<PAGE>
As filed with the Securities and Exchange Commission on September 23, 1999
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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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)
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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
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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>
Maximum
Title of securities aggregate offering Amount of
to be registered price(1) registration fee
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<S> <C> <C>
Class A common stock, $0.01 per share...... $75,000,000 $20,850
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
----------------
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.
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<PAGE>
INSIDE FRONT COVER
[ARTWORK]
The Expedia Travel Marketplace
Consumers
Leisure Travelers
Small Business Travelers
Corporate Travelers
[Expedia, Inc. Logo]
Personalized consumer access to comprehensive information
Efficient supplier marketing and distribution
Reliable, secure and scalable technology platform
Multiple revenue streams include transactions, advertising and licensing
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]
Expedia is the leading provider of branded online travel services for leisure
and small business travelers.
The emergence of the Internet provides new opportunities for travelers and
suppliers to find one another. Any successful travel marketplace must offer
consumers a blend of content, community, commerce and customer service,
delivered in a highly reliable and personalized manner.
[screenshot of the Expedia.com front page]
Commerce
Expedia.com offers one-stop travel shopping and reservation services, providing
access to schedule, pricing and availability information for over 450 airlines,
40,000 hotels and all major car rental companies.
[screenshot of Fare Compare, with heading that says Deals Found By other
Expedia.com Customers]
Community
Expedia.com community services enable consumers to make informed choices on
their travel purchases. Fare Compare allows consumers to review airfares that
other Expedia.com customers have found on particular routes.
[screenshot of Customer Service area on Expedia.com, with additional photograph
of customer service agent]
Customer Service
Expedia.com offers customers 24-hour access to toll-free telephone and email
customer service provided by over 200 trained travel agents and service
personnel.
[screenshot of content page with a photograph and caption titled Red Square]
Content
Expedia.com consumers use editorial content to research destinations, find
travel tips and gain more insight before their trips begin.
<PAGE>
Subject to Completion. Dated September 23, 1999.
Shares
[EXPEDIA, INC. LOGO]
Class A Common Stock
------------
This is an initial public offering of shares of Class A common stock of
Expedia, Inc. This prospectus relates to an offering of shares in the United
States. In addition, shares are being offered outside the United States in
an international offering. All of the shares of Class A common stock are
being sold by Expedia.
Prior to this offering, there has been no public market for the Class A
common stock. It is currently estimated that the initial public offering price
per share will be between $ and $ . Application has been made for quotation
of the Class A 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 Class A 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 shares of Class A
common stock, the underwriters have options to purchase up to an additional
shares from Expedia at the initial public offering price less the underwriting
discount.
------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
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Joint Book-Running Managers
Goldman, Sachs & Co. Morgan Stanley Dean Witter
------------
Prospectus dated , 1999.
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.
<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. You should also pay special attention to the section entitled "Risk
Factors" beginning on page 8 of this prospectus to determine whether an
investment in the Class A common stock is appropriate for you.
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 the 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 satisfies consumers' need for 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 visitors and gross bookings on our websites.
As of August 31, 1999, seven million users had registered on our websites and
over $700 million in gross bookings of airline tickets and hotel and car rental
reservations had been purchased through our websites by over 860,000 consumers.
According to Media Metrix, Expedia.com was the #1 most visited website for
travel services for each of the five months ended August 31, 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 the 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 supplier partners.
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
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 , 1999, Microsoft separated the Expedia assets and
contributed them to us in exchange for shares of Class A common stock and
shares of Class B common stock, or 100% of our outstanding common stock.
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. For a description of the
rights and restrictions associated with the Class B common stock, which has 10
votes per share, see "Description of Capital Stock--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.
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.
Microsoft develops, manufactures, licenses and supports a wide range of
software products for a multitude of computing devices. Microsoft software
includes scalable operating systems for intelligent devices, personal computers
and servers; server applications for client/server environments; knowledge
worker productivity applications; and software development tools. Microsoft's
online efforts include the MSN network of Internet products and services; e-
commerce platforms; and alliances with companies involved with broadband access
and various forms of digital interactivity. Microsoft also licenses consumer
software programs; sells personal computer input devices; trains and certifies
system integrators; and researches and develops advanced technologies for
future software products.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A common stock offered by
Expedia
U.S. offering................ shares
International offering....... shares
Total...................... shares
Common stock to be outstanding
after the offerings:
Class A common stock......... shares
Class B common stock......... shares
Total...................... shares
Use of proceeds................ Working capital and general corporate
purposes
Nasdaq National Market symbol.. "EXPE"
Voting rights.................. The holders of Class A common stock generally
have rights identical to holders of Class B
common stock, except that holders of Class A
common stock are entitled to one vote per
share and holders of Class B common stock are
entitled to 10 votes per share. The Class A
common stock and the Class B common stock
will vote together as a single class on all
matters except as otherwise required by
Washington law.
</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
. shares available for future issuance under our various stock
plans
6
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------
1995 1996 1997 1998 1999
----- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................... $ -- $ -- $ 2,742 $ 13,827 $ 38,699
Cost of revenues................ -- -- 3,279 9,692 15,950
----- ------- -------- -------- --------
Gross profit (loss)............. -- -- (537) 4,135 22,749
Operating expenses:
Product development........... 818 6,263 16,211 18,506 21,180
Sales and marketing........... -- 17 8,820 10,823 14,888
General and administrative.... 145 1,520 3,353 4,284 6,283
----- ------- -------- -------- --------
Total operating expenses.... 963 7,800 28,384 33,613 42,351
----- ------- -------- -------- --------
Loss from operations and net
loss........................... $(963) $(7,800) $(28,921) $(29,478) $(19,602)
===== ======= ======== ======== ========
Pro forma basic and diluted net
loss per share................. $
========
Shares used in computing pro
forma net loss per share.......
========
</TABLE>
<TABLE>
<CAPTION>
As of June 30,
1999
------------------
As
Actual adjusted
-------- --------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital.............................................. $ 1,390 $
Total assets................................................. 5,756
Accumulated deficit.......................................... (86,764)
Total owner's net deficit/stockholders' equity............... (1,675)
</TABLE>
The as adjusted amounts reflect the receipt by Expedia of the estimated net
proceeds of $ from the sale of the shares of Class A
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 $ 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 the Class A common stock involves a high degree of risk.
You should consider the following factors carefully before deciding to
purchase shares of Class A 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 Class A 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 Class A 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.
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 business and prospects. We face the
risks frequently encountered by early stage companies entering new and rapidly
evolving markets, such as online commerce, and using new and unproven business
models. These risks include our 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 may not be successful in accomplishing these objectives and our failure
to do so may have a material adverse effect on our business, operating results
and financial condition.
We depend on our relationships with travel suppliers, licensees and computer
reservation systems; our business could be harmed by adverse changes in these
relationships.
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.
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 our business, operating results and financial condition.
A decline in commission rates or the elimination of commissions could hurt our
business.
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 have a material adverse effect on our business,
operating results and financial condition.
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
9
<PAGE>
reduced the commission rate payable to traditional travel agencies from 10% to
8%. 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 harm our business.
Consumers, travel suppliers and advertisers may not accept our websites as
valuable commercial tools, which would harm 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 sometimes 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. 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. We cannot, however,
assure you that these investments will be successful. Our failure to make
progress in these areas will harm 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. As of June 30, 1999, we also had an accumulated
deficit of $86.8 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
10
<PAGE>
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.
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 (operated by The Sabre
Group Holdings, Inc., a majority-owned subsidiary of American
Airlines) and Preview Travel, Inc.
. 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, including many suppliers with which we do business, also offer
their travel services as well as third-party travel services directly through
their own websites. Suppliers also sell their own services directly to
consumers, predominantly by telephone. As the market for online travel
services grows, we believe that the companies involved in the travel services
industry, including travel suppliers, traditional travel agencies and travel
industry information providers, 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, our business may
be harmed.
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, many of which
already have well-established brands in online services or the travel industry
generally, increases the importance of establishing and maintaining brand
recognition. 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, to attract and retain online users and to
respond to competitive pressures, we intend to increase our spending
substantially on marketing and
11
<PAGE>
advertising with the intention of expanding our brand recognition. 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. If we
are unable to provide high-quality online services or customer support, if we
fail to promote and maintain our brand or if we incur excessive expenses in
these efforts, our business, operating results and financial condition would
be materially adversely affected.
If we are unable to introduce and sell new products and services, our business
may be harmed.
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, our business,
operating results and financial condition may be materially adversely
affected.
We may be unable to plan and manage our operations and growth effectively.
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 hurt our
business.
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 hurt our business.
These may include:
. price escalation in the airline industry or other travel-related
industries
. increased occurrence of travel-related accidents
12
<PAGE>
. airline or other travel-related strikes
. political instability
. regional hostilities and terrorism
. bad weather
Interruptions in service from third parties could hurt our business.
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 hurt our business. 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.
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, we must continue to enhance and improve the
functionality and features of our websites. The Internet and the online
commerce industry are rapidly changing. If competitors introduce new services
embodying new technologies, or if new industry standards and practices emerge,
13
<PAGE>
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
. 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.
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 shares of Class A common stock and
shares of Class B common stock, which after giving effect to this
offering will represent approximately % of the outstanding shares of common
stock and % of the combined voting power of the common stock. As long as
Microsoft controls the Class B common stock or a significant percentage of the
Class A 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 Class A
common stock in the open market.
14
<PAGE>
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 be subject to competition with 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.
Because we are a Microsoft-affiliated entity, certain 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 Class A 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.
We operate in the United Kingdom, Germany and Canada and may expand our
operations to other countries. We are subject to the normal risks of doing
business internationally, as well as risks specific to Internet-based
companies in foreign markets. These 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
. export and import restrictions
. tariffs and trade barriers and limitations on fund transfers
15
<PAGE>
. difficulties in staffing and managing foreign operations
. 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.
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 , 1999, of our 128 employees have accepted offers of
employment with us. Pursuant to our services agreement with Microsoft, we have
contracted the services of the 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, certain
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 uncertainties could harm our business.
The laws and regulations applicable to the travel industry affect us and
our travel suppliers. We are subject to 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 are also subject to 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, increase our cost of operations or
otherwise hurt our business.
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 hurt our business.
17
<PAGE>
Our Class A common stock price may be volatile.
The market price for our Class A 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 Class A common stock or sales of additional shares of Class
A 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 Class A 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
Class A 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 shares of
Class A common stock and shares of Class B common stock. Of these shares,
the 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 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 "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 Class A common stock and to
convert some or all of its shares of Class B common stock into an equal
amount of Class A common stock. We have agreed to file in certain instances a
registration statement under the Securities Act to register the Class A 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 Class A 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, shares of
Class A common 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 Class A 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 Class A common stock. Investors purchasing
shares of Class A common stock will incur immediate substantial dilution in
the amount of $ per share. In addition, investors purchasing shares in this
offering will incur additional dilution to the extent outstanding options are
exercised.
19
<PAGE>
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 the
offering in ways which may be ineffective or with which the stockholders may
not agree.
We would lose revenues and incur significant costs if our systems or those of
our key partners or suppliers 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, 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 including those described in
this "Risk Factors" section, actual results may differ materially from those
expressed or implied by these forward-looking statements. Market data and
forecasts 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 shares of Class A common stock we
are offering at the assumed public offering price of $ per share are
estimated to be $ million, or $ million if the underwriters' over-
allotment options are exercised in full. We intend to use the proceeds from
the offering of the Class A common stock for our working capital and general
corporate purposes. 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.
In addition to raising capital, our benefits from this offering 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 June 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 the shares of Class A common stock offered hereby at an assumed offering
price of $ 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 June 30, 1999
--------------------------------
Pro forma
Actual Pro forma as adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Owner's net deficit/stockholders' equity
(deficit):
Preferred stock, 10,000,000 shares
authorized; no shares issued or outstanding
pro forma and pro forma as adjusted......... $ -- $ -- $ --
Class A common stock, 120,000,000 shares
authorized; no shares issued or outstanding,
pro forma; shares issued and
outstanding, pro forma as adjusted.......... --
Class B common stock, 120,000,000 shares
authorized; shares issued and
outstanding, pro forma and pro forma as
adjusted.................................... --
Net contribution from owner/additional paid-
in capital.................................. 85,089
Accumulated deficit.......................... (86,764) (86,764) (86,764)
-------- -------- --------
Total owner's net deficit/stockholders'
equity (deficit).......................... (1,675)
-------- -------- --------
Total capitalization....................... $ (1,675) $ $
======== ======== ========
</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
. shares available for future issuance under our various stock
plans
22
<PAGE>
DILUTION
As of June 30, 1999, our historical net tangible book value was a deficit
of approximately $1.7 million or $ per share of common stock. Net tangible
book value per share represents total tangible assets less total liabilities
divided by shares of Class A and Class B common stock. After giving effect
to our receipt of the net proceeds from our sale of the shares of Class A
common stock offered hereby at the assumed offering price of $ per share,
the net tangible book value at June 30, 1999 would have been approximately $
million or $ per share. This represents an immediate increase in net
tangible book value of $ per share to our sole existing shareholder and an
immediate dilution of $ per share to new investors purchasing shares of
Class A common stock in this offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C>
Assumed public price per share......................................... $
Net tangible book value per share after this offering..................
----
Dilution per share to new investors.................................... $
====
</TABLE>
The following table summarizes, as of , 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 Class A
common stock in this offering, 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> <C>
Existing shareholder................ % $ % $
New investors.......................
----- ----- ----- -----
Total............................... 100.0% $ 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
. shares available 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. 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>
Years ended June 30,
--------------------------------------------
1995 1996 1997 1998 1999
----- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Statement of Operations Data:
Net revenues.................... $ -- $ -- $ 2,742 $ 13,827 $ 38,699
Cost of revenues................ -- -- 3,279 9,692 15,950
----- ------- -------- -------- --------
Gross profit (loss)............. -- -- (537) 4,135 22,749
Operating expenses:
Product development........... 818 6,263 16,211 18,506 21,180
Sales and marketing........... -- 17 8,820 10,823 14,888
General and administrative.... 145 1,520 3,353 4,284 6,283
----- ------- -------- -------- --------
Total operating expenses.... 963 7,800 28,384 33,613 42,351
----- ------- -------- -------- --------
Loss from operations............ (963) (7,800) (28,921) (29,478) (19,602)
Provision for income taxes...... -- -- -- -- --
----- ------- -------- -------- --------
Net loss........................ $(963) $(7,800) $(28,921) $(29,478) $(19,602)
===== ======= ======== ======== ========
Pro forma basic and diluted net
loss per share................. $
========
Shares used in computing pro
forma net loss per share.......
========
<CAPTION>
As of June 30,
--------------------------------------------
1995 1996 1997 1998 1999
----- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(in thousands)
Balance Sheet Data:
Working capital................. $ -- $ -- $ 658 $ 4,814 $ 1,390
Total assets.................... 28 601 1,645 8,333 5,756
Unearned revenue, net of current
portion........................ -- -- -- 5,820 3,851
Accumulated deficit............. (963) (8,763) (37,684) (67,162) (86,764)
Total owner's net investment
(deficit)...................... 991 601 (721) (92) (1,675)
</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 the 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, KLM Royal Dutch Airways 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 and 69% of our total net revenues in fiscal 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 generally recognize commission revenues
when the reservation is made, net of allowances for cancellations.
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, KLM 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 and 18% of our total net
revenues in fiscal 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. As
a result of increased activity from these websites and future websites in
other markets we may enter, we expect international revenues 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
25
<PAGE>
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 may not be indicative of 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 and is subject to one-year renewals
which are subject to agreement 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,
subject to specific tax and legal requirements. The new Expedia options will
have equivalent vesting schedules, in-the-money value and comparable other
terms as the canceled Microsoft options. This issuance 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 at the time
of the issuance of the new options. 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 new 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
Annual Results of Operations
The following table sets forth our results of operations as a percentage
of net revenues.
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------
1997 1998 1999
-------- ------ ------
<S> <C> <C> <C>
Net revenues....................................... 100% 100% 100%
Cost of revenues................................... 120 70 41
-------- ------ -----
Gross profit (loss)................................ (20) 30 59
Operating expenses:
Product development.............................. 591 134 55
Sales and marketing.............................. 322 78 38
General and administrative....................... 122 31 16
-------- ------ -----
Total operating expenses....................... 1,035 243 109
-------- ------ -----
Loss from operations............................... (1,055) (213) (50)
Provision for income taxes......................... -- -- --
-------- ------ -----
Net loss........................................... (1,055)% (213)% (50)%
======== ====== =====
</TABLE>
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. These increases resulted from additions
to personnel focused on improving the functionality and enhancing the features
of our websites and online technologies and from increases in product
development allocations from Microsoft. 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
27
<PAGE>
in the 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. These increases were attributable to
promotional activities intended to drive traffic to Expedia.com, and to
establish, enhance and maintain the Expedia brand, partially offset by
decreases of marketing and advertising allocations from Microsoft in fiscal
1998 and fiscal 1999. 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.
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 will
enter into a tax allocation agreement with Microsoft prior to this offering.
28
<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,
1998 1998 1999 1999
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues........................ $ 6,057 $ 7,851 $11,219 $13,572
Cost of revenues.................... 3,177 4,132 3,983 4,658
------- ------- ------- -------
Gross profit........................ 2,880 3,719 7,236 8,914
Operating expenses:
Product development............... 4,977 5,083 5,254 5,866
Sales and marketing............... 2,060 2,516 3,119 7,193
General administrative............ 1,050 1,568 1,571 2,094
------- ------- ------- -------
Total operating expenses........ 8,087 9,167 9,944 15,153
------- ------- ------- -------
Loss from operations................ (5,207) (5,448) (2,708) (6,239)
Provision for income taxes.......... -- -- -- --
------- ------- ------- -------
Net loss............................ $(5,207) $(5,448) $(2,708) $(6,239)
======= ======= ======= =======
<CAPTION>
As a percentage of net revenues
-----------------------------------------
Sep. 30, Dec. 31, Mar. 31, Jun. 30,
1998 1998 1999 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues........................ 100% 100% 100% 100%
Cost of revenues.................... 52 52 35 34
------- ------- ------- -------
Gross profit........................ 48 48 65 66
Operating expenses:
Product development............... 82 65 47 43
Sales and marketing............... 34 32 28 53
General administrative............ 18 20 14 16
------- ------- ------- -------
Total operating expenses......... 134 117 89 112
------- ------- ------- -------
Loss from operations................ (86) (69) (24) (46)
Provision for income taxes.......... -- -- -- --
------- ------- ------- -------
Net loss............................ (86)% (69)% (24)% (46)%
======= ======= ======= =======
</TABLE>
Net Revenues. Our net revenues increased in each quarter during fiscal
1999, 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 20% in the fourth quarter of fiscal 1999.
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
as a result of efficiencies associated with
29
<PAGE>
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
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 $85.1 million through June 30, 1999, Microsoft will not continue
to be a source of liquidity for us following this offering. We had negative
working capital and had an accumulated deficit of $86.8 million at June 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 and $17.4 million in fiscal 1999 resulted primarily from net
losses of $28.9 million, $29.5 million and $19.6 million, respectively. Net
cash used in investing activities of $519,000 in fiscal 1997, $631,000 in
fiscal 1998 and $650,000 in fiscal 1999 resulted from capital expenditures on
personal computers and servers that support our online travel operations. At
June 30, 1999, we had no material commitments for capital expenditures, but we
expect our capital expenditures for fiscal 2000 to be at least the amount
expended in fiscal 1999.
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 MSN and a services agreement. These
agreements require us to make minimum payments of approximately $500,000 per
month. In addition, we will be obligated to pay additional amounts based on
our headcount and usage of services. 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 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 "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
30
<PAGE>
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 substantially 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 October 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
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
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<PAGE>
. 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 have not made
any contingency plans 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.
32
<PAGE>
BUSINESS
Business Overview
We are the 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 gross bookings. As of August
31, 1999, seven million users had registered on our websites and over $700
million in gross bookings of airline tickets and hotel and car rental
reservations had been purchased through our websites by over 860,000
customers. According to Media Metrix, Expedia.com was the #1 most visited
website for travel services for each of the five months ended August 31, 1999.
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.
33
<PAGE>
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.
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 estimated online transactions
34
<PAGE>
of $7.8 billion 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 the leading online marketplace for researching, buying and
selling travel-related services. Our Internet-based travel marketplace
satisfies consumers' need for 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 August 1999, and in August
attracted approximately 4.4 million unique visitors. In total, we had more
than seven million registered users at the end of August 1999. 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 June 30, 1999, our websites
generated more than $183 million in worldwide air, hotel and car rental gross
transaction revenues. In addition, the websites of our licensee partners
generated $93 million in gross transaction revenues in the fiscal quarter
ended June 30, 1999 and had more than five million registered users by August
31, 1999.
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 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
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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, KLM 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.
Strategy
Our objective is to enhance our position as the leading online global
travel marketplace. The key elements of our strategy are as follows:
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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. Nevertheless, we were the most visited
travel website for each the five months ended August 31, 1999, as measured by
Media Metrix. 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 supplier partners 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 $207 billion
in the United Kingdom, $301 billion in Germany and $38 billion in Canada in
1999, rising
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to $379 billion in the United Kingdom, $557 billion in Germany and $66 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.
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.
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. 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
August 31, 1999, we had over 2.8 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.
. 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.
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. 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.
. 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.
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Expedia.co.uk
In the United Kingdom, we operate the 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 Partnerships. 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 Partnerships. We have developed strategic relationships in
Germany with Lufthansa, Touristik Union International and
Deutsches Reiseburo, among others.
. Travel Insurance. We offer travelers the ability to purchase
travel insurance in Germany through our website.
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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, Northwest
Airlines and KLM. 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, Northwest and KLM. 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, the leading travel agency
in the United Kingdom, is our primary customer service and negotiated
rates provider in the United Kingdom.
. Deutsches Reiseburo. Deutsches Reiseburo, the 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. 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 "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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One of our competitors has recently requested that we consider its
proposal for us to license from it certain patent rights which it believes may
relate to Hotel Price Matcher. While we do not share this belief, we are
monitoring this situation and will endeavor to resolve it in the event that it
becomes a dispute.
Government Regulation
The laws and regulations applicable to the travel industry affect us and
our travel suppliers. We are subject to 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, 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 are also subject to 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, increase our cost of doing business or
otherwise hurt our 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 hurt our business.
Employees
Prior to our separation from Microsoft, we employed a total of 128 full-
time Microsoft employees. As of , 1999, of these employees have
accepted offers of employment from us. Pursuant to our services agreement with
Microsoft, we have contracted the services of the employees who remain
employed by Microsoft, until the earlier of May 20, 2000 or Expedia's notice
that it no longer desires 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.
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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.
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
We are not currently subject to any material legal proceedings. We may
from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
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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
Richard D. Nanula........... 39 Director
</TABLE>
Richard N. Barton founded Expedia in 1994. 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.
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 senior sales management positions at British Airways from 1987 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.
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'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 1998 to 1999, 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 September 1999. Since
1999 he has been Senior Vice President of the Consumer and Commerce
Group of Microsoft Corporation. Prior to his current position, 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 September 1999.
From 1985 to 1995, Mr. Grinstein held a number of positions at Burlington
Northern, Inc. He was named its Chairman and Chief Executive Officer in 1991
and retired from that position in 1995. Mr. Grinstein is Chairman of the Board
of Delta Air Lines, Inc. and is a principal of Madrona Investment Group,
L.L.C., a Seattle based investment company. He is a director of Browning-
Ferris Industries, Inc., PACCAR Inc., Vans, Inc., the Pittston Company and
Imperial Sugar Corporation.
Richard D. Nanula has served as a Director of Expedia since September
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
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<PAGE>
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
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 directors to
the board.
Board of Directors Committees
Expedia has an Audit Committee and a Compensation Committee. Our Audit
Committee consists of Messrs. and reviews the results and scope of the
audits and other services provided by our independent accountants.
Our Compensation Committee consists of Messrs. and , 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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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 , 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 "Our Relationship with
Microsoft."
(4) Reflects a one-time reimbursement for moving expenses.
Option Grants During Fiscal 1999
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
Assumed Annual
% of Total Rates of Stock
Options 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 "Our Relationship with
Microsoft."
(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>
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 "Our Relationship with
Microsoft."
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 1999. As of
, options to purchase a total of shares of Class A common stock at a
weighted average exercise price of $ per share were outstanding, and
shares remained available for future option grants.
The Stock Option Plan provides for the grant to our employees (including
officers and employee directors) of nonstatutory stock options to our
employees, officers and directors, provided, however, that non-employee
directors are not eligible for option grants under 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 Class A 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 Class A
common stock on the date of grant. Payment of the exercise price may be made
in cash, check, delivery of shares of our Class A 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. Without Board
consent, no option may be transferred by the optionee other than by will or
the laws of descent or distribution, and each option may be exercised during
the lifetime of the optionee only by such optionee. 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.
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In the event of certain changes in control, 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 .
Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors in and was approved by our sole stockholder in
1999. A total of shares of Class A 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 (including 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 Class A 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 Class A common
stock at the beginning of the offering period or (b) 85% of the fair market
value of our Class A 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 in 1999 and was approved by
our sole stockholder in 1999. A total of shares of Class A 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 became effective on .
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<PAGE>
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 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 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.
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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<PAGE>
OUR RELATIONSHIP WITH MICROSOFT
In October 1996, Microsoft launched its online travel services through
Expedia. On , 1999, Microsoft separated the Expedia assets and
contributed them to us in exchange for shares of Class A common stock and
shares of Class B common stock, or 100% of our outstanding common stock.
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. For a description of the
rights and restrictions associated with the Class B common stock, which has 10
votes per share, see "Description of Capital Stock--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. These agreements were not negotiated on an arm's length
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,
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.
License Agreements
In a set of license agreements, Microsoft provides us with rights to
intellectual property to be used in our business.
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<PAGE>
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, content
and data related to our Expedia Maps service, we have agreed to provide
MSN.com websites with access to our Expedia Maps servers so they can provide
mapping services. Subject to certain performance standards, Microsoft has
agreed that Expedia Maps will be the exclusive provider of online mapping
services for Microsoft's MSN.com websites.
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.
For purposes of this agreement, each party's separate return tax liability
will be computed as if Microsoft is entitled to deduct on its separate return
the "inherent bargain element" in the Microsoft stock options on the same
basis as if those stock options were assumed by us. The inherent bargain
element in each Microsoft option assumed by us will be determined on the date
we employ the optionee and will be equal to the fair market value of the
shares to be acquired on exercise of the option on the date the optionee is
employed by us minus the exercise price of the option.
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 customized version of Expedia.com that
includes both our logo and MSN's logo. This website will be the
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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.
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 be subject to 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 Class A and Class B common stock owned by
Microsoft.
Microsoft has agreed not to dispose of the Class A or Class B common stock
which it owns for 12 months following this offering. Microsoft may, however,
submit a written request to the Company to be relieved from this lock-up
period prior to its expiration. Only a majority of our outside directors may
grant this request. Subject to limited exceptions, in the event that Microsoft
wishes to dispose of the Class B common stock which it owns after the
expiration of the lock-up period, it generally may not dispose of this Class B
common stock unless:
. it disposes of all of the Class B common stock; however, Microsoft may
convert its Class B common stock to Class A common stock and dispose
of its shares
. each holder of our Class A common stock is offered the same per share
consideration that Microsoft will receive in exchange for its Class B
common stock
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 Class A common stock, including Class A
common stock that would result upon the conversion of the Class B 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
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<PAGE>
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.
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
58
<PAGE>
PRINCIPAL STOCKHOLDER
As of , 1999, shares of our Class A common stock were outstanding
and shares of our Class B common stock were outstanding, all of
which were owned by Microsoft. Upon completion of this offering, Microsoft
will own % of our outstanding Class A common stock and 100% of our
outstanding Class B common stock, resulting in its ownership of approximately
% of all of our outstanding common stock, and approximately % 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 "Our Relationship with Microsoft."
As of , 1999, none of our directors or officers beneficially owned
any shares of our Class A or Class B common stock. We have made option grants
with respect to approximately shares of our Class A common stock to our
Named Executive Officers and nonemployee directors 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.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 120,000,000 shares of Class A
common stock, $0.01 par value, 120,000,000 shares of Class B common stock,
$0.01 par value, and 10,000,000 shares of preferred stock, $0.01 par value.
The Stock Option Plan authorizes the Board of Directors to grant up to
options to acquire shares of our Class A common stock. As of , 1999, the
Board of Directors had granted options under the Stock Option Plan to new
Expedia employees who were not previously employed by Microsoft and to replace
the unvested Microsoft options of Expedia employees who were previously
employed by Microsoft.
We have never declared a dividend with respect to our capital stock.
Common Stock
Other than with respect to voting rights, the Class A common stock and
Class B common stock have identical rights. The Class A common stock has one
vote per share and the Class B common stock has 10 votes per share. The Class
A common stock and the Class B common stock will share equally in the net
assets of the Company upon dissolution of Expedia. Neither the Class A common
stock nor the Class B common stock is subject to redemption at our option. The
Class B common stock may be converted into Class A common stock as provided in
our Articles of Incorporation. The Class B common stock shall retain the
special rights attaching to those shares until they are converted into Class A
common stock or until they otherwise cease to be issued shares.
Holders of Class A common stock and Class B common stock have no
cumulative voting rights and no preemptive or conversion rights. There are no
redemption or sinking fund provisions available to the Class A common stock or
Class B common stock. All outstanding shares of Class A common stock and Class
B common stock are fully-paid and non-assessable. Subject to preferences that
may be applicable to any then-outstanding preferred stock, holders of Class A
common stock and Class B 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 Class A common stock and Class B 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 shares of Class A common
stock outstanding assuming no exercise of the underwriters' over-allotment
options and no exercise or conversion of the Class B common stock. As of
, 1999, there were shares of Class A common stock and shares of
Class B 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
60
<PAGE>
providing flexibility in connection with possible acquisitions and other
corporate purposes, could adversely affect the voting power of the holders of
our Class A common stock and, under certain circumstances, make it more
difficult for a third party to gain control of us, discourage bids for our
Class A common stock at a premium, or otherwise adversely affect the market
price of our Class A 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. Our Articles of Incorporation provide
that we will be subject to these prohibitions and will remain subject to these
prohibitions, even if they are repealed.
Warrants and Other Rights
As of the date of this prospectus, there are no warrants or similar rights
to purchase Class A common stock or Class B common stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the our Class A common stock is
ChaseMellon Shareholder Services, L.L.C.
Listing
Our Class A common stock will be traded on the Nasdaq National Market
under the trading symbol "EXPE."
61
<PAGE>
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 shares of
Class A common stock and shares of Class B common stock. Of these shares,
the 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 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 "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 Class A common stock and
convert some or all of its shares of Class B common stock into an equal
amount of Class A common stock. We have agreed to file in certain instances a
registration statement under the Securities Act to register the Class A 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
Class A 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 shares of Class A 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
additional shares of Class A 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
62
<PAGE>
. beginning 365 days after the date of this prospectus, essentially all
shares of our common stock will be available for sale, subject to
vesting requirements in the case of shares underlying exercisable
options of Expedia employees. Microsoft will have registration rights
with respect to its Class A common stock and it can convert its Class
B common stock into Class A common stock. In addition, Microsoft, any
of its affiliates and any holders of shares of Class A 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 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, are also subject to
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. Rule 701 provides that, commencing 90
days after we become subject to the reporting requirements of the Exchange
Act, affiliates may sell their Rule 701 shares under Rule 144 without
complying with the holding period requirement and that non-affiliates may 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 Class A 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, subject to vesting restrictions with Expedia, Rule 144 restrictions in
the case of affiliates, and the contractual restrictions described above.
63
<PAGE>
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..................................................
====
</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 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' options to purchase 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 shares outside of 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 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 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
64
<PAGE>
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 certain 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 Class A common stock on the
Nasdaq National Market under the symbol "EXPE."
In connection with this offering, the underwriters may purchase and sell
shares of Class A 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 the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class
A common stock while the offerings are 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-sale covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the Class A 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, up to shares of the Class A common stock offered hereby for certain
individuals designated by Expedia who have expressed an interest in purchasing
such shares of Class A common stock in the offerings. 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 the offerings,
excluding underwriting discounts and commissions, will be approximately $ .
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 this offering being made
outside of the United States, to persons located in the United States.
65
<PAGE>
VALIDITY OF THE CLASS A COMMON STOCK
The validity of the Class A 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 Class A
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 Class A 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.
