the results and scope of the audits and other services provided by our
independent accountants.
Our Compensation Committee, which will consist of Messrs. Chase and
Grinstein and Ms. McDonald Jonsson, reviews and approves the compensation and
benefits for our executive officers, administers our stock purchase and stock
option plans and makes recommendations to the Board of Directors regarding
such matters.
Historically, we have had no Compensation Committee and decisions
regarding compensation have been made by Microsoft. Following the completion
of this offering, compensation decisions will be made by the Compensation
Committee.
Board Compensation
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 also our
employees are eligible to participate in our 1999 Stock Option Plan and will
be eligible to participate in our Purchase Plan. Directors who are not
employees are eligible to participate in our 1999 Stock Option Plan for Non-
Employee Directors. See "--Stock Plans."
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<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth certain compensation awarded to, earned by,
or paid to our Chief Executive Officer and our four other most highly
compensated executive officers whose total cash compensation exceeded $100,000
for the fiscal year ended June 30, 1999 (collectively, the "Named Executive
Officers"). While this compensation is indicative of the historical
compensation paid by Microsoft to the Named Executive Officers, it is not
necessarily indicative of the compensation which Expedia will pay to such
individuals going forward.
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Securities
Name and Fiscal Underlying All Other
Principal Position(1) Year Salary($)(2) Bonus($) Options(#)(3) Compensation($)
--------------------- ------ ------------ -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Richard N. Barton.......... 1999 119,072 50,000 -- --
President, Chief
Executive Officer
and Director
Byron D. Bishop............ 1999 128,231 49,000 -- --
Vice President, Product
Development
Simon J. Breakwell......... 1999 105,157 6,500 10,000 8,194(4)
Vice President, Sales
Seth E. Eisner............. 1999 108,584 23,700 10,000 --
Vice President, Operations
Gregory S. Stanger......... 1999 101,427 35,591 40,000 --
Vice President and
Chief Financial Officer
</TABLE>
- -------
(1) Prior to October 1, 1999, each of these officers was employed by
Microsoft.
(2) Includes amounts deferred at the election of the Named Executive Officers
pursuant to Microsoft's 401(k) plan.
(3) While this number includes all options which Microsoft granted to the
Named Executive Officers in fiscal 1999, only those options which are
unvested will be assumed by Expedia. See "Certain Relationships and
Related Transactions--Our Relationship with Microsoft."
(4) Reflects a one-time reimbursement for moving expenses.
Option Grants During Fiscal 1999
Vested and Unvested Microsoft Options
The following table provides information regarding stock options granted by
Microsoft to the Named Executive Officers during fiscal 1999. Microsoft has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Potential Realizable Value at
% of Total Assumed Annual
Options Rates of Stock Appreciation
Granted to Exercise or for Option Term(3)
Options Employees in Base Price Expiration -----------------------------
Name Granted(#)(1) Fiscal Year ($/share)(2) Date 5%($) 10%($)
---- ------------- ------------ ------------ ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Barton....... -- -- % $ -- -- $ -- $ --
Byron D. Bishop......... -- -- -- -- -- --
Simon J. Breakwell...... 10,000 0.01 53.625 7/2/05 218,308 508,750
Seth E. Eisner.......... 10,000 0.01 53.625 7/2/05 218,308 508,750
Gregory S. Stanger...... 40,000 0.05 53.625 7/2/05 873,230 2,034,998
</TABLE>
- -------
(1) While this number includes all options which Microsoft granted to the
Named Executive Officers in fiscal 1999, only those options which are
unvested will be assumed by Expedia. See the table below, as well as the
sections entitled "Certain Relationships and Related Transactions--Our
Relationship with Microsoft" and "--Stock Plans; Stock Option Plan."
(2) The exercise price was the lowest price of Microsoft common stock during
July 1998.
(3) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the specified compounded
rates of appreciation on the Microsoft common stock underlying the options
over the term of the options. These numbers do not take into account
provisions for termination of the option following termination of
employment, nontransferability or vesting over periods of up to 54 months.
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<PAGE>
Unvested Microsoft Options to be Replaced with Expedia Options
The following table provides information regarding stock options granted
by Microsoft to the Named Executive Officers during fiscal 1999 which have not
yet vested. Expedia will issue replacement options only for these unvested
options. See "--Stock Plans; Stock Option Plan" for a discussion of the
formula relating to such replacement. This table assumes that the closing
price of the Microsoft common stock on the date of the offering will be
$92.44, which was the closing price of the Microsoft common stock on October
25, 1999.
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Low and
Options High End of Offering
Granted to Exercise or Range(3)
Options Employees in Base Price Expiration --------------------
Name Granted(#)(1) Fiscal Year ($/share)(2) Date $10.00 $12.00
---- ------------- ------------ ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Barton....... -- -- % $ -- -- $ -- $ --
Byron D. Bishop......... -- -- -- -- -- --
Simon J. Breakwell...... 8,750 0.01 53.625 7/2/05 339,631 339,631
Seth E. Eisner.......... 8,750 0.01 53.625 7/2/05 339,631 339,631
Gregory S. Stanger...... 35,000 0.05 53.625 7/2/05 1,358,525 1,358,525
</TABLE>
- --------
(1) Messrs. Breakwell's and Eisner's options will be replaced by 80,885
Expedia options if the Expedia offering price equals $10.00 and 67,404
Expedia options if the Expedia offering price equals $12.00. Mr. Stanger's
options will be replaced by 323,540 Expedia options if the Expedia
offering price equals $10.00 and 269,617 Expedia options if the Expedia
offering price equals $12.00.
(2) The exercise price was the lowest price of Microsoft common stock during
July 1998. Once these options are replaced with Expedia options, their
exercise price will be $5.801 if the Expedia offering price equals $10.00
and $6.961 if the Expedia offering price equals $12.00.
(3) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the low and high end of
the offering range for Expedia's common stock. These numbers do not take
into account provisions for termination of the option following
termination of employment, nontransferability or vesting over periods of
up to 54 months.
Option Exercises During Fiscal 1999 and Fiscal Year-End Option Values
The following table sets forth information concerning options granted by
Microsoft to purchase Microsoft common stock exercised by the Named Executive
Officers during fiscal 1999. The table also sets forth the number and value of
unexercised in-the-money options at June 30, 1999. Microsoft has no
outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-Money
Options at Fiscal Options at Fiscal
Year-End (#) Year-End ($)(1)
Shares Acquired ------------------------- -------------------------
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Barton....... 15,682 $1,074,736 41,870 158,128 $3,348,757 $ 9,679,384
Byron D. Bishop......... 20,000 1,246,311 64,402 168,238 5,122,706 10,460,412
Simon J. Breakwell...... 250 17,000 4,550 22,000 302,291 1,162,875
Seth E. Eisner.......... 4,000 203,499 66,240 40,480 5,292,520 2,532,698
Gregory S. Stanger...... 27,000 2,204,125 87,900 77,300 7,067,186 4,105,283
</TABLE>
- --------
(1) Value is calculated on the basis of the difference between the option
exercise price and the market price of Microsoft common stock of $90.19 at
June 30, 1999. While this number includes all options which Microsoft
granted to the Named Executive Officers in fiscal 1999, only those options
which are unvested will be replaced by Expedia. See "Certain Relationships
and Related Transactions--Our Relationship with Microsoft."
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Stock Plans
Stock Option Plan
Our 1999 Stock Option Plan (the "Stock Option Plan") was adopted by the
Board of Directors and approved by our sole stockholder in October 1999. In
addition to the approximately 18.5 million options that will be determined at
the pricing date of this offering, a total of 4,000,000 shares of common stock
has been reserved for issuance under the Stock Option Plan. The Stock Option
Plan provides for the grant to our employees, officers and employee directors
of nonstatutory stock options. Non-employee directors are not eligible for
option grants under the Stock Option Plan. Messrs. Chase and Maffei are
considered to be employee directors and will be eligible to participate in the
Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors or a
committee of the Board of Directors (the "Administrator"). The Administrator
determines the terms of options granted under the Stock Option Plan, including
the number of shares subject to the option, exercise price, term and
exercisability. The exercise price of any stock option granted to an optionee
who owns stock representing more than 10% of the voting power of our
outstanding capital stock (a "10%+ Stockholder") must equal at least 110% of
the fair market value of the common stock on the date of grant. The exercise
price of all stock options other than to 10%+ Stockholders may be less than,
equal to or greater than the fair market value of our common stock on the date
of grant. Payment of the exercise price may be made in cash, check, delivery
of shares of our common stock, if the Optionee is an officer of the Company,
or other consideration determined by the Administrator. The Administrator
determines the term of options. The term of any stock option granted under the
Stock Option Plan may not exceed 10 years; provided, however, that
the term of an option qualifying under Section 422 of the Code may not exceed
five years for 10%+ Stockholders. Options may not be transferred by the
optionee other than by will or the laws of descent or distribution or for
estate planning purposes. Options granted are exercisable at such times and
under such conditions as determined by the Board at the time of the grant or
as permissible under the terms of the Stock Option Plan.
In the event of a change in control as defined in the plan, the Stock
Option Plan requires that each outstanding option be assumed or an equivalent
option substituted by the successor corporation. In the event that a successor
corporation refuses to assume each option or substitute an equivalent option,
the Administrator shall provide for the optionee to have the right to exercise
the option as to all of the shares covered by the option, including shares as
to which the option would not otherwise be exercisable, in which case each
option will be exercisable for 15 days from the date of such determination.
The Board of Directors has the authority to amend or terminate the Stock
Option Plan as long as such action does not affect any outstanding option and
provided that stockholder approval shall be required for an amendment to
increase the number of shares subject to the Stock Option Plan. If not
terminated earlier, the Stock Option Plan will terminate in ten years.
All permanent Microsoft employees who transfer to Expedia prior to this
offering will cancel their unvested options to purchase Microsoft common stock
and concurrently receive new options to acquire Expedia's common stock. The
number of Expedia options which will replace each Microsoft option will depend
on the offering price of the Expedia common stock and the market price of the
Microsoft common stock on the date of the offering, which will also be the
date on which Expedia issues the options. The Expedia options will have
equivalent vesting schedules, in-the-money value and comparable other terms as
the canceled Microsoft options. For example, if an employee has 1,000 unvested
Microsoft options which have an exercise price of $40 per share, and if the
Microsoft stock price is $100 per share and the Expedia offering price is $10
per share, then the employee's Microsoft options would convert to 10,000
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Expedia options ((100/10) x 1000) with an exercise price of $4 per share
(40/(100/10)). This issuance of Expedia options will be treated as a new grant
of stock options.
Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors and approved by our sole stockholder in October 1999. A
total of 300,000 shares of common stock has been reserved for issuance under
the Purchase Plan. The Purchase Plan, which is intended to qualify under
Section 423 of the Code, generally will be implemented in a series of twelve
separate consecutive six-month offering periods commencing on January 1 and
July 1 of each year. The first such offering period will commence on January
1, 2000. The Purchase Plan will be administered by the Board of Directors or
by a committee appointed by the Board of Directors. Our employees, officers
and employee directors, or employees of any majority owned subsidiary
designated by the Board of Directors, are eligible to participate if they are
employed by us or any such subsidiary for at least 20 hours per week and more
than 5 months per year. The Purchase Plan permits eligible employees to
purchase common stock through payroll deductions, which may not exceed 10% of
an employee's compensation, at a price equal to the lower of (a) 85% of the
fair market value of our common stock at the beginning of the offering period
or (b) 85% of the fair market value of our common stock on the last business
day of the offering. Employees may end their participation in the offering at
any time during the offering period, and participation ends automatically on
termination of employment with us.
The Purchase Plan provides that in the event of a merger of us with or
into another corporation or a sale of substantially all of our assets, the
Board of Directors may make such adjustments as it may deem appropriate in the
number, kind and price of shares available under the Purchase Plan and in the
number of shares employees are entitled to purchase. The Board of Directors
has the power to amend or terminate the Purchase Plan as long as such action
does not adversely affect any outstanding rights to purchase stock thereunder
and provided that stockholders approval shall be required for an amendment to
increase the number of shares subject to the Purchase Plan. If not terminated
earlier, the Purchase Plan will automatically terminate December 31, 2005.
Stock Option Plan for Non-Employee Directors
The 1999 Stock Option Plan for Non-Employee Directors (the "Directors'
Plan") was adopted by the Board of Directors and approved by our sole
stockholder in October 1999. A total of 135,000 shares of common stock has
been reserved for issuance under the Directors' Plan. The Directors' Plan
provides for discretionary grants of nonstatutory stock options to our
nonemployee directors. The Directors' Plan will be administered by the Board
of Directors or by a committee appointed by the Board of Directors.
The Directors' Plan provides that the Board of Directors may grant in its
discretion an option to any person who is a nonemployee director.
The Directors' Plan sets a maximum of 10,000 shares for which options may
be granted to any one nonemployee director in any year, or, in the case of a
newly elected director, a maximum of 15,000 shares in the year in which the
director is first elected. Without Board consent, no option granted under the
Directors' Plan is transferable by the optionee other than by will or the laws
of descent or distribution and each option is exercisable, during the lifetime
of the optionee, only by such optionee. The Directors'
Plan provides that options shall become exercisable as set by the Board of
Directors in its discretion. The exercise price of all stock options granted
under the Directors' Plan shall be set by the Board of Directors in its
discretion. Options granted under the Directors' Plan have a maximum term of
10 years subject to earlier termination upon death of the holder or his
departure from the Board.
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In the event of a change in control, the Board of Directors may amend or
terminate the Directors' Plan; provided, however, that stockholder approval is
required for any amendment that will increase the total number of shares as to
which options may be granted under the Directors' Plan, modify the class of
persons eligible to receive options or otherwise as required by law. The Board
may not amend the Directors' Plan more than once every six months, other than
to comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act or the rules thereunder. If not terminated earlier, the
Directors' Plan will have a term of 10 years.
Employment Agreement
We have entered into 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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our 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 us in exchange for 33,000,000 shares of common stock or
100% of our outstanding common stock at that date. After giving effect to this
offering, Microsoft will own approximately 86.4% of our outstanding common
stock, or approximately 84.7% if the underwriters' over-allotment options are
exercised in full. Microsoft will continue to include us in its consolidated
federal tax returns as long as it owns at least 80% of our outstanding stock
and will continue to include our financial data in its consolidated financial
reports as long as it maintains control of our outstanding common stock.
Microsoft will cancel all of the unvested options of Microsoft employees
who choose to join Expedia prior to this offering and we will replace the
canceled options with Expedia options, that will have equivalent vesting
schedules and in-the-money values and comparable other terms as the canceled
Microsoft options.
Along with contributions of ownership of intellectual property described
below, Microsoft contributed to Expedia other assets such as computers and
securities of Expedia Canada Corp. and of a private company in the travel
industry.
Microsoft assigned to us a number of contracts having to do with the
Expedia business. Many of these have intellectual property components.
Generally, where the contract only impacts the Expedia business and no other
units of Microsoft, it is being assigned to Expedia. Microsoft has agreed to
obtain consents to these assignments where applicable.
We have also entered into a number of other agreements which were
necessary to separate the Expedia assets from Microsoft and to facilitate the
operation of the Expedia assets after such separation. Each of these
agreements are summarized below. Although these agreements were not negotiated
on an arm's length basis, we believe that the terms of these agreements, when
taken as a whole, are at least as favorable to Expedia as those which would
have resulted from arm's length negotiations with parties other than
Microsoft. We intend to negotiate any future agreements with Microsoft on the
same basis.
Services Agreement
We entered into a services agreement with Microsoft whereby Microsoft will
provide us with employee and other administrative and operational services.
Microsoft will provide us with the full-time services of the Microsoft
employees who worked in the travel business unit of Microsoft prior to the
formation of Expedia but chose not to leave Microsoft to join Expedia. These
employees will continue to work in the same positions they had prior to the
separation of the Expedia assets from Microsoft. These services will be
provided until the earlier of May 20, 2000 or our notice that we no longer
require the services of these employees.
Microsoft will also provide us with administrative and operational
services in the following general areas: legal, tax, real estate and
facilities, information technology, online advertising, product localization,
corporate accounting, treasury, human resources and product localization.
These services will be provided until December 31, 2000 but the parties
may agree to extend this date for some or all of the administrative and
operational service.
We will pay Microsoft for the services under this agreement on either an
estimated or actual cost reimbursement and will also pay any sales and
occupancy taxes associated with these services.
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License Agreements
In a set of license agreements, Microsoft provides us with rights to
intellectual property to be used in our business.
Microsoft assigned to us the trademarks and domain names associated with
the name "Expedia." In addition, Microsoft assigned to us copyrights for
software relating to online travel services.
We license the right to use some of Microsoft's retail products and other
technology pursuant to our license agreements with Microsoft. We also license
the server technology related to the Expedia Maps service. In addition, we
have a license to all of Microsoft's patents relating to the operation of our
websites. All of the licenses relating to Expedia specific software content
and data and patents are royalty-free and perpetual.
Microsoft holds licenses to various third-party software programs, content
and data that are useful in our business. Where the license to Microsoft
permits, Microsoft sublicensed these rights to us. We must reimburse Microsoft
for any fees due to the licensor for these sublicenses. As part of the
licenses granted by Microsoft to us for technology and data related to our
Expedia Maps service, we have agreed to provide Microsoft websites with
mapping services to the extent the services are requested by Microsoft.
Tax Allocation Agreement
We entered into a tax allocation agreement with Microsoft Corporation that
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 our case,
however, 7.5% of the benefit we generate and is absorbed by the other members
of the Microsoft group will be retained by Microsoft as a "fee" because we are
being paid for tax attributes prior to the time we could have used them to
reduce our tax liability.
Under the terms of this agreement, each party must compute its tax
liability as if it were a separate corporation. In making this computation,
Microsoft will be entitled to deduct on its separate tax return a portion of
the cost attributable to the Microsoft stock options that we assume. The
parties will take this deduction into account under the normal tax accounting
rules, so the deduction will generally occur on the exercise of the options.
The portion of this cost that Microsoft will deduct is equal to the excess of
the fair market value of the shares to be acquired on exercise of the option
on the date we employ the optionee over the exercise price of the assumed
option. We will determine this amount on the date that we employ an optionee.
Carriage and Cross Promotion Agreement
We entered into a five-year carriage and cross promotion agreement with
Microsoft under which we receive premium placement on the MSN.com website. The
travel channel on MSN.com will be a
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customized version of Expedia.com that includes both our logo and MSN's logo.
This website will be the exclusive travel transaction service offered on
Microsoft's websites, except in international markets where we may not have a
presence. We will develop, maintain and host this website. We will also
receive premium placement on the Hotmail email service and the WebTV platform.
The MSN advertising sales team will sell and keep all revenues from the
sale of up to 52.0 million banner advertisements during the first year of this
agreement and up to 57.2 million banner advertisements during the second year
of the agreement. Revenues resulting from these sales will be received and
retained by Microsoft, in addition to the annual fees which we will pay to
Microsoft under this agreement. We believe that MSN will sell all banner
advertisements at a price responsive to market conditions.
Under the agreement, the parties agreed to restrictions regarding the sale
of banner advertising on MSN.com and the co-branded travel channel on MSN.com.
We will pay Microsoft a flat annual fee of $2.0 million in fiscal 2000 and
$2.2 million in fiscal 2001. In addition, we will pay incentive fees to the
extent that the number of completed airline transactions from the MSN.com
website exceeds our forecasts. The fees and terms of sale of banner
advertisements will depend on agreement between the parties for the remaining
three years under this agreement.
Shareholder Agreement
We entered into a shareholder agreement with Microsoft relating to the
transfer and registration of the common stock owned by Microsoft.
Microsoft has agreed not to dispose of the common stock which it owns for
12 months following this offering. Microsoft may, however, submit a written
request to us to be relieved from this lock-up period prior to its expiration.
Only a majority of our outside directors may grant this request.
Microsoft and Expedia have agreed that, for a period of one year from the
date of this offering, no employee of either company will solicit for the
purpose of hiring any employee of the other company. Microsoft has also agreed
that, for a period of three years following this offering, it will not engage
in our business, including acquiring more than 5% of a competing business. The
shareholder agreement generally defines our business as any online service for
reserving or purchasing travel services, such as airline tickets, hotel rooms,
rental cars, cruises and resort vacation packages, accessed with an
interactive electronic device enabling the user to view information and
respond with additional information.
Microsoft has the right to require us to use our best efforts to register
under the Securities Act all shares of common stock owned by Microsoft. These
demand registration rights are subject to the condition that we would not be
required to effect more than one demand registration in any 12-month period.
Microsoft also has the right to participate, or "piggy-back," in equity
offerings initiated by us, subject to reduction of the size of the offering on
the advice of the managing underwriter. Microsoft will pay all expenses
relating to the demand registration requests under the shareholder agreement,
and we will pay all expenses relating to the performance of, or compliance
with, "piggy-back" registrations under the shareholder agreement. In either
case, however, Microsoft will be responsible for underwriters' discounts and
selling commissions with respect to the registrable shares being sold and the
fees and expenses of its counsel in connection with this registration.
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Conflict of Interest Policies
Following this offering, we will continue to conduct business with
Microsoft, which may give rise to conflicts of interest and our Articles of
Incorporation contain policies relating to the resolution of these conflicts
of interest. These policies regulate and guide our business relationships
generally with the following parties:
. Microsoft
. Microsoft's customers or suppliers
. other corporations, partnerships or other business entities in which
one or more of our directors have a financial interest (a "related
entity")
. the directors and officers of a related entity
. one or more of our officers and directors
If we enter into a contract or transaction with the above parties, the
contract or transaction is not void or voidable solely because:
. the party with which we entered into the contract or transaction was
one of the above parties
. any of our directors or officers who could be considered a related
party were present at or participated in the meeting or their votes
were counted at the meeting of our board of directors which authorized
the contract or transaction
Further, if we enter into a contract or transaction with any of the above
parties, our Articles of Incorporation generally provide that any related
party and any of our directors and officers who could be considered a related
party shall have fully satisfied their fiduciary duties to us and our
stockholders and have been deemed to have acted in good faith and not for an
improper personal benefit as long as any of the following conditions are met:
. the material facts about the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the contract
or transaction is authorized by the affirmative vote of a majority of
the directors who are considered disinterested
. the material facts about the transaction are disclosed or are known to
our stockholders entitled to vote on the transaction, and the
transaction is approved in good faith by vote of the shareholders of a
majority of the then outstanding common stock not owned by Microsoft
or a related entity
. the transaction is completed according to standards which are approved
by the affirmative vote of a majority of the disinterested directors
or by vote of the stockholders of a majority of our then outstanding
common stock not owned by Microsoft or a related entity
. the transaction is fair to us when it is authorized by our board of
directors or our stockholders
Equity Investment in Related Party
In an agreement dated March 1998, between Expedia and VacationSpot.com
Inc., a Seattle-based non-public company, we agreed to provide advertising
services in the form of a link on our Expedia.com website to the
VacationSpot.com website in exchange for an equity interest in
VacationSpot.com. The VacationSpot.com website enables customers to book
leisure lodging such as private vacation condominiums. This agreement is
scheduled to expire in March 2000, but we will be prepared to consider a
renewal of this agreement. Richard N. Barton, the President and Chief
Executive Officer and a Director of Expedia, is a member of the board of
directors of VacationSpot.com. We estimate the fair value of the advertising
services provided to VacationSpot.com to be $400,000.
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PRINCIPAL STOCKHOLDER
As of October 25, 1999, 33,000,000 shares of our common stock were
outstanding, all of which were owned by Microsoft. Upon completion of this
offering, Microsoft will own 86.4% of our outstanding common stock and
approximately 84.7% of our outstanding common stock if the underwriters' over-
allotment options are exercised in full.
Microsoft's address is: Microsoft Corporation, One Microsoft Way, Redmond,
WA 98052-6399. For a description of certain transactions and arrangements
between us and Microsoft, see "Certain Relationships and Related
Transactions--Our Relationship with Microsoft."
As of October 25, 1999, none of our directors or officers beneficially
owned any shares of our common stock. We intend to make option grants with
respect to approximately 3,700,000 shares of our common stock to our Named
Executive Officers and approximately 1,600,000 shares to our other executive
officers and directors, in each case effective upon completion of this
offering.
In addition, none of our directors or officers beneficially own more than
1% of Microsoft's outstanding common stock.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 120,000,000 shares of common
stock, $0.01 par value and 10,000,000 shares of preferred stock, $0.01 par
value.
Common Stock
Holders of our common stock have no cumulative voting rights and no
preemptive or conversion rights. There are no redemption or sinking fund
provisions available to the common stock. All outstanding shares of common
stock are fully-paid and non-assessable. Subject to preferences that may be
applicable to any then-outstanding preferred stock, holders of common stock
will be entitled to receive ratably any dividends that may be declared by our
Board of Directors out of funds legally available for these dividends. In the
event of a liquidation, dissolution or winding up of Expedia, holders of
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 preferred stock.
As a result of this offering, there will be 38,200,000 shares of common
stock outstanding assuming no exercise of the underwriters' over-allotment
options. As of October 25, 1999, there were 33,000,000 shares of common stock
outstanding, all of which were held of record by Microsoft. The number of
outstanding shares of common stock held by Microsoft will not change as a
result of this offering.
Preferred Stock
Our Articles of Incorporation authorize us to issue preferred stock in one
or more classes or series or upon authorization by our Board of Directors. Our
Board of Directors, without further approval of the shareholders, is
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences and any other
rights, preferences, privileges and restrictions applicable to each class or
series of preferred stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting power of the holders of our common
stock and could make it more difficult for a third party to gain control of
us, discourage bids for our common stock at a premium, or otherwise adversely
affect the market price of our common stock.
We currently have no plans to issue any preferred stock.
Business Combination Statute
The Washington Business Act, Section 23B.19 of the Revised Code of
Washington, prohibits a "target corporation," with certain exceptions, from
engaging in certain "significant business transactions," such as a merger or
sale of assets with an "acquiring person" who acquires more than 10% of the
voting securities of the target corporation for a period of five years after
the acquisition of the voting securities, unless the transaction is approved
by the majority of the members of the target corporation's board of directors
prior to the date of the transaction, or unless the aggregate amount of the
cash and the market value of non-cash consideration received by holders of
outstanding shares of any class or series of stock of the target corporation
is equal to specified minimum amounts.
Warrants and Other Rights
As of the date of this prospectus, there are no warrants or similar rights
to purchase common stock, other than the options for employees, officers and
directors described earlier in this prospectus.
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Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
Listing
Our common stock will be traded on the Nasdaq National Market under the
trading symbol "EXPE."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of this offering, we will have outstanding 38,200,000
shares of common stock. Of these shares, the 5,200,000 shares sold in this
offering, plus any shares issued upon exercise of the underwriters' over-
allotment options, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates," as that term is defined
in Rule 144 under the Securities Act. In general, affiliates include officers,
directors or 10% stockholders.
The remaining 33,000,000 shares outstanding are "restricted securities"
within the meaning of Rule 144. These restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below. Sales of the restricted securities in the
public market, or the availability of these shares for sale, could adversely
affect the market price of the common stock.
Microsoft, Expedia and our directors and officers have entered into lock-
up agreements in connection with this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our common stock or any securities exercisable for or
convertible into our common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of Goldman,
Sachs & Co. and Morgan Stanley & Co. Incorporated. Additionally, as discussed
in "Certain Relationships and Related Transactions--Our Relationship with
Microsoft; Shareholder Agreement," Microsoft has entered into an agreement
with Expedia that it will not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by it for a period
of one year after the date of this offering without the prior approval of
Expedia's outside directors. After this time Microsoft will have the ability
to sell some or all of its common stock. We have agreed to file registration
statements under the Securities Act to register the common stock held by
Microsoft.
Taking into account these lock-up agreements, and assuming Goldman, Sachs
& Co. and Morgan Stanley & Co. Incorporated do not release stockholders from
their agreements or Expedia does not release Microsoft from its additional
agreement, the following shares will be eligible for sale in the public market
at the following times:
. beginning on the effective date of this prospectus, only the shares of
common stock sold in the offering will be immediately available for
sale in the public market
. on various dates prior to 180 days after the date of this prospectus,
approximately 2.3 million shares of common stock underlying
exercisable options of Expedia employees not subject to lock-up
agreements will become eligible for sale under Rule 701 or as a result
of the Form S-8 registration statement described below
. beginning 180 days after the date of this prospectus, approximately
4.0 million additional shares of common stock underlying exercisable
options of Expedia employees will be eligible for sale under Rule 701
or as a result of the Form S-8 registration statement described below
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. beginning 365 days after the date of this prospectus, essentially all
shares of our common stock will be available for sale, provided there
is compliance with the vesting requirements in the case of shares
underlying exercisable options of Expedia employees. Microsoft will
have registration rights with respect to its common stock. In
addition, Microsoft, any of its affiliates and any holders of shares
of common stock that are restricted securities, may sell shares under
Rule 144.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately 382,000 shares immediately after this
offering
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale
Sales under Rule 144, including sales by affiliates, must comply with the
requirements with respect to manner of sale, notice, and the availability of
current public information about us. Under Rule 144(k), a person who is not
deemed to have been our affiliate at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell these shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares under a written compensatory
plan or contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Commencing 90 days after the date of
this offering, Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirement and permits
non-affiliates to sell these shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
In addition, we intend to file, immediately after the effectiveness of
this offering, a registration statement on Form S-8 under the Securities Act
covering all shares of common stock reserved for issuance under our stock
plans. See "Management--Stock Plans." Shares registered under this
registration statement would be available for sale in the open market in the
future, provided there is compliance with the vesting restrictions with
Expedia, Rule 144 restrictions in the case of affiliates, and the contractual
restrictions described above.
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UNDERWRITING
Expedia and the underwriters for the U.S. offering (the "U.S.
underwriters") named below have entered into an underwriting agreement with
respect to the shares being offered in the United States. Subject to certain
conditions, each U.S. underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co. and Morgan
Stanley & Co. Incorporated are the representatives of the U.S. underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ....................................
Morgan Stanley & Co. Incorporated........................
---------
Total.................................................. 4,160,000
=========
</TABLE>
----------------
If the U.S. underwriters sell more shares than the total number set forth
in the table above, the U.S. underwriters have an option to buy up to an
additional 624,000 shares from Expedia to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the U.S. underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. underwriters by Expedia. Such amounts
are shown assuming both no exercise and full exercise of the U.S.
underwriters' option to purchase 624,000 additional shares.
<TABLE>
<CAPTION>
Paid by Expedia
---------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share....................................... $ $
Total........................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
Expedia has entered into an underwriting agreement with the international
underwriters for the sale of 1,040,000 shares outside of the United States in
addition to the 4,160,000 shares offered in the United States. The terms and
conditions of both offerings are the same and the sale of shares in both
offerings are conditioned on each other. Goldman Sachs International and
Morgan Stanley & Co. International Limited are representatives of the
underwriters for the international offering outside of the United States.
Expedia has granted the international underwriters a similar option to
purchase up to an aggregate of an additional 156,000 shares.
The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part
67
<PAGE>
of the distribution of the shares. The underwriters also have agreed that they
may sell shares among each of the underwriting groups.
Microsoft, Expedia and its directors and officers have agreed with the
underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180
days after the date of this prospectus, except with the prior written consent
of the representatives. See "Shares Eligible for Future Sale" for a discussion
of transfer restrictions.
Prior to this offering, there has been no public market for the shares.
The initial public offering price will be negotiated among Expedia and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Expedia's historical performance, estimates of the
business potential and earnings prospects of Expedia, an assessment of
Expedia's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "EXPE."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by
the underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
The underwriters have reserved for sale, at the initial public offering
price, approximately 325,000 shares of the common stock offered hereby for
individuals designated by Expedia who have expressed an interest in purchasing
such shares of common stock in this offering. The number of shares available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same basis as other
shares offered hereby.
Expedia estimates that its share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately
$1,800,000.
Expedia has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the international underwriters in the offering being made
outside of the United States, to persons located in the United States.
68
<PAGE>
VALIDITY OF THE COMMON STOCK
The validity of the common stock offered hereby will be passed upon for us
by our counsel, Preston Gates & Ellis LLP, Seattle, Washington and for the
underwriters by Sullivan & Cromwell, Los Angeles, California.
EXPERTS
The financial statements as of June 30, 1999 and 1998 and for the three-
year period ended June 30, 1999 included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common
stock offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to Expedia and the common stock offered in this offering, we
refer you to the registration statement and to the attached exhibits and
schedules. Statements made in this prospectus concerning the content of any
document referred to in this prospectus are not necessarily complete. With
respect to each such document filed as an exhibit to the registration
statement, we refer you to the exhibit for a more complete description of the
matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, NY 10048, and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661. You may obtain copies of
all or any part of our registration statement from the Securities and Exchange
Commission upon payment of prescribed fees. You may also inspect reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission without
charge at a website maintained by the Securities and Exchange Commission at
www.sec.gov.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Statements of Operations.................................................... F-3
Balance Sheets.............................................................. F-4
Statements of Changes in Owner's Net Investment (Deficit)................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Microsoft Corporation
Redmond, Washington
We have audited the accompanying balance sheets of Expedia, an operating
unit of Microsoft Corporation, as of June 30, 1999 and 1998, and the related
statements of operations, changes in owner's net investment (deficit), and
cash flows for the three-year period ended June 30, 1999. These financial
statements are the responsibility of Expedia's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Expedia as of June 30, 1999 and 1998, and
the results of its operations and its cash flows for the three-year period
ended June 30, 1999, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared from the records
maintained by Microsoft Corporation and may not necessarily be indicative of
the conditions that would have existed or the results of operations if Expedia
had been operated as an unaffiliated entity. Portions of certain expenses
represent allocations made from and applicable to Microsoft Corporation as a
whole.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
October 26, 1999
F-2
<PAGE>
EXPEDIA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months
ended
Years ended June 30, September 30,
---------------------------- ----------------
1997 1998 1999 1998 1999
-------- -------- -------- ------- -------
(in thousands, except per share amounts)
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues................... $ 2,742 $ 13,827 $ 38,699 $ 6,057 $15,268
Cost of revenues............... 3,279 9,692 15,950 3,177 5,364
-------- -------- -------- ------- -------
Gross profit (loss)........ (537) 4,135 22,749 2,880 9,904
Operating expenses:
Product development.......... 16,211 18,506 21,180 4,977 5,393
Sales and marketing.......... 8,820 10,823 14,888 2,060 6,732
General and administrative... 3,353 4,284 6,283 1,050 2,729
-------- -------- -------- ------- -------
Total operating expenses... 28,384 33,613 42,351 8,087 14,854
-------- -------- -------- ------- -------
Loss from operations........... (28,921) (29,478) (19,602) (5,207) (4,950)
Provision for income taxes..... -- -- -- -- --
-------- -------- -------- ------- -------
Net loss....................... $(28,921) $(29,478) $(19,602) $(5,207) $(4,950)
======== ======== ======== ======= =======
Pro forma basic and dilutive
net loss per common share..... $ (0.59) $ (0.15)
======== =======
Weighted average shares used to
compute pro forma basic and
dilutive net loss per common
share......................... 33,000 33,000
</TABLE>
F-3
<PAGE>
EXPEDIA
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------ September 30,
1998 1999 1999
-------- -------- -------------
(in thousands)
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ -- $ -- $ --
Accounts receivable........................ 7,059 4,970 5,897
Prepaid expenses and other current assets.. 360 -- --
-------- -------- --------
Total current assets..................... 7,419 4,970 5,897
Property and equipment, net.................. 514 386 721
Investment................................... 400 400 400
-------- -------- --------
Total........................................ $ 8,333 $ 5,756 $ 7,018
======== ======== ========
LIABILITIES AND OWNER'S NET DEFICIT
Current liabilities:
Accounts payable........................... $ 462 $ 1,216 $ 1,062
Accrued expenses........................... -- -- 287
Current portion of unearned revenue........ 2,143 2,364 1,940
-------- -------- --------
Total current liabilities................ 2,605 3,580 3,289
Unearned revenue, net of current portion..... 5,820 3,851 4,102
Commitments and contingencies (Note 6)
Owner's net deficit:
Net contribution from owner................ 67,070 85,089 91,341
Accumulated deficit........................ (67,162) (86,764) (91,714)
-------- -------- --------
Total owner's net deficit................ (92) (1,675) (373)
-------- -------- --------
Total........................................ $ 8,333 $ 5,756 $ 7,018
======== ======== ========
</TABLE>
F-4
<PAGE>
EXPEDIA
STATEMENTS OF CHANGES IN OWNER'S NET INVESTMENT (DEFICIT)
<TABLE>
<CAPTION>
Net Owner's net
contribution Accumulated investment
from owner deficit (deficit)
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Balance, July 1, 1996.................... $ 9,364 $ (8,763) $ 601
Net loss............................... -- (28,921) (28,921)
Net contribution from owner............ 27,599 -- 27,599
------- -------- --------
Balance, June 30, 1997................... 36,963 (37,684) (721)
Net loss............................... -- (29,478) (29,478)
Net contribution from owner............ 30,107 -- 30,107
------- -------- --------
Balance, June 30, 1998................... 67,070 (67,162) (92)
Net loss............................... -- (19,602) (19,602)
Net contribution from owner............ 18,019 -- 18,019
------- -------- --------
Balance, June 30, 1999................... $85,089 $(86,764) $ (1,675)
Net loss (unaudited)................... -- (4,950) (4,950)
Net contribution from owner
(unaudited)........................... 6,252 -- 6,252
------- -------- --------
Balance at September 30, 1999
(unaudited)............................. $91,341 $(91,714) $ (373)
======= ======== ========
</TABLE>
F-5
<PAGE>
EXPEDIA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months
ended September
Years ended June 30, 30,
---------------------------- ----------------
1997 1998 1999 1998 1999
-------- -------- -------- ------- -------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss.................... $(28,921) $(29,478) $(19,602) $(5,207) $(4,950)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation............... 487 750 778 206 264
Amortization of noncash
item...................... -- (50) (200) (50) (50)
Cash provided (used) by
changes in operating
assets and liabilities:
Accounts receivable....... (1,012) (6,047) 2,089 4,423 (927)
Prepaid expenses and other
current assets........... -- (360) 360 360 --
Accounts payable and
accrued expenses......... 17 445 754 229 133
Unearned revenue.......... 2,349 5,556 395 -- 526
Recognition of unearned
revenue from prior
periods.................. -- (292) (1,943) (514) (649)
-------- -------- -------- ------- -------
Net cash used by operating
activities............... (27,080) (29,476) (17,369) (553) (5,653)
Investing activities:
Additions to property and
equipment.................. (519) (631) (650) (139) (599)
Financing activities:
Net contribution from
owner...................... 27,599 30,107 18,019 692 6,252
-------- -------- -------- ------- -------
Net increase and beginning and
end of year--cash and cash
equivalents:................. $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======= =======
Supplemental disclosure of
noncash item:
Equity investment received
for advertising services... $ -- $ 400 $ -- $ -- $ --
</TABLE>
F-6
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS
Note 1: Description of Business and Summary of Significant Accounting Policies
Description of business: Expedia (the Company), an operating unit of
Microsoft Corporation (Microsoft), provides Internet-based travel-related
services to retail consumers and corporate clients. The Company is a provider
of branded online travel services for leisure and small business travelers.
The Company operates websites, including Expedia.com and international
versions of Expedia.com, and licenses components of its technology to provide
the platform for travel websites operated by others. The Company derives its
revenues from commissions from transactions on its websites, sales of
advertisements on its websites and licensing fees. Services provided include
the reservation and purchase of airline tickets, hotel rooms, and car rentals
as well as vacation planning and destination information. In addition, the
Company receives fees for website advertising and for the licensing of
components of its technology and editorial content to selected airlines and
corporate travel agencies as a platform for their websites. In October 1999,
Microsoft contributed the assets, liabilities and operations of the Company to
Expedia, Inc.
On August 23, 1999, the Company was incorporated in the state of
Washington. The authorized share capital of the Company is 120,000,000 shares
of common stock and 10,000,000 shares of preferred stock.
Basis of presentation: The financial statements present the results of
operations, balance sheets, changes in owner's net deficit, and cash flows
applicable to the operations of the Company. The financial statements of the
Company are derived from the historic books and records of Microsoft.
The Company does not maintain corporate treasury, legal, tax, purchasing,
and other similar corporate support functions. For purposes of preparing the
accompanying financial statements, certain Microsoft corporate costs were
allocated to the Company using the allocation method described in Note 3.
Estimates and assumptions: Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, and expenses. Actual results could differ
from those estimates.
Cash and cash equivalents: The Company considers all highly liquid
instruments purchased with original maturities of 90 days or less to be cash
equivalents.
Property and equipment: Property and equipment consists primarily of
computer equipment, which is stated at cost. Property and equipment is
depreciated using the straight-line method over the estimated useful life of
the assets, ranging from one to three years.
Investment: The Company owns an interest of under 20% of the outstanding
equity in a related party and accounts for this investment under the cost
method.
Certain risks and concentrations: The Company is potentially subject to a
concentration of credit risk from its accounts receivable. The Company
maintains allowances for potential credit losses. Historically, such losses
have not been significant.
Commissions and related revenues accounted for 80%, 71%, and 69% of total
net revenues for fiscal 1997, 1998, and 1999, respectively. The Company relies
on unrelated service entities to accumulate, process, and remit these
revenues. Discontinuance of these services could result in disruption to the
Company's business and accordingly may have a material adverse effect on the
Company's results of operations, financial position, and cash flows.
F-7
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's business is subject to other risks and uncertainties common
to growing technology-based companies, including rapid technology change,
growth and commercial acceptance of the Internet, dependence on third-party
technology, new service introductions and other activities of competitors,
dependence on key personnel, international expansion, and limited operating
history.
Revenue recognition: Transaction revenues consist of commissions and
related revenues for air travel, hotel rooms, and car rentals, net of
allowances for cancellations. Revenues from air travel are recognized when the
reservation is made and secured by a credit card. Commission revenues from
hotel and car rental reservations are recognized either on receipt of the
commission payment or on notification of entitlement by a third party.
Additional revenues are derived from sales of advertising on the Company's
websites. Revenues from sales under per-transaction agreements are recognized
upon display of each individual advertisement. Revenues from sales under flat
fee agreements are recognized ratably over the period in which the advertising
is displayed, provided that no significant obligations for the Company remain,
collection of the resulting receivable is probable and evidence of an
arrangement exists.
Software license revenue recognition policies are in compliance with
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9, Modification
of SOP 97-2, With Respect to Certain Transactions. Revenues for significant
contracts have been recognized ratably over the license term.
Product development: Product development costs consist primarily of
payroll and related expenses for website and software development and are
expensed as incurred.
Capitalized software costs: Financial accounting standards require the
capitalization of certain software product costs after technological
feasibility of the software is established. To date, the period between
achieving technological feasibility and the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
Advertising costs: The Company expenses advertising costs as incurred.
Income taxes: As of June 30, 1999, the Company was not a separate taxable
entity for federal, state, or local income tax purposes and its operations are
included in the consolidated Microsoft returns. The Company's tax provision
has been prepared in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes on a separate return
basis. Accordingly, no tax benefit for the Company's net operating losses has
been recognized.
Deferred taxes result from differences between the financial and tax bases
of the Company's assets and liabilities and are adjusted for changes in tax
rates and tax laws when changes are enacted. Valuation allowances are recorded
to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized by the Company.
Stock-based compensation: The Company accounts for stock-based
compensation arrangements in accordance with provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and complies with the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation.
F-8
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings per share: The Company is not a separate legal entity and has no
historical capital structure. Therefore, historical earnings per share have
not been presented in the financial statements.
Pro-forma net loss per share (unaudited): In October 1999, the net
contribution from owner was converted into an aggregate of 33 million shares
of $.01 par value common stock.
Pro forma net loss per share has been computed in accordance with SFAS No.
128, Earnings per Share, and SEC Staff Accounting Bulletin (SAB) No. 98 to
reflect the pro forma effect of the Company's capitalization. Under the
provisions of SFAS No. 128 and SAB No. 98, basic pro forma net loss per share
is computed by dividing the net loss for the period by the weighted average
number of common shares outstanding, using the pro forma effect of the
conversion of the net contribution from owner as if the shares issued to
capitalize the Company were outstanding over the entire period for which the
pro forma net loss per share has been computed. Common equivalent shares
related to stock options are excluded from the calculation as their effect is
antidilutive. Accordingly, basic and diluted loss per share are equivalent.
Pro forma basic and dilutive net loss per share is as follows (in
thousands, except per share amount):
<TABLE>
<CAPTION>
Year Ended
June 30, Three months ended
1999 September 30, 1999
---------- ------------------
<S> <C> <C>
Net loss......................................... $(19,602) $(4,950)
Weighted average shares used to compute pro forma
basic and dilutive net loss per common share.... 33,000 33,000
--------- --------
Pro forma basic and dilutive net loss per
common share.................................. $ (0.59) $ (0.15)
========= ========
</TABLE>
Segment information: The Company has organized and managed its operations
in a single operating segment providing travel-related services, advertising,
and licenses for related software products. Revenues from customers outside of
the United States were less than 10% of net revenues for all periods presented
in the accompanying statements of operations.
Unaudited Interim Financial Statements: The interim financial information
contained herein is unaudited but, in the opinion of management, reflects all
adjustments which are necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented. All
such adjustments are of a normal, recurring nature. Results of operations for
interim periods presented herein are not necessarily indicative of results of
operations for the entire year.
Recent accounting pronouncements: In March 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1,
Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 will be effective for the Company's fiscal year ending
June 30, 2000. SOP 98-1 provides guidance on accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company will begin
capitalizing these costs in the fiscal year ending June 30, 2000.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-
Up Activities. SOP 98-5 will be effective for the Company's fiscal year ending
June 30, 2000. SOP 98-5 provides guidance on the
F-9
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
financial reporting of start-up costs and organization costs. It requires the
costs of start-up activities and organization costs to be expensed as
incurred. Subsequent to June 30, 1999, the Company was incorporated and
related organization costs will be expensed as incurred.
Note 2: Property and Equipment, net
A summary of property and equipment is as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
---------------- September 30,
1998 1999 1999
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
Computer equipment.............................. $ 1,771 $ 3,045 $ 3,644
Accumulated depreciation........................ (1,257) (2,659) (2,923)
------- ------- -------
Property and equipment, net................... $ 514 $ 386 $ 721
======= ======= =======
</TABLE>
Fully depreciated computer equipment of $624,000 was transferred into the
Company from Microsoft in the year ended June 30, 1999.