66
<PAGE>
INDEX TO CONSOLIDATED 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
September 21, 1999
F-2
<PAGE>
EXPEDIA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended
----------------------------
1997 1998 1999
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net revenues..................................... $ 2,742 $ 13,827 $ 38,699
Cost of revenues................................. 3,279 9,692 15,950
-------- -------- --------
Gross profit (loss).......................... (537) 4,135 22,749
Operating expenses:
Product development............................ 16,211 18,506 21,180
Sales and marketing............................ 8,820 10,823 14,888
General and administrative..................... 3,353 4,284 6,283
-------- -------- --------
Total operating expenses..................... 28,384 33,613 42,351
-------- -------- --------
Loss from operations............................. (28,921) (29,478) (19,602)
Provision for income taxes....................... -- -- --
-------- -------- --------
Net loss......................................... $(28,921) $(29,478) $(19,602)
======== ======== ========
</TABLE>
F-3
<PAGE>
EXPEDIA
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ -- $ --
Accounts receivable...................................... 7,059 4,970
Prepaid expenses and other current assets................ 360 --
-------- --------
Total current assets................................... 7,419 4,970
Property and equipment, net................................ 514 386
Investment................................................. 400 400
-------- --------
Total...................................................... $ 8,333 $ 5,756
======== ========
LIABILITIES AND OWNER'S NET DEFICIT
Current liabilities:
Accounts payable......................................... $ 462 $ 1,216
Current portion of unearned revenue...................... 2,143 2,364
-------- --------
Total current liabilities.............................. 2,605 3,580
Unearned revenue, net of current portion................... 5,820 3,851
Commitments and contingencies (Note 6)
Owner's net deficit:
Net contribution from owner.............................. 67,070 85,089
Accumulated deficit...................................... (67,162) (86,764)
-------- --------
Total owner's net deficit.............................. (92) (1,675)
-------- --------
Total...................................................... $ 8,333 $ 5,756
======== ========
</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)
======= ======== ========
</TABLE>
F-5
<PAGE>
EXPEDIA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
----------------------------
1997 1998 1999
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net loss....................................... $(28,921) $(29,478) $(19,602)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation.................................. 487 750 778
Amortization of noncash item.................. -- (50) (200)
Cash provided (used) by changes in operating
assets and liabilities:
Accounts receivable.......................... (1,012) (6,047) 2,089
Prepaid expenses and other current assets.... -- (360) 360
Accounts payable............................. 17 445 754
Unearned revenue............................. 2,349 5,556 395
Recognition of unearned revenue from prior
periods..................................... -- (292) (1,943)
-------- -------- --------
Net cash used by operating activities.......... (27,080) (29,476) (17,369)
Investing activities:
Additions to property and equipment............ (519) (631) (650)
Financing activities:
Net contribution from owner.................... 27,599 30,107 18,019
-------- -------- --------
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. Subsequent to June
30, 1999, Expedia, Inc. was incorporated in the state of Washington and
Microsoft will contribute the assets, liabilities and operations of the
Company to Expedia, Inc.
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 and are recognized upon confirmation of the
reservation.
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 89-9, 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 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 Statement of
Financial Accounting Standards (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.
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.
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 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 for the years ended June
30 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Computer equipment......................................... $ 1,771 $ 3,045
Accumulated depreciation................................... (1,257) (2,659)
------- -------
Property and equipment, net.............................. $ 514 $ 386
======= =======
</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 a nonpublic company in exchange for a link on the Company's
website to the investee'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 the
nonpublic company. The fair value of the advertising services provided to the
investee was estimated at $400,000.
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.
F-9
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
Management believes that these allocations are based on assumptions that
are reasonable under the circumstances. However, these allocations are not
necessarily indicative of the costs and expenses that would have resulted if
the business has been operated as a separate entity.
The following summarizes the corporate costs allocated to the Company for
the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Marketing and advertising........................... $ 1,494 $ 909 $ 610
General and administrative.......................... 3,414 4,823 7,395
Data processing..................................... 2,645 3,648 2,250
Other central services.............................. 8,027 3,224 5,585
------- ------- -------
$15,580 $12,604 $15,840
======= ======= =======
</TABLE>
Subsequent to June 30, 1999, the Company intends to enter 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.
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 intends to enter into a tax allocation agreement with
Microsoft. The proposed agreement would not allow Expedia, Inc. to utilize tax
net operating losses previously generated by Expedia as an operating unit of
Microsoft. Under the proposed 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.
F-10
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 plan: 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.
F-11
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
==========
</TABLE>
<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.
F-12
<PAGE>
EXPEDIA
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
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.
Note 7: Subsequent Event
Incorporation: 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 Class A common stock, 120,000,000 shares of Class B
common stock and 10,000,000 shares of preferred stock. Holders of Class A
common stock are entitled to one vote per share and holders of Class B common
stock are entitled to 10 votes per share.
F-13
<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 Packages Database
Because package tours are a popular vacation purchase in Germany, Expedia
provides 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 into a single display on our website.
Localized Editorial Content
The editorial advice and feature articles offered on Expedia.de are developed
with a German point of view. Therefore, most of the feature articles and
editorials are not translation of articles that run on Expedia.com but are
instead original German articles.
German Partnerships
Expedia has developed strategic relationships in Germany with Lufthansa,
Touristik Union International and Deutsches Reiseburo, among others.
Localized Customer Service
Expedia.de customer service is provided by Deutsches Reiseburo in Germany and
tailored to the needs of German travelers.
<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................................................................. 33
Management............................................................... 48
Our Relationship with Microsoft.......................................... 55
Principal Stockholder.................................................... 59
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Validity of Class A Common Stock......................................... 66
Experts.................................................................. 66
Where You Can Find More Information...................................... 66
Index to Consolidated 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Expedia, Inc.
Common Stock
---------------
[EXPEDIA, INC. LOGO]
---------------
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Joint Book-Running Managers
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 Class A 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....................................... *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Blue Sky Fees and Expenses....................................... *
Transfer Agent and Registrar Fees................................ *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* to be completed by amendment
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 , 1999, Expedia issued to Microsoft shares of Class
A common stock and shares of Class B common stock in exchange for
assets relating to Expedia's operations.
(ii) From , 1999 to , 1999, Expedia granted 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*
3.1 Articles of Incorporation of the Registrant
3.2 Articles of Amendment to Articles of Incorporation
3.3 Bylaws of the Registrant
4.1 Form of the Registrant's Class A Common Stock Certificate*
4.2 Form of the Registrant's Class B Common Stock Certificate*
5.1 Opinion of Preston Gates & Ellis LLP*
10.1 Contribution Agreement between Expedia, Inc. and Microsoft
Corporation, dated , 1999*
10.2 Services Agreement between Expedia, Inc. and Microsoft Corporation,
dated , 1999*
10.3 License Agreement between Expedia, Inc. and Microsoft Corporation,
dated , 1999*
10.4 Map Server License Agreement between Expedia, Inc. and Microsoft
Corporation dated , 1999*
10.5 Carriage and Cross Promotion Agreement between Expedia, Inc. and
Microsoft Corporation, dated , 1999*
10.6 Tax Allocation Agreement between Expedia, Inc. and Microsoft
Corporation, dated , 1999*
10.7 Shareholder Agreement between Expedia, Inc. and Microsoft Corporation,
dated , 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 1999 Stock Option Plan
10.11 1999 Employee Stock Purchase Plan
10.12 1999 Directors' Stock Option Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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
</TABLE>
- --------
* To be filed by amendment
** 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 23rd day of September 1999.
Expedia, Inc.
/s/ Richard N. Barton
By: _________________________________
Richard N. Barton
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each Richard N. Barton and Gregory S. Stanger,
his attorney-in-fact, for him in any and all capacities, to sign any
amendments to this registration statement, and any registration statement
pursuant to Rule 462(b), and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact,
or their substitutes, may do or cause to be done by virtue hereof.
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 September 23, 1999
______________________________________ Officer and Director
Richard N. Barton (Principal Executive
Officer)
/s/ Gregory S. Stanger Vice President and Chief September 23, 1999
______________________________________ Financial Officer
Gregory S. Stanger (Principal Financial and
Accounting Officer)
/s/ Gregory B. Maffei Chairman of the Board September 23, 1999
______________________________________
Gregory B. Maffei
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of the Registrant
3.2 Articles of Amendment to Articles of Incorporation
3.3 Bylaws of the Registrant
4.1 Form of the Registrant's Class A Common Stock Certificate*
4.2 Form of the Registrant's Class B Common Stock Certificate*
5.1 Opinion of Preston Gates & Ellis LLP*
10.1 Contribution Agreement between Expedia, Inc. and Microsoft Corporation,
dated , 1999*
10.2 Services Agreement between Expedia, Inc. and Microsoft Corporation,
dated , 1999*
10.3 License Agreement between Expedia, Inc. and Microsoft Corporation, dated
, 1999*
10.4 Map Server License Agreement between Expedia, Inc. and Microsoft
Corporation dated , 1999*
10.5 Carriage and Cross Promotion Agreement between Expedia, Inc. and
Microsoft Corporation, dated , 1999*
10.6 Tax Allocation Agreement between Expedia, Inc. and Microsoft
Corporation, dated , 1999*
10.7 Shareholder Agreement between Expedia, Inc. and Microsoft Corporation,
dated , 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 1999 Stock Option Plan
10.11 1999 Employee Stock Purchase Plan
10.12 1999 Directors' Stock Option Plan
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
</TABLE>
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* To be filed by amendment
** Confidential treatment requested for portions of this agreement pursuant to
Rule 406 of the Securities Act
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
EXPEDIA.COM, INC.
ARTICLE I
NAME
The name of the corporation is Expedia.com, Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the "Corporation" is 5000 Columbia
Center, 701 Fifth Avenue, Seattle, Washington 98104-7078, and the name of the
registered agent at such address is PTSGE Corp.
ARTICLE III
PURPOSE
The Corporation is organized for the purposes of transacting any and all
lawful business for which a corporation may be incorporated under the Washington
Business Corporation Act, Title 23B of the Revised Code of Washington, now or
hereafter in force (the "Act").
ARTICLE IV
CAPITAL SHARES
4.1 Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is 250,000,000 shares, which shall
consist of 120,000,000 shares of Class A common stock, $.01 par value per share
("Class A Common Shares"), 120,000,000 shares of Class B Common stock, par value
$.001 per share ("Class B 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 Class A and
Class B Common Shares shall have: (i) the unlimited voting rights, with the
Class A Common Shares being entitled to one vote per share, (ii) Class B Common
Shares being entitled to ten (10) votes per share, and (iii) the rights to
receive the net assets of the Corporation upon dissolution, with Class A and
Class B Common Shares participating equally. The other rights and preferences
of the Class A and Class B Common Shares shall be identical unless otherwise
provided herein. The Board of Directors is hereby authorized to determine, in
whole or in part, without any
<PAGE>
shareholder action, the preferences, limitations and relative rights of the
Class A and Class B Common Shares to the extend permitted by the Act.
4.2 Issuance of Preferred Shares. The Board of Directors is hereby
authorized from time to time, without shareholder action, to provide for the
issuance of Preferred Shares in one or more series not exceeding in the
aggregate the number of Preferred Shares authorized by these Articles of
Incorporation, as amended from time to time; and to determine with respect to
each such series the voting powers, if any (which voting powers, if granted, may
be full or limited), designations, preferences, and relative, participating,
option, or other special rights, and the qualifications, limitations, or
restrictions relating thereto, including without limiting the generality of the
foregoing, the voting rights relating to Preferred Shares of any series (which
may be one or more votes per share or a fraction of a vote per share, which may
vary over time, and which may be applicable generally or only upon the happening
and continuance of stated events or conditions), the rate of dividend to which
holders of Preferred Shares of any series may be entitled (which may be
cumulative or noncumulative), the rights of holders of Preferred Shares of any
series in the event of liquidation, dissolution, or winding up of the affairs of
the Corporation, the rights, if any, of holders of Preferred Shares of any
series to convert or exchange such Preferred Shares of such series for shares of
any other class or series of capital stock or for any other securities,
property, or assets of the Corporation or any subsidiary (including the
determination of the price or prices or the rate or rates applicable to such
rights to convert or exchange and the adjustment thereof, the time or times
during which the right to convert or exchange shall be applicable, and the time
or times during which a particular price or rate shall be applicable), whether
or not the shares of that series shall be redeemable, and if so, the terms and
conditions of such redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at different
redemption dates, and whether any shares of that series shall be redeemed
pursuant to a retirement or sinking fund or otherwise and the terms and
conditions of such obligation.
4.3 Filings and Effectiveness. Before the Corporation shall issue any
Preferred Shares of any series, Articles of Amendment or Restated Articles of
Incorporation, fixing the voting powers, designations, preferences, the
relative, participating, option, or other rights, if any, and the
qualifications, limitations, and restrictions, if any, relating to the Preferred
Shares of such series, and the number of Preferred Shares of such series
authorized by the Board of Directors to be issued shall be filed with the
secretary of state in accordance with the Act and shall become effective without
any shareholder action. The Board of Directors is further authorized to increase
or decrease (but not below the number of such shares of such series then
outstanding) the number of shares of any series subsequent to the issuance of
shares of that series.
ARTICLE V
NO PREEMPTIVE RIGHT'S
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Shareholders of the Corporation have no preemptive rights to acquire
additional shares of stock or securities convertible into shares of stock issued
by the Corporation.
ARTICLE VI
DIRECTORS
6.1 Number. The number of directors of the Corporation shall be fixed in
the manner specified by the bylaws of the Corporation.
6.2 Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors shall be filled only by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, unless for any reason there are no directors in office
in which case they shall be filled by a special election by shareholders.
ARTICLE VII
ELECTION OF DIRECTORS
Shareholders of the Corporation shall not have the right to cumulate votes
in the election of directors.
ARTICLE VIII
SPECIAL SHAREHOLDER MEETINGS
Special meetings of the shareholders of the Corporation for any purpose or
purposes may be called at any time by the majority vote of the holders of Class
B Common Shares, by the Board of Directors, by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of Directors or
in the bylaws of the Corporation, include the power to call such meetings, but
such special meetings may not be called by any other person or persons.
ARTICLE IX
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, adopt, repeal, alter,
amend, and rescind the bylaws of the Corporation by a resolution adopted by a
majority of the directors.
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<PAGE>
ARTICLE X
LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a director,
except for:
(a) Acts or omissions involving intentional misconduct by the director or
a knowing violation of law by the director;
(b) Conduct violating Section 23B.08.310 of the Act (which involves
distributions by the Corporation);
(c) Any transaction from which the director will personally receive a
benefit in money, property, or services to which the director is not
legally entitled.
If the Washington Business Corporation Act is amended to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent not prohibited by the Washington Business Corporation Act, as
so amended. The provisions of this Article shall be deemed to be a contract
with each Director of the Corporation who serves as such at any time while such
provisions are in effect, and each such Directors shall be deemed to be serving
as such in reliance on the provisions of this Article. Any repeal or
modification of the foregoing paragraph by the shareholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XI
MERGERS, SHARE EXCHANGES, AND OTHER TRANSACTIONS
A merger, share exchange, sale of substantially all of the Corporation's
assets, or dissolution must be approved by the affirmative vote of a majority of
the Corporation's outstanding shares entitled to vote, or if separate voting by
voting groups is required then by not less than a majority of all the votes
entitled to be cast by that voting group.
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<PAGE>
ARTICLE XII
INDEMNIFICATION
12.1 Definitions. As used in this Article:
a. "Agent" means an individual who is or was an agent of the Corporation
or an individual who, while an agent of the Corporation, is or was serving at
the Corporation's request as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise. "Agent" includes, unless the
context requires otherwise, the spouse, heirs, estate and personal
representative of an agent.
b. "Corporation" means the Corporation, and any domestic or foreign
predecessor entity which, in a merger or other transaction, ceased to exist.
c. "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the Corporation's request as a director officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. "Director"
includes, unless the context requires otherwise, the spouse, heirs, estate and
personal representative of a director.
d. "Employee" means an individual who is or was an employee of the
Corporation or an individual, while an employee of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise- "Employee"
includes, unless the context requires otherwise, the spouse, heirs, estate and
personal representative of an employee.
e. "Expenses" include counsel fees.
f. "Indemnitee" means an individual made a party to a proceeding because
the individual is or was a Director, Officer, Employee, or Agent of the
Corporation, and who possesses indemnification rights pursuant to these Articles
or other corporate action. "Indemnitee" includes, unless the context requires
otherwise, the spouse, heirs, estate, and personal representative of such
individuals.
g. "Liability" means the obligation to pay a judgment, settlement penalty,
fine, including an excise tax with respect to an employee benefit plan, or
reasonable Expenses incurred with respect to a proceeding.
h. "Officer" means an individual who is or was an officer of the
Corporation (regardless of whether or not such individual was also a Director)
or an individual who, while an officer of the Corporation, is or was serving at
the Corporation's request as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan,
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<PAGE>
or other enterprise. "Officer" includes, unless the context requires otherwise,
the spouse, heirs, estate and personal representative of an officer.
i. "Party" includes an individual who was, is, or is threatened to be
named a defendant, respondent or witness in a proceeding.
j. "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, derivative, criminal, administrative, or
investigative, and whether formal or informal.
12.2 Indemnification Rights of Directors and Officers. The Corporation
shall indemnify its Directors and Officers to the full extent not prohibited by
applicable law now or hereafter in force against liability arising out of a
Proceeding to which such individual was made a Party because the individual is
or was a Director or an Officer. However, such indemnity shall not apply on
account of:
(a) Acts or omissions of a Director or Officer finally adjudged to be
intentional misconduct or a knowing violation of law;
(b) Conduct of a Director or Officer finally adjudged to be in violation
of Section 23B.08.310 of the Act relating to distributions by the
Corporation; or
(c) Any transaction with respect to which it was finally adjudged that
such Director or Officer personally received a benefit in money,
property, or services to which the Director or Officer was not legally
entitled.
Subject to the foregoing, it is specifically intended that Proceedings covered
by indemnification shall include Proceedings brought by the Corporation
(including derivative actions) Proceedings by government entities and
governmental officials or other third party actions.
12.3 Indemnification of Employees and Agents of the Corporation. The
Corporation may, by action of its Board of Directors from time to time, provide
indemnification and pay Expenses in advance of the final disposition of a
Proceeding to Employees and Agents of the Corporation who are not also
Directors, in each case to the same extent as to a Director with respect to the
indemnification and advancement of Expenses pursuant to rights granted under, or
provided by, the Act or otherwise.
12.4 Partial Indemnification. If an Indemnitee is entitled to
indemnification by the Corporation for some or a portion of Expenses,
liabilities, or losses actually and reasonably incurred by Indemnitee in an
investigation, defense, appeal or settlement but not, however, for the total
amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the
portion of such Expenses, liabilities or losses to which Indemnitee is entitled.
12.5 Procedure for Seeking Indemnification and/or Advancement of Expenses.
The following procedures shall apply in the absence of (or at the option of the
Indemnitee, in lieu thereof), specific
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<PAGE>
procedures otherwise applicable to an Indemnitee pursuant to a contract, trust
agreement, or general or specific action of the Board of Directors:
12.5.1 Notification and Defense of Claim. Indemnitee shall
promptly notify the Corporation in writing of any proceeding for which
indemnification could be sought under this Article. In addition, Indemnitee
shall give the Corporation such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
With respect to any such proceeding as to which Indemnitee has
notified the Corporation:
(a) The Corporation will be entitled to participate therein at
its own expense; and
(b) Except as otherwise provided below, to the extent that it
may wish, the Corporation, jointly with any other
indemnifying party similarly notified, will be entitled to
assume the defense thereof, with counsel satisfactory to
Indemnitee. Indemnitee's consent to such counsel may not be
unreasonably withheld.
After notice from the Corporation to Indemnitee of its election to
assume the defense, the Corporation will not be liable to Indemnitee under this
Article for any legal or other Expenses subsequently incurred by Indemnitee in
connection with such defense. However, Indemnitee shall continue to have the
right to employ its counsel in such proceeding, at Indemnitee's expense; and if:
(i) The employment of counsel by Indemnitee has been authorized by
the Corporation;
(ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Corporation and Indemnitee in
the conduct of such defense; or
(iii) The Corporation shall not in fact have employed counsel to
assume the defense of such proceeding,
the fees and Expenses of Indemnitee's counsel shall be at the expense of the
Corporation.
The Corporation shall not be entitled to assume the defense of any
proceeding brought by or on behalf of the Corporation or as to which Indemnitee
shall reasonably have made the conclusion that a conflict of interest may exist
between the Corporation and the Indemnitee in the conduct of the defense.
12.5.2 Information to be Submitted and Method of Determination and
Authorization of Indemnification. For the purpose of pursuing rights to
indemnification under this Article, the Indemnitee shall submit to the Board a
sworn statement requesting indemnification and reasonable evidence of all
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<PAGE>
amounts for which such indemnification is requested (together, the sworn
statement and the evidence constitute an "Indemnification Statement").
Submission of an Indemnification Statement to the Board shall create a
presumption that the Indemnitee is entitled to indemnification hereunder, and
the Corporation shall, within sixty (60) calendar days thereafter, make the
payments requested in the Indemnification Statement to or for the benefit of the
Indemnitee, unless: (1) within such sixty (60) calendar day period it shall be
determined by the Corporation that the Indemnitee is not entitled to
indemnification under this Article; (2) such determination shall be based upon
clear and convincing evidence (sufficient to rebut the foregoing presumption);
and (3) the Indemnitee shall receive notice in writing of such determination,
which notice shall disclose with particularity the evidence upon which the
determination is based.
The foregoing determination may be made: (1) by the Board of Directors by
majority vote of a quorum of Directors who are not at the time parties to the
proceedings; (2) if a quorum cannot be obtained, by majority vote of a committee
duly designated by the Board of Directors (in which designation Directors who
are parties may participate) consisting solely of two (2) or more Directors not
at the time parties to the proceeding; (3) by special legal counsel; or (4) by
the shareholders as provided by Section 23B.08.550 of the Act.
Any determination that the Indemnitee is not entitled to indemnification,
and any failure to make the payments requested in the Indemnification Statement,
shall be subject to judicial review by any court of competent jurisdiction.
12.5.3 Special Procedure Regarding Advance for Expenses. An
Indemnitee seeking payment of Expenses in advance of a final disposition of the
proceeding must furnish the Corporation, as part of the Indemnification
Statement:
(a) A written affirmation of the Indemnitee's good faith belief that
the Indemnitee has met the standard of conduct required to be
eligible for indemnification; and
(b) A written undertaking, constituting an unlimited general
obligation of the Indemnitee, to repay the advance if it is
ultimately determined that the Indemnitee did not meet the
required standard of conduct.
Upon satisfaction of the foregoing the Indemnitee shall have a contractual
right to the payment of such Expenses.
12.5.4 Settlement. The Corporation is not liable to indemnify
Indemnitee for any amounts paid in settlement of any proceeding without the
Corporation's written consent. The Corporation shall not settle any proceeding
in any manner which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the Corporation nor Indemnitee may
unreasonably withhold its consent to a proposed settlement.
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<PAGE>
12.6. Contract and related rights.
12.6.1 Contract Rights. The right of an Indemnitee to
indemnification and advancement of Expenses is a contract right upon which the
Indemnitee shall be presumed to have relied in determining to serve or to
continue to serve in his or her capacity with the Corporation. Such right shall
continue as long as the Indemnitee shall be subject to any possible proceeding.
Any amendment to or repeal of this Article shall not adversely affect any right
or protection of an Indemnitee with respect to any acts or omissions of such
Indemnitee occurring prior to such amendment or repeal.
12.6.2 Optional Insurance, Contracts, and Funding. The
Corporation may:
(a) Maintain insurance, at its expense, to protect itself and
any Indemnitee against any liability, whether or not the
Corporation would have power to indemnify the individual
against the same liability under Section 23B.08.5 10 or .520
of the Act;
(b) Enter into contracts with any Indemnitee in furtherance of
this Article and consistent with the Act; and
(c) Create a trust fund, grant a security interest, or use other
means (including without limitation a letter of credit) to
ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Article.
12.6.3 Severability. If any provision or application of this
Article shall be invalid or unenforceable, the remainder of this Article and its
remaining applications shall not be affected thereby, and shall continue in full
force and effect.
12.6.4 Right of Indemnitee to Bring Suit. If (1) a claim under this
Article for indemnification is not paid in full by the Corporation within sixty
(60) days after a written claim has been received by the Corporation; or (2) a
claim under this Article for advancement of Expenses is not paid in full by the
Corporation within twenty (20) days after a written claim has been received by
the Corporation, then the Indemnitee may, but need not, at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim. To
the extent successful in whole or in part, the Indemnitee shall be entitled to
also be paid the expense (to be proportionately prorated if the Indemnitee is
only partially successful) of prosecuting such claim. Neither (1) the failure of
the Corporation (including its Board of Directors, its shareholders, or
independent legal counsel) to have made a determination prior to the
commencement of such proceeding that indemnification or reimbursement or
advancement of Expenses to the Indemnitee is proper in the circumstances; nor
(2) an actual determination by the Corporation (including its Board of
Directors, its shareholders, or independent legal counsel that the Indemnitee is
not
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<PAGE>
entitled to indemnification or to the reimbursement or advancement of Expenses,
shall be a defense to the proceeding or create a presumption that the Indemnitee
is not so entitled.
12.6.5 Nonexclusivity of Rights. The right to indemnification and
the payment of Expenses incurred in defending a Proceeding in advance of its
final disposition granted in this Article shall not be exclusive of any other
right which any Indemnitee may have or hereafter acquire under any statute,
provision of this Article or the Bylaws, agreement, vote of shareholders or
disinterested directors, or otherwise. The Corporation shall have the express
right to grant additional indemnity without seeking further approval or
satisfaction by the shareholders. All applicable indemnity provisions and any
applicable law shall be interpreted and applied so as to provide an Indemnitee
with the broadest but nonduplicative indemnity to which he or she is entitled.
12.7 Contribution. If the indemnification provided in Section 12.2 of
this Article is not available to be paid to Indemnitee for any reason other
than those set forth in subparagraphs 12.2(a), 12.2(b), and 12.2(c) of Section
12.2 of this Article (for example, because indemnification is held to be against
public policy even though otherwise permitted under Section 12.2) then in
respect of any proceeding in which the Corporation is jointly liable with
Indemnitee (or would be if joined in such proceeding), the Corporation shall
contribute to the amount of loss paid or payable by Indemnitee in such
proportion as is appropriate to reflect:
The relative benefits received by the Corporation on the one hand and the
Indemnitee on the other hand from the transaction from which such
proceeding arose, and
The relative fault of the Corporation on the one hand and the Indemnitee on
the other hand in connection with the events which resulted in such loss,
as well as any other relevant equitable consideration.
The relative benefits received by and fault of the Corporation on the one
hand and the Indemnitee on the other shall be determined by a court of
appropriate jurisdiction (which may be the same court in which the
proceeding took place) with reference to, among other things, the parties'
relative intent, knowledge, access to information, and opportunity to
correct or prevent the circumstances resulting in such loss. The
Corporation agrees that it would not be just and equitable if a
contribution pursuant to this Article was determined by pro rata allocation
or any other method of allocation which does not take account of the
foregoing equitable considerations.
12.8 Exceptions. Any other provision herein to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to the terms of
these Articles to indemnify or advance Expenses to Indemnitee with respect to
any proceeding.
12.8.1 Claims Initiated by Indemnitee. Initiated or brought
voluntarily by Indemnitee and not by way of defense, but such indemnification or
advancement of Expenses may be provided by
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<PAGE>
the Corporation in specific cases if the Board of Directors finds it to be
appropriate. Notwithstanding the foregoing, the Corporation shall provide
indemnification including the advancement of Expenses with respect to
Proceedings brought to establish or enforce a right to indemnification under
these Articles or any other statute or law or as otherwise required under the
statute.
12.8.2 Lack of Good Faith. Instituted by Indemnitee to enforce or
interpret this Article, if a court of competent jurisdiction determines that
each of the material assertions made by Indemnitee in such proceeding was not
made in good faith or was frivolous.
12.8.3 Insured Claims. For which any of the Expenses or
liabilities for indemnification is being sought have been paid directly to
Indemnitee by an insurance carrier under a policy of officers' and directors'
liability insurance maintained by the Corporation.
12.8.4 Prohibited by Law. If the Corporation is prohibited by the
Act or other applicable law as then in effect from paying such indemnification
and/or advancement of Expenses. For example, the Corporation and Indemnitee
acknowledge that the Securities and Exchange Commission ("SEC") has taken the
position that indemnification is not possible for liabilities arising under
certain federal securities laws. Indemnitee understands and acknowledges that
the Corporation has undertaken or may be required in the future to undertake
with the SEC to submit the question of indemnification to a court in certain
circumstances for a determination of the Corporation's right to indemnify
Indemnitee.
12.9 Successors and Assigns. All obligations of the Corporation to
indemnify any Director or Officer shall be binding upon all successors and
assigns of the Corporation (including any transferee of all or substantially all
of its assets and any successor by merger or other-wise by operation of law).
The Corporation shall not effect any sale of substantially all of its assets,
merger, consolidation, or other reorganization, in which it is not the surviving
entity, unless the surviving entity agrees in writing to assume all such
obligations of the Corporation.
ARTICLE XIII
CORPORATION'S ACQUISITION OF ITS OWN SHARES
The Corporation may purchase, redeem, receive, take or otherwise acquire,
own and hold, sell, lend, exchange, transfer or otherwise dispose of, pledge,
use and otherwise deal with and in its own shares. As a specific modification of
Section 23B.06.310 of the Act, pursuant to the authority in Section
23B.02.020(5)(c) of the Act, to include provisions related to the management of
the business and the regulation of the affairs of the Corporation, shares of the
Corporation's stock acquired by it pursuant to this Article shall be considered
"Treasury Stock" and so held by the Corporation. The shares so acquired by the
Corporation shall not be considered as authorized and unissued but rather as
authorized, issued, and held by the Corporation. The shares, so acquired shall
not be regarded as cancelled or as a reduction to the
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authorized capital of the Corporation unless specifically so designated by the
Board of Directors in an amendment to these Articles of Incorporation. The
provisions of this Article do not alter or effect the status of the
Corporation's acquisition of its shares as a "distribution" by the Corporation
as defined in Section 23B.01.400(6) of the Act, nor alter or effect the
limitations on distributions by the Corporation as set forth in Section
23B.06.400 of the Act. Any shares so acquired by the Corporation, unless
otherwise specifically designated by the Board of Directors, at the time of
acquisition, shall be considered on subsequent disposition, as transferred
rather than reissued. Nothing in this Article limits or restricts the right of
the Corporation to resell or otherwise dispose of any of its shares previously
acquired for such consideration and according to such procedures as established
by the Board of Directors.
ARTICLE 12. INCORPORATOR
The name and address of the incorporator is:
Richard B. Dodd
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
The undersigned incorporator has signed these Articles of Incorporation as
duplicate signed originals on August 23, 1999.
/s/ Richard B. Dodd
---------------------------------------
Richard B. Dodd
Incorporator
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CONSENT TO SERVE AS REGISTERED AGENT
PTSGE Corp hereby consents to serve as Registered Agent in the State of
Washington for Expedia.com, Inc. I understand that as agent for the
corporation, it will be my responsibility to receive service of process in the
name of the corporation; to forward all mail to the corporation; and to
immediately notify the Office of the Secretary of State in the event of my
resignation, or of any changes in the registered office of the corporation for
which I am agent.
August 23, 1999
PTSGE Corp
By: /s/ Richard B. Dodd
------------------------------------
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EXHIBIT 3.2
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
EXPEDIA.COM, INC.
THESE ARTICLES OF AMENDMENT of the Articles of Incorporation of
Expedia.com, Inc. (the "Corporation") are herein executed by said Corporation,
pursuant to the provisions of RCW 23B.10.050, as follows:
FIRST: The name of the Corporation is Expedia.com, Inc.
SECOND: Article I of the Articles of Incorporation is amended to read as
follows:
The name of the corporation is Expedia, Inc.
THIRD: 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 250,000,000 shares, which shall
consist of 120,000,000 shares of Class A common stock, $.01 par value per share
("Class A Common Shares"), 120,000,000 shares of Class B Common stock, par value
$.001 per share ("Class B 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 Class A and
Class B Common Shares shall have: (i) unlimited voting rights, with the Class A
Common Shares being entitled to one vote per share and the Class B Common Shares
being entitled to ten (10) votes per share, and (ii) the rights to receive the
net assets of the Corporation upon dissolution, with Class A and Class B Common
Shares participating equally. The other rights and preferences of the Class A
and Class B Common Shares shall be identical unless otherwise provided herein.
Neither the Class A Common Shares nor the Class B Common Shares are subject to
redemption at the option of the Corporation. The Class B Common Shares may be
converted into Class A Common Shares as provided herein or in any other
agreement entered into by the holder or holders of Class B Common Shares. The
Class B Common Shares shall retain the special rights attaching to such shares
until they are converted into Class A Common Shares or until they otherwise
cease to be issued shares of the Corporation. As Class B Common Shares are
converted into Class A Common Shares as specified in Section 4.5, the number of
shares classified as Class B Common Shares shall be reduced and the number of
shares of Class A Common Shares shall be increased on a one-for-one basis.