Note 3: Related Party Transactions
Equity investment in related party: In March 1998, the Company received an
equity interest in VacationSpot.com Inc. in exchange for a link on the
Company's website to the VacationSpot.com's website to be provided over a two-
year period. An executive officer of the Company is a member of the Board of
Directors of VacationSpot.com Inc. The fair value of the advertising services
provided to the investee was estimated at $400,000.
F-10
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
Allocated costs: As discussed in Note 1, the financial statements of the
Company reflect certain allocated corporate support costs from Microsoft. Such
allocations and charges are based on a percentage of total corporate costs for
the services provided, based on factors such as headcount, revenue, gross
asset value, or the specific level of activity directly related to such costs.
Management believes that the allocation methods used are reasonable and
reflective of the Company's proportionate share of such expenses and are not
materially different from those that would have been incurred on a stand alone
basis.
The following summarizes the corporate costs allocated to the Company (in
thousands):
<TABLE>
<CAPTION>
Years ended June 30,
----------------------- Three months ended
1997 1998 1999 September 30, 1999
------- ------- ------- ------------------
(unaudited)
<S> <C> <C> <C> <C>
Cost of revenues..................... $ 1,754 $ 2,912 $ 2,147 $ 924
Product development.................. 8,367 4,250 6,727 557
Sales and marketing.................. 1,591 1,622 998 1,497
General and administrative........... 2,921 3,633 5,754 2,086
------- ------- ------- ------
$14,633 $12,417 $15,626 $5,064
======= ======= ======= ======
</TABLE>
Subsequent to June 30, 1999, the Company entered into a services agreement
with Microsoft under which it will pay Microsoft directly for many of the
services that Microsoft formerly provided on an allocated basis. See Note 6.
Note 4: Income Taxes
No provision for income taxes has been recorded because the Company has
incurred net losses since inception and the Company has received no benefit
for such losses from the consolidated Microsoft group. The Company has gross
deferred tax assets related primarily to unearned revenue that is currently
income for tax purposes. Management believes that, based on a number of
factors, the available objective evidence creates sufficient uncertainty
regarding the realizability of the deferred tax assets such that a full
valuation allowance has been recorded.
Deferred tax assets at June 30 are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Unearned revenue........................................... $ 2,752 $ 2,105
Other...................................................... 7 35
------- -------
Gross deferred tax assets.................................. 2,759 2,140
------- -------
Deferred tax asset valuation allowance..................... (2,759) (2,140)
------- -------
$ -- $ --
======= =======
</TABLE>
The Company has entered into a tax allocation agreement with Microsoft.
The agreement would not allow Expedia, Inc. to utilize tax net operating
losses previously generated by Expedia as an operating
F-11
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
unit of Microsoft. Under the agreement, the Company will calculate its own tax
liability as if it had filed a separate tax return. Generally, if the Company
contributes a tax benefit which reduces Microsoft's consolidated tax
liability, Microsoft will compensate the Company in an amount equal to 92.5%
of the benefit. Microsoft will be entitled to deduct on its separate tax
return a portion of the cost attributable to the Microsoft stock options that
the Company assumes. The parties will take this deduction into account under
the normal tax accounting rules, so the deduction will generally occur on the
exercise of the options. The portion of this cost that Microsoft will deduct
is equal to the excess of the fair market value of the shares to be acquired
on exercise of the option on the date the Company employs the optionee over
the exercise price of the assumed option. The Company will determine this
amount on the date that an optionee is employed.
Note 5: Employee Benefit Plans
Employees of the Company participate in stock-based compensation and
savings plans that are administered through Microsoft and involve options to
acquire Microsoft stock. Accordingly, option and expense information presented
herein represents the Company's portion of the overall plans.
Employee stock purchase plan: Microsoft has an employee stock purchase
plan for all eligible employees. Under the plan, shares of Microsoft's common
stock may be purchased at six-month intervals at 85% of the lower of the fair
market value on the first or the last day of each six-month period. Employees
may purchase shares having a value not exceeding 10% of their gross
compensation during an offering period. During 1997, 1998, and 1999, employees
of the Company purchased 43,600, 29,700, and 18,900 shares, respectively, at
average prices of $14.91, $27.21, and $52.59 per share.
401(k) savings plan: Microsoft has a savings plan which qualifies under
401(k) of the Internal Revenue Code. Participating employees may defer up to
15% of pretax salary, but not more than statutory limits. Microsoft
contributes 50 cents for each dollar a participant contributes, with a maximum
contribution of 3% of a participant's earnings. Matching contributions for
employees of the Company were $126,000, $279,000, and $351,000 in 1997, 1998,
and 1999, respectively.
Stock option plans: Microsoft stock option plans for directors, officers,
and employees provide for nonqualified and incentive stock options. Options
granted prior to 1995 generally vest over four and one-half years and expire
ten years from the date of the grant. Options granted during and after 1995
generally vest over four and one-half years and expire seven years from the
date of the grant, while certain options vest over seven and one-half years
and expire after ten years.
The Company and Microsoft will require all permanent employees who
transfer to the Company, subject to specific tax and legal requirements, to
participate in a program involving the cancellation of all of their unvested
options to purchase Microsoft common stock and the issuance by the Company of
new options to acquire the Company's common stock. The new options will have
comparable terms, vesting schedules and in-the-money value as the canceled
options. This issuance will be treated as a new grant of stock options. As a
result, the Company will incur a non-cash charge of approximately $100 to $150
million as the exercise price of the new options will be significantly less
than the initial public offering price of the Company's common stock. This
non-cash charge will be amortized over the vesting period of the new options,
ranging from one month to 54 months.
Expedia stock plans: In October 1999, the Board of Directors of the
Company adopted the following stock plans:
F-12
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of
300,000 shares of common stock have been reserved for issuance under the
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code. The first offering period will commence on January 1, 2000.
1999 Stock Option Plan (the "Stock Option Plan"). In addition to the
options issued to replace the cancelled unvested Microsoft options, a total of
4,000,000 shares of common stock has been reserved for issuance under the
Stock Option Plan for grants to employees, officers and employee directors of
nonstatutory stock options.
1999 Stock Option Plan for Non-Employee Directors (the "Directors' Plan").
A total of 135,000 shares of common stock has been reserved for issuance under
the Directors' Plan, which sets a maximum of 10,000 shares for which options
may be granted to any one non-employee director in any year, 15,000 shares in
the year in which the director is first elected.
The following information represents data reflecting outstanding Microsoft
employee stock options for Company employees for the three-year period ended
June 30, 1999. Upon the initial public offering, Company employees will be
able to retain their vested Microsoft stock options. Unvested Microsoft
options will be converted to Expedia, Inc. options. The transfer of Microsoft
employees into and out of Expedia are presented below as transfers in and out.
<TABLE>
<CAPTION>
Options outstanding
-----------------------------
Number Weighted average
outstanding exercise price
----------- ----------------
<S> <C> <C>
Balance, June 30, 1996............................ 3,342,027 $ 4.47
Granted......................................... 1,130,720 14.24
Transfers in.................................... 1,611,600 4.68
Exercised....................................... (1,131,704) 3.73
Cancelled and transfers out..................... (1,428,116) 5.25
----------
Balance, June 30, 1997............................ 3,524,527 7.62
Granted......................................... 1,007,096 31.74
Transfers in.................................... 3,661,380 7.30
Exercised....................................... (1,611,934) 4.50
Cancelled and transfers out..................... (1,374,234) 10.68
----------
Balance, June 30, 1998............................ 5,206,835 12.22
Granted......................................... 434,554 54.21
Transfers in.................................... 639,800 12.76
Exercised....................................... (791,887) 6.27
Cancelled and transfers out..................... (795,180) 16.26
----------
Balance, June 30, 1999............................ 4,694,122 16.50
----------
Granted (unaudited)............................. 283,552 86.14
Transfers in (unaudited)........................ 597,405 20.16
Exercised (unaudited)........................... (279,179) 18.07
Cancelled and transfers out (unaudited)......... (14,955) 23.84
----------
Balance, September 30, 1999 (unaudited)........... 5,280,945 $20.55
==========
</TABLE>
F-13
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Options exercisable
Options outstanding at June 30, 1999 at June 30, 1999
-------------------------------------- --------------------------
Weighted
average
Weighted remaining Weighted
Range of Number average contractual Number average
exercise prices outstanding exercise price life outstanding exercise price
- ----------------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.85 $ 5.34 1,335,772 $ 3.82 3.0 years 1,335,772 $ 3.82
5.35 12.64 997,840 9.53 3.7 years 810,331 9.12
12.65 29.73 1,186,421 14.50 4.8 years 572,144 14.32
29.74 47.97 826,495 32.24 6.1 years 118,050 31.77
47.98 83.28 347,594 54.66 6.1 years --
--------- ---------
4,694,122 2,836,297
========= =========
</TABLE>
Fair value disclosures: Under SFAS No. 123, employee stock options are
valued at the grant date using the Black-Scholes valuation model and the
related compensation cost is recognized ratably over the vesting period. Had
compensation cost for the Microsoft's stock option and employee stock purchase
plans been determined based on the Black-Scholes value at the grant dates for
awards as prescribed by SFAS No. 123, the pro forma net loss for fiscal 1997,
fiscal 1998 and fiscal 1999 would have been $30,100,000, $32,800,000, and
$26,900,000, respectively.
The Company calculated the minimum fair value of each option grant at the
date of grant using the Black-Scholes pricing model with the following
assumptions for the years ended June 30:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected life (years)...................................... 5 5 5
Risk-free interest rate.................................... 6.5% 5.7% 4.9%
Expected volatility........................................ 30% 32% 32%
Dividend rate.............................................. 0% 0% 0%
</TABLE>
Note 6: Commitments and Contingencies
The Company has multi-year agreements with certain travel service
providers that make available the services accessed through the Company's
website. Under these agreements, the Company pays monthly service fees to the
service providers based on the volume of activity. In addition, certain
communication and capacity fees are paid. The Company expenses these amounts
as the services are provided.
The Company is party to a cooperative advertising agreement with a
corporate airline customer that requires the Company to set aside monies
received from transactions to be used for joint advertising initiatives. Such
commitments amounted to $87,000 and $245,000 in 1998 and 1999, respectively.
The Company has entered into a services agreement with Microsoft whereby
Microsoft will provide the Company with employee, administrative and
operational services. Employee services will be provided until the earlier of
May 20, 2000 or upon notice by the Company that employee services are no
longer required. Administrative and operational services will be provided
until December 31, 2000 but the parties may agree to extend the expiration
date. Fees will be paid to Microsoft for the services under
F-14
<PAGE>
this agreement on either an estimated or actual cost reimbursement, including
any sales and occupancy taxes. Minimum payments are approximately $365,000 per
month. In addition, the Company will be obligated to pay additional amounts
based on its headcount and usage of services.
The Company has entered into a five-year carriage and cross promotion
agreement with Microsoft under which the Company will receive premium
placement on Microsoft's MSN.com website, the Hotmail email service and the
WebTV platform. Under the terms of the agreement, Microsoft is able to
generate revenues by selling up to 52.0 million banner advertisements on the
Company's website during the first year of this agreement and up to 57.2
million banner advertisements during the second year of the agreement. The
Company will pay Microsoft a flat annual fee of $2.0 million in fiscal 2000
and $2.2 million in fiscal 2001 as well as incentive fees to the extent that
the number of completed airline transactions from the MSN.com website exceeds
the Company's forecasts. The fees and terms of sale of banner advertisements
will depend on agreement between the parties for the remaining three years
under this agreement.
On October 13, 1999, Priceline.com Incorporated filed a lawsuit against
Microsoft and the Company alleging patent infringement and use of unfair and
deceptive acts. The lawsuit seeks unspecified damages, including treble and
punitive damages, an injunction against further alleged infringement and from
continuing to operate the Company's Hotel Price Matcher or any similar
service, among other items. Since the lawsuit was recently filed and discovery
has not yet commenced, the Company is unable to estimate the likelihood of an
adverse result or range of possible loss relating to this matter. However, the
Company does not believe this claim has merit and intends to vigorously defend
against this lawsuit.
On October 7, 1999, Reed Elsevier Inc. filed a lawsuit against Microsoft
and the Company alleging a material breach of an agreement between Microsoft
and Reed Elsevier, Inc. The suit alleges conversion and misappropriation of
Reed Elsevier Inc.'s proprietary database, unfair competition, breach of
implied covenant of good faith and fair dealing and interference with a
business relationship. The suit seeks unspecified damages, including punitive
and permanent injunction requiring compliance with the agreement, among other
items. Since the lawsuit was recently filed and discovery has not yet
commenced, the Company is unable to estimate the likelihood of an adverse
result or the range of possible loss relating to this matter. We intend to
vigorously defend ourselves in this lawsuit and do not expect the outcome of
this lawsuit to have a material adverse effect on our business.
The Company is also subject to various legal proceedings and claims that
arise in the ordinary course of business.
F-15
<PAGE>
INSIDE BACK COVER
[ARTWORK]
A Global Marketplace, A Local Presence
[screenshot of the front page of Expedia.de, our localized website in Germany]
Customized to Local Needs
Localized versions of Expedia's websites accommodate not only differences in
language and culture, but also differences in travel purchase behavior and
supplier inventory preferences.
Vacation Package Database
Expedia provides European customers with an interface to a third-party database
of packaged tour inventory.
Negotiated Fares
We offer fares negotiated with airlines by our local travel partners and
integrate negotiated and published fares in a single display on our website.
Localized Editorial Content
The editorial advice and feature articles offered on our international sites are
developed with a local point of view.
International Strategic Partners
Expedia has developed strategic relationships in Germany, the United Kingdom and
Canada to provide complete localized services.
Localized Customer Service
Our customer service is provided by our locally-based partners and is tailored
to the needs of travelers in particular regions of the world.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 34
Management............................................................... 50
Certain Relationships and Related Transactions........................... 58
Principal Stockholder.................................................... 62
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 65
Underwriting............................................................. 67
Validity of the Common Stock............................................. 69
Experts.................................................................. 69
Where You Can Find More Information...................................... 69
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,200,000 Shares
Expedia, Inc.
Common Stock
---------------
[EXPEDIA, INC. LOGO]
---------------
Joint Book-Running Managers
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
To Be
Paid
----------
<S> <C>
SEC Registration Fee.......................................... $ 20,850
NASD Filing Fee............................................... 8,000
Nasdaq National Market Listing Fee............................ 96,000
Printing Fees and Expenses.................................... 300,000
Legal Fees and Expenses....................................... 400,000
Accounting Fees and Expenses.................................. 900,000
Blue Sky Fees and Expenses.................................... 15,000
Transfer Agent and Registrar Fees............................. 15,000
Miscellaneous................................................. 45,150
----------
Total....................................................... $1,800,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII of our Articles of Incorporation authorizes us to indemnify any
present or former director or officer to the fullest extent not prohibited by
the Washington Business Corporation Act ("WBCA") or other applicable law now
or hereafter in force. Chapter 23B.08.510 and .570 of the WBCA authorizes a
corporation to indemnify its directors, officers, employees, or agents in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities, including provisions permitting advances for
expenses incurred, arising under the Securities Act.
In addition, we intend to either maintain our own or receive coverage under
Microsoft's directors' and officers' liability insurance under which our
directors and officers are insured against loss, as defined in the policy, as
a result of claims brought against them for their wrongful acts in such
capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) (i) On October 1, 1999, Expedia issued to Microsoft 33,000,000
shares of common stock in exchange for assets relating to Expedia's
operations.
(ii) As of the date of this offering, Expedia will grant options under
its 1999 Stock Option Plan for new Expedia employees who were not
previously employed by Microsoft and in order to grant new options and to
replace the unvested Microsoft options of Expedia employees who were
previously employed by Microsoft.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
II-1
<PAGE>
The issuance described in Item 15(a)(i) was deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
a transaction by an issuer not involving any public offering. The issuances
described in Item 15(a)(ii) was deemed to be exempt from registration under
the Securities Act in reliance upon Rule 701 promulgated thereunder in that
they were offered and sold either pursuant to written compensatory benefit
plans or pursuant to a written contract relating to compensation, as provided
by Rule 701. In addition, such issuances were deemed to be exempt from
registration under Section 4(2) of the Securities Act as transactions by an
issuer not involving any public offering. The recipients of securities in each
such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends where affixed to the securities
issued in such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of International Underwriting Agreement
3.1 Articles of Incorporation of the Registrant+
3.2 Articles of Amendment to Articles of Incorporation dated September 22,
1999+
3.2.1 Articles of Amendment to Articles of Incorporation dated October 25,
1999
3.3 Bylaws of the Registrant+
4.1 Form of the Registrant's Common Stock Certificate
5.1 Opinion of Preston Gates & Ellis LLP
10.1 Contribution Agreement between Expedia, Inc. and Microsoft
Corporation, effective October 1, 1999
10.2 Services Agreement between Expedia, Inc. and Microsoft Corporation,
effective October 1, 1999
10.3 License Agreement between Expedia, Inc. and Microsoft Corporation,
effective October 1, 1999
10.4 Map Server License Agreement between Expedia, Inc. and Microsoft
Corporation, effective October 1, 1999
10.5 Form of Carriage and Cross Promotion Agreement between Expedia, Inc.
and Microsoft Corporation, effective October 1, 1999
10.6 Tax Allocation Agreement between Expedia, Inc. and Microsoft
Corporation, effective October 1, 1999
10.7 Shareholder Agreement between Expedia, Inc. and Microsoft Corporation,
effective October 1, 1999
10.8 CRS Marketing, Services and Development Agreement between Microsoft
Corporation and Worldspan, L.P., dated December 15, 1995 and last
amended on April 1, 1999*+
10.9 Service Agreement between Microsoft Corporation and World Travel
Partners, L.P., dated October 9, 1996 and amended on April 1, 1999*+
10.10 Form of 1999 Stock Option Plan
10.11 1999 Employee Stock Purchase Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.12 1999 Directors' Stock Option Plan
10.13 Form of Employment Agreement between Expedia, Inc. and Richard N.
Barton
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
27.1 Financial Data Schedule
99.1 Consent of Person About to Become Director for Brad Chase+
99.2 Consent of Person About to Become Director for Gerald Grinstein+
99.3 Consent of Person About to Become Director for Richard N. Nanula+
Consent of Person About to Become a Director for Laurie McDonald
99.4 Jonsson
</TABLE>
- --------
+ Previously filed
* Confidential treatment requested for portions of this agreement pursuant to
Rule 406 of the Securities Act
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or
(4), or 497(h) under the Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Redmond, State of
Washington, on the 26th day of October 1999.
Expedia, Inc.
/s/ Richard N. Barton
By: _________________________________
Richard N. Barton
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard N. Barton President, Chief Executive October 26, 1999
______________________________________ Officer and Director
Richard N. Barton (Principal Executive
Officer)
* Vice President and Chief October 26, 1999
______________________________________ Financial Officer
Gregory S. Stanger (Principal Financial and
Accounting Officer)
* Chairman of the Board October 26, 1999
______________________________________
Gregory B. Maffei
/s/ Richard N. Barton
*By: _________________________________
Richard N. Barton
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of International Underwriting Agreement
3.1 Articles of Incorporation of the Registrant+
3.2 Articles of Amendment to Articles of Incorporation dated September 22,
1999+
3.2.1 Articles of Amendment to Articles of Incorporation dated October 25,
1999
3.3 Bylaws of the Registrant+
4.1 Form of the Registrant's Common Stock Certificate
5.1 Opinion of Preston Gates & Ellis LLP
10.1 Contribution Agreement between Expedia, Inc. and Microsoft Corporation,
effective October 1, 1999
10.2 Services Agreement between Expedia, Inc. and Microsoft Corporation,
effective October 1, 1999
10.3 License Agreement between Expedia, Inc. and Microsoft Corporation,
effective October 1, 1999
10.4 Map Server License Agreement between Expedia, Inc. and Microsoft
Corporation, effective October 1, 1999
10.5 Form of Carriage and Cross Promotion Agreement between Expedia, Inc.
and Microsoft Corporation, effective October 1, 1999
10.6 Tax Allocation Agreement between Expedia, Inc. and Microsoft
Corporation, effective October 1, 1999
10.7 Shareholder Agreement between Expedia, Inc. and Microsoft Corporation,
effective October 1, 1999
10.8 CRS Marketing, Services and Development Agreement between Microsoft
Corporation and Worldspan, L.P., dated December 15, 1995 and last
amended on April 1, 1999*+
10.9 Service Agreement between Microsoft Corporation and World Travel
Partners, L.P., dated October 9, 1996 and amended on April 1, 1999*+
10.10 Form of 1999 Stock Option Plan
10.11 1999 Employee Stock Purchase Plan
10.12 1999 Directors' Stock Option Plan
10.13 Form of Employment Agreement between Expedia, Inc. and Richard N.
Barton
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
27.1 Financial Data Schedule
99.1 Consent of Person About to Become Director for Brad Chase+
99.2 Consent of Person About to Become Director for Gerald Grinstein+
99.3 Consent of Person About to Become Director for Richard N. Nanula+
Consent of Person About to Become a Director for Laurie McDonald
99.4 Jonsson
</TABLE>
- --------
+ Previously filed
* Confidential treatment requested for portions of this agreement pursuant to
Rule 406 of the Securities Act
<PAGE>
EXHIBIT 1.1
Expedia, Inc.
Common Stock
Underwriting Agreement
(U.S. Version)
October , 1999
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004, and
c/o Morgan Stanley & Co. Incorporated,
1585 Broadway,
New York, New York 10036.
Ladies and Gentlemen:
Expedia, Inc., a Washington corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 4,160,000 shares
(the "Firm Shares") and, at the election of the Underwriters, up to 624,000
additional shares (the "Optional Shares") of Common Stock, par value $0.01 per
share ("Common Stock"), of the Company (the Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares").
It is understood and agreed that Goldman, Sachs & Co. and Morgan Stanley &
Co. Incorporated are joint book runners for the offering and any determinations
or other actions to be made under this Agreement by you or by the
Representatives shall require the concurrence of both Goldman, Sachs & Co. and
Morgan Stanley & Co. Incorporated.
<PAGE>
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 1,196,000
shares of Common Stock (the "International Shares"), including the overallotment
option thereunder, through arrangements with certain underwriters outside the
United States (the "International Underwriters"), for whom Goldman Sachs
International and Morgan Stanley & Co. International Limited are acting as lead
managers. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the International Agreement are
hereby expressly made conditional on one another. The Underwriters hereunder
and the International Underwriters are simultaneously entering into an Agreement
between U.S. and International Underwriting Syndicates (the "Agreement between
Syndicates") which provides, among other things, for the transfer of shares of
Common Stock between the two syndicates. Two forms of prospectus are to be used
in connection with the offering and sale of shares of Common Stock contemplated
by the foregoing, one relating to the Shares hereunder and the other relating to
the International Shares. The latter form of prospectus will be identical to
the former except for certain alternate and substitute pages as included in the
international prospectus. Except as used in Sections 2, 3, 4, 9 and 11 herein,
and except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Common Stock which may be sold pursuant
to either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 33-87623) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary
2
<PAGE>
prospectus included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act is hereinafter called a "Preliminary Prospectus";
the various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Initial Registration Statement at the time it was declared
effective each as amended at the time such part of the Initial Registration
Statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are hereinafter
collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act,
is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not 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 the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by any Underwriter through
you expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
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 not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by any Underwriter through you expressly for use therein;
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(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of the
Company and its subsidiaries (a "Material Adverse Effect"), otherwise than
as set forth or contemplated in the Prospectus;
(e) The Company and any subsidiaries of the Company own no real
property; as of October 1, 1999 (the "Contribution Date") the principal
assets of the Company (and any subsidiaries) were validly transferred to it
(and them) by Microsoft Corporation ("Microsoft"); the Company and any
subsidiaries of the Company have good and marketable title to all personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except those that are described in the Prospectus,
those that could not reasonably be expected to have a Material Adverse
Effect and those that do not interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as could not reasonably be expected to have a Material Adverse
Effect and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation under the laws of the State of Washington, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification, or
is subject to no material liability or disability by reason of the failure
to be so qualified in any such jurisdiction; and each subsidiary of the
Company has been duly incorporated and is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation;
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(g) The Company has an authorized capitalization as set forth in the
Prospectus, including the Common Stock and a class of preferred stock
undesignated as to series, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued and are fully
paid and non-assessable, conform to the description thereof contained in
the Prospectus and are owned by Microsoft; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non assessable and (except for
directors' qualifying shares and except as set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(h) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and validly issued and
fully paid and non-assessable and will conform to the description of the
Common Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by the
Company with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of
the provisions of the Articles of Incorporation or By-laws of the Company
or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation of
its Articles of Incorporation or By-laws or in default in the performance
or
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observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound, except for defaults that individually
or in the aggregate would not have a Material Adverse Effect; as of the
Contribution Date, all material indentures, mortgages, deeds of trust, loan
agreements, license agreements, supply agreements and other material
contracts and instruments that are referred to in the Prospectus as
applicable to the Company or any of its subsidiaries were validly assigned
to them by Microsoft;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Common Stock, under the caption "Taxation", and
under the caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are accurate,
complete and fair;
(l) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act");
(n) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its subsidiaries are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(o) The Company has reviewed its operations and those of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review, the Company
does not believe that the Year 2000 Problem will have a Material Adverse
Effect
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or result in any material loss or interference with the business or
operations of the Company and its subsidiaries. The "Year 2000 Problem" as
used herein means any significant risk that computer hardware or software
used in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation
of mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at least
as effectively as in the case of dates or time periods occurring prior to
January 1, 2000; and
(p) To the knowledge of the Company, the Company and its
subsidiaries own or possess valid licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights, know-how,
trade secrets and other intellectual property necessary to conduct the
business of the Company and its subsidiaries in the manner in which it has
been and is being conducted, and except as set forth in the Prospectus the
Company and its subsidiaries have not received any notice of infringement
or of conflict with (and the Company knows of no such infringement or
conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights, know-how, trade secrets
or other intellectual property which, if determined adversely to the
Company or its subsidiaries, would individually or in the aggregate have a
Material Adverse Effect; and the inventions, products or processes referred
to in the Prospectus do not, to the knowledge of the Company, infringe or
conflict with any right or patent, or any invention, product or process
which is the subject of a patent application known to the Company, which if
determined adversely would have a Material Adverse Effect.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase price
per share set forth in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator
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of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 624,000 Optional Shares, at the purchase price per
share set forth in the paragraph above, for the purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as you may request upon at least forty-eight hours' prior notice
to the Company, shall be delivered by or on behalf of the Company to you,
through the facilities of the Depository Trust Company ("DTC"), for the
account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to you at least
forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at
least twenty-four hours prior to the Time of Delivery (as defined below)
with respect thereto at the office of DTC or its designated custodian (the
"Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1999 or such other time and date as you and the Company may
agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m.,
New York time, on the date specified by you in the written notice given by
you of the Underwriters' election to purchase such Optional Shares, or such
other time and date as you and the Company may agree upon in writing. Such
time and date for delivery of the Firm Shares is herein called the "First
Time of Delivery", such time and date for delivery of the Optional Shares,
if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
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<PAGE>
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the
offices of Preston Gates & Ellis LLP, 701 Fifth Avenue, Seattle, Washington
98104 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at
the Closing Location at 12:00 p.m., Seattle time, on the New York Business
Day next preceding such Time of Delivery, at which meeting the final drafts
of the documents to be delivered pursuant to the preceding sentence will be
available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
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Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 A.M. New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may reasonably request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement, any shares of
Common Stock or any securities of the Company that are substantially
similar to the Common Stock, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the right
to receive, Common Stock or any such
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<PAGE>
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of convertible
or exchangeable securities outstanding as of, the date of this Agreement),
without your prior written consent;
(f) To furnish to its shareholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, shareholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement), to make
available to its shareholders consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its shareholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement and the International Underwriting Agreement in
the manner specified in the Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market;
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act.
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6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the International Underwriting Agreement, the
Agreement between Syndicates, the Selling Agreement, the Blue Sky Memorandum,
closing documents (including compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 5(b) hereof, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on the Nasdaq National Market;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the
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Commission; and all requests for additional information on the part of the
Commission shall have been complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to the Company, the Shares, the Registration Statement, the
Prospectus and such other related matters as you may reasonably request,
and such counsel shall have received such papers and information as they
may reasonably request to enable them to pass upon such matters; in giving
such opinion or opinions, such counsel may rely as to all matters of
Washington law upon the opinion of Preston Gates & Ellis LLP referred to in
paragraph (c) of this Section 7;
(c) Preston Gates & Ellis LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached
as Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation under the laws of Washington, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and nonassessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Any real property and buildings held under lease by the
Company are held by it under valid, subsisting and enforceable
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leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company (in giving the opinion in this clause, such
counsel may state that no examination of record titles for the purpose
of such opinion has been made, and that they are relying upon a
general review of the titles of the Company, upon opinions of counsel
to the lessors of such property and, in respect to matters of fact,
upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you
and they are justified in relying upon such opinions, abstracts,
reports, policies and certificates);
(v) The Contribution Agreement, the Services Agreement, the
License Agreement, the Map Server License Agreement, the Carriage and
Cross Promotion Agreement, the Tax Allocation Agreement and the
Shareholder Agreement, each as described in the Prospectus under the
caption "Our Relationship with Microsoft," have been duly authorized,
executed and delivered by the Company and Microsoft, and each
constitutes a valid and legally binding agreement of the Company and
Microsoft, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(vi) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vii) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company, the compliance by the Company with
all of the provisions of this Agreement and the International
Underwriting Agreement, the consummation of the transactions
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herein and therein contemplated and the performance by the Company and
Microsoft of their respective obligations under the Contribution
Agreement, the Services Agreement, the License Agreement, the Map
Server License Agreement, the Carriage and Cross Promotion Agreement,
the Tax Allocation Agreement and the Shareholder Agreement, each as
described in the Prospectus under the caption "Our Relationship with
Microsoft," will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Company or
Microsoft is a party or by which the Company or Microsoft is bound or
to which any of the property or assets of the Company or Microsoft is
subject, nor will such action result in any violation of the
provisions of the Articles of Incorporation or By-laws of the Company
or Microsoft or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body known to such
counsel having jurisdiction over the Company or Microsoft or any of
their respective properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by this Agreement and
the International Underwriting Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(x) The Company is in not violation of its Articles of
Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", under the caption "Certain United
States Federal Tax Consequences to Non-U.S. Holders of Common Stock"
included in the alternate pages in the international prospectus, and
under the caption "Underwriting", insofar as they purport to
constitute a summary of the terms of the Capital Stock of the Company,
or insofar as they purport to describe the provisions
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of the laws and documents referred to therein, are accurate, complete
and fair in all material respects;
(xii) The Company is not an "investment company", as such term is
defined in the Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder;
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (xi) of this Section 7(c). In addition,
such counsel shall state that nothing has come to their attention that
would cause them to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related statements and related schedules therein, as to
which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading or
that, as of such Time of Delivery, either the Registration Statement
or the Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any contracts or
other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or
described as required;
16
<PAGE>
(d) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Deloitte &
Touche LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto (the executed copy of the
letter delivered prior to the execution of this Agreement is attached as
Annex I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(e)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(f) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on the Nasdaq
National Market, (ii) a suspension or material limitation in trading in the
Company's securities on the Nasdaq National Market; (iii) a general
moratorium on commercial banking activities declared by either Federal or
New York or Washington State authorities; or (iv) any outbreak or
escalation of hostilities, or any change in financial markets, or any
calamity or crisis, or any declaration by the United States of a national
emergency or war, if the effect of any such event specified in this clause
(iv), singly or together with any other such event, in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the
public offering or the
17
<PAGE>
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(g) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on the Nasdaq National Market;
(h) The Company shall have obtained and delivered to the
Representatives executed copies of an agreement from each of its directors
and executive officers, [from certain other key employees {still being
discussed}] and from Microsoft substantially to the effect set forth in
Appendix A hereof in form and substance satisfactory to you;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (e) of this Section and as to such other matters as
you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any 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 not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however,
that the Company shall 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 any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with
18
<PAGE>
information furnished in writing to the Company by any Underwriter through
you expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any 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 not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with information furnished in writing to the Company
by such Underwriter through you expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred
by the Company in connection with investigating or defending any such
action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to,
19
<PAGE>
any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising
out of such action or claim and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law or if the indemnified party failed to
give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. 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 the Company on the one hand or the Underwriters
on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above in
20
<PAGE>
this subsection (d). 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 subsection (d) 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. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section 8 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company (including any person who, with his or her consent, is named in
the Registration Statement as about to become a director of the Company)
and to each person, if any, who controls the Company within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled
to a further period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such Shares on such
terms. In the event that, within the respective prescribed periods, you
notify the Company that you have so arranged for the purchase of such
Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents
21
<PAGE>
or arrangements, and the Company agrees to file promptly any amendments to
the Registration Statement or the Prospectus which in your opinion may
thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as
if such person had originally been a party to this Agreement with respect
to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-
defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, or if
the Company shall not exercise the right described in subsection (b) above
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the
Second Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the
Company, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
22
<PAGE>
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly as the Representatives of the Underwriters. It is
understood and agreed that Goldman, Sachs & Co. and Morgan Stanley & Co.
Incorporated are joint book runners for the offering and any determinations or
other actions to be made under this Agreement by you or by the Representatives
shall require the concurrence of both Goldman, Sachs & Co. and Morgan Stanley &
Co. Incorporated.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the Representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department, and in care of Morgan Stanley & Co. Incorporated, 1585 Broadway, New
York, New York 10036, Attention: Registration Department; and if to the Company
shall be delivered or sent by mail, telex or facsimile transmission to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
23
<PAGE>
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
24
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us five counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters (U.S. Version), the form of which shall be submitted to the Company
for examination upon request, but without warranty on your part as to the
authority of the signers thereof.
Very truly yours,
Expedia, Inc.
By:
------------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
By:
-------------------------------
(Goldman, Sachs & Co.)
Morgan Stanley & Co. Incorporated
By:
-------------------------------
Name:
Title:
On behalf of each of the Underwriters
25
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Number of Optional
Shares to be
Total Purchased if
Number of Maximum
Firm Shares Option
Underwriter To be Purchased Exercised
----------- ---------------- -------------------
<S> <C> <C>
Goldman, Sachs & Co..........................................
Morgan Stanley & Co. Incorporated............................
---------------- ------------------
Total.............................................. 4,160,000 624,000
================ ==================
</TABLE>
<PAGE>
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the representatives
of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in
paragraph (v)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
<PAGE>
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(v) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
2
<PAGE>
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options which were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its subsidiaries, or
any decreases in consolidated net current assets or shareholders'
equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included in
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vi) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(v) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and
3
<PAGE>
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its subsidiaries
and have found them to be in agreement.
4
<PAGE>
APPENDIX A
Expedia, Inc.
Lock-Up Agreement
____________________, 1999
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004, and
c/o Morgan Stanley & Co. Incorporated,
1585 Broadway,
New York, New York 10036.
Re: Expedia, Inc. - Lock-Up Agreement
---------------------------------
Ladies and Gentlemen:
The undersigned understands that Goldman, Sachs & Co. and Morgan Stanley & Co.
Incorporated, as representatives (the "U.S. Representatives"), propose to enter
into an underwriting agreement (the "U.S. Underwriting Agreement") on behalf of
the several U.S. Underwriters named in Schedule I to such agreement
(collectively, the "U.S. Underwriters"), with Expedia, Inc., a Washington
corporation (the "Company"), and that Goldman Sachs International and Morgan
Stanley & Co. International Limited (the "International Representatives" and
together with the U.S. Representatives, the "Representatives") propose to enter
into an underwriting agreement (the "International Underwriting Agreement" and
together with the U.S. Underwriting Agreement, the "Underwriting Agreements") on
behalf of the several International Underwriters named in Schedule I to such
agreement (collectively, the "International Underwriters" and together with the
U.S. Underwriters, the "Underwriters"), with the Company, providing for a public
offering of Common Stock of the Company (the "Shares") pursuant to a
Registration Statement on Form S-1 to be filed with the Securities and Exchange
Commission (the "SEC").
In consideration of the agreement by the Underwriters to offer and sell the
Shares, and of other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the undersigned agrees that, during the period
beginning from the date of the final U.S. Prospectus covering the public
offering of the Shares and continuing to and including the date 180 days after
the date of such final Prospectus, the undersigned will not make any demand for
or exercise any registration right with respect to, and will not offer, sell,
contract to sell, pledge,
<PAGE>
grant any option to purchase, make any short sale or otherwise dispose of, any
shares of Common Stock of the Company, or any options or warrants to purchase
any shares of Common Stock of the Company, or any securities convertible into,
exchangeable for or that represent the right to receive shares of Common Stock
of the Company, whether now owned or hereinafter acquired, owned directly by the
undersigned (including holding as a custodian) or with respect to which the
undersigned has beneficial ownership within the rules and regulations of the SEC
(collectively the "Undersigned's Shares").
The foregoing restriction is expressly agreed to preclude the undersigned from
engaging in any hedging or other transaction which is designed to or which
reasonably could be expected to lead to or result in a sale or disposition of
the Undersigned's Shares even if such Shares would be disposed of by someone
other than the undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put or call option) with respect to any
of the Undersigned's Shares or with respect to any security that includes,
relates to, or derives any significant part of its value from such Shares.
Notwithstanding the foregoing, the undersigned may transfer the Undersigned's
Shares (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree to be bound in writing by the restrictions set forth herein, (ii)
to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, provided that the trustee of the trust
agrees to be bound in writing by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value, or
(iii) with the prior written consent of both Goldman, Sachs & Co. and Morgan
Stanley & Co. Incorporated on behalf of the Underwriters. For purposes of this
Lock-Up Agreement, "immediate family" shall mean any relationship by blood,
marriage or adoption, not more remote than first cousin and, as an additional
limitation on gifts or transfers under clauses (i) and (ii) above, if the donor
or transferor is a reporting person subject to Section 16(a) of the Securities
Exchange Act of 1934 (the "Exchange Act"), any gifts or transfers made in
accordance with this paragraph shall not require such person to, and such person
shall not voluntarily, file a report of such transaction on Form 4 under the
Exchange Act. In addition, notwithstanding the foregoing, if the undersigned is
a corporation, the corporation may transfer the capital stock of the Company to
any wholly-owned subsidiary of such corporation; provided, however, that in any
-------- -------
such case, it shall be a condition to the transfer that the transferee execute
an agreement stating that the transferee is receiving and holding such capital
stock subject to the provisions of this Agreement and there shall be no further
transfer of such capital stock except in accordance with this Agreement, and
provided further that any such transfer shall not involve a disposition for
value. The undersigned now has, and, except as contemplated by clause (i),
(ii), or (iii) above or the immediately preceding sentence, for the duration of
this Lock-Up Agreement will have, good and marketable title to the Undersigned's
Shares, free
2
<PAGE>
and clear of all liens, encumbrances, and claims whatsoever. The undersigned
also agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of the Undersigned's
Shares except in compliance with the foregoing restrictions.
The undersigned understands that the Company and the Underwriters are relying
upon this Lock-Up Agreement in proceeding toward consummation of the offering.
The undersigned further understands that this Lock-Up Agreement is irrevocable
and shall be binding upon the undersigned's heirs, legal representatives,
successors, and assigns.
Very truly yours,
________________________________
Exact Name of Shareholder
________________________________
Authorized Signature
________________________________
Title
3
<PAGE>
EXHIBIT 1.2
Expedia, Inc.
Common Stock
Underwriting Agreement
(International Version)
October ___, 1999
Goldman Sachs International,
Morgan Stanley & Co. International Limited
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England, and
c/o Morgan Stanley & Co. International Limited
25 Cabot Square, Canary Wharf,
London E14 4QA, England
Ladies and Gentlemen:
Expedia, Inc., a Washington corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 1,040,000 shares
(the "Firm Shares") and, at the election of the Underwriters, up to 156,000
additional shares (the "Optional Shares") of Common Stock (the "Common
Stock") of the Company (the Firm Shares and the Optional Shares which the
Underwriters elect to purchase pursuant to Section 2 hereof being collectively
called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement, a copy of which is attached hereto (the
"U.S. Underwriting Agreement"), providing for the offering by the Company of up
to a total of 4,784,000 shares of Common Stock (the "U.S. Shares") including the
overallotment option thereunder through arrangements with certain underwriters
in the United States (the "U.S. Underwriters"), for whom Goldman, Sachs & Co.
and Morgan Stanley & Co. Incorporated are acting as representatives. Anything
herein and therein to the contrary notwithstanding, the respective closings
under this Agreement and the U.S. Underwriting Agreement are hereby expressly
made conditional on one another. The Underwriters hereunder and the U.S.
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates") which
provides, among other things, for the transfer of shares of Common Stock
between the two syndicates and for consultation by the Lead Managers hereunder
with Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated prior to
exercising the rights of the Underwriters under Section 7 hereof. Two forms of
prospectus are to be used in connection with the offering and sale of shares of
Common Stock contemplated by the foregoing, one relating to the Shares
hereunder and the other relating to the U.S. Shares. The latter form of
prospectus will be identical to the former except for certain substitute pages
as included in the registration statement and amendments thereto as mentioned
below. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the
context may otherwise require, references hereinafter to the Shares shall
include all of the shares of Common Stock
<PAGE>
which may be sold pursuant to either this Agreement or the U.S. Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both of the
U.S. and the international versions thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require) and to the representatives of the Underwriters or
to Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated shall be to the
addressees of this Agreement and to Goldman Sachs International ("GSI") and
Morgan Stanley & Co. International Limited ("MSI"), and, in general, all such
provisions and defined terms shall be applied mutatis mutandis as if the
incorporated provisions were set forth in full herein having regard to their
context in this Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company hereby makes with the Underwriters the same
representations, warranties and agreements as are set forth in Section 1 of the
U.S. Underwriting Agreement, which Section is incorporated herein by this
reference.
2. Subject to the terms and conditions herein set forth, (a)(4) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $......, the number of Firm(4) Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 156,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by GSI and MSI of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus and in the forms of
Agreement among Underwriters (International Version) and Selling Agreements,
which have been previously submitted to the Company by
2
<PAGE>
you. Each Underwriter hereby makes to and with the Company the representations
and agreements of such Underwriter as a member of the selling group contained in
Sections 3(d) and 3(e) of the form of Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as GSI and MSI may request upon at least forty-eight hours' prior notice
to the Company shall be delivered by or on behalf of the Company to GSI and MSI,
through the facilities of the Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of Federal (same-day) funds to the
account specified by the Company to Goldman, Sachs & Co. and Morgan Stanley &
Co. Incorporated at least forty-eight hours in advance. The Company will cause
the certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on November
........, 1999 or such other time and date as GSI, MSI and the Company may agree
upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York
City time, on the date specified by GSI and MSI in the written notice given by
GSI and MSI of the Underwriters' election to purchase such Optional Shares, or
such other time and date as GSI and MSI and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 of the U.S. Underwriting
Agreement, including the cross receipt for the Shares and any additional
documents requested by the Underwriters pursuant to Section 7(k) of the U.S.
Underwriting Agreement hereof, will be delivered at the offices of Preston Gates
& Ellis, LLP, 701 Fifth Avenue, Seattle, Washington 98104 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at 12:00
p.m., Seattle time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company hereby makes to the Underwriters the same agreements as
are set forth in Section 5 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
6. The Company and the Underwriters hereby agree with respect to certain
expenses on the same terms as are set forth in Section 6 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their discretion,
at each Time of Delivery, to the condition that all representations and
warranties and other statements of the Company herein are, at and as of such
Time of Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and
additional
3
<PAGE>
conditions identical to those set forth in Section 7 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any 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 not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall 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 any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with information furnished in writing to the Company by any
Underwriter through GSI or MSI expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any 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 not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through GSI or MSI
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of
4
<PAGE>
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters with respect to the Shares purchased under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus relating to
such Shares. 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 the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). 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 subsection (d) 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.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
5
<PAGE>
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligation of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
6
<PAGE>
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Section 6 and Section 8 hereof, but, if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through GSI and MSI for all out-of-
pocket expenses approved in writing by GSI and MSI, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly as the representatives of the Underwriters. It is
understood and agreed that GSI and MSI are joint book runners for the offering
and any determinations or other actions to be made under this Agreement shall
require the concurrence of both GSI and MSI.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (071) 774-1550 and in the case of
Morgan Stanley & Co. International Limited, 25 Cabot Square, Canary Wharf,
London E14 4QA, England, Attention: Equity Syndicate, Telex No. 8812564,
facsimile transmission No. (071) 425-8990; and if to the Company shall be
delivered or sent by registered mail, telex or facsimile transmission to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by GSI and MSI upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, United States of America.
7
<PAGE>
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us five counterparts hereof, and upon the acceptance hereof by you,
this letter and such acceptance hereof shall constitute a binding agreement
among each of the Underwriters and the Company. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters (International
Version), the form of which shall be furnished to the Company for examination
upon request, but without warranty on your part as to the authority of the
signers thereof.
Very truly yours,
Expedia, Inc.
By:
---------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman Sachs International
By:
----------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
Morgan Stanley & Co. International Limited
By:
----------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
8
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- --------------
<S> <C> <C>
Goldman Sachs International........................................
Morgan Stanley & Co. International Limited......................... 1,040,000 156,000
--------------- --------------
Total ................................................... =============== ==============
</TABLE>
9
<PAGE>
EXHIBIT 3.2.1
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
EXPEDIA, INC.
THESE ARTICLES OF AMENDMENT of the Articles of Incorporation of Expedia,
Inc. (the "Corporation") are herein executed by said Corporation, pursuant to
the provisions of RCW 23B.10.050, as follows:
FIRST: Article 4, Section 4.1 of the Articles of Incorporation is amended
to read as follows:
4.1 Authorized Shares. The total number of shares of stock which the
-----------------
Corporation shall have authority to issue is 130,000,000 shares, which shall
consist of 120,000,000 shares of common stock, $.01 par value per share
("Common Shares") and 10,000,000 shares of preferred stock, $.01 par value per
share ("Preferred Shares"). Except as otherwise provided in accordance with
these Articles of Incorporation, the Common Shares shall have: (i) unlimited
voting rights with one vote per share and (ii) the rights to receive the net
assets of the Corporation upon dissolution. The Common Shares are not subject to
redemption at the option of the Corporation.
SECOND: Section 4.4 of the Articles of Incorporation is deleted in its
entirety.
THIRD: Section 4.5 of the Articles of Incorporation is deleted in its
entirety.