FOURTH: Article 4 of the Articles of Incorporation is amended to add a
new Section 4.4 to read as follows:
<PAGE>
4.4 Voting.
(a) On all matters upon which shareholders are entitled to vote, every
holder of Class A Common Shares shall be entitled to one (1) vote in person or
by proxy for each share of Class A Common Shares standing in its name on the
transfer books of the corporation and every holder of Class B Common Shares
shall be entitled to ten (10) votes in person or by proxy for each share of
Class B Common Shares standing in its name on the transfer books of the
corporation.
(b) The holders of Class A Common Shares and Class B Common Shares shall
vote together as a single class.
FIFTH: Article 4 of the Articles of Incorporation is amended to add a
new Section 4.5 to read as follows:
4.5 Conversion of Class B Common Shares.
(a) Each outstanding Class B Common Share, at the option of the holder
thereof, may be converted at any time into one (1) Class A Common Share. Any
such conversion of Class B Common Shares shall be effected by the presentation
and surrender of the certificate(s) that represent the Class B Common Shares to
be converted, at the principal executive offices of the corporation or at such
other place as may from time to time be designated by the corporation, in such
form and accompanied by all transfer taxes (or proof of payment thereof), if
any, as shall be required for such transfer, and upon such surrender, the holder
of such shares shall be entitled to receive in exchange therefor certificate(s)
for fully paid and nonassessable Class A Common Shares at the rate aforesaid,
and such holder shall be registered as the holder of such Class A Common Shares.
(b) Subdivisions and Combinations of Shares. If the Corporation in any
manner subdivides or combines the outstanding shares of one class of Common
Shares, the outstanding shares of the other class of Common Shares will be
likewise subdivided or combined.
(c) Liquidation or Dissolution. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the corporation, holders
of Class A Common Shares and holders of Class B Common Shares shall receive an
equal per share distribution of any assets remaining after payment or provision
for liabilities and the liquidation preference on Preferred Stock, if any.
SIXTH: A new Article XIV shall be added to read as follows:
ARTICLE XIV
(A) In anticipation that:
<PAGE>
(i) the Corporation will cease to be a wholly-owned subsidiary of
Microsoft but Microsoft will remain, for some period of time, a stockholder of
the Corporation and have continued contractual, corporate and business relations
with the Corporation;
(ii) the Corporation and Microsoft or its customers or suppliers may
enter into contracts or otherwise transact business with each other and the
Corporation may derive benefits therefrom; and
(iii) the Corporation may from time to time enter into contractual,
corporate or business relations with one or more of its directors, or one or
more corporations, partnerships, associations or other organizations in which
one or more of its directors have a financial interest (collectively, "Related
Entities");
the provisions of this Article XIV are set forth to regulate and guide certain
contractual relations and other business relations of the Corporation as they
may involve Microsoft or its customers or suppliers, Related Entities and their
respective officers and directors, and the powers, rights, duties and
liabilities of the Corporation and its officers, directors and stockholders in
connection therewith. For the purposes of this Article XIV, the term "Person"
shall mean an individual, a partnership, a corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity or any department, agency or political subdivision thereof.
(B) The provisions of this Article XIV are in addition to, and not in
limitation of, the provisions of the Act and the other provisions of these
Articles of Incorporation. Any contract or business relation which does not
comply with procedures set forth in this Article XIV shall not by reason thereof
be deemed void or voidable or result in any breach of any fiduciary duty to, or
duty of loyalty to, or failure to act in good faith or in the best interests of,
the Corporation, or the derivation of any improper personal benefit, but shall
be governed by the remaining provisions of these Articles of Incorporation, the
Bylaws, the Act and other applicable law.
(C) No contract, agreement, arrangement or transaction between the
Corporation and Microsoft or any customer or supplier thereof or any Related
Entity or between the Corporation and one or more of the directors or officers
of the Corporation, Microsoft or any Related Entity, or any amendment,
modification or termination thereof, shall be void or voidable solely for the
reason that Microsoft or such customer or supplier, any Related Entity or any
one or more of the officers or directors of the Corporation, Microsoft or any
Related Entity are parties thereto, or solely because any such directors or
officers are present at or participate in the meeting of the Board of Directors
or committee thereof which authorizes such contract, agreement, arrangement,
transaction, amendment, modification or termination (each, a "Transaction") or
solely because his or their votes are counted for such purpose, and Microsoft,
any Related Entity and such directors and officers (i) shall have fully
satisfied and fulfilled any fiduciary duties they may have to the Corporation
and its stockholders with respect thereto, (ii) shall not be liable to the
Corporation or its stockholders for any breach of any fiduciary duty they may
have by reason of entering into, performance or consummation of any such
Transaction, (iii) shall be deemed to have acted in good faith and in a manner
such Persons reasonably believed to be in and not
<PAGE>
opposed to the best interests of the Corporation, to the extent such standard is
applicable to such Persons' conduct, and (iv) shall be deemed not to have
breached any duties of loyalty to the Corporation or its stockholders they may
have and not to have derived an improper personal benefit therefrom, if:
(w) the material facts as to the Transaction are disclosed or are
known to the Board of Directors or the committee thereof that authorizes
the Transaction and the Board of Directors or such committee in good faith
authorizes or approves the Transaction by the affirmative vote of a
majority of the Disinterested Directors on the Board of Directors or such
committee (even though the Disinterested Directors are less than a quorum);
(x) the material facts as to the Transaction are disclosed or are
known to the holders of all stock of the Corporation entitled to vote
("Voting Stock") thereon, and the Transaction is specifically approved in
good faith by vote of the holders of a majority of the then outstanding
Voting Stock not owned by Microsoft or such Related Entity, voting together
as a single class, as the case may be;
(y) such Transaction is effected pursuant to, and consistent with,
terms and conditions specified in any arrangements, standards, protocols or
guidelines (collectively, the "Guidelines") which are in good faith
authorized or approved, after disclosure or knowledge of the material facts
related thereto, by the affirmative vote of a majority of the Disinterested
Directors on the Board of Directors or the applicable committee thereof
(even though the Disinterested Directors be less than a quorum) or by vote
of the holders of a majority of the then outstanding Voting Stock not owned
by Microsoft or such Related Entity, voting together as a single class, as
the case may be (such authorization or approval of such Guidelines
constituting or being deemed to constitute authorization or approval of
such Transaction); or
(z) such Transaction is fair as to the Corporation as of the time it
is authorized, approved or ratified by the Board of Directors, a committee
thereof or the stockholders of the Corporation.
In addition, each Transaction authorized, approved or effected, and such
Guidelines so authorized or approved, as described in (w), (x), or (y) above,
shall be deemed to be entirely fair to the Corporation and its stockholders;
provided, however, that if such authorization or approval is not obtained, or
such Transaction is not so effected, no presumption shall arise that such
Transaction or such Guidelines are not fair to the Corporation and its
stockholders.
(D) Directors of the Corporation who are also directors or officers of
Microsoft or any Related Entity may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee that authorizes
or approves any such Transaction or any such Guidelines. Voting Stock owned by
Microsoft and any Related Entities may be counted in determining the presence of
a quorum at a meeting of stockholders that authorizes or approves any such
Transaction or any such Guidelines.
<PAGE>
(E) Microsoft shall not be liable to the Corporation or its stockholders
for breach of any fiduciary duty it may have by reason of the fact that
Microsoft takes any action or exercises any rights or gives or withholds any
consent in connection with any Transaction between Microsoft and the
Corporation. No vote cast or other action taken by any Person who is an officer,
director or other representative of Microsoft, which vote is cast or action is
taken by such Person in his capacity as a director of the Corporation, shall
constitute an action of, or the exercise of a right by, or a consent of,
Microsoft for the purpose of any such Transaction.
(F) Any Person purchasing or otherwise acquiring any interest in any shares
of stock of the Corporation shall be deemed to have notice of and to have
consented to the provisions of this Article XIV.
(G) For purposes of this Article XIV, any Transaction with any corporation,
partnership, joint venture, association or other entity in which the Corporation
Beneficially Owns, directly or indirectly, 50 percent or more of the outstanding
voting stock, voting power or similar voting interests, or with any officer or
director thereof, shall be deemed to be a Transaction with the Corporation.
(H) Notwithstanding anything in these Articles of Incorporation to the
contrary, and in addition to any vote of the Board of Directors required by
applicable law or these Articles of Incorporation, the affirmative vote of the
holders of more than 80 percent of the voting power of the Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend or repeal in a manner adverse to the interests of Microsoft, or adopt any
provision adverse to the interests of Microsoft and inconsistent with, any
provision of this Article XIV. Neither the alteration, amendment or repeal of
this Article XIV nor the adoption of any provision inconsistent with this
Article XIV shall eliminate or reduce the effect of this Article XIV in respect
of any matter occurring, or any cause of action, suit or claim that, but for
this Article XIV, would accrue or arise, prior to such alteration, amendment,
repeal or adoption.
SEVENTH: This amendment does not provide for an exchange, reclassification
or cancellation of issued shares.
EIGHTH: The date of the adoption of said Amendment by the Directors of
said Corporation was the 22nd day of September, 1999.
NINTH: 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 22nd day of September, 1999.
EXPEDIA.com, INC.
By: /s/ Gregory S. Stanger
------------------------------------
Gregory S. Stanger
Vice President and Chief Financial
Officer
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
EXPEDIA, INC.
ARTICLE I
Shareholders
1.1 Annual Meeting. The annual meeting of the shareholders of the
Corporation for the election of Directors and for the transaction of such other
business as properly may be submitted to such annual meeting, shall be held at
the hour and on the date designated by the Board of Directors or an authorized
committee of the Board of Directors, such date to be within 150 days of the end
of the fiscal year.
1.2 Special Meetings. Special meetings of the shareholders of the
Corporation, for any purpose or purposes, may be called at any time by the Board
of Directors, an authorized committee of the Board of Directors, or by the
holders of a majority of the shares of the Corporation's Class B Common Stock.
1.3 Place of Meetings. Meetings of shareholders shall be held at such
place within or without the State of Washington as determined by the Board of
Directors, or an authorized committee, pursuant to proper notice.
1.4 Notice. Written notice of each shareholders' meeting stating the date,
time, and place and, in case of a special meeting, the purpose(s) for which such
meeting is called, shall be given by the Corporation not less than ten (10)
(unless a greater period of notice is required by law in a particular case) nor
more than sixty (60) days prior to the date of the meeting, to each shareholder
of record, to the shareholder's address as it appears on the current record of
shareholders of the Corporation.
1.5 Quorum of Shareholders. At any meeting of the shareholders, a majority
in interest of all the shares entitled to vote on a matter, determined by the
number of votes eligible to be cast, represented by shareholders of record in
person or by proxy, shall constitute a quorum of that voting group for action on
that matter.
Once a share is represented at a meeting, other than to object to holding
the meeting or transacting business, it is deemed to be present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for the adjourned meeting. At
such reconvened meeting, any business may be transacted that might have been
transacted at the meeting as originally notified.
If a quorum exists, action on a matter is approved by a voting group if the
votes cast within the voting group favoring the action exceed the votes cast
within the voting group opposing the action, unless the question is one upon
which by express provision of the Washington Business Corporation Act, as
amended ("WBCA"), or of the Articles of Incorporation or of these Bylaws a
different vote is required.
<PAGE>
1.6 Adjournment. A majority of the votes represented at the meeting, even
if less than a quorum, may adjourn the meeting from time to time. At such
reconvened meeting at which a quorum is present any business may be transacted
at the meeting as originally notified. If a meeting is adjourned to a different
date, time, or place, notice need not be given of the new date, time, or place
if a new date, time, or place is announced at the meeting before adjournment;
however, if a new record date for the adjourned meeting is or must be fixed in
accordance with the WBCA, notice of the adjourned meeting must be given to
persons who are shareholders as of the new record date.
1.7 Record Date and Transfer Books. For the purpose of determining
shareholders who are entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a record date for any
such determination of shareholders, such date in any case to be not more than
seventy (70) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
If no record date is fixed for such purposes, the date on which notice of
the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned more than one hundred
twenty (120) days after the date is fixed for the original meeting.
1.8 Voting Record. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make at least ten (10) days
before each meeting of shareholders a complete record of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged by any
applicable voting groups and in alphabetical order, with the address of and the
number of shares held by each. Such record shall be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder or any shareholder's agent during the whole time of the meeting for
the purposes thereof.
1.9 Proxies. Shareholders of record may vote at any meeting either in
person or by proxy executed in writing. A proxy is effective when received by
the person authorized to tabulate votes for the Corporation. A proxy is valid
for eleven (11) months unless a longer period is expressly provided in the
proxy.
1.10 Organization of Meeting. Any officer designated by the Board of
Directors may call any meeting of shareholders to order and shall be the
Chairman thereof. The Secretary of the Corporation, if present at any meeting of
its shareholders, shall act as the Secretary of such meeting. If the Secretary
is absent from any such meeting, the Chairman of such meeting may appoint a
secretary for the meeting.
1.11 Order of Business. The Chairman of a meeting of shareholders,
determined in accordance with Section 1.10, shall have discretion to establish
the order of business for such meeting subject to any specific order established
by the Board of Directors.
2
<PAGE>
ARTICLE II
Board of Directors
2.1 Number and Qualifications. The business affairs and property of the
Corporation shall be managed by a Board of not less than three directors nor
more than eleven directors. The number of directors may at any time be increased
or decreased by resolution of the Board of Directors or by the shareholders at
the annual meeting. Directors need not be shareholders of the Corporation or
residents of the state of Washington.
2.2 Election - Term of Office. The directors shall be elected by the
shareholders at each annual shareholders' meeting to hold office until the next
annual meeting of the shareholders and until their respective successors are
elected and qualified. If, for any reason, the directors shall not have been
elected at any annual meeting, they may be elected at a special meeting of
shareholders called for that purpose in the manner provided by these Bylaws.
2.3 Regular Meetings. Regular meetings of the Board of Directors shall be
held at such places, and at such times as the Board may determine, and, if so
determined, no notice thereof need be given. A regular meeting of the Board may
be held without notice immediately after the annual meeting of shareholders at
the same place at which such meeting was held.
2.4 Special Meetings. Special meetings of the Board of Directors may be
held at any time or place upon the call of a majority of directors, the Chief
Executive Officer or the Chief Operating Officer by oral or written notice,
given or mailed to each director not less than two (2) days before such meeting.
2.5 Notice. No notice is required for regular meetings of the Board of
Directors. Notice of special meetings of the Board of Directors, stating the
date, time, and place thereof, shall be given at least two (2) days prior to the
date of the meeting. The purpose of the meeting need not be given in the notice.
Such notice may be oral or written.
2.6 Waiver of Notice. A director may waive notice of a special meeting of
the Board either before or after the meeting, and such waiver shall be deemed to
be the equivalent of giving notice. The waiver must be in writing, signed by the
director entitled to the notice and delivered to the Corporation for inclusion
in its corporate records. Attendance or participation of a director at a meeting
shall constitute waiver of notice of that meeting unless said director attends
or participates for the express purpose of objecting to the transaction of
business because the meeting has not been lawfully called or convened.
2.7 Quorum of Directors. A majority of the members of the Board of
Directors shall constitute a quorum for the transaction of business, but if at
any meeting of the Board there shall be less than a quorum present, a majority
of those present may adjourn the meeting from time to time until a quorum shall
have been obtained. When a quorum is present at any meeting, a majority of the
members present shall decide any question brought before such meeting, except as
otherwise provided by the Articles of Incorporation or by these Bylaws.
2.8 Adjournment. A majority of the directors present, even if less than a
quorum, may adjourn a meeting and continue it to a later time. Notice of the
adjourned
3
<PAGE>
meeting or of the business to be transacted thereat, other than by announcement,
shall not be necessary. At any adjourned meeting at which a quorum is present,
any business may be transacted which could have been transacted at the meeting
as originally called.
2.9 Resignation. Any director of the Corporation may resign at any time
by giving written notice to the Board of Directors, the Chairman, the President,
or the Secretary of the Corporation. Any such resignation is effective when the
notice is delivered, unless the notice specifies a later effective date.
2.10 Vacancies. Unless otherwise provided by the WBCA, in case of any
vacancy in the Board of Directors, including a vacancy resulting from an
increase in the number of directors, the remaining directors, whether
constituting a quorum or not, may fill the vacancy.
2.11 Compensation. The Board shall have the sole authority to fix the
amount of compensation of directors.
2.12 Committees. The Board of Directors, by resolution adopted by a
majority of the full Board of Directors, may designate from among its members
one or more committees, each of which:
a. Shall have two (2) or more members;
b. Shall be governed by the same rules regarding meetings, action
without meetings, notice, and waiver of notice, and quorum and voting
requirements as applied to the Board of Directors; and
c. To the extent provided in such resolution, shall have and may
exercise all the authority of the Board of Directors, except no such
committee shall have the authority to:
(1) Authorize or approve a distribution except according to a
general formula or method prescribed by the Board of Directors;
(2) Approve or propose to shareholders action which the WBCA
requires to be approved by shareholders;
(3) Fill vacancies on the Board of Directors or on any of its
committees;
(4) Amend the Articles of Incorporation;
(5) Adopt, amend, or repeal the Bylaws;
(6) Approve a plan of merger not requiring shareholder approval;
or
(7) Authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights,
preferences, and limitations on a class or series of shares, except
that the Board of Directors may authorize a committee, or a senior
executive officer of the Corporation, to do so within limits
specifically prescribed by the Board of Directors.
4
<PAGE>
ARTICLE III
Special Measures Applying to Meetings of
Shareholders, the Board of Directors and Committees of the Board
3.1 Action by Written Consent. Any action required or permitted to be
taken at a meeting of the Board of Directors or a committee of the Board may be
accomplished without a meeting if the action is taken by all the members of the
Board or all the members of the committee, as the case may be. The action must
be evidenced by one or more written consents describing the action to be taken,
signed by all directors or all members of the committee, as the case may be, and
delivered to the Corporation for inclusion in the minutes. Directors' consents
may be signed either before or after the action taken.
Action taken by unanimous written consent is effective when the last
director signs the consent, unless the consent specifies a later effective date.
3.2 Use of Communications Equipment. Meetings of the shareholders, the
Board of Directors and committees of the Board may be effectuated by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at such meeting.
3.3 Oral and Written Notice. Oral notice may be communicated in person or
by telephone, wire or wireless equipment that does not transmit a facsimile of
the notice. Oral notice is effective when communicated if communicated in a
comprehensible manner.
Written notice may be transmitted by mail, private carrier, or personal
delivery; telegraph or teletype; or telephone, wire, or wireless equipment that
transmits a facsimile of the notice and provides the transmitter with an
electronically generated receipt. Written notice is effective at the earliest of
the following: (a) when received; (b) five (5) days after its deposit in the US.
mail if mailed with first-class postage; (c) on the date shown on the return
receipt, if sent by registered or certified mail, return receipt requested, and
the receipt is signed by or on behalf of the addressee.
ARTICLE IV
Officers
4.1 Positions. The officers of the Corporation may consist of a
President, one or more Vice Presidents (who may be designated as Vice
Presidents, Senior Vice Presidents or Executive Vice Presidents), a Secretary
and a Treasurer as appointed by the Board of Directors or the Chief Executive
Officer. The Corporation may have such additional or assistant officers
(sometimes referred to as "additional officers") as the Board of Directors may
deem necessary for its business and may appoint from time to time. The Board of
Directors shall also have the authority, but shall not be required, to designate
officers as the Chief Executive Officer, the Chief Operating Officer the Chief
Financial Officer or similar such titles. Any two or more offices may be held by
the same person.
If a director/officer has not been designated as Chairman, or if the
designated Chairman is not present, the Board of Directors shall elect a
Chairman from amongst its
5
<PAGE>
members to serve as Chairman of the Board of Directors. The Chairman shall
preside at all meetings of the Board of Directors, and shall have such other
powers as the Board may determine.
4.2 Appointment and Term of Office. The officers of the Corporation shall
be appointed annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. If
officers are not appointed at such meeting, such appointment shall occur as soon
as possible thereafter, or may be left vacant. Each officer shall hold office
until a successor shall have been appointed and qualified or until said
officer's earlier death, resignation, or removal.
4.3 Authority and Duties of Officers. Each officer shall have the
authority and shall perform the duties set forth in these bylaws or, to the
extent consistent with the bylaws, the duties prescribed by the Board of
Directors or by an officer authorized by the Board of Directors to prescribe the
duties of such officer. Any designation of duties shall be subject to review by
the Board of Directors but shall be in full force and effect in the absence of
such review.
4.4 Compensation and Contract Rights. The Board of Directors shall have
authority (a) to fix the compensation, whether in the form of salary, bonus,
stock options or otherwise, of all officers and employees of the Corporation,
either specifically or by formula applicable to particular classes of officers
or employees, and (b) to authorize officers of the Corporation to fix the
compensation of subordinate employees. The Board of Directors shall have
authority to appoint a Compensation Committee and may delegate to such committee
any or all of its authority relating to compensation. The appointment of an
officer shall not of itself create contract rights.
4.5 Resignation or Removal. Any officer of the Corporation may resign at
any time by giving written notice to the Board of Directors. Any such
resignation is effective when the notice is delivered, unless the notice
specifies a later date, and shall be without prejudice to the contract rights,
if any, of such officer.
The Board of Directors, by majority vote of the entire Board, may remove
any officer or agent, with or without cause. An officer or assistant officer, if
appointed by another officer, may also be removed by any officer authorized to
appoint officers or assistant officers. The removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4.6 Vacancies. If any office becomes vacant by any reason, the directors
may appoint a successor or successors who shall hold office for the unexpired
term or leave such office vacant.
6
<PAGE>
ARTICLE V
Certificates of Shares and Their Transfer
5.1 Issuance; Certificates of Shares. No shares of the Corporation shall
be issued unless authorized by the Board. Such authorization shall include the
maximum number of shares to be issued, the consideration to be received, and a
statement that the Board considers the consideration to be adequate. Shares may
but need not be represented by certificates. Certificates for shares of the
Corporation shall be in such form as is consistent with the provisions of the
WBCA or the law of a predecessor corporation and after the effective date of
these Bylaws shall state:
a. The name of the Corporation and that the Corporation is organized
under the laws of the State of Washington;
b. The name of the person to whom issued; and
c. The number and class of shares and the designation of the series,
if any, which such certificate represents.
The certificate shall be signed by original or facsimile signature of two
officers of the Corporation, and the seal of the Corporation may be affixed
thereto.
5.2 Transfer of Stock. Shares of stock represented by certificates may be
transferred by delivery of the certificate accompanied by either an assignment
in writing on the back of the certificate or by a written power of attorney to
assign and transfer the same on the books of the Corporation, signed by the
record holder of the certificate. The shares shall be transferable on the books
of the Corporation upon surrender thereof so assigned or endorsed.
5.3 Rules and Regulations Concerning the Issue, Transfer and Registration
of Shares. The Board of Directors shall have power and authority to make all
such rules and regulations as the Board may deem proper or expedient concerning
the issue, transfer and registration of shares of stock. In case of the loss,
mutilation, or destruction of a certificate of stock, a duplicate certificate
may be issued upon such terms as the Board shall authorize. The Board shall have
power and authority to appoint from time to time one or more transfer agents and
registrar of the shares of stock.
5.4 Shares without Certificates. The Board of Directors may authorize the
issue of some or all of the shares without certificates. Within a reasonable
time after the issue or transfer of shares without certificates, the corporation
shall send the shareholder a written statement of the information required on
certificates by the WBCA.
ARTICLE VI
Books and Records
6.1 Books of Accounts, Minutes, and Share Register. Except as otherwise
provided by law the Corporation:
a. Shall keep as permanent records minutes of all meetings of its
shareholders and Board of Directors, a record of all actions taken by the
Board of
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<PAGE>
Directors without a meeting, and a record of all actions taken by a
committee of the Board of Directors exercising the authority of the Board
of Directors on behalf of the Corporation;
b. Shall maintain appropriate accounting records;
c. Or its agent shall maintain a record of its shareholders, in a
form that permits preparation of a list of the names and addresses of all
shareholders, in alphabetical order by class of shares showing the number
and class of shares held by each; and
d. Shall keep a copy of the following records at its principal
office:
(1) The Articles or Restated Articles of Incorporation and all
amendments to them currently in effect;
(2) The Bylaws or Restated Bylaws and all amendments to them
currently in effect;
(3) The minutes of all shareholders' meetings, and records of all
actions taken by shareholders without a meeting, for the past three
(3) years;
(4) Its financial statements for the past three (3) years,
including balance sheets showing in reasonable detail the financial
condition of the Corporation as of the close of each fiscal year, and
an income statement showing the results of its operations during each
fiscal year prepared on the basis of generally accepted accounting
principles or, if not, prepared on a basis explained therein;
(5) All written communications to shareholders generally within
the past three (3) years;
(6) A list of the names and business addresses of its current
directors and officers; and
(7) Its most recent annual report delivered to the Secretary of
State of Washington.
6.2 Copies of Resolutions. Any person dealing with the Corporation may
rely upon a copy of any of the records of the proceedings, resolutions, or votes
of the Board of Directors or shareholders, when certified by the Secretary, an
assistant secretary, or other officer authorized by the Board.
8
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EXHIBIT 10.8
Note: Portions of this exhibit indicated by "[*]" are subject to a confidential
treatment request, and have been omitted from this exhibit. Complete, unredacted
copies of this exhibit have been filed with the Securities and Exchange
Commission as part of this company's confidential treatment request.
CRS MARKETING, SERVICES AND DEVELOPMENT AGREEMENT
This CRS MARKETING, SERVICES AND DEVELOPMENT AGREEMENT, dated and effective
as of December 15, 1995 (the "Agreement"), by and between MICROSOFT CORPORATION,
a Washington corporation, with its principal office at One MICROSOFT Way,
Redmond, Washington 98052 ("MICROSOFT"), and WORLDSPAN, L.P., a Delaware limited
partnership, with its principal office at 300 Galleria Parkway NW, Atlanta,
Georgia 30339 ("WORLDSPAN")
RECITALS
WORLDSPAN operates a computerized reservations system and provides
information and other transaction processing to airlines, travel agents and
others in the travel industry.
MICROSOFT develops software and operates an Online System in the United
States and throughout the world.
MICROSOFT desires to retain WORLDSPAN to provide travel related transaction
and data processing and other services, and WORLDSPAN desires to provide same,
all according to this Agreement;
Now, Therefore, in consideration of the above recitals, the mutual
undertakings of the parties as contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Agreement hereby agree as follows:
1. Definitions
-----------
Except as otherwise defined in this Agreement, terms used herein in
capitalized form shall have the meanings set forth in Schedule 1.
2. WORLDSPAN's Obligations
-----------------------
2.1.1 WORLDSPAN shall provide MICROSOFT access to the WORLDSPAN
System through Super Transaction, Standard Message Interface, and such other
communication protocols as WORLDSPAN may develop from time to time. WORLDSPAN
shall through proprietary and leased communications facilities allow access to
the WORLDSPAN System to MICROSOFT's communications node in Bellevue, Washington.
2.1.2 The parties acknowledge that neither can accurately forecast
the volume of transactions that will be generated by MICROSOFT System users with
the WORLDSPAN System. To ensure reasonable capacity is available, WORLDSPAN
shall make available to MICROSOFT not later than August 14, 1996, processing
capacity from the WORLDSPAN System according to the specifications set forth on
Schedule 2.1.2 attached hereto and as otherwise provided in this Agreement.
Thereafter, the parties shall confer periodically for the purpose of modifying
these minimum standards. Notwithstanding the foregoing, WORLDSPAN acknowledges
that the standards set forth herein and to be agreed upon are the minimum
standards necessary to service MICROSOFT System users and that adequate
WORLDSPAN System
<PAGE>
resources are critical to the use of the MICROSOFT System travel related
services for their intended purposes.
2.2 WORLDSPAN shall be responsible for acquiring any hardware and
developing, at its expense, all of the software and systems necessary and
appropriate for delivery of the CRS Services to the MICROSOFT node according to
this Agreement. Improvements, changes and enhancements to the WORLDSPAN System
to be developed by WORLDSPAN to implement MICROSOFT's access to the WORLDSPAN
System and the schedule for such development are included on Schedule 2.2
attached hereto and incorporated herein by this reference.
2.3 Upon MICROSOFT's request, WORLDSPAN shall provide, at its own
expense, engineering, communications and technical support on-site at
MICROSOFT's facilities in Redmond, Washington until the Rollout Date to a
maximum of two (2) Person Months in any twelve (12) month period. This on-site
support will be provided by WORLDSPAN to: (a) assist MICROSOFT in installing and
utilizing the communication's link between the MICROSOFT System and the
WORLDSPAN System; (b) provide support for translation of MICROSOFT System users'
entries into the appropriate set of Super Transactions and input values; and (c)
trouble-shoot and repair problems with any of the foregoing.
2.4 WORLDSPAN shall provide to MICROSOFT telephone access to
WORLDSPAN's production and technical personnel or contractors to respond to
MICROSOFT personnel with questions and problems arising out of access to the
WORLDSPAN System by MICROSOFT System users. WORLDSPAN shall use reasonable
business efforts to make the necessary personnel available twenty four (24)
hours each day.
2.5 WORLDSPAN shall not disclose any information created by a
MICROSOFT System user or use such information except as necessary for the
performance of this Agreement (including as reasonably needed by WORLDSPAN to
complete and facilitate travel transactions generated by Microsoft System users,
and/or to adequately service WORLDSPAN's Travel Suppliers), except that
WORLDSPAN may disclose information from a reservation as required by law.
WORLDSPAN acknowledges and agrees that MICROSOFT will have data privacy
obligations to its customers which MICROSOFT will need to be respected by
WORLDSPAN. WORLDSPAN agrees to comply with all MICROSOFT data privacy
requirements communicated in writing by MICROSOFT to WORLDSPAN except where to
do so would be commercially unreasonable due to the costs of implementation
(where costs may not include foregone revenue from the sale or use of such
data).
3. Services
--------
3.1 During the Term, WORLDSPAN shall make available to MICROSOFT the
CRS Services in accordance with the performance standards set forth in Schedule
2.1.2. Such performance standards in general are intended to reflect the service
levels provided to any Travel Agent customer of WORLDSPAN. WORLDSPAN shall not
be responsible for WORLDSPAN System unavailability or any Response Time in
excess of agreed limits due to: (a) scheduled maintenance or scheduled downtime,
(b) actions or inactions of MICROSOFT or MICROSOFT System users, (c) failure of
any part of the WORLDSPAN Network operated by a third party supplier, or (d)
outages caused by the failure of public network components.
2
<PAGE>
3.2 Nothing herein shall prohibit MICROSOFT from obtaining any travel
information or CRS Services from any entity other than WORLDSPAN for use with
the MICROSOFT System and nothing shall prohibit WORLDSPAN from providing any
travel information or CRS Services to any Online System provider or other
person.
3.3 MICROSOFT shall provide to WORLDSPAN the information, data and
necessary technical and human resources to permit WORLDSPAN to complete
WORLDSPAN's development of improvements, changes and enhancements to the
WORLDSPAN System and to provide access to the WORLDSPAN System and the CRS
Services.
4. Access To CRS Services And Rights
---------------------------------
4.1 Subject to Section 4.3 and during the Term, WORLDSPAN hereby
grants to MICROSOFT a nonexclusive right and license in and to all of the
functions, services, information and data available through the WORLDSPAN System
to all of WORLDSPAN's Travel Agent customers including, but not limited to, the
CRS Services.
4.2 WORLDSPAN also grants to MICROSOFT a worldwide, non-exclusive,
right and license during the Term of this Agreement in WORLDSPAN Training
Materials for the sole purpose of permitting MICROSOFT to create, publish, and
distribute training books, manuals, software programs and other materials for
the use of MICROSOFT employees, contractors and MICROSOFT System users. Within a
reasonable period following termination of this Agreement not to exceed sixty
(60) days, MICROSOFT shall, at its option, return to WORLDSPAN or destroy all of
the WORLDSPAN Training Materials and all copies of books, manuals, software or
other materials containing WORLDSPAN Training Materials, then in the possession
of MICROSOFT.
4.3 The license and the rights granted in Section 4.1 herein shall be
limited to the Territory and shall permit MICROSOFT to utilize information,
data, functions and services from the WORLDSPAN System, including the CRS
Services, to provide such information, data, functions and services through an
Online System to permit, among other things, users to review travel related
information, make reservations, and request tickets and other documents for
travel. Notwithstanding anything to the contrary herein, such restriction of
MICROSOFT's license rights to the Territory shall mean only that MICROSOFT shall
not actively market or advertise the availability of the travel services and
information provided through the WORLDSPAN System as part of the MICROSOFT
System outside of the Territory, and such restriction shall place no limitation
on MICROSOFT's right which is permitted by this Agreement to operate the
MICROSOFT System and to provide travel services and information via the
WORLDSPAN System over the Internet, the World Wide Web, The Microsoft Network,
or any other Online System. As used in this Section 4.3, to "actively market or
advertise" outside the Territory shall mean to undertake actual marketing or
advertising activities in local markets outside the Territory, but shall not
include marketing or advertising activities done generally over the Internet,
the World Wide Web, The Microsoft Network, or any other Online System regardless
of the fact that such activities may be accessible to persons outside the
Territory.
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
3
<PAGE>
4.4 Subject to the provisions of Section 7.5 herein, WORLDSPAN
retains the right to modify and enhance the WORLDSPAN System in its sole
discretion at any time during the Term, including but not limited to, the right
to migrate MICROSOFT and MICROSOFT System users to new computer reservation
systems created or used by WORLDSPAN, provided that any such modifications,
enhancements and/or migration shall not materially adversely alter any of the
CRS Services, including specifically the functionality associated with the
development items set forth on Schedule 2.2 attached hereto. MICROSOFT agrees
that it will take reasonable steps to administer the use of the WORLDSPAN System
by MICROSOFT System Users, including but not limited to using all commercially
reasonable efforts to terminate the access of such users who MICROSOFT or
WORLDSPAN determines use the WORLDSPAN System improperly. Improper use of the
WORLDSPAN System shall include: transmitting personal messages; making
speculative or improper bookings; training anyone other than MICROSOFT
employees, contractors or MICROSOFT System users; entering passive booking codes
(e.g., GK, HK, MK or BK codes) when no corresponding space has been reserved
with the transporting carrier's internal reservation system; or failing to
remove such passive bookings from the WORLDSPAN System if the corresponding
space is canceled via telephone or by other means.
5. MICROSOFT's Obligations
-----------------------
MICROSOFT will develop, at its own expense, the capability for
MICROSOFT System users to make reservations on airlines, cars, hotels, tours,
cruises and other products and services distributed through the WORLDSPAN
System. For a five (5) month period following implementation of the WORLDSPAN
System through the MICROSOFT System, MICROSOFT will use reasonable business
efforts to construct its travel reservations facilities available through the
MICROSOFT System in a way to promote the making of reservations and bookings to
generate a stream of chargeable transactions through the WORLDSPAN System.
Thereafter, MICROSOFT and WORLDSPAN shall agree upon the appropriate level of
promotion of the WORLDSPAN System given the then-existing business
circumstances. MICROSOFT makes no representation or warranty about the volume of
chargeable transactions that will be generated by MICROSOFT System users or the
ratio of chargeable transactions to total transactions.
6. Attribution
-----------
At WORLDSPAN's request, MICROSOFT shall include in a screen or page
provided as a part of any fixed media product utilizing data or information
provided from the WORLDSPAN System that WORLDSPAN has supplied such data or
information.
4
<PAGE>
7. Term
----
7.1 Unless earlier terminated as provided herein, the term of this
Agreement (the "Term") shall commence as of the date first written above on page
one, and shall continue thereafter for a period of ten (10) years.
7.2 This Agreement may be terminated as follows:
7.2.1 Either WORLDSPAN or MICROSOFT may terminate this Agreement
(a) following six (6) months prior notice if the parties have failed to reach an
agreement according to either Section 2.1.2 or Section 11.2 or Schedule 2.1.2 of
this Agreement, or (b) upon the occurrence of an Event of Default by the other
party.
7.2.2 An Event of Default with respect to MICROSOFT shall mean
that:
(a) MICROSOFT defaults in making any payment hereunder
when the same becomes due and payable, and such default continues for a
period of thirty (30) days after notice thereof in writing from WORLDSPAN;
or
(b) MICROSOFT fails to comply with any of its other
material covenants or agreements in this Agreement and such default
continues for a period of thirty (30) days after notice thereof in writing
from WORLDSPAN.
7.2.3 An Event of Default with respect to WORLDSPAN shall mean
that:
(a) WORLDSPAN fails to provide the CRS Services, which
failure is not cured by WORLDSPAN not more than sixty (60) days after
notice thereof in writing from MICROSOFT; or
(b) WORLDSPAN fails to comply with any of its other
material covenants or obligations in this Agreement and such default
continues for a period of thirty (30) days after notice thereof in writing.
7.3 If MICROSOFT makes any assignment for the benefit of creditors or
becomes insolvent, or if WORLDSPAN has reason to believe MICROSOFT is not
generally paying its bills when due, or if federal, state or common law
bankruptcy or insolvency proceedings are commenced with respect to MICROSOFT, or
if a receiver of MICROSOFT assets is appointed, or if MICROSOFT shall take any
step leading to its cessation as a going concern, or if MICROSOFT shall cease
operations for reasons other than a strike, then in any of the foregoing events
WORLDSPAN may immediately cancel this Agreement on notice to MICROSOFT, or, at
WORLDSPAN's option require MICROSOFT to give adequate assurance of future
performance of this Agreement by immediately curing any default hereunder and
establishing any irrevocable letter of credit issued by a bank and on terms and
conditions acceptable to WORLDSPAN in an amount sufficient to cover all amounts
potentially due from MICROSOFT under this Agreement and which may be drawn upon
WORLDSPAN upon the sole condition that MICROSOFT does not fulfill its
obligations under this Agreement in a timely manner.
5
<PAGE>
7.4 If WORLDSPAN makes any assignment for the benefit of creditors or
becomes insolvent, or if MICROSOFT has reason to believe WORLDSPAN is not
generally paying its bills when due, or if federal, state or common law
bankruptcy or insolvency proceedings are commenced with respect to WORLDSPAN, or
if a receiver of WORLDSPAN's assets is appointed, or if WORLDSPAN shall take any
step leading to its cessation as a going concern, or if WORLDSPAN shall cease
operations for reasons other than a strike, then in any of the foregoing events
MICROSOFT may immediately cancel this Agreement on notice to WORLDSPAN, or, at
MICROSOFT's option require WORLDSPAN to give adequate assurance of future
performance of this Agreement by immediately curing any default hereunder and
establishing any irrevocable letter of credit issued by a bank and on terms and
conditions acceptable to MICROSOFT in an amount sufficient to cover all amounts
potentially due from WORLDSPAN under this Agreement and which may be drawn upon
MICROSOFT upon the sole condition that WORLDSPAN does not fulfill its
obligations under this Agreement in a timely manner.
7.5 MICROSOFT shall have the option to terminate this Agreement upon
written notice to WORLDSPAN in the event that WORLDSPAN migrates MICROSOFT and
MICROSOFT System users to a computer reservation system not operated by
WORLDSPAN. In addition, either party may terminate this Agreement upon written
notice to the other in the event of an assignment of this Agreement by the other
party to a third party. For purposes of this Section 7.5, an assignment shall
include (i) any transfer of an ownership interest in WORLDSPAN or MS to a
person, group, or entity that would result in that person, group or entity
acquiring control of such party, or (ii) any transfer by either party of all or
substantially all of its assets.
8. Additional Development Services
-------------------------------
In addition to development otherwise required to be done by WORLDSPAN
pursuant to this Agreement, MICROSOFT may request that WORLDSPAN develop
additional enhancements, improvements or changes to the WORLDSPAN System for the
benefit of MICROSOFT System users. Subject to the availability of programming
resources and provided the enhancements, improvements, or changes do not
adversely impact the existing performance standards of the WORLDSPAN System,
WORLDSPAN shall provide Additional Development Services to complete such
requested development.
9. Charges/Payment
---------------
9.1 MICROSOFT shall pay WORLDSPAN'S standard hourly rate for
Additional Development Services provided pursuant to this Agreement.
9.2 MICROSOFT shall pay all amounts hereunder calculated pursuant to
the formulas and otherwise in the manner set forth in this Agreement. Payment
shall be made within thirty (30) days of each monthly invoice.
6
<PAGE>
10. Ownership, No Other License
---------------------------
10.1 The WORLDSPAN System, including all Intellectual Property
Rights therein, shall be owned or retained, to the fullest extent legally
permitted under all applicable laws, by WORLDSPAN. MICROSOFT shall execute such
instruments, agreements and acknowledgments as WORLDSPAN shall require to
transfer and assign any and all of MICROSOFT's rights in and to such
Intellectual Property Rights therein to WORLDSPAN. In addition to any other
rights WORLDSPAN may have, WORLDSPAN shall be permitted to license or market to
any third party all or portions of the WORLDSPAN System or the WORLDSPAN
Software.
10.2 The MICROSOFT System, including all Intellectual Property
Rights therein, shall be owned or retained, to the fullest extent legally
permitted under all applicable laws, by MICROSOFT. WORLDSPAN shall execute such
instruments, agreements and acknowledgments as MICROSOFT shall require to
transfer and assign any and all of WORLDSPAN's rights in and to such
Intellectual Property Rights therein to MICROSOFT. In addition to any other
rights MICROSOFT may have, MICROSOFT shall be permitted to license or market to
any third party all or portions of the MICROSOFT System or the MICROSOFT
Software.
10.3 Nothing herein shall be construed as granting or conferring
upon a party a license or right to use the name or any Trademark, logo, or mark
of the other party.
11. Financial Arrangements
----------------------
11.1 WORLDSPAN acknowledges that the MICROSOFT System is a new
service and, accordingly, neither MICROSOFT nor WORLDSPAN can anticipate the
number of transactions through the WORLDSPAN System that will be generated by
MICROSOFT System users nor all of the revenues or expenses that will accrue to
either party or the number of transactions that will be generated by MICROSOFT
System users. As additional consideration for the promises made by WORLDSPAN in
this Agreement, MICROSOFT agrees that if revenues payable by Travel Suppliers to
WORLDSPAN for transactions generated by MICROSOFT System users are less than One
Hundred Thousand Dollars ($100,000.00) during the five (5) month period
following implementation of the WORLDSPAN System through the MICROSOFT System
(including the development items set forth on Schedule 2.2), then MICROSOFT
shall pay to WORLDSPAN:
(i) the amount by which the actual amount of revenues payable is less than
$100,000.00; and
(ii) the amount equal to WORLDSPAN's out of pocket costs paid to third
party telecommunications suppliers for the leased communications lines from
the WORLDSPAN System to the Microsoft System in Bellevue, Washington.
WORLDSPAN shall make available to MICROSOFT upon request any of its books,
records and regularly generated reports as are reasonably necessary to confirm
the average amounts charged for air bookings in 1995 and 1996.
7
<PAGE>
11.2 Other than payments made by MICROSOFT for Additional
Development Services and the amount to be paid by MICROSOFT, if any, pursuant to
section 11.1 above, MICROSOFT and WORLDSPAN agree that each shall bear any and
all expenses incurred in the performance of this Agreement and each shall be
entitled to retain any and all revenues arising out of this Agreement for the
period ending January 31, 1997. Not later than August 1, 1996, the parties shall
begin to confer for the purposes of determining the need for making any change
to the financial aspects of this Agreement for the period after January 31,
1997, principally the sharing of revenues received by WORLDSPAN from Travel
Suppliers for bookings and reservations made by MICROSOFT System users and
expenses incurred by WORLDSPAN in excess of the anticipated expenses. In the
event the parties are unable to agree to the financial aspects by November 30,
1996, either party may terminate this Agreement pursuant to Section 7.2.
12. Confidentiality
---------------
12.1 The Non Disclosure Agreement shall be in effect throughout the
Term and shall continue according to its terms.
12.2 Notwithstanding the foregoing, if either party receives a
subpoena, civil investigative demand, or any other order, demand or request for
the Confidential Information of the other party (the "Owning Party"); or if
there is any change in law, statute or regulation that requires the disclosure
or delivery of such information to any third party, then the party that would
respond or otherwise be required to make the delivery, disclosure or response
shall give written notice to the Owning Party. The Owning Party shall have ten
(10) business days following such notice to make any motion to quash, file any
objection or protest, or otherwise take any action deemed necessary and
appropriate to prevent such disclosure and, during such ten (10) day period, the
other party will make no delivery, disclosure or response with respect to the
Confidential Information of the Owning Party.
13. Force Majeure
-------------
13.1 WORLDSPAN shall have no liability to MICROSOFT or any other
person for malfunctions, errors or interruptions in the operation of the
WORLDSPAN System or non-performance or delays in performance hereunder caused by
acts of God, strikes, labor disputes, fires, delays of suppliers of goods or
services, acts or omissions of sovereign states or airline industry associations
(including but not limited to ATA, ACH, ARC and IATA) or for any other cause
beyond the control of WORLDSPAN, and no such malfunction, interruption, non-
performance or delay shall constitute an Event of Default with respect to
WORLDSPAN or MICROSOFT hereunder.
13.2 MICROSOFT shall have no liability to WORLDSPAN or any other
person for malfunctions or interruptions in the operation of the MICROSOFT
System or non-performance or delays in performance hereunder caused by acts of
God, strikes, labor disputes, fires, delays of suppliers of goods or services,
acts or omissions of sovereign states or airline industry associations
(including but not limited to ATA, ACH, ARC and IATA) or for any other cause
beyond the control of MICROSOFT, and no such malfunction, interruption, non-
performance or delay shall constitute an Event of Default with respect to
MICROSOFT or WORLDSPAN hereunder.
8
<PAGE>
14. Indemnification
---------------
14.1 WORLDSPAN and MICROSOFT each agree to indemnify, defend and
hold harmless the other and the other's directors, officers, partners,
affiliates, and employees from any and all Loss arising out of: (a) the death or
bodily injury of any agent, employee, contractor, customer, business invitee or
business visitor of the indemnitor; and (b) the damage, loss or destruction of
any real or tangible personal property of the indemnitor, including but limited
to the loss of use thereof.
14.2 WORLDSPAN and MICROSOFT each agree to indemnify, defend and
hold harmless the other and the other's directors, officers, partners,
affiliates, and employees from any and all Loss arising out of any claims or
infringement of any Intellectual Property Right conferred by contract or by
common law or by any law of the United States or any state alleged to have
occurred because of any service, data, or Confidential Information provided or
work performed by the indemnitor; provided, however, that this indemnity shall
not apply unless the party claiming indemnification notifies the other promptly
of any matters in respect of which the foregoing indemnity may apply and of
which the notifying party has knowledge and gives the other full opportunity to
control the response thereto and defense thereof, including, without limitation
any agreement relating to the settlement thereof.
14.3 MICROSOFT agrees to indemnify, defend, and hold harmless
WORLDSPAN and its directors, officers, partners, affiliates, and employees from
any and all Loss incurred by WORLDSPAN arising out any claim by a MICROSOFT
System user using the WORLDSPAN System, except for or to the extent that any
such Loss is due to the negligence of WORLDSPAN.
14.4 WORLDSPAN agrees to indemnify, defend, and hold harmless
MICROSOFT and its directors, officers, partners, affiliates, and employees from
any and all Loss incurred by MICROSOFT arising out any claim by a MICROSOFT
System user using the WORLDSPAN System to the extent that any such Loss is due
to the negligence of WORLDSPAN.
14.5 Each of the indemnities set forth in this Section shall apply
to each applicable Loss described above that results from any cause (including
the negligence of the indemnified party) but shall not apply to the extent such
applicable loss results solely from the gross negligence or willful misconduct
of the indemnified party or such indemnity is otherwise prohibited by applicable
law.
15. Insurance
---------
15.1 WORLDSPAN shall maintain a Comprehensive General Liability
insurance policy, including worldwide coverage, in the amount of no less than
U.S. One Million and no/100 Dollars ($1,000,000.00) per occurrence with a U.S.
Two Million and no/100 Dollars ($2,000,000.00) aggregate. Such coverage shall
include contractual liability coverage for the indemnification obligations
contained herein, products hazard coverage and broad form property coverage. In
addition, WORLDSPAN shall maintain an umbrella liability insurance policy or
policies in an amount no less than U.S. Five Million and no/100 Dollars
($5,000,000.00).
9
<PAGE>
15.2 WORLDSPAN shall maintain the insurance or policies as required
in subsection 15.1 above as follows:
15.2.1 WORLDSPAN hereto shall provide to MICROSOFT a
Certificate of Insurance, in a form reasonably acceptable to MICROSOFT, for each
of the policies of insurance required by this Section. Each Certificate of
Insurance with respect to the policies of insurance required by this Section
must name MICROSOFT as an additional insured.
15.2.2 Each insurance policy including renewal insurance, or
Certificates of Insurance shall contain an agreement by the insurer that it
shall give no less than thirty (30) days written notice of cancellation, intent
not to renew, or reduction of material change in coverage. WORLDSPAN shall
provide MICROSOFT no less than ten (10) days prior written notice of any such
notice set forth in this Section.
15.2.3 Each Certificate of Insurance required hereby shall be
delivered to MICROSOFT within ten (10) business days after the effective date or
renewal of the respective policy, as applicable.
16. Regulatory Compliance
---------------------
WORLDSPAN and MICROSOFT shall comply with all ATA, ACH, ARC, IATA and other
travel industry and other governmental and regulatory rules and regulations, and
all laws, statutes, ordinances and regulations in each case, applicable to this
Agreement, to the parties, and to the services provided hereunder. WORLDSPAN
reserves the right to modify or eliminate any CRS Service if the provision of
such service might constitute a violation of any applicable statute, law,
ordinance, industry rule or regulation or order of a court or judicial or
administrative body.
17. Successors
----------
Neither party shall assign its interest in this Agreement; provided,
however, that (subject to Section 7.5) either party may assign this Agreement
upon thirty (30) days prior written notice to a wholly-owned subsidiary or to an
entity to which substantially all of the assets of the assigning party are being
transferred if such assignee assumes and agrees to perform all of the
obligations of the assignor. This Agreement shall be binding upon the parties
hereto and their successors and assigns and all persons claiming under or
through them or any such successor or assign.
18. Entire Agreement
----------------
This Agreement and the Non Disclosure Agreement, together with any
appendices, schedules and exhibits to either this Agreement and the Non
Disclosure Agreement, constitute the entire agreement and understanding of the
parties and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
This Agreement and the Non Disclosure Agreement may be amended only by a further
writing duly executed by authorized representative of the parties.
10
<PAGE>
19. Governing Law
-------------
19.1 Governing Law. This agreement shall be governed by, and shall
-------------
be performed, enforced and construed in accordance with, the laws of the United
States and the State of Washington (other than its rules on conflicts of laws).
19.2 Jurisdiction, Forum. Each Party irrevocably submits to the
-------------------
non-exclusive jurisdiction of the Courts of the State of Georgia and Washington
and the United States Federal Courts sitting in Georgia and Washington. Each
party shall appoint an agent for services of process in the States of Georgia
and Washington (and notify the other party of the name and address of such
agent) and shall maintain such agent at all times unless it shall designate and
notify the other of a reasonably satisfactory successor agent or agents.
19.3 Negotiation of Provisions. The parties agree that the choice
-------------------------
of law and forum provisions of this Section 19 have been negotiated in good
faith and agreed upon by the parties hereto and are reasonable. The parties, by
their due execution of this Agreement, expressly agree, to the fullest extent
permitted by law, not to challenge the choice of law or forum provisions
contained in this Section 19.
20. No Third Party Beneficiaries
----------------------------
None of the provisions of this Agreement shall be for the benefit of or
enforceable by or against any person other than a party, including without
limitation, any creditor of WORLDSPAN or of MICROSOFT.
21. Cooperation and Further Assurances
----------------------------------
Each party hereto agrees to execute, acknowledge, deliver, file and record
such further certificates, instruments and documents, and to do such other acts
and things as may be required by law, or as may, in the reasonable opinion of
the counsel of either party, be necessary or advisable to carry out the full
intent and purposes of this Agreement. In addition, each party agrees to provide
to the other party, as soon as practicable after receipt of a request and
subject to applicable laws and regulations, such financial data or other
information as may be necessary for compliance with the requirements of any
federal, state or local law or regulations or any governmental agency or
authority applicable to a party or its affiliates; provided, however, that the
requesting person shall bear any outside reasonable accounting, legal, and
third-party costs and expenses incurred in fulfilling any such request. Each
party agrees to keep confidential and not use in any matter, other than as
contemplated in this Section 21, financial data or other information or
documents furnished pursuant to this Agreement unless ascertainable from public
or published information or trade sources, or already known to our subsequently
developed by such party independently, or received from a third party not under
an obligation to keep confidential such financial data, other information or
documents. Both parties also agree to confer on mutually beneficial projects,
such as, but not limited to, Net Fares support with possible incentives for the
Net Fares program, during the term of this Agreement.
11
<PAGE>
22. Expenses
--------
Each party hereto shall assume and pay its own expenses incident to the
negotiation, execution and performance of this Agreement.
23. Waivers
-------
The terms of this Agreement may be waived only by a written instrument
signed by the party which would have been able to require compliance. No delay
on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof. No waiver on the part of either
party of any such right, power or privilege, shall preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
24. Notices
-------
24.1 All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed given: (a) when received
if delivered personally; (b) on the next business day if sent by overnight
service prepaid with instructions for next business day delivery; or (c) on the
day of transmission if telecopied or telegraphed (transmission confirmed), to
the parties at the following addresses and numbers (or to such other persons,
addresses and numbers as a party may have specified by notice given to the other
party pursuant to this provision):
If to WORLDSPAN:
WORLDSPAN, L.P.
300 Galleria Parkway, NW., Suite 2100
Atlanta, Georgia 30339
Attention: Chief Executive Officer
Telecopier No.: (770) 563-7878
with a copy to:
WORLDSPAN, L.P.
300 Galleria Parkway, NW., Suite 2100
Atlanta, Georgia 30339
Attention: Vice President, General Counsel and Secretary
Telecopier No.: (770) 563-7878
If to MICROSOFT:
MICROSOFT CORPORATION
One MICROSOFT Way
Redmond, Washington 98052-6399
Attention: Product Unit Manager - Travel Products Group
Telecopier No.: (206) 936-7329
12
<PAGE>
with a copy to:
MICROSOFT CORPORATION
One MICROSOFT Way
Redmond, Washington 98052-6399
Attention: Legal Department
Telecopier No.: (206) 936-7329
24.2 If either party gives a notice regarding any alleged breach or
default of any term of this Agreement, then such party shall include prominently
on such notice the legend "Notice of Claim of Breach of Contract" or words to
the same effect.
25. Headings
--------
The headings of this Agreement are for reference purposes only and are to
be given no effect in the construction or interpretation of this Agreement.
26. Severability
------------
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
27. Counterparts
------------
This Agreement may be executed in counterparts, each of which shall be an
original and all of which shall together constitute one and the same instrument.
28. WARRANTY DISCLAIMER
-------------------
28.1 MICROSOFT, ON BEHALF OF ITSELF, ITS SUBSIDIARIES, AFFILIATES, AND
SUBSCRIBERS, ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE PROVIDED HEREIN,
NEITHER WORLDSPAN, ITS PARTNERS, AFFILIATES, NOR ANY SERVICE PROVIDER OR OTHER
SUPPLIER OF DATA PROVIDED THROUGH THE WORLDSPAN SYSTEM WARRANTS THE ACCURACY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SOFTWARE, DATA OR
EQUIPMENT. MICROSOFT FURTHER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE
PROVIDED HEREIN, WORLDSPAN, ITS PARTNERS, AND AFFILIATES DO NOT MAKE ANY
REPRESENTATIONS OR WARRANTIES CONCERNING THE PARTICIPATION OR IDENTITIES OF
TRAVEL SUPPLIERS OR VENDORS IN THE WORLDSPAN SYSTEM. EXCEPT AS OTHERWISE
PROVIDED HEREIN, NO WARRANTIES, GUARANTEES OR REPRESENTATIONS OF ANY KIND,
EXPRESSED OR IMPLIED, ARE MADE BY WORLDSPAN WITH RESPECT TO THE WORLDSPAN SYSTEM
OR ANY WORLDSPAN SOFTWARE, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
13
<PAGE>
28.2 WORLDSPAN, ON BEHALF OF ITSELF, ITS SUBSIDIARIES, AFFILIATES, AND
SUBSCRIBERS, ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE PROVIDED HEREIN,
NEITHER MICROSOFT, ITS AFFILIATES, NOR ITS AGENTS WARRANTS THE ACCURACY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SOFTWARE, DATA OR
EQUIPMENT. WORLDSPAN FURTHER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE
PROVIDED HEREIN, MICROSOFT, ITS PARTNERS, AND AFFILIATES DO NOT MAKE ANY
REPRESENTATIONS OR WARRANTIES CONCERNING THE PARTICIPATION LEVEL OF USERS THE
MICROSOFT SYSTEM OR THE REVENUES THAT MIGHT BE GENERATED THEREBY. EXCEPT AS
OTHERWISE PROVIDED HEREIN, NO WARRANTIES, GUARANTEES OR REPRESENTATIONS OF ANY
KIND, EXPRESSED OR IMPLIED, ARE MADE BY MICROSOFT WITH RESPECT TO THE MICROSOFT
SYSTEM, ITS SUBSCRIBERS, OR ANY MICROSOFT SOFTWARE, INCLUDING WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed by its respective officer thereunto duly authorized as of the day
and year first above written.
MICROSOFT CORPORATION WORLDSPAN, L.P.
/s/ Patty Stonesifer /s/ Mike Buckman
- --------------------------------- --------------------------------
By (sign) By (sign)
Patty Stonesifer Mike Buckman
- --------------------------------- --------------------------------
Senior Vice President - Consumer Chief Executive Officer, pursuant to
Division a delegation of authority by the
General partners of WORLDSPAN, L.P.
12/22/95
- --------------------------------- ________________________________
Date Date
14
<PAGE>
SCHEDULE 1
DEFINITIONS RELATING TO THE
CRS MARKETING, SERVICES AND DEVELOPMENT AGREEMENT
"ACH" means the Airlines Clearing House
"ARC" means the Airlines Reporting Corporation
"ATA" means the Airline Transport Association
"Additional Development Services" means programming services provided by
WORLDSPAN pursuant to Section 8 of the Agreement to create improvements and
enhancements to the WORLDSPAN System for the benefit of MICROSOFT.
"Computer Reservation System" or "CRS" means an automated system used by travel
agents and other non-airline personnel under contractual agreement, containing
information about the availability of travel related services and goods.
"Confidential Information" shall have the meaning set forth in the Non
Disclosure Agreement. This Agreement shall also be considered Confidential
Information of each party with respect to the other party.
"Contracts" means contracts, leases, sales orders, licenses, agreements,
permits, plans, purchase orders, commitments, collective bargaining agreements,
and other binding arrangements (including, without limitation, capital
commitments and arrangements with respect to construction in progress), whether
oral or written, express or implied.
"CRS Services" means all of the information, data, services, features and
functions of the WORLDSPAN System made available to all Travel Agent customers
of WORLDSPAN from time to time.
"Event of Default" has the meaning assigned in Section 7 of the Agreement.
"Fares/Pricing Services" means the services provided to MICROSOFT through the
WORLDSPAN System with respect to information on fares and the automatic
calculation of prices for air travel itineraries for MICROSOFT System users.
"IATA" means the International Air Transport Association.
"Intellectual Property Right" means each (a) Patent, (b) Trademark, (c) trade
name, (d) knowhow, (e) shop right, (f) copyright, (g) service mark, (h) trade
secret, (i) invention and (j) any Intellectual Property Right.
"Loss" means loss, liability (whether accrued, absolute, contingent, or
otherwise), damages, deficiencies, expenses (including without limitation, fees
and disbursements of counsel and expenses of investigation), claims, liens or
other obligations whatsoever.
15
<PAGE>
"MICROSOFT Network" means the telecommunications network operated and/or managed
by MICROSOFT.
"MICROSOFT Software" means the computer programs and associated documentation,
including source code, used by MICROSOFT in the MICROSOFT Network or otherwise
developed by or licensed to MICROSOFT.
"MICROSOFT System" means the computer hardware, software and related devices and
systems used by, or operated for the benefit of, MICROSOFT to provide an Online
System to customers and MICROSOFT internal users including, without limitation,
the MICROSOFT Software and the MICROSOFT Network. The MICROSOFT System does not
include the WORLDSPAN System.
"MICROSOFT System user" means any person or entity who is entitled to use the
MICROSOFT System.
"Network Services" means data communication services provided through a network.
"Non Disclosure Agreement" means that Microsoft Corporation Non-Disclosure
Agreement between MICROSOFT and WORLDSPAN dated February 10, 1995.
"Online System" means any system or combination of systems for distributing
electronic content or an electronic product or service, digital or otherwise,
via transmission, directly or indirectly, to users, whether over telephone
lines, cable television systems, optical fiber connections, cellular telephones,
satellites, wireless broadcast, or other mode of transmission now known or
subsequently developed.
"Operational Emergency" means (i) any disruption in or impairment of the
operation of the WORLDSPAN System that causes a material interruption in the
normal business operations of any WORLDSPAN Hosted Carrier, or (ii) any problem
or defect in the WORLDSPAN System which, in the reasonable opinion of WORLDSPAN,
either (x) impairs the ability of aircraft of any such carrier to operate safely
pursuant to the laws, rules or regulations of any jurisdiction governing the
flight of such aircraft or (y) poses any imminent risk that the airline
operations conducted by any such carrier will suffer any event, occurrence or
delay that poses a material threat to the safe operation of any aircraft.
"Patents" means patents (including all reissues, divisions, continuation and
extensions thereof), patent applications, patent disclosures docketed and all
other patent rights.
"Person Month" means the equivalent of one person working on average one hundred
seventy (170) hours for a period of thirty (30) consecutive days.
"Power Shopper" means the functionality provided through the WORLDSPAN System to
permit a user to automatically retrieve the lowest priced travel option as more
fully defined in the document entitled "WORLDSPAN Super Transaction
Implementation Guide" as modified on November 13, 1995.
16
<PAGE>
"Response Time" means the time elapsed between delivery of a message to the
WORLDSPAN System, until the response to that message leaves the WORLDSPAN System
(exclusive of the WORLDSPAN Network).
"Rollout Date" means the date that Power Shopper has been through alpha testing,
that changes and/or fixes arising out of alpha testing have been implemented by
WORLDSPAN, and Power Shopper is then released to MICROSOFT for beta testing.
"Term" shall have the meaning assigned in Section 7 of the Agreement.
"Territory" means the geographic territory defined by IATA as Traffic
Conferences 1 and 2, which includes all of the North and South American
continents and adjacent islands, Greenland, Bermuda, the West Indies and Islands
of the Caribbean, the Hawaiian Islands (including Midway and Palmyra), all of
Europe and adjacent islands, Iceland, the Azores, all of Africa and adjacent
islands, Ascension Island and that part of Asia lying west of and including
Iran.
"Trademark" means a trademark, service mark or an application for either.
"Training Materials" means books, instructions, charts, information or programs
used or useful in training or educating a Travel Agent in operating the
WORLDSPAN System, regardless of whether such materials are made available in
print, electronic media, online or otherwise.
"Travel Agent" means each wholesaler, agent or other person who makes travel
arrangements for others for airlines, trains, buses, cruise ships, hotels, car
rentals and the like as well as any corporate travel department, but shall not
include any Travel Supplier.
"Travel Supplier" means each airline, hotel, car rental company, cruise line or
other entity providing travel related goods or services.
"WORLDSPAN Hosted Carrier" means any WORLDSPAN Partner which receives its
internal reservation and/or flight operations functions from the WORLDSPAN
System.
"WORLDSPAN Network" means the telecommunications network operated and/or managed
by WORLDSPAN.
"WORLDSPAN Partner" means any airline that owns, directly or indirectly, an
equity interest in WORLDSPAN, L.P.
"WORLDSPAN Software" means the computer programs and associated documentation,
including source code, used by WORLDSPAN in connection with the operation of the
WORLDSPAN System, including all Improvements.
17
<PAGE>
"WORLDSPAN System" means the computer hardware, software and related devices and
systems used by WORLDSPAN to provide services to MICROSOFT pursuant to the
Agreement including, without limitation, the WORLDSPAN Software and the
WORLDSPAN Network.
"WORLDSPAN Training Materials" means training manuals, books, software and other
materials used or useful in connection with training for WORLDSPAN's Travel
Agent customers.
18
<PAGE>
SCHEDULE 2.1.2
WORLDSPAN INITIAL MINIMUM CAPACITY REQUIREMENTS
WORLDSPAN will provide initial capability to process up to [*] concurrent TPF
transactions during peak hours (7am-7pm EST) and up to [*] concurrent TPF
transactions during off peak hours (7pm-7am EST) submitted from MICROSOFT. This
capacity is expected to be sufficient to process [*] Super Transactions per
second during peak hours and up to [*] super Transactions per second during off-
peak hours. This will be implemented in the form of [*] of terminal addresses
which MICROSOFT can access through the WORLDSPAN Auxiliary Processor. WORLDSPAN
will provide one half the number of terminal addresses guaranteed for the
beginning phase of production by February 15, 1996. During the period February
15, 1996 to August 14, 1996, for agreed upon scheduled periods of at least ten
(10) days every two (2) months, full initial capacity as described above will be
made available for the purpose of stress testing.
WORLDSPAN SYSTEM AVAILABILITY OBJECTIVE
The CRS Services will be available to MICROSOFT on average during any
consecutive month period at least [*] of the time.