FOURTH: This amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
FIFTH: The date of the adoption of said Amendment by the Directors of said
Corporation was the 20th day of October, 1999.
SIXTH: The amendment was adopted by resolution of the Board of Directors
without shareholder action. No shares have been issued by the Corporation and
shareholder action is therefore not required.
The foregoing is executed under penalty of perjury by the undersigned, who is
authorized to do so on behalf of the Corporation.
DATED this 25th day of October, 1999.
EXPEDIA, INC.
By: /s/ Gregory S. Stanger
------------------------------------------
Gregory S. Stanger
Vice President and Chief Financial Officer
<PAGE>
Form of the Registrant's Common Stock Certificate 4.1
================================================================================
Expedia
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
NUMBER SHARES
EX
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 302125 10 9
This Certifies that
is the registered holder of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
=================================EXPEDIA, INC.==================================
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
EXPEDIA, INC.
CORPORATE
SEAL
1999
WASHINGTON
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRANT
BY
AUTHORIZED SIGNATURE
================================================================================
<PAGE>
EXPEDIA, INC.
The corporation will furnish to any shareholder upon request and without
charge a full statement of the designations, preferences, limitations, and
relative rights of the shares of each class authorized to be issued.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT--...........Custodian...........
TEN ENT --as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.................
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------
____________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
Shares of the Common Stock represented by the within certificate, and do hereby irrevocably constitute and appoint
____________________________________________________________________________________________________________________________________
Attorney to transfer the said shares on the books of the within named Corporation with full power of substitution in the premises.
Dated ________________________________
______________________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM) PURSUANT
TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE>
EXHIBIT 5.1
OPINION OF PRESTON GATES & ELLIS LLP
October 26, 1999
Expedia, Inc.
4200 150th Ave. NE
Redmond, WA 98052
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
In connection with the registration of 5,980,000 shares of common stock,
par value $0.01 per share (the "Common Shares") of Expedia, Inc. ("the Company")
with the Securities and Exchange Commission on a Registration Statement on Form
S-1 (the "Registration Statement"), relating to the sales, if any, of the Common
Shares by the Company, we have examined such documents, records and matters of
law as we have considered relevant. Based upon such examination and upon our
familiarity as counsel for the Company with its general affairs, it is our
opinion that:
The Common Shares being registered are legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Preston Gates & Ellis LLP
By /s/ Richard S. Dodd
Richard S. Dodd
<PAGE>
EXHIBIT 10.1
CONTRIBUTION AGREEMENT
This Contribution Agreement is effective as of October 1, 1999 (the "Effective
Date") and is by and between MICROSOFT CORPORATION ("Microsoft"), a Washington
corporation, and EXPEDIA, INC. ("EI"), a Washington corporation.
For and in consideration of the mutual covenants contained herein, and for other
good and valuable consideration, receipt of which each party hereby
acknowledges, the parties agree as follows:
1. Microsoft hereby assigns to EI all rights, title and interest,
throughout the world, in and to the following (the "Assigned Assets"):
(a) the marks, Expedia and Expedia.com (the "Marks"), together with the
goodwill of the business symbolized by the Marks, and all registration(s)
thereof, and all pending applications for registration thereof as disclosed to
EI;
(b) all the URLs relating to the Expedia business as disclosed to EI
("Domain");
(c) all currently effective contracts between Microsoft and third
parties relating to the Expedia business as disclosed to EI (the "Contracts");
(d) all the assets identified in Exhibit 1 ("Other Assets");
(e) all shares of stock held by Microsoft in Expedia Canada Corp. and
all shares of stock and warrants held by Microsoft in VacationSpot.com, Inc., a
Delaware corporation;
(f) the assets and liabilities reflected in the balance sheet as of
September 30, 1999 for the Microsoft Travel Business Unit (the "Balance Sheet");
and
(g) contribute cash in an amount equal to the amount of fifty percent
(50%) of the unearned revenue as indicated in the Balance Sheet (such amount
shall be paid on or about November 30, 1999).
2. EI hereby assumes all of Microsoft's executory obligations pursuant to
the Contracts, and acknowledges that the use of the Assigned Assets are subject
to any restrictions in agreements executed by Microsoft prior to the Effective
Date, which agreements have been disclosed to EI.
3. EI hereby grants to Microsoft a non-exclusive license to continue to
use the Marks in connection with the Microsoft geography and mapping products
and related activities in substantially the same manner as heretofore used by
Microsoft.
<PAGE>
4. Microsoft and EI agree to execute whatever additional instruments
either party may reasonably request to effectuate or evidence any of the
transactions intended under this Agreement, including without limitation stock
assignments, short-form trademark assignment(s) in substantially the form
appended hereto as Exhibit 2, for recordation with the U.S. Patent and Trademark
Office, trademark assignment(s) of registrations and pending applications for
registration in jurisdictions outside the United States, and such documentation
as Network Solutions, Inc. may require to transfer the Domain from Microsoft to
EI.
5. The Assigned Assets are assigned to EI pursuant to Section 1, and
licensed to Microsoft pursuant to Section 3, on an "AS IS" basis, without any
representations or warranties whatsoever, except that Microsoft represents and
warrants that it has not heretofore assigned the Assigned Assets to any person
or entity. Without limiting the generality of the foregoing, EACH PARTY
DISCLAIMS ANY AND ALL OTHER WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE,
NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE.
6. EI shall indemnify and hold harmless Microsoft from and against any
foreign, U.S. federal, state, local, municipal or other governmental taxes,
duties, levies, fees, excises or tariffs, arising as a result of or in
connection with the transactions contemplated under this Contribution Agreement
including, without limitation, any state or local sales or use taxes or any
value added tax or business transfer tax now or hereafter imposed on or with
respect to the transactions contemplated under this Contribution Agreement. All
such taxes (and any penalties, interest, or other additions to any such taxes),
with the exception of taxes imposed on Microsoft's net income or with respect to
Microsoft's property ownership, shall be the financial responsibility of EI. EI
agrees to indemnify, defend and hold Microsoft harmless from any claims, causes
of action, costs (including, without limitation, reasonable attorneys' fees) and
any other liabilities of any nature whatsoever related to such taxes. This
section shall govern the treatment of all taxes arising as a result of or in
connection with this Contribution Agreement notwithstanding any other section of
this Contribution Agreement.
MICROSOFT CORPORATION EXPEDIA, INC.
By: /s/ Gregory B. Maffei By: /s/ Richard N. Barton
------------------------------ ------------------------------
its authorized representative its authorized representative
<PAGE>
Exhibit 1
---------
OTHER ASSETS
<PAGE>
Exhibit 2
---------
ASSIGNMENT OF TRADEMARK
AND FEDERAL REGISTRATION
WHEREAS, Microsoft Corporation ("Assignor"), a Washington corporation, has
adopted and used and is using the mark "Expedia" for which Assignor has obtained
the following registration(s) in the United States Patent and Trademark Office:
[insert registration information]
WHEREAS, Expedia, Inc. ("Assignee"), a Washington corporation, is desirous
of acquiring said mark and the registration thereof;
NOW, THEREFORE, pursuant to 15 U.S.C. 1060 for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Assignor does hereby assign to Assignee all right, title and interest in and to
the said mark, together with the goodwill of the business symbolized by the
mark, and the above identified registration(s) thereof.
DATED this ____ day of _______, 1999.
Microsoft Corporation
By_____________________________
_________________________ (name)
_________________________ (title)
STATE OF WASHINGTON )
: ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that _____________ is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the
instrument, and acknowledged it as the ____________ of Microsoft Corporation to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
Dated this _____ day of ___________, 1999.
___________________________________
Notary Public
My Appointment Expires:____________
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C> <C>
Room # or Deactivation
Asset Tag Serial Number Asset Class Name Asset Name Cost Center # Acquisition Date
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257015 6547HRX20828 Proliant 4500R 1181
372380 SD807BRZ10025 Servers PROLIANT 5500,P6-200,128MB,TOWER, 1115
382478 D922CFW10403 Compaq Proliant 1850R 1181
382479 D922CFW10383 Compaq Proliant 1850R 1181
382480 D922CFW10377 Compaq Proliant 1850R 1181
382481 D922CFW10320 Compaq Proliant 1850R 1181
382482 D922CFW10481 Compaq Proliant 1850R 1181
383632 S6925CLH10170 COM WKST AP200 PIII500 64MB 10GB G2 1211
443691 0VJZW DELL PIII500K GX1PT+ 128M 20GB FAT16 1260
468107 PC Equipment P-II 350mhz 4.5gb SCSI 64mb 32xCD 10/100 1189
136886 4150HBN30001 PC Equipment-PreFY97 CP4-00 ?? 1992 11/19/1999
137959 PC Equipment-PreFY97 220-8350 DELL 486D/33 ?? 1993
157182 28F87 PC Equipment-PreFY97 DL 433/M 16RAM,230MB HD 1201
178643 2004529 PC Equipment-PreFY97 GW P5-66 32MB 1GB SEA/TWR 1064
179796 3BW1J PC Equipment-PreFY97 460-1541 ?? 1997
190601 3PWXT CompEquipPeri-Pre 97 433/NP,16MB RAM,VS17CLR ?? 1994
190639 3PZS2 PC Equipment-PreFY97 433/NP,16MB RAM,VS17CLR ?? 1994 1/29/1999
191311 3Q3WX PC Equipment-PreFY97 566/OMW/O CACHES 1MB VID ?? 1994
191344 2040319 PC Equipment-PreFY97 P4D-66 32MB MEM 540MB 1115
197134 3R0ZV PC Equipment-PreFY97 4100/OM,528IDE HDD,16M,2M ?? 1994
198104 3HW93 PC Equipment-PreFY97 466/OM 32MB RAM 535MB SCS ?? 8/13/1999
198419 3R0XW PC Equipment-PreFY97 4100/OM 528IDE HDD 16M 2M 1053 (STORAGE)
203621 A425HHC70118 PC Equipment-PreFY97 PROL MT 4/66 M525/W A9379 ?? 1994
204676 D0228252 CompEquipPeri-Pre 97 HARD DRIVE EXT VIPER 1GB 4/1020 need to transfer
205378 430RV PC Equipment-PreFY97 590/OM W/256K & 1MB VRAM, ??
208824 2826739 PC Equipment-PreFY97 P5-60PCI.32MB.730MBHD.2MB 2125 1994 8/13/1999
208841 2759682 PC Equipment-PreFY97 P5-60PCI.32MB.730MBHD.2MB ?? 1995
209022 4791R PC Equipment-PreFY97 560/OM W/CACHE & VIDEO ME ??
209321 47DC6 PC Equipment-PreFY97 560/OM W/CACHE & VIDEO ME ?? 1994
209886 488TF PC Equipment-PreFY97 560/OM W/CACHE & VIDEO ME ?? 1994 2/24/1999
210521 FC45213B44H PC Equipment-PreFY97 POWER MAC 7100/80 8/700 W 10475
211257 6507HHR80075 PC Equipment-PreFY97 COMPUTER COMPAQ D PEN/90 1068
212288 6447HHC71126 PC Equipment-PreFY97 PROL MT 4/66 M525/W A9379 ?? 1995
212471 4DG96 PC Equipment-PreFY97 560/OM W/CACHE & VIDEO ME ?? 1996
212952 FC50503Q44H PC Equipment-PreFY97 POWER MAC 7100/80 8/700 W 1115
213777 4556C PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1121
21378 28375088E PC Equipment Toshiba Tecra 750 DVD P5/233MMX Germany
213894 4SZQT PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1049
21412 38416327E PC Equipment Toshiba Tecra 750 DVD P5/233MMX Germany
21539 03841169 PC Equipment Deskstation V+ f. Toshiba Tecra Germany
(Docking Station)
215451 6446HHC70581 PC Equipment-PreFY97 PROL MT 4/66 M525/W A9379 1049
215515 SA444HHC7D922 PC Equipment-PreFY97 PROL MT 4/66 M525/W A9379 10475
216419 A440HHC7D451 PC Equipment-PreFY97 PROL MT 4/66 M525/W A9379 ?? 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
217164 4FGXM PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1053 (STORAGE)
217530 4FHTT PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1053 (STORAGE)
217630 4FJ26 PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD PC RECYCLE
217977 4K6JJ PC Equipment-PreFY97 466/MXE, 16MBRAM, 535MB S 1144
220325 4XJJF PC Equipment-PreFY97 5100/XM,32MBRAM,1GBSCSI,1 1053 (STORAGE)
220613 4ST8V PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1053 (STORAGE)
220626 4XJ8X PC Equipment-PreFY97 5120/XM,32MB,1GBSCSI,2MBV 1053 (STORAGE)
220706 4X9L3 PC Equipment-PreFY97 5120/XM,32MB,1GBSCSI,2MBV 1181
220729 4XJ8T PC Equipment-PreFY97 5120/XM,32MB,1GBSCSI,2MBV 1115
220787 4XJ8W PC Equipment-PreFY97 5120/XM,32MB,1GBSCSI,2MBV 1125 (STORAGE)
221619 3Q3ZT PC Equipment-PreFY97 590/OM 1GB SCSI,32MB RAM, ?? 1995
221698 4SSG9 PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD ?? 1995 8/13/1999
221820 4SS6M PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1122
222958 4GLSH PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1338
224177 4SYNZ PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD 1103
224296 4SS85 PC Equipment-PreFY97 590/OM,32MB RAM,3XSCSI CD HALLWAY
224774 3195454 PC Equipment-PreFY97 P5-90 DT PCI,32M RAM,1.05 ?? 1995
226768 412783 PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 2380
226770 4ZHOX PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 10472
226937 4ZRYY PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 10472
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228827 4ZM2V PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 2127
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230387 346780012 PC Equipment-PreFY97 P5-120 DKTP,32MB,2GBSCSI, 1056
230869 4ZS0T PC Equipment-PreFY97 5120/XM,256K,32MBRAM,1GBI 10472
230989 4ZMZZ PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI PC Recycle
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232016 4ZKFG PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 1115
232018 4ZKCN PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 10472
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232393 SGB00173243 CompEquipPeri-Pre 97 SURESTORE 6000E, 8GB EXTE PC RECYCLE
232738 K4716427-C CompEquipPeri-Pre 97 EXTERNAL 4GB BARRACUDA SC 10472
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
23289 8853ccj41767 PC Equipment Compaq Deskpro EP 6350x, PII/350, 64 MB Germany
235040 6529HNW30234 PC Equipment-PreFY97 PROLIANT 4500R 5/100 MOD 1181
235462 6529HNW30347 PC Equipment-PreFY97 PROLIANT 4500R 5/100 MOD 1181
235463 6529HNW30232 PC Equipment-PreFY97 PROLIANT 4500R 5/100 MOD 1181
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243000 9532264 PC Equipment-PreFY97 SATELLITE PRO 400CDT,PENT 1201
243408 5L6PC PC Equipment-PreFY97 5120/XM,512K,32MB,1GB SCS PC RECYCLE
243409 5L6RK PC Equipment-PreFY97 5120/XM,512K,32MB,1GB SCS 1285
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243567 G544HTQ20034 PC Equipment-PreFY97 PROLINEA 575,MOD 1080/W,1 1053 (STORAGE)
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</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
249482 4ZKMG PC Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 1127
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252691 5Z7D2 PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GBS 1156
252696 5YTS0 PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GBS 10472
252728 5YVPX PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GBS 1115
252786 5YVR2 PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GBS STORAGE
252789 52LJ0 PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GBS 1224
252792 5Z7JH PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GBS 1332
252836 5ZJLD PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GBS 1280
253302 62KXT PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1053 (STORAGE)
253489 62KS5 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1209
253597 65SBB PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1211
253598 62L5H PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1100
253620 41217 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1165
253634 65SNV PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1201
253639 41213 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1053 (STORAGE)
253655 6549HTQ2P154 PC Equipment-PreFY97 PROLINEA 575MT PENT-75 1. 10555
253660 65SCP PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1209
253667 2636742 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDR 1204
253788 2634908 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDR 1176
253837 41224 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 10472
253843 65SJP PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1246
253893 65R6H PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1147
253907 65RB3 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1181
253998 65R9Z PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 10472
254669 110189 Multimedia Product'n TASCOM DA-P1 DAT RECORDER 1181
254706 445P259-981310249 Non-PC Comput Equip 21" IMAGING MONITOR .22/.16 DOT 10472
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C>
254707 445P259-981310249 Non-PC Comput Equip 21" IMAGING MONITOR .22/.16 DOT 10472
255524 SXB6170NQ7C0 PC Equipment-PreFY97 POWER MACINTOSH 9500/150 W/POWERPC 10475
256145 4593883 PC Equipment-PreFY97 G6-200,TWR,32MBRAM,2GB SCSI,PCI W/ 1094
256153 SA616HTD3E425 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, HALLWAY
256172 4593938 PC Equipment-PreFY97 G6200/0RAM/2.1GBSCSI/2MBWRAM 1098
256241 69RJ2 PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GB SCSI,2MBVR 2123
256529 03643705 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDRAM 1.2GBHD STORAGE
256629 17277 CompEquipPeri-Pre 97 KBD/MONITR/MOUS SWTCHBX-8PORT H6442 1115
256753 SA616HTD3E696 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, 10472
256839 A616HTD3E714 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, 1068
257070 65RTB PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1181
257201 66GVV PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1181
257202 65R3Z PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1139
257228 41375 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1278
257259 65R1Q PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1256
257277 65RGF PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 10474
257282 41455 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1182
257285 66GTX PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1115
257507 S6543HTQ4D138 PC Equipment-PreFY97 PROLINEA 575,MOD 1080/MX+ 2125
257600 41506 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1155
257715 671GG PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1181
258050 SA61HTD3E142 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, (STORAGE) 1053
258087 67ZB2 PC Equipment-PreFY97 5133/GXM,512K,32MB,2.1GB SCSI,2MBVR 1250
258149 4654295 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDRAM 1.2GBHD STORAGE
258164 A616HTD3E095 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, 2369
258179 04654281 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDRAM 1.2GBHD 1109
258180 04654301 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDRAM 1.2GBHD STORAGE
258188 A616HTD3E134 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, 10472
258189 SA616HTD3E701 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, (STORAGE) 1125
258222 4654299 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDRAM 1.2GBHD 1053
258234 SA616HTD3E136 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, STORAGE
260725 6625364 PC Equipment TECRA 720CDT P133 16MB EDO/1.2GB HD STORAGE
261270 6L194 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 2375
261327 6L152 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1219
261335 6628049 PC Equipment TECRA 720CDT P133 16MB EDO/1.2GB HD ??
261431 6L04T PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM ?? 1996
261695 6LR45 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1136
261985 6L16H PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1137
261998 6L13M PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1193
262429 6KZN6 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1108
262433 6KDL2 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1193
262827 6KFG2 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1145
262966 A618HTD3D692 PC Equipment-PreFY97 PROLINEA 5120E,MOD1060,8MB,3X3, 1056
262989 6KDGZ PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1181
263390 4654348 PC Equipment-PreFY97 TECRA 700CT P120 16MB SDRAM 1.2GBHD 10474
263948 6H4PH PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1335
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C>
263983 6JX82 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1199
263991 6H446 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 10472
264139 6R0WY PC Equipment 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1115
264391 6627169 PC Equipment TECRA 720CDT P133 16MB EDO/1.2GB HD 1175
264544 SUSDF020569 Non-PC Comput Equip LASERJET 5SI, 24PPM, 600DPI, 4MB, 10473
264547 06627789 PC Equipment TECRA 720CDT P133 16MB EDO/1.2GB HD STORAGE
264639 A619HTD3F246 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
264640 A619HTD3F290 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
264658 A618HTD3D838 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
264659 A619HTD3E661 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
264707 A619HTD3E713 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
264720 A619HTD3F222 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
264805 A619HTD3E642 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
264823 A619HTD3F244 PC Equipment PROLINEA 5120E,MOD1060,8MB,3X3, Atlanta
265159 6L13D PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 2373
265440 6LQT1 PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1181
265926 6LRNN PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM (STORAGE) 1053
265950 6LW5B PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1306
265952 6LW4J PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 10475
266043 6LRFQ PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1224
266093 6LRNF PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM 1199
266657 5255328 PC Equipment-PreFY97 G6-200,TRW,32MBRAM,2GB SCSI, PCI 1072
266764 J605HQK82427 PC Equipment-PreFY97 LTE 5200,MOD 1350,PENTIUM/120,8MB STORAGE
267471 D634HWR20293 Servers PROLIANT 5000R,MOD 6/200-2 ?? Ops Server ?? LINDAWI 25/1261
267977 7637616 PC Equipment TECRA 720CDT P133 16MB EDO/1.2GB HD 1125
268136 6R11B PC Equipment 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM Atlanta
268137 6S4F1 PC Equipment 5166/GXM,512K,32MB,2.1GBSCSI,2MBVRM Atlanta
268709 D626HVP10480 Servers PROLIANT 5000R MODEL 6/200-1 ?? Ops Server?? LINDAWI 25/1261
268842 D626HVP10310 Servers PROLIANT 5000R MODEL 6/200-1 1181
269478 S07637169 PC Equipment TECRA 720CDT P133 16MB EDO/1.2GB HD 1128
269561 5539170 PC Equipment G6-200,TWR,256K,32MBEDO,2GBSCSI,4MB 2127
269741 D628HMQ10478 Non-PC Comput Equip RACKMOUNTABLE PROLIANT STORAGE SYS 1115
269806 S0767389 PC Equipment TECRA 720CDT P133 16MB EDO/1.2GB HD STORAGE
269843 D630HVP10238 PC Equipment PROLIANT 5000R MODEL 6/200-1 1115
270406 SG62700279 PC Equipment HP OMNIBOOK 800CT PEN/133 1100
271039 786SR PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1184
271058 786KX PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1181
271416 7D0FS PC Equipment 5166/2SP,512K,32MB,4+4GBSCSI,1MB Atlanta
271475 D634BHK20575 PC Equipment PROLIANT 5000R MODEL 6/166-2 1181
271477 D634BHK20476 PC Equipment PROLIANT 5000R MODEL 6/166-2 1115
271574 Non-PC Comput Equip COMPAQ 42U RACK ORDERABLE IN BR 02 1115
272111 EC02-21596 Non-PC Comput Equip KBD/MONITR/MOUS SWTCHBX-8PORT H6442 1181
272112 EC02-22744 Non-PC Comput Equip KBD/MONITR/MOUS SWTCHBX-8PORT H6442 1181
272673 XB63715G8F13 PC Equipment POWER MAC,8500/180,604E/180MH PC RECYCLE 6/25/1999
273386 5622653 Servers P5-133,256K,16MBEDO,1GBEIDE,2MBWRAM Atlanta
273427 5622655 Servers P5-133,256K,16MBEDO,1GBEIDE,2MBWRAM Atlanta
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C>
273444 5622663 Servers P5-133,256K,16MBEDO,1GBEIDE,2MBWRAM Atlanta
273460 5622652 Servers P5-133,256K,16MBEDO,1GBEIDE,2MBWRAM Atlanta
273464 5622657 Servers P5-133,256K,16MBEDO,1GBEIDE,2MBWRAM Atlanta
273905 7BXZX PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,2MB 1077
273926 786KN PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1053 (STORAGE)
273976 786T3 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1206
274271 9615679 PC Equipment TECRA 730CDT,P-150,16MB,2.0GB HD 1258
274286 09615719 PC Equipment TECRA 730CDT,P-150,16MB,2.0GB HD STORAGE
274347 7MNG9 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1397
274677 7MPNG PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1209
274804 7MNX9 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1159
274899 10619007 PC Equipment TECRA 730CDT,P-150,16MB,2.0GB HD 1254
275078 62KRS PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 10472
275272 7RQPQ PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB PC RECYCLE
275346 7RTHW PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1096
275349 7RPTC PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1181
275352 7RQPH PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1173
275434 7MNX9 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1115
275504 7RV4P PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1049
275777 62L2W PC Equipment-PreFY97 5166/GXM,512K,32MB,2.1GBS 1211
275921 7S1P2 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 10472
275926 7S1P0 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1138
275958 7S1NS PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1074
275999 9615349 PC Equipment TECRA 730CDT,P-150,16MB,2.0GB HD 1098
276000 7S1N4 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1181
276009 7RPT0 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1338
276082 7RQVZ PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1147
276151 7RTMC PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1222
276168 7RVGQ PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1336
276363 MH001293 Non-PC Comput Equip LANPLEX EFSM RJ45 1115
276364 2BPA001082 Non-PC Comput Equip LANPLEX 6004 STR KIT 1115
277239 SD650HMQ10230 Non-PC Comput Equip RANCK MTBLE PROLIANT STRG SYS F5608 1115
278464 7W5OR PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1133
278465 7W4YN PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1396
278486 7W519 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1304
279275 EC0402785 Non-PC Comput Equip KEYBOARD/MON/MOUSE SWITCH BOX,8PORT 10472
279276 EC0402705 Non-PC Comput Equip KEYBOARD/MON/MOUSE SWITCH BOX,8PORT 10472
279666 S 12631715 PC Equipment TECRA 730CDT,P-150,16MB,2.0GB HD STORAGE
279782 87CM6 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1170
279858 88GTG PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1077
279859 88GT8 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 2372
279863 88GTL PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 10472
279864 88GT5 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1103
279982 8CMC7 PC Equipment 6200/OP GXPRO,256K,128MB,4GBSCSI,2M 24/2266 TRANSFER
281180 88GT9 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 2134
281836 88GH6 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1115
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
281956 SMNA6270A0183 Non-PC Comput Equip PRESSVIEW 21 SR 10475
281957 SMNA6320A0406 Non-PC Comput Equip PRESSVIEW 21 SR 10475
281958 SMNA6270A0318 Non-PC Comput Equip PRESSVIEW 21 SR 1224
281976 SMNA6270A0187 Non-PC Comput Equip PRESSVIEW 21 SR 1306
282169 SUSKB122973 Non-PC Comput Equip LASERJET 5 PRINTER,12PPM,600DPI,4MB 1173
282772 2722131 PC Equipment PORTEGE 660CDT,P-150,16MB,1.35GB HD 1053
282773 2722041 PC Equipment PORTEGE 660CDT,P-150,16MB,1.35GB HD 1053 (STORAGE)
282957 2717989 PC Equipment TECRA 740CDT P-166 MMX,16MB,2GB HD Mark Kroese
283269 8L4Z5 PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1142
283287 8CM5N PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 10472
283310 8CM58 PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1115
283317 8995W PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1115
283341 8887P PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1189
283342 88H8B PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1068
283345 8888V PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1158
283354 8888R PC Equipment 6200/OP GXPRO,256K,32MB,2GBSCSI,2MB 1181
283539 8LLKV PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1049
283649 8M28V PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB Bldg.1/2148 TRANSFER
284450 SN03723878A PC Equipment TECRA 740CDT P-166 MMX,16MB,2GB HD STORAGE jpope
286332 3720086 PC Equipment TECRA 730XCDT P-150 MMX,16MB,2GB HD 1144
287008 8YYLF PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 2123
287429 8ZVCB PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 2134
288117 5721006 PC Equipment SATELLITE PRO 430CDT,P-120,16MB EDO 1053(STORAGE)
288219 M605603F Non-PC Comput Equip SPRINTSCAN 35ES FOR WINDOWS ??
288611 D652HWR10215 Servers PROLIANT 5000R,MOD 6/200-1X RACK 1181
292831 65305369 ITG Networking Equip WS-C2926F CISCO CATALYST 24PORT 10/100 SWITCH 1115
293545 04715709 PC Equipment TECRA 740CDT/3G P-166MMX,16MB,3GBHD 1230 jpollard
293605 SKN723DWC53 PC Equipment OAHU PII/266,64MB,4.3GB,16X CD,NET, 1188
293607 S7601330DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 2127
294496 65309753 Non-PC Comput Equip WS-C2926F Catalyst 10/100 switch 1181
296083 982HT PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1053 (STORAGE)
296084 982KN PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1086
296139 953K2 PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB REDW-E/2126 TRANSFER
296140 953Z9 PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1137
296142 982GH PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1075
296151 982P2 PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1181
296152 982GZ PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1155
296153 953L4 PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1053 (STORAGE)
296154 953JL PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1115
296787 982BZ PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 10472
296849 982D5 PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1062
296857 982C8 PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1181
296859 982DP PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 1068
296868 982CT PC Equipment 6200/OP GXPRO,256K,64MB,4GBSCSI,4MB 2375
297055 7222104 PC Equipment P5-200MMX,MT,512K,32MB,2.5EIDE,0VID 2124
297421 2R8EO20302 Non-PC Comput Equip STYLUS PRO XL, CLR INKJET PRINTER 10475
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
297498 D712HWR11477 Servers PROLIANT 5000R,MOD 6/200-1X RACK Saturn???
297807 2716666 PC Equipment PORTEGE 660CDT,P-150,16MB,1.35GB HD STORAGE
298502 7290792 PC Equipment E3100-266MMX,512K,64MB,4.4GBSCSI,4M 1115
299616 6732761 PC Equipment TECRA 740CDT/3G P-166MMX,16MB,3GBHD 1053
299753 06732423 PC Equipment TECRA 740CDT/3G P-166MMX,16MB,3GBHD STORAGE byronb
300975 7902494 PC Equipment E3100-266MMX,512K,64MB,4.4GBSCSI,4M 1115
300976 7502945 PC Equipment E3100-266MMX,512K,64MB,4.4GBSCSI,4M 1159
300993 S7503788DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
301038 S7401963DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
301368 H4W01730279 Non-PC Comput Equip POWERLOOKII FLATBED 1200DPI MACPERP kiosk next to 1227
301404 S7404481DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 2374
301405 S7404584DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1178
301411 7402082DK Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1075
301445 2723068 PC Equipment PORTEGE 660CDT,P-150,16MB,1.35GB HD 1053
301448 5725462 PC Equipment TECRA 740CDT/3G P-166MMX,16MB,3GBHD 1304 (on loan)
301732 673815 PC Equipment TECRA 740CDT/3G P-166MMX,16MB,3GBHD 1053
301779 6735562 PC Equipment TECRA 740CDT/3G P-166MMX,16MB,3GBHD STORAGE
310993 SKN724EHF70 PC Equipment OAHU PII/266,64MB,4.3GB,16X CD,NET, 1144
311050 S7702957DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1182
311051 S7703348DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1142
311261 S05729890 PC Equipment TECRA 740CDT/3G P-166MMX,16MB,3GBHD 1096
311735 BK2DC Servers P/E 4200/266,512K,128MB,3X4GBSCSI, Atlanta
311770 7003663DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1165
311771 S7703658DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
311772 S7403019DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 2378
311828 BKVQ9 PC Equipment WS400,5300M DUAL,256MB,9.1GBSCSI,4M 10472
311833 BKVQH PC Equipment WS400,5300M DUAL,256MB,9.1GBSCSI,4M 1115
311834 BKVQ3 PC Equipment WS400,5300M DUAL,256MB,9.1GBSCSI,4M 1115
312082 D741BR220188 PC Equipment CPW 6000,P2-300,64MB,4.0GB,16X CD- 1157
312083 D741BR220175 PC Equipment CPW 6000,P2-300,64MB,4.0GB,16X CD- 1209
312084 D741BR220180 PC Equipment CPW 6000,P2-300,64MB,4.0GB,16X CD- 1115
312117 D741BR220130 PC Equipment CPW 6000,P2-300,64MB,4.0GB,16X CD- 1182
312118 BKXOC PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 2373
312119 BKX0N PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1053 (STORAGE)
312129 D741BR220090 PC Equipment CPW 6000,P2-300,64MB,4.0GB,16X CD- 1147
312366 PC Equipment POWER MAC 8600/300 604E 32MB,4GB HD 1064
313004 6Z03601DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1074
313005 BM27N PC Equipment WS400,5300M DUAL,256MB,9.1GBSCSI,4M 1074
313030 S6Z03833DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1104
313031 S6Z03757DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 2380
313032 S7704333DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1146
313095 7704372DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1138
313096 S7704375DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1144
315176 DLKHJ PC Equipment DELLWORKSSTATION400,PENTIUMII-333MMX 2121
315189 DMJZF PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-266MMX, 1205
315329 DW1KT PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-266MMX, 1302
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
316021 65313565 ITG Networking Equip Catalyst 10/100 Switch,Fixed 24-10/100 R 1115
316806 47559262 ITG Networking Equip Cisco 4700-M Modular Router-AC 1181
317072 DT4GM PC Equipment DELLWORKSSTATION400,PENTIUMII-333MMX 2377
317075 DT4H1 PC Equipment DELLWORKSSTATION400,PENTIUMII-333MMX 1181
317078 DT4GH PC Equipment DELLWORKSSTATION400,PENTIUMII-333MMX 1043E
317243 DZ8WV PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-266MMX, 1189
317375 DZ601 PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-266MMX, 1195
317540 ENX15 PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-300MMX, 10472
317541 ENX10 PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-300MMX, 1115
317542 ENX13 PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-300MMX, 10472
317574 EV9HC PC Equipment DELLWORKSSTATION410,PENTIUM IIII-400MMX 1134
317575 EV9H8 PC Equipment DELLWORKSSTATION410,PENTIUM IIII-400MMX 1053 (STORAGE)
317857 EV9GR PC Equipment DELLWORKSSTATION410,PENTIUM IIII-400MMX 1168
317893 EV9HH PC Equipment DELLWORKSSTATION410,PENTIUM IIII-400MMX 1155
317896 EV9GQ PC Equipment DELLWORKSSTATION410,PENTIUM IIII-400MMX 2379
317917 FKH41 PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1122
317931 FKH4F PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1121
318997 GX7V6 PC Equipment DELLOPTIPLEXGX1,PENTIUMII-350,64MB, 1208
320103 7Y072133 PC Equipment VERSA 6230 P-233MMX,64MB,5.4GB HD 10473
320181 SKN747RHY67 PC Equipment DUAL PII/266,64MB,4.3GB,16X CD,NET, 2121
320188 PC Equipment DUAL PII/266,64MB,4.3GB,16X CD,NET, 2134
320428 7Y072143 PC Equipment VERSA 6230 P-233MMX,64MB,5.4GB HD 1104
320893 C0SWJ PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 2381
320911 SKN747RHY34 PC Equipment DUAL PII/266,64MB,4.3GB,16X CD,NET, 2122
320922 2B75059136 Non-PC Comput Equip 3490E, SINGLE CARTRIDGE, DESKTOP, 1074
320937 C6BGG PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1066
320973 C6BGS PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1224
320994 87205081 PC Equipment PORTEGE 300CT P-133MMX,32MB,1.51GB 1135
321107 S7300525DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1157
321109 S7300523DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 2375
321111 S7701038DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1188
321147 S7300522DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1199
321295 X7312527 PC Equipment TECRA 750CDT P-233 MMX,32MB,4.77GB 1053
321459 C1GQ7 PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1062
321488 C1GN8 PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1147
321489 C1GNS PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1075
321490 C1GQ3 PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1165
321533 C2XCX PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1306
321534 C2XDS PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1125 (STORAGE)
321649 X7311527 PC Equipment TECRA 750CDT P-233 MMX,32MB,4.77GB STORAGE
321745 BZ0YT PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 2369
321746 S7603095DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1156
321748 S7701200DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1072
321749 BKWX2 PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1115
321755 BZ10G PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 2375
321756 BZ10W PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1148
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C>
321796 S7701193DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10427
321797 S7701270DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1224
321798 S7701272DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1155
321799 BZ10M PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1064
322113 S7X00132DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1222
322303 D1RMG PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1158
322318 D1RL9 PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1163
322319 S7500061DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1163
322574 82071580 PC Equipment VERSA 6260 P-266MMX, 64MB, 5.0GB HD 1178
322794 CXWD1 PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1338
323064 7201648DK Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1168
323094 BKYGH PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1043B
323095 BKYHN PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1168
323096 BNLTW PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 1176
323097 BKXCC PC Equipment WS400,5300MT,128MB,9GBSCSI,4MB,NET, 2376
323098 7201156DK Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1176
323099 7201516DK Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1195
323700 7Y001050 PC Equipment VERSA 6230 P-233MMX,64MB,5.4GB HD 1169
323701 7Y001040 PC Equipment VERSA 6230 P-233MMX,64MB,5.4GB HD 1197
323711 97252430 PC Equipment TECRA 750CDT P-233 MMX,32MB,4.77GB STORAGE dhirenf
331289 5JRCS C Equipment-PreFY97 5120/XM,512K,32MB,1GBSCSI 10472
333129 S0121007769 Non-PC Comput Equip 19"(VIS 18.0")CLR,.25MM DOT PITCH 1173
333303 81041662 PC Equipment VERSA 5080X P-233WWM 80MB, 4.0GB HD 10474
333752 8910259 PC Equipment E3110-1233MMX,64MB,4GBATA,4MBAGP, 14167 TRANSFER
333908 18488660 PC Equipment TECRA 750DVD P-233MMX,64MB,4.77GBHD 1096
334306 CK5BP PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1053 (STORAGE)
334617 C7GKQ PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB ??
334620 S7401108DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
334713 CC60S PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 10472
334874 C7JJQ PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 2380
334875 C7JLM PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 2378
334878 S7401128DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1215
334879 C7JKN PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1215
335000 C6BG9 PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1053 (STORAGE)
335049 C0SVP PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1128
335119 Y7431763 PC Equipment TECRA 750CDT P-233 MMX,32MB,4.77GB 1105
335482 C5C74 PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1158
335484 C5C82 PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1043A
335507 C5C90 PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1072
335529 S7401338DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1180
335599 ES9738906967 Non-PC Comput Equip SMART-UPS 3000RM3U 3000VA RM UPS 1115
335664 C5C7P PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1070
335666 S7902613DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1184
335673 CHMZB PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1224
335792 S7401484DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
335823 CHN5F PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1188
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C>
335824 CHN5Z PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1180
335830 CHN68 PC Equipment P6233/GXA,MT,512K,64MB,4.3GBEIDE,4M 1178
335878 S7902420DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1158
336375 CZ6WN PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1077
336387 S7X00305DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1207
336523 CZ71V PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1053
336524 S7X00314DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1053
339012 S7502114DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1062
339094 D1RS8 PC Equipment 6300 PII/MT,WS400,128MB,9GBSCSI,4MB 1207
339757 S7X01266DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
340416 9804133 PC Equipment E3110-266,PII-266MMX,512K,64MB, 2121
340562 9695694 PC Equipment E5000-2333 PII,64MB,4GBSCSI,8MBAGP 1053 (STORAGE)
340712 S7403107DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1073
340880 D808BSN10229 Non-PC Comput Equip STORAGE SYSTEM, U1 RACK, F/PROLIANT 1181
340881 D808BRZ20131 Servers PROLIANT 5500R,P6-200,128MB,RACK, 1181
340997 S7403283DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
342002 S7X00100DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1175
345139 9265250 PC Equipment E5000-2300MMX,128MB,9GBSCSI,8MBAGP, 10472
345319 83041484 PC Equipment VERSA 5080X P-233WWM 80MB, 4.0GB HD 10472
345684 S7X01146DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 2377
345685 S7X01210DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1145
345917 82041826 PC Equipment VERSA 5080X P-233WWM 80MB, 4.0GB HD 10472 5/8/1999
345922 9535268 PC Equipment E3110-233MMX,64MB,4GBATA,4MBAGP, 1175
346335 ENYMW PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1115
346337 ENYNC PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1115
346345 ENYNF PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1115
346383 EPLQD PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1181
346587 ENX16 PC Equipment DELLOPTIPLEXGXAEM,PENTIUMII-300MMX, 10472
346820 ENYMH PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1115
346825 ENYNK PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1115
346829 ENYMY PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1115
346853 ENYNH PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1181
346859 ENYMT PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1049
346868 ENYNM PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1086
346872 ENYNG PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1181
346928 ENYN0 PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1181
346939 ENYMP PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1115
346959 EPB95 PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1155
346994 EQ88M PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 2372
347212 HXQFR PC Equipment DELLWS610,XEON450,128MB,9GB10KSCS 1146
347402 HN4Q1 PC Equipment DELLWS410,PII400,128MB,9GB10KSCSI,8M 1224
347512 U483V PC Equipment DELLWS610,XEON450,128MB,9GB10KSCS 1167
347532 U483Q PC Equipment DELLWS610,XEON450,128MB,9GB10KSCS 1184
347566 HXQFS PC Equipment DELLWS610,XEON450,128MB,9GB10KSCS 1170
347728 HP9JP PC Equipment DELLOPTIPLEXGX1,PENTIUMII-350,128MB 1138
347751 HP9JM PC Equipment DELLOPTIPLEXGX1,PENTIUMII-350,128MB 1132
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C>
348224 G5TCW PC Equipment DELLWORKSSTATION410,PENTIUMII-400MMX 1107
348407 H6DSB PC Equipment DELLWS610,(FONTCOLOR=RED)XEON400(/FO 2374
348464 H0S4F PC Equipment DELLOPTIPLEXGX1,PENTIUMII-350,64MB, 1157
348531 H2BK0 PC Equipment DELLOPTIPLEXGX1,PENTIUMII-350,64MB, 1332
348582 H2CZN PC Equipment DELLOPTIPLEXGX1,PENTIUMII-350,64MB, 1139
348586 H2K4B PC Equipment DELLWS610,XEON400,128MB,9GB10KSCS 1136
348661 H6DST PC Equipment DELLWS610,(FONTCOLOR=RED)XEON400(/FO 1142
350219 9804124 PC Equipment E3110-266,PII-266MMX,512K,64MB, 1135
354223 EGT0B PC Equipment P6300/GXA,PII-300,64MB,4.3GBEIDE,4M 1127
354327 9863864 PC Equipment E5000-2333 PII,128MB,9GBSCSI,8MBAGP 1073
354360 S7403220DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 1147
358722 9695703 PC Equipment E5000-2300MMX,128MB,9GBSCSI,8MBAGP, 1123
358790 9709916 PC Equipment E5000-2300MMX,128MB,9GBSCSI,8MBAGP, 1120
358853 S7901368DE Non-PC Comput Equip MULTISYNC P1150 MONITOR, 21", COLOR 10472
359073 9863759 PC Equipment E5000-2333 PII,128MB,9GBSCSI,8MBAGP 1051
359421 S68819097A PC Equipment TECRA 780CDM/8GPII-266,64MB,8.1GBHD ?? 10/2/1998
359700 9951728 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1179
359713 9941565 PC Equipment E5000-2333 PII,128MB,9GBSCSI,8MBAGP 1201
359813 10489469 PC Equipment E5000-2333 PII,64MB,4GBSCSI,8MBAGP 1056
359878 10189474 PC Equipment E5000-2333 PII,64MB,4GBSCSI,8MBAGP 1179
360591 445P259-9817106363 Non-PC Comput Equip 21" IMAGING MONITOR .22/.16 DOT 1172
362412 BLH166429 Non-PC Comput Equip 9.1GB EXT CHEETAH 9 U/WIDE SCSI HD 1115
362413 Non-PC Comput Equip 9.1GB EXT CHEETAH 9 U/WIDE SCSI HD 1115
362414 BLH137646 Non-PC Comput Equip 9.1GB EXT CHEETAH 9 U/WIDE SCSI HD 1115
362415 BLH142382 Non-PC Comput Equip 9.1GB EXT CHEETAH 9 U/WIDE SCSI HD 1115
362416 BLH151449 Non-PC Comput Equip 9.1GB EXT CHEETAH 9 U/WIDE SCSI HD 1115
362417 BLH166057 Non-PC Comput Equip 9.1GB EXT CHEETAH 9 U/WIDE SCSI HD 1115
362543 S8300239HE Non-PC Comput Equip MULTISYNC P1150 21" COLOR MONITR 10472
362545 S8300271HE Non-PC Comput Equip MULTISYNC P1150 21" COLOR MONITR 10472
362547 S8300202HE Non-PC Comput Equip MULTISYNC P1150 21" COLOR MONITR 1121
362548 S8300200HE Non-PC Comput Equip MULTISYNC P1150 21" COLOR MONITR 2379
362650 S8200249HE Non-PC Comput Equip MULTISYNC P1150 21" COLOR MONITR 1122
362818 9995985 PC Equipment E5000-2333 PII,128MB,9GBSCSI,8MBAGP 1066
363809 D819BX620107 Servers PROLIANT 3000R MOD 1 RACK P2-333 11/1080 a-terryc
367158 SGB00498909 Non-PC Comput Equip SURESTORE DAT24E, EXT DDS-3 TAPE DR 10475
367827 S78892485A PC Equipment TECRA 780CDM/5GPII-266,64MB,5.1GBHD 1172
368811 GFRF7 PC Equipment GX1/T+,PII-350,64MB,4.3GBEIDE,4MB, 1148
369133 FR0NL PC Equipment GX1/T+,PII-350,64MB,4.3GBEIDE,4MB, 1131
371178 D902CFW10013 Servers PROLIANT 1850R PII-450,64MB 3U RACK REDW-E/1348??
371179 D905CFW10027 Servers PROLIANT 1850R PII-450,64MB 3U RACK REDW-E/1348??
371180 D904CFW10239 Servers PROLIANT 1850R PII-450,64MB 3U RACK REDW-E/1348??
371181 D904CFW10209 Servers PROLIANT 1850R PII-450,64MB 3U RACK REDW-E/1348??
371371 UWWD5 PC Equipment WS610, PII450 XEON,128MB,9GB,8MB VC 1165
372441 HDC95 PC Equipment WS 610 PII 450 XEON X2,1GB,18GB, 1216
372445 11127268 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1115
372506 SX8098436A PC Equipment TECRA 8000 PII-300, 64MB, 8.0GBHD, 1172
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
373226 D845CFX10322 Servers PROLIANT 1600R PII-450,64MB 5U RACK CP Lab ???
373253 SX8105067A PC Equipment TECRA 8000 PII-300, 64MB, 8.0GBHD, 1172
373305 D846CFX10062 Servers PROLIANT 1600R PII-450,64MB RU RACK
373771 GXY89 Servers WS410,P11 400,128MB,9GB,14X32X,WIN 1115
373865 D850CCT21154 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
373866 D850CCT21014 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
373867 D850CCT20796 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
373868 D850CCT20790 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
373869 D850CCT20094 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
374017 D902CDB10023 Non-PC Comput Equip PROLIANT STORAGE SYSTEM MOD UE RACK CP Lab ??
374018 D839CDB10013 Non-PC Comput Equip PROLIANT STORAGE SYSTEM MOD UE RACK CP Lab ??
374019 D839CDB10004 Non-PC Comput Equip PROLIANT STORAGE SYSTEM MOD UE RACK CP Lab ??
374020 D839CDB10002 Non-PC Comput Equip PROLIANT STORAGE SYSTEM MOD UE RACK CP Lab ??
374021 D839CDB10025 Non-PC Comput Equip PROLIANT STORAGE SYSTEM MOD UE RACK CP Lab ??
374101 D839CDB10011 Non-PC Comput Equip PROLIANT STORAGE SYSTEM MOD UE RACK CP Lab ??
374138 D852CCT20847 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
374716 SUSEA014668 Non-PC Comput Equip LASERJET 4000N, 17PPM, 1200DPI, content printer
374919 UM6JX PC Equipment PE6300 2X450MHZ,256MB,9.1GB,14/32X, 1115
374920 ULDKU PC Equipment GX1/T+ 350MHZ,128MB,10GB,4MBVC,14/ 1115
374921 U52KT PC Equipment GX1/T+ 350MHZ,128MB,10GB,4MBVC,14/ 1115
374922 U52K2 PC Equipment GX1/T+ 350MHZ,128MB,10GB,4MBVC,14/ 1115
374923 UM6JP PC Equipment PE6300 2X450MHZ,256MB,9.1GB,14/32X, 1115
374924 UM6JV PC Equipment PE2300,2X450,256MB,9.1GBX5,14/32X, 1115
380070 D919CJP20230 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 RETURNED
380071 D919CJP20491 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 RETURNED
380072 D919CJP20253 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 RETURNED
380073 D919CJP20275 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 RETURNED
380074 D919CJP20284 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 RETURNED
380901 D918CJP20093 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 1181
380902 D918CJP20199 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 1181
380903 D918CJP20102 Servers COM PL 6400R PIII500X 512K 256MB MODEL 1 1181
380904 D918CFW10522 Servers COM PROLIANT 1850R PII450 512K 1181
380905 D918CFW10536 Servers COM PROLIANT 1850R PII450 512K 1181
380906 D918CFW10520 Servers COM PROLIANT 1850R PII450 512K 1181
395384 37906A PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 10474
395385 27906C PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 1206
395386 27906E PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 2199
395387 27906D PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 1189
395388 27906H PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 1195
395389 27906F PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 1127
395390 27906I PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 1209
395391 37906G PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 2199
395392 27906B PC Equipment P3-450 256mb 9.1gb SG-Barra 40xCD 10/100 1209
395393 27907E PC Equipment P2-400 256mb 4.55gb IBM SCSI 40xIDE CD 1 1133
395394 27907D PC Equipment P2-400 256mb 4.55gb IBM SCSI 40xIDE CD 1 1193
395395 37907G PC Equipment P2-400 256mb 4.55gb IBM SCSI 40xIDE CD 1 1137
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
395396 27907A PC Equipment P2-400 256mb 4.55gb IBM SCSI 40xIDE CD 1 2201
395397 27907B PC Equipment P2-400 256mb 4.55gb IBM SCSI 40xIDE CD 1 1133
395398 27907F PC Equipment P2-400 256mb 4.55gb IBM SCSI 40xIDE CD 1 1131
395399 37907C PC Equipment P2-400 256mb 4.55gb IBM SCSI 40xIDE CD 1 1123
395400 27908C PC Equipment P2-400 128mb 8.4gb IDE 40xCD IDE, 10/100 1197
395401 27908A PC Equipment P2-400 128mb 8.4gb IDE 40xCD IDE, 10/100 1129
395402 27908B PC Equipment P2-400 128mb 8.4gb IDE 40xCD IDE, 10/100 1193
395404 SVSCC048121 Non-PC Comput Equip HP 8100dn LaserJet, 32ppm w/1200dpi & 24mb memory 1108
414240 11014267 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1217
414242 11014273 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1218
414389 11014268 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1221
414390 11053351 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1219
414650 S98062475A PC Equipment PORTEGE 7010CT, P2-300, 32MB, 4.0GB 0473
416773 S68815449A PC Equipment TECRA 780CDM/8GPII-266,64MB,8.1GBHD 1094
419836 FVG59 PC Equipment WS410,PII-400,4X256MB,9GBSCSI,8MB 1094
422189 SX8088432A PC Equipment PORTEGE 7010CT, P2-300, 32MB, 4.0GB 0473
422600 11053343 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1115
422605 11124476 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1199
422606 11053342 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1049
422607 11124474 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1178
422608 11124481 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1075
422609 11124484 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 0472
422610 11124464 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1115
422612 11124468 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1115
422613 11124483 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1115 12/30/1998
422614 11124466 PC Equipment E4200-350,PII-350,64MB,4GBATA,4MB 1056
425166 D844BSN10595 Non-PC Comput Equip STORAGE SYSTEM, U1 RACK, F/PROLIANT 1181
425280 H8K6G Servers PE2300, 2X400MHZ,128MB,3X4.5GB,14/ 1115
425281 H8K6K Servers PE2300,2X400MHZ,256MB,3X4.5GB,14/32 1115
425395 11538710 PC Equipment GATW ALR7200 (DUAL) INTL 350MH 1115
425396 11538708 PC Equipment GATW ALR7200 (DUAL) INTL 350MH 1115
425397 11538707 PC Equipment GATW ALR 7200 (DUAL) INTL 350MH 1115
425652 H90PR Servers GX1 OPTIPLEX, PII350, 64MB, 6.4GB, 1205
428108 HXCXP Servers WS610 PII XEON 2X450MHZ,1028MB,18GB 1066
428134 HXCXR Servers WS610 PII XEON 2X450MHZ,1028MB,18GB 1074
428181 HXCXX Servers WS610 PII XEON 2X450MHZ,1028MB,18GB 1073
428182 HXCXT Servers WS610 PII XEON 2X450MHZ,1028MB,18GB 1084
429272 32017029781 PC Equipment TOSHIBA 7020CT PII366 6GB 64MB W98 1231
429977 D919CFW10014 Servers COM PROLIANT 1850R PII450 512K 1181
429978 D919CFW10021 Servers COM PROLIANT 1850R PII450 512K 1181
429979 D918CFW10892 Servers COM PROLIANT 1850R PII450 512K 1181
429980 D918CFW10120 Servers COM PROLIANT 1850R PII450 512K 1181
429981 D919CFW10200 Servers COM PROLIANT 1850R PII450 512K 1181
429982 D918CFW10846 Servers COM PROLIANT 1850R PII450 512K 1181
429983 D919CFW10215 Servers COM PROLIANT 1850R PII450 512K 1181
429984 D919CFW10214 Servers COM PROLIANT 1850R PII450 512K 1181
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
429985 D919CFW10206 Servers COM PROLIANT 1850R PII450 512K 1181
430598 D906CCT20061 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
430621 D906CCT20046 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
430623 D906CCT20277 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
430639 D906CCT20053 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
430653 D906CCT20281 Servers PROLIANT 5500R PII XEON-400, 128MB, CP Lab ??
430830 D902BX520093 Servers PROLIANT 6500 2P 6/400 PII XEON-400 1181
433349 UM5GY PC Equipment DELLWS610,XEON450,128MB,9GB10KSCS 1156
433355 UM5GV PC Equipment DELLWS610,XEON450,128MB,9GB10KSCS 2369
434334 UM5H0 PC Equipment DELLWS610,XEON450,128MB,9GB10KSCS 1138
443234 S59016882 PC Equipment TOSHIBA 7020CT PII366 6GB 64MB W98 1302
443242 S59017151 PC Equipment TOSHIBA 7020CT PII366 6GB 64MB W98 1236
443353 0ZM6N PC Equipment DELL PIII500K GX1PT+ 128M 20GB FAT16 W98 1212
446220 UTQ9R PC Equipment WS610, PII450 XEON,128MB,9GB,8MB VC 1145
446221 UTQ8B PC Equipment WS610, PII450 XEON,128MB,9GB,8MB VC 1158
450230 OF9EK Servers 9GB WEB (HIGH END) DELL POWEREDGE CP Lab ??
453005 070HG PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 1301
453032 070HV PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 1214
453033 070HC PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 1330
453050 070J4 PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 1336
453051 070J0 PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 1285
453052 070IV PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 1286
453053 070HN PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 10475
453057 070HL PC Equipment DELL OPTIPLEX GX1P, PENTIUM 11-450, 1288
456293 S49605945A PC Equipment PORTEGE 7020CT PII-366, 64MB, 6.4HD 1228
457125 S49604033A PC Equipment TOSHIBA TECRA 8000 B-T-O CONFIG 10475
457283 S59698835A PC Equipment TOSHIBA TECRA 8000 B-T-O CONFIG 1124
457594 S59016292 PC Equipment TOSHIBA 7020CT PII366 6GB 64MB W98 10475
457663 WLFBY PC Equipment DELL LAT CPIA300ST 64M 4.8G W98 26114344 10475
457676 S6923CL94B274 PC Equipment COM DP EP C400 6.4GB 64MB CDS W95 10472
457679 S6923CL94B265 PC Equipment COM DP EP C400 6.4GB 64MB CDS W95 10472
457762 S6923CL94A539 PC Equipment COM DP EP C400 6.4GB 64MB CDS W95 1103
458007 S49607126A PC Equipment PORTEGE 3020 CT, PII-300, 32MB, 6.4 10473 RETURNED
458304 034SX PC Equipment WS610, PII450 XEON,128MB,9GB,8MB VC 1144
458305 034QR PC Equipment WS610, PII450 XEON,128MB,9GB,8MB VC 1165
458306 034R9 PC Equipment WS610, PII450 XEON,128MB,9GB,8MB VC 2376
458354 0BN35 PC Equipment WS410,PII400MHZ,128MB,9GB,14/32X, 1181
458825 0BN34 PC Equipment WS410,PII400MHZ,128MB,9GB,14/32X, 1181
458923 ZZLLN PC Equipment LATITUDE CPIA300ST,64MB,4.3GB,24X, 10475
459093 S49600817A PC Equipment PORTEGE 7020CT PII-366, 64MB, 6.4HD 1237
459251 D918CJP20287 Servers PROLIANT 6400R PIII-500, 256MB 1181
459252 D918CJP20219 Servers PROLIANT 6400R PIII-500, 256MB 1181
459749 150366-000100424 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1115
459750 150366-000200426 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1115
459751 150366-000300425 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1115
459752 150366-000400427 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1115
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
459753 150366-000500423 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1115
459871 0BD21716913692290005 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1109
459964 0BD56416913692290005 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1109
459967 0BD56B16913692290005 PC Equipment DESKPRO EP CELERON 400,64MB,6.4GBHD 1305
465925 D918CJP20297 Servers PROLIANT 6400R PIII-500, 256MB 1181
465926 D918CJP20338 Servers PROLIANT 6400R PIII-500, 256MB 1115
465992 S49598303A PC Equipment PORTEGE 7020CT PII-366, 64MB, 6.4HD 1256
468106 938D016847 PC Equipment P-II 350mhz 10.1gb EIDE 64mb 32xCD 10/10 2199
468108 938D016846 PC Equipment P-II 350mhz 4.5gb SCSI 64mb 32xCD 10/100 1211
468109 934D010622 PC Equipment P-II 400,10gb EIDE,128mb,40xCD,10/100nic 1229
468110 934D010621 PC Equipment P-II 400,10gb EIDE,128mb,40xCD,10/100nic 1244
468111 934D010635 PC Equipment P-II 400,10gb EIDE,128mb,40xCD,10/100nic 1125
399152 6931CZF20724 PC Equipment DESKPRO EP CELERON 500,126MB,6.4GBHD
398962 56I2V PC Equipment Dell OptiPlex GX1 550, 128mb, 20gb
398501 3J2I6 PC Equipment Dell OptiPlex G1 400 64mb, 4,3gb
399151 S6931CZF20721 PC Equipment Deskpro EP Celeron 500, 128mb, 6.4gb
399152 S6931CZF20724 PC Equipment Deskpro EP Celeron 500, 128mb, 6.4gb
399153 SZ931CZF20807 PC Equipment Deskpro EP Celeron 500, 128mb, 6.4gb
399154 S6931CZF20735 PC Equipment Deskpro EP Celeron 500, 128mb, 6.4gb
399411 D935CNH1B562 Servers Compaq Proliant 1850R PIII500
399412 D935CNH1B098 Servers Compaq Proliant 1850R PIII500
398370 44LBA PC Equipment Dell Precision WS 610MT Xeon 256mb, 18gb
399019 99A02656US PC Equipment NEC PM VT300 Celeron 400, 8.4gb, 64mb
PERIPH00009845 CompEquipPeri-Pre 97 4.3GB PLUGGALBLE FAST-WDE SCSIF5605
PERIPH00010044 CompEquipPeri-Pre 97 SYSTEM PROCESSOR BRD, PROLIANT 5/90
PERIPH0001058 K7178026 CompEquipPeri-Pre 97 SEAGATE 4GB INT. SCSI DRIVE
PERIPH00010875 Non-PC Comput Equip 4.3GB PLUGGABLE SCSI-2 DRIVE
PERIPH0001095 K7500309 Non-PC Comput Equip SEAGATE 4GB INT. SCSI DRIVE
PERIPH00011022 25122 Non-PC Comput Equip 5/100 PROLIANT SYS PROCESSOR BRD-2
PERIPH00011210 Non-PC Comput Equip 64-MB DIMM MEMORY (4X16MB)
PERIPH00011211 Non-PC Comput Equip 128-MB DIMM MEMORY (4X32MB)
PERIPH00011212 Non-PC Comput Equip SMART-2/P ARRAY CONTROLLER
PERIPH00011213 Non-PC Comput Equip 4.3GB PLUGGABLE FAST-WIDE-SCSI-2
PERIPH00011314 Non-PC Comput Equip 4.3GB PLUGGALBLE FAST-WDE SCSIF5605
PERIPH0001134 K7543857 Non-PC Comput Equip SEAGATE 4GB INT. SCSI DRIVE
PERIPH0001135 K8016019 Non-PC Comput Equip SEAGATE 4GB INT. SCSI DRIVE
PERIPH00011442 Non-PC Comput Equip SMART-2/P ARRAY CONTROLLER
PERIPH00011443 Non-PC Comput Equip 5/166 PROLIANT SYSTEM PROCESSOR BRD
PERIPH00011444 Non-PC Comput Equip 4.3GB PLUGGALBLE FAST-WDE SCSIF5605
PERIPH00011534 Non-PC Comput Equip SMART-2/E ARRAY CONTROLLER
PERIPH00011769 Non-PC Comput Equip FILEPRO PERFORMANCE SERIES 4.2GB
PERIPH00012299 Non-PC Comput Equip 4GB WIDE BARRACUDA INTERNAL SCSI
PERIPH0001284 JD374475 Non-PC Comput Equip 4.3GB INT, ULTRA SCSI BARRACUDA,
PERIPH00013515 Non-PC Comput Equip ETHERNET 6PT 10BT MODULE
PERIPH00013635 Non-PC Comput Equip PENTIUM PRO 200/512K PROCESSOR UPG
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
PERIPH00013636 Non-PC Comput Equip 9.1GB PLUGGABLE 13636 WIDE-ULTRA DRIVE
PERIPH00013852 Non-PC Comput Equip SEAGATE 9GB WIDE INT. BARRACUDA
PERIPH00013953 Non-PC Comput Equip SEAGATE 9GB WIDE INT. BARRACUDA
PERIPH00014033 Non-PC Comput Equip 128MB ECC RAM, 1 DIMM FOR GXPRO
PERIPH00014285 Non-PC Comput Equip SUPERSTACK II SWITCH 1000 24 PORT
PERIPH0001429 SCX731T1639 Non-PC Comput Equip 15/30 GB INT,TBU,DLT
PERIPH00014375 Non-PC Comput Equip COMPAQ 42U RACK ORDERABLE IN 02 ONL
PERIPH0001442 Non-PC Comput Equip 256MB KIT F/COMPAQ PROLIANT 5000
PERIPH0001443 Non-PC Comput Equip INTERNAL 35/70GB DLT DRIVE
PERIPH0001445 Non-PC Comput Equip SMART-2DH ARRAY CONTROLLER,SCSI,
PERIPH00014481 Non-PC Comput Equip 6/200 FLEX SMP PROCESSOR BOARD F/
PERIPH00014503 Non-PC Comput Equip 18.2GB HD, WIDE-ULTRA SCSI-3
PERIPH00014555 Non-PC Comput Equip P6,200MHZ,COPROCESSOR OPTION KIT
PERIPH00014616 Non-PC Comput Equip 256MB MEM EXP KIT (4X64MB DIMM)
PERIPH00014819 Non-PC Comput Equip 18.2GB HD, WIDE-ULTRA SCSI-3
PERIPH00015041 Non-PC Comput Equip 18.2GB HD, WIDE-ULTRA SCSI-3
PERIPH00015216 Non-PC Comput Equip 256MB MEM EXP KIT (4X64MB DIMM)
PERIPH00015360 Non-PC Comput Equip 18.2GB HD, WIDE-ULTRA SCSI-3
PERIPH00015662 Non-PC Comput Equip SMART-2DH ARRAY CONTROLLER,SCSI,
PERIPH00015669 Non-PC Comput Equip 18.2GB HD, WIDE-ULTRA SCSI-3
PERIPH00015691 Non-PC Comput Equip 512MB EDO KIT (2X256) F/MICROSOFT
PERIPH00015696 Non-PC Comput Equip 18.2GB HD, WIDE-ULTRA SCSI-3
PERIPH00015937 Non-PC Comput Equip PROLIANT 5500 PII XEON-400 512K
PERIPH00016072 Non-PC Comput Equip EICONCARD S94 2PT PCI WAN TI E1
PERIPH00016077 Non-PC Comput Equip EICONCARD S94 2PT PCI WAN TI E1
PERIPH00016122 Non-PC Comput Equip SMART ARRAY 3200 CONTROLLER
PERIPH0001615 6W8CBYZ19012 Non-PC Comput Equip COMPAQ 5422 ENTERPRISE GIGABIT
PERIPH00016167 Non-PC Comput Equip SMART ARRAY 3200 CONTROLLER
PERIPH00016377 Non-PC Comput Equip EICONCARD S94 2PT PCI WAN TI E1
PERIPH00016382 Non-PC Comput Equip PROLIANT 6400R XEON-500 512K S2
PERIPH00016387 Non-PC Comput Equip 18.2GB PLUGGABLE WIDE-ULTRA HARD DR
PERIPH00016422 Non-PC Comput Equip COM 18.3GB HP WIDE-ULTRA SCSI-3 10K RPM
PERIPH00016633 Non-PC Comput Equip COM 18.3GB HP WIDE-ULTRA SCSI-3 10K RPM
PERIPH7097 K3411344 CompEquipPeri-Pre 97 SEAGATE ST3225ON INT SCSI
PERIPH7326 CompEquipPeri-Pre 97 2.1GB HARD DRIVE, PLUGGAB
PERIPH7327 CompEquipPeri-Pre 97 2.1GB HARD DRIVE, PLUGGAB
PERIPH7328 CompEquipPeri-Pre 97 2.1GB HARD DRIVE, PLUGGAB
PERIPH7766 CompEquipPeri-Pre 97 2.1GB HARD DRIVE, PLUGGAB
PERIPH7767 K4470790 CompEquipPeri-Pre 97 SEAGATE 4GB INT. SCSI DRI
PERIPH8565 CompEquipPeri-Pre 97 TOWER-TO-RACK CONVERSION
9956682 Fax Machine HP 1108
ITG Networking Equip 4 Serial Ports NP Module
BLH164049 Non-PC Comput Equip 9.1GB EXT CHEETAH 9 U/WIDE SCSI HD
Non-PC Comput Equip CANON L4000,FX-3 CARTRIDGE,.5MB MEMORY UPGRD
Packaged Software Adobe Photoshop 5.0, engl. CD Win95/NT
PC Equipment Compaq V900 19" Monitor
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
PC Equipment MULTISYNC P1150 MONITOR, 21", COLOR
Servers
Cisco 2514 Dual Ethernet/Dual Serial Rou
Cisco 2514 Dual Ethernet/Dual Serial Rou
Dell Latitude Cpi D233ST, 233Mhz Pentium
DELL OPTIPLEX GXA/64MB/3GB
DELL OPTIPLEX GXA/64MB/4.3GB
Dell Workstation 410, Dual 450Mhz Proces
</TABLE>
<PAGE>
EXHIBIT 10.2
SERVICES AGREEMENT
THIS AGREEMENT is entered into as of October 1, 1999 (the "Effective Date") 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"), with reference to the
following facts:
A. On or about the Effective Date, Microsoft caused the formation of
Expedia and transferred certain Microsoft assets to Expedia in return for
certain stock in Expedia.
B. To assist Expedia in its day-to-day operations as a new corporate
entity, Microsoft has agreed to provide certain transition services to Expedia,
and Expedia desires to engage Microsoft to provide such services, for the term
and on the conditions set forth below.
THEREFORE, the parties hereby agree as follows:
I. PROVISION OF SERVICES; PAYMENT OF SERVICES
------------------------------------------
1.1 Upon the terms and subject to the conditions of this Agreement,
Microsoft shall provide the services described in Attachment A, attached hereto
and incorporated herein by this reference, to Expedia. Such services will be
categorized within nine "Blocks": Legal Services, Tax Services, Real Estate &
Facilities Services; Corporate Accounting Services; Treasury Services; Human
Resource Services; Information Technology Support Services; MSN Services;
Services from Microsoft Studios; TravelServices; and Localization Services. In
its sole discretion, Microsoft will have the right to cause third party
subcontractors to perform any or all of the services required of Microsoft
hereunder, provided that any such delegation by Microsoft will not relieve
Microsoft of its obligations hereunder.
1.2 Microsoft agrees that it will at all times use its best commercially
reasonable efforts to perform any and all of the services to be provided
pursuant to this Section 1 to the reasonable satisfaction of Expedia and will at
all times retain and utilize a sufficient number of qualified personnel to
perform all of such services.
1.3 Expedia shall pay Microsoft for services rendered hereunder according
to Attachment A. Except as expressly provided otherwise in Attachment A,
Microsoft shall bill Expedia fifteen (15) days after the end of each fiscal
quarter (with partial months prorated on a daily basis). Compensation payments
shall be due within thirty (30) days after the date of the applicable invoice
from Microsoft, or as agreed upon from time to time as services are requested.
For the purposes hereof, a "fiscal year" shall end on June 30, and a "fiscal
quarter" shall mean one of the four (4) three-month periods in a fiscal year, as
customarily determined by Microsoft. The rate of interest applicable for
overdue accounts shall be the applicable United States interest rate as
published from time to time by the Microsoft Treasury Department.
1.4 Except as may be provided in Attachment A, Microsoft shall not have,
nor represent itself as having, any authority under the terms of this Agreement
to make agreements of any kind in the name of or binding upon Expedia, to pledge
Expedia's credit, or to extend credit on Expedia's behalf.
1
<PAGE>
II. LOANED EMPLOYEES
----------------
2.1 The parties acknowledge that certain employees of Microsoft, who prior
to the Effective Date rendered services substantially full-time for the Expedia
business unit of Microsoft, have remained or will remain employees of Microsoft.
Expedia desires that all such employees who reported through Richard Barton as
of October 1, 1999, in the Microsoft organization chart continue to render
substantially full-time services for Expedia in their current capacities, and
Microsoft desires to loan to Expedia those employees who remain employees of
Microsoft to perform such services, on the terms and conditions contained in
this Section 2. Such employees who remain employees of Microsoft rather than
Expedia, and whose services are loaned by Microsoft to Expedia hereunder, are
referred to as "Loaned Employees."
2.2 So long as the applicable Loaned Employee continues to be employed by
Microsoft, Microsoft agrees to provide to Expedia the services of each Loaned
Employee from the Effective Date through the earlier of May 20, 2000 or such
date as Expedia notifies Microsoft that it no longer desires the services of
such Loaned Employee. Microsoft will use its commercially reasonable efforts to
cause the Loaned Employees to render the applicable services for Expedia. As
between Expedia and Microsoft, Microsoft shall be responsible for the payment of
payroll taxes, workers' compensation premiums, and filing of all reports and
filings required by law with respect to the Loaned Employees while employed by
Microsoft.
2.3 For such period as Microsoft provides the services of a Loaned
Employee pursuant to Section 2.2, Expedia agrees to pay to Microsoft an amount
equal to the gross earnings of such Loaned Employee, plus federal and state
payroll taxes, employee benefit programs contributions (including without
limitation health and all stock benefits programs). "Gross earnings" will
include salary, commissions, hourly and other forms of payments for services,
periods of paid vacation, sick leave and holidays, leave with pay, accrued
vacation paid and overtime payments. Expedia will pay all amounts owed to
Microsoft pursuant to this Section 2.3 in accordance with the provisions of
Section 1.3.
2.4 Expedia understands and acknowledges that the compensation package of
each Loaned Employee is and will remain within the sole discretion of Microsoft,
and that the Loaned Employees will be "at will" employees of Microsoft (whose
employment is terminable at will, with or without cause or advance notice, by
either Microsoft or the employee). If any Loaned Employee shall cease to be
employed by Microsoft, Microsoft will not be obligated to provide a replacement
to Expedia, notwithstanding anything contained in this Agreement to the
contrary. Prior to terminating any Loaned Employee during such time as her/his
services are being provided to Expedia hereunder, Microsoft agrees to consult
with Expedia; provided that any inadvertent failure to so consult will not
constitute a breach of this Agreement.
2.5 Expedia undertakes the responsibilities set forth in this Section 2.5
with respect to each Loaned Employee rendering services for Expedia hereunder.
2.5.1 Expedia will be responsible for supervising the quality and
acceptability of the work performed by the Loaned Employees. Expedia agrees to
follow the human resource guidelines supplied by Microsoft. Expedia will grant
Microsoft reasonable access to its employees at Expedia's work-site(s) for such
purposes as employee benefit enrollment and other employment related purposes.
2.5.2 Expedia has the right to the removal of Loaned Employees from
Expedia's business for any reason not prohibited by law, with or without cause
or advance notice.
2
<PAGE>
2.5.3 Expedia will cooperate with Microsoft on other matters related
to Loaned Employee services including benefit management, salary administration,
promotion, and discipline and termination.
2.5.4 Expedia agrees to maintain records of actual hours worked by
each Loaned Employee to the extent that the status of such employee requires the
maintenance of records regarding time worked, and report such hours worked to
Microsoft.
2.5.5 Expedia agrees to comply, at its expense, with all occupational
safety, health and work laws, regulations, directives, and rules required by
federal, state and local authorities and with all reasonable requests from
Microsoft in connection with same. Expedia will immediately report all
accidents and incidents involving Loaned Employees to Microsoft.
2.5.6 Expedia agrees to forward any legal requests for Loaned
Employee garnishments to Microsoft immediately upon receipt.
2.5.7 Expedia shall furnish and keep in full force and effect at all
times during the term of this Agreement general liability insurance. In the
event a Loaned Employee is assigned to fill a job function requiring said Loaned
Employee to operate a vehicle for Expedia, Expedia shall furnish liability
insurance. The policy shall insure against public liability for bodily injury
and property under a policy of insurance with terms and conditions and limits
which are acceptable to Microsoft. Expedia shall name Microsoft as an
additional insured under such insurance policies. Expedia shall notify
Microsoft immediately if such policies are terminated.
2.6 If and to the extent that Expedia requests that the services of any
employee of a Microsoft subsidiary who prior to the Effective Date rendered
substantially full-time services for the Expedia business unit be loaned to
Expedia, Microsoft will use its commercially reasonable efforts to cause the
applicable subsidiary to loan Expedia the services of such employee on
substantially the same terms and conditions set forth in this Section 2.
2.7 With respect to employees outside the United States, Expedia
acknowledges that there will be a one-time $5,000 set-up charge for payroll
accounts in the U.K and Germany from the applicable Microsoft subsidiaries, and
that such employees may require a monthly cash stipend (of approximately $1,250
each) in lieu of the use of an automobile.
III. TAXES
-----
3.1 The amounts to be paid by Expedia to Microsoft herein do not include
any foreign, U.S. federal, state, local, municipal or other governmental taxes,
duties, levies, fees, excises or tariffs, arising as a result of or in
connection with the transactions contemplated under this Agreement including,
without limitation, any state or local sales or use taxes or any value added tax
or business transfer tax now or hereafter imposed on the provision of goods and
services to Expedia by Microsoft under this Agreement, regardless of whether the
same are separately stated by Microsoft. All such taxes (and any penalties,
interest, or other additions to any such taxes), with the exception of taxes
imposed on Microsoft's net income or with respect to Microsoft's property
ownership, shall be the financial responsibility of Expedia. Expedia agrees to
indemnify, defend and hold Microsoft harmless from any such taxes or claims,
causes of action, costs (including, without limitation, reasonable attorneys'
fees) and any other liabilities of any nature whatsoever related to such taxes.
3
<PAGE>
3.2 Expedia will pay all applicable value added, sales and use taxes and
other taxes levied on it by a duly constituted and authorized taxing authority
on the services or other items provided under this Agreement or any transaction
related thereto in each country in which the services and/or property are being
provided or in which the transactions contemplated hereunder are otherwise
subject to tax, regardless of the method of delivery. Any taxes that are owed
by Expedia, (i) as a result of entering into this Agreement and the payment of
the fees hereunder, (ii) are required or permitted to be collected from Expedia
by Microsoft under applicable law, and (iii) are based upon the amounts payable
under this Agreement (such taxes described in (i), (ii), and (iii) above the
"Collected Taxes"), shall be remitted by Expedia to Microsoft, whereupon, upon
request, Microsoft shall provide to Expedia tax receipts or other evidence
indicating that such Collected Taxes have been collected by Microsoft and
remitted to the appropriate taxing authority. Expedia may provide to Microsoft
an exemption certificate acceptable to Microsoft and to the relevant taxing
authority (including without limitation a resale certificate) in which case,
after the date upon which such certificate is received in proper form,
Microsoft shall not collect the taxes covered by such certificate.
3.3 Expedia agrees that each payment to be made hereunder shall be free of
all withholding imposed by any jurisdiction, and if any such withholding is
required, Expedia shall pay an additional amount such that after deduction of
all amounts required to be withhold, the net amount of the payment will equal,
on an after tax basis, the amount of the payment that would be due absent such
withholding.
3.4 This Section III shall govern the treatment of all taxes arising as a
result of or in connection with this Agreement notwithstanding any other section
of this Agreement.
3.5 In addition to the other undertakings of Expedia set forth in this
Agreement, Expedia shall be responsible to reimburse Microsoft for any and all
Washington Business and Occupation tax liability imposed on Microsoft with
respect to the payments received from Expedia by Microsoft. Such reimbursement
shall be paid by Expedia to Microsoft through a tax reimbursement payment, in
addition to the other payments required to be made pursuant to this Agreement,
to be made at the time of each payment required under Attachment A. Such tax
reimbursement payments shall each be in an amount such that after Microsoft pays
all Business and Occupation taxes imposed with respect to both the payments
required elsewhere in this Agreement, and the payments called for in this
paragraph, the net amount of the aggregate of all payments made by Expedia to
Microsoft under this agreement will equal, on an after tax basis, the amount of
the payment that is due under this Agreement excluding this Section 3.5.
IV. CONFIDENTIAL INFORMATION
------------------------
The parties understand and acknowledge that each of them (and their respective
employees, consultants and subcontractors) may have disclosed to it, in
connection with the rendition of services and performance of their obligations
of this Agreement, confidential and/or proprietary information of the other
party. The terms and conditions of that certain Non-Disclosure Agreement
between the parties, dated October 1, 1999, shall apply to all such confidential
and proprietary information.
4
<PAGE>
V. LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
Microsoft and its subcontractors (if any), and its and their respective
officers, directors, agents or designees, shall not be liable for any loss
incurred by Expedia occasioned by acts performed (or not performed) by them, or
advice or assistance given by them, in good faith in the performance of their
duties hereunder, and in any event shall be liable only for willful wrongdoing
or gross negligence and not for honest errors of judgment; provided, however,
that in no event shall Microsoft or such subcontractors be held liable for any
consequential damages or for any loss of profits suffered by Expedia or by any
third party, and provided further that the amount of damages claimed in respect
of all breaches of contract that may occur during one fiscal year in regard to
Expedia shall not exceed the amount of compensation which Expedia owes and/or
has paid to Microsoft for the fiscal year during which the breach of contract
has occurred. Expedia agrees to indemnify and hold harmless Microsoft and its
subcontractors, and its and their respective officers, directors, agents and
designees, from and against all costs, damages, judgments, attorneys' fees,
expenses, obligations and liabilities of every kind and nature which they or any
of them may incur, sustain or be required to pay in connection with or arising
out of the performance of their obligations hereunder (unless such costs,
damages, judgments, fees, expenses, obligations or liabilities are incurred in
connection with or arise out of willful wrongdoing or gross negligence). This
Section V shall survive the termination of this Agreement.
VI. TERM
----
6.1 This Agreement shall take effect upon the Effective Date and shall
continue in full force and effect through December 31, 2000, subject to the
other provisions in this Section 6.
6.2 Not later than one hundred twenty (120) days prior to the then-
scheduled expiration of this Agreement, Expedia may notify Microsoft that it
desires to extend the term of this Agreement for an additional period of one
year. Promptly after such notice Microsoft and Expedia will negotiate in good
faith the terms and conditions for such extension, including but not necessarily
limited to the compensation to be payable by Expedia to Microsoft for the
services to be provided by Microsoft during such extension of the term. Any
adjustment of compensation is to be based on a revised estimate of the actual
costs to be incurred by Microsoft in providing the services hereunder. If the
parties reach agreement on such terms and conditions, then they will amend this
Agreement to conform to such agreement; if the parties have not reached
agreement on the terms and conditions of such extension prior to sixty (60) days
before the then-scheduled expiration date of this Agreement, then this Agreement
will expire as scheduled and Microsoft will not have any obligation to provide
services to Expedia hereunder after such expiration date.
6.3 Notwithstanding Section 6.1 of this Agreement, Expedia may terminate
this Agreement in whole, or with respect to one or more complete Block(s) of
services, at any time by giving written notice of termination (specifying the
service or services being terminated) to Microsoft at least thirty (30) days in
advance of the effective date of such termination.
6.4 Notwithstanding Section 6.1 of this Agreement, Microsoft may terminate
this Agreement in whole, or with respect to one or more complete Block(s) of
services, at any time by giving written notice of termination (specifying the
service or services being terminated) to Expedia at least one hundred eighty
(180) days in advance of the effective date of such termination; provided that
Microsoft may terminate this Agreement immediately upon written notice to
Expedia if Expedia shall have failed to make any payment due hereunder for
services rendered hereunder, unless such failure has been cured by Expedia
within sixty (60) days after the original due date for such payment.
5
<PAGE>
VII. GENERAL PROVISIONS
------------------
7.1 Organization, Good Standing, and Authority. Microsoft represents and
-------------------------------------------
warrants that it is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Washington and has authority to enter
into this Agreement and perform its obligations hereunder.
7.2 Organization, Good Standing, and Authority. Expedia represents and
-------------------------------------------
warrants that it is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Washington and has authority to enter
into this Agreement and perform its obligations hereunder.
7.3 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties with respect to the subject matter hereof, and supersedes and
terminates any and all prior agreements or contracts, oral or written, entered
into between the parties relating to the subject matter hereof (although the
parties acknowledge that on or about the Effective Date they may execute
separate agreements dealing with software licenses and the "distribution" of
expedia.com in msn.com, and nothing contained in this Agreement will be deemed
to nullify any provisions of such license or carriage agreements). Each party
acknowledges that there are no warranties, representations, covenants or
understandings of any kind, manner or description whatsoever by either party to
the other with respect to the premises except as expressly set forth herein.
7.4 Amendments. This Agreement shall not be amended or otherwise modified
----------
except by a written agreement dated subsequent to the date of this Agreement and
signed on behalf of Microsoft and Expedia by their respective duly authorized
representatives.
7.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Washington.
7.6 Assignment. Neither party hereto may assign this Agreement without
-----------
the prior written consent of the other party signed by such other party's duly
authorized representative, which consent may be given or withheld in the sole
discretion of the applicable party whose consent is requested.
7.7 Notices. All notices in connection with this Agreement shall be
-------
deemed given as of the day they are sent by electronic transmission, sent by
facsimile or deposited with a commercial courier for delivery to other party at
the following addresses:
Microsoft: Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6399
Tel: (425)882-8080
Fax: (425)936-7329
Attention: Chief Financial Officer
Treasurer
With copy to: Law and Corporate Affairs
Expedia: Expedia, Inc.
4200 150th Ave. NE
6
<PAGE>
Redmond, WA 98052
Tel: (425) 705-4874
Fax: (425) 707-2722
Attention: Chief Executive Officer
Chief Financial Officer
or to such other address and/or telex and facsimile number as the party to
receive the notice or request so designates by written notice to the other.
7.8 No Waiver. No waiver of any breach of any provision of this Agreement
---------
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
7.9 Savings Clause. If any provision of this Agreement shall be held by a
--------------
court of competent jurisdiction to be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect.
7.10. Confidentiality. Microsoft and Expedia each agree that the terms
---------------
and conditions of this Agreement, including its attachments, will be deemed to
constitute, and be treated as, confidential information pursuant to Section V
above.
7.11 Further Assurances. Each party agrees to take such further action
------------------
and execute, deliver and/or file such documents or instruments as are necessary
to carry out the terms and purposes of this Agreement.
7.12 Section Headings. The section headings used in this Agreement are
----------------
intended for convenience only and shall not be deemed to supersede or modify any
provisions.
7.13 Relationship of Parties. This Agreement is intended solely as a
-----------------------
services agreement, and no partnership, joint venture, employment, agency,
franchise, or other form of agreement or relationship is intended. Each party
agrees to be responsible for all of its federal and state taxes, withholding,
social security, insurance, and other benefits, and all salaries, benefits, and
other costs of its employees, except as otherwise specifically contemplated by
the provisions of this Agreement (e.g., where Expedia has agreed to reimburse
Microsoft for its costs). From time to time, in connection with the services
referred to in Attachment A, Microsoft may act as Expedia's agent if Expedia
requests Microsoft to do so and Microsoft, in its sole discretion, agrees.
7.14 No Third Party Beneficiaries. This Agreement is not intended to
----------------------------
create any rights in any person or entity who is not a party to this agreement,
and no such rights are created hereunder.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
MICROSOFT CORPORATION EXPEDIA, INC.
By /s/ Gregory B. Maffei By /s/ Richard N. Barton
_______________________________ _______________________________
its authorized representative its authorized representative
8
<PAGE>
ATTACHMENT A
SERVICES AGREEMENT
Parties: MICROSOFT CORPORATION and EXPEDIA, INC.
- -------
Effective Date: October 1, 1999
- --------------
General: All capitalized terms in this Attachment A shall have the respective
- -------
meanings assigned to such terms in the Agreement unless otherwise noted herein.
Accounting Principles: Where the terms of the Agreement or this Attachment A
- ---------------------
require the application of accounting principles, United States Generally
Accepted Accounting Principles shall apply.
Policies and Procedures: From time to time Expedia and Microsoft may establish
- ------------------------
one or more Policies and Procedures document(s) that set forth in further detail
the agreed upon services provided under this Agreement with respect to a
particular Block of services.
Headcount: Compensation to Microsoft for certain services hereunder will be
- ---------
based on the "Headcount" for Expedia. "Headcount" will be computed monthly,
based on the average daily aggregate number of the following personnel: (i)
employees of Expedia; plus (ii) the Loaned Employees rendering services for
Expedia hereunder; plus (iii) all other individuals employed by third parties
who are rendering services substantially full-time for Expedia. The number of
personnel described in clause (iii) may be referred to herein as "Contingent
Staff"; and the number of those described in clauses (i) and (ii) together may
be referred to as "Non-Contingent Staff."
Condition Precedent: Services provided hereunder are contingent on Expedia
- -------------------
using Microsoft internal systems.
Direct Expenses: Direct expenses incurred by Microsoft with third parties in
- ---------------
connection with Microsoft's performance hereunder will be reimbursed by Expedia
to Microsoft, or billed directly to Expedia, in addition to any fees payable to
Microsoft hereunder.
Fiscal Year Recalculation: Some of the rates set forth herein are based on the
- -------------------------
current Microsoft fiscal year calculations. Such calculations may change over
fiscal years, and Microsoft reserves the right to recalculate these rates based
on new accounting policies. However, Microsoft will notify Expedia in writing
as soon as reasonably possible regarding such rate recalculations (if
applicable).
LEGAL SERVICES BLOCK
- --------------------
Services: The Law and Corporate Affairs (LCA) department of Microsoft shall
--------
provide legal advice to Expedia in various areas, upon request, including
without limitation the following:
. Supplier & Consumer Sales
. Business Operations
9
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. Anti-Piracy Litigation
. Consumer Fraud
. Intellectual Property (patent, trademark, copyright)
. General Litigation (contract disputes, commercial litigation, bankruptcy,
collections, etc.)
. General Corporate Governance
. Labor
. Government Affairs
. Human Resources
. Bankruptcy
. Securities
. Supervision of Outside Counsel
In regard to all legal matters, Microsoft may consult and retain outside lawyers
to assist them as determined in the sole judgment of the LCA lawyer. LCA
attorneys may also act as counsel for Expedia.
Compensation:
-------------
(a) For the services rendered by Microsoft personnel in this Block,
Expedia shall pay Microsoft the fixed rate of $77,625 per month.
(b) For legal services subcontracted by Microsoft to outside counsel,
Expedia will reimburse Microsoft at cost; provided that Microsoft may request
such outside counsel to bill Expedia directly.
(c) The compensation for the services under this Block was computed under
the assumption that Expedia will not have its own legal staff and that the
Microsoft legal staff spend at least approximately the time handling Expedia
matters as considered when negotiating the fees set forth in (a) above. If
Expedia uses significantly less Microsoft in-house legal resources than so
considered (because of Expedia's use of its own legal staff or outside counsel),
then the parties may re-negotiate the fees in (a).
TAX SERVICES BLOCK
- ------------------
Services: Consultation on tax issues, including without limitation the
--------
preparation and filing of various tax returns.
Compensation:
-------------
(a) For the services rendered by Microsoft personnel in this Block,
Expedia shall pay Microsoft the fixed rate of $5,063 per month.
(b) For services subcontracted by Microsoft to outside
counsel/consultants, including preparation of all international tax returns,
Expedia will reimburse Microsoft at cost; provided that Microsoft may request
such outside counsel/consultants to bill Expedia directly.
REAL ESTATE & FACILITIES SERVICES BLOCK
- ---------------------------------------
Services:
--------
10
<PAGE>
(a) The Real Estate & Facilities (RE&F) department of Microsoft shall
provide to Expedia the following services: Building & Grounds Maintenance,
Security Monitoring, Cardkey Access, Janitorial Services, and UPS Monitoring.
(b) From time to time Expedia may request RE&F to provide any of the
following services: Office space programming and planning; office space design
and construction; office moving, lease auditing; lease consulting and changes;
lease administration and enforcement; site and vendor service planning and
interior office maintenance consultation.
Compensation: For the services rendered by Microsoft personnel in this
-------------
Block, Expedia shall pay Microsoft the following monthly rate for those periods
that Expedia is occupying facilities owned by Microsoft: (a) the product of the
Headcount times $255; plus (b) the product $1065 times the sum of the Non-
Contingent Staff plus one-half the Contingent Staff.
Leased Space: Expedia expects to vacate its offices in RedWest in
------------
December, 1999, and will do so as soon as reasonably possible, and move to
offices leased by Microsoft from a third party or to offices leased directly by
Expedia (the "New Offices"). If Expedia moves to offices leased by Microsoft
from a third party, then, at Microsoft's option, either (i) Expedia will execute
a sublease in substantially the form attached hereto as Attachment B, with the
lease payments equal to the lease payments Microsoft is obligated to make to the
applicable landlord, or (ii) Microsoft will assign the applicable lease to
Expedia and Expedia will assume all of Microsoft's obligations thereunder. If
Microsoft initially elects the sublease option, then it may subsequently elect
to assign the lease as set forth in option (ii). After Expedia relocates to the
New Offices, Microsoft will not provide the services referred to in (a) and (b)
above unless requested to do so, in writing, by Expedia on a case-by-case basis,
in which event Expedia will pay for such services on a "cost plus 5%" basis.
"Distant" Employees: For each employee or Loaned Employee located in a
-------------------
Microsoft facility outside RedWest or the New Offices, Expedia will reimburse
Microsoft for all reasonable costs of providing such employee's use of the
Microsoft facilities.
New Office Build-Out: In addition to the amounts specified above, Expedia
--------------------
will reimburse Microsoft for all of Microsoft's "fully loaded" costs incurred in
connection with the move of Expedia to the New Offices and the build-out of the
New Offices (including without limitation ITG costs). Such costs will be agreed
to in advance by the parties before work begins.
Leased Personal Property: If Microsoft purchases or leases on behalf of
------------------------
Expedia any furniture, equipment or other personal property for the New Offices,
then Expedia will reimburse in full for the purchased items and the applicable
lease costs; provided that if a lease permits assignment to Expedia, Microsoft
will assign the lease to Expedia and Expedia will assume all of Microsoft's
obligations thereunder. However, Microsoft shall not purchase, or enter into
any lease for, any such personal property without Expedia's prior consent.
Expedia will comply with all terms and conditions of all applicable leases.
ACCOUNTING SERVICES BLOCK
- -------------------------
11
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Microsoft Corporate Accounting shall provide Expedia with services for
transactions and reporting that is substantially the same level as delivered to
the Microsoft Travel Business unit prior to the Effective Date. Such services
include the following:
Transaction Support:
. Support and maintain SAP general ledger and related master data for both
finance and HR data.
. Provide both legal and management structures
. Support international organization, legal structure, foreign currencies,
statutory requirements and reimbursement.
. Create and support centralize procurement and payables in a manner consistent
with corporate services
. Provide general accounting support, including invoicing for intercompany
transactions.
. Provide support for loading annual budget into the general ledger and provide
sku's and related information to ensure that reporting continues in the
revenue & p&l reporting systems
. Support business requirements for cogs absorption, internal cost
distributions and allocations as required.
. Provide user interfaces for SAP transaction systems that are enabled use by
Expedia (Headtrax, MarFlex, MS Expense, MS Invoice, MS Market, MS Asset I/O
creation tool,etc.)
. Interact with and support Expedia finance department to ensure that internal
books comply with Generally Accepted Accounting Principles.
Reporting Support:
. Prepare monthly internal management reports and quarterly external SEC
financial reports as required and defined by Expedia management.
. Provide web based access to ad-hoc reporting via MS Reports/MS Insight or
other tools supported as central applications
. Support for data warehouses such as MS Sales, MARS, etc, and related ad-hoc
access associated
. Create and maintain the reporting hierarchies that enable Expedia specific
reporting
. Provide access to training on tools provided by Corporate Accounting
consistent with that made available to Microsoft.