Regarding Power Shopper: given that MICROSOFT does not submit at a higher rate
than [*] Power Shopper request per [*] seconds during peak hours (7am-7pm EST)
and [*] Power Shopper per second during off peak hours (7pm-7am EST)WORLDSPAN
will provide a substantive, accurate response [*] of the time.
Prior to Rollout Date
MICROSOFT and WORLDSPAN agree to:
1. Identify all unique Super Transactions which will be generated by MICROSOFT
for processing by the WORLDSPAN System and identify the average TPF
Transaction rate per Super Transaction.
2. Identify profile of Super Transactions activity to include estimates of rates
for entire 24-hour daily periods.
3. Measure current Response Time levels provided to Travel Agent and other
customers of WORLDSPAN System using identical or similar Super Transactions.
4. Identify and implement any necessary changes to the WORLDSPAN System to make
Response Times to MICROSOFT comparable to measurements from point 3 above.
5. MICROSOFT will make changes to its message structure as suggested by
WORLDSPAN to improve Response Times providing the changes do not materially
impact the functionality provided to MICROSOFT System users.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
19
<PAGE>
Prior to end of Beta Test
- -------------------------
WORLDSPAN and MICROSOFT will mutually agree to the documentation and acceptance
of Response Time objectives above.
The Response Time objectives above shall be available no later than August 14,
1996. In the event the parties are unable to agree to the Response Times to be
imposed during the term of this Agreement, either party may terminate this
Agreement pursuant to Section 7.2.
<PAGE>
SCHEDULE 2.2
WORLDSPAN DEVELOPMENT ITEMS AND DELIVERY DATES
This schedule defines additional functionality in addition to the CRS Services
that WORLDSPAN will provide to MICROSOFT pursuant to the Agreement. Also defined
is the nature and responsibility for the communication link between WORLDSPAN
and MICROSOFT and standards for WORLDSPAN System availability to MICROSOFT
during development.
General Nature of Work
MICROSOFT requires a set of changes to the WORLDSPAN System in order to build
the initial version of the product to be included with the Microsoft System.
Other changes may be necessary to support future versions. The changes described
in this subsection are general only, and more detailed descriptions follow
below. Although all requests in this Schedule 2.2 refer to Super Transaction,
other functionally similar structured message interfaces may be substituted
following MICROSOFT's consent. The changes fall into four categories:
1. Provide functionality through the Super Transaction API that exists on the
native host systems but is not currently available through Super Transaction.
Where practical, MICROSOFT will in its discretion attempt to leverage the
existing capability of the host systems and not require new functionality at the
host level. However, new host system capability may be needed in some areas.
2. Provide enhanced shopping capabilities.
3. Provide support for automating processes that an experienced travel agent
could perform using the existing WORLDSPAN System. For example, interpreting
fares rules and applying applicable discounts.
4. Support MICROSOFT's ability to provide travel agency operations (ticketing,
queue management, etc.) and telephone support, either directly or through
agreement with third parties.
Existing Functionality
MICROSOFT will have the ability to use all functionality described in "WORLDSPAN
Super Transaction Specifications" dated December 1, 1995. All functionality
described in the Specifications will work as documented. Any functionality
described in the Specifications but not yet implemented will be accessible by
MICROSOFT by December 15, 1995.
All transactions will return complete, accurate and reliable information. [*] of
all software defects reported by MICROSOFT will be resolved in 30 days or less
unless by mutual agreement the time limit is extended. Resolution will either
mean the defect is fixed or a suitable work around is identified. A "software
defect" means any documented occurrence of an instance where the software does
not perform according to its published specifications.
Summary of the Requirements for New Work
The following enhancements will be required:
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
21
<PAGE>
Air Transactions
- ----------------
[*]
Hotels
- ------
[*]
Other
- -----
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
22
<PAGE>
Communication Links
- -------------------
WORLDSPAN will provide the following communication links with MICROSOFT:
The existing dial-in X.25 link to Atlanta provided for test purposes shall
continue through the Term of the Agreement. MICROSOFT pays for the phone costs
and WORLDSPAN maintains the internal connections and hardware to WORLDSPAN's
systems.
By November 30, 1995, WORLDSPAN will provide a leased line X.25 connection to
the point-of-presence at the local telephone provider in Bellevue Washington.
This will operate at speeds no less than 56KB/sec. WORLDSPAN will pay for all
traffic generated and the cost of installation to the point-of-presence. This
line will be used for continued test and development of the products. This will
be maintained for the Term of the Agreement.
By January 1, 1996, WORLDSPAN will provide one leased line X.25 connection to a
point of presence identified above to WORLDSPAN production facilities. This will
operate at speeds no less than 56KB/sec. WORLDSPAN will pay for all traffic
generated and the cost of installation to the point-of-presence. This line will
be used for final beta testing. This will be maintained for the Term of the
Agreement.
By February 15, 1995, WORLDSPAN will provide two more leased lines X.25
connection to a point of presence identified above to WORLDSPAN production
facilities. These will operate at speeds no less than 56KB/sec. WORLDSPAN will
pay for all traffic generated and the cost of installation to the point-of-
presence. This line will be used for production uses. This will be maintained
for the Term of the Agreement.
For each communications facility described above, WORLDSPAN will provide the
same level availability as provided to its highest volume travel agencies using
similar facilities.
The technology used to support any of the above links can be modified to provide
higher bandwidth, lower cost or better security so long as such modifications do
not materially adversely affect WORLDSPAN's performance standards hereunder.
23
<PAGE>
AMENDMENT NO. 1
TO CRS MARKETING, SERVICES AND DEVELOPMENT AGREEMENT
THIS AMENDMENT NO. 1 TO CRS MARKETING, SERVICES AND DEVELOPMENT AGREEMENT, dated
and effective as of January 1, 1997 ("Amendment"), by and between Microsoft
Corporation, a Washington corporation ("MICROSOFT") with its principal office at
One Microsoft Way, Redmond, Washington 98052, and WORLDSPAN, L.P., a Delaware
limited partnership ("WORLDSPAN"), with its principal office at 300 Galleria
Parkway, NW, Atlanta, Georgia 30339.
MICROSOFT and WORLDSPAN are parties to that certain CRS Marketing, Services and
Development Agreement dated December 15, 1995 (the "Agreement").
WORLDSPAN and MICROSOFT now desire to modify the Agreement.
Now, Therefore, in consideration of the above recitals, the mutual undertakings
of the parties as contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties to
this Amendment hereby agree as follows:
1. Definitions
-----------
Terms in capitalized form used in this Amendment shall have the meanings
set forth in Schedules 1 and 2.1.2. Terms in capitalized form not defined in
this Amendment shall have the meanings set forth in the Agreement.
2. Travel Supplier Billings
------------------------
A new Section 29 is hereby added to the Agreement to provide as follows:
29. Travel Supplier Billings
------------------------
29.1 Notwithstanding anything in this Agreement to the contrary,
commencing with Car and Hotel Bookings as of January 1, 1997,
WORLDSPAN agrees to prepare and deliver to MICROSOFT and/or its
designated service provider reasonably approved by WORLDSPAN, a report
showing the Car and Hotel Bookings made through MICROSOFT System
during the preceding calendar month (the "Booking Report"). The
Booking Reports shall be delivered not more than ten (10) days
following the end of the month in which the Car and Hotel Bookings
occurred. Each Booking Report shall be provided in printed form and on
electronic media according to the following specifications: delimited
text file and print file, both available for download via modem by
MICROSOFT and/or its designated service provider. Each Booking Report
shall include, for each Car and Hotel Booking, the date made, name of
the traveler, and such other information normally provided by
WORLDSPAN to the Participating Car or Participating Hotel in
connection with WORLDSPAN's invoice for the Bookings. WORLDSPAN shall
use reasonable business efforts to obligate, where applicable,
Participating Cars and Participating Hotels to pay Car and Hotel Fees
to MICROSOFT instead of WORLDSPAN. MICROSOFT understands and
<PAGE>
agrees that WORLDSPAN may directly bill certain Participating Cars and
Participating Hotels for Bookings made by MICROSOFT System users.
MICROSOFT shall be responsible at its expense for contracting with
Travel Suppliers with regard to payment of MICROSOFT's charges and
other matters related to Bookings from the MICROSOFT System.
29.2 With respect to Bookings made through the MICROSOFT System, the
parties acknowledge that Participating Cars and Participating Hotels
may agree to provide MICROSOFT with a negotiated rate agreed upon by
MICROSOFT and the applicable Travel Supplier ("Negotiated Car and
Hotel Rates") in lieu of the customary industry commissions. MICROSOFT
shall provide to WORLDSPAN a list indicating whether a Participating
Car or Hotel has elected to pay a Negotiated Car and Hotel Rate on a
monthly basis. Exhibit A sets forth the Participating Cars and
Participating Hotels that have agreed to pay the Negotiated Car and
Hotel Rates as of the effective date of this Amendment. WORLDSPAN
shall prepare a monthly invoice based upon the list described above
and the monthly Booking Report, and MICROSOFT shall pay WORLDSPAN [*]
per Net Booking made by MICROSOFT System users with respect to
Participating Cars and Participating Hotels that have elected to pay
the Negotiated Car and Hotel Rates. (The amount to be paid with
respect to other Travel Suppliers (i.e., cruises and tours), if any,
shall be determined by mutual written agreement of the parties.) Such
invoiced amount shall be paid by MICROSOFT within sixty (60) days of
receipt of WORLDSPAN's invoice. In the event a Participating Car or
Participating Hotel fails to pay MICROSOFT the Negotiated Car and
Hotel Rates for three (3) consecutive months, and MICROSOFT, despite
using reasonable business efforts, is unable to collect any such fees,
MICROSOFT will notify WORLDSPAN in writing of such uncollected amounts
and the parties will discuss the appropriate next steps. If such
Participating Car or Participating Hotel continues to fail to pay
MICROSOFT the Negotiated Car and Hotel Rates for an additional thirty
(30) days after the date of the notice, then MICROSOFT may elect
either (i) to continue to pay to WORLDSPAN the [*] per Net Booking
incurred despite its inability to collect or (ii) to agree to remove
the defaulting Participating Car or Participating Hotel from this
Section 29.2 and to permit WORLDSPAN to directly invoice such
defaulting Participating Car or Participating Hotel the standard
WORLDSPAN Car or Hotel Fee in which case WORLDSPAN will refund (or
otherwise offset from amounts owed by MICROSOFT to WORLDSPAN
hereunder) the amounts paid to WORLDSPAN by MICROSOFT for such
uncollected Bookings (provided, however, WORLDSPAN will not be
required to refund any amounts where MICROSOFT fails to collect due to
a marketing or other arrangement with a Participating Car or
Participating Hotel).
29.3 If WORLDSPAN elects to terminate the availability of a Travel
Supplier participating in the WORLDSPAN System, WORLDSPAN shall notify
MICROSOFT as soon as reasonably practicable and shall use commercially
reasonable efforts to make arrangements appropriate for handling the
existing Bookings of such Travel Supplier made by MICROSOFT users
through the WORLDSPAN System.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
2
<PAGE>
29.4 WORLDSPAN and MICROSOFT reserve the right to charge Travel
Suppliers for other services and products, and to modify their
respective fees and charges with Travel Suppliers. In the event that
WORLDSPAN changes its Car and Hotel Fee, such change shall not affect
the distribution of the fees collected by MICROSOFT from such
Participating Cars or Participating Hotels as set forth in this
Amendment above unless otherwise agreed to by the parties in writing.
29.5 MICROSOFT shall make available to WORLDSPAN upon request any of
its books, records and reports as are reasonably necessary to confirm
the reports or statement provided by MICROSOFT hereunder.
3. Payment
-------
Section 9.2 of the Agreement is hereby deleted and replaced by the
following new Section 9.2:
9.2 Each party shall pay all amounts due hereunder calculated pursuant to
the formulas and otherwise in the manner set forth in this Agreement.
Except as otherwise specified, payment shall be made within thirty (30)
days of an invoice or, where the amount owed is determined by the paying
party, within sixty (60) days of the end of the month, quarter or other
period to which the obligation applies. All payments to be made to
MICROSOFT shall be sent to the following address (or to such other address
as MICROSOFT so designates in writing to WORLDSPAN):
Microsoft North American Collections
Attn: Dept. 551 - Special Agreements
P.O. Box 844505
Dallas, TX 75284-4505
4. System Capacity
---------------
Section 2.1.2 of the Agreement is hereby deleted and replaced by the
following new Section 2.1.2:
2.1.2 To ensure reasonable capacity is available and subject to
Section 3.1, WORLDSPAN shall make available to MICROSOFT processing
capacity from the WORLDSPAN System according to the specifications set
forth on Schedule 2.1.2 attached hereto and as otherwise provided in
this Agreement. MICROSOFT shall not have any proprietary rights in any
equipment or software acquired by WORLDSPAN to provide capacity
hereunder. Once each calendar month during the term of this Agreement,
MICROSOFT and WORLDSPAN agree to discuss the WORLDSPAN System capacity
available to MICROSOFT and MICROSOFT's projections with respect to its
total capacity requirements. Based upon such meetings and projections,
the parties shall implement in good faith any necessary changes
mutually agreed upon, including but not limited to the WORLDSPAN
System capacity and other technical issues and shall document such
changes in a revised Schedule 2.1.2. MICROSOFT and WORLDSPAN
3
<PAGE>
shall bear the costs and expenses associated with any expansion of
capacity of the WORLDSPAN System only to the extent expressly agreed
to herein by the parties in writing.
5. Revenue Share; Capacity Fees.
----------------------------
(a) Effective as of January 1, 1997, Section 11.1 of the Agreement
is hereby deleted and replaced by the following new Section 11.1:
11.1. A. As additional consideration for the promises made by
WORLDSPAN in this Agreement including, but not limited to the promises
regarding WORLDSPAN System capacity, MICROSOFT shall pay WORLDSPAN [*]
within thirty (30) days of the signing date of this Amendment.
Additionally, MICROSOFT shall pay WORLDSPAN [*] within thirty (30)
days of the signing of this Amendment.
B. (i) The parties agree that WORLDSPAN shall pay to
MICROSOFT the base revenue share amount indicated in the attached
Appendix 1 ("Base Revenue Share") and the incentive revenue share
amount indicated in the attached Appendix 1 (`Incentive Revenue
Share") with respect to all Airline Fees generated by MICROSOFT System
users through the MICROSOFT System. Within sixty (60) days after the
end of each calendar month, WORLDSPAN shall furnish MICROSOFT with a
statement together with payment for all amounts shown thereby to be
due to MICROSOFT. The statement shall be based upon the Base Revenue
Share and the Incentive Revenue Share (together, the "Revenue Share")
for the month preceding the month then ended, and shall contain
information sufficient to discern how the Revenue Share was computed.
(ii) At the end of each calendar year, WORLDSPAN shall
reconcile the amounts billed to and paid by Participating Airlines for
Bookings made by MICROSOFT System users. In the event a Participating
Airline fails to pay and WORLDSPAN, despite using reasonable business
efforts, is unable to collect Airline Fees from such Participating
Airline, WORLDSPAN shall notify MICROSOFT in writing of such
uncollected amounts. Within thirty (30) days of receipt of WORLDSPAN's
notice, MICROSOFT will refund (or WORLDSPAN may set off from amounts
owed by WORLDSPAN to MICROSOFT hereunder) the amounts paid to
MICROSOFT by WORLDSPAN for such Bookings. MICROSOFT shall not be
required to refund any amounts where WORLDSPAN's fails to collect due
to a marketing or other arrangement with a Participating Airline.
(iii) Notwithstanding the foregoing, MICROSOFT and WORLDSPAN
agree to discuss in good faith the revenue share that would apply in
the event a significant or major airline becomes a Participating
Airline.
C. MICROSOFT agrees to pay to WORLDSPAN the Base Capacity Fee
(as defined in Schedule 2.1.2) each month during the term of this
Agreement. The Base Capacity Fee shall be the full amount due to
WORLDSPAN from
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
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MICROSOFT with respect to the provision of Base Capacity (as defined
in Schedule 2.1.2). The Base Capacity Fee may be adjusted in
accordance with the provisions set forth in Schedule 2.1.2.
Additionally, MICROSOFT agrees to reimburse WORLDSPAN for the charges
incurred by WORLDSPAN with respect to direct communication lines and
frame relay access devices (each party is responsible for its own
installation and ongoing costs of circuits and equipment necessary to
connect such party's facilities to the local exchange carrier's
termination of the frame relay circuits) that are requested by
MICROSOFT through its Product Unit Manager for the Travel Group
("Direct Communication Fees") and to pay the direct costs related to
terminal addresses used in connection with the MICROSOFT System by
MICROSOFT's fulfillment partner ("Fulfillment Partner Fees").
WORLDSPAN shall invoice MICROSOFT for the Base Capacity Fee, the
Direct Communication Fees, and the Fulfillment Partner Fees on a
monthly basis and shall also include a written report of the PS Rate
for the applicable month and a summary of number of sessions used by
MICROSOFT in connection with the MICROSOFT System. MICROSOFT shall pay
the invoiced amount within thirty (30) days after receipt of the
invoice.
D. WORLDSPAN shall make available to MICROSOFT upon request
any of its books, records and reports as are reasonably necessary to
confirm the reports or statements provided by WORLDSPAN hereunder.
(b) Section 11.2 of the Agreement is hereby deleted and
replaced with the following new Section 11.2:
11.2 Other than payments made by MICROSOFT for Additional
Development Services and the amounts to be paid by MICROSOFT and
WORLDSPAN, if any, pursuant to new Sections 11.1 and 29, MICROSOFT and
WORLDSPAN agree that each shall bear its own expenses incurred in the
performance of this Agreement. Not later than June 1, 1999, the
parties shall begin to confer for the purpose of determining the need
for making any change to the financial aspects of this Agreement for
the period after September 30, 1999, principally the sharing of
revenues received by WORLDSPAN from Travel Suppliers for Bookings
generated by MICROSOFT System users and expenses incurred by WORLDSPAN
in excess of the anticipated expenses. If the parties are unable to
agree to an arrangement for the period after September 30, 1999, the
Agreement shall continue according to the terms in effect on September
30, 1999, subject to each party's rights in Section 7.2 of this
Agreement.
6. Confidentiality
---------------
The terms and conditions contained in this Amendment shall be
considered Confidential Information in accordance with Section 12 of the
Agreement.
7. Other Products and Services.
---------------------------
With respect to other products and services through which MICROSOFT
may desire to use WORLDSPAN System, including but not limited to, certain
private label products, the parties will discuss in good faith how such
products and services may be
5
<PAGE>
included under the terms of this Agreement.
8. Other Agreements
----------------
(a) Use of WORLDSPAN Logo. MICROSOFT agrees that it will include the
---------------------
WORLDSPAN Wired logo on the bottom of the MICROSOFT Expedia home page.
Placement and size of the logo will be determined by MICROSOFT, however
MICROSOFT will use its best efforts to feature the WORLDSPAN logo in a
manner similar to the presentation of any other third party logo featured
on the MICROSOFT Expedia home page.
(b) Updated Hotel Data.
------------------
[*]
(c) Minimum Performance Functionality. From the Effective Date of
---------------------------------
this Amendment through September 30, 1999, WORLDSPAN agrees to provide the
same or comparable significant functionality tools and features (such as a
ticketless functionality) as other computer reservation systems. So long as
WORLDSPAN complies with the foregoing, MICROSOFT agrees that it will
maintain from the Effective Date of this
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
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Amendment through September 30, 1999; on a calendar quarterly basis, at
least [*] CRS booking share from Expedia North America on the WORLDSPAN
System. At any time after MICROSOFT enters into an agreement with another
computer reservation system for [*], MICROSOFT shall provide WORLDSPAN with
a quarterly report that details bookings made by Expedia North American
users. In the event MICROSOFT does not maintain at least a [*] CRS booking
share from Expedia North America on the WORLDSPAN System, the amounts
otherwise payable to MICROSOFT pursuant to Section 5 of this Amendment and
Appendix 1 shall be reduced by [*].
9. Effective Date
--------------
Except as provided in this Amendment or the schedules, the provisions
of this Amendment shall be effective as of the date specified in the
preamble to this Amendment.
10. Continuation of Agreement
-------------------------
Except as provided in this Amendment, the Agreement shall continue in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized undersigned representatives as of the date first above
written.
MICROSOFT CORPORATION WORLDSPAN, L.P.
By: /s/ John Neilson By: /s/ Mike Buckman
--------------------------- ------------------------------
Print Name: John Neilson Print Name: Mike Buckman
------------------- ----------------------
Title: Vice President Title: Chief Executive Officer
------------------------ ---------------------------
Date : 6-16-97
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
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SCHEDULE I
DEFINITIONS RELATING TO THE AMENDMENT TO THE
CRS MARKETING, SERVICES AND DEVELOPMENT AGREEMENT
"Airline Fee" means the fee charged by WORLDSPAN to a Participating Airline for
Bookings and other transactions made through the WORLDSPAN System by MICROSOFT
System users.
"Base Capacity" has the meaning set forth in Schedule 2.1.2.
"Base Capacity Fee" has the meaning set forth in Schedule 2.1.2.
"Base Revenue Share" has the meaning set forth in Section 5 of the Amendment.
"Booking" means a reservation, electronic message or other transaction made
through the WORLDSPAN System with respect to a Travel Supplier for which
WORLDSPAN charges a fee.
"Booking Report" has the meaning set forth in Section 2 of the Amendment.
"Car and Hotel Booking" means a reservation or other transaction made through
the WORLDSPAN System with respect to a Participating Car or Participating Hotel
for which WORLDSPAN charges a fee.
"Car and Hotel Fee" means the fee charged by WORLDSPAN to Participating Cars and
Participating Hotels for Bookings and other transactions made through the
WORLDSPAN System by MICROSOFT users.
"Direct Communication Fees" has the meaning set forth in Section 5 of the
Amendment.
"Fulfillment Partner Fees" has the meaning set forth in Section 5 of the
Amendment.
"Incentive Revenue Share" has the meaning set forth in Section 5 of the
Amendment.
"Negotiated Car and Hotel Rates" has the meaning set forth in Section 2 of the
Amendment.
"Net Booking" means the total number of Bookings generated for a Travel Supplier
by a MICROSOFT System user during a calendar month, minus the cancellations
accepted by WORLDSPAN for such Travel Supplier.
"Off-Peak Time" has the meaning set forth in Schedule 2.1.2.
"Off-Peak Power Shopper Factor" or "Off-Peak PS Factor" has the meaning set
forth in Schedule 2.1.2.
"Participating Airline" means an airline that is a party to an agreement with
WORLDSPAN for participation in the WORLDSPAN System and which pays WORLDSPAN
Airline Fees.
<PAGE>
"Participating Car" means a single company or facility that rents or leases cars
or other vehicles, a chain of such companies, or an entity representing a group
of car or other vehicle rental facilities that is a party to an agreement with
WORLDSPAN for participation in the WORLDSPAN System and which pays WORLDSPAN a
fee.
"Participating Hotel" means a single hotel or other lodging facility, chain of
hotels or lodging facility, or entity representing a group of hotels or lodging
facilities, that is a party to an agreement with WORLDSPAN for participation in
the WORLDSPAN System and which pays WORLDSPAN a fee.
"Peak Time" has the meaning set forth in Schedule 2.1.2
"Peak Power Shopper Factor" or "Peak PS Factor" has the meaning set forth in
Schedule 2.1.2.
"Power Shopper Rate" or "PS Rate" has the meaning set forth in Schedule 2.1.2.
"Revenue Share" has the meaning set forth in Section 5 of the Amendment.
"Segment" means each passenger leg created in a passenger name record booked in
the WORLDSPAN System by a MICROSOFT System user less cancellations.
"Updated Hotel Data" has the meaning set forth in Section 8 of the Amendment.
"WORLDSPAN Sessions" has the meaning set forth in Schedule 2.1.2.
<PAGE>
SCHEDULE 2.1.2
CAPACITY REQUIREMENTS
1. Base Capacity; Base Capacity Fees.
---------------------------------
The table below sets forth the initial base capacity that WORLDSPAN will provide
to MICROSOFT as measured by a Power Shopper Rate (during both Peak and Off-Peak
Times) for each identified usage by the MICROSOFT System. MICROSOFT may change
the initial base capacity pursuant to Section 2 of this Schedule 2.1.2, and the
base capacity at any time during the term is defined herein as "Base Capacity".
In consideration for the Base Capacity, MICROSOFT will pay the total Base
Capacity Fees indicated in the table below on a monthly basis in accordance with
Section 5(a) of the Amendment. MICROSOFT will receive a [*] discount from the
Base Capacity Fee in any month if (and subject to Section 3.1 of the Agreement)
i) WORLDSPAN provides a substantive, accurate response to MICROSOFT's processor
[*] of the time during the month, or (ii) WORLDSPAN fails to provide the Base
Capacity in any period during the month.
(excluding any downtime)
If MICROSOFT decides to change the level of Base Capacity (in accordance with
the procedure outlined in Section 2 below), the Base Capacity Fees will be
increased or decreased, as applicable, by [*] per WORLDSPAN Session (SMI/ST/DIR)
per month as a result of the requested change in Base Capacity. The table below
indicates the additional fee that will be incurred by MICROSOFT for one
additional Power Shopper message per second that may be requested by MICROSOFT.
Any changes to Base Capacity will be billed effective as of the first day of the
month such change is implemented by WORLDSPAN.
If MICROSOFT exceeds the indicated Base Capacity by [*] or less for any given
minute during the month, then MICROSOFT will pay to WORLDSPAN the applicable
Base Capacity Fee. If MICROSOFT exceeds the indicated Base Capacity by [*] or
less but more than [*] for any given minute during the month, then MICROSOFT
will pay to WORLDSPAN the applicable Base Capacity Fee and the pro-rated portion
of the Base Capacity Fee for the amount of capacity used in excess of Base
Capacity. If MICROSOFT exceeds the indicated Base Capacity by more than [*] for
any given minute during the month, then MICROSOFT will pay to WORLDSPAN the
applicable Base Capacity Fee, the pro-rated portion of the Base Capacity Fee for
the amount of capacity used in excess of Base Capacity, and the penalty fee
indicated in the "Penalty" column of the Table.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
<PAGE>
Microsoft Base Capacity Table
[*]
2. Procedure for Changing Base Capacity.
------------------------------------
MICROSOFT may from time to time during the term of this Agreement request
changes to Base Capacity. Changes to Base Capacity may be requested only by the
MICROSOFT Product Unit Manager for the Travel Group to the WORLDSPAN Product
Specialist - Expedia. Requests must be made by email, fax or letter. MICROSOFT
will pay for expanded capacity only to the extent requested by MICROSOFT.
WORLDSPAN shall provide the requested changes to the Base Capacity on the
following schedule, provided however that MICROSOFT may not request a change of
more than [*] Power Shopper messages per second at any one time:
. within two (2) weeks after receiving notice for a less than [*]
increase or decrease (based upon the total Power Shopper messages per
second or sessions for the MICROSOFT System) for existing SMI/ST/DIR
sessions.
. within sixty (60) days after receiving notice for a more than [*]
increase or decrease (based upon the total Power Shopper messages per
second or sessions for the MICROSOFT System) for an existing
SMI/ST/DIR sessions.
. within sixty (60) days after receiving notice for a new SID.
Notwithstanding the above schedule, WORLDSPAN will only be required to provide a
change in Base Capacity that equals [*] per second (or more) within sixty (60)
days after receiving notice of the request. Additionally, WORLDSPAN shall not be
required to provide to MICROSOFT more than [*] Power Shopper messages per second
in connection with the uses by the MICROSOFT System as set forth in the above
Table (or subsequent versions of the Table). The parties agree to discuss in
good faith applicable capacity issues in the event MICROSOFT desires to obtain
more than [*] Power Shopper messages per second in connection with the uses of
the MICROSOFT System as set forth in the above Table (or subsequent versions of
the Table). WORLDSPAN may reject messages from the MICROSOFT System to the
extent that capacity for any given minute during the month exceeds the indicated
Base Capacity by more than [*] if it causes a denigration of the WORLDSPAN
System.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
<PAGE>
3. Other Requirements
------------------
In connection with providing Base Capacity, WORLDSPAN agrees to configure its
Power Shopper capacity to accept a Power Shopper message for each SMI session.
MICROSOFT will be responsible for appropriately "throttling" the Power Shopper
messages per second rate to its associated Base Capacity. Additionally,
WORLDSPAN will provide [*] two test labs on the WORLDSPAN test systems for
customer test as a cost of doing business and will not be used in billing
calculations.
Current WORLDSPAN capacity configuration may be adjusted at MICROSOFT's request
per Section 2 above (i.e. - [*] sessions can be changed to [*] sessions).
[*]
4. Capacity Meetings and Reports.
-----------------------------
WORLDSPAN will provide the following information and reports to MICROSOFT on a
monthly basis prior to the capacity meetings described in Section 4 of the
Amendment:
[*]
5. Changes to Schedule 2.1.2. The parties may revise and amend this Schedule
-------------------------
2.1.2 from time to time during the term of the Agreement. Any amended Schedule
2.1.2 must be signed by both parties and attached to the Agreement.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
<PAGE>
6. Definitions.
-----------
Subject to Section 1 of the Amendment, the following are the defined terms for
the purposes of this Schedule 2.1.2:
"Base Capacity" means the PS Rate supported by WORLDSPAN for the MICROSOFT
System.
"Base Capacity Fees" means the fees set forth in the Microsoft Base Capacity
Table in Section 1 of this Schedule 2.1.2.
"Off-Peak Time" means 19:00 Eastern Time - 7:00 Eastern Time.
"Power Shopper" or "PS" means the functionality provided through the WORLDSPAN
System to permit a user to automatically retrieve the lowest priced travel
option as more fully defined in the document entitled "WORLDSPAN Super
Transaction Implementation Guide" as modified on November 13, 1995.
"Peak Time" means 07:00 Eastern Time - 19:00 Eastern Time.
"Power Shopper Rate" or "PS Rate" means the number of PS requests received by
WORLDSPAN from the MICROSOFT System per second averaged over a fixed one minute
period.
"WORDSPAN Sessions" means the total of SMI sessions, ST sessions and DIR
sessions requested by MICROSOFT that are connected to the production WORLDSPAN
TPF system.
"Peak Power Shopper Factor" or "Peak PS Factor" = [*]
"Off-Peak Power Shopper Factor" or "Off-Peak PS Factor" = [*]
(Note - Peak and Off Peak Power Shopper Factor are determined from the current
MICROSOFT configuration of PS enabled sessions for the MICROSOFT US Expedia
product.)
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
<PAGE>
APPENDIX I
REVENUE SHARE MATRIX
The Revenue Share payable by WORLDSPAN to MICROSOFT shall consist of a Base
Revenue Share and an Incentive Revenue Share.
The Base Revenue Share of Airline Fees shall be based on the number of Power
Shopper messages per net Segment per month. The "Base Revenue Share" column
indicates that percentage amount of Airline Fees that will be paid by WORLDSPAN
to MICROSOFT in accordance with Section 5 of the Amendment from dollar one.
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
<PAGE>
The Incentive Revenue Share shall be based on the number of net Segments
generated by MICROSOFT System users each month. The Incentive Revenue Share
column indicates the percentage of Airline Fees that will be paid by WORLDSPAN
to MICROSOFT on an incremental basis.
[*]
For example, and subject to the limitation in the next paragraph, if the net
Segments for a particular month total [*], WORDSPAN will pay Microsoft an
incentive Revenue Share equal to [*] for net Segments that exceed [*] but are
less than [*] plus [*] for net Segments that exceed [*] but are less than [*].
The maximum Revenue Share of Airline Fees to be paid by WORLDSPAN to
MICROSOFT on a monthly basis shall not exceed [*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
<PAGE>
EXHIBIT A
List of Participating Hotels and Participating Cars Paying Negotiated Car and
Hotel Rates
Participating Hotels:
[*]
Participating Cars;
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
<PAGE>
Amendment No. 2
to CRS Marketing, Services and Development Agreement
This Amendment No. 2 to the CRS Marketing, Services and Development Agreement
(the "Amendment") is entered into as of July 27, 1998 (the "Amendment Effective
--
Date") by and between Microsoft Corporation, a Washington corporation
("Microsoft") with its principal office at One Microsoft Way, Redmond,
Washington 98052, and WORLDSPAN, L.P., a Delaware limited partnership
("WORLDSPAN"), with its principal office at 300 Galleria Parkway, NW, Atlanta,
Georgia 30339.
Recitals
Microsoft and WORLDSPAN are parties to that certain CRS Marketing, Services
and Development Agreement dated December 15, 1995, as amended by the parties
pursuant to that certain Amendment No. 1 dated January 1, 1997 (collectively,
the "Agreement").