From time to time, Expedia may request additional support as it relates to the
infrastructure above. These requests will be supported in a manner that is
consistent with other groups currently supported by Corporate Accounting.
Compensation: For the services rendered by Microsoft personnel in this Block,
Expedia shall pay Microsoft the fixed rate of $23,333 per month.
TREASURY SERVICES BLOCK
- -----------------------
Services: The Treasury department of Microsoft shall provide the
--------
following services to Expedia:
12
<PAGE>
(a) Global Cash Management will provide bank account management, wire
transfer execution services, and foreign currency purchases on behalf of Expedia
when needed to pay compensations or make payments to third parties. Bank
account management could include consulting services related to bank systems,
products, account structure as well as representing Expedia's interests in
interactions or service discussions with its banks and credit card service
providers In addition, Global Cash Management will manage daily liquidity for
Expedia.
(b) Assistance in establishing a comprehensive bank account structure and
accompanying services, including collections, payroll and accounts payable.
() Risk Management: Microsoft services will consist of:
. Consultation:
o Help Expedia identify, analyze, and quantify strategies to
mitigate or finance identified risks.
o Provide advice on resolving insured claims.
o Provide consultation and assistance to Expedia on indemnity and
insurance provisions for Expedia contracts.
o Conduct training for Expedia personnel on various Risk
Management issues as requested by Expedia.
o Conduct risk modeling as requested by Expedia.
. Risk Financing:
o Execute placement of insurance programs for Expedia.
o Administer Expedia policy and claims information.
o Assist with vehicle insurance compliance. , and.
Compensation:
-------------
(a) For the services in this Block rendered by Microsoft personnel,
Expedia shall pay Microsoft the fixed rate of $22,570 per month.
(b) For services subcontracted by Microsoft to third parties (e.g.,
banks), Expedia will reimburse Microsoft at cost; provided that Microsoft may
request such third parties to bill Expedia directly.
HUMAN RESOURCES SERVICES BLOCK
- ------------------------------
Services:
--------
(a) HR Programs and Services (HRPS). The HRPS division of Microsoft shall
-------------------------------
provide the following services to Expedia from time to time: (i) administer
Microsoft benefits for employees of Expedia while enrolled in Microsoft health
and welfare plans; (ii) assist Expedia in initial procurement of separate
Expedia health and welfare plans; (iii) internal benefits training for the
Expedia Benefits Administrator; (iv) administer Microsoft ESPP transactions
based on data provided by Expedia to Microsoft for processing; (v) administer
transactions to exercise Microsoft stock options by Expedia employees; (vi)
administer trust-to-trust transfer of Expedia employee 401k assets; (vii)
transmit payroll data to payroll company on behalf of Expedia and based on data
provided by Expedia.
13
<PAGE>
o Health and Welfare benefits administration: Expedia employees may be
eligible to participate as active enrollees in Microsoft health and
welfare plans through December 31, 1999. HRPS will continue to
administer benefits for Expedia employees while they are enrolled in
such Microsoft plans.
o ealth and welfare benefits plan procurement: HRPS department of
Microsoft shall assist Expedia benefits administrator in the
evaluation, selection, procurement, and implementation of health and
welfare plans for Expedia employees.
o Payroll: Microsoft will transmit payroll for Expedia through June 30,
2000 or until such time as Expedia contracts separately for services
from another vendor. Payroll service will be provided only as long as
Expedia uses Microsoft's SAP HR module.
o Benefits administration training: Expedia will have its own benefits
administrator. To assist the Expedia benefits administrator,
Microsoft will provide training and support as requested to Expedia
benefits administrator to facilitate successful implementation of
Expedia health and welfare plans.
o ESPP transaction processing: Expedia employees are allowed to
participate in the Employee Stock Purchase Plan "ESPP" of Microsoft
through December 31, 1999. Microsoft will administer the purchase of
ESPP shares for Expedia employees at the end of the last eligible
enrollment period, which will be December 31, 1999.
o Stock option exercises: Expedia employees will retain vested stock
options as part of their participation in the Stock Option program of
Microsoft. Microsoft will facilitate exercise of Microsoft options
for Expedia employees and provide the appropriate reporting to
Expedia employees.
o 401k plan transition: Microsoft will administer transition of 401k
assets as allowed under the rules of Microsoft 401(k) Plan, Expedia
401(k) Plan, and applicable laws.
(b) Other Human Resources Services:
------------------------------
(i) Recruiting: Microsoft will assist Expedia with
recruiting personnel.
(ii) Consultation: Expedia will have access to Microsoft HR
personnel to consult on human resource issues, including but not limited to
compensation, performance reviews, employee development, and training.
Compensation: For the services rendered by Microsoft personnel in
-------------
this Block, Expedia shall pay Microsoft the monthly rate of $66,233, plus the
product of the Headcount times $755. Such rates are detailed more precisely
below:
H/R Benefits and Benefits Administration $755 per person per month
H/W Benefits Procurement & Training $16,500 per month
ESPP Processing and Stock Option Exercise $9,700 per month
401K Transition $4,850 per month
Payroll Processing $6,350 per month
Recruiting $17,333 per month
14
<PAGE>
HR Consulting $11,500 per month
Notwithstanding Section 6.3 of the Services Agreement to which this Attachment A
is appended, Expedia will have the right to terminate each of the above-
referenced seven categories of services individually with 30 days advance
written notice to Microsoft, and need not terminate the entire Human Resouirces
Block simultaneously.
INFORMATION TECHNOLOGY SUPPORT SERVICES BLOCK
- ---------------------------------------------
Services: The ITG department of Microsoft shall provide substantially the
--------
same level of service as is being delivered to end users and the Microsoft
Travel Business unit as of the Effective Date. Such services include the
following:
Corporate-Network, Data-center, Email Operation and Telecom: Includes
the basic services (hardware and labor) to give the user access to the
Microsoft corporate network and infrastructure/back-office services,
including the telephony infrastructure. Cost of Services that are
historically billed/budgeted by departments are not included (e.g. isdn
lies, long distance, cell phones).
Corporate Helpdesk: This support service includes both Helpdesk phone
support (x65000), Desk-side Support, and Warranty parts replacement for
standard equipment. Additional costs will be added non-standard and non-
warranty equipment on a per incident basis).
IDC Services: Includes the full range of the service and support
model that ITG provides as of the Effective Date.
. Labor Costs includes all ITG labor and outsourcing to support the
IDCs. These costs are allocated based on a formula that factors in
quantity of tickets and server counts.
. Infrastructure includes, Shared Computer expense, Depreciation, M&R,
and misc. utilities for the IDC data-center. Allocations are based on
server count.
. Connectivity includes capital lease, pre FY00 depreciation, Egress,
M&R, SONET, and some misc. people costs. Allocations are dependant on
Peak BW utilization (note that ITG and finance are revisiting the
allocation methodology)
Compensation: For the services rendered by Microsoft personnel in this
-------------
Block, Expedia shall pay Microsoft the monthly rate of approximately $163,000
(as of the Effective Date) for IDC services as stated above, plus the product of
the Headcount times $525 for Corporate IT services as stated above. The
compensation rates for IDC services are based on allocation formulas as outlined
above, and the parties contemplate that the fees may increase substantially
based on projected Expedia usage during the Term. The actual allocations may
change as a reflection of the actual total ITG costs (including all departments
and cost centers) of services incurred by Microsoft. In addition, the
allocation calculation formulas are subject to change. If the allocation
formulas are changed, Expedia will be given at least a 60 day notification.
Notwithstanding Section 6.3 of the Services Agreement to which this Attachment A
is appended, Expedia will have the right to terminate each of the below-
referenced five sub-categories of services individually (and thereby reduce the
compensation payable for Corporate IT services by the indicated
15
<PAGE>
approximate amounts) with 30 days advance written notice to Microsoft, and need
not terminate the entire Information Technology Support Services Block
simultaneously with such sub-categories:
sub-category of services approximate cost
- ------------------------ ----------------
Corporate Network $210 per person per month
Corporate Data Center $163 per person per month
Corporate HelpDesk $105 per person per month
Corporate E-Mail $26 per person per month
Corporate Telecommunications $21 per person per month
Goods or services provided by third party vendors will be reimbursed by Expedia
to Microsoft at cost.
In addition to the amounts specified above, and as noted in the Real Estate &
Facilities Service Block above, Expedia will reimburse Microsoft for all of
Microsoft's "fully loaded" ITG costs incurred in connection with the move of
Expedia to the New Offices and the build-out of the New Offices. Such costs
will be agreed to in advance by the parties before work begins.
MSN SERVICES BLOCK
- ------------
Operations
Services.
. At Expedia's option, Microsoft will provide "back-end" operations support
for advertising sold by the Expedia Advertising Sales force for use on
Expedia.com and the MS/EI Travel Site ("Expedia.com/MSN"). This support
will include ad planning, contract entry, inventory management, as well as
ad sponsorship, ad operations support, contract management, ad delivery,
and basic invoicing/collections/billing support. Microsoft is only
responsible for those ad elements that are served by the then-current MSN
standard ad serving platform (currently, Accipiter); any ad elements
rotated by Expedia and not by MSN Ad Tech mechanisms are the sole
responsibility of Expedia and will not be tracked by Microsoft. The parties
understand that these "back-end" services will not be customized for
Expedia in any manner, and, thus, the Expedia Advertising Sales force will
interface with the Microsoft Operations team in a similar manner as the MSN
Ad Sales force does prior to the Effective Date, and that support will be
provided only during regular business hours (9:00am - 5:00pm, Monday -
Friday); without limitation, Microsoft will not provide integrated
fulfillment, reporting, billing and support for packages that have elements
unique to Expedia (for example, all invoices will include MSN letterhead,
and Microsoft will not prepare special invoices with Expedia letterhead),
and Expedia will be responsible for aggregating standard services provided
by Microsoft if Expedia desires to provide such integrated packages to any
of its customers.
. MSN Ad Tech will provide profile targeting services (when available) to
Expedia, provided that (i) Expedia contributes Expedia.com and
Expedia.com/MSN user profile data to Microsoft and MSN Ad Ops/Biz Ops/Ad
Tech serves ads for Expedia.com/MSN and Expedia.com, and (ii) Expedia
conforms to the User Profile Store procedures as determined by MSN. (i.e.
Ad Tech will only hook to ONE unified profile db). MSN will make available
to Expedia @plan reporting and other relevant research (to the extent
available).
16
<PAGE>
. If Expedia elects to source an ad serving system other than that used by
MSN Ad Ops/Biz Ops, a 90-day notice must be submitted to MSN Ad Ops/Biz
Ops, Ad Tech and MSN Sales. If this ad serving system impacts ad delivery
on MS/EI Travel Site in any way, both teams must agree to a mutually
beneficial solution.
. Subject to any restrictions in applicable license agreements for such data,
and assuming that Microsoft continues to acquire such data, Microsoft will
provide Expedia with generally available CCG Marketing Research (similar to
that to which the Microsoft Travel Business Unit had prior to the Effective
Date).
. With respect to international support, MSN Ad Tech may train localized Tech
Ops/System Analyst support, but will not provide personnel in international
subsidiaries to support ad clusters outside of Canyon Park (unless MSN Ad
Tech provides such personnel in international subsidiaries for itself).
. MSN will support Expedia internationally in ways that MSN supports itself
in each respective country/region. The countries/regions where Expedia
needs support initially (during the first 12 months of the Term) are UK,
Germany, Canada, Benelux, and Scandinavia. Expedia and Microsoft will
address additional countries as they arise. In the event that Expedia
creates a relationship with third parties to sell its ads, Expedia will
provide a single point of contact (which MSN will train) to be the go
between, between MSN and the third party. The parties will create and
follow a service level agreement within 90 days after the Effective Date.
. Hosting outside of Canyon Park, and/or new hardware required to run co-
branded or international versions, will not be provided or supported by
Microsoft without the prior agreement of both parties.
. Within the later to occur of (i) 30 days after the first (if any) initial
public offering of stock in Expedia or (ii) 90 days after the Effective
Date, Microsoft and Expedia will negotiate a plan for the management of
Expedia's workload under this Block, allocating more specific
responsibilities between MSN's and Expedia's respective financial
operations groups. Pending such agreement, MSN Services under this Block
will be provided by Microsoft to Expedia in substantially the same manner
as provided prior to the Effective Date to the Microsoft Travel Business
Unit.
Expedia agrees to make its best effort to conform to the application environment
and any procedures necessary for Ads Tech to install and maintain the Ad Client
and other ad serving related technologies. Tracking and reporting of hardcoded
elements is the responsibility of Expedia, except to the extent that tracking
and reporting of hardcoded elements was being provided by MSN to the Microsoft
Travel Business Unit as of the Effective Date (which tracking and reporting
services MSN will continue to provide to Expedia hereunder).
Compensation. Expedia will reimburse Microsoft for the costs of providing
------------
the services for this Block. Such costs will be more specifically defined in
the agreement referred to in the last bullet item above, with the intent that
such reimbursement is intended to make Microsoft whole for its costs of
providing the services described in this Block. Each of MSN and Expedia will be
responsible for bad debt incurred by advertisers for which it arranges; a
commission charge back will be generated for bad debt incurred by advertisers
for which MSN received a commission.
17
<PAGE>
LOCALIZATION SERVICES BLOCK
- ---------------------------
Services: From time to time Expedia may request Microsoft provide product
--------
localization.
Compensation: As customary in accordance with the general practices of
------------
the localization service provider.
MICROSOFT STUDIOS BLOCK
- -----------------------
Services: From time to time Expedia may request Microsoft Studios to
--------
provide production services.
Compensation: As customary in accordance with the general practices of
------------
Microsoft Studios.
TRAVEL SERVICES BLOCK
- ---------------------
Services: Upon request, Microsoft will provide the following travel
--------
services for employees of Expedia: reservations and tickets for air travel,
hotel accommodations and rental cars.
Compensation: Expedia will pay Microsoft for all services in this Block
------------
at the rate of $45.76 per ticket.
18
<PAGE>
OTHER SERVICES
- --------------
From time to time Expedia may request Microsoft to provide additional services
not delineated in this Attachment A (such as, by way of example only, photo
image licensing and management services, library services, employee travel
services, or product training), and Microsoft will consider in good faith such
requests. If Microsoft agrees to provide such services, the principle for such
services will be a cost-reimbursement model, with the possibility of an
additional management fee.
19
<PAGE>
ATTACHMENT B
FORM SUBLEASE
(nine pages follow)
20
<PAGE>
EXHIBIT 10.3
License Agreement
between Microsoft Corporation and Expedia, Inc.
THIS LICENSE AGREEMENT is entered into as of October 1, 1999 (the
"Effective Date") 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").
Recitals
A. WHEREAS, on or about the Effective Date, Microsoft caused the formation of
Expedia.
B. WHEREAS, in partial consideration for stock in Expedia issued to Microsoft,
Microsoft agrees to grant certain licenses to Expedia as described herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions
-----------
1.1 "Affiliates" shall mean any entity in which Expedia or Microsoft (as
----------
the case may be), directly or indirectly, or through one or more intermediaries,
holds the beneficial ownership of more than fifty percent (50%) of the equity
securities or interests, and only so long as such ownership continues.
1.2 "Expedia Content and Data" shall mean any articles, images, or
------------------------
graphics originally created, and data originally compiled, by Microsoft
employees in the Travel Business Unit or, to the extent it is owned by
Microsoft, by independent contractors specifically for the Microsoft Travel
Business Unit prior to the Effective Date.
1.3 "Expedia Specific Software" shall mean the computer software listed as
-------------------------
Expedia Specific Software in Exhibit A, as well as all documentation, help
files, schematics, specifications, development plans and other materials related
thereto.
1.4 "Future Expedia Inventions" shall mean any inventions, ideas, designs,
-------------------------
concepts, techniques, discoveries, or improvements developed by or for Expedia
or its Affiliates during the term of this Agreement.
1.5 "Intellectual Property Rights" shall mean copyrights, patents
----------------------------
(including patent improvements), patent applications, trade secrets, or other
intellectual property rights (but not trademarks, trade names, or service marks)
under applicable law.
1.6 "Microsoft Internal Software" shall mean the computer software listed
---------------------------
as Microsoft Internal Software in Exhibit A, as well as all user documentation,
help files,
1
<PAGE>
schematics, specifications, development plans and other user or development
materials related thereto.
1.7 "Microsoft Patents" shall mean (a) any and all patents (or the
-----------------
applications therefor) worldwide, having one or more claims relating to or
reading on the Expedia Specific Software and/or Online Travel Services provided
by Expedia or its Affiliates, whether existing as of the Effective Date, applied
for, or issuing during the term of this Agreement, and under which patents (or
the applications therefor) Microsoft or any of its Affiliates, has as of the
Effective Date, or obtains during the term of this Agreement, the ability or
right to license or grant immunity from suit (of the scope granted in Section
3.2 of this Agreement) to Expedia and Expedia's Affiliates; and (b) all
extensions, divisionals, continuations, continuations-in-part, reexaminations
and reissue patents of such patents, as well as patent applications thereof, to
the extent rights attach to such applications.
1.8 "Microsoft Retail Software" shall mean the computer software listed as
-------------------------
Microsoft Retail Software in Exhibit A, as well as all user and developer (e.g.
software development kits) documentation relating thereto.
1.9 "Microsoft Software" shall mean Microsoft Retail Software and
------------------
Microsoft Internal Software.
1.10 "Licensed Materials" shall mean the Microsoft Software, Expedia
------------------
Specific Software, Expedia Content and Data, the Third Party Software, and the
Third Party Content.
1.11 "Online Travel Services" shall mean any online service for reserving
----------------------
or purchasing travel services (e.g. airline tickets, hotel rooms, rental cars,
cruises, and resort vacation packages) accessed with an interactive electronic
device (whether now known or hereafter developed) enabling the user to view
information and respond with additional information. Such device may be,
without limitation, a computer, personal digital assistant, automated teller
machine, screen telephone, or Internet-enabled television.
1.12 "Third Party Content" shall mean text, graphics, photographs, video
-------------------
footage, sound tracks, or other visual, aural or textual content licensed by
Microsoft and used by the Microsoft Travel Business Unit immediately prior to
the Effective Date.
1.13 "Third Party Software" shall mean the computer software listed as
--------------------
Third Party Software in Exhibit A.
1.14 "Transition Services Agreement" shall mean that certain Transition
-----------------------------
Services Agreement between Microsoft and Expedia, dated as of October 1, 1999,
regarding, among other services, ITG support services Microsoft will provide to
Expedia.
2. Delivery, Support, and Operation
--------------------------------
2.1 Delivery. The parties acknowledge that Expedia already has copies of
--------
the Licensed Materials in its possession as of the Effective Date.
2
<PAGE>
2.2 Updates and Error Corrections. When and if Microsoft develops or
-----------------------------
receives during the term of this Agreement any updates, upgrades, error
corrections, or other improvements to any Third Party Software or Third Party
Content sublicensed to Expedia hereunder or any Microsoft Software
(collectively, "Updates"), Microsoft shall promptly make available such Updates
to Expedia to the extent permitted under applicable license agreements. Upon
receipt, such Updates shall be considered part of the corresponding Third Party
Software, Third Party Content, or Microsoft Software for purposes of this
Agreement.
2.3 Support and Operation. Except as explicitly described in the
---------------------
Transition Services Agreement, Expedia shall be solely responsible for the
support and operation of the Licensed Materials.
2.4 Future Expedia Inventions. From time to time, Expedia and Microsoft
-------------------------
shall consult to review Future Expedia Inventions. Expedia shall have the sole
option, responsibility and expense of prosecuting applications for any patents
that may be embodied in Future Expedia Inventions. If the parties mutually
agree, Microsoft may provide patent prosecution assistance pursuant to the
Transition Services Agreement.
2.5 Third Party Software and Third Party Content. Upon request, Microsoft
--------------------------------------------
shall inform Expedia of the terms in any Third Party Software or Third Party
Content license agreement regarding Microsoft's right to sublicense Third Party
Software or Third Party Content to Expedia, including without limitation the
marginal cost of granting the sublicense to Expedia.
3. Licenses and Ownership
----------------------
3.1 Expedia Specific Software and Expedia Content and Data.
------------------------------------------------------
(a) Assignment of Microsoft Copyrights in Expedia Specific Software.
---------------------------------------------------------------
Microsoft irrevocably conveys and assigns to Expedia all right, title and
interest in any copyrights owned by Microsoft in the Expedia Specific Software
within the field of use of Online Travel Services, and in all renewals and
extensions of those copyrights that may be secured under the laws now or
hereafter in force and effect in the United States of America or in any other
country or countries. Notwithstanding the assignment to Expedia under this
Section 3.1(a), Expedia and Microsoft shall have no duty to account to each
other for proceeds from ownership of Expedia Specific Software.
(b) License to Expedia. Microsoft hereby grants to Expedia and its
------------------
Affiliates a perpetual, irrevocable, transferable license, under any copyrights
not assigned by Microsoft pursuant to Section 3.1(a), to:
(i) make, use, reproduce, modify, adapt, create derivative works
based on, translate, distribute (directly and indirectly), transmit, display and
perform publicly, license, rent, lease, and sell the Expedia Specific Software
and Expedia Content and Data in object code and source code form, and
3
<PAGE>
(ii) sublicense any or all of the foregoing rights, including the right
to sublicense such rights to further third parties.
The license rights granted to Expedia and its Affiliates in this Section 3.1(b)
shall be exclusive to the extent that Microsoft itself shall not, nor shall
Microsoft grant to any third party the right to, use, reproduce, distribute,
transmit, publicly perform or publicly display the Expedia Specific Software or
Expedia Content and Data, or any material portion thereof, in a software product
or a service that is specifically designed to conduct Online Travel Services
anywhere in the world.
3.2 Patents.
-------
(a) Microsoft Patents. Microsoft hereby grants and shall cause its
-----------------
Affiliates to grant to Expedia and its Affiliates a non-exclusive, perpetual,
royalty-free, sublicenseable license under the Microsoft Patents to the extent
necessary to (i) reproduce, make, have made, use, import, offer for sale, and
sell the Expedia Specific Software (and adaptations and derivative works thereof
pursuant to Section 3.1); and (ii) to provide Online Travel Services. In the
case of a patent falling under the definition of Microsoft Patents that
Microsoft is unable to license to Expedia without being required to pay a
license fee to a third party, Expedia may obtain a license at Expedia's option
provided that Expedia pays any such license fee and complies with any other
applicable restrictions of the third party.
(b) Patents Filed Prior to Effective Date. Microsoft retains any and
-------------------------------------
all patents, utility patents, design patent rights, inventions and equivalent
rights owned by Microsoft as of the Effective Date, and patent applications
filed by Microsoft as of the Effective Date. Expedia shall reasonably cooperate
with Microsoft in the prosecution of any patent applications relating to Expedia
that Microsoft has filed as of the Effective Date.
(c) Patents in Future Expedia Inventions. Expedia shall own any and
------------------------------------
all patents, patent applications, utility patents, design patent rights and
equivalent rights in and to the Future Expedia Inventions throughout the world
(collectively, "Future Expedia Inventions Patents"). Expedia hereby grants
Microsoft a nonexclusive, perpetual, nontransferable license under the Future
Expedia Inventions Patents (to the extent invented prior to the termination or
expiration of this Agreement) to reproduce, make, have made, use, import, offer
for sale, and sell software, products and services, including the ability to
sublicense the foregoing.
3.3 Microsoft Software. Microsoft hereby grants to Expedia and its
------------------
Affiliates a perpetual, irrevocable, nontransferable license under Microsoft's
copyrights, solely for Expedia's internal business purposes, to:
(a) make, use, reproduce, display and publicly perform the Microsoft
Software in object code form;
(b) make, use, reproduce, modify, adapt, create derivative works based
on, and translate the Microsoft Internal Software in object code and source code
form.
4
<PAGE>
3.4 Third Party Software and Third Party Content. As of the Effective
--------------------------------------------
Date, Microsoft has licenses to use the Third Party Software and Third Party
Content for Microsoft's own business purposes. To the extent Microsoft has the
right to sublicense rights in Third Party Software and Third Party Content to
Expedia for Expedia's business purposes, Microsoft hereby does so sublicense the
Third Party Software and Third Party Content. To the extent Microsoft does not
have the right to sublicense Third Party Software and/or Third Party Content to
Expedia, Microsoft shall use reasonable efforts to assist Expedia to obtain
licenses in such Third Party Software and/or Third Party Content, at Expedia's
expense.
3.5 Worldwide Licenses. The licenses granted under Sections 3.1, 3.2 and
------------------
3.3 shall be worldwide.
3.6 Limitations. All licenses and assignments granted by Microsoft under
-----------
this Agreement are subject to preexisting agreements relating to the materials
and Intellectual Property Rights licensed, which agreements have been disclosed
by Microsoft to Expedia. Microsoft and Expedia each reserve all rights not
granted hereunder. Unless otherwise agreed in writing, Expedia shall own all
copyrights and trade secrets developed by or for Expedia after the Effective
Date. The parties acknowledge that portions of Expedia Specific Software and
Expedia Content and Data are used by other Microsoft business units prior to the
Effective Date. The intention of the licenses and assignments granted hereunder
are to permit continued use of such Expedia Specific Software and Expedia
Content and Data by such Microsoft business units.
3.7 Option to License. Upon request, Microsoft shall have the option to
-----------------
license any computer software created by or for Expedia after the Effective
Date, for a license fee to be negotiated by the parties, which fee shall be no
greater than the amount Expedia charges any third party to license such software
(or the fair market value of such software if Expedia does not license the
computer software to any other third-party). Notwithstanding the foregoing,
Expedia may decline to license such computer software to Microsoft if Expedia
can clearly demonstrate that the licensing of the computer software will be
unreasonably detrimental to the business of Expedia.
4. Payments
--------
4.1 Expedia Specific Software and Expedia Content and Data. Microsoft and
------------------------------------------------------
Expedia shall provide the assignment and/or licenses in the Expedia Specific
Software and Expedia Content and Data under Section 3.1 free of charge.
4.2 Microsoft Patents. Except for third party patents as described in
-----------------
Section 3.2(a), Microsoft shall provide the licenses in the Microsoft Patents to
Expedia free of charge.
4.3 Microsoft Software. Microsoft shall provide the licenses in the
------------------
Microsoft Software to Expedia free of charge.
4.4 Third Party Software and Third Party Content. Expedia shall reimburse
--------------------------------------------
Microsoft for any increase in third party license fees or royalties incurred by
Microsoft for sublicensing Third Party Software and Third Party Content to
Expedia hereunder. Microsoft shall bill
5
<PAGE>
Expedia fifteen (15) days after the end of each fiscal quarter. Payments shall
be due within thirty (30) days after the end of each quarter for which Microsoft
invoices Expedia, or as agreed upon from time to time as services are requested.
For the purposes hereof, a "fiscal year" shall end on June 30, and a "fiscal
quarter" shall mean one of the four (4) three-month periods in a fiscal year, as
customarily determined by Microsoft.
5. Confidential Information
------------------------
The parties understand and acknowledge that each of them (and their
respective employees, consultants and subcontractors) may have disclosed to it,
in connection with the rendition of services and performance of their
obligations of this Agreement, confidential and/or proprietary information of
the other party. The terms and conditions of that certain Non-Disclosure
Agreement between the parties, dated October 1, 1999, shall apply to all such
confidential and proprietary information. Microsoft and Expedia each agree that
the terms and conditions of this Agreement, including its attachments, will be
deemed to constitute, and be treated as, confidential information pursuant to
this Section 5.
6. Warranties, Indemnification, and Limitation of Liability
--------------------------------------------------------
6.1 Warranties.
----------
(a) Microsoft represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Washington and has authority to enter into this Agreement and perform its
obligations hereunder.
(b) Expedia represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Washington and has authority to enter into this Agreement and perform its
obligations hereunder.
(c) EXCEPT AS PROVIDED IN THIS SECTION 6.1, EACH PARTY DISCLAIMS ALL
WARRANTIES, EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO
ANY (IF ANY) IMPLIED WARRANTIES OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR
PURPOSE, OF LACK OF VIRUSES, AND OF LACK OF NEGLIGENCE OR LACK OF WORKMANLIKE
CONDUCT OR EFFORT. ALL LICENSED MATERIALS ARE PROVIDED AS IS WITH ALL FAULTS,
AND NO WARRANTIES OR PROMISES ARE MADE THAT LICENSED MATERIALS WILL WORK OR WORK
FOR ANY PARTICULAR PURPOSE. ALSO, THERE IS NO WARRANTY OF TITLE, AUTHORITY OR
NONINFRINGEMENT IN THE LICENSED MATERIALS.
6.2 Indemnification.
---------------
(a) Microsoft shall indemnify and hold harmless Expedia, its
Affiliates and the directors, officers, employees, and agents of the foregoing
(each, an "Expedia Claimant"), from any and all third party claims, demands,
actions or causes of action, costs, liabilities, losses, expenses, damages,
judgments, awards, charges and amounts paid in settlement (including
6
<PAGE>
reasonable attorney's fees, costs and expert witness fees) brought against such
Expedia Claimant to the extent it is based upon a claim that the Expedia Content
and Data or the Microsoft Software infringe any copyright or patent or
misappropriate any trade secret of a third party ("Expedia Claims").
(b) In the event any third party asserts a claim of infringement with
respect to any Expedia Content and Data or Microsoft Software or any portion
thereof, Microsoft shall notify Expedia promptly and may, at Microsoft's
expense, replace or modify the Expedia Content and Data or Microsoft Software or
portion thereof with a version that is non-infringing, provided that the
replacement or modified version has substantially equivalent functionality to
the version being replaced.
(c) Microsoft shall have no obligation to indemnify under this Section
6.2 to the extent an Expedia Claim arises out of an Expedia Claimant's
continuing use of infringing Expedia Content and Data or Microsoft Software
after (i) Microsoft has provided a non-infringing replacement with substantially
equivalent functionality, and (ii) the Expedia Claimant has had a reasonable
amount of time to test and implement the replacement version.
(d) In the event an Expedia Claim is made or filed against an Expedia
Claimant, the Expedia Claimant shall promptly notify Microsoft of the same in
writing, and Microsoft shall defend, compromise, and/or settle the Expedia Claim
at its expense. Microsoft shall not be responsible for the expenses, including
counsel fees, of the Expedia Claimant incurred after Microsoft assumes defense
of the Expedia Claim, but the Expedia Claimant may participate therein and
retain counsel at its own expense. Microsoft will not be responsible for any
settlement made by Expedia or any Expedia Claimant without Microsoft's written
permission, which will not be unreasonably withheld or delayed. Microsoft will
not consent to the entry of any judgment or enter into any settlement affecting
the Expedia Claimant, to the extent that the judgment or settlement involves
more than the payment of money, without the prior consent of the Expedia
Claimant, which consent shall not be unreasonably withheld or delayed. Expedia
and any Expedia Claimant shall provide information, assistance and authority, at
Expedia's expense, to help Microsoft defend, compromise or settle such Expedia
Claim.
(e) Expedia shall indemnify and hold harmless Microsoft, its Affiliates
and the directors, officers, employees, and agents of the foregoing from and
against any foreign, U.S. federal, state, local, municipal or other governmental
taxes, duties, levies, fees, excises or tariffs, arising as a result of or in
connection with the transactions contemplated under this Agreement including,
without limitation, any state or local sales or use taxes or any value added tax
or business transfer tax now or hereafter imposed on or with respect to the
transactions contemplated under this Agreement. All such taxes (and any
penalties, interest, or other additions to any such taxes), with the exception
of taxes imposed on Microsoft's net income or with respect to Microsoft's
property ownership, shall be the financial responsibility of Expedia. Expedia
agrees to indemnify, defend and hold Microsoft harmless from any claims, causes
of action, costs (including, without limitation, reasonable attorneys' fees) and
any other liabilities of any nature whatsoever related to such taxes. This
section shall govern the treatment of all taxes arising as a result of or in
connection with this Agreement notwithstanding any other section of this
Agreement.
7
<PAGE>
6.3 Data. Expedia shall benefit from any warranties and/or
----
indemnification for Third Party Software and Third Party Content provided by
licensors under Microsoft's license agreements for Third Party Software and
Third Party Content, to the extent such warranties and/or indemnification extend
to Expedia as a sublicensee and/or affiliate of Microsoft.
6.4 Limitation of Liability. TO THE MAXIMUM EXTENT PERMITTED BY
-----------------------
APPLICABLE LAW AND EXCEPT WITH RESPECT TO ANY BREACH OF CONFIDENTIALITY OWED
UNDER SECTION 5, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES WHATSOEVER ARISING OUT OF OR IN ANY WAY
RELATED TO THIS AGREEMENT, EVEN IF THE PARTY BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
7. Term
----
7.1 Term. This Agreement shall take effect upon the Effective Date and
----
shall continue in full force and effect, unless earlier terminated as provided
herein, until the earlier of (a) the fifth anniversary of the Effective Date or
(b) the date on which Microsoft ceases to possess, directly or indirectly, the
power to direct or cause the direction of the management and policies of
Expedia, whether through the ownership of voting securities by contract, or
otherwise. Thereafter, this Agreement shall be automatically renewed and
continue in full force and effect for additional one year periods through each
subsequent anniversary of the Effective Date unless either party gives at least
sixty (60) days notice prior to the beginning of such renewal term that such
party is terminating this Agreement.
7.2 Termination for Breach. In the event either party materially fails
----------------------
to perform or comply with this Agreement or any provision thereof, and fails to
remedy the default within sixty (60) days after the receipt of notice to that
effect, then the other party shall have the right, at its sole option and upon
written notice to the defaulting party, to terminate this Agreement upon written
notice.
7.3 Notice of Breach. Any notice of breach hereunder shall be
----------------
prominently labeled "NOTICE OF DEFAULT," and if to Microsoft, shall be copied to
Microsoft's Law & Corporate Affairs Department, attn. U.S. Legal Group. The
rights and remedies provided in this section shall not be exclusive and are in
addition to any other rights and remedies provided by law or this Agreement.
7.4 Survival. The following provisions shall survive termination or
--------
expiration of this Agreement: Sections 3.1, 3.2, 3.3 (as to Microsoft Software
delivered prior to the date of termination), 3.5, 3.6, 5, 6.1, 6.2 (only as to
Expedia Claims and Microsoft claims brought prior to the date of termination),
6.3, 7, and 8.
8. General
-------
8.1 Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the parties with respect to the subject matter hereof, and supersedes and
terminates any and all prior
8
<PAGE>
agreements or contracts, oral or written, entered into between the parties
relating to the subject matter hereof.
8.2 Amendments. This Agreement shall not be amended or otherwise modified
----------
except by a written agreement dated subsequent to the date of this Agreement and
signed on behalf of Microsoft and Expedia by their respective duly authorized
representatives.
8.3 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Washington.
8.4 Assignment. Neither party hereto may assign this Agreement without
-----------
the prior written consent of the other party signed by such other party's duly
authorized representative, which consent may be given or withheld in the sole
discretion of the applicable party whose consent is requested.
8.5 Notices. All notices in connection with this Agreement shall be
-------
deemed given as of the day they are sent by electronic transmission, sent by
facsimile or deposited with a commercial courier for delivery to other party at
the following addresses:
Microsoft: Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6399
Tel: (425) 882-8080
Fax: (425) 936-7329
Attention: Chief Financial Officer
Treasurer
With copy to: Law and Corporate Affairs
Expedia: Expedia, Inc.
4200 150th Ave. NE
Redmond, WA 98052
Tel: (425) 705-5161
Fax: (425) 936-7329
Attention: President
Chief Financial Officer
or to such other address and/or telex and facsimile number as the party to
receive the notice or request so designates by written notice to the other.
9
<PAGE>
8.6 No Waiver. No waiver of any breach of any provision of this Agreement
---------
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
8.7 Savings Clause. If any provision of this Agreement shall be held by a
--------------
court of competent jurisdiction to be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect.
8.8 Further Assurances. Each party agrees to take such further action and
------------------
execute, deliver and/or file such documents or instruments as are necessary to
carry out the terms and purposes of this Agreement.
8.9 Section Headings. The section headings used in this Agreement are
----------------
intended for convenience only and shall not be deemed to supersede or modify any
provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
MICROSOFT CORPORATION EXPEDIA, INC.
By /s/ Gregory B. Maffei By /s/ Richard N. Barton
________________________________ ________________________________
its authorized representative its authorized representative
10
<PAGE>
Exhibit A
Microsoft Software, Expedia Specific Software, and the Third Party Software
Espresso
Expedia Specific Software Lego (BBT)
- ------------------------- MSNLFLT
CCService
Expedia Web Server Technology (all code IceCap
written in this group on web server). Source Depot
HTX Formatter, Qscript. These are the two NT Build
pieces most likely to be of general use Vulcan
to other groups at MS. Helium
Database stored procedures/scripts, etc, Homer
including DSS system. KB Internal
Travel Server (all code written in this Data Locality Profiler (DLP)
group) Unix like tools: kill, list, vi
Travel Server to Web Server communication mdutil
infrastructure Apsetup
Fare Server, CancelBot, etc Thin-Raid
Util Server Media View
Test Tool specific to server technologies InfoTech
above that Expedia built (one of which BB-Cover
shipped in MSDN) MS Surround Video
Best Fare Search (BFS) Merismus/Mango/Techo
Microsoft Software
- ------------------
Microsoft Internal Software Microsoft Retail Software
--------------------------- -------------------------
Interpress Windows9x
Raid WindowsNT
SLM IIS
Accipter SQL Server
MPS Office
Passport Outlook/Exchange
Congo Project
PCB_Dash IE
Heapwalker VC++
PageHeap Visual Internet Dev
TSB VJ++
Test Case Manager VB
WebLint VSS
WolfPack Cluster
MSMQ
MTS
Site Server Commerce
11
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WebTV Components of Toolbox that
Windows CE Microsoft can sublicense
MSDN
NT Resource Kit
FTP
Publisher
Proxy Server
MS Test
Test Studio
Platform SDK
Third Party Software
- --------------------
[Site licensed to MS]
Inoculan
Erwin
Visio
Seibel
SAP
Sitescope
Pkzip
Winzip
Cayman Backup
BoundsChecker
FreeHand
primus
[Retail licenses to MS]
Raptor
NetScapeNavigator/Communicator
Source Insight
Visual SlickEdit 4.0
Photoshop
HomeSite
FireWorks
Illustrator
PaintShop Pro
ImageReady
Gear CD Burner Software
Codewright
C-Cover
Wingate Proxy
12
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EXHIBIT 10.4
Map Server License Agreement
Between Microsoft Corporation and Expedia, Inc.
THIS MAP SERVER LICENSE AGREEMENT is entered into as of October 1, 1999
(the "Effective Date") 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").
Recitals
A. WHEREAS, on or about the Effective Date, Microsoft caused the formation of
Expedia.
B. WHEREAS, in partial consideration for stock in Expedia issued to Microsoft,
Microsoft agrees to grant certain licenses to Expedia as described herein.
Agreement
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions
1.1 "Affiliates" shall mean any entity in which Expedia, directly or
----------
indirectly, or through one or more intermediaries, holds the beneficial
ownership of more than fifty percent (50%) of the equity securities or
interests, and only so long as such ownership continues.
1.2 "Data" shall mean all third-party data licensed by Microsoft and used
----
in ExpediaMaps as of the Effective Date.
1.3 "ExpediaMaps" shall mean Expedia's web site providing map services,
-----------
located at www.maps.expedia.com as of the Effective Date (and any direct
--------------------
successor Expedia mapping web site).
1.4 "Expedia Updates" shall have the meaning set forth in Section 2.2(b).
---------------
1.5 "Server Technology" shall mean the computer software owned by
-----------------
Microsoft and listed in Exhibit A.
2. Delivery, Operation, and Use
-----------------------------
2.1 Delivery. The parties acknowledge that Expedia already has copies of
--------
the Server Technology and Data in its possession as of the Effective Date.
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2.2 Updates and Error Corrections.
-----------------------------
(a) Microsoft. When and if Microsoft develops or receives during the term
---------
of this Agreement any updates, upgrades, error corrections, or other
improvements to the Server Technology ("Microsoft Updates"), Microsoft shall
promptly deliver such Microsoft Updates to Expedia to the extent permitted under
applicable license agreements. Upon receipt, such Microsoft Updates shall be
considered part of the Server Technology for purposes of this Agreement.
(b) Expedia. When and if Expedia develops during the term of this
-------
Agreement any updates, upgrades, error corrections, or other improvements to the
Server Technology ("Expedia Updates"), Expedia shall promptly deliver such
Expedia Updates to Microsoft to the extent permitted under applicable license
agreements. Upon delivery, such Expedia Updates shall be considered part of the
Server Technology for purposes of this Agreement.
2.3 Support and Operation. Except as explicitly described in the Services
---------------------
Agreement effective as of October 1, 1999, Expedia shall be solely responsible
for the support and operation of ExpediaMaps.
2.4 Use of ExpediaMaps. If Microsoft, in its sole discretion, elects to
------------------
use ExpediaMaps to serve local street maps and/or provide driving directions in
any one or more Microsoft properties (e.g., MSN Yellow Pages, HomeAdvisor,
CarPoint, TerraServer), Expedia shall charge Microsoft a fee of one hundred
seventy-five thousand dollars ($175,000.00) for the use of ExpediaMaps during
the first year after the Effective Date. If the volume of the online maps
served by Expedia to Microsoft properties and services exceeds fifteen million
and five hundred thousand (15,500,000) or falls below ten million and three
hundred thousand (10,300,000) per calendar quarter, the fees for the calendar
quarter will be adjusted on a pro rata basis, provided that no quarterly fees
shall exceed sixty-four thousand dollars ($64,000). For example: If the volume
of maps served in the first quarter is ten percent (10%) above the fifteen
million and five hundred thousand (15,500,000) threshold, Expedia will charge
Microsoft ten percent (10%) above the regular quarterly fee ($43,750.00 x 110%)
at the end of such quarter. The fees for subsequent years shall be agreed upon
by the parties. Expedia shall use best efforts to provide industry standard
mapping services with respect to (but is not limited to) up time, rendering
speed, maintenance, bug fixes and customer support.
2.5 Data. Upon request, Microsoft shall inform Expedia of the terms in
----
any Data license agreement regarding Microsoft's right to sublicense Data to
Expedia, including without limitation the marginal cost of granting the
sublicense to Expedia. Microsoft agrees to provide, through its Geography
Product Unit, the services described in Exhibit B with respect to the Data
("Data Services"). If Expedia desires to have other services provided by the
Microsoft Geography Product Unit, then the parties shall negotiate the terms of
such services.
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3. License
-------
3.1 Server Technology.
-----------------
(a) Microsoft hereby grants to Expedia and its Affiliates a perpetual
license (i) to make, use, reproduce, modify, adapt, create derivative works
based on, and translate the Server Technology in object code and source code
form, and (ii) to distribute (directly and indirectly), transmit, display and
perform publicly, license, rent, lease, and sell the Server Technology in
connection with ExpediaMaps in object code form. Notwithstanding the foregoing,
Expedia and its Affiliates shall have no right to distribute, transmit, display,
license, rent, lease or sell in any manner any portion of the Server Technology
implemented in the Microsoft Geography Product Unit's retail products or
internal tools without the prior approval of Microsoft. Additionally, Expedia
agrees that it shall not license the Server Technology, in any manner, to third
parties that produce products or services that are competitive with the
Microsoft Geography Product Unit's or the Learning Business Unit's products or
services without the prior approval of Microsoft, which approval shall not be
unreasonably withheld or delayed.
(b) Expedia agrees that during the term of this Agreement neither
Expedia nor its Affiliates shall develop, produce, market or distribute any
product or service relating to analytical map-based tools for use by businesses.
Microsoft agrees that during the term of this Agreement the Microsoft Geography
Product Unit shall not develop, produce, market or distribute a consumer-
oriented online mapping service that provides place/address and finding/driving
directions which competes with the ExpediaMaps service as implemented as of the
Effective Date.
3.2 Data. As of the Effective Date, Microsoft has licenses to use the
----
Data for Microsoft's own business purposes. To the extent Microsoft has the
right to sublicense rights in Data to Expedia for Expedia's business purposes,
Microsoft hereby does so sublicense the Data for use in connection with
ExpediaMaps. To the extent Microsoft does not have the right to sublicense Data
to Expedia and to the extent such sublicense is necessary for the purposes of
the services described in Section 2.4 above, Microsoft shall use reasonable
efforts to assist Expedia to obtain licenses in such Data, at Expedia's expense.
Additionally, Expedia agrees that it shall not license the Data, in any manner,
to third parties that produce products or services that are competitive with the
Microsoft Geography Product Unit's or the Learning Business Unit's products or
services without the prior approval of Microsoft, which approval shall not be
unreasonably withheld or delayed.
3.3 Expedia Updates to Server Technology. Expedia hereby irrevocably
------------------------------------
conveys and assigns to Microsoft all right, title and interest in any copyrights
in the Expedia Updates, and in all renewals and extensions of those copyrights
that may be secured under the laws now or hereafter in force and effect in the
United States of America or in any other country or countries.
4. Payments
--------
4.1 Server Technology. Microsoft shall provide the licenses in the Server
-----------------
Technology to Expedia free of charge. Expedia provides the Expedia Updates to
the Server Technology free of charge.
3
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4.2 Data. Expedia shall reimburse Microsoft for any increase in third
----
party license fees or royalties incurred by Microsoft for sublicensing Data to
Expedia hereunder.
4.3 ExpediaMaps Services. Microsoft shall pay Expedia the amounts
--------------------
described in Section 2.4.
4.4 Payments for Data and ExpediaMaps Service. Each party shall bill the
-----------------------------------------
other fifteen (15) days after the end of each fiscal quarter with respect to any
amounts that may be owed as described in Sections 4.2 and 4.3. Payments shall
be due within thirty (30) days after the end of each quarter for which an
invoice is provided, or as agreed upon from time to time as services are
requested. For the purposes hereof, a "fiscal year" shall end on June 30, and a
"fiscal quarter" shall mean one of the four (4) three-month periods in a fiscal
year, as customarily determined by Microsoft.
4.5 Data Services Payment. In consideration for the Data Services
---------------------
described in Section 2.5 above, Expedia agrees to pay to Microsoft two hundred
and fifty thousand dollars ($250,000.00) per year during the first two years of
this Agreement on the payment schedule set forth below.
Amount Date
------ ----
$62,500.00 December 1, 1999
$62,500.00 March 1, 2000
$62,500.00 June 1, 2000
$62,500.00 September 1, 2000
$62,500.00 December 1, 2000
$62,500.00 March 1, 2001
$62,500.00 June 1, 2001
$62,500.00 September 1, 2001
The Data Services fees for subsequent years during the term of the Agreement
shall be agreed upon by the parties.
5. Confidential Information
------------------------
The parties understand and acknowledge that each of them (and their
respective employees, consultants and subcontractors) may have disclosed to it,
in connection with the rendition of services and performance of their
obligations of this Agreement, confidential and/or proprietary information of
the other party. The terms and conditions of that certain Non-Disclosure
Agreement between the parties, dated October 1, 1999, shall apply to all such
confidential and proprietary information. Microsoft and Expedia each agree that
the terms and conditions of this Agreement, including its attachments, will be
deemed to constitute, and be treated as, confidential information pursuant to
this Section 5.
6. Warranties, Indemnification, and Limitation of Liability
--------------------------------------------------------
6.1 Warranties.
----------
4
<PAGE>
(a) Microsoft represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Washington and has authority to enter into this Agreement and perform its
obligations hereunder.
(b) Expedia represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Washington and has authority to enter into this Agreement and perform its
obligations hereunder.
(c) EXCEPT AS PROVIDED IN THIS SECTION 6.1, EACH PARTY DISCLAIMS ALL
WARRANTIES, EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO
ANY (IF ANY) IMPLIED WARRANTIES OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR
PURPOSE, OF LACK OF VIRUSES, AND OF LACK OF NEGLIGENCE OR LACK OF WORKMANLIKE
CONDUCT OR EFFORT. THE SERVER TECHNOLOGY, DATA, EXPEDIA UPDATES, AND EXPEDIAMAPS
ARE PROVIDED AS IS WITH ALL FAULTS, AND NO WARRANTIES OR PROMISES ARE MADE THAT
LICENSED MATERIALS WILL WORK OR WORK FOR ANY PARTICULAR PURPOSE. ALSO, THERE IS
NO WARRANTY OF TITLE, AUTHORITY OR NONINFRINGEMENT IN THE LICENSED MATERIALS.
6.2 Indemnification.
---------------
(a) Microsoft.
---------
(i) Microsoft shall indemnify and hold harmless Expedia, its
Affiliates and the directors, officers, employees, and agents of the foregoing
(each, an "Expedia Claimant"), from any and all third party claims, demands,
actions or causes of action, costs, liabilities, losses, expenses, damages,
judgments, awards, charges and amounts paid in settlement (including reasonable
attorney's fees, costs and expert witness fees) brought against such Expedia
Claimant to the extent it is based upon a claim that the Server Technology
infringe any copyright or patent or misappropriate any trade secret of a third
party ("Expedia Claims").
(ii) In the event any third party asserts a claim of infringement
with respect to any Server Technology or any portion thereof, Microsoft shall
notify Expedia promptly and may, at Microsoft's expense, replace or modify the
Server Technology or portion thereof with a version that is non-infringing,
provided that the replacement or modified version has substantially equivalent
functionality to the version being replaced.
(iii) Microsoft shall have no obligation to indemnify under this
Section 6.2 to the extent an Expedia Claim arises out of an Expedia Claimant's
continuing use of infringing Server Technology after (a) Microsoft has provided
a non-infringing replacement with substantially equivalent functionality, and
(b) the Expedia Claimant has had a reasonable amount of time to test and
implement the replacement version.
(iv) In the event an Expedia Claim is made or filed against an
Expedia Claimant, the Expedia Claimant shall promptly notify Microsoft of the
same in writing, and
5
<PAGE>
Microsoft shall defend, compromise, and/or settle the Expedia Claim at its
expense. Microsoft shall not be responsible for the expenses, including counsel
fees, of the Expedia Claimant incurred after Microsoft assumes defense of the
Expedia Claim, but the Expedia Claimant may participate therein and retain
counsel at its own expense. Microsoft will not be responsible for any settlement
made by Expedia or any Expedia Claimant without Microsoft's written permission,
which will not be unreasonably withheld or delayed. Microsoft will not consent
to the entry of any judgment or enter into any settlement affecting the Expedia
Claimant, to the extent that the judgment or settlement involves more than the
payment of money, without the prior consent of the Expedia Claimant, which
consent shall not be unreasonably withheld or delayed. Expedia and any Expedia
Claimant shall provide information, assistance and authority, at Expedia's
expense, to help Microsoft defend, compromise or settle such Expedia Claim.
(v) Microsoft shall indemnify and hold harmless any Expedia
Claimant from and against any foreign, U.S. federal, state, local, municipal or
other governmental taxes, duties, levies, fees, excises or tariffs, arising as a
result of or in connection with the transactions associated with the use by
Microsoft of ExpediaMaps described in Section 2.4 of this Agreement and the
payments made by Microsoft to Expedia therefor pursuant to Section 4.3 hereof,
including, without limitation, any state or local sales or use taxes or any
value added tax or business transfer tax now or hereafter imposed on or with
respect to such transactions. All such taxes (and any penalties, interest, or
other additions to any such taxes), with the exception of taxes imposed on
Expedia's net income or with respect to Expedia's property ownership, shall be
the financial responsibility of Microsoft. Microsoft agrees to indemnify, defend
and hold Expedia harmless from any claims, causes of action, costs (including,
without limitation, reasonable attorneys' fees) and any other liabilities of any
nature whatsoever related to such taxes. This section shall govern the treatment
of all taxes arising as a result of or in connection with the transactions
associated with the use by Microsoft of ExpediaMaps described in section 2.4 of
this Agreement and the payment made to Expedia therefor pursuant to section 4.3
hereof notwithstanding any other section of this Agreement.
(b) Expedia.
-------
(i) Expedia shall indemnify and hold harmless Microsoft, its
Affiliates and the directors, officers, employees, and agents of the foregoing
(each, a "Microsoft Claimant"), from any and all third party claims, demands,
actions or causes of action, costs, liabilities, losses, expenses, damages,
judgments, awards, charges and amounts paid in settlement (including reasonable
attorney's fees, costs and expert witness fees) brought against such Microsoft
Claimant to the extent it is based upon a claim that the Expedia Updates
infringe any copyright or patent or misappropriate any trade secret of a third
party ("Microsoft Claims").
(ii) In the event any third party asserts a claim of infringement
with respect to any Expedia Updates or any portion thereof, Expedia shall notify
Microsoft promptly and may, at Expedia's expense, replace or modify the Expedia
Updates or portion thereof with a version that is non-infringing, provided that
the replacement or modified version has substantially equivalent functionality
to the version being replaced.
6
<PAGE>
(iii) Expedia shall have no obligation to indemnify under this
Section 6.2 to the extent a Microsoft Claim arises out of a Microsoft Claimant's
continuing use of infringing Expedia Updates after (a) Expedia has provided a
non-infringing replacement with substantially equivalent functionality, and (b)
the Microsoft Claimant has had a reasonable amount of time to test and implement
the replacement version.
(iv) In the event a Microsoft Claim is made or filed against a
Microsoft Claimant, the Microsoft Claimant shall promptly notify Expedia of the
same in writing, and Expedia shall defend, compromise, and/or settle the
Microsoft Claim at its expense. Expedia shall not be responsible for the
expenses, including counsel fees, of the Microsoft Claimant incurred after
Expedia assumes defense of the Microsoft Claim, but the Microsoft Claimant may
participate therein and retain counsel at its own expense. Expedia will not be
responsible for any settlement made by Microsoft or any Microsoft Claimant
without Expedia's written permission, which will not be unreasonably withheld or
delayed. Expedia will not consent to the entry of any judgment or enter into any
settlement affecting the Microsoft Claimant, to the extent that the judgment or
settlement involves more than the payment of money, without the prior consent of
the Microsoft Claimant, which consent shall not be unreasonably withheld or
delayed. Microsoft and any Microsoft Claimant shall provide information,
assistance and authority, at Microsoft's expense, to help Expedia defend,
compromise or settle such Microsoft Claim.
(v) Expedia shall indemnify and hold harmless any Microsoft
Claimant from and against any foreign, U.S. federal, state, local, municipal or
other governmental taxes, duties, levies, fees, excises or tariffs, arising as a
result of or in connection with the transactions contemplated under this
Agreement (other than with respect to the use of and payments for ExpediaMaps
Services pursuant to Sections 2.4 and 4.3 hereof) including, without limitation,
any state or local sales or use taxes or any value added tax or business
transfer tax now or hereafter imposed on or with respect to such transactions.
All such taxes (and any penalties, interest, or other additions to any such
taxes), with the exception of taxes imposed on Microsoft's net income or with
respect to Microsoft's property ownership, shall be the financial responsibility
of Expedia. Expedia agrees to indemnify, defend and hold Microsoft harmless from
any claims, causes of action, costs (including, without limitation, reasonable
attorneys' fees) and any other liabilities of any nature whatsoever related to
such taxes. This section shall govern the treatment of all taxes arising as a
result of or in connection with this Agreement (other than with respect to the
use of and payments for ExpediaMaps Services pursuant to section 2.4 and 4.3
hereof) notwithstanding any other section of this Agreement.
6.3 Data. Expedia shall benefit from any warranties and/or
----
indemnification for Data provided by Data licensors under Microsoft's license
agreements for Data, to the extent such warranties and/or indemnification extend
to Expedia as a sublicensee and/or affiliate of Microsoft.
6.4 Limitation of Liability. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE
-----------------------
LAW AND EXCEPT WITH RESPECT TO ANY BREACH OF CONFIDENTIALITY OWED UNDER SECTION
6, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES
7
<PAGE>
WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, EVEN IF THE
PARTY BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7. Term
----
7.1 Term. This Agreement shall take effect upon the Effective Date and
----
shall continue in full force and effect, unless earlier terminated as provided
herein, until the earlier of (a) the fifth anniversary of the Effective Date or
(b) the date on which Microsoft ceases to possess, directly or indirectly, the
power to direct or cause the direction of the management and policies of
Expedia, whether through the ownership of voting securities by contract, or
otherwise. Thereafter, this Agreement shall be automatically renewed and
continue in full force and effect for additional one year periods through each
subsequent anniversary of the Effective Date unless either party gives at least
sixty (60) days notice prior to the beginning of such renewal term that such
party is terminating this Agreement.
7.2 Termination for Breach. In the event either party materially fails
----------------------
to perform or comply with this Agreement or any provision thereof, and fails to
remedy the default within sixty (60) days after the receipt of notice to that
effect, then the other party shall have the right, at its sole option and upon
written notice to the defaulting party, to terminate this Agreement upon written
notice. Any notice of breach hereunder shall be prominently labeled "NOTICE OF
DEFAULT," and if to Microsoft, shall be copied to Microsoft's Law & Corporate
Affairs Department, attn. U.S. Legal Group.
7.3 Other Termination Rights. Microsoft may additionally terminate this
------------------------
Agreement with one hundred and eighty (180) days prior written notice in the
event that Microsoft exits the mapping business operated, as of the Effective
Date, through the Microsoft Geography Product Unit.
7.4 Remedies Cumulative. The rights and remedies provided in this section
-------------------
shall not be exclusive and are in addition to any other rights and remedies
provided by law or this Agreement.
7.5 Survival. The following provisions shall survive termination or
--------
expiration of this Agreement: Sections 3.1(a), 3.3 (as to Expedia Updates
delivered prior to the date of termination), 5, 6.1, 6.2 (only as to Expedia
Claims and Microsoft Claims brought prior to the date of termination), 6.3, 7,
and 8.
8. General
-------
8.1 Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the parties with respect to the subject matter hereof, and supersedes and
terminates any and all prior agreements or contracts, oral or written, entered
into between the parties relating to the subject matter hereof.
8.2 Amendments. This Agreement shall not be amended or otherwise modified
----------
except by a written agreement dated subsequent to the date of this Agreement and
signed on behalf of Microsoft and Expedia by their respective duly authorized
representatives.
8
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8.3 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Washington.
8.4 Assignment. Neither party hereto may assign this Agreement without
-----------
the prior written consent of the other party signed by such other party's duly
authorized representative, which consent may be given or withheld in the sole
discretion of the applicable party whose consent is requested.
8.5 Notices. All notices in connection with this Agreement shall be
-------
deemed given as of the day they are sent by electronic transmission, sent by
facsimile or deposited with a commercial courier for delivery to other party at
the following addresses:
Microsoft: Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6399
Tel: (425) 882-8080
Fax: (425) 936-7329
Attention: Chief Financial Officer
Treasurer
With copy to: Law and Corporate Affairs
Expedia: Expedia, Inc.
4200 150th Ave. NE
Redmond, WA 98052
Tel: (425) 705-5161
Fax: (425) 936-7329
Attention: President
Chief Financial Officer
or to such other address and/or telex and facsimile number as the party to
receive the notice or request so designates by written notice to the other.
8.6 No Waiver. No waiver of any breach of any provision of this Agreement
---------
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
9
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8.7 Savings Clause. If any provision of this Agreement shall be held by a
--------------
court of competent jurisdiction to be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect.
8.8 Further Assurances. Each party agrees to take such further action and
------------------
execute, deliver and/or file such documents or instruments as are necessary to
carry out the terms and purposes of this Agreement.
8.9 Section Headings. The section headings used in this Agreement are
----------------
intended for convenience only and shall not be deemed to supersede or modify any
provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
MICROSOFT CORPORATION EXPEDIA, INC.
By /s/ Gregory B. Maffei By /s/ Richard N. Barton
________________________________ ________________________________
its authorized representative its authorized representative
10
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Exhibit A
Server Technology
The Server Technology is composed of the following seven elements:
1. Routing Object and Routing Files and Journey Object
The Routing Object includes all of the specifications, source code, object
code and runtime files that define and control Microsoft's proprietary, route
data storage and route calculation technologies. Routing Data is stored in a
series of highly compressed runtime Routing Files that are used to calculate
driving directions. Streets and highways are stored as nodes and links with
attributes such as speed and turn restrictions attached. The routing Object
takes as an input, a series of locations defined by latitude and longitude
coordinates. The Routing Object calculates the best route between these
locations based on user preferences for speed, distance or road types. The
output of the Routing object is a structured list of the nodes and links that
comprise the calculated route. This output may be used by Microsoft's Journey
Object to build a list of driving directions. The output may also be used to
highlight a route on a map.
2. Map Designs
Microsoft's Map Designs define how data will appear and behave within it's
proprietary, runtime map files. Each map contains one or more Map Designs.
Each of these designs is implemented as a separate map style available to end
users. Map Designs include information on the color, thickness, style, and
fonts of various data elements. In addition, the Map Design defines whether
features show up at all, and if they do, whether they appear with a label. Map
Designs also define what happens to a feature when it is selected (label is
made bold, shape highlights, map zooms in, etc.) The Online Map Design
includes color and symbol definitions that produce the most attractive map
available for a Web Page. The Online Map Design adjusts the settings for
window size constraints and palette color limitations found on most Web Pages.
3. GeoMisc code (ex. dib to gif conversion)
GeoMisc is a Project in the Geography Product Unit's Visual Source Safe Code
Database that contains miscellaneous, low-level functions that support mapping
applications. Many of these functions are required for Geography Products and
the Map Server System to work properly. For example, the *.GIF files that MSS
serves rely on the *.DIB to *.GIF conversion function that is contained in the
GeoMisc Project.
4. Map Server System (MSS)
The Map Server System includes all of the specifications, source code, object
code and runtime files that define and control Microsoft's proprietary HTML
map controls and map server technologies. MSS allows end users to find places,
get driving directions and navigate maps over the Internet. MSS relies on
other server technologies such as MOBB and the Routing Object for data
storage, route calculation and map rendering. MSS provides a Web-based user
interface that allows users to interact with routing and map files on a remote
server.
11
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5. Alexandria
Alexandria is the data warehouse that stores all of the map data used in
Microsoft's proprietary, run-time map files. Alexandria includes MS-owned map
data and licensed data from Microsoft's vendors. Databases in Alexandria store
both geometry and attribute data. For example, an single Entity record could
be represented by a point, several lines and an area at different map scales.
In addition, Alexandria databases might store information about that entity's
location, name, alternate names, and any other available attributes. All
Alexandria entities are assigned unique Identification numbers that can be
used to look up available geometry or attribute information.
6. MOBB and .MAD files
MOBB, also known as "The Map Object" includes all of the specifications,
source code, object code and runtime files that define and control Microsoft's
proprietary map data storage, retrieval and display technologies. MOBB data is
stored in files with the extension: *.MAD. Examples of MOBB features include
but are not limited to the following:
a. Smart searching algorithms for finding places and addresses
b. Dynamic map labeling technology that supports all types of features
(including street labels) and languages (including Japanese)
c. Multiple mapstyle support that supports map customization while
maximizing data compression
d. Multiple resolutions of raster and vector data support.
e. Support for all types of geometry including points (ex. Hotels),
lines (ex. Streets), areas (ex. Countries), and complex polygons
(ex. Rivers)
f. Multiple map projections
7. MS-owned map data
Microsoft maintains independent copyright ownership for much of the geographic
data that it includes in licensed products and uses internally. This includes
all of the data implemented on the Encarta Interactive World Atlas 2000 map
with the exception of parks licensed from the World Conservation Monitoring
Centre. Examples of this data include worldwide roads, political boundaries,
geographic regions, terrain maps and city insets. In addition, the MS owned
map data includes a worldwide database of Populated Places and a detailed
hydrology database for the United States.
12
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Exhibit B
Data Services
Microsoft's Data Services include the development of runtime map and routing
files for products that use technologies developed by the Geography Product Unit
and products that hold licensees to use the map data contained within them.
These files are developed primarily for use in products produced by Microsoft's
Geography and Reference product units. However, to the extent that Map Designs
allow Microsoft to create a single, customized Online Map Style within each map
file, MS will complete this work as part of its Data Services.
The parties acknowledge that the amount of Data Services to be provided by
Microsoft's Geography Product Unit shall be equivalent to the amount of data
services provided by the Geography Product Unit during the twelve (12) months
prior to the Effective Date.
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[DRAFT] EXHIBIT 10.5
MSN / Expedia.com Carriage and Cross Promotion Agreement
This MSN / Expedia.com Carriage and Cross Promotion Agreement
("Agreement"), by and between Microsoft Corporation ("Microsoft"), a Washington
corporation, and Expedia, Inc. ("EI"), a Washington corporation, is effective as
of October 1, 1999 (the "Effective Date").
RECITALS
WHEREAS, EI owns and operates an online travel service on the World
Wide Web; the home page for said network is currently located at
http://www.expedia.com;
WHEREAS, Microsoft owns and operates, among other things, a network of
Web sites currently known as "MSN," with a home page currently located at
http://www.msn.com, which network includes a variety of topic-specific
offerings;
WHEREAS, the parties desire that EI develop a special, customized
co-branded version of Expedia.com for inclusion as part of MSN's "Travel"
channel; and
WHEREAS, the parties further desire to provide various links among
pages located in Microsoft Online Properties, and among pages located in
Expedia.com and the co-branded version of Expedia.com (as defined below) Web
sites, and to engage in certain activities intended to promote the parties'
respective products and services.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereby agree as follows:
1. Definitions
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1.1 "Channel" shall mean a group of content-related secondary Web Pages
within a Web Site, the top level page of which group is accessed directly from a
Home Page.
1.2 "Expedia.com" shall mean the software code, informational
databases, products, and other components that make up a service which is
operated by or for EI and is marketed for use by individual end users and
enables such end users to shop for, reserve, book and pay for certain travel
services via a personal computer (or other interactive device) connected to the
Internet. EI currently offers such services on the Web under the name
"Expedia.com", but such name may change from time to time. For the purposes of
this Agreement "Expedia.com" shall not include versions of Expedia.com that are
co-branded with third parties in connection with EI's Associate Program (or its
successor or replacement) and shall not include EI's licensing program (or its
successor or replacement) under which EI licenses its travel technologies
platform to third parties.
1.3 "Expedia.com/MSN" shall mean the special, customized co-branded
version of Expedia.com to be developed, hosted and maintained by EI in
accordance with this Agreement.
1.4 "Travel Channel" shall mean a Channel designed, programmed (except
as to Section 3.1) and operated by or for EI (except to the extent set forth in
Section 2.1) for inclusion in MSN relating to travel information, travel booking
and related travel information and having placement and prominence equivalent to
other Channels within MSN.
1.5 "Home Page" shall mean the initial Web Page of a Web Site seen by a
user once the user has directed Web Browsing Technology to access the Web Site's
URL.
1.6 "Travel Channel Home Page" shall mean the top level page of the
Travel Channel on MSN in MSN template, and developed and hosted by EI.
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1.7 "Link" shall mean an embedded icon, object, graphic or text within
a Web Page that consists of a hypertext pointer to the URL address of a Web
Page.
1.8 "MSN" shall mean the aggregation of Web-based properties (as such
properties may change from time to time in Microsoft's sole discretion) which is
currently marketed by Microsoft as "The Microsoft Network" and/or "MSN", and
accessed through the domain http://www.msn.com, and includes international
versions of such Web-based properties.
1.9 "MSN User Air Transaction" shall mean a purchase via
Expedia.com/MSN of an airline ticket for one trip (round-trip, or one way if no
round-trip is purchased) by one person.
1.10 "Specifications" shall mean the content and technical
specifications for Expedia.com/MSN attached hereto as Exhibit A and any
modifications thereto that are made in accordance with Section 2.1 below.
1.11 "User Information" shall mean both Aggregate Information and
Personal Information pertaining to an end user. "Aggregate Information" shall
mean information that describes the habits, usage patterns and/or demographics
of users as a group but does not indicate the identity of any particular end
user, and information about an individual end user presented in a form
distinguishable from information relating to other end users but not in a form
that enables the recipient to personally identify any end user. "Personal
Information" shall mean information about an end user permitting such end user
to be specifically identified and may include, but not be limited to (i) end
user name, (ii) end user address, and (iii) the end user's personally
identifying transaction data.
1.12 "Web Page" shall mean content in the World Wide Web portion of the
Internet accessed via a single URL, and excluding content on other Web Pages
accessed via Links in said content.
1.13 "Web Site" shall mean a collection of Web Pages related in some
manner and interconnected via Links.
1.14 "WebTV" shall mean the television-based Internet access services
provided to consumers by WebTV Networks, Inc.
1.15 Successor Versions of Web Sites. Whenever this Agreement refers to
a Web Site or aggregation of Web Pages, including without limitation MSN, the
Travel Channel, Microsoft Online Properties, and Expedia.com, such reference
will also include successor versions thereof that may evolve throughout the term
of this Agreement, regardless of whether or not marketed or promoted under the
same name.
1.16 "Microsoft Online Properties" shall include MSN portal (U.S. and
International), Hotmail, WebTV, Web Courier, Mobile, and other consumer commerce
online products or services Microsoft may develop or acquire during the term of
the Agreement (e.g., other portals and online products or services) where travel
(small business or leisure) would be a key component. For the purpose of this
Agreement, "Microsoft Online Properties" shall not include third-party Web sites
or services that are either branded or co-branded by Microsoft, or is licensed
by Microsoft to incorporate private-labeled version of all or portions of MSN or
other Microsoft Online Properties.
2. Description of Expedia.com/MSN
------------------------------
2.1 Development and Maintenance. EI shall develop, operate, maintain,
and host Expedia.com/MSN in accordance with this Section 2 and the
Specifications attached as Exhibit A (as may be amended by the parties from time
to time during the term of the Agreement). Expedia.com/MSN will be a customized
version of Expedia.com; to the extent reasonably possible, but subject to
specific requirements for Expedia.com/MSN set forth herein, Expedia.com/MSN will
use substantially the same format and templates used by Expedia.com as described
in the Specifications. In particular:
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(a) EI agrees to provide Microsoft with a development and
implementation plan for Expedia.com/MSN within thirty (30) days after the
Effective Date. Expedia.com/MSN shall enable end user to purchase airline
tickets, reserve hotels and car rental and access other travel-related
information and services.
(b) If MS decides to enhance the Travel Channel by adding
additional content areas, then EI shall have the first right to develop and
provide such content as a part of Expedia.com/MSN. If EI informs MS that EI does
not desire to develop and provide such content, then MS may either develop or
engage a third party to develop the content subject to the terms of this
Agreement, provided, however MS shall be responsible for hosting or managing
such content.
(c) EI agrees to use its best efforts to be in compliance with
the Specifications set forth in Exhibit A by December 1, 1999 ("Start Date").
(d) The parties intend that this Agreement be global in scope
and agree that the UK, Canada and German versions of Expedia.com shall be
customized and co-branded as international versions of Expedia.com/MSN for the
UK, Canada and German versions, respectively, of MSN on the terms set forth in
this Agreement, including the exclusivity provision set forth in Section 3.6.
The parties also agree that to the extent both Expedia.com and MSN develop an
additional international version of their respective sites for a particular
country or region, such international version of Expedia.com (to the extent the
international version of Expedia.com includes comparable technology or services
as offered by other online travel service providers in the particular country or
region) shall be customized and co-branded as the international version of
Expedia.com/MSN for such country or region on the terms set forth in this
Agreement, including the exclusivity provision set forth in Section 3.6.
Provided, however, the Specifications for such international versions of
Expedia.com/MSN may be "localized" as necessary, and Microsoft shall have the
sole discretion of determining not to include a Travel Channel in an MSN
international market. For countries or regions in which EI does not offer or
does not plan to offer in the near reasonable term a version of Expedia.com,
Microsoft may enter into agreements with other online travel sites for the
purposes of creating an MSN Travel Channel for such country or region for such
period only. The parties acknowledge that the terms of Section 3.6 and Section 5
shall not apply in an international country or region in which Expedia.com and
MSN both have not developed an international version of their respective sites
for the particular country or region, or the international version of
Expedia.com is not the MSN Travel Channel in such international version of the
MSN for the reasons permitted in this Section 2.1(d). EI acknowledges that
certain international versions of MSN may be controlled by joint ventures in
which Microsoft participates, and in such instances, Microsoft agrees to use
best efforts to include the applicable international version of Expedia.com as
the Travel Channel in the appropriate international version of MSN operated by
such joint venture.
2.2 Co-Branding. Expedia.com/MSN shall be co-branded by EI and
Microsoft as described in Exhibits A and B hereto, which shall be subject to
periodic changes with the prior approval of both parties. EI agrees to use the
standard MSN co-branded header and footer template that is used by all MSN
network premier partners (as set forth in Exhibits A and B) for Expedia.com/MSN.
2.3 Responsibility for Expedia.com/MSN. As between Microsoft and
EI, except as expressly provided otherwise in this Agreement, or in any related
or support services agreement, EI shall be and remain solely responsible for all
development, operation, maintenance and hosting of Expedia.com/MSN and all
content contained in Expedia.com/MSN, provided however Microsoft shall be
responsible for all reasonable costs relating to the original travel content
developed by EI for Expedia.com/MSN in accordance with Section 3.1.
2.4 User Information
(a) Microsoft and EI may use User Information collected by
Microsoft in connection with the Expedia service prior to the Effective Date of
this Agreement in accordance with the terms of the MSN privacy statement in
effect at the time of collection of such User Information. Microsoft and EI may
use any and all User Information collected by EI from end users of
Expedia.com/MSN during the term of this Agreement, and EI shall provide all
applicable User Information to Microsoft on a monthly basis, provided however
such collection and use shall be in compliance with the applicable
Expedia.com/MSN privacy statement agreed to by the parties (which shall be
approved by TRUSTe or other comparable independent privacy organization and all
applicable laws).
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Furthermore, EI may not use or store any Expedia.com/MSN Personal Information
except to the same extent it uses and stores Personal Information gathered from
Expedia.com. Microsoft agrees not to use or store any Expedia.com/MSN Personal
Information except to the same extent it uses and stores Personal Information
gathered from MSN.com. The parties agree that any promotional emails to end
users of Expedia.com/MSN or Expedia.com shall be sent by EI, provided however,
Microsoft may send up to two (2) promotional emails to end users of
Expedia.com/MSN each year during the term of the Agreement. The parties will
work together on joint promotions, and neither party shall send marketing email
or communications to the registered Expedia.com/MSN end users (unless these same
offers are also sent to all of Expedia.com's registered end users) without first
discussing with the other party.
(b) All uses by EI of Personal Information collected by EI
from end users of Expedia.com during the term of this Agreement shall comply
with the applicable Expedia.com privacy statement (which shall be approved by
TRUSTe or other comparable independent privacy organization and all applicable
laws). Microsoft may use certain User Information collected by EI from
Expedia.com to the extent such use is in compliance with the applicable
Expedia.com privacy statement (e.g., to support Microsoft's ad targeting and
profiling efforts). Except as expressly set forth in this Section 2.4 EI shall
not be obligated to share any customer data with Microsoft.
3. Distribution and Cross Promotion Requirements
---------------------------------------------
3.1 Expedia.com/MSN; Travel Channel Home Page. EI shall develop,
maintain and host the Travel Channel Home Page and the Expedia.com/MSN site in
accordance with the Specifications set forth in Exhibit A. The Travel Channel
Home Page shall include a content module, dedicated and linking to
Expedia.com/MSN as described in the Specifications. Additionally, such content
module will be branded by the applicable Expedia.com brand and will occupy at
least eighty percent (80%) of the programmable screen space on the Travel
Channel Home Page. MS shall provide at most twenty (20%) of the content included
in the programmable space on the Travel Channel Home Page. The above-the-fold
programmable screen space on the Travel Channel Home Page shall be divided at
least eighty percent (80%) to EI content and at most twenty percent (20%) to
Microsoft-supplied content. For the purposes of this Section, "content" means
non-revenue generating material except as expressly agreed to in Section 5 of
this Agreement. Microsoft shall have full discretion in determining what content
to include in its portion of the Travel Channel Home Page, provided however, the
content may not be competitive with any travel related materials or services
offered by EI on Expedia.com/MSN and must be consistent with the restrictions
described in Section 5. EI and Microsoft will cooperate to develop original
travel-related content (not distributed or offered by EI online anywhere else)
for Expedia.com/MSN.
3.2 Links from MSN to Expedia.com/MSN. In addition to the Links
included pursuant to Section 3.1, Microsoft agrees to provide Links to
Expedia.com/MSN, as follows:
(a) The Travel Channel Home Page shall be will be one click
from the MSN default Home Page.
(b) at least two "quick link" text Links above the fold (e.g.,
"air tickets" and "maps") or a comparable driving Links from the MSN.com (U.S.
version) default Home Page (and wherever else "quick links" (or their
equivalent) otherwise appear within MSN.com (U.S. version)) to the appropriate
Web Page in Expedia.com/MSN or Expediamaps (as applicable). In MSN International
markets (where Travel is applicable as set forth in Section 2.1(d)), Microsoft
will use best efforts to include similar or comparable links to Expedia.com/MSN
and Expediamaps. Both parties agree that Expediamaps will be carried only if
Expediamaps' offerings are comparable in features and functions to commercially
available Web based mapping tools and technologies in the local markets.
Microsoft will provide additional Links to Expedia.com/MSN from MSN or Microsoft
Web Sites other than those specified in clauses (a) and (b) (e.g., HomeAdvisor)
as determined by Microsoft, with the placement, type and position of such Links
being within Microsoft's reasonable discretion. The parties acknowledge that the
format and/or appearance of MSN may change from time to time; however, Microsoft
agrees that the positioning of such quick links shall at all times remain
comparable to other quick links, provided that if quick links are removed from
the default MSN Home Page or other key places, both parties will work in good
faith to provide EI with placement
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of Links that will provide substantially equivalent traffic to the Travel
Channel Home Page and Expedia.com/MSN, as the case may be.
3.3 MSN Promotions. Microsoft agrees to include Expedia.com/MSN in
general MSN network promotions (such as banner advertising, key initiatives, MSN
network promotion inventory, MSN network info pane, and special editorial
references) and make commercially reasonable efforts to promote Expedia.com/MSN
in offline promotions in a similar manner as it promotes other MSN properties
(e.g., HomeAdvisor). Microsoft agrees that the Expedia.com/MSN online promotions
shall constitute a minimum of four percent (4%) of the total number of
impressions resulting from all MSN network in-house promotions during each of
the first two Years of this Agreement so long as EI is in compliance with the
Specifications set forth in Exhibit A.
3.4 Links from WebTV. Microsoft agrees to cause one or more Links to
Expedia.com/MSN to appear in the appropriate section of WebTV user interface
pages. The location of such link or links will be at Microsoft's sole
discretion.
3.5 Links from Expedia.com or Expedia.com/MSN. EI agrees to provide a
navigation link below the header and above-the-fold on the Expedia.com Home Page
to Microsoft-designated Web Page in MSN. Additionally, EI agrees to include
links or providing access on Expedia.com/MSN to MSN Messenger Service, Search,
Communities/Chat (where appropriate), Hotmail and Yellow Pages to the extent
commercially available and technically viable.
3.6 Exclusivity. The parties agree that Expedia.com/MSN shall be the
exclusive travel transaction service on or promoted by Microsoft Online
Properties, except as expressly agreed to otherwise in Section 2.1(d) and
Section 5 and subject to the terms of certain agreements entered into by
Microsoft, if any, prior to the Effective Date (the terms of such agreements
have been disclosed to EI). Microsoft will use commercially reasonable efforts
to include Expedia.com/MSN in co-branded or private-labeled sites where travel
content and transaction are relevant. In the event a material co-branded or
private-labeled partner elects to use a different travel partner, MS will use
reasonable efforts to notify EI.
3.7 Other Microsoft Internet Technologies. EI agrees it shall
implement Microsoft Passport wallet technology and Microsoft Passport
authentication technology on Expedia.com/MSN and Expedia.com as soon as
commercially available and technically viable (timing to be discussed by the
parties) so that existing registered Passport users may use the services
available on Expedia.com/MSN without having to reenter their username and
password or other relevant personal information; the usage terms and conditions
shall be agreed upon by the parties, provided however, that EI shall be entitled
to "most-favored nations" pricing on the licensing of such Passport
technologies. Upon notice from Microsoft that other technologies are available
for distribution, EI agrees, as soon as commercially available and technically
viable, to make best efforts (when technology is applicable) to include or
implement or adopt on Expedia.com/MSN and/or Expedia.com other Microsoft
Internet services (e.g., ad profiling) or platform (e.g., MSN Mobile) pursuant
to such usage terms and conditions as the parties may agree, provided however,
that EI shall be entitled to "most-favored nations" pricing on the licensing of
such technologies.
3.8 MSNBC. The parties agree that MSNBC shall be the sole third-party
provider of travel news headline that is integrated into Expedia.com/MSN.
3.9 Material Changes. In the event that there are business changes by
EI or MSN that materially impact this Agreement, both parties agree to
re-evaluate and work together in good faith to reach mutually agreeable terms.
4. Fees and Payments
-----------------
4.1 Annual Fees. EI shall pay to Microsoft an annual fee of two
million dollars ($2,000,000.00) for the first year after the Start Date ("Year
1") and two million two hundred thousand dollars ($2,200,000.00) for the second
year after the Start Date ("Year 2"). Year 1 fees and Year 2 fees shall be paid
as follows:
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Amount Date
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$500,000.00 December 1, 1999
$500,000.00 March 1, 2000
$500,000.00 June 1, 2000
$500,000.00 September 1, 2000
$550,000.00 December 1, 2000
$550,000.00 March 1, 2001
$550,000.00 June 1, 2001
$550,000.00 September 1, 2001
The annual fees for Years after Year 2 shall be agreed upon by the parties.
4.2 Incentive Fees. In addition to the Annual Fees set forth in
Section 4.1, EI shall pay to Microsoft three dollars and fifty cents ($3.50) per
MSN User Air Transaction completed on the co-branded site above the applicable
forecast for such year. The Year 1 forecast shall be equal to two hundred
seventy thousand three hundred and twenty (270,320) air ticket sales on MSN
Expedia; the Year 2 forecast shall be equal to twelve times the average of June
00, July 00, and August 00 air ticket sales on Expedia.com/MSN. EI shall pay any
incentive fees at the end of each Year and shall provide with such payment a
report in detail sufficient to determine how the incentive fees for such Year
were calculated. Forecasts for Years after Year 2 shall be agreed upon by the
parties.
5. Ad Sales for Expedia.com/MSN and Expedia.com
--------------------------------------------
5.1 Allocation of Banner Inventory for Expedia.com/MSN and
Expedia.com.
(a) The MSN advertising sales team may sell up to fifty-two
million (52,000,000) advertising banners in Year 1 and fifty-seven million two
hundred thousand (57,200,000) advertising banners in Year 2 from the total
banner inventory for Expedia.com/MSN and Expedia.com ("MSN Ad Sales Allocation")
subject to the restrictions set forth in Section 5.2. For the purposes of this
Section 5, "banner inventory" means (i) non-geo-targeted advertising that runs
at the top of the screen in the 468 x 60 pixels throughout the Expedia.com/MSN
and the Expedia.com sites, and (ii) a 120x60 pixels ad box (or similar) on the
Travel Channel Home Page (above the fold 600x800 pixels) and the top level pages
of each section (below the fold 600x800 pixels) on Expedia.com/MSN. "Banner
inventory" does not include geo-targeted advertising or sponsorships.
(b) EI will allocate one-third (1/3) of the ad banners (468x60
pixels as described in 5.1(a)(i) above) available on Expedia.com and
Expedia.com/MSN to MSN ("MSN Ad Sales Cap") in each of Year 1 and Year 2. EI
will own the remaining banner inventory, geo-targeted inventory, sponsorships
and any other revenue generating ad space for Expedia.com/MSN and Expedia.com
("EI Ad Sales Allocation"). The MSN advertising sales team may sell more than
MSN Ad Sales Cap with the prior approval of EI. In addition, The MSN advertising
sales team may sell geo-targeted banners, sponsorships, and other ad placements
on Expedia.com or Expedia.com/MSN only with EI's approval. Both parties will
work together to assign the banner inventory allocations fairly.
(c) MS shall not be entitled to share in any revenue derived
from EI's sale of the EI Ad Sales Allocation. EI shall not be entitled to share
in any revenue derived from Microsoft's sale of the MSN Ad Sales Allocation,
provided however, that Microsoft shall remit to EI eighty percent (80%) of the
total revenue received by Microsoft for sales of banner inventory in excess of
the MSN Ad Sales Allocation and up to the MSN Ad Sales Cap, and other ad
placements that the parties agree on (geo-targeted banners, sponsorships etc.)
during Year 1 and Year 2, respectively. MS shall make any payments that may be
due to EI within thirty (30) days after the end of Year 1 or Year 2 as
applicable, or on any other payment schedule that may be agreed upon by the
parties.
(d) The calculation of the MSN Ad Sales Allocation and EI Ad
Sales Allocation for both Expedia.com/MSN and Expedia.com shall be done on a
monthly basis based upon monthly banner inventory
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forecasts. The MSN Ad Sales Allocation and the EI Ad Sales Allocation for Years
after Year 2 shall be agreed upon by the parties.
5.2 Restriction on Ad Sales for Expedia.com/MSN and Expedia.com.
(a) EI agrees that it will not sell or otherwise make available
any banner inventory or otherwise promote on Expedia.com/MSN up to five (5)
competitors of MSN as agreed to by the parties. EI further agrees that it will
not sell or otherwise make available any banner inventory or otherwise promote
on Expedia.com/MSN up to five (5) competitors of each of the MSN vertical sites
(e.g., CarPoint, HomeAdvisor, Money Central) as agreed to by the parties. EI
will promote MSN on Expedia.com in a similar matter as it promotes other major
partners (e.g. other portals).
(b) Microsoft agrees that it may sell banner inventory included in
the MSN Ad Sales Allocation only to non-travel accounts as agreed to by the
parties, provided however, that Microsoft may sell such banner inventory to
travel accounts only if (i) the banners on Expedia.com/MSN and Expedia.com do
not link or promote the travel booking engine of any travel related company
(subject to exceptions in (ii)); or (ii) the banners on Expedia.com/MSN may link
to the travel engine of any travel related company only if (A) such promotion or
sponsorship is also included in Expedia.com/MSN (e.g., Microsoft may promote on
Expedia.com/MSN ABC Airlines' flight special so long as ABC Airlines' special is
also included in Expedia.com/MSN's travel booking service) and (B) the sale is a
part of a larger MSN advertising agreement in which the Expedia.com/MSN banner
inventory does not constitute more than twenty percent (20%) of the total number
of advertising banners sold by MSN under such MSN advertising agreement.
Controversial promotions and sponsorships will be discussed and resolved by the
parties.
(c) Microsoft agrees that it will not sell or otherwise make
available any banner inventory or promote on Expedia.com/MSN or Expedia.com up
to five (5) competitors of EI as agreed to by the parties.
5.3 Restriction on Ad Sales for MSN. Microsoft shall be solely
responsible for advertising sales on MSN, and EI shall not be entitled to share
any revenue derived from such sales. Microsoft agrees, however, that it shall
not sell or otherwise make available any advertisements, sponsorships or
promotions on MSN or the MSN vertical sites (e.g., CarPoint, HomeAdvisor, Money
Central) to any of the five (5) competitors of EI as agreed to by the parties.
Nothing in this Section 5.3 shall be interpreted as limiting Microsoft's ability
to sell advertising or promotions to any travel service other than the five (5)
EI competitors agreed to by the parties.
5.4 Ad Sales Services. EI agrees that if it desires to engage a third
party for general ad sales services, it shall first negotiate with Microsoft
exclusively for a period of one (1) month with respect to engaging the MSN
advertising sales team to provide such services.
6. Proprietary Rights
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The parties agree that except as expressly licensed to EI in this
Agreement or a separate license agreement, Microsoft shall retain all right,
title, and interest in all data, content, technologies and other property
furnished by Microsoft to EI hereunder. The parties further agree that except as
expressly licensed to Microsoft in this Agreement or a separate license
agreement, EI shall retain all right, title and interest in and to
Expedia.com/MSN (except for the MSN brand) all data, content, technologies and
other property furnished by EI to Microsoft hereunder.
7. Confidentiality
---------------
7.1 The parties acknowledge and agree that all of the terms of this
Agreement (including but not limited to its existence) are confidential. Each
party may disclose the terms and conditions of this Agreement to its employees,
affiliates and its immediate legal and financial consultants on a need to know
basis as required in the ordinary course of that party's business, provided that
such employees, affiliates and/or legal and/or financial consultants agree in
advance of disclosure to be bound by this Section 7, and may disclose
Confidential Information
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as required by government or judicial order, provided each party gives the other
party prompt notice of such order and complies with any protective order (or
equivalent) imposed on such disclosure.
7.2 Each party acknowledges that monetary damages may not be a
sufficient remedy for unauthorized disclosure or use of Confidential Information
and that each party may seek, without waiving any other rights or remedies, such
injunctive or equitable relief as may be deemed proper by a court of competent
jurisdiction.
8. Branding Guidelines
-------------------
8.1 By Microsoft. To the extent that this Agreement requires EI to
use any logo, trademark, tradename or service mark owned and/or provided by
Microsoft (collectively "Microsoft Marks"), Microsoft shall provide EI with such
elements and renderings for the agreed upon use of such Microsoft Mark in a form
necessary to permit EI's use as contemplated by this Agreement. Microsoft shall
also provide the applicable usage guidelines for the use of Microsoft Marks, and
EI agrees to comply with such guidelines.
8.2 By EI. To the extent that this Agreement requires Microsoft to
use any logo, trademark, tradename or service mark owned and/or provided by EI
(collectively "EI Marks"), EI shall provide Microsoft with such elements and
renderings for the agreed upon use of such EI Marks in a form necessary to
permit Microsoft's use as contemplated by this Agreement. EI shall also provide
the applicable usage guidelines for the use of EI Marks, and Microsoft agrees to
comply with such guidelines.
9. Term; Termination
-----------------
9.1 Term. Subject to the other provisions hereof, this Agreement shall
commence on the Effective Date and continue for a period of five (5) years
following the Start Date (the "Term").
9.2 Termination for Cause. In addition to any other rights and/or
remedies that either party may have under the circumstances, all of which are
expressly reserved, either party may terminate this Agreement at any time,
effective immediately upon written notice, if the other party is in material
breach of any warranty, representation, term, condition or covenant of this
Agreement, and fails to cure that breach within thirty (30) days after written
notice thereof.
9.3 Effect of Termination. In the event of termination or expiration
of this Agreement for any reason each and every clause which by its nature is
intended to survive the termination of this Agreement including, without
limitation, Sections 6, 7, 9.3, 10, 11, 13 and 14 shall survive termination.
10. Warranties and Indemnification.
------------------------------
10.1 EI Warranties. EI warrants and represents that: (i) it has
sufficient authority to enter into this Agreement; (ii) all materials delivered
by EI to Microsoft and/or included in Expedia.com/MSN pursuant to this Agreement
(other than those provided by Microsoft) are and will be owned and controlled by
EI and do not and will not infringe the copyrights, trademarks, service marks or
any other personal or proprietary right of any third party; (iii)
Expedia.com/MSN and all actions thereon are and will be in compliance with all
applicable laws.
10.2 Microsoft Warranties. Microsoft warrants and represents that: (i)
it has sufficient authority to enter into this Agreement, (ii) all materials
delivered by Microsoft to EI pursuant to this Agreement (excluding any
trademarks and logos) do not and will not infringe the copyrights, trademarks,
service marks or any other personal or proprietary right of any third party.
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10.3 Indemnification. Each party (the "Indemnifying Party") will hold
harmless and indemnify the other party (the "Indemnified Party") from and
against any loss, claim, liability, damage, action or cause of action
(including, without limitation, reasonable attorneys' fees) brought against the
Indemnified Party by a third party and arising from or related to any alleged
act or omission which, if the allegation were true, would be a breach by the
Indemnifying Party of this Agreement, provided that the Indemnified Party
cooperates as set forth in Section 10.4. In addition, EI will hold harmless and
indemnify Microsoft from and against any loss, claim, liability, damage, action
or cause of action (including, without limitation, reasonable attorneys' fees)
brought against Microsoft by a third party and arising from or related to
Expedia.com/MSN (unless such claim would be covered by the immediately preceding
sentence), provided that Microsoft cooperates as set forth in Section 10.4.