Microsoft and WORLDSPAN seek to modify the Agreement as set forth herein
to provide an additional avenue for mutual cooperation wherein WORLDSPAN will
encourage certain travel suppliers to join the Microsoft Expedia Associates
Program, and WORLDSPAN and Microsoft will share WORLDSPAN revenues created from
travel bookings deriving from customers who access Expedia (and WORLDSPAN) via
the web sites of such new Associates.
Now, therefore, in consideration of the above recitals, the mutual
undertakings of the parties as contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Amendment hereby agree as follows:
Agreement
1. Definitions
Terms in capitalized form used in this Amendment shall have the meanings
set forth in Schedule I of this Amendment or in the text of this Amendment.
Terms in capitalized form not defined in Schedule I or in the text of the
Amendment shall have the meanings set forth in the Agreement.
2. Revenue Share; Capacity and SID Fees
A new Section 11.3 is hereby added to the Agreement to provide as follows:
11.3. WORLDSPAN Expedia Associates Program
------------------------------------
A. Notwithstanding anything to the contrary in this Section
11, effective as of the Amendment Effective Date, the parties agree that
all Airline Fees generated with respect to WORLDSPAN/EAP Bookings shall be
shared [*] by the parties. The revenue share matrix set forth in Appendix 1
of Amendment No. 1 shall not apply to WORLDSPAN/EAP Bookings. In addition,
the additional fees charged by WORLDSPAN as referred to in Section 30.6
herein shall be reported to Microsoft, but this revenue will not be shared.
B. Within sixty (60) days after the end of each calendar
month, WORLDSPAN shall furnish Microsoft with a statement regarding, and
full payment for, all
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
1
<PAGE>
amounts due to Microsoft pursuant to subsection A above. WORLDSPAN shall be
responsible for tracking the source of all its Bookings to enable the
parties to determine which Bookings qualify as WORLDSPAN/EAP Bookings
subject to Section 1l.3. A above. At the end of each calendar year,
WORLDSPAN shall reconcile the amounts billed to and paid by WORLDSPAN
Expedia Associates. In the event a WORLDSPAN Expedia Associate fails to pay
and WORLDSPAN, despite using reasonable business efforts, is unable to
collect Airline Fees from such WORLDSPAN Expedia Associate, WORLDSPAN will
deduct [*] of the amount not collected from such WORLDSPAN Expedia
Associate from amounts otherwise owed by WORLDSPAN to Microsoft.
C. The parties further acknowledge and agree that, with respect
to all WORLDSPAN/EAP Bookings, there shall be no Incentive Revenue Share
payable to either party.
D. Capacity for WORLDSPAN/EAP Bookings shall be provided by
WORLDSPAN and paid by Microsoft in accordance with Schedule 2.1.2 of
Amendment No. 1.
E. In the event WORLDSPAN EAP Air Bookings exceed [*] per month
in any month during the first year following the Amendment Effective Date,
Microsoft shall arrange and pay for up to [*]. WORLDSPAN shall use such
tickets as incentives to be provided to WORLDSPAN employees (and their
guests) who market Expedia to Eligible Customers.
F. Microsoft agrees to process any and all WORLDSPAN Expedia
Associates' car and hotel bookings, reservations and other transactions via
the WORLDSPAN System, regardless of whether Microsoft uses any other CRS to
process such car and hotel bookings reservations or other transactions for
other providers.
3. WORLDSPAN Marketing of Expedia Associate Program
A new Section 30 shall be added to the Agreement to provide as follows:
30. Marketing of Expedia Associate Programs; WORLDSPAN Contacts
-----------------------------------------------------------
30.1 During the term of this Agreement, WORLDSPAN may initiate
Marketing Contacts with any Eligible Customers for purposes of encouraging
such Eligible Customers to sign the EAP Agreement. WORLDSPAN shall not
entertain any discussions with the Excluded Carriers regarding the Expedia
Associate Program without first receiving written permission from
Microsoft, even in the event such an Excluded Carrier contacts WORLDSPAN
for information regarding the EAP Program; in such case, WORLDSPAN shall
promptly refer such entities to Microsoft.
30.2 Microsoft agrees that for six (6) months starting with the
Amendment Effective Date, Microsoft shall not itself make contacts with
airlines who are Eligible Customers, nor authorize any third party other
than WORLDSPAN to make such contacts, for the purposes of having such
Eligible Customers sign EAP Agreements for U.S. and Canada points of sale.
Microsoft may decide, in its sole discretion, to extend the foregoing
period longer than six (6) months.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
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<PAGE>
30.3 WORLDSPAN may disclose the terms of the EAP Agreement in
Marketing Contacts to potential WORLDSPAN Expedia Associates, and may show
such Agreement to the potential WORLDSPAN Expedia Associate and allow a
duplicate to remain in the possession of such potential Associate.
WORLDSPAN shall present interested parties with all information necessary
to contact a designated Microsoft representative to pursue signing the EAP
Agreement. If the WORLDSPAN candidate signs an EAP Agreement, then if the
candidate so agrees. Microsoft shall provide WORLDSPAN a copy of the signed
EAP Agreement, subject to nondisclosure obligations.
30.4 In the event a WORLDSPAN Marketing Contact results in the
delivery of a WORLDSPAN MTT Customer to Microsoft or the conversion of an
Expedia Associate to an MTT Customer. Microsoft shall pay WORLDSPAN [*] of
the initial, one-time license fee (first year only) Microsoft may receive
from such WORLDSPAN MTT Customer. To the extent a WORLDSPAN Marketing
Contact results in the WORLDSPAN candidate becoming a WORLDSPAN Expedia
Associate prior to becoming a WORLDSPAN MTT Customer, the compensation
provisions regarding WORLDSPAN Expedia Associates shall apply. WORLDSPAN
shall not have the right to receive a copy of signed Microsoft Travel
Technology agreements.
30.5 In no event shall either party be considered, or represent
itself, as an agent of the other. Both parties agree that WORLDSPAN is an
independent contractor providing sales services to Microsoft and that
WORLDSPAN has no authority to enter into any obligations, make any
representations or warranties or negotiate any agreements on Microsoft's
behalf. Similarly, Microsoft has no authority to enter into any
obligations, make any representations or warranties or negotiate any
agreements on WORLDSPAN's behalf.
30.6 Initially, the parties agree that WORLDSPAN may charge (or
discount or waive) WORLDSPAN fees to Eligible Customers to complete a
Marketing Contact, in addition to any other compensation owed by the
WORLDSPAN Expedia Associate to Microsoft or WORLDSPAN under the EAP
Agreement or under the WORLDSPAN Expedia Associate's billing arrangements
with WORLDSPAN. The parties shall reexamine such additional WORLDSPAN fees
within six (6) months of the Amendment Effective Date, and WORLDSPAN shall
be permitted to continue such fees after six (6) months only if the parties
so agree in writing. Notwithstanding the foregoing, WORLDSPAN retains
exclusive control over the identity of and the terms of its agreements with
Travel Suppliers.
30.7 The parties agree that the WORLDSPAN "wired" logo shall appear on
WORLDSPAN Expedia Associates' web sites in substantially the same form as
set forth in Exhibit B.
30.8 In the event that traffic generated by WORLDSPAN Expedia
Associates makes Microsoft exceed the capacity provided under Schedule
2.1.2 of Amendment 1, Microsoft may restrict the ability of users referred
by WORLDSPAN Expedia Associates to make searches and bookings on Expedia,
unless WORLDSPAN agrees in writing to provide additional capacity to
accommodate the WORLDSPAN Expedia Associates users.
4. WORLDSPAN Account.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
3
<PAGE>
A new Section 31 shall be added to the Agreement to provide as follows:
31. Changing the CRS of a WORLDSPAN Expedia Associate.
-------------------------------------------------
Microsoft agrees not to switch the processing of WORLDSPAN bookings,
reservations or other transactions for any WORLDSPAN Expedia Associate to
any other CRS during the initial term of the WORLDSPAN Expedia Associate's
EAP Agreement, and for twelve (12) months after such initial term.
Notwithstanding the foregoing, twenty-four (24) months after the effective
date of the EAP Agreement for any WORLDSPAN Expedia Associate, Microsoft
may switch the WORLDSPAN Expedia Associate's WORLDSPAN EAP Bookings to
another CRS.
5. Territory.
The term "Territory" as defined in Schedule 1 of the Agreement is hereby
revised to provide as follows:
"Territory" means the entire world.
The parties agree that, along with this change of the definition of "Territory,"
the second and third sentences of Section 4.3 of the Agreement are deleted, and
Microsoft may market and advertise the availability of travel services via
Expedia in the applicable countries within TC3 as it does in the rest of the
Territory.
6. Fare Guarantee
A new Section 32 shall be added to the Agreement to provide as follows:
32. Fare Guarantee.
--------------
A. Beginning August 1, 1998, WORLDSPAN guarantees that the prices
available to Expedia for any itinerary for a scheduled airline flight or
flights will be correctly calculated according to applicable fare rules. In
the event that any carrier issues to Microsoft or its authorized
representative a debit memo or other charge for any fare that is not
correct, WORLDSPAN shall promptly either pay the amount of such memo or
charge directly to the carrier, or reimburse Microsoft.
B. This guarantee by WORLDSPAN shall be subject to the following
terms:
1. The price must be based upon published fares in the WORLDSPAN
System.
2. The guarantee applies only to reservations made on the scheduled
flights of WORLDSPAN Participating Carriers and through one of the
predetermined SIDs, for Microsoft Expedia in Great Britain, Germany, France and
Australia. Other countries may be added upon the mutual written consent of both
parties.
3. The price must be autopriced by Power Shopper or other standard
WORLDSPAN System facility such as, but not limited to, entries 4P or 4PLFB. The
guarantee does not apply to
4
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other pricing methods such as agent assist price or rate desk price,
unless the fare has been approved before booking by a WORLDSPAN
representative.
C. Any fare quoted by the WORLDSPAN System will remain valid
for ticketing until midnight the day following the day the
reservation is made. For purposes of determining when a reservation
is made, the time zone of the SID for a particular country shall
apply rather than the time zone for the Point of Sale. WORLDSPAN
will establish SID location per Microsoft direction.
D. If Microsoft receives a debit memo or otherwise is advised
that a price subject to this guarantee is not correct, Microsoft
shall promptly forward such memo or item to WORLDSPAN. WORLDSPAN
shall promptly investigate and, where the price is guaranteed
according to this Agreement, pay the airline the amount of the
charge or, reimburse Microsoft. WORLDSPAN will use commercially
reasonable efforts to provide Microsoft a written report by the
fifteenth day of each calendar month with respect to the handling of
charges referred by Microsoft during the previous month.
E. WORLDSPAN may terminate this Section 32 in its sole
discretion without penalty or reimbursement with ninety (90) days
written notice to Microsoft.
All other terms not expressly amended herein shall remain in full force and
effect as set forth in the Agreement.
MICROSOFT CORPORATION WORLDSPAN, L.P.
/s/ Simon Breakwell /s/ Jeff Hoffman
- -------------------------------- -------------------------------
By By
Simon Breakwell JEFF HOFFMAN
- -------------------------------- -------------------------------
Name (Print) Name (Print)
Group Manager VICE PRESIDENT
- -------------------------------- -------------------------------
Title Title
7/30/98 7/27/98
- -------------------------------- -------------------------------
Date Date
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Schedule 1
Definitions
"Co-Branded Pages" means the Web pages to be developed and maintained within
Expedia by MS pursuant to the terms of the EAP Agreement and incorporating the
branding of both MS and the WORLDSPAN Expedia Associate.
"EAP" means the Microsoft Expedia Associate Program, the terms and conditions of
which are set forth in the EAP Agreement.
"EAP Agreement" means an agreement executed between Microsoft and a Eligible
Customer that is substantially in the form attached hereto as Exhibit A.
"Eligible Customers" means any airline (not on the Excluded Carrier list--
Schedule 2) offering U.S. or Canadian Point of Sale, which are customers of
WORLDSPAN at WORLDSPAN's "direct access," "direct sell," or "airline source"
level (referring to the level of access into their reservation database for
purposes of online booking via WORLDSPAN). Microsoft may add additional
categories of companies to the definition of Eligible Customers by providing
written notice to WORLDSPAN.
"Excluded Carriers" means those airline carriers listed in Schedule 2 hereto.
"Expedia" means the software code, informational databases, products, and other
components that make up Microsoft's service to enable such end users to shop
for, reserve, book (including, at a minimum, air travel, hotel accommodations,
and car rentals) and pay for certain travel services via a personal computer (or
other interactive device) connected to the Internet or other network. Microsoft
currently offers such service on the Web under the name "Expedia," but such name
may change from time to time and the term "Expedia" as used herein shall be
deemed to refer to all future versions of the above-described online service,
regardless of the name under which it is offered from time to time, and
includes without limitation any and all additional, follow-on, successor or
replacement versions of such service.
"Marketing Contact" means any sales call or other contact initiated by
WORLDSPAN with a Eligible Customer in which WORLDSPAN explains and markets
Microsoft's EAP program or MTT program, and persuades such potential EAP
Associate or MTT Customer to contact a designated Microsoft liaison with the
intention of entering into the EAP Agreement or MTT license agreement.
"Microsoft Travel Technology" means the computer software and other technology
that provides the travel booking functionality for Expedia.
"Point of Sale" means the location of an Expedia user making a Booking on
Expedia, determined by the billing address of the credit card the end user uses
to make the booking.
"SID" shall mean a WORLDSPAN Subscriber Identification code that allows
Microsoft and WORLDSPAN to identify end user traffic on Expedia as originating
with a WORLDSPAN Expedia Associate.
"Web Link Page(s)" means any page(s) within the web site of a WORLDSPAN Expedia
Associate that provides a hyperlink directly to a Co-Branded Page in Expedia.
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"WORLDSPAN/EAP Air Booking" means a WORLDSPAN/EAP Booking for air travel
tickets.
"WORLDSPAN/EAP Booking" means any reservation, electronic message or other
transaction made through the WORLDSPAN System (a) for which WORLDSPAN charges a
fee and (b) that is completed by a user of Expedia who has linked directly to
Expedia from Web Link Page of a WORLDSPAN Expedia Associate.
"WORLDSPAN Expedia Associate" means any Eligible Customer that actually enters
into an EAP Agreement with Microsoft as a direct result of a Marketing Contact.
"WORLDSPAN MTT Customer" means an Eligible Customer who, as a direct result of
a Marketing Contact, enters into a license agreement with Microsoft for
Microsoft Travel Technology in order to allow customers to reserve and purchase
travel services via such Eligible Customer's Web site.
7
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Schedule 2
Excluded Carriers
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
8
<PAGE>
Exhibit A
Sample EAP Agreement
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
MICROSOFT CORPORATION
ASSOCIATE PROGRAM AGREEMENT
9
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Exhibit 2
Expedia Logo
[LOGO OF MICROSOFT EXPEDIA.COM APPEARS HERE]
Start your travel here
28
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Exhibit B
Sample Appearance of WORLDSPAN Wired Logo
on WORLDSPAN Expedia Associate Web Sites
[LOGO OF WORLDSPAN WIRED APPEARS HERE]
30
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Exhibit 3
Expedia Logo Link and
Guidelines for Using the Expedia Logo Link
On COMPANY Web Link Pages
The following guidelines apply to COMPANY'S use of the Expedia Logo for use on
COMPANY Web Link Pages
1. Except as Microsoft may authorize elsewhere, COMPANY may use only the
Expedia Logo in accordance with the Agreement and guidelines set forth
below.
2. COMPANY may only use the Expedia Logo on COMPANY Web Link Pages identified
in Exhibit 1, and not in any other manner. It must always be an active link
to Microsoft's Expedia web site at http://expedia.com/. HTML code for the
link is shown below.
3. The Expedia Logo gif includes certain words describing the significance of
the Expedia Logo on COMPANY Web Site Pages (i.e. the Expedia Logo is a link
to Microsoft, not an endorsement of COMPANY Web Site). COMPANY may not
remove or alter this or any other element of the Expedia Logo.
4. The Expedia Logo may be used only on COMPANY Web Link Pages that make
accurate references to Microsoft Expedia's products or services. COMPANY
Web Link Page title and other trademarks and logos must appear at least as
prominent as the Expedia Logo. COMPANY may not display the Expedia Logo in
any manner that implies sponsorship, endorsement, or license by Microsoft.
5. The Expedia Logo must appear by itself, with a minimum spacing (the height
of the Expedia Logo) between each side of the Expedia Logo and other
graphic or textual elements on COMPANY Web Link Page. The Expedia Logo may
not be used as a feature or design element of any other logo.
6. COMPANY may not alter the Expedia Logo in any manner, including size,
proportions, colors, elements, etc., or animate, morph or otherwise distort
its perspective or two-dimensional appearance.
7. COMPANY may not use the Expedia Logo on any site that disparages Microsoft
or its products or services, infringes any Microsoft intellectual property
or other rights, or violates any state, federal or international law.
These guidelines do not grant a license or any other right in Microsoft's logos
or trademarks. Microsoft reserves the right in its sole discretion to terminate
or modify permission to use the Expedia Logo at any time. Microsoft reserves the
right to take action against any use that does not conform to these Policies,
infringes any Microsoft intellectual property or other right, or violates other
applicable law.
29
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Amendment No. 3
to CRS Marketing, Services and Development Agreement
This Amendment No. 3 to the CRS Marketing, Services and Development Agreement
(the "Amendment No. 3") is entered into as of April 1, 1999 (the "Amendment
Effective Date") by and between Microsoft Corporation, a Washington corporation
("Microsoft") with its principal office at One Microsoft Way, Redmond,
Washington 98052, and WORLDSPAN, L.P., a Delaware limited partnership
("WORLDSPAN"), with its principal office at 300 Galleria Parkway, NW, Atlanta,
Georgia 30339.
Recitals
i. Microsoft and WORLDSPAN are parties to that certain CRS Marketing,
Services and Development Agreement dated December 15, 1995, as amended by the
parties pursuant to that certain Amendment No. 1 dated January 1, 1997 and
Amendment No. 2 dated July 1, 1998 (collectively, the "Agreement").
ii. Microsoft and WORLDSPAN seek to modify the Agreement as set forth
herein to change the revenue sharing arrangements, capacity provisions, and
other terms under the Agreement.
Now, therefore, in consideration of the above recitals, the mutual
undertakings of the parties as contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Amendment hereby agree as follows:
Agreement
1. Definitions
Terms in capitalized form not defined in the text of this Amendment No. 3
shall have the meanings set forth in the Agreement.
2. Revenue Share.
(a) The revenue share matrix set forth in Appendix 1 of Amendment No. 1
shall be deleted and replaced in its entirety with the matrix attached as
Appendix 1 of this Amendment No. 3. Furthermore, Section 11.3 A. through D. of
the Agreement, as set forth in Amendment No. 2, shall be deleted, and the
revenue share described in Appendix 1 of this Amendment No. 3 shall apply to
WORLDSPAN/EAP Bookings as well as all other air bookings under the Agreement.
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
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[*]
(c) Section 11.2 of the Agreement is hereby deleted and replaced with
the following new Section 11.2:
Section 11.2. Other than payments made by MICROSOFT for Additional
Development Services and the amounts to be paid by MICROSOFT and
WORLDSPAN, if any, pursuant to new Sections 11.1 and 29, MICROSOFT
and WORLDSPAN agree that each shall bear its own expenses incurred in
the performance of this Agreement.
3. Capacity
Schedule 2.1.2 is deleted from the Agreement in its entirety. Section
2.1.2 of the Agreement, as set forth in Amendment No. 1, is hereby deleted
and replaced in its entirety with the following:
Section 2.1.2. WORLDSPAN and Microsoft will work together in good
faith to ensure the WORLDSPAN System has sufficient capacity to
process Microsoft's estimated demand in accordance with this Section.
The failure of either (i) WORLDSPAN to deliver sufficient capacity
to meet Microsoft's demand, or (ii) Microsoft to deliver the
anticipated air ticket sales, will result in a financial penalty
mutually agreed upon by the parties as set forth herein.
(a) Each month during the Term, Microsoft shall provide to
WORLDSPAN a good faith estimate of the projected Expedia air ticket
sales for each of the following twelve (12) months. WORLDSPAN will
estimate segments to be generated by the projected level of Expedia
air ticket sales and the number of Power Shopper messages that are
expected to be generated by the estimated segments. Microsoft shall
provide such assistance and information for WORLDSPAN's estimation of
segments and Power Shopper messages as WORLDSPAN may reasonably
request. Upon conclusion of this forecasting process, WORLDSPAN
shall make all necessary preparations to provide sufficient capacity
on the WORLDSPAN System to support the projected Expedia demand
during the next six (6) months, as projected pursuant to subsection
(b) below.
(b) If a given estimate of Expedia demand will cause
WORLDSPAN to make material equipment purchases (e.g. purchase of new
CPUs or other equipment) specifically for additional Expedia demand,
WORLDSPAN shall notify Microsoft thereof in writing, and Microsoft
shall either reconfirm or adjust its estimate of Expedia air ticket
sales within ten (10) days after such notice (such reconfirmed or
adjusted estimate, a "Microsoft Binding Estimate"). WORLDSPAN may
also adjust the related estimates of segments and Power Shopper
messages. WORLDSPAN
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
2 MICROSOFT/WORLDSPAN
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shall deliver the required capacity no later than ninety (90) days
after the date of a Microsoft Binding Estimate.
(i) The financial remedy to compensate WORLDSPAN for
excess capacity or Microsoft for insufficient capacity shall be
determined by the parties after the following occur:
.A forecasting model that calculates air ticket sales will
be developed by Microsoft within thirty (30) days of
Microsoft's execution of this Amendment and approved by
WORLDSPAN within thirty (30) days after receipt from Microsoft.
.A capacity planning and tracking model to forecast
capacity and calculate rejected demand will be built by
WORLDSPAN within thirty (30) days of WORLDSPAN's execution of
this Amendment and approved by Microsoft within thirty (30)
days after receipt from WORLDSPAN.
.The agreed-upon models will be used for six (6) months
from approval of the above models before instituting any
financial penalties and, during such testing, may be "tweaked"
or otherwise adjusted by mutual agreement of the parties in
order to better achieve their intended purposes. At the end of
such six (6) month period (the "Test Period"), if the models,
as so adjusted, would not have resulted in payments to either
party, then the financial payment aspects of these procedures
will become operative for the remainder of the term of this
Agreement. If, however, the models, as so adjusted, would, have
resulted in payments to either party during the Test Period,
then the financial aspects of these procedures will not become
operative and the parties will negotiate in good faith to
develop alternative models or procedures as a replacement for
those described. If the parties fail to reach an agreement
regarding such replacement models or procedures within two (2)
months after the end of the Test Period, then the financial
payment aspects of the models, as so adjusted, shall continue in
effect with a cap of [*] per month payable by either party,
until the parties mutually agree on alternative financial
arrangements.
The financial penalties will be determined based on the
parameters set forth in Section 2.1.2(b)(ii) and (iii) below.
(ii) If actual Expedia air ticket sales in a given month
are less than [*] of the Microsoft Binding Estimate, then
Microsoft will pay WORLDSPAN an amount based on WORLDSPAN's
anticipated portion of lost Airline Fees. Such Airline Fees
shall be calculated at the revenue share level for such month,
as set forth in Appendix 1 of this Amendment No. 3. If actual
ticket sales in a given month are greater than [*] of the
Microsoft Binding Estimate, then Microsoft will owe nothing
additional to WORLDSPAN.
(iii) If actual Expedia air ticket sales in a given month
are less than [*] of the Microsoft Binding Estimate due to a
failure of the WORLDSPAN System to support the forecast segments
and Power Shopper messages necessary to process the Microsoft
Binding Estimate, WORLDSPAN will pay Microsoft an amount based
on Microsoft's anticipated portion of Airline Fees for ticket
sales that do not get
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
3 MICROSOFT/WORLDSPAN
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<PAGE>
processed due to such interruptions in capacity. Such Airline
Fees shall be calculated at the revenue share level for such
month, as set forth in Appendix 1 of this Amendment No. 3. If
the WORLDSPAN System processes [*] or more of the Microsoft
Binding Estimate, then WORLDSPAN will owe nothing additional to
Microsoft.
(c) On an annual basis, Microsoft will provide WORLDSPAN with a
long-term demand forecast covering at least three (3) years beyond
the current year. WORLDSPAN, within thirty (30) days after
Microsoft's delivery of such demand forecast, will provide Microsoft
a nonbinding projection of the capacity WORLDSPAN will provide in
the same three (3) year period to support the forecast Microsoft
demand. If after reviewing the demand forecast from Microsoft
pursuant to this Section 2.1.2(C), WORLDSPAN can demonstrate that it
can not meet the capacity requirements during the forecast period by
the time required without having to build a new computer data center
or without materially altering the architecture of the WORLDSPAN
System, WORLDSPAN will provide Microsoft with eleven (11) months
prior written notice (provided Microsoft has given WORLDSPAN at least
twelve (12) months written notice of such increased capacity
requirement) that it will not be able to meet the capacity demand in
the forecasted time. In such event, Microsoft will be released from
its minimum commitment in Section 8(c) of this Amendment and
WORLDSPAN shall not be obligated to provide such additional capacity
to Microsoft but will continue to provide the maximum capacity set
forth in the previously agreed-upon capacity forecast. WORLDSPAN
agrees that Microsoft has provided the projection of Expedia air
ticket sales set forth below, and WORLDSPAN expects to be able to
meet capacity requirements therefor without having to build a new
computer data center and without materially altering the architecture
of the WORLDSPAN System.
[*]
4. Revenue Share Payments; Capacity Fees.
Sections 11.1 B and C of the Agreement, as set forth in Amendment
No. 1, are hereby deleted and replaced in their entirety with the
following:
Section 11.1 B (i) The parties agree that WORLDSPAN shall pay to
Microsoft the revenue share amount indicated in the attached
Appendix 1 (the "Revenue Share") with respect to Airline Fees
generated by Microsoft System users through the Microsoft System.
Within thirty (30) days from the end of each calendar month,
WORLDSPAN shall furnish Microsoft with a statement together with
payment for all amounts shown thereby to be due to Microsoft. That
statement shall be based upon the Revenue Share for the month
preceding the month then ended, and shall contain information
sufficient to discern how the Revenue Share was computed.
(ii) At the end of each calendar year, WORLDSPAN shall reconcile the
amounts billed to and paid by Participating Airlines for Bookings
made by Microsoft System users. In the event a Participating Airline
fails to pay and WORLDSPAN, despite using reasonable business
efforts, is unable to collect Airline Fees from such Participating
Airline, WORLDSPAN shall notify Microsoft in writing of such
uncollected amounts. Within thirty (30) days of receipt of
WORLDSPAN's notice, Microsoft will refund (or WORLDSPAN may set off
from amounts owed
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
4 MICROSOFT/WORLDSPAN
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<PAGE>
by WORLDSPAN to Microsoft hereunder) the amounts paid to Microsoft by
WORLDSPAN for such Bookings. Microsoft shall not be required to
refund any amounts where WORLDSPAN fails to collect due to a
marketing or other arrangement with a Participating Airline.
Section 11.1 C. Microsoft shall reimburse WORLDSPAN for the charges
incurred by WORLDSPAN with respect to direct communication lines and
frame relay access devices (each party is responsible for its own
installation and ongoing costs of circuits and equipment necessary to
connect such party's facilities to the local exchange carrier's
termination of the frame relay circuits) that are requested by
Microsoft through its Product Unit Manager for the Travel Group
("Direct Communication Fees") and to pay the direct costs related to
terminal addresses used in connection with the Microsoft System by
Microsoft's fulfillment partner ("Fulfillment Partner Fees").
Microsoft shall also pay for any equipment requested by Microsoft and
provided by WORLDSPAN to be used by Microsoft's fulfillment partner.
WORLDSPAN shall either offset these fees from the Revenue Share due
Microsoft or invoice Microsoft for the Direct Communication Fees and
the Fulfillment Partner Fees on a monthly basis and shall also
include a written report of the PS Rate for the applicable month.
Microsoft shall pay the invoiced amount within thirty (30) days after
receipt of the invoice. Except as provided herein and Section 2.1.2,
Microsoft shall not owe WORLDSPAN any fees for capacity under this
Agreement.
5. Assignment.
Section 17 of the Agreement is hereby deleted and replaced in its
entirety with the following:
Section 17. Neither party may assign its interest in this Agreement;
provided, however, that either party may assign this Agreement upon
thirty (30) days prior written notice to a wholly-owned subsidiary or
to an entity to which substantially all the assets of the assigning
party (or, with respect to MICROSOFT, substantially all the assets of
the Expedia online consumer travel agent business) are being
transferred if such assignee assumes and agrees to perform all the
obligations of the assignor. This Agreement shall be binding upon the
parties hereto and their successors and permitted assigns and all
persons claiming under or through them or any such successor or
permitted assign.
6. Equal Treatment.
A new Section 33 shall be added to the Agreement to provide as
follows:
33. Equal Treatment.
---------------
[*]
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
5 MICROSOFT/WORLDSPAN
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7. Change in Expedia Search Functionality.
A new Section 34 shall be added to the Agreement to provide as
follows:
34. Change in Expedia Search Functionality.
---------------------------------------
Microsoft shall consult with WORLDSPAN on a regular basis regarding
proposed changes to the search functionality, or changes to the
utilization of existing functionality, available to end users of
Expedia that are reasonably expected to have a materially adverse
impact on message weight in the WORLDSPAN CRS. If the proposed
change has a materially adverse impact on the financial benefits of
the parties hereunder, the parties shall discuss in good faith a
corresponding adjustment to pricing or revenue share. If the parties
are unable to reach agreement within two (2) months after Microsoft
implements such change, then WORLDSPAN may terminate this Agreement
upon a further six (6) months' written notice. Such termination
right expires eight (8) months from the date of Microsoft's
implementation of such changes.
8. Changes to Expedia CRS Usage Commitment.
Section 8(c) of Amendment No. 1 to the Agreement is hereby deleted
and replaced in its entirety with the following:
(c) Minimum Performance Functionality. During the Term of the
---------------------------------
Agreement, WORLDSPAN agrees to provide the same or comparable significant
functionality tools and features (such as a ticketless functionality) as
other computer reservation systems. So long as WORLDSPAN complies with
the foregoing, Microsoft agrees that it will maintain during the Term of
the Agreement, on a calendar quarterly basis, at least the same or
greater (but in no event [*] CRS booking share from Expedia on the
WORLDSPAN System than it maintains on any other CRS ("Minimum
Commitment"). At any time after Microsoft enters into an agreement with
another CRS for Expedia, Microsoft shall provide WORLDSPAN with a
quarterly report that details bookings made by Expedia users. In the
event Microsoft does not maintain at least the Minimum Commitment CRS
booking share from Expedia on the WORLDSPAN System, the amounts otherwise
payable to Microsoft pursuant to Appendix 1 shall be reduced by [*] For
purposes of this Section only, the term "CRS" shall mean the following
entities and their successors: Sabre, Galileo, Abacus, Amadeus, and
Infini.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
6 MICROSOFT/WORLDSPAN
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All other terms not expressly amended herein shall remain in full force and
effect as set forth in the Agreement. The Agreement, as amended hereby, shall
remain in effect for the remainder of the term set forth in Section 7.
Microsoft Corporation WORLDSPAN, L.P.
/s/ Richard Barton /s/ Douglas L. Abramson
- ------------------------ ---------------------------
By By
Richard Barton Douglas L. Abramson
- ------------------------ ---------------------------
Name (Print) Name (Print)
Gen. Mgr. Travel Group Co-Chief Executive Officer
- ------------------------ ---------------------------
Title Title
7/20/99 July 16, 1999
- ------------------------ ---------------------------
Date Date
7 MICROSOFT/WORLDSPAN
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Appendix 1
Revenue Share Matrix
The Revenue Share payable by WORLDSPAN to Microsoft shall consist of the
Base Revenue Share set forth below. The Incentive Revenue Share appearing in
Appendix 1 of Amendment No. 1 is eliminated.
The Revenue Share of Airline Fees shall be based on the number of Power
Shopper messages per net Segment per month. The "Revenue Share" column indicates
the percentage amount of Airline Fees that will be paid by WORLDSPAN to
Microsoft in accordance with Section 5 of Amendment No. 1, from dollar one.
[*]
If the number of Power Shopper messages per net Segment exceeds [*], or
falls below [*], in an given month, then the parties shall renegotiate revenue
share percentages in good faith. If the parties are unable to reach agreement
within three (3) months, then at any time in the following three (3) months
either party may terminate this Agreement upon a further six (6) months' written
notice. In the meantime, the percentages set forth above shall apply.
[*] The redacted portion, indicated by this symbol is the subject of a
confidential treatment request.
8 MICROSOFT/WORLDSPAN
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Exhibit 10.9
Note: Portions of this exhibit indicated by "[*]" are subject to a confidential
treatment request, and have been omitted from this exhibit. Complete, unredacted
copies of this exhibit have been filed with the Securities and Exchange
Commission as part of this company's confidential treatment request.