10.4 Indemnification Process. If any action shall be brought against
either party (the "Indemnified Party") in respect to which indemnity may be
sought from the other party (the "Indemnifying Party") pursuant to the
provisions of Section 10.3, the Indemnified Party shall promptly notify the
Indemnifying Party in writing, specifying the nature of the action and the total
monetary amount sought or other such relief as is sought therein. The
Indemnified Party shall cooperate with the Indemnifying Party at the
Indemnifying Party's expense in all reasonable respects in connection with the
defense of any such action. The Indemnifying Party may upon written notice to
Indemnified Party undertake to control and conduct all proceedings or
negotiations in connection therewith, assume and control the defense thereof,
and if it so undertakes, it shall also undertake all other required steps or
proceedings to settle or defend any such action, including the employment of
counsel which shall be reasonably satisfactory to Indemnified Party, and payment
of all reasonably incurred expenses. Indemnified Party shall have the right to
employ separate counsel and participate in the defense, at Indemnified Party's
sole cost and expense. The Indemnifying Party shall reimburse Indemnified Party
upon demand for any payments made or loss suffered by it at any time after the
date of tender, based upon the judgment of any court of competent jurisdiction
or pursuant to a bona fide compromise or settlement of claims, demands, or
actions, in respect to any damages to which the foregoing relates.
10.5 PRODUCTS OR SERVICES DELIVERED UNDER THE TERMS OF THIS AGREEMENT
SHALL BE SUBJECT TO THE TERMS OF THE LIMITED WARRANTY STATEMENT, IF ANY,
SPECIFIED BY THE DELIVERING PARTY FOR THE SPECIFIC PRODUCT OR SERVICE. CERTAIN
SOFTWARE PRODUCTS MAY BE PROVIDED TO THE OTHER PARTY "AS IS" WITHOUT WARRANTY OR
CONDITION OF ANY KIND, IF SO DESIGNATED BY THE LICENSOR. FOR SUCH PRODUCTS, THE
ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF SUCH SOFTWARE IS ASSUMED BY THE
RECEIVING PARTY AND ITS CUSTOMERS AND SUBLICENSEES, IF ANY. THE WARRANTIES SET
FORTH IN SECTIONS 10.1, 10.2, AND THIS SECTION 10.5 ARE THE ONLY WARRANTIES MADE
BY THE PARTIES. EACH PARTY DISCLAIMS ANY AND ALL OTHER WARRANTIES OR
REPRESENTATION EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, TITLE, NON-INFRINGEMENT AND FITNESS FOR A
PARTICULAR PURPOSE. NEITHER PARTY WARRANTS THAT ACCESS TO OR USE OF THE SITES OR
CHANNELS WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT ANY SOFTWARE OR SERVICES
WILL MEET ANY PARTICULAR CRITERIA OF PERFORMANCE OR QUALITY.
11. Limitation Of Liabilities NEITHER PARTY SHALL BE LIABLE TO THE OTHER
-------------------------
FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES,
ARISING OUT OF OR RELATED TO THIS AGREEMENT INCLUDING, WITHOUT LIMITATION,
DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THIS SECTION SHALL NOT APPLY TO EITHER PARTY'S (A)
ABILITY TO OBTAIN INJUNCTIVE OR OTHER EQUITABLE RELIEF; (B) CONFIDENTIALITY
OBLIGATIONS UNDER SECTION 7; AND (C) INDEMNIFICATION OBLIGATIONS AS TO THIRD
PARTY DAMAGES ASSESSED AGAINST THE INDEMNIFIED PARTY IN CONNECTION WITH
INDEMNIFIED CLAIMS UNDER SECTION 10.
12. Press Releases
--------------
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Neither Microsoft nor EI will issue any press release or make any
public announcement(s) relating in any way whatsoever to this Agreement or the
relationship established by this Agreement without the express prior written
consent of the other party, which consent shall not be unreasonably withheld.
However, the parties acknowledge that this Agreement, or portions thereof, may
be required under applicable law to be disclosed, as part of or an exhibit to a
party's required public disclosure documents.
13. Taxes
-----
13.1 Liability for Taxes. The amounts to be paid by Expedia to
Microsoft herein do not include any foreign, U.S. federal, state, local,
municipal or other governmental taxes, duties, levies, fees, excises or tariffs,
arising as a result of or in connection with the transactions contemplated under
this Agreement including, without limitation, any state or local sales or use
taxes or any value added tax or business transfer tax now or hereafter imposed
on or with respect to the provision of goods and services to Expedia by
Microsoft under this Agreement, regardless of whether the same are separately
stated by Microsoft. Except as provided in section 13.4 below, all such taxes
(and any penalties, interest, or other additions to any such taxes), with the
exception of taxes imposed on Microsoft's net income or with respect to
Microsoft's property ownership, shall be the financial responsibility of
Expedia. Expedia agrees to indemnify, defend and hold Microsoft harmless from
any such taxes or claims, causes of action, costs (including, without
limitation, reasonable attorneys' fees) and any other liabilities of any nature
whatsoever related to such taxes.
13.2 Collected Taxes. Expedia will pay all applicable value added,
sales and use taxes and other taxes levied on it by a duly constituted and
authorized taxing authority on the software, services, hardware, equipment or
other product provided under this Agreement or any transaction related thereto
in each country in which the services and/or property are being provided or in
which the transactions contemplated hereunder are otherwise subject to tax,
regardless of the method of delivery. Any taxes that are owed by Expedia, (i) as
a result of entering into this Agreement and the payment of the fees hereunder,
(ii) are required or permitted to be collected from Expedia by Microsoft under
applicable law, and (iii) are based upon the amounts payable under this
Agreement (such taxes described in (i), (ii), and (iii) above the "Collected
Taxes"), shall be remitted by Expedia to Microsoft, whereupon, upon request,
Microsoft shall provide to Expedia tax receipts or other evidence indicating
that such Collected Taxes have been collected by Microsoft and remitted to the
appropriate taxing authority. Expedia may provide to Microsoft an exemption
certificate acceptable to Microsoft and to the relevant taxing authority
(including without limitation a resale certificate) in which case, after the
date upon which such certificate is received in proper form, Microsoft shall not
collect the taxes covered by such certificate. Microsoft agrees to take such
steps at Expedia's request and expense to minimize Collected Taxes or other
taxes paid by Expedia in accordance with all relevant laws.
13.3 Tax Withholding. If, after a determination by foreign tax
authorities, any taxes are required to be withheld on payments made by Expedia
to Microsoft, Expedia may deduct such taxes from the amount owed Microsoft and
pay them to the appropriate taxing authority; provided however, that Expedia
shall promptly secure and deliver to Microsoft an official receipt for any such
taxes withheld or other documents necessary to enable Microsoft to claim a U.S.
Foreign Tax Credit. Expedia will make certain that any taxes withheld are
minimized to the extent possible under applicable law.
13.4 Taxes Resulting from Microsoft Ad Sales. Notwithstanding section
13.1 and 13.2 hereof, all taxes (and any penalties, interest, or other additions
to any such taxes), arising as a result of or in connection with the sale by
Microsoft for its own account of its MSN Ad Sales Allocation as set forth in
Section 5.1 of this Agreement, shall be the financial responsibility of
Microsoft. Microsoft agrees to indemnify, defend and hold Expedia harmless from
any such taxes or claims, causes of action, costs (including, without
limitation, reasonable attorneys' fees) and any other liabilities of any nature
whatsoever related to such taxes.
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13.5 Tax Provision Governs. This tax section shall govern the treatment
of all taxes arising as a result of or in connection with this Agreement
notwithstanding any other section of this Agreement.
14. General Provisions
------------------
14.1 Independent Contractors. The parties are independent contractors
with respect to each other, and nothing in this Agreement shall be construed as
creating an employer-employee relationship, a partnership, agency relationship
or a joint venture between the parties.
14.2 Governing Law. This Agreement shall be governed by the laws of the
State of Washington as though entered into by Washington residents and to be
performed entirely within the State of Washington. The parties agree to
exclusive jurisdiction and venue in the state and federal courts sitting in King
County, Washington. In any action or suit to enforce any right or remedy under
this Agreement or to interpret any provision of this Agreement, the prevailing
party shall be entitled to recover its costs, including reasonable attorneys'
fees.
14.3 Assignment. Neither party may assign this Agreement or any rights
and/or obligations hereunder without the other party's prior written approval.
14.4 Construction. In the event that any provision of this Agreement
conflicts with governing law or if any provision is held to be null, void or
otherwise ineffective or invalid by a court of competent jurisdiction, (i) such
provision shall be deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with applicable law, and (ii)
the remaining terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect. This Agreement has been negotiated by the
parties and their respective counsel and will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either party. The section headings used in this Agreement are intended
for convenience only and shall not be deemed to affect in any manner the meaning
or intent of this Agreement or any provision hereof.
14.5 Notices. All notices and requests in connection with this
Agreement shall be given in writing and shall be deemed given as of the day they
are received either by messenger, delivery service, or in the United States of
America mail, postage prepaid, certified or registered, return receipt
requested, and addressed as follows:
<TABLE>
<CAPTION>
To Expedia, Inc.: To Microsoft:
<S> <C>
Expedia, Inc. Microsoft Corporation
4200 150th Ave. NE One Microsoft Way
Redmond, WA 98052 Redmond, WA 98052-6399
Attention: President Attention: MSN Business Development
Phone: 425.705.5161 Phone: 425.703.6466
Fax: 425.936.7329 Fax: 425.936.7329
Copy to: Copy to:
General Counsel (same address and fax) Law & Corporate Affairs, US Legal
Fax: 425.936.7409
</TABLE>
or to such other address as the applicable party may designate pursuant to this
notice provision.
14.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements or communications. This Agreement shall not
be modified except by a written agreement dated subsequent to the date of this
Agreement and signed on behalf of EI and Microsoft by their respective duly
authorized representatives. No waiver of any breach of any provision of this
Agreement shall constitute a waiver of any prior, concurrent or subsequent
breach of the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized representative of
the waiving party.
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The parties have caused this Agreement to be executed by their duly
authorized representatives as of the Effective Date.
MICROSOFT CORPORATION EXPEDIA, INC.
By By
---------------------------------- ----------------------------------
Name (Print) Gregory B. Maffei Name (Print) Richard N. Barton
------------------------- -------------------------
Title Chief Financial Officer Title President and Chief
-------------------------------- --------------------------------
Executive Officer
--------------------------------
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Exhibit A
---------
Specifications
--------------
I. EI will develop, maintain and host the Expedia.com/MSN and the version of
ExpediaMaps to which the MSN "Maps quick link" links ("ExpediaMaps"), in
accordance with the requirements specifications below: (For the purpose of this
Specification, Expedia.com/MSN and ExpediaMaps may be collectively referred to
as "EI/MSN Sites").
. The Network Template includes the following components:
. The Network headers and footers. It will be included on each
-------------------------------
non-transaction page within Expedia.com/MSN and ExpediaMaps in the
manner provided by Microsoft. A lighter MSN branding header will be
included above the fold on all transaction pages within the
Exepdia.com/MSN site.
. The Network Promotion Inventory. It will be included on the
-------------------------------
Travel Channel Home Page and on the top page of each section within
Expedia.com/MSN and on the top two levels of the ExpediaMaps pages
in the manner provided by Microsoft. The Network Promotion
Inventory is currently defined as the right hand, white column
space on an 800x600 screen resolution of pixels.
. Any layout or technical changes to the Network Template must be
preceded by a detailed specification and sample code, and an
implementation period of approximately a month following delivery of
said specs and sample code. EI will use best efforts to implementation
the behavior and look-and-feel of the Network Template. If EI may not
replicate the exact code and functionality of the Network Template due
to the technical architecture of the EI/MSN Sites, EI will implement
comparable and mutually agreed MSN co-branding and promotion inventory
on the EI/MSN Sites.
. Microsoft will not promote in The Network Promotion Inventory the five
(5) competitors of EI to be agreed upon by the parties. Both parties
will work together to minimize conflicts with EI's premier sponsors.
EI will notify MSN if any serious ad conflicts occur, and MSN will
make best efforts to eliminate such conflict within 10 business days.
. EI will supply content to scheduled network wide promotions and
campaigns.
. Microsoft will make best efforts to promote Expedia.com/MSN, EI's ETN
and Premier partners (e.g. Disney) via the Network Promotion
Inventory.
EI will make available all materials and content in the Expedia.com web site to
be included in the Expedia.com/MSN Site.
. Microsoft requires that EI maintain certain minimum standards for
connectivity and availability which shall be not more restrictive than
the standards required by MSN with respect to any other MSN premier
partner; these requirements may be updated by Microsoft with
reasonable input from EI from time to time by written notice from
Microsoft to EI, and EI will implement any required modifications to
the service on a timely basis.
. All pages of the EI/MSN Sites must have the same performance standard
as the regular Expedia.com and ExpediaMaps.com including but not
limited to up time, availability, rendering speed, and page loading.
Both EI and Microsoft will attempt a standard of performance to match
any leading web site.
. The parties will provide each other with mutually agreed maintenance
reports, system alerts, and other communications related to site
performance. In addition, each party will provide the other with any
reasonable reporting that may be requested by the other party, and the
parties shall work together to develop reasonable reporting
requirements. The parties shall also share their respective
international product development plans on an annual basis.
. EI agrees that the EI/MSN Sites, as served by EI servers, will be
easily viewable on all popular browsers, including but not limited to
Internet Explorer, Netscape Navigator and WebTV. Also, users of
Windows, Macintosh, Linux and Unix systems should all be able to view
pages served by EI. In no event will EI make any technology decision
that renders the content viewing experience of Internet Explorer users
on the EI/MSN Sites to be inferior to the viewing experience of users
elsewhere on the Microsoft Online Properties.
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. The parties shall work together to implement the procedures as
reasonably necessary to ensure that Microsoft is notified of all site
failure(s) or significant decline(s) in performance.
. EI agrees to support the following activities as soon as the MSN
profiling technology is commercially available and technically viable:
EI will store user information in MSN User Profile Store. EI will
implement EI's web pages to provide real time events logging to the
MSN User Profile Store. EI will also provide click stream information
to MSN IDSS nightly. EI will tag content pages using MSN's taxonomy.
MSN agrees to provide EI reasonable consulting support to assist in
the implementation process. MSN agrees to deliver targeted advertising
in a similar manner as it treats other premium partners on MSN who
participate in the profiling initiative.
II. EI will make updates, modifications or changes to the EI/MSN Sites, in
accordance with the requirements specifications below:
. Changes to Network Template (i.e. header or footer text) or graphic
content changes shall be implemented by EI within 10 business days
upon receipt of final MS elements (i.e. copy, graphics, code).
. Changes to daily tree content shall be made within 10 business days
upon receipt of final elements.
. Changes to World Guide upon receipt of final MS elements - content
changes will be implemented within 10 days, code changes will be
implemented within 30 days.
. Changes to Promotional modules upon receipt of final MS elements -
content changes will be implemented within 10 days, code changes will
be implemented within 30 days.
Changes involving substantial interpreted code modification (e.g. javascript,
VBScript, whether client-side or ASP) can add unpredictability to customization
and modification time. Such requests will require at least an additional week or
more above the heretofore mentioned turnaround schedules, time which Expedia
will in good faith try to minimize. As for changes that require Expedia to
recompile transactional-path.dlls or hotfix qscript or HTX files, these will
need to be synchronized with MTT development and testing schedules, whose timing
will dictate implementation dates.
2
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Exhibit B
---------
Co-Branding
-----------
Initially, the Travel Channel Home Page shall be branded MSN Travel Channel
"with Expedia.com" (which shall include the EI logo). The Expedia.com/MSN Site
(except for the Travel Channel Home Page) shall be branded MSN Travel Channel
"by Expedia.com" (which shall include the EI logo). The EI branded logo ("with
Expedia.com" and "by Expedia.com") will be 125x22 pixels, located on the right
side of the MSN network header.
A sample co-branded header for MSN premium partners is included below:
[GRAPHIC]
3
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EXHIBIT 10.6
TAX ALLOCATION AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of October, 1999, by
and between Microsoft Corporation, a Washington corporation ("MS") and Expedia
Inc. ("Expedia"), a Washington corporation.
WITNESSETH:
WHEREAS, MS is the common parent corporation of an affiliated group of
corporations (the "MS Affiliated Group") within the meaning of section 1504(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and Expedia is a
newly-formed corporation more than 80% owned by MS and therefore a member of the
MS Affiliated Group; and
WHEREAS, MS and Expedia deem it appropriate to define the method by which
the federal income tax, including for all purposes of this Agreement, the
alternative minimum tax, and certain state and local tax liabilities of the MS
Affiliated Group shall be allocated between the parties and the manner in which
such allocated liability shall be paid;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. Definitions
-----------
The following terms as used in this Agreement shall have the meanings set
forth below:
(a) "Additional Amount" shall mean the amount determined under Section 3
hereof.
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(b) "Consolidated Return" shall mean a consolidated federal income tax
return filed pursuant to section 1501 of the Code.
(c) "Consolidated Tax Liability" shall mean the consolidated federal income
tax liability, including for all purposes of this Agreement, alternative minimum
tax liability, of the MS Affiliated Group for any taxable year for which the MS
Affiliated Group files a Consolidated Return.
(d) "Inherent Bargain Element" shall have the meaning set out in paragraph
9, below.
(e) "IRS" shall mean the Internal Revenue Service.
(f) "Member" shall mean each includible member of the MS Affiliated Group.
(g) "MS Affiliated Group" shall mean the affiliated group of corporations
within the meaning of section 1504(a) of the Code of which MS is the common
parent.
(h) "Regulations" shall mean the Treasury regulations as in effect from
time to time.
(i) "Separate Return Tax Liability" shall mean the federal income tax
liability, including for all purposes of this Agreement, alternative minimum tax
liability, of a Member computed as if it had filed a separate federal income tax
return for the applicable taxable year with the modifications set forth in
section 1.1552-1(a)(2)(ii) of the Regulations. In addition, for purposes of
this definition, each party's Separate Return Tax Liability shall be computed as
if MS (and not Expedia or its successor) is entitled to deduct on its Separate
Return the "Inherent Bargain Element" in the compensatory stock
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options assumed by Expedia as explained in detail in paragraph 9, below. If the
computation of a Member's Separate Return Tax Liability as provided herein does
not result in a positive amount, such Member's Separate Return Tax Liability
shall be zero.
(j) "Separate Tax Liability" shall mean the amount owed by a Member
under Section 2(a) hereof.
(k) "Tax Sharing Receivable" shall mean the amount owned to a Member
pursuant to Section 2(a) hereof.
2. Separate Tax Liability
----------------------
(a) If a Consolidated Return is filed by the MS Affiliated Group for
any taxable year, the Separate Tax Liability of each Member for such taxable
year shall, if a positive number, be the sum of (i) the amount determined for
such Member pursuant to paragraph (b) hereof, plus or minus, as the case may be,
(ii) any increase or reduction in the Member's tentative Separate Tax Liability
required by paragraph (c) hereof. To the extent an allocation to a Member under
clause (ii) of paragraph (c) hereof reduces a Member's tentative Separate Tax
Liability to an amount less than zero, such negative amount shall be referred to
herein as a "Tax Sharing Receivable."
(b) Each Member's tentative Separate Tax Liability shall be an amount
equal to that portion of the Consolidated Tax Liability for such taxable year
that the Member's Separate Return Tax Liability for such taxable year bears to
the sum of the Separate Return Tax Liabilities of all Members for such taxable
year; provided, however, that such amount shall not exceed the Consolidated Tax
-------- -------
Liability for such taxable year.
(c) Adjustments for Additional Amount. If an Additional Amount is
determined with respect to a Member for a Consolidated Return taxable year, then
(i) the
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<PAGE>
tentative Separate Tax Liability of that Member, as determined pursuant
to paragraph (b), shall be increased by such Additional Amount; and (ii) the
Separate Tax Liability of each of those Members whose tax attributes are
absorbed shall be reduced by a pro rata portion of the Additional Amount
allocated to such Member, which allocation shall be made in a manner that
reasonably reflects the absorption of the tax attributes; provided, however,
that, whenever Expedia is one of the Members entitled to a reduction in its
Separate Tax Liability as a consequence of an allocation to Expedia or all or
part of another Member's Additional Amount, 92.5% of the amount otherwise
allocable to Expedia shall be allocated to Expedia, and 7.5% to MS. This
paragraph (c) and Section 3 hereof are intended to allocate Additional Amounts
of Separate Return Tax Liability in accordance with the percentage method of
Reg. (S)1.1502-33(d)(3) (using 100% for each Member other than Expedia and 92.5%
for Expedia) and, except for the modification in the computation of Separate
Return Tax Liability with respect to the Inherent Bargain Element, shall be
interpreted to comply in all material respects with that method.
3. Additional Amount
-----------------
An "Additional Amount" exists with respect to a Member if, for any
Consolidated Return taxable year, that Member's Separate Return Tax Liability
exceeds the tentative Separate Tax Liability of that Member determined pursuant
to Section 2(b).
4. Payments
--------
For each taxable year with respect to which MS files, or it is
reasonably anticipated that MS will file, a Consolidated Return which includes
Expedia, payment of the Separate Tax Liability or Tax Sharing Receivable with
respect to such taxable year shall be made as follows:
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<PAGE>
(a) On or before the 15th day of the fourth month of such taxable year, MS
shall estimate the Separate Tax Liability or Tax Sharing Receivable of each
Member for such taxable year.
(b) Expedia shall pay to MS or MS shall pay to Expedia, as the case may be,
on or before each of the due dates for MS to make payment of estimates of its
federal income taxes for such taxable year one-fourth of the amount estimated
pursuant to paragraph (a) above (the "Estimated Amount"). If, after paying any
such installment of the Estimated Amount, MS and Expedia make a new estimate,
the amount of each remaining installment (if any) shall be the amount which
would have been payable if the new estimate had been made when the first
estimate for the taxable year was made, increased or decreased as applicable, by
the amount computed by dividing:
(i) the difference between (A) the amount of the Estimated Amount
required to be paid before the date on which the new estimate is made, and (B)
the amount of the Estimated Amount which would have been required to be paid
before such date if the new estimated had been made when the first estimate was
made, by
(ii) the number of installments remaining to be paid on or after the
date on which the new estimate is made.
(c) If, after the end of each such taxable year with respect to which MS
filed, or reasonably anticipates that it will file, a Consolidated Return which
includes Expedia, it is determined that the actual Separate Tax Liability for
such taxable period exceeds the aggregate amount paid pursuant to the
subparagraph (b) above with respect to such taxable period, then such excess
shall be paid on or before the later of (i) the 15th day of the third month
after the end of such taxable period, and (ii) the date on which
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<PAGE>
such excess is finally determined, which shall be not later than sixty (60) days
after the Consolidated Return for such taxable period is filed.
(d) If, after the end of each such taxable year with respect to which MS
filed, or reasonably anticipates that it will file, a Consolidated Return which
includes Expedia, it is determined that the amount paid pursuant to subparagraph
(b) above with respect to such taxable period exceeds the actual Separate Tax
Liability or Tax Sharing Receivable for such taxable period, then such excess
shall be paid on or before the later of (i) the 15th day of the third month
after the end of such taxable period and (ii) the date on which such excess is
finally determined, which shall be not later than sixty (60) after the
Consolidated Return for such taxable period is filed.
5. Carrybacks. The provisions of this Section 5 shall be interpreted in a
----------
manner that does not result in the duplication of any computations required by
any other provision of this Agreement or in the duplication of any tax sharing
payment required to be made pursuant to any other provision of this Agreement.
(a) If the MS Affiliated Group has a consolidated unused investment credit,
a consolidated unused foreign tax credit, a consolidated excess charitable
contribution, a consolidated net capital loss or a consolidated net operating
loss, as such terms are defined in the Regulations (a "Consolidated Excess
Amount") for any taxable year, the portion of such Consolidated Excess Amount
which is attributable to a Member (the "Separate Excess Amount") shall be
computed in accordance with the Consolidated Return Regulations, except that all
such computations shall be made by assuming that MS, not Expedia, is entitled to
all deductions attributable to the Inherent Bargain Element in the compensatory
stock options assumed by Expedia.
6
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(b) If such Consolidated Excess Amount is carried back to a prior taxable
year of the MS Affiliated Group during which Expedia was a Member or was not in
existence, then the amounts due under this Agreement for such prior taxable year
shall be redetermined by taking into account such Consolidated Excess Amount and
any Separate Excess Amount allocable to such taxable year.
(c) If such Consolidated Excess Amount is carried back to a prior taxable
year of the MS Affiliated Group during which Expedia was in existence but was
not a Member, then Expedia shall be entitled to 92.5% of any credit or refund
attributable to any Separate Excess Amount originated by Expedia which is
carried back to such prior taxable year, and the remaining 7.5% of such credit
or refund shall be retained by MS.
(d) Payment of any amount due under this Section 5 shall be made on the
date that a credit or refund is allowed with respect to the taxable year to
which such payment related and shall include any interest attributable thereto
under section 6611 of the Code.
6. Subsequent Adjustments
----------------------
If any adjustments (other than adjustments made pursuant to Section 5
hereof) are made to the income, gains, losses, deductions or credits of the MS
Affiliated Group for a taxable year during which Expedia is a Member, whether by
reason of the filing of an amended return or a claim for refund which respect to
such taxable year or an audit with respect to such taxable year by the IRS, the
amounts due under this Agreement for such taxable year shall be redetermined by
taking into account such adjustments. If, as a result of such redetermination,
any amounts due under this Agreement shall differ from the amounts previously
paid, then payment of such difference shall be made (a) in the case of
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an adjustment resulting in a credit or refund, on the date on which such credit
or refund is allowed with respect to such adjustment, or (b) in the case of an
adjustment resulting in the assertion of a deficiency, on the date on which such
deficiency is paid. Any amounts due under this Section 6 shall include any
interest attributable thereto under section 6601 or 6611 of the Code, as the
case may be, and any penalties or additional amounts which may be imposed.
7. Carrybacks from Separate Return Years
-------------------------------------
If, for any separate return year, as defined in section 1.1502-1 of the
Regulations, Expedia has a net operating loss, a net capital loss or is entitled
to credits against tax which, under the applicable provisions of the Code and
the Regulations, may be carried back to a taxable year during which Expedia was
a Member, MS shall pay to Expedia 92.5% of the excess, if any, of (i) the amount
of any refund or credit of Consolidated Tax Liability that MS receives as a
result of the carryback of such losses or credits, over (ii) to the extent the
carryback is attributable under the principles of Section 9 below to the
Inherent Bargain Element of compensatory stock options assumed by Expedia, the
tax benefit of that that element of the compensation deductions allowable to
Expedia. Such payment shall be made not later than sixty (60) days after MS
receives such refund or credit and shall include any interest attributable
thereto under Section 6611 of the Code.
8. Foreign Tax and State and Local Tax
-----------------------------------
(a) Expedia agrees, on the request of MS, to join with MS, or any
direct or indirect subsidiary of MS, (i) in any combined or consolidated foreign
tax return ("Foreign Combined Return") for any taxable year for which MS or any
such direct or indirect subsidiary of MS files a Foreign Combined Return that
may include Expedia, and
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<PAGE>
(ii) in any combined or consolidated state or local income or franchise tax
return ("State/Local Combined Return") for any taxable year for which MS or any
such direct or indirect subsidiary of MS files a State/Local Combined Return
that may include Expedia.
(b) If, at any time from and after the date of this Agreement, Expedia
is included in any Foreign Combined Return or State/Local Combined Return that
includes MS or any direct or indirect subsidiary of MS, this Agreement shall be
applied in a like manner to all matters relating to such foreign taxes or state
or local income or franchise taxes.
9. Treatment of Special Items
--------------------------
The parties intend that, for federal and state tax purposes, MS will be
entitled to the economic benefit under this Agreement of all compensation
deductions attributable to the inherent "bargain element" in any compensatory
options previously granted by MS to former MS employees that are employed by
Expedia (collectively referred to as "assumed MS options"). The "Inherent
Bargain Element" in each assumed MS option will be determined on the date
Expedia employs the optionee and shall be equal to the excess of (i) the fair
market value of the shares (whether shares of MS common stock or Expedia stock)
to be acquired on exercise of the option, determined as of the date the optionee
is employed by Expedia, over (ii) the exercise price of the option on the date
the optionee is employed by Expedia. For purposes of this Agreement, all
deductions allowable to Expedia or MS, as the case may be, with respect to
assumed MS options shall, on a first-in/first-out basis, be treated as MS
deductions for all purposes of this Agreement until the aggregate amount of
those deductions equal the aggregate amount of the Inherent Bargain Element
attributable to all assumed MS options.
9
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10. Determinations
--------------
All determinations required hereunder shall be made by the independent
public accountants regularly employed by the MS Affiliated Group at the time
that such determination is required to be made or by such other independent tax
advisor as may be selected by MS, in the exercise of its absolute discretion.
Such determinations shall be binding and conclusive upon the parties for
purposes hereof.
11. Procedural Matters
------------------
(a) MS shall prepare and file the Consolidated Return and other
returns, documents or statements required to be filed with the IRS with respect
to the determination of federal income tax liability of the MS Affiliated Group.
In its sole discretion, MS shall have the right with respect to any Consolidated
Returns which it has filed or will file, (i) to determine the manner in which
such returns, documents or statement shall be prepared and filed, including,
without limitation, the manner in which any item of income, gain, loss,
deduction or credit shall be reported, the elections that will be made by any
Member, (ii) to contest, compromise or settle any adjustment or deficiency
proposed, asserted or assessed as a result of any audit or such returns by the
IRS, (iii) to file, prosecute, compromise or settle any claim for refund and
(iv) to determine whether any refunds, to which the MS Affiliate Group may be
entitled, shall be paid by way of refund or credited against the tax liability
of the MS Affiliated Group. Expedia hereby irrevocably appoints MS as its agent
and attorney-in-fact to take such actions (including the execution of documents)
as MS may deem appropriate to effect the foregoing.
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<PAGE>
(b) With respect to any Combined Returns in which Expedia joins with MS
pursuant to Section 8, above, MS shall prepare and file any Combined Returns and
other returns, documents or statements required to be filed with any state or
local taxing authority. In its sole discretion, MS shall have the right with
respect to any Combined Return Consolidated Returns which it has filed or will
file, (i) to determine the manner in which such returns, documents or statement
shall be prepared and filed, including, without limitation, the manner in which
any item of income, gain, loss, deduction or credit shall be reported, the
elections that will be made by any Member, (ii) to contest, compromise or settle
any adjustment or deficiency proposed, asserted or assessed as a result of any
audit or such returns by the IRS, (iii) to file, prosecute, compromise or settle
any claim for refund and (iv) to determine whether any refunds, to which the MS
Affiliate Group may be entitled, shall be paid by way of refund or credited
against the tax liability of the MS Affiliated Group. Expedia hereby
irrevocably appoints MS as its agent and attorney-in-fact to take such actions
(including the execution of documents) as MS may deem appropriate to effect the
foregoing.
12. Earnings and Profits Determinations. For purposes of determining the
-----------------------------------
manner in which taxes are shared in calculating each Member's earnings and
profits, MS shall be entitled to use any of the methods permitted by section
1.1502-33(d) of the Regulations that MS, in the exercise of its absolute
discretion, deems necessary or appropriate.
13. Miscellaneous Provisions
------------------------
(a) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein. No alternation,
amendment or
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modification of any of the terms of this Agreement shall be valid unless made by
an instrument signed in writing by an authorized officer of each party hereto.
(b) This Agreement has been made in and shall be construed and
enforced in accordance with the laws of the State of Washington from time to
time obtaining.
(c) This Agreement shall be binding upon and inure to the benefit of
each party hereto and their respective successors and assigns.
(d) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) All notices and other communications hereunder shall be deemed to
have been duly given if delivered by hand or mailed certified or registered
mail, postage prepaid:
(i) Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6399
Telephone (425) 882-8080
Fax (425) 936-7329
Attention: Chief Financial Officer
Treasurer
with copy to: Law and Corporate Affairs
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(ii) Expedia, Inc.
4200 150th Ave. NE
Redmond, WA 98052
Telephone (425) 705-5161
Fax (425) 936-7329
Attention: President
Chief Financial Officer
(f) The headings of the paragraph of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all on
the date and year first above written.
MICROSOFT CORPORATION EXPEDIA INC.
By /s/ Gregory B. Maffei By /s/ Richard N. Barton
______________________________ _______________________________
its authorized representative its authorized representative
13
<PAGE>
EXHIBIT 10.7
Expedia, Inc.
Shareholder Agreement
Dated
as of
October 1, 1999
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<PAGE>
Expedia, Inc.
Shareholder Agreement
THIS SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of
October 1, 1999, between Expedia, Inc., a Washington corporation (the
"Company"), and Microsoft Corporation, a Washington corporation ("Microsoft").
RECITALS
A. The Company is proposing to issue and sell to Microsoft, pursuant to a
Contribution Agreement of equal date herewith, 33,000,000 newly authorized
shares of its common stock, $0.01 par value (the "Common Stock").
B. Microsoft may wish to sell the Common Stock in an offering registered
under the Securities Act of 1933, as amended.
C. The Company and Microsoft believe that it is in their best interests
(i) not to solicit each others employees, or (ii) for Microsoft not to compete
with the Company for a period following the Company's initial public offering.
D. The Company and Microsoft desire to enter into this Shareholder
Agreement to clarify their relationship following the Company's initial public
offering with respect to Common Stock transfers, registration rights, non-
solicitation and non-competition.
AGREEMENT
A. Definitions
For purposes of this Agreement, the following terms have the following
meanings:
1. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2. "Securities Act" means the Securities Act of 1933, as amended.
3. "Form S-3" means such form under the Securities Act as in effect on the
date hereof or any registration form under the Securities Act subsequently
adopted by the SEC that similarly permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC;
4. "Holder" means any person owning or having the right to acquire the
Common Stock who is a party to this Agreement as of the date hereof or who is
added as a
<PAGE>
party pursuant to the terms of this Agreement, and any assignee thereof.
Microsoft and any subsequent Holder under this Agreement shall be set forth on
Schedule A to this Agreement;
5. "Losses" have the meaning assigned to that term in Section C(8)(a).
6. "register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or order of
effectiveness of such registration statement or document;
7. "Registrable Securities" means the Common Stock, and any common stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Common Stock, in each case owned by a Holder and excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
its rights under this Agreement are not assigned and any common stock which the
Holder is entitled to sell into the public market, together with all other
Registrable Securities of the Company beneficially owned by such Holder (and all
Registrable Securities as to which such Holder shares beneficial ownership) that
is at the time of registration, transferable by the Holder in a single brokerage
transaction under the provisions and within the volume limitations of Rule 144
promulgated under the Securities Act or any successor to such Rule;
8. "SEC" means the Securities and Exchange Commission.
9. "Violation" has the meaning assigned to that term in Section C(8)(a).
B. Restrictions on Transfer of Common Stock
1. Microsoft's Lock-Up Period
(a) Microsoft may not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of the Common Stock to a proposed Holder
other than the Company for a period of 12 months immediately following the
effective date of the Company's initial public offering (the "Lock-Up Period").
Microsoft may, however, submit at any time a written request to the Company to
be relieved from the Lock-Up Period prior to its expiration. Upon the receipt
of such written request, the Company may waive the Lock-Up Period upon the
written consent of a majority of its directors who are not, or who have not
previously been or are not proposed to be, employees of Microsoft or the Company
("Outside Directors"). The Outside Directors may grant or refuse a waiver of
the Lock-Up Period in their sole discretion and their decision shall be binding
under this Agreement.
(b) For purposes of clarity, nothing set forth in this Section B(1)
shall prevent Microsoft from exercising its registration rights pursuant to
Section C(2) of this Agreement.
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2. Restriction on Transfer of Common Stock
In the event that Microsoft or any subsequent Holder of the Common
Stock wishes to offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of such stock to a proposed Holder who is not the Company or a
wholly-owned subsidiary of the Holder, it shall be a condition to such offer,
sale or contract that the proposed Holder offer in writing to each holder of the
Company's common stock the same per share consideration that the Holder of the
Common Stock would be entitled to receive in exchange for the Common Stock. The
proposed Holder's offer shall remain open for a minimum of 20 business days and
shall comply with all applicable federal and state securities laws.
C. Registration Rights
1. Request for Registration
(a) If the Company shall receive, at any time following the expiration of
the Lock-Up Period, a written request from the Holders of 30% of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company file a
registration statement under the Securities Act covering the registration of the
Registrable Securities at an aggregate proposed offering price to the public
(before deduction of underwriting discounts and commissions) of at least
$50,000,000, then the Company shall, within 20 days after the receipt of such
request, give written notice of such request to all Holders and shall, subject
to the limitations set forth below, use commercially reasonable efforts to
effect as soon as practicable the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered in a written
request to be given within 30 days of the mailing of such notice by the Company.
(b) The Company is obligated to effect only one registration pursuant to
this Section C(1) in any 12-month period.
(c) Notwithstanding the foregoing, if the Company furnishes to the
Initiating Holders requesting a registration pursuant to this Section C(1)
within 30 days of receiving such request: (i) a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company has
the right to defer such filing for up to two periods of not more than 90 days
each after receipt of the request of the Initiating Holders; provided, however,
that the Company may not use this right more than once (for a total of up to 180
days) in any 12-month period or (ii) a certificate signed by the President of
the Company stating that the Company intends within 90 days of the date of such
certificate to file a registration statement for the public offering of
securities of the Company to the general public, the Company shall not be
obligated to effect the registration requested pursuant to this Section C(1);
provided, however, that the Company shall promptly notify the Initiating Holders
requesting a registration pursuant to this Section C(1) of any decision by the
Company to abandon or indefinitely delay such public offering.
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<PAGE>
2. Company Registration
If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its common stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan, a registration relating to a corporate merger,
reorganization or other transaction under Rule 145 of the Securities Act or a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities), the Company shall, at each such
time, promptly give each Holder of Registrable Securities written notice of such
registration. Upon the written request of each such Holder given within 20 days
after the mailing of such notice by the Company, the Company shall use
commercially reasonable efforts to cause to be registered under the Securities
Act all of the Registrable Securities that each such Holder has requested to be
registered. In the event that the Company decides for any reason not to
complete the registration of shares of its common stock other than Registrable
Securities, the Company shall have no obligation under this Section C(2) to
continue with the registration of Registrable Securities. Any request pursuant
to this Section C(2) to register Registrable Securities as part of an
underwritten public offering of common stock shall specify that such Registrable
Securities are to be included in the underwriting on the same terms and
conditions as the shares of common stock otherwise being sold through
underwriters under such registration.
3. Obligations of the Company
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 90 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request to facilitate the
disposition of all securities covered by such registration statement.
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<PAGE>
(d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such registration shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, during the time when a prospectus is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(g) At the request of any Holder selling Registrable Securities in
such registration, furnish on the date that such Registrable Securities are
delivered to the underwriters for sale in connection such registration (i) an
opinion, dated such date, of legal counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given by
Company counsel to underwriters in an underwritten public offering, addressed to
the underwriters and (ii) a letter, dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters.
(h) List the Registrable Securities being registered on any national
securities exchange or quotation system on which a class of the Company's equity
securities is listed.
(i) Provide a transfer agent and registrar for the securities being
registered and a CUSIP number, not later than the effective date of the
registration statement.
4. Furnish Information
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement that the selling Holders shall furnish to
the Company such information regarding themselves, the Registrable Securities
held by them and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of their Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
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<PAGE>
5. Expenses of Registration
(a) In connection with any registration pursuant to Section C(1), the
Holder(s) shall be responsible for the payment of all expenses of the
registration, including (i) underwriting discounts and commissions, which shall
be paid by the Holders and any other selling holders of the Company's securities
in proportion to the aggregate value of the securities offered for sale by each
of them.
(b) In connection with any registration pursuant to Section C(2), the
Company shall be responsible for the payment of all reasonable expenses of the
registration, with the exception of (i) underwriting discounts and commissions,
which shall be paid by the Company, the Holders and any other selling holders of
the Company's securities in proportion to the aggregate value of the securities
offered for sale by each of them, and (ii) the fees and expenses of more than
one law firm acting as counsel to the selling Holders selected by a majority in
interest of the selling Holders, which additional counsel, if any, shall be paid
by the Holder or Holders that engage such counsel. The expenses to be paid by
the Company shall include, without limitation, all registration, filing and
qualification fees, printing and accounting fees, the fees and disbursements of
counsel for the Company.
6. Underwriting Requirements
(a) The Holders under Section C(1) must distribute the Registrable
Securities covered by their request by means of a public offering underwritten
by a reputable national underwriter. The right of any Holder to include its
Registrable Securities in such registration under Section C(1) shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall (together with the Company as
provided in Section C(3)(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of Section C(1), if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise have been underwritten pursuant to Section C(1), and the number
of shares of Registrable Securities that may be included in the registration
shall be apportioned first pro rata among the selling Holders, including the
Initiating Holders, according to the total amount of Registrable Securities held
by such Holders at the time of registration, then to the Company and then pro
rata among any other selling shareholders according to the total amount of
securities otherwise entitled to be included therein owned by each such selling
shareholder, or in such other proportions as shall mutually be agreed to by such
selling shareholders.
(b) The Company shall not be required under Section C(2) to include
any of the Holders' securities in an underwritten offering of the Company's
securities unless such Holders accept the terms of the underwriting as agreed
upon between the Company and the
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<PAGE>
underwriters selected by it. If the underwriters advise the Company that
marketing factors require a limitation on the number of shares, including
Registrable Securities, to be included in such offering, then the Company shall
so advise all Holders of Registrable Securities that would otherwise have been
underwritten pursuant to Section C(2), and the number of shares, including
Registrable Securities, that may be included in the registration shall be
apportioned first to the Company, then pro rata among the selling Holders
according to the total amount of Registrable Securities held by such Holders at
the time of registration, then pro rata among any other selling shareholders
according to the total amount of securities otherwise entitled to be included
therein owned by each such other selling shareholder, or in such other
proportions as shall mutually be agreed to by such selling shareholders;
provided that in no event shall the amount of securities of the selling Holders
included in the registration be reduced below 30% of the total amount of
securities included in such registration.
7. Delay of Registration
No Holder shall have any right to obtain or seek an injunction restraining
or otherwise delaying any registration of the Company as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
8. Indemnification
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against all expenses (including legal fees and costs), losses, claims, damages
(including settlement amounts) or liabilities (joint or several) (collectively,
"Losses") to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such Losses arise out of
or are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein, or any
amendments or supplements thereto, untrue in light of the circumstances under
which they were made, (ii) 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, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law. The Company will reimburse (as incurred) each such Holder,
underwriter or controlling person for any Losses reasonably incurred by them in
connection with investigating or defending any Violations; provided, however,
that the indemnity agreement contained in this Section C(8)(a) shall not apply
to amounts paid in settlement of any claims
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<PAGE>
for Violations if such settlement is made without the consent of the Company,
which consent shall not be unreasonably withheld, nor shall the Company be
liable in any such case for any Losses that arise out of or are based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by,
or on behalf of, any such Holder, underwriter or controlling person.
(b) To the fullest extent permitted by law, each selling Holder will
indemnify and hold harmless the Company and its officers, directors, agents and
employees, each underwriter and each other Holder selling securities in such
registration statement, and any person who controls any of the foregoing within
the meaning of the Securities Act or the Exchange Act, against any Losses to
which the Company or such officer, director, agent, employee, or underwriter or
other selling Holder or controlling person may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
Losses arise out of or are based upon any Violation that occurs in reliance upon
and in conformity with written information furnished by, or on behalf of, such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse (as incurred) any Losses reasonably incurred by the
Company or its officers, directors, agents, employees, or underwriters or other
selling Holders or controlling persons in connection with investigating or
defending any Violations; provided, however, that (i) the indemnity agreement
contained in this Section C(8)(b) shall not apply to amounts paid in settlement
of any claims for Violations if such settlement is made without the consent of
the Holder, which consent shall not be unreasonably withheld and (ii) the
obligations of such Holders shall be limited to an amount equal to the gross
proceeds before expenses and commissions to each such Holder of Registrable
Securities sold as contemplated herein.
(c) Promptly after receipt of notice of the commencement of any action
(including any governmental action), an indemnified party will, if a claim is to
be made against any indemnifying party under this Section C(8), deliver to the
indemnifying party a written notice of the commencement, and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the opinion of counsel for the indemnifying
party, representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in the proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time after notice of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Section C(8) to the extent such
failure is prejudicial to its ability to defend such action, but the omission to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section C(8).
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<PAGE>
(d) If the indemnification provided for in this Section C(8) is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any Losses, then the indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the Violations
that resulted in such Losses as well as any other relevant equitable
considerations; provided, that, in no event shall any contribution by a Holder
under this Section C(8)(d) exceed the gross proceeds before expenses and
commissions to each such Holder, except in the case of willful fraud by such
Holder. The relative fault of the indemnifying party and of the indemnified
party shall be determined by reference to, among other things, whether the
Violation resulting in such Losses relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
Violation.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section C(8)
shall survive the completion of any offering of Registrable Securities and the
termination of Registration Rights pursuant to Section C(12).
9. Reports Under the Securities Act
With a view to making available to the Holders the benefits of SEC Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration or pursuant to a registration on Form S-3, the
Company agrees to use commercially reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days from the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) Take such action as is necessary to enable the Holders to utilize
Form S-3 for the sale of their Registrable Securities, such action to be taken
as soon as practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its securities
to the general public is declared effective;
(c) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
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(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, promptly upon request (i) a written statement by the Company that it
has complied with the reporting requirements of the Exchange Act (at any time
after 90 days from the date on which it becomes subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC that permits the selling of any such securities without registration or
pursuant to such Form S-3.
10. Assignment of Registration Rights
The rights to cause the Company to register Registrable Securities pursuant
to this Agreement may be assigned by a Holder to a transferee or assignee of
such securities who shall, upon such transfer or assignment, be deemed a
"Holder" under this Agreement; provided that prior to such transfer the
transferee agrees to be bound by the terms and conditions of this Agreement and
that the Company is, within a reasonable period of time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned.
11. "Market Standoff" Agreement
The Holders hereby agree that they shall not, to the extent requested by
the Company and an underwriter of common stock (or other securities) of the
Company, sell or otherwise transfer or dispose (other than to donees who agree
to be similarly bound) of any securities of the Company for such period of time
(not to exceed 180 days) from the effective date of a registration statement of
the Company filed under the Securities Act as may be requested by such
underwriter; provided, however, that all officers and directors of the Company
(whether or not pursuant to this Agreement) also agree to such restrictions
pursuant to an agreement with such underwriter.
To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the securities of the Holders (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
12. Termination of Registration Rights
The registration rights granted under this Agreement shall terminate with
respect to a Holder at such time as all such Registrable Securities held by such
Holder may be sold within a three-month period pursuant to Rule 144 promulgated
under the Securities Act or any successor to such Rule.
-10-
<PAGE>
D. Non-Solicitation and Non-Competition
1. Non-Solicitation
For a period of one year from the date of the Company's initial public
offering, no employee of either the Company or Microsoft will solicit for the
purpose of hiring any employee of the other. For the purposes of the preceding
sentence, the following does not constitute solicitation under this Agreement:
(i) use of an independent employment agency, so long as such agency is not
directed to contact a specific employee of the other party, and (ii) general
advertisements not targeted at a specific employee of the other party. For
additional clarification, either party will have the right to engage in
discussions with employees of the other party regarding employment when
discussions are initiated by such employee, and will have the right to hire such
persons.
2. Non-Competition
(a) For a period of three years following the Company's initial public
offering, Microsoft will not engage directly or indirectly in the Expedia
Business with (unless otherwise expressly agreed to by the parties), or form, or
enter into any agreement with any third party for an investment in, any entity
listed on Schedule B hereto, as such schedule may be amended from time to time.
(b) For a period of three years following the Company's initial public
offering, Microsoft will not engage directly or indirectly in the Expedia
Business with (unless otherwise expressly agreed to by the parties), or form, or
enter into any agreement with any third party for an investment of greater than
4.9% in, any entity other than Expedia which is primarily engaged in a business
which competes directly with the Expedia Business (a "Competing Entity"). For
purposes of clarification, an entity is a Competing Entity only to the extent
that the consolidated revenues derived from the portion of the entity's business
that is within the scope of the Expedia Business is greater than 50% of the
total consolidated revenues of such entity.
(c) Notwithstanding the preceding paragraph, a "Competing Entity"
shall not include an entity which (i) is headquartered in a country other than
the United States, and (ii) is engaged in the Expedia Business in a country
other than the United States where Expedia does not conduct the Expedia Business
or has notified Microsoft in writing that it has no intention to conduct the
Expedia Business in such country. For purposes of clarification, there shall be
no limitation on the size of Microsoft's investment in these entities.
(d) For purposes of this section: (i) the revenues of an entity shall
be determined on the basis of financial information for the most recent period
of twelve months for which financial information is available, and (ii) the
"Expedia Business" shall mean any online service for reserving or purchasing
travel services (e.g., airline tickets, hotel rooms, rental cars, cruises, and
resort vacation packages) accessed with an interactive
-11-
<PAGE>
Competing Entity, or (ii) acquiring any entity (an "Acquired Entity") which
derives 50% or less of its consolidated revenues from activities within the
scope of the Expedia Business, provided that Microsoft shall use commercially
reasonable efforts to cause the Acquired Entity to utilize Expedia technology,
products and services to the extent practicable in substitution for travel-
related technology, products and services provided by such Acquired Entity or
third party provider prior to the acquisition.
E. Miscellaneous
1. Notices
Any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given (a) upon personal delivery to the
party to be notified, (b) upon confirmation of receipt by fax by the party to be
notified, (c) one business day after deposit with a reputable overnight courier,
prepaid for overnight delivery and addressed as set forth in (d), or (d) three
days after deposit with the United States Post Office, postage prepaid,
registered or certified with return receipt requested and addressed to the party
to be notified at the address indicated for such party on the signature page, or
at such other address as such party may designate by 10 days' advance written
notice to the other parties given in the foregoing manner.
2. Amendments and Waivers
Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of a majority of the Common Stock. Additional Holders may be added
to this Agreement without such consent by amending Schedule A and adding a
signature page executed by such additional Holder.
3. Governing Law; Jurisdiction; Venue
This Agreement shall be governed by and construed under the laws of the
state of Washington without regard to principles of conflict of laws. The
parties irrevocably consent to the exclusive jurisdiction and venue of the state
and federal courts located in King County, Washington in connection with any
action relating to this Agreement.
4. Successors and Assigns
The terms and conditions of this Agreement shall inure to the benefit of
and be binding on the respective successors and assigns of the parties as
provided herein.
5. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this
-12-
<PAGE>
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
6. Entire Agreement; Counterparts
This Agreement constitutes the entire agreement between the parties about
its subject and supersedes all prior agreements. This Agreement may be executed
in two or more counterparts, which together shall constitute one instrument.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EXPEDIA, INC.
/s/ Richard N. Barton
-----------------------------------------------
By: Richard N. Barton
Its: President and Chief Executive Officer
Address: 4200 150th Ave. NE
Redmond, WA 98052
Fax: 425/936-7329
Telephone: 425/705-5161
HOLDER:
MICROSOFT CORPORATION
/s/ Gregory B. Maffei
-----------------------------------------------
By: Gregory B. Maffei
Its: Chief Financial Officer
Address: One Microsoft Way
Redmond, WA 98005
Fax: 425/882-8080
Telephone: 425/936-7329
-14-
<PAGE>
Schedule A
to Shareholder Agreement
Holder Name Number of Shares
- --------------------------------------------- ------------------
Microsoft Corporation 33,000,000
-15-
<PAGE>
Schedule B
to Shareholder Agreement
Travelocity
Priceline
Cheaptickets
Lastminute.com
Tickets.com
<PAGE>
EXHIBIT 10.10
EXPEDIA, INC.
1999 STOCK OPTION PLAN
1. Purpose of the Plan. The purposes of this Stock Option Plan are
-------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to such individuals, and to
promote the success of the Company's business by aligning employee financial
interests with long-term shareholder value.
Options granted hereunder are Nonqualified Stock Options.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Board" shall mean the Committee, if such Committee has been
-----
appointed, or the Board of Directors of the Company, if such Committee has not
been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed; provided, however, if the Board of Directors appoints more than one
Committee pursuant to Section 4, then "Committee" shall refer to the appropriate
Committee, as indicated by the context of the reference.
(d) "Common Shares" shall mean the common shares of Expedia, Inc.
-------------
(e) "Company" shall mean Expedia, Inc., a Washington corporation and
-------
any successor thereto.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave,
maternity leave, infant care leave, medical emergency leave, military leave, or
any other leave of absence authorized in writing by a Vice President of the
Company prior to its commencement.
(g) "Employee" shall mean any person, including officers, employed by
--------
the Company or any Subsidiary of the Company.
(h) "Immediate Family" shall mean the Optionee and the Optionee's
----------------
spouse, parents, children or grandchildren (including adopted children,
stepchildren and stepgrandchildren).
<PAGE>
(i) "Maximum Annual Employee Grant" shall have the meaning set forth
-----------------------------
in Section 5(e).
(j) "Non-Employee Director" shall have the same meaning as defined or
---------------------
interpreted for purposes of Rule 16b-3 (including amendments and successor
provisions) as promulgated by the Securities and Exchange Commission pursuant to
its authority under the Exchange Act (Rule "16-3").
(k) "Nonqualified Stock Option" shall mean an Option that does not
-------------------------
meet the requirements of Section 422 of the Code.
(l) "Option" shall mean a stock option granted pursuant to the
------
Plan.
(m) "Optioned Shares" shall mean the Common Shares subject to an
---------------
Option.
(n) "Optionee" shall mean an Employee who receives an Option.
--------
(o) "Outside Director" shall have the same meaning as defined or
----------------
interpreted for purposes of Section 162(m) of the Code.
(p) "Plan" shall mean this 1999 Stock Option Plan, including any
----
amendments thereto.
(q) "Share" shall mean one Common Share, as adjusted in accordance
-----
with Section 11 of the Plan.
(r) "Subsidiary" shall mean a "subsidiary corporation" whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, and, in addition
to, a limited liability company, partnership or other entity in which the
Company controls 50 percent or more of the voting power or equity interests.
3. Shares Subject to the Plan. Subject to the provisions of Section
--------------------------
11 of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is ___________ Common Shares. The Shares may be authorized,
but unissued, or reacquired Common Shares.
2
<PAGE>
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure. The Plan shall be administered by the Board of
---------
Directors of the Company.
(1) The Board of Directors may appoint one or more Committees
each consisting of not less than two members of the Board of Directors to
administer the Plan on behalf of the Board of Directors, subject to such terms
and conditions as the Board of Directors may prescribe. Once appointed, such
Committees shall continue to serve until otherwise directed by the Board of
Directors.
(2) Any grants of Options to officers who are subject to Section
16 of the Securities Exchange Act of 1934 (the "Exchange Act") shall be made by
(i) a Committee of two or more directors, each of whom is a Non-Employee
Director and an Outside Director or (ii) as otherwise permitted by both Rule
16b-3, Section 162(m) of the Code and other applicable regulations.
(3) Subject to the foregoing subparagraphs (1) and (2), from
time to time the Board of Directors may increase the size of the Committee(s)
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, or fill vacancies however
caused.
(b) Powers of the Board. Subject to the provisions of the Plan, the
-------------------
Board shall have the authority, in its discretion: (i) to grant Nonqualified
Stock Options; (ii) to determine, in accordance with Section 8(b) of the Plan,
the fair market value of the Shares; (iii) to determine, in accordance with
Section 8(a) of the Plan, the exercise price per share of Options to be granted;
(iv) to determine the Employees to whom, and the time or times at which, Options
shall be granted and the number of Shares to be represented by each Option; (v)
to interpret the Plan; (vi) to prescribe, amend, and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions of
each Option granted (which need not be identical) and, with the consent of the
holder thereof, modify or amend each Option; (viii) to reduce the exercise price
per share of outstanding and unexercised Options; (ix) to accelerate or defer
(with the consent of the Optionee) the exercise date of any Option; (x) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Board; and (xi)
to make all other determinations deemed necessary or advisable for the
administration of the Plan.
3
<PAGE>
(c) Effect of Board's Decision. All decisions, determinations, and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility.
-----------
(a) Options may be granted only to Employees. For avoidance of
doubt, directors are not eligible to participate in the Plan unless they are
full-time Employees.
(b) Each Option shall be designated in the written option agreement
as a Nonqualified Stock Option.
(c) For purposes of Section 5(b), Options shall be taken into account
in the order in which they were granted, and the fair market value of the Shares
shall be determined as of the time the Option with respect to such Shares is
granted.
(d) Nothing in the Plan or any Option granted hereunder shall confer
upon any Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with the Optionee's right or the
Company's right to terminate the employment relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon its adoption
------------
by the Board. It shall continue in effect until October 20, 2009 with respect to
the granting of options under the Plan, unless sooner terminated under Section
14 of the Plan, but shall continue thereafter until all then outstanding options
have been exercised, terminated or expired.
7. Term of Option. The term of each Option shall be no more than ten
--------------
(10) years from the date of grant.
8. Exercise Price and Consideration.
--------------------------------
4
<PAGE>
(a) The per Share exercise price under each Option shall be such
price as is determined by the Board, except the per Share exercise price may be
less than, equal to, or greater than the fair market value per Share on the date
of grant.
(b) The fair market value per Share shall be the closing price per
share of the Common Share on the Nasdaq Stock Market ("Nasdaq") on the date of
grant. If the Shares cease to be listed on Nasdaq, the Board shall designate an
alternative method of determining the fair market value of the Shares.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Board at the time of grant and may consist of cash and/or check. Payment may
also be made by delivering a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale proceeds necessary to pay the exercise price. If the Optionee is
an officer of the Company within the meaning of Section 16 of the Exchange Act,
he may in addition be allowed to pay all or part of the purchase price with
Shares. Shares used by officers to pay the exercise price shall be valued at
their fair market value on the exercise date.
(d) Prior to issuance of the Shares upon exercise of an Option, the
Optionee shall pay any federal, state, and local withholding obligations of the
Company, if applicable. If an Optionee is an officer of the Company within the
meaning of Section 16 of the Exchange Act, he may elect to pay such withholding
tax obligations by having the Company withhold Shares having a value equal to
the amount required to be withheld. The value of the Shares to be withheld shall
equal the fair market value of the Shares on the day the Option is exercised.
The right of an officer to dispose of Shares to the Company in satisfaction of
withholding tax obligations shall be deemed to be approved as part of the
initial grant of an option, unless thereafter rescinded, and shall otherwise be
made in compliance with Rule 16b-3 and other applicable regulations.
5
<PAGE>
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board at the time of grant, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the share
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such share certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the share certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as Employee. In the event of termination
---------------------------------
of an Optionee's Continuous Status as an Employee, such Optionee may exercise
stock options to the extent exercisable on the date of termination. Such
exercise must occur within three (3) months (or such shorter time as may be
specified in the grant), after the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement). To the extent that the Optionee was not entitled to exercise
the Option at the date of such termination, or does not exercise such Option
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
----------------------
Section 9(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee as a result of total
6
<PAGE>
and permanent disability (i.e., the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of twelve (12) months), the Optionee
may exercise the Option, but only to the extent of the right to exercise that
would have accrued had the Optionee remained in Continuous Status as an Employee
for a period of twelve (12) months after the date on which the Employee ceased
working as a result of the total and permanent disability. Such exercise must
occur within eighteen (18) months (or such shorter time as is specified in the
grant) from the date on which the Employee ceased working as a result of the
total and permanent disability (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement). To
the extent that the Optionee was not entitled to exercise such Option within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section
-----------------
9(b) above, in the event of the death of an Optionee:
(i) who is at the time of death an Employee of the
Company, the Option may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as an Employee twelve (12) months after the date of death; or
(ii) whose Option has not yet expired but whose Continuous
Status as an Employee terminated prior to the date of death, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
(e) Notwithstanding subsections (b), (c), and (d) above, the Board
shall have the authority to extend the expiration date of any outstanding option
in circumstances in which it deems such action to be appropriate (provided that
no such extension shall extend the term of an option beyond the date on which
the option would have expired if no termination of the Employee's Continuous
Status as an Employee had occurred).
10. Transferability of Options. Except as otherwise provided herein, the
--------------------------
Option may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Optionee, only by
the Optionee; provided that the Board may permit further transferability, on a
general or specific basis, and may impose conditions and limitations on any
permitted transferability. The Option is transferable, in whole or in part, by
gift or, with the consent of the compensation committee of the Board, for value,
to immediate family members of the Holder, partnerships of which the only
partners are members of the Optionee's Immediate Family, and trusts established
solely for the benefit of Optionee's Immediate Family, provided that such
transferability shall be limited to vested Options. Transfers to Optionee's
Immediate Family shall be subject to the terms and conditions of this Plan and
the applicable stock option grant agreement and shall not be permitted to effect
a cashless exercise. Optionee's Immediate Family members shall not have any
right to further transfer the Option other than by will or by the laws of
descent and distribution.
7
<PAGE>
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Option, the Maximum Annual Employee Grant and the number of
Shares which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per Share covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination, or reclassification of
the Shares, or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding, and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise an Option as to all or any part of the Optioned Stock, including Shares
as to which the Option would not otherwise be exercisable. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless such
successor corporation does not agree to assume the Option or to substitute an
equivalent option, in which case the Board shall, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all of the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable. If the Board makes an Option fully exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the Optionee that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall,
------------------------
for all purposes, be the date on which the Company completes the corporate
action relating to the grant of an option and all conditions to the grant have
been satisfied, provided that conditions to the exercise of an option shall not
defer the date of grant. Notice of a grant shall be given to each Employee to
whom an Option is so granted within a reasonable time after the determination
has been made.
8
<PAGE>
13. Substitutions and Assumptions. The Board shall have the right to
-----------------------------
substitute or assume Options in connection with mergers, reorganizations,
separations, or other transactions to which Section 424(a) of the Code applies,
provided such substitutions and assumptions are permitted by Section 424 of the
Code and the regulations promulgated thereunder. The number of Shares reserved
pursuant to Section 3 may be increased by the corresponding number of Options
assumed and, in the case of a substitution, by the net increase in the number of
Shares subject to Options before and after the substitution.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable
(including, but not limited to amendments which the Board deems appropriate to
enhance the Company's ability to claim deductions related to stock option
exercises); provided that any increase in the number of Shares subject to the
Plan, other than in connection with an adjustment under Section 11 of the Plan,
shall require approval of or ratification by the shareholders of the Company.
(b) Employees in Foreign Countries. The Board shall have the
------------------------------
authority to adopt such modifications, procedures, and subplans as may be
necessary or desirable to comply with provisions of the laws of foreign
countries in which the Company or its Subsidiaries may operate to assure the
viability of the benefits from Options granted to Employees employed in such
countries and to meet the objectives of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
16. Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
9
<PAGE>
17. Shareholder Approval. The Plan was approved by the sole shareholder
--------------------
of the Company on ________________, 1999.
10
<PAGE>
EXHIBIT 10.11
EXPEDIA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As approved by the Board of Directors
on October 19, 1999 and the
Shareholder on October 20, 1999
Expedia, Inc. (the "Company") does hereby establish its 1999 Employee Stock
Purchase Plan as follows:
1. Purpose of the Plan. The purpose of this Plan is to provide
-------------------
eligible employees who wish to become shareholders in the Company a convenient
method of doing so. It is believed that employee participation in the ownership
of the business will be to the mutual benefit of both the employees and the
Company.
2. Definitions.
-----------
2.1 "Base pay" means regular straight time earnings, plus review
cycle bonuses and overtime payments, payments for incentive compensation, and
other special payments except to the extent that any such item is specifically
excluded by the Board of Directors of the Company (the "Board").
2.2 "Account" shall mean the funds accumulated with respect to an
individual employee as a result of deductions from his paycheck for the purpose
of purchasing stock under this Plan. The funds allocated to an employee's
account shall remain the property of the respective employee at all times but
may be commingled with the general funds of the Company.
3. Employees Eligible to Participate. Any employee of the Company or any
---------------------------------
of its subsidiaries who is in the employ of the Company or subsidiary on an
offering commencement date is eligible to participate in that offering, except
(a) employees whose customary employment is less than 20 hours per week, and (b)
employees whose customary employment is for not more than five months in any
calendar year.
4. Offerings. There will be twelve separate consecutive six-month
---------
offerings pursuant to the Plan. The first offering shall commence on January 1,
2000. Thereafter, offerings shall commence on each subsequent July 1 and
January 1, and the final offering under this Plan shall commence on July 1, 2005
and terminate on December 31, 2005. In order to become eligible to purchase
shares, an employee must sign an Enrollment Agreement, and any other necessary
papers on or before the commencement date (January 1 or July 1) of the
particular offering in which he wishes to participate. Participation in one
offering under the Plan shall neither limit, nor require, participation in any
other offering.
5. Price. The purchase price per share shall be the lesser of (1) 85% of
-----
the fair market value of the stock on the offering date; or (2) 85% of the fair
market value of the stock on
<PAGE>
the last business day of the offering. Fair market value shall mean the closing
bid price as reported on the National Association of Securities Dealers
Automated Quotation System or, if the stock is traded on a stock exchange, the
closing price for the stock on the principal such exchange.
6. Offering Date. The "offering date" as used in this Plan shall be the
-------------
commencement date of the offering, if such date is a regular business day, or
the first regular business day following such commencement date. A different
date may be set by resolution of the Board.
7. Number of Shares to be Offered. The maximum number of shares that will
------------------------------
be offered under the Plan is 300,000 shares. The shares to be sold to
participants under the Plan will be common stock of the Company. If the total
number of shares for which options are to be granted on any date in accordance
with Section 10 exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available in as nearly a uniform manner as shall be practicable and as
it shall determine to be equitable. In such event, the payroll deductions to be
made pursuant to the authorizations therefor shall be reduced accordingly and
the Company shall give written notice of such reduction to each employee
affected thereby.
8. Participation.
-------------
8.1 An eligible employee may become a participant by completing an
Enrollment Agreement provided by the Company and filing it with Shareholder
Services prior to the Commencement of the offering to which it relates.
8.2 Payroll deductions for a participant shall commence on the
offering date, and shall end on the termination date of such offering unless
earlier terminated by the employee as provided in Paragraph 14.
9. Payroll Deductions.
------------------
9.1 At the time a participant files his authorization for a payroll
deduction, he shall elect to have deductions made from his pay on each payday
during the time he is a participant in an offering at the rate of 2%, 4%, 6%,
8%, or 10% of his base pay.
9.2 All payroll deductions made for a participant shall be credited
to his account under the Plan. A participant may not make any separate cash
payment into such account nor may payment for shares be made other than by
payroll deduction.
9.3 A participant may discontinue his participation in the Plan as
provided in Section 14, but no other change can be made during an offering and,
specifically, a participant may not alter the rate of his payroll deductions for
that offering.
-2-
<PAGE>
10. Granting of Option. On the offering date, this Plan shall be deemed
------------------
to have granted to the participant an option for as many full shares as he will
be able to purchase with the payroll deductions credited to his account during
his participation in that offering.
11. Exercise of Option. Each employee who continues to be a participant
------------------
in an offering on the last business day of that offering shall be deemed to have
exercised his option on such date and shall be deemed to have purchased from the
Company such number of full shares of common stock reserved for the purpose of
the Plan as his accumulated payroll deductions on such date will pay for at the
option price.
12. Employee's Rights as a Shareholder. No participating employee shall
----------------------------------
have any right as a shareholder with respect to any shares until the shares have
been purchased in accordance with Section 11 above and the stock has been issued
by the Company.
13. Evidence of Stock Ownership.
---------------------------
13.1 Promptly following the end of each offering, the number of
shares of common stock purchased by each participant shall be deposited into an
account established in the participant's name at a stock brokerage or other
financial services firm designated by the Company (the "ESPP Broker").
13.2 The participant may direct, by written notice to the Company at
the time of his enrollment in the Plan, that his ESPP Broker account be
established in the names of the participant and one other person designated by
the participant, as joint tenants with right of survivorship, tenants in common,
or community property, to the extent and in the manner permitted by applicable
law.
13.3 A participant shall be free to undertake a disposition (as that
term is defined in Section 424(c) of the Code) of the shares in his account at
any time, whether by sale, exchange, gift, or other transfer of legal title, but
in the absence of such a disposition of the shares, the shares must remain in
the participant's account at the ESPP Broker until the holding period set forth
in Section 423(a) of the Code has been satisfied. With respect to shares for
which the Section 423(a) holding period has been satisfied, the participant may
move those shares to another brokerage account of participant's choosing or
request that a stock certificate be issued and delivered to him.
13.4 A participant who is not subject to payment of U.S. income taxes
may move his shares to another brokerage account of his choosing or request that
a stock certificate be issued and delivered to him at any time, without regard
to the satisfaction of the Section 423(a) holding period.
-3-
<PAGE>
14. Withdrawal.
----------
14.1 An employee may withdraw from an offering, in whole but not in
part, at any time prior to the last business day of such offering by delivering
a Withdrawal Notice to the Company, in which event the Company will refund the
entire balance of his deductions as soon as practicable thereafter.
14.2 To re-enter the Plan, an employee who has previously withdrawn
must file a new Enrollment Agreement in accordance with Section 8.1. The
employee's re-entry into the Plan will not become effective before the beginning
of the next offering following his withdrawal, and if the withdrawing employee
is an officer of the Company within the meaning of Section 16 of the Securities
Exchange Act of 1934 he may not re-enter the Plan before the beginning of the
second offering following his withdrawal.
15. Carryover of Account. At the termination of each offering the Company
--------------------
shall automatically re-enroll the employee in the next offering, and the balance
in the employee's account shall be used for option exercises in the new
offering, unless the employee has advised the Company otherwise. Upon
termination of the Plan, the balance of each employee's account shall be
refunded to him.
16. Interest. No interest will be paid or allowed on any money in the
--------
accounts of participating employees.
17. Rights Not Transferable. No employee shall be permitted to sell,
-----------------------
assign, transfer, pledge, or otherwise dispose of or encumber either the payroll
deductions credited to his account or any rights with regard to the exercise of
an option or to receive shares under the Plan other than by will or the laws of
descent and distribution, and such right and interest shall not be liable for,
or subject to, the debts, contracts, or liabilities of the employee. If any such
action is taken by the employee, or any claim is asserted by any other party in
respect of such right and interest whether by garnishment, levy, attachment or
otherwise, such action or claim will be treated as an election to withdraw funds
in accordance with Section 14.
18. Termination of Employment. Upon termination of employment for any
-------------------------
reason whatsoever, including but not limited to death or retirement, the balance
in the account of a participating employee shall be paid to the employee or his
estate.
19. Amendment or Discontinuance of the Plan. The Board shall have the
---------------------------------------
right to amend, modify, or terminate the Plan at any time without notice,
provided that no employee's existing rights under any offering already made
under Section 4 hereof may be adversely affected thereby, and provided further
that no such amendment of the Plan shall, except as provided in Section 20,
increase above 60,000 shares the total number of shares to be offered unless
shareholder approval is obtained therefor.
20. Changes in Capitalization. In the event of reorganization,
-------------------------
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, offerings of rights, or any other change in the structure of the
common shares of the Company, the Board may make such
-4-
<PAGE>
adjustment, if any, as it may deem appropriate in the number, kind, and the
price of shares available for purchase under the Plan, and in the number of
shares which an employee is entitled to purchase.
21. Share Ownership. Notwithstanding anything herein to the contrary, no
---------------
employee shall be permitted to subscribe for any shares under the Plan if such
employee, immediately after such subscription, owns shares (including all shares
which may be purchased under outstanding subscriptions under the Plan)
possessing 5% or more of the total combined voting power or value of all classes
of shares of the Company or of its parent or subsidiary corporations. For the
foregoing purposes the rules of Section 425(d) of the Internal Revenue Code of
1986 shall apply in determining share ownership. In addition, no employee shall
be allowed to subscribe for any shares under the Plan which permits his rights
to purchase shares under all "employee stock purchase plans" of the Company and
its subsidiary corporations to accrue at a rate which exceeds $25,000 of the
fair market value of such shares (determined at the time such right to subscribe
is granted) for each calendar year in which such right to subscribe is
outstanding at any time.
22. Administration. The Plan shall be administered by the Board. The
--------------
Board may delegate any or all of its authority hereunder to such committee of
the Board or officer of the Company as it may designate. The administrator shall
be vested with full authority to make, administer, and interpret such rules and
regulations as it deems necessary to administer the Plan, and any determination,
decision, or action of the administrator in connection with the construction,
interpretation, administration, or application of the Plan shall be final,
conclusive, and binding upon all participants and any and all persons claiming
under or through any participant.
23. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received by Shareholder Services of the Company or when received in
the form specified by the Company at the location, or by the person, designated
by the Company for the receipt thereof.
24. Termination of the Plan. This Plan shall terminate at the earliest of
-----------------------
the following:
24.1 December 31, 2005;
24.2 The date of the filing of a Statement of Intent to Dissolve by
the Company or the effective date of a merger or consolidation wherein the
Company is not to be the surviving corporation, which merger or consolidation is
not between or among corporations related to the Company. Prior to the
occurrence of either of such events, on such date as the Company may determine,
the Company may permit a participating employee to exercise the option to
purchase shares for as many full shares as the balance of his account will allow
at the price set forth in accordance with Section 5. If the employee elects to
purchase shares, the remaining balance of his account will be refunded to him
after such purchase.
24.3 The date the Board acts to terminate the Plan in accordance with
Section 19 above.
-5-
<PAGE>
24.3 The date when all shares reserved under the Plan have been
purchased.
25. Limitations on Sale of Stock Purchased Under the Plan. The Plan is
-----------------------------------------------------
intended to provide common stock for investment and not for resale. The Company
does not, however, intend to restrict or influence any employee in the conduct
of his own affairs. An employee, therefore, may sell stock purchased under the
Plan at any time he chooses, subject to compliance with any applicable Federal
or state securities laws. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET
FLUCTUATIONS IN THE PRICE OF THE STOCK.
26. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Company's common stock under this Plan is subject to the approval
of any governmental authority required in connection with the authorization,
issuance, or sale of such shares.
-6-
<PAGE>
EXHIBIT 10.12
EXPEDIA, INC.
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
As approved by the Board of Directors
on October 19, 1999 and the
Shareholder on October 20, 1999
1. Purpose
-------
The purpose of the Expedia 1999 Stock Option Plan for Non-Employee
Directors (the "Plan") is to attract and retain the services of experienced and
knowledgeable independent directors of Expedia, Inc. (the "Corporation") for the
benefit of the Corporation and its stockholders and to provide additional
incentive for such directors to continue to work for the best interests of the
Corporation and its stockholders through continuing ownership of its common
stock.
2. Shares Subject to the Plan
--------------------------
The total number of shares of common stock ("Shares"), of the Corporation
for which options may be granted under the Plan shall not exceed 135,000 in
the aggregate, subject to adjustment in accordance with Section 12 hereof.
Within the foregoing limitations, Shares for which options have been granted
pursuant to the Plan but which options have lapsed or otherwise terminated shall
become available for the grant of additional options. There will initially be
reserved for issuance upon the exercise of options granted under the Plan
135,000 Shares, subject to adjustment in accordance with Section 12 hereof.
3. Administration of Plan
----------------------
The Board of Directors of the Corporation shall administer the Plan. The
Board may delegate responsibility for administration of the Plan to a Board
committee (the "Committee") composed solely of two or more directors, each of
whom is a "Non-Employee Director" (as that term is defined in Rule 16b-3(b)
promulgated by the Securities and Exchange Commission pursuant to its authority
under the Securities Exchange Act of 1934 (the "Exchange Act"). The Board or the
Committee, as the case may be, shall have the power to construe the Plan, to
determine all questions arising thereunder, and to adopt and amend such rules
and regulations for the administration of the Plan as it may deem desirable.
References to the "Board" in this Plan shall be deemed to refer to either the
Board or the Committee, whichever is appropriate in the context in which the
word is used.
4. Discretionary Option Grants
---------------------------
Pursuant to this Plan, the Board may grant in its discretion an option to
any person who (a) is elected a director of the Corporation, and (b) is not, and
has not during the immediately preceding 12 month period been, an employee of
the Corporation or any subsidiary of the Corporation. No options under this
Section 4 may be granted for more than 10,000 shares in any year, or in the case
of a newly elected director for more than 15,000 shares in the year in which the
director is first elected. No director shall have any claim or right to be
granted an option under this Plan. Having received an option under this Plan
shall not give a director any right to receive any other grant or option under
this Plan and the Board may determine that any or all director(s) are not
eligible to receive an option under this Plan for an indefinite period or for a
specified year or years.
<PAGE>
5. Option Agreement
----------------
Each option granted under the Plan shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of the Corporation and by
the director to whom such option is granted, which Agreements may but need not
be identical and which shall (a) comply with and be subject to the terms and
conditions of the Plan and (b) provide that the director agrees to continue to
serve as a director of the Corporation during the term for which he or she was
elected. Any Agreement may contain such other terms, provisions, and conditions
not inconsistent with the Plan as may be determined by the Board. No option
shall be deemed granted within the meaning of the Plan and no purported grant of
any option shall be effective, until such Agreement shall have been duly
executed on behalf of the Corporation and the director to whom the option is to
be granted.
6. Option Exercise Price
---------------------
The Board shall set the option exercise price for an option granted
pursuant to Section 4 of the Plan in its discretion.
7. Time and Manner of Exercise of Option
-------------------------------------
(a) The Board shall set the vesting schedule for options granted
pursuant to Section 4 of the Plan in its discretion.
(b) To the extent that the right to exercise an option has vested and
is in effect, the option may be exercised from time to time, by giving written
notice, signed by the person or persons exercising the option, to the
Corporation, stating the number of Shares with respect to which the option is
being exercised, accompanied by payment in full for such Shares, which payment
may be in whole or in part in shares of the common stock of the Corporation
already owned by the person or persons exercising the option, valued at fair
market value on the date of payment. For purposes hereof, the fair market value
of the Shares covered by an option shall be the closing price of the Shares on
the applicable date as reported in the National Market List of the National
Association of Securities Dealers Inc. Automated Quotation System or on the
principal national securities exchange on which the Shares are then listed for
trading.
(c) Upon exercise of the option, delivery of a certificate for fully
paid and non-assessable Shares shall be made at the principal office of the
Corporation in the State of Washington to the person or persons exercising the
option as soon as practicable (but in no event more than 30 days) after the date
of receipt of the notice of exercise by the Corporation, or at such time, place,
and manner as may be agreed upon by the Corporation and the person or persons
exercising the option.
8. Term of Options
---------------
Each option shall expire no more than ten years from the date of the
granting thereof, but shall be subject to earlier termination as follows:
2
<PAGE>
(a) In the event of the death of an option holder, the option granted
to such person may be exercised to the extent exercisable on the date of death,
within the earlier of (i) 180 days after the date of death of such person and
(ii) the date on which the option expires by its terms, by the estate of such
person, or by any person or persons who acquired the right to exercise such
option by will or by the laws of descent and distribution.
(b) In the event that an option holder ceases to be a director of the
Corporation, other than by reason of his or her death, an option granted to such
person may be exercised, to the extent exercisable on the date such person
ceases to be a director, within the earlier of (i) 180 days after the date such
person ceases to be a director and (ii) the date on which the option expires by
its terms.
9. Merger, Consolidation, Sale of Assets, etc., Resulting in a Change in
---------------------------------------------------------------------
Control
-------
(a) In the event of a Change in Control (as hereinafter defined),
notwithstanding the vesting provisions contained in the Agreement granting an
option to a director pursuant to this Plan, such option shall become fully
exercisable if, within one year of such Change in Control, such director shall
cease for any reason to be a member of the Board. For purposes hereof, a Change
in Control of the Corporation shall be deemed to have occurred if (i) there
shall be consummated (x) any consolidation or merger of the Corporation in which
the Corporation is not the continuing or surviving corporation or pursuant to
which shares of the common stock of the Corporation would be converted into
cash, securities, or other property, other than a merger of the Corporation in
which the holders of the common stock of the Corporation immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (y) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Corporation; or
(ii) the stockholders of the Corporation approve any plan or proposal for the
liquidation or dissolution of the Corporation; or (iii) any person (as such term
is used in Sections 13(d) and 14(d)(2) of the Exchange Act shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
30% or more of the Corporation's outstanding common stock; or (iv) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the entire Board of Directors shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Corporation's stockholders, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(b) Any exercise of an option permitted pursuant to this Section 9
shall be made within 180 days of the related director's termination as a
director of the Corporation.
10. Options Not Transferable
------------------------
An option granted pursuant to the Plan may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the option holder, only by the option holder; provided that the Board may permit
further transferability, on a general or specific basis, and may impose
conditions and limitations on any permitted transferability.
3
<PAGE>
11. No Rights as Stockholder Until Exercise
---------------------------------------
Neither the recipient of an option under the Plan nor his successors in
interest shall have any rights as a stockholder of the Corporation with respect
to any Shares subject to an option granted to such person until such person
becomes a holder of record of such Shares.
12. Adjustments Upon Changes in Capitalization or Merger
----------------------------------------------------
Subject to any required action by the stockholders of the Corporation, the
number of shares of common stock covered by each outstanding option, and the
number of shares of common stock which have been authorized for issuance under
the Plan but as to which no options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an option, as well as
the price per share of common stock covered by each outstanding option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of common stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the common stock, or any other
increase or decrease in the number of issued shares of common stock effected
without receipt of consideration by the Corporation; provided, however, that
conversion of any convertible securities of the Corporation shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding, and conclusive. Except as expressly provided herein, no issuance by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of common stock
subject to an option.
In the event of the proposed dissolution or liquidation of the Corporation,
an outstanding option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any option
shall terminate as of a date fixed by the Board and give each option holder the
right to exercise an option as to all or any part of the stock covered by such
option, including Shares as to which the option would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of the
assets of the Corporation, or the merger of the Corporation with or into another
corporation, each option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless such successor corporation does not agree to
assume each option or to substitute an equivalent option, in which case the
Board shall, in lieu of such assumption or substitution, provide for the option
holder to have the right to exercise such option as to all of the stock covered
by such option, including Shares as to which such option would not otherwise be
exercisable. If the Board makes an option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the option holder that the option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the option will
terminate upon the expiration of such period.
13. Restrictions on Issue of Shares
-------------------------------
4
<PAGE>
Notwithstanding anything in this Plan to the contrary, the Corporation may
delay the issuance of Shares covered by the exercise of any option and the
delivery of a certificate for such Shares until one of the following conditions
shall be satisfied:
(a) the Shares with respect to which an option has been exercised are
at the time of the issue or transfer of such Shares effectively registered under
applicable federal securities laws now in force or hereafter amended; or
(b) counsel for the Corporation shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such Shares are
exempt from registration under applicable federal securities laws now in force
or hereafter amended.
It is intended that all exercises of options shall be effective.
Accordingly, the Corporation shall use its best efforts to bring about
compliance with the above conditions within a reasonable time, except that the
Corporation shall be under no obligation to cause a registration statement or a
post-effective amendment to any registration statement to be prepared at its
expense solely for the purpose of covering the issuance or transfer from the
Corporation's treasury of Shares in respect of which any option may be
exercised.
14. Purchase for Investment
-----------------------
Unless the Shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933 as now in
force or hereafter amended, the Corporation shall be under no obligation to
issue or transfer any Shares covered by any option unless the person or persons
who exercise such option, in whole or in part, shall give a written
representation and undertaking to the Corporation, which is satisfactory in form
and scope to counsel to the Corporation and upon which, in the opinion of such
counsel, the Corporation may reasonably rely, that he or she is acquiring the
shares issued or transferred to him or her for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution for any such Shares, and that he or she will make no transfer of
the same except in compliance with any rules and regulations in force at the
time of such transfer under the Securities Act of 1933, or any other applicable
law, and that if Shares are issued or transferred without such registration a
legend to this effect may be placed upon the certificates representing the
Shares.
15. Effective Date
--------------
The effective date (the "Effective Date") of this Plan shall be the date on
which the Plan is approved by the stockholders of the Corporation.
16. Expenses of the Plan
--------------------
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Corporation and none of such expenses shall be charged to any
director.
17. Termination and Amendment of Plan
---------------------------------
5
<PAGE>
Unless sooner terminated as herein provided, the Plan shall terminate ten
years from the Effective Date. The Board may at any time terminate the Plan or
make such modification or amendment thereof as it deems advisable; provided,
however, that stockholder approval will be required for any amendment that will
(a) increase the total number of shares as to which options may be granted under
the Plan, (b) modify the class of persons eligible to receive options, or (c)
otherwise require stockholder approval under any applicable law or regulation.
In addition, the Board shall not amend the provisions in the Plan regarding the
amount, pricing, and timing for grants pursuant to this Plan more than once
every six months, other than to comport with changes in the Internal Revenue
Code, the Employee Retirement Income Security Act, or the rules thereunder.
Termination or any modification or amendment of the Plan shall not, without the
consent of an option holder, affect his or her rights under an option previously
granted to him or her.
6
<PAGE>
[LOGO OF EXPEDIA INC.] EXHIBIT 10.13
[DRAFT]
October 25, 1999
Richard Barton
3522 46th Avenue NE
Seattle, WA 98105
Dear Rich:
Expedia, Inc. is excited to offer you the opportunity to join our new company in
the position of Chief Executive Officer. This offer is conditioned upon and
subject to the execution by Expedia, Inc. of an initial public offering (IPO).
The date of the anticipated IPO is tentatively set for November 1999, but could
occur later. As a condition of this offer, your start date with Expedia, Inc.
must be no later than the IPO date. As a further condition of employment with
Expedia, Inc., you will be required to sign an Expedia, Inc. Employee Agreement,
a copy of which is enclosed with this letter.
In the event that an Expedia, Inc. public offering does not take place for any
reason by June 30, 2000, this conditional offer of employment is void.
Microsoft informs us that, in that event, in lieu of becoming employed by
Expedia, Inc. you will have the opportunity to continue your employment with
Microsoft Corporation.
Subject to the above contingencies and the terms and conditions stated below,
your exact start date with Expedia, Inc. is still to be determined but is at
present estimated to occur just prior to the anticipated IPO in the November
1999 timeframe. For purposes of Expedia, Inc. vacation accrual and 401(k)
vesting only, your service date with Expedia, Inc. would be 5/28/91,
recognizing your employment period with Microsoft. We trust you will treat the
details of this offer with utmost confidentiality.
As an Expedia, Inc. employee, your compensation and benefits package would be as
follows:
Your annual base salary would be $165,000, equivalent to approximately
$13,750 per month. The performance review schedule for Expedia, Inc. has
not yet been established and is subject to change, but we anticipate you
would first be eligible for a salary merit increase opportunity during the
summer of 2000. Concurrently with your salary review, you would also be
considered for a 0-15% bonus opportunity. Any subsequent salary and/or
bonus review would occur according to the performance review timetable and
eligibility practices in place for Expedia, Inc. employees at that time.
Any salary increase and bonus would be based on your performance and
subject to your satisfaction of eligibility criteria.
Expedia, Inc would provide a company benefits program that would include
the opportunity to participate in an Expedia, Inc. 401(k) savings plan and
an Expedia, Inc. Employee Stock Purchase Plan. Further details of the
Expedia, Inc. benefits program
<PAGE>
will be provided to you once the program is finalized and in place. Please
note that some portions of the Expedia, Inc. benefit program may not be in
place as of your start date and/or may be subject to change. If you are
currently participating as a Microsoft employee in Microsoft Corporation's
401(k) Plan and/or Employee Stock Purchase Plan, Microsoft has informed us
that you would be permitted to continue your participation in those Plans
through the period ending December 31, 1999, provided of course that you
continue to meet the eligibility criteria for those Microsoft Plans.
Upon becoming an employee of Expedia, Inc., any outstanding Microsoft
Corporation stock options granted to you as a Microsoft employee would be
handled as follows. Any and all Microsoft options previously granted to
you that are vested and exerciseable as of your start date with Expedia,
Inc. would remain vested and exerciseable as Microsoft options through the
life, and subject to all the terms and conditions, of the applicable
Microsoft grant agreement, Microsoft Stock Option Plan(s), and the
administrative policies adopted pursuant to the Microsoft Stock Option
Plan(s). Any and all Microsoft options previously granted to you that are
unvested as of your start date with Expedia, Inc. would be irrevocably
exchanged for and replaced by Expedia, Inc. options dated as of the IPO
date, at which time the actual price and number of Expedia, Inc. shares
would be determined. At the time of this exchange, all your unvested
Microsoft options would be canceled, and you would be issued Expedia, Inc.
options having an aggregate "in-the-money value" (the difference between
the exercise price and the market price of the underlying stock) equivalent
to the aggregate in-the-money value of your unvested Microsoft stock
options as of the IPO date. The number and exercise price of these new
Expedia, Inc. stock options would be established using an exchange ratio
based upon the IPO price of Expedia, Inc. shares and the closing price of
Microsoft stock on the day before the IPO date. Further, these exchange
options from Expedia, Inc. would be non-qualified options granted under and
subject to the terms and conditions of the Expedia, Inc. 1999 Stock Option
Plan, the Expedia, Inc. Stock Option Agreement issued under that Plan, and
any administrative policies adopted pursuant to that Plan. The Expedia,
Inc. exchange options will vest according to the same vesting schedule that
would have applied to the exchanged unvested Microsoft stock options had
those Microsoft options not canceled; however, the Expedia, Inc. exchange
options will be subject to a restriction preventing exercise of any vested
portion of the options for a period of 180 days after the IPO date.
Additional information regarding the Expedia, Inc. stock option, including
the Stock Option Agreement you would be required to sign as a condition of
receiving the option, would be provided to you approximately 60 days after
your grant price has been determined. In addition, as a condition of
commencing employment with Expedia, Inc. and receiving the Expedia, Inc.
exchange options described above, you will be required to sign an agreement
regarding the cancellation of your unvested Microsoft options.
Please recognize that this offer letter is not a contract of employment for any
minimum or specific period and that the employment Expedia, Inc. offers you is
terminable at will. This means that our employment relationship is voluntary
and based on mutual consent and that either you or Expedia, Inc. can decide to
end the relationship at any time, for any reason, with or without cause.
However, if your employment with Expedia, Inc. terminates during the first two
(2) years after your hire date for either of the following two reasons, you will
nonetheless receive as severance benefits upon your termination from Expedia,
Inc. the salary and stock option vesting you would have received from
<PAGE>
Expedia, Inc. had you remained employed with us for a period of two years from
your Expedia, Inc. hire date:
. If your salary or job ladder level are reduced without your consent and you
terminate as a result during the first two years, you will receive the above
referenced severance benefits;
. If there is a material, non-consensual diminution of your authority, title or
scope of responsibility during the first two years, you will receive the
above referenced severance benefits.
As a condition of and in consideration for your receipt of the above referenced
severance benefits, you will be required to sign a full and final release of any
and all claims arising from or related in any way to your employment with or
separation from Expedia, Inc. No severance benefits shall be paid if you are
terminated for misconduct, as defined below, or if you voluntarily resign for
any reason other than the two reasons set forth above. As used in this letter,
the term "misconduct" shall mean your commission of a crime or any other
intentional misconduct on your part that has a material adverse effect upon the
business or reputation of Expedia, Inc.
Please note that the terms stated in this letter constitute a one-time offer to
transition your employment from Microsoft to Expedia, Inc. Should you decline
this offer and subsequently receive and accept an offer to join Expedia, Inc. at
a later time, any such future offer would be governed by separate terms as may
be offered at that time, and the terms stated in this letter will not apply.
This offer is contingent on your providing Expedia, Inc. with proof of U.S.
citizenship or alien work permission as required under federal regulations.
In order to accept all the terms and conditions of this offer as stated above,
please sign the enclosed copy of this letter and return it to me in the enclosed
envelope. You may keep the original of this letter for your records.
We look forward to your contribution to the success of Expedia, Inc. and hope
you will join us. Should you have any questions, please give me a call.
Sincerely, ACCEPTANCE:
_____________________________
NAME
Greg Maffei _____________________________
President DATE
Expedia, Inc.
Enclosure: Expedia, Inc. Employee Agreement
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-87623 of Expedia, Inc. on Form S-1 of our report dated October 26,
1999, appearing in the Prospectus, which is a part of this Registration
Statement, and to the references to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Seattle, Washington
October 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,897
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,897
<PP&E> 3,644
<DEPRECIATION> (2,923)
<TOTAL-ASSETS> 7,018
<CURRENT-LIABILITIES> 3,289
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 91,341
<TOTAL-LIABILITY-AND-EQUITY> (373)
<SALES> 15,268
<TOTAL-REVENUES> 15,268
<CGS> 5,364
<TOTAL-COSTS> 14,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,950)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,950)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,950)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
<PAGE>
Exhibit 99.4
Consent of Person About to Become Director for Laurie McDonald Jonsson
Pursuant to Rule 438 of the Securities Act of 1933, I hereby consent to
being named in the Form S-1 registration statement of Expedia, Inc. as a
person who is about to become a director of such company.
Dated: October 25, 1999 /s/ Laurie McDonald Jonsson
_________________________________
Laurie McDonald Jonsson