MICROSOFT CORPORATION/
WORLD TRAVEL PARTNERS
SERVICE AGREEMENT
This Service Agreement (the "Agreement") is entered into by and between
Microsoft Corporation, a Washington corporation ("MS"), and WorldTravel
Partners, L.P., a Georgia Limited Partnership ("WTP") to be effective as of
October 9, 1996 ("Effective Date").
WHEREAS, WTP is a fully-appointed ARC/IATA full service travel agency engaged in
the general business of arranging, planning, reserving, handling en route
changes and ticketing of domestic and international passenger transportation,
lodging, car rentals and other ancillary services;
WHEREAS, MS is a leading consumer, business and operating system software
developer with one of the best brand names in the world;
WHEREAS, MS has developed a proprietary application for arranging, planning and
reserving air, hotel and car rental transactions on the Internet along with
other electronic commerce applications;
WHEREAS, MS intends to establish and operate a web site to be marketed as
"Expedia," (referred to herein as "MS Travel") providing on-line travel
services, using its proprietary application; and
WHEREAS, MS has requested that WTP provide, and WTP has agreed to provide,
certain travel fulfillment services and other services to the customers of MS
Travel.
NOW, THEREFORE, in consideration of the mutual covenants herein, the parties
hereby agree as follows:
1. WTP Services.
------------
(a) WTP agrees to provide travel fulfillment, en route assistance, quality
control and other services, including without limitation those identified in
Exhibit A (the "Services") to customers of MS Travel, on the terms and
conditions provided herein in accordance with (i) MS standard customer service
policies and procedures as detailed in documentation provided by MS to WTP
(including, without limitation, MS policies set forth in Exhibit E), which may
be modified by MS from time to time in its sole discretion; and (ii) the
performance requirements set forth in Exhibit C. WTP shall have sixty (60) days
from the date of its receipt of modifications to any of the foregoing
document(s) to conform to modified requirements, as applicable. The parties
shall mutually prepare a procedures manual prior to launch and maintain such
manual, setting forth detailed procedures to implement the Services.
Microsoft Confidential Page 1
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(b) WTP agrees to subcontract with its Global Travel Management member in
Canada, Global Travel Solutions ("GTS") as required for provision of Services in
Canada, pursuant to the provisions of Section 11. WTP may also subcontract with
its majority-owned subsidiary, World Travel Technologies, L.L.C. ("WTT"), and
WTT's division, Online Fulfillment Services ("OFS"), to provide any or all of
the Services hereunder. WTP will not otherwise subcontract any of its
obligations hereunder without the prior written approval of MS.
(c) WTP agrees that it shall assign to MS Travel at least one person at
the Druid Hills Facility who is qualified by ARC to perform management and/or
ticketing functions ("ARC Qualifiers"). Such ARC Qualifiers shall be dedicated
to providing only services for or on behalf of MS Travel, and shall not accept
telephone calls or other communications or provide any services for any third
party product(s) or service(s) without the express written consent of MS.
(d) WTP shall establish and maintain a separate ARC number or numbers
designated as "WTP Doing Business As Microsoft" solely for the provision of
Services under this Agreement, which shall remain the property of MS in the
event of termination or expiration of this Agreement. WTP agrees to use the ARC
and BSP numbers assigned to MS or to WTP (including those numbers assigned to
WTP "Doing Business As Microsoft") when providing the Services under this
Agreement, and to charge the appropriate travel industry supplier the MS
negotiated commission and/or transaction fee when booking reservations, as
detailed in Exhibit A, with the exception of certain international itineraries
as described in the following Section 1(e). WTP agrees to deposit daily to the
MS bank account all transaction fees and/or commissions earned and received on
reservations made using the MS ARC and BSP numbers. If WTP or any of its agents,
contractors or subcontractors utilize an ARC or BSP number assigned to WTP when
booking a reservation for a customer who originally sought a reservation through
MS Travel, all supplier transaction fees and/or commissions resulting therefrom
shall be promptly transferred to the MS bank account.
(e) WTP agrees to provide travel fulfillment for travel involving
international itineraries (other than for Canada as set forth in Section 1(b)
above) as described in Exhibit A. WTP will provide separate accounting for
commissions earned on such transactions, as set forth in Exhibit G, and will
deposit [*] of such commissions earned and received, within forty-eight hours of
receipt, to the MS bank account.
(f) WTP agrees to use its best efforts and most capable technical
expertise to resolve customer complaints, meeting or exceeding the performance
requirements as set forth in Exhibit C. In the event WTP is unable to resolve a
problem, WTP may escalate the problem to MS-designated representative(s) in
accordance with applicable procedures.
(g) WTP will operate at least two travel fulfillment facilities as follows
(other facilities may be added as mutually agreed by amendment of this
Agreement):
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 2
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(i) WTP shall provide, maintain and staff a travel fulfillment
facility in Atlanta at Druid Hills ("Druid Hills Facility") to provide the
Services set forth in Exhibit A. MS will provide certain software,
hardware, equipment and services as set forth in Exhibit B. MS will own the
MS Travel toll-free number and all software and equipment provided by MS at
the Druid Hills Facility as described in Exhibit B. WTP will install and
maintain all of the software, hardware and telecommunications equipment at
the Druid Hills Facility except for the software, hardware and equipment to
be provided and maintained by MS. It is understood that MS may request WTP
to purchase on MS' behalf software, telecommunications services or
equipment which is the responsibility of MS hereunder to provide. In such
event, WTP shall invoice MS in connection with the monthly statements
provided to MS hereunder and MS shall reimburse WTP for such purchases on
the same timetable as MS' payment of the other amounts owing pursuant to
such monthly statements.
(ii) WTP shall provide, maintain and staff a travel fulfillment
facility in Atlanta at Peachtree City ("Peachtree Facility") to provide the
Services (other than ARC ticketing) set forth in Exhibit A when the Druid
Hills Facility is unable to handle the volume of calls being routed from MS
Travel, due to high volume or loss of function of the Druid Hills Facility
for any reason. MS will provide certain software, hardware, equipment and
services as set forth in Exhibit B, including appropriate
telecommunications equipment to route calls from the MS Travel toll-free
number to WTP. MS will own the MS Travel toll-free number and the software
and equipment provided by MS at the Peachtree Facility as described in
Exhibit B. WTP will ensure that the Peachtree Facility is able to provide
the full level of Services described in Exhibit A when necessary. WTP will
install and maintain all of the software, hardware and telecommunications
equipment at the Peachtree Facility except for the software, hardware and
equipment to be provided and maintained by MS. It is understood that MS may
request WTP to purchase on MS' behalf software, telecommunications services
or equipment which is the responsibility of MS hereunder to provide. In
such event, WTP shall invoice MS in connection with the monthly statements
provided to MS hereunder and MS shall reimburse WTP for such purchases on
the same timetable as MS' payment of the other amounts owing pursuant to
such monthly statements.
(iii) It is understood that WTP will provide leasehold improvements,
telecommunication systems, furniture and fixtures, and proprietary
software (such as CoRRe(TM) and, as between the parties, this software
and equipment will be owned by WTP.
(iv) WTP will maintain an Automatic Call Distribution ("ACD") system
capable of providing the information identified in Exhibit G to MS in a
format designated by MS. If WTP changes its current ACD system or adds
facilities, WTP will ensure that any such new ACD system is capable of
providing the
Microsoft Confidential Page 3
<PAGE>
information set forth in Exhibit G. WTP shall provide MS with standard
specifications and documentation from its ACD system with respect to the
Services provided by WTP under this Agreement.
(h) WTP will ensure that adequate backup and disaster recovery procedures,
including but not limited to the Peachtree Facility, exist to enable its
compliance with the terms of this Agreement. If the Druid Hills facility suffers
loss of function for more than 24 hours, WTP shall immediately secure from ARC
permission to perform ARC ticketing at the Peachtree Facility using the ARC and
BSP numbers assigned to MS and to WTP "Doing Business As Microsoft," and shall
comply with all conditions or requirements imposed by ARC necessary to obtain
such permission. WTP acknowledges that time is of the essence in fulfilling the
provisions of this subsection 1(h).
(i) At MS' discretion, with reasonable advance notice, MS reserves the
right to make onsite visits to all sites where WTP provides the Services under
this Agreement. In connection with such visits, WTP will provide to MS, as and
when required by MS, access for a reasonable number of MS personnel to office
premises at the sites equipped with standard office equipment as available to
personnel of WTP in proximate offices, at no charge.
(j) WTP will ensure that all its employees and MS-permitted contractors
and subcontractors performing any Services hereunder agree to undertake and
successfully complete all training programs provided by MS with respect to the
Services as MS in its sole discretion deems necessary to prepare WTP to provide
the Services outlined in this Agreement. Training will be conducted at a
mutually agreed upon facility where MS shall provide "train-the-trainer"
training at no charge to WTP, except that all travel, accommodation and related
expenses for WTP employees and employees of contractors or subcontractors shall
be the responsibility of WTP, or such contractors or subcontractors,
respectively. WTP acknowledges and agrees that as a result of MS providing
"train-the-trainer" training, WTP shall be responsible for internal and ongoing
training of its personnel after receiving initial "train-the-trainer" training.
WTP will designate one (1) ongoing trainer. MS agrees to provide the necessary
training materials, for limited duplication, upon request by WTP and following
MS approval, to be used by WTP to provide training as required under the terms
of this Agreement.
(k) WTP shall physically isolate the Druid Hills Facility local area
network (LAN) used by WTP personnel in the provision of the Services under this
Agreement (the "MS Travel LAN") from other LANs maintained by WTP. WTP shall
restrict use of the MS Travel LAN solely to WTP personnel providing Services
under this Agreement or similar agreements between MS and WTP. WTP agrees to
notify MS promptly upon discovery of any breach of security in the MS Travel
LAN. The Peachtree Facility LAN will not be similarly isolated; however, all
ticketing functions for MS Travel at the Peachtree Facility will be segregated
from ticketing for WTP customers pursuant to ARC requirements. WTP shall cause
GTS to isolate and restrict the use of the LAN used by GTS personnel in the
provision of services in connection with MS Travel.
Microsoft Confidential Page 4
<PAGE>
(l) WTP shall provide MS with customized reports on the Services provided
by WTP under this Agreement as specified in Exhibit G, including management
reporting and ARC/IATA accounting.
(m) Nothing contained in this Agreement shall give WTP or its agents or
contractors, including GTS, the right to use, modify, reproduce, distribute
and/or publish any MS Travel customer records, including without limitation
reservations, service records or customer complaints resolved by WTP during
the fulfillment of WTP obligations hereunder, all of which shall be considered
Confidential Information under Section 10 of this Agreement.
2. Payment.
--------
(a) WTP is fully responsible for all costs incurred in providing the
Services under this Agreement and all Exhibits hereto, independent of any
provision for reimbursement set forth herein, except for those items to be
provided by MS as detailed in Exhibit B.
(b) MS will pay WTP the amounts specified in Exhibit D subject to
adjustments, deductions or credits to such amounts as provided for in this
Agreement or any Exhibit hereto. WTP will invoice MS Accounts Payable on a
monthly basis, on or before the 15th day of the month following the month for
which activity is being invoiced, and shall include full documentation
supporting such invoice. Payment terms are net fifteen (15) days after receipt
of invoice. In the event taxes are required by any U.S. (state or federal) or
foreign government to be withheld on payments made hereunder by MS to WTP, MS
may deduct such taxes from the amount owed WTP and pay them to the appropriate
taxing authority. MS shall in turn promptly secure and deliver to WTP an
official receipt for any taxes withheld. MS will use reasonable efforts to
minimize such taxes to the extent permissible under applicable law.
(c) The parties shall undertake a quarterly review of the payment
provisions set forth in Exhibit D and the payment terms set forth in Section
2(b) during the initial six (6) months of the term of this Agreement, to enable
flexibility in responding to marketplace conditions and to validate initial cost
estimates and cash flow requirements. The parties shall negotiate whether any
changes should be made to any provisions of this Agreement or its Exhibits as a
result of such review. In the event that, within forty-five (45) days after the
end of each such quarter, the parties are unable to agree whether any such
changes should be made, then either party, by written notice to the other, may
require that the matter be settled by binding arbitration, in accordance with
the rules of the American Arbitration Association, and subject to the additional
provisions of Exhibit M, which exhibit shall be negotiated and attached hereto
no later than October 31, 1996. Any decision rendered in any such arbitration
proceeding shall be final and binding on each of the parties hereto immediately
following the end of the quarter being reviewed. Nothing herein shall
Microsoft Confidential Page 5
<PAGE>
prevent the parties from agreeing to participate in mediation prior to
submitting such matter to binding arbitration.
3 Ownership and License Grants.
----------------------------
(a) Use of Microsoft Name. This Agreement does not constitute a trademark
---------------------
or service mark license. As of the Effective Date, MS shall be deemed to have
granted WTP a non-exclusive, personal, non-transferable, non-assignable,
royalty-free license to use the Microsoft(R) name solely in conjunction with
answering incoming calls from, making outbound callbacks to, and providing
travel documents to MS Travel customers as necessary for providing Services
pursuant to the terms of this Agreement. Such license grant shall remain in
effect while this Agreement is in good standing, but shall expire at the
expiration or earlier termination of this Agreement. Specific additional terms
and conditions pertaining to this license grant are set forth in Exhibit H,
which is incorporated herein by this reference. WTP shall at no time in any
forum identify itself as being an outsource provider for MS, except as approved
in writing by MS.
(b) Customer Information. Except as otherwise provided herein, WTP
--------------------
acknowledges and agrees that the information acquired by WTP in connection with
the provision of Services pursuant to this Agreement, including without
limitation customer and prospect information, sales information, back office and
general ledger data, customer travel reservation and itinerary information, and
MS customer lists and updates (including customer names, addresses and telephone
numbers) (collectively, "Customer Information") shall be considered proprietary
information of MS, including all Customer Information stored using WTP's travel
management database reporting application ("TravelMan"), and all right, title
and interest in the Customer Information is owned by MS. WTP shall use such
Customer Information only as necessary to perform the Services in accordance
with this Agreement and shall maintain such Customer Information in strict
confidence in accordance with the provisions of Section 10 hereof. Upon request
from MS, WTP shall provide MS with any or all Customer Information in WTP's
possession. Upon termination or expiration of this Agreement, WTP shall within
ten (10) days thereafter provide MS with all documents and materials containing
Customer Information (including data stored or maintained in electronic format,
whether or not created or stored using TravelMan), together with all other
materials and property of MS, which are in its possession or under its control.
(c) Custom Tools. At the sole discretion of MS, MS may grant WTP a non-
------------
exclusive, personal, non-transferable, non-assignable, royalty-free license to
access and use certain software tools ("Expedia User Management Tools")
developed or to be developed by MS and to be identified from time to time during
the term of this Agreement solely for the purpose of assisting WTP in providing
the Services to MS customers under this Agreement. Upon the expiration or
termination of this Agreement, WTP's license to use the Expedia User Management
Tools will automatically terminate.
Microsoft Confidential Page 6
<PAGE>
(d) MS Intellectual Property Rights. MS owns all right, title and interest
-------------------------------
in and to any software or other intellectual property it provides to WTP during
the term of this Agreement, including without limitation the items listed on
Exhibit B. any and all Expedia User Management Tools and training materials.
All software so provided shall be used by WTP in accordance with the terms of
the End User License Agreement ("EULA") accompanying the software, however, that
notwithstanding any provision in a EULA to the contrary, WTP may not transfer
any such software so provided.
(e) WTP Tools. Notwithstanding the foregoing, the parties hereby
---------
acknowledge and agree that, as between the parties, WTP shall be the owner of
all software tools developed by WTP (or licensed by WTP in the case of CoRRe(TM)
and TravelMan), as well as methods and techniques of doing business, including
patents, trade secrets and other proprietary rights associated therewith
(collectively, "WTP Tools'), during the term of this Agreement for use in
providing the Services provided that WTP notifies MS of the existence of the
same and also that MS agrees with WTP's assertion in respect thereof (which
agreement will not be unreasonably withheld or delayed). WTP Tools include, but
are not limited to, WTP's mid-office quality control software (CoRRe(TM)). WTP
will customize, or have customized, CoRRe(TM) on a non-exclusive basis for
utilization by both Druid Hills Facility and Peachtree Facility for quality
control and other electronic travel distribution needs. This proprietary
software is being paid for, and licensed by, OFS, from WTP's related entity,
Travel Technologies Group, L.P. ("TTG"). Upon termination or expiration of this
Agreement, at MS' option and upon, and in full consideration of, payment by MS
to WTP of the total amount paid by OFS to TTG pursuant to the End User Software
License Agreement between OFS and TTG attached hereto as Exhibit L (exclusive of
monthly usage fees and in no event exceeding [*] ) (in the event MS exercises
option (i)(A) following) or agreement by MS to pay TTG the license fee and
maintenance fee (in the event MS exercises option (i)(B) following), WTP agrees
to (i) either, at MS's option, (A) cause OFS to assign to MS for the sole use of
MS Travel such End User Software License Agreement with regard to CoRRe, and its
enhancements, modifications, improvements and customizations for no additional
payment by MS to either OFS or TTG except for the complete assumption of all on-
going obligations to TTG, including without limitation on-going payment
obligations, under such License Agreement (it being understood that such on-
going payment obligations to be assumed shall not exceed the current payment
structure as set forth on Exhibit L attached hereto, and that the [*] per
reservation monthly usage fees shall be subject to renegotiation at the time of
such assignment) or (B) cause TTG to issue to MS for the sole use of MS Travel a
worldwide license to the object code of CoRRe and its enhancements,
modifications, improvements and customizations with a fair market value license
fee and with a fixed monthly maintenance fee which on an annualized basis shall
not exceed [*] of the license fee; (ii) assign to MS WTP's license agreement for
TravelMan for no additional payment by MS to TravelMan's licensor except for the
complete assumption of all on-going obligations under the existing license
agreement; and (iii) license to MS on a non-exclusive basis all of the other WTP
Tools, all in order to permit MS to provide uninterrupted service to its
customers. WTP agrees that it will ensure that OFS does not amend Section 2.2b
of the End User Software License Agreement in any way that will lessen MS'
rights to assignment of such agreements or increase the fees that will be owed
as a result thereby; however WTP agrees to cause OFS
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 7
<PAGE>
to review the monthly usage fees in the End User Software License Agreement with
TTG at the time of any assignment and to assist MS in the negotiation of lower
fees if commercially reasonable at that time given the experience in using CoRRe
during the term of this Agreement. WTP also agrees that it will, for the
duration of this Agreement, continue to own or control, directly or indirectly,
TTG and OFS; provided, however, that in the event that WTP decides to divest TTG
and/or OFS, it shall require the purchaser of any of such entities to assume the
obligations imposed on WTP hereunder with respect to the maintenance and
assignment of the End User Software License Agreement and/or the license of the
CoRRe technology.
(f) MS Products. MS will provide WTP at no charge with copies of the MS
-----------
software products as described in Exhibit B ("MS Products"). Effective upon the
delivery of the MS Products to WTP, MS shall be deemed to have granted to WTP a
non-exclusive, personal, non-transferable, non-assignable, royalty-free license
to use the MS Products at the Druid Hills and Peachtree Facilities under the
terms of the EULA accompanying each of the Products for the sole purpose of
providing Services exclusively to MS customers as provided for under the terms
of this Agreement. Notwithstanding the terms of the EULAs accompanying the MS
Products, WTP shall be entitled to reproduce a number of copies of the MS
Products (including all related documentation) as set forth in Exhibit B. Upon
the expiration or termination of this Agreement, WTP's license to use and
reproduce such MS Products will automatically terminate, and WTP shall within
ten (10) days thereafter either (i) return all copies of the MS Products
(including all related documentation) licensed to WTP pursuant to this Agreement
in its possession to MS, (ii) provide written certification to MS signed by an
authorized representative of WTP that WTP has destroyed all copies of the
Products (including all related documentation) licensed to WTP pursuant to this
Agreement in its possession, or (iii) if MS has offered to continue the license
of such MS Products to WTP, license such MS Products at their then-current fair
market value.
4. Warranties.
----------
(a) WTP warrants that:
(i) It possesses all necessary authority to enter into this
Agreement, and that by so doing it does not violate any other agreements to
which it is a party; and
(ii) The Services will be performed in a professional manner and shall
conform in all material respects with the service requirements set forth in
this Agreement including, without limitation, those set forth in Exhibits A
and C. WTP shall not knowingly or negligently engage in hidden city
ticketing, beyond point ticketing, cross-border ticketing and speculative
or abusive bookings or other violations of any airlines' Conditions of
Carriage, tariffs and other rules and regulations; and
Microsoft Confidential Page 8
<PAGE>
(iii) The Services will be performed by (i) employees of WTP acting
within the scope of their employment who have signed confidentiality
agreements with WTP (with appropriate acknowledgments of confidentiality)
substantially in the form attached as Exhibit K, or (ii) by GTS under
written contractual obligations to WTP pursuant to Section 11 below,
through employees of GTS acting within the scope of their employment who
have signed confidentiality agreements with GTS (with appropriate
acknowledgments of confidentiality) substantially in the form attached as
Exhibit K; and
(iv) In providing Services to MS Travel customers and any other
persons or entities, WTP shall make no representations nor undertake any
obligations on behalf of MS concerning the Services and/or any other MS
products or services beyond those expressly made or undertaken by MS Travel
and communicated to MS Travel customers on the MS Travel web site. WTP,
including all of WTP's employees, temporary employees and contractor GTS
pursuant to Section 11 below, shall conform to all applicable laws and
government rules and regulations. WTP assumes all responsibility for
providing any training that may be required to ensure compliance with such
legal requirements. WTP shall offer to MS Travel customers only those
Services authorized by this Agreement, advising customers requesting other
services that MS Travel does not provide such services, and then
documenting and advising MS of all such requests; and
(v) Any and all software and materials WTP publishes or uses in
providing the Services under this Agreement do not and will not infringe
any intellectual property rights owned by MS or any other person or entity
including, but not limited to, any copyright, patent, trademark or trade
secret; and
(vi) Except as otherwise provided in this Agreement, WTP will not
reproduce, sell, publish, or in any manner commercially exploit the
Microsoft(R) name or any information or derivatives of information acquired
in connection with its provision of Services or allow such reproduction,
sale, publication or exploitation by any employee or person retained for
the purpose of providing such services except as agreed to in writing by
MS; and
(vii) Prior to the commencement of the work to be performed hereunder
and throughout the entire performance by WTP, WTP shall procure and
maintain insurance adequate to cover any and all liability which WTP may
incur as a result of the performance of work included in this Agreement.
Such insurance shall be in a form and with insurers acceptable to MS, and
shall comply with the following minimum requirements:
(A) Commercial General Liability insurance of the
Occurrence Form, with policy limits of not less than Five
Million Dollars ($5,000,000.00) combined single limit each
occurrence for
Microsoft Confidential Page 9
<PAGE>
Bodily Injury and Property Damage combined, and Five
Million Dollars ($5,000,000) Personal and Advertising
Injury Limit.
(B) Professional Liability And Errors & Omissions
Liability Insurance with policy limits of not less than
Five Million Dollars ($5,000,000.00) each claim with a
deductible of not more than $25,000.00. Such insurance
shall include coverage for infringement of proprietary
rights of any third party, including without limitation
copyright, trade secret and trademark infringement as
related to WTP's performance under this Agreement.
Throughout the term of this Agreement, the Professional
Liability And Errors & Omissions Liability Insurance
retroactive coverage date will be no later than the
Effective Date of this Agreement. Upon expiration or
termination of this Agreement, WTP will maintain an
extended reporting period providing that claims first
made and reported to the insurance company within one
year after the end of this Agreement will deemed to have
been made during the policy period.
A copy of the certificate of insurance shall be included as
Exhibit J. Failure by WTP to furnish certificates of insurance or
failure by MS to request same shall not constitute a waiver by MS
of any of the insurance requirements set forth herein. WTP shall
notify MS in writing at least thirty (30) days advance if WTP's
insurance coverage is to be canceled or materially altered so as
not to comply with the requirements of this section.
In the event of such failure on the part of WTP to provide the
certificates as requested herein, and in the event of liability or
expense incurred by MS as a result of such failure by WTP, WTP
hereby agrees to indemnify MS for all liability and expense
(including reasonable attorneys' fees and expenses associated with
establishing the right to indemnity) incurred by MS as a result of
such failure by WTP; and
(viii) Individuals it places in contact with MS Travel
Customer Information or MS Confidential Information shall not have
been convicted af a felony as an adult or released from prison
within the last seven (7) years.
(ix) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
WTP AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES AND CONDITIONS,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE
PRODUCTS AND SERVICES PROVIDED PURSUANT TO THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES AND
CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
AND (EXCEPT AS SET FORTH IN SECTION 7(c)) NON-INFRINGEMENT.
Microsoft Confidential Page 10
<PAGE>
(b) MS warrants that:
(i) Any MS Products supplied, including but not limited to those
described in Exhibit B, and any services performed by MS pursuant to this
Agreement will, respectively, conform substantially to the relevant product
documentation and be performed in a professional manner.
(ii) The Expedia User Management Tools do not and will not so
infringe any intellectual property rights owned by any other person or
entity including, but not limited to, any copyright, patent, trademark or
trade secret to the extent that WTP will be required to refrain from using
such tools (and MS will not be able to provide substitute technology which
reasonably provides the same or similar functionality) with the overall
result that WTP will not be able to reasonably perform the Services as
intended herein; and
(iii) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, MS AND ITS
SUPPLIERS DISCLAIM ALL OTHER WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, WITH RESPECT TO THE PRODUCTS AND SERVICES PROVIDED
PURSUANT TO THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, AND (EXCEPT AS SET FORTH IN SECTION 7(d)) NON-INFRINGEMENT.
5. Personnel.
---------
(a) WTP personnel assigned to MS Travel shall be employees of WTP and not
employees of MS and shall remain under the direction and control of WTP, subject
to ARC or other regulatory requirements. These WTP personnel shall receive such
salaries, compensation and benefits as WTP shall determine. WTP 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 such WTP personnel.
(b) Notwithstanding the foregoing, WTP personnel assigned to MS Travel
shall adhere to MS quality control standards as set forth in Exhibit C and be
qualified to run an ARC-approved travel agency office. An ARC Qualifier must be
present at the Druid Hills Facility to provide Services for MS Travel.
(c) MS shall have the option to participate in any decisions regarding any
assignment of WTP personnel to MS Travel. WTP acknowledges MS' right to require
immediate removal and prompt replacement of any WTP or GTS employee, or agent
performing WTP's obligations under this Agreement who engages in any conduct
prohibited by law or inconsistent with MS policy as set forth in Exhibit E.
Microsoft Confidential Page 11
<PAGE>
6. Non-Competition and Non-Solicitation.
------------------------------------
(a) WTP personnel shall not target or solicit MS Travel customers for
additional travel business beyond provision of the Services governed by this
Agreement, nor shall WTP use information gained in the provision of the Services
to compete with MS Travel in providing travel services.
(b) Notwithstanding the preceding section 6(a), WTP shall not be
prohibited from providing services to MS Travel customers who contact WTP
independently (other than in conjunction with MS Travel), or whose names appear
on mailing lists developed independently of MS Travel or who were customers of
WTP prior to the Effective Date.
(c) MS shall not solicit WTP personnel assigned to MS Travel to work for
MS without prior notice to senior management of WTP.
7. Indemnification.
---------------
(a) WTP General Indemnification. WTP agrees to indemnify, defend,
---------------------------
and hold MS harmless from and against any and all claims, actions, demands, and
costs, including reasonable attorneys' fees and expenses arising out of or in
connection with third party claims as a result of the performance of the
Services provided under this Agreement by WTP or its employees, independent
contractors or subcontractors and agents, including without limitation GTS ("WTP
Indemnified Claims"). Acts for which WTP shall indemnify MS include, but shall
not be limited to, representations or obligations undertaken on behalf of MS
concerning the Services to customers which exceed the scope of the Services as
set forth in this Agreement; any act or omission in violation of any applicable
government statutes, laws, rules and regulations or industry rules and
regulations; or violation of any air1ine's Conditions of Carriage, tariffs, or
other rules. Omissions for which WTP shall indemnify MS include, but shall not
be limited to, failure to report reservation information accurately and promptly
to ARC. MS reserves the right to control the defense of any WTP Indemnified
Claim and to conduct all proceedings or negotiations in connection therewith,
and if it so undertakes, all other proceedings or negotiations to settle or
defend any such WTP Indemnified Claim shall be at MS' expense, provided that
(i) WTP shall have the right to approve of any settlement of any such WTP
Indemnified Claim; such approval shall not be unreasonably withheld, and (ii) MS
shall be responsible for payment of all attorneys' fees incurred by MS after it
has exercised its right to control the defense. WTP shall pay any and all
expenses and other reasonable costs incurred by MS arising in connection with
its obligations under this Section 7(a) promptly upon demand.
(b) MS General Indemnification. MS agrees to indemnify, defend
--------------------------
and hold WTP harmless from and against any and all claims, actions, demands,
liabilities, and costs, including reasonable attorneys' fees and expenses,
arising out of or in connection with third party claims as a result of (i) the
business of MS Travel unless arising out of or in connection with circumstances
for which WTP is indemnifying MS pursuant to Section
Microsoft Confidential Page 12
<PAGE>
7(a) above; and (ii) any injuries to the person or property of any MS Travel
customer while traveling on an MS Travel itinerary unless arising out of or in
connection with the negligence of WTP ("MS Indemnified Claim"). WTP reserves the
right to control the defense of any MS Indemnified Claim and to conduct all
proceedings or negotiations in connection therewith, and, if it so undertakes,
all other proceedings or negotiations to settle or defend any such MS
Indemnified Claim shall be at WTP's expense, provided that (i) MS shall have the
right to approve of any settlement of any such MS Indemnified Claim, such
approval shall not be unreasonably withheld, and (ii) WTP shall be responsible
for payment of all attorneys' fees incurred by WTP after it has exercised its
right to control the defense. MS shall pay any and all expenses and other costs
incurred by WTP arising in connection with its obligations under this Section
7(b) promptly upon demand.
(c) WTP Intellectual Property Indemnification.
-----------------------------------------
(i) Indemnified Claims. WTP agrees to defend MS against, and pay the
------------------
amount of any adverse final judgment or settlement to which WTP consents
resulting from, any third party claim(s) ("Indemnified IP Claims") that any
WTP Tools or any portion thereof, or WTP's provision of any services
pursuant to this Agreement, infringes any third party patent, copyright,
trademark or trade secret enforceable under the laws of the United States;
provided that WTP is notified promptly in writing of the Indemnified IP
Claim and has sole control over its defense and settlement, and MS provides
reasonable assistance in the defense and/or settlement of such claim.
(ii) Exclusions. Notwithstanding Section 7(c)(i) above, WTP shall
----------
have no liability for any intellectual property infringement claim
(including an Indemnified IP Claim) that arises as a result of (i) MS' use
of the WTP Tools after a reasonable time from WTP's written notice that MS
should cease use of the WTP Tools due to such a claim, provided WTP has
delivered a non-infringing substitute that complies with applicable
specifications and is capable of being deployed by MS; or (ii) MS'
combination of the WTP Tools with a non-WTP product, program or data; or
(iii) MS' adaptation or modification of any WTP Tool. For all claims
described in clauses (i)-(iii) above of this Section 7(c)(ii), MS agrees to
defend WTP against, and pay the amount of any adverse final judgment or
settlement to which MS consents resulting from, such claims, provided that
MS is notified promptly in writing of such a claim and MS has sole control
over its defense or settlement, and WTP provides reasonable assistance in
the defense and/or settlement of such claim.
(iii) WTP' Rights in the Event of Intellectual Property Infringement
--------------------------------------------------------------
Claim. In the event WTP receives information concerning an intellectual
-----
property infringement claim (including an Indemnified IP Claim) related to
the WTP Tools, WTP may at its expense, without obligation to do so, either
(i) procure for MS the right to continue to use the alleged infringing
release of the WTP Tools, or (ii) replace or modify the release of the WTP
Tools to make it non-infringing, and in
Microsoft Confidential Page 13
<PAGE>
which case, MS shall thereupon cease use of the alleged infringing release
of the WTP Tools.
(d) MS Intellectual Property Indemnification.
----------------------------------------
(i) Indemnified Claims. MS agrees to defend WTP against, and pay the
------------------
amount of any adverse final judgment or settlement to which MS consents
resulting from, any third party claim(s) ("Indemnified IP Claims") that the
MS Tools or any portion thereof, or MS' provision of any services pursuant
to this Agreement, infringe any third party patent, copyright, trademark or
trade secret enforceable under the laws of the United States; provided that
MS is notified promptly in writing of the Indemnified IP Claim and has
sole control over its defense and settlement, and WTP provides reasonable
assistance in the defense and/or settlement of such claim.
(ii) Exclusions. Notwithstanding Section 7(d)(i) above, MS shall have
----------
no liability for any intellectual property infringement claim (including an
Indemnified IP Claim) that arises as a result of (i) WTP's use of the MS
Products or Expedia User Management Tools (the "MS Tools") after a
reasonable time from MS' written notice that WTP should cease use of the MS
Tools due to such a claim, provided MS has delivered a non-infringing
substitute that complies with applicable specifications and is capable of
being deployed by WTP; or (ii) WTP's combination of an MS Tool with a non-
MS product, program or data; or (iii) WTP's adaptation or modification of
any of the MS Tools. For all claims described in clauses (i)-(iii) of this
Section 7(d)(ii), WTP agrees to defend MS against, and pay the amount of
any adverse final judgment or settlement to which WTP consents resulting
from, such claims, provided that WTP is notified promptly in writing of
such a claim and WTP has sole control over its defense or settlement, and
MS provides reasonable assistance in the defense and/or settlement of such
claim.
(iii) MS' Rights in the Event of Intellectual Property Infringement
-------------------------------------------------------------
Claim. In the event MS receives information concerning an intellectual
-----
property infringement claim (including an Indemnified IP Claim) related to
the MS Tools, MS may at its expense, without obligation to do so, either
(i) procure for WTP the right to continue to use the alleged infringing
release of the MS Tools, or (ii) replace or modify the MS Tools to make
them non-infringing, and in which case, WTP shall thereupon cease use of
the alleged infringing release of the MS Tools.
8. Term and Default.
----------------
(a) This Agreement shall commence as of the Effective Date, and shall
continue in force for a period of three (3) years thereafter unless earlier
terminated by either party as provided in this Agreement or Exhibits hereto.
This Agreement
Microsoft Confidential Page 14
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automatically shall be renewed for a further period of one (1) year, unless
either party has notified the other party in writing at least 180 days prior to
the third anniversary of the Effective Date of its intent not to renew, such
renewal to be subject to earlier termination as provided in this Agreement or
Exhibits hereto. Any renewal pursuant to this Section shall be on the same terms
and conditions as are contained in this Agreement.
(b) MS may, in its sole discretion, terminate this Agreement without cause
with 180 days' notice to WTP. In the event of such termination solely for the
convenience of MS, WTP shall be entitled to compensation in accordance with
Section 5 of Exhibit D with any reconciling payments to be completed no later
than sixty (60) days following such termination. The parties agree that this
amount is a fair and reasonable estimate of liquidated damages, and is not
intended as a penalty for termination.
(c) This Agreement may be terminated by either party in the event the
other party (the "Other Party" for the purposes of this subsection) materially
fails to perform or comply with any material provision of this Agreement and
fails to cure such non-performance or non-compliance within thirty (30) days
after receipt of notice thereof, assigns its rights or interest in the Agreement
in contravention of Section 14(f) or suspends performance of its obligations as
described in Section 14(i) or becomes insolvent or admits in writing its
inability to pay its debts as they become due or makes an assignment for the
benefit of creditors or if a petition under any bankruptcy act, receivership
statute or the like, as they now exist or as they may be amended, is filed by
the Other Party or by any third party or an application for a receiver is made
by anyone and such application is not resolved favorably to the Other Party
within sixty (60) days.
(d) This Agreement may be terminated by MS pursuant to the provisions of
Section 9.
(e) Sections 2, 3(b), 3(c), 3(d), 3(f), 4, 5, 6, 7, 8(e), 8(f), 8(g), 10,
11, 12, 13, and 14 of this Agreement shall survive termination for any reason.
(f) Upon the expiration or earlier termination of this Agreement, (i) WTP
shall cooperate with MS to assist in the orderly transition of Services to MS,
or to any third party as MS may direct, in a professional manner, with no
disruption to customer service; and (ii) WTP shall remove all software and
equipment provided by MS and shall deliver all such software and equipment to
MS, including but not limited to those items detailed in Exhibit B, subject
to WTP's possible option to purchase set forth in Section 8(g)(i). Upon MS'
request, WTP shall provide "train the trainer" training to MS or a third party
or parties, with the cost of the WTP personnel providing the training to be paid
by MS.
(g) In the event of termination or expiration of this Agreement:
(i) MS, at its option, may make available to WTP all or substantially
all of the software, hardware and equipment provided by MS at the Druid
Hills Facility and Peachtree Facility as described in Exhibit B for
purchase (in the case
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of hardware and equipment) or license (in the case of software). In the
event MS offers such items for purchase or license, the price(s) therefor
shall be based upon their then-current fair market value.
(ii) WTP will make available to MS the leasehold improvements,
telecommunication systems, furniture and fixtures, and proprietary software
(such as CoRRe(TM) and other WTP Tools) set forth in Section 1(g)(iii) for
purchase (in the case of equipment and other tangible property) or license
(in the case of the software). The purchase price(s) for such items other
than software shall be based upon their then-current fair market value. The
software shall be licensed or assigned on the terms set forth in
Section 3(e).
9. Default in Performance and Remedies. During the term of this Agreement:
-----------------------------------
(a) In the event WTP breaches the provisions of Section 10 or if MS or WTP
receives a notice of complaint from ARC as a result of WTP's acts or omissions,
such breach will justify termination for cause, and MS may terminate this
Agreement immediately with no further obligation to WTP.
(b) In the event WTP fails to meet the performance requirements as
specified in this Agreement and in Exhibit C (the "Service Process
Requirements"), MS shall give WTP notice of such non-compliance and WTP shall
have 24 hours after receipt of such notice to correct such non-compliance.
(c) In the event there is a continued failure by WTP to meet the Service
Process Requirements, and MS has not terminated WTP for its first failure to
meet these requirements, WTP shall, at MS' request, provide a corrective action
plan within forty-eight (48) hours, including training and staffing plans, to MS
for approval. MS shall review and approve such corrective action plan or provide
required changes to WTP within five (5) business days from its receipt of such
plan.
(d) In the event the Service Process Requirements are not met by WTP
within the time period set forth in any corrective action plan, as approved or
changed by MS, MS shall have the option to require WTP to pay MS an amount
equaling 15% of average daily gross revenues earned by WTP pursuant to this
Agreement (such average to be based upon the period commencing on the later to
occur of the launch of MS Travel or the Effective Date and ending as of the date
of MS' exercise of its option to collect liquidated damages pursuant to this
Section 9(d)), as liquidated damages and not as penalty, for each additional day
WTP fails to meet such Service Process Requirements. Such accrual of liquidated
damages shall terminate upon the termination or expiration of this Agreement;
however, the obligation to pay such accrued liquidated damages shall continue
until paid.
(e) In the event the Service Process Requirements are not met by WTP
within the time period set forth in any corrective action plan, as approved or
changed by MS, MS
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shall have the right to terminate this Agreement for cause, with no further
obligation to WTP under this Agreement.
(f) Any liquidated damages described in this section shall be deducted
from amounts due to WTP under Section 2 and Exhibit D. WTP shall pay directly to
MS any liquidated damages in excess of such amounts due.
(g) The Service Process Requirements set forth in Exhibit C will be
reviewed at the end of the first three months after the launch of MS Travel and
the parties shall consider appropriate revisions thereto.
(h) All remedies set forth in this section shall be in addition to and not
in lieu of any other remedies available to MS under this Agreement at law or in
equity.
10. Confidentiality and Publicity.
-----------------------------
(a) MS and WTP agree that the terms of the Non-Disclosure Agreement
executed by the parties, dated and attached hereto as Exhibit I shall be deemed
incorporated herein, and further, that all terms and conditions of this
Agreement shall be deemed Confidential Information as defined in such Non-
Disclosure Agreement.
(b) The parties acknowledge that monetary damages may not be a sufficient
remedy for unauthorized disclosure or use of Confidential Information and that
the parties 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.
(c) WTP shall not issue any press release or advertising concerning WTP's
relationship with MS and the Services hereunder, without MS' written pre-
approval.
11. Services in Canada. WTP will subcontract with GTS to provide Services in
------------------
Canada.
(a) The contract between WTP and GTS will require GTS to perform a subset
of the Services described in Exhibit A sufficient to enable WTP to offer all
Services described in Exhibit A, including without limitation the provision to
WTP of sufficient reports to support WTP's reporting obligations under Section
1(1) of this Agreement.
(b) MS will compensate WTP for the Services provided in Canada using the
event-based fee schedule in Exhibit D. WTP will be solely responsible for any
payments or other compensation provided to GTS for the Services provided by GTS
to support MS Travel in Canada.
(c) The contract between WTP and GTS shall require GTS to comply with
obligations substantially similar to those imposed on WTP by Section 10 above;
further, any such agreement shall expressly provide that MS is a third party
beneficiary of such
Microsoft Confidential Page 17
<PAGE>
agreement with rights to enforce such agreement. Finally, WTP warrants and
represents that it will ensure that GTS will perform any services in accordance
with the service and performance requirements set forth this in this Agreement
including, without limitation, those set forth in all Exhibits attached hereto,
and abide by all other terms and conditions of this Agreement.
12. Notices and Requests. All notices, authorizations, and requests in
--------------------
connection with this Agreement shall be deemed given on the day they are (i)
deposited in the mail, postage prepaid, certified or registered, return receipt
requested; or (ii) sent by air courier, charges prepaid, with a confirming
telefax; or (iii) transmitted, if transmitted by facsimile, and addressed as
follows:
Notices to WTP:
- --------------
WORLDTRAVEL PARTNERS
1055 Lenox Park Blvd., Suite 400
Atlanta, GA 30319
ATTN: Danny Hood
Phone: (404) 841-6600
Fax: (404) 814-2983
With a copy to: Demme Wiggins
Notices to MS:
- -------------
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
ATTN: Travel Product Unit Manager
Phone:. (206) 882-8080
Fax: (206) 936-7329
With a copy to: Travel Operations Manager
With a copy to: Law & Corporate Affairs
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
13. Audit. WTP shall keep all usual and proper records relating to its
-----
compliance with the terms of this Agreement. MS reserves the right to, through
the use of a mutually agreed to independent auditor, audit WTP's systems and
records specifically related to this Agreement during the term of this Agreement
and for a period of three years
Microsoft confidential Page 18
<PAGE>
thereafter, provided that such audit(s) shall be conducted during normal
business hours in such a manner as not to interfere unreasonably with the
operations of WTP. Audit expenses shall be paid by MS unless material
discrepancies are disclosed by the audit, in which case audit expenses shall be
paid by WTP. MS' audit rights referred to in this section shall be reasonable in
scope, but will be of an expansive scope if MS' audit reveals material
discrepancies.
14. General.
-------
(a) This Agreement shall be construed and controlled by the laws of the
State of Washington, and WTP consents to jurisdiction and venue in the state and
federal courts sitting in the State of Washington. Process may be served on
either party by US Mail, postage prepaid, certified or registered, return
receipt requested, or by such other method as is authorized by law.
(b) Neither this Agreement, nor any terms or conditions contained herein,
shall be construed as creating a partnership, joint venture, agency
relationship, employer/employee relationship or franchise.
(c) This Agreement, including all Exhibits attached hereto, constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements or communications
with respect to the subject matter hereof, with the exception of the Non-
Disclosure Agreement between the parties referenced herein. This Agreement shall
not be modified except by a written agreement dated subsequent to the date of
this Agreement and signed on behalf of WTP and MS by their respective duly
authorized representatives.
(d) 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.
(e) 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.
(f) The rights and obligations hereunder shall be binding upon and inure
to the benefit of the successors and assigns of the parties hereto, provided any
rights or obligations hereunder shall not be assigned by either party without
the prior written consent of the other party, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, if WTP is reorganized into
another form of entity with the effect that the new entity owns substantially
all of the current assets and business of WTP and that the new entity is
controlled by the same person(s) as currently control WTP, this Agreement may be
assigned to such new entity without prior written consent of MS.
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(g) In any suit or action to enforce any right or remedy under this
Agreement or to interpret any provision of this Agreement, the prevailing party
will be entitled to recover its costs, including reasonable attorneys' fees.
(h) The section headings herein are for the convenience of the parties and
shall not be deemed to supersede or modify any provisions.
(i) If either party is unable to perform under this Agreement due to
circumstances or causes beyond its control, and which could not by reasonable
diligence have been avoided, such party shall have the option, without
liability, of suspending performance of its obligations under this Agreement for
the duration of such contingency upon written notice to the other party.
However, either party may terminate this Agreement upon written notice to the
other party in the event that such other party has suspended performance of its
obligations under this Agreement for more than thirty (30) days.
(k) This Agreement does not constitute an offer by MS and shall not be
effective until signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
MICROSOFT CORPORATION WORLDTRAVEL PARTNERS, L.P.
One Microsoft Way 1055 Lenox Park Blvd., Suite 400
Redmond, WA 98052-6399 Atlanta, GA 30319
/s/ John Nielsen /s/ Danny B. Hood
- --------------------------- ---------------------------------
By By
JOHN NIELSEN DANNY B. HOOD
- --------------------------- ---------------------------------
Name (print) Name (print)
Vice President President-Corp. Jul & Technology
- --------------------------- ---------------------------------
Title Title
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CONTRACT NUMBER:___________
AMENDMENT NUMBER 1 TO
MICROSOFT CORPORATION/WORLD TRAVEL PARTNERS
SERVICE AGREEMENT
This AMENDMENT NUMBER 1 is made to that certain MICROSOFT CORPORATION/
WORLDTRAVEL PARTNERS SERVICE AGREEMENT, effective as of October 9, 1996 (the
"Original Agreement"), by and between MICROSOFT CORPORATION, a Washington
corporation ("MS"), and WORLDTRAVEL PARTNERS L.P., a Georgia Limited Partnership
("WTP"). This AMENDMENT NUMBER 1 is effective as of January 1, 1999 ("Effective
Date of AMENDMENT NUMBER 1), and is executed as of the later of the two
signature dates below ("Execution Date of AMENDMENT NUMBER 1"). The Original
Agreement as amended by this AMENDMENT NUMBER 1 is hereby defined as the
"Agreement."
All initially capitalized terms shall have the meanings provided to them in
the Original Agreement unless otherwise defined in this AMENDMENT NUMBER 1. The
parties agree as follows:
1. To reflect the fact that WTP has assigned the Original Agreement to
WorldTravel Technologies, L.L.C., a Georgia Limited Liability Company
("WTT") (which no longer has a direct relationship to WTP), and WTT has
agreed to assume and perform all of the obligations of WTP under the
Original Agreement, the parties therefore agree that this AMENDMENT NUMBER
1, together with a separate Guarantee Agreement between MS and WTP dated
March 18, 1999, is intended to effect a change in the contracting parties
to MS and WTT, and all references in the Original Agreement to "WTP" shall
be construed as references to "WTT."
2. Section 1(b) of the Original Agreement is amended and restated in its
entirety as follows:
"(b) WTT may subcontract collection services to a third party so long as
(i) MS, at its discretion, may elect at any time to assume responsibility
for collection, (ii) WTT obtains MS' prior consent for settlements of bad
debt that results in forgiveness of fifteen percent (15%) or more of the
bad debt; and (iii) in the event the subcontracted collection services are
not effective, WTT and MS shall discuss appropriate corrective steps. WTT
may also select vendors to provide services relating to the Services so
long as such vendors are not directly servicing customers of MS Travel. WTT
shall remain fully responsible and accountable for the performance of its
subcontractors and vendors. Unless otherwise expressly set forth in this
Agreement, WTT will not otherwise subcontract any of its obligations
hereunder without the prior written approval of MS."
3. Section 2(a) of the Original Agreement is amended and restated in its
entirety as follows:
"(a) (i) WTT shall pay and be solely responsible for all costs incurred in
providing the Services under this Agreement indicated in Exhibit D as being
"WTT Costs." MS shall pay and be solely responsible for all costs with
respect to the Services indicated in Exhibit D as being "MS Costs." In the
event that WTT Costs exceed an average of [*] per Ticket (as defined in
Exhibit D) in any one calendar month after the Effective Date of AMENDMENT
NUMBER 1, then MS agrees to pay to WTT the amount of the WTT Costs that
exceed [*] per Ticket for such calendar month. WTT shall include a charge
for the MS Costs and any excess WTT Costs (in the event that WTT incurs WTT
Costs in excess of an average of [*] per Ticket in the calendar month), in
the monthly statement described in Section 2(b)(iii) below and shall
provide sufficient back-up to substantiate the charges.
(ii) Additionally, WTT shall be solely responsible for all Customer
Charge-Backs as described in Exhibit D in an amount up to an average of [*]
per Ticket in any
Microsoft
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential
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<PAGE>
calendar year. MS agrees to reimburse WTT for all Customer Charge-Backs
that are in excess of an average of [*] per Ticket incurred in a calendar
year (regardless of when the Customer Charge-Back may have been received by
WTT). However, if a Customer Charge Back is received more than one calendar
year after it was incurred, that Customer Charge Back will be attributed to
the year it was received. In the event that the Customer Charge-Backs in
any calendar year after the Effective Date of the AMENDMENT NUMBER 1 exceed
an average of [*] per Ticket, WTT shall include a charge to MS for such
excess Customer Charge-Backs along with sufficient back-up to substantiate
such excess Customer Charge-Backs in the monthly statements described in
Section 2(b)(iii) below during the subsequent calendar year.
(iii) MS agrees that it will request WorldSpan to make payments with
respect to errors made by WorldSpan's system in connection with Tickets
directly to WTT and will provide reasonable assistance to WTT (to the
extent requested by WTT) to collect such amount directly from WorldSpan. If
WorldSpan acknowledges the errors were made by its system in connection
with Tickets, but in documentation submitted to WTT (and provided to MS)
states that WorldSpan will not reimburse WTT the full amount for such
errors because of separate financial or business arrangements with MS, then
WTT shall invoice MS for such amounts within sixty (60) days after the end
of the calendar year in which the WorldSpan payments were due."
4. Section 2(b) of the Original Agreement is amended and restated in its
entirety as follows:
"(b) MS will pay WTT the following amounts:
(i) Within thirty (30) days after the Execution Date of AMENDMENT
NUMBER 1, MS shall pay to WTT all amounts that are due to WTT, as of the
Effective Date of AMENDMENT NUMBER 1, in connection with the Original
Agreement.
(ii) MS shall pay an initial advance against the fees for the
Services as set forth in Exhibit D (the "Fees"), which amount shall be
equal to [*] multiplied by [*] times the greatest total number of Tickets
(as defined in Exhibit D) sold by WTT in connection with the Services in a
calendar month during the six-month period immediately prior to the
Effective Date of AMENDMENT NUMBER 1 (the "Initial Advance"), MS shall pay
the Initial Advance to WTT within thirty (30) days after the Execution Date
of AMENDMENT NUMBER 1.
(A) The Current Advance Balance (as defined below) shall be applied
against any earned Fees during the last three months immediately
prior to the end of the term of this Agreement, subject to paragraph
8 of this AMENDMENT NUMBER 1. At the end of each calendar month
during the three (3) month period immediately prior to the end of the
term of the Agreement, WTT will provide MS with a statement setting
forth the total number of Tickets sold that calendar month in
connection with the Services and the applicable Fees. The statement
shall include information sufficient to discern how the Fees were
calculated and shall be in a format to be provided by MS. If the
statement indicates that the Fees for that calendar month exceeded
any funds remaining in the Current Advance Balance then MS shall pay,
within thirty (30) days after receipt of the statement, any
additional amount of Fees that may properly be due, and the Current
Advance Balance shall be deemed exhausted.
(B) At the end of each calendar year during the term of the Agreement,
the parties shall agree to adjust the Current Advance Balance in an
amount calculated as follows ("Advance Adjustment"): [*]
In the event that the above
calculation of the Advance Adjustment results in a negative number,
then WTT will refund the amount represented by that negative number
to MS within thirty (30) days, and the Current Advance Balance will
be deemed reduced by the amount of such refund.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
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WTT shall invoice MS for the applicable Advance Adjustment, if any,
in the first month's statement in the new calendar year in accordance
with Section 2(b)(iii).
(C) For the purpose of this Section, the sum of the Initial Advance and
any Advance Adjustment then in effect, less any refund to MS pursuant
to Section 2(b)(ii)(B) and less any offsets pursuant to Section
2(b)(ii)(A), is defined as the "Current Advance Balance."
(iii) MS shall pay WTT the Fees as set forth in Exhibit D (except with
respect to the last three months immediately prior to the end of the term
of this Agreement, which period is covered in Section 2(b)(ii) above). WTT
shall invoice MS on a monthly basis, on or before the 15/th/ day of the
month following the month for which the Fees (and any applicable MS Costs
or Customer Charge-Backs) are being invoiced. The invoice shall include a
statement setting forth the total number of Tickets sold that calendar
month by WTT in connection with the Services and the applicable Fees and
any applicable MS Costs or Customer Charge-Backs for which MS is
responsible in accordance with Section 2(a) of the Agreement. The statement
shall include information sufficient to discern how the Fees were
calculated and shall be in a format to be provided by MS. MS shall pay the
amount indicated in the invoice within thirty (30) days after receipt of
the invoice. Late payments shall accrue interest at a rate of [*]
per month unless MS notifies WTT that MS disagrees with the calculation of
the invoiced amount. In the event taxes are required by any U.S. (state or
federal) or foreign government to be withheld on payments made hereunder by
MS to WTT, MS may deduct such taxes from the amount owed WTT and pay them
to the appropriate taxing authority. MS shall in turn promptly secure and
deliver to WTT an official receipt for any taxes withheld. MS will use
reasonable efforts to minimize such taxes to the extent permissible under
applicable law"
5. Section 2(c) of the Original Agreement is deleted in its entirety.
6. Section 8(a) is amended to extend the term of the Agreement for a period of
five (5) years after the Effective Date of AMENDMENT NUMBER 1 unless
earlier terminated by either party as provided in this Agreement.
7. Section 8(b) is amended and restated in its entirety as follows:
"(b) MS may, in its sole discretion, terminate this Agreement without
cause with one hundred and eighty (180) days' prior written notice to WTT.
In the event of such termination solely for the convenience of MS (and in
no other event of termination), MS agrees to pay WTT the amount indicated
below.
Effective date of termination
(in terms of months after the Effective Date
of AMENDMENT NUMBER 1) Amount
-------------------------------------------- ------
0-12 months
13-24 months
25-36 months [*]
37-48 months
48-60 months
An "Average Month's Fees" shall be determined by averaging the actual Fees
paid by MS for the six (6) months immediately prior to the effective date
of termination. The parties agree that this amount is a fair and reasonable
estimate of liquidated damages, and is not intended as a penalty for
termination. Additionally, MS may terminate this Agreement (i) immediately
with written notice to WTT in the event MS ceases to directly and solely
operate and control the MS Travel service for U.S. consumers, or (ii) with
one hundred eighty (180) days' prior written notice to WTT in the event MS
sells a majority or more of the MS Travel assets to a third party,
provided, however, that in either case such termination event shall not be
considered a termination for convenience by MS.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
3
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Any amounts that may be owed by MS pursuant to this Section 8(b) shall be
paid within sixty (60) days after the effective date of termination."
8. The following sentence shall be added at the end of Section 8(g) of the
Original Agreement:
"(g) (iii) In addition, within sixty (60) days after the effective date
of termination or expiration of this Agreement, the parties shall reconcile
all accounts hereunder and WTT shall promptly refund and return to MS any
unearned portion of the Current Advance Balance and MS shall promptly pay
to WTT any amounts that it may properly owe to WTT in accordance with this
Agreement."
9. Section 9 of the Original Agreement is amended and restated in its
entirety as follows:
"Default in Performance and Remedies. During the term of this Agreement:
-----------------------------------
(a) In the event WTT breaches the provisions of Section 10 or if MS
or WTT receives a notice of complaint from ARC as a result of WTT's acts or
omissions, such breach will justify termination for cause, and MS may
terminate this Agreement immediately with no further obligation to WTT.
(b) In the event WTT fails to meet the performance requirements as
specified in this Agreement and Minimum Service Criteria set forth in
Exhibit C (the "Service Process Requirements"), MS shall give WTT notice of
such non-compliance and WTT shall have 24 hours after receipt of such
notice to correct such non-compliance. WTT shall take all reasonable
actions to correct such noncompliance as soon as practicable.
(c) In the event there is a continued failure by WTT to meet the
Service Process Requirements within the time period referred to in Section
9(b), WTT shall, at MS' request, provide a corrective action plan within
forty-eight (48) hours, including training and staffing plans, to MS for
approval, MS shall review and approve such corrective action plan or
provide reasonable required changes to WTT within five (5) business days
from its receipt of such plan.
(d) In the event the Service Process Requirements are not met by WTT
within the time period set forth in any corrective action plan, as approved
or changed by MS, MS shall have the option to require WTT to pay MS an
amount equaling [*] of average daily gross revenues earned by WTT pursuant
to this Agreement (such average to be based upon the period of three (3)
months prior to the date of MS' exercise of its option to collect
liquidated damages pursuant to this Section 9(d)), as liquidated damages
and not as penalty, for each additional day WTT fails to meet such Service
Process Requirements. Such accrual of liquidated damages shall terminate
upon the termination or expiration of this Agreement; however, the
obligation to pay such accrued liquidated damages shall continue until
paid.
(e) In the event the Service Process Requirements are not met by
WTT within the time period set forth in any corrective action plan, as
approved or changed by MS, MS shall have the right to terminate this
Agreement for cause, with no further obligation to WTT under this
Agreement.
(f) Any liquidated damages described in this section shall be
deducted from amounts due to WTT under Section 2 and Exhibit D. WTT shall
pay directly to MS any liquidated damages in excess of such amounts due.
The calculation of payments of liquidated damages shall be made as part of
the regular monthly invoice described in Section 2, and WTT shall have 30
days from the date of such invoice to make any required payments to MS.
(g) All remedies set forth in this section shall be in addition to
and not in lieu of any other remedies available to MS under this Agreement
at law or in equity."
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
4
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10. The references to GTS (Global Travel Services) in the Original Agreement
are hereby deleted and shall be replaced with another subcontractor to WTT
(which subcontractor shall be approved in writing by MS, which approval
will not be unreasonably withheld) to perform the Services in Canada in
accordance with Section 11 of the Agreement. The first sentence in Section
11(b) of the Original Agreement is amended to delete the terms "event-
based," and the parties agree that the terms set forth in this AMENDMENT
NUMBER 1 shall apply to the Services with respect to the Canadian version
of MS Travel.
11. Section 14(f) of the Original Agreement is amended and restated in its
entirety as follows:
"(f) The rights and obligations hereunder shall be binding upon and inure
to the benefit of the successors and assigns of the parties hereto,
provided any rights or obligations hereunder shall not be assigned by
either party without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing
restriction with respect to assignment, (I) MS may assign this Agreement to
an entity that will control a majority of the MS Travel business without
the prior written consent of WTT and (ii) if WTT is reorganized into
another form of entity with the effect that the new entity owns
substantially all of the current assets and business of WTT and that e new
entity is controlled (directly or indirectly) by the same person(s) as
currently control WTT or if WTT effects an initial public offering of
shares of its stock, this Agreement may be assigned to such new entity
without prior written consent of MS."
12. A new Section 14(1) is added as follows:
"(1) In order to reduce costs associated with the provision of the
Services, MS agrees to make certain changes to MS Travel as described in
and on the schedule set forth in Appendix 1 to this AMENDMENT NUMBER 1.
Such changes will be subject to the conditions outlined in Appendix 1. WTT
may also participate in and provide input at appropriate meetings for the
purpose of identifying ways to reasonably reduce the costs of providing the
Services. MS shall control the priortization, timing and method for
considering WTT's suggestions or input. [*]
13. A new Section 12(m) is added as follows:
"(m) The parties will discuss in good faith appropriate opportunities to
feature WTT services in the "tour and cruise" category in the Expedia
Travel Network program. Additionally, MS agrees that it will inform WTT
when MS will need travel fulfillment services for international version of
MS Travel and will provide WTT with reasonable time period (not to exceed
thirty (30) days) to first offer to provide such fulfillment services."
14. A new Section 12(n) is added as follows:
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
5
<PAGE>
15. A new Section 15 is added to the Agreement as follows:
"MS and WTT agree that in the event that there are (i) significant economic
changes in the travel industry, (ii) material changes in the scope of work
contemplated by this Agreement, or (iii) global political events that
significantly affect the travel industry and such changes or events
significantly and adversely impact the economic terms of this Agreement,
then the parties will agree in good faith to re-negotiate new economic
terms for this Agreement in light of such change or event. If the parties
fail to agree upon new economic terms the parties agree first to try in
good faith to settle the dispute by mediation administered by the American
Arbitration Association under its Commercial Mediation Rules, with each
party bearing its own expenses with respect to the mediation.
Notwithstanding the foregoing paragraph, the parties acknowledge that
nothing herein shall limit in any manner the ability of either party to
terminate the Agreement in accordance with Section 8(b) of the Agreement
and that any such termination shall not be considered a breach of the
mediation provision set forth in this paragraph."
16. Section 14(i) of the Original Agreement is amended and restated as follows.
"(i) If either party is unable to perform under this Agreement due to
circumstances or causes beyond its control that (i) it could not by
reasonable diligence have avoided and (ii) are not the same as the
circumstances or causes described in Section 15, such party shall have the
option, without liability, of suspending performance of its obligations
under this Agreement for the duration of such contingency upon written
notice to the other party. However, either party may terminate this
Agreement upon written notice to the other party in the event that such
other party has suspended performance of its obligations under this
Agreement for more than thirty (30) days, provided however, such
termination, if effected by MS, shall not be considered a termination of
convenience."
17. Section 4 of Exhibit B (MS Deliverables) is deleted in its entirety.
18. Section 10(c) of the Original Agreement is amended and restated in its
entirety as follows:
"(c) WTT shall not issue any press release or advertising concerning WTT's
relationship with MS without MS' prior written consent, except if WTT or a
successor entity becomes a publicly traded company, and publicity is
necessary, in the opinion of counsel, to comply with the requirements of
(i) any stock exchange on which the shares of WTT or such successor entity
may be listed or (ii) any law, governmental regulation or order; and even
then only after making a reasonable effort to consult with MS as to the
contents of any such publicity. The limitations in this Section 10(c) are
not intended to restrict WTT's ability to make any filings with the US
Securities and Exchange Commission or similar state agencies that may be
legally required if WTT or a successor entity becomes publicly traded."
19. Exhibit C (Service Process Requirements) is amended and restated in its
entirety as set forth in the new Exhibit C attached hereto.
20. Exhibit D (Payments) is amended and restated in its entirety as set forth
in the new Exhibit D attached hereto.
6
<PAGE>
All other terms not expressly amended herein shall remain in full force and
effect as set forth in the Original Agreement.
MICROSOFT CORPORATION WORLDTRAVEL TECHNOLOGIES, L.L.C.
/s/ Richard Barton /s/ John C. Alexander
- ------------------------------- ------------------------------
By By
Richard Barton John C. Alexander
- ------------------------------ ------------------------------
Name (Print) Name (Print)
Gen. Mgr. Travel Bus. Unit Chief Executive Officer
- ------------------------------ ------------------------------
Title Title
4/1/99 3-26-99
- ------------------------------ ------------------------------
Date Date
7
<PAGE>
Exhibit C-- Service Process Requirements
1. Minimum Service Criteria: The Minimum Service Criteria (which are
indicated as averages on a calendar month basis) from the Effective Date
through December 2001 are set forth below. The Minimum Service Criteria
shall apply so long as the phone and email ratios (averaged on a calendar
month basis) are equal to or less than the phone and email ratios set
forth in part 2 of Exhibit D. The parties further agree that Call Backs
shall not exceed [*] of all phone calls in any hour in connection with the
Service. If the average phone ratio for a calendar year is less than the
phone ratio set forth in part 2 of Exhibit D, then the "Percentage of Call
Backs" set forth below shall be decreased on a pro-rata basis for the
following calendar year. The parties agree that none of the liquidated
damages and termination provisions of Section 9 will apply to WTT (xx) if
the Minimum Service Criteria are not in effect because the phone and email
ratios (average for the calendar month) are greater than the phone and
email ratios set forth in part 2 of Exhibit D, or (yy) if the applicable
MS forecast report provided to WTT for the calendar month (as described in
paragraph 2(b) of this Exhibit C) underestimated the actual number of
Tickets to be sold during the month by more than [*] The Minimum Service
Criteria for the last two years of the Agreement shall be determined at
the same time as when the Fees for the last two years of the Agreement are
determined in accordance with part 2 of Exhibit D, provided however, that
at no time during the term of the Agreement shall the new Minimum Service
Criteria Goals be less than the Minimum Service Criteria set forth below.
[*]
* The liquidated damages and termination provisions of Section 9 shall
not apply in the event that WTT fails to satisfy the "Call Backs Customer
Survey" Minimum Service Criteria. However, if WTT fails to satisfy the
"Call Backs Customer Survey" Minimum Service Criteria in any calendar
month, then the parties shall promptly discuss and agree upon an
appropriate corrective action to be implemented by WTT.
2. Service Criteria Goals; Consequences for Exceeding or Failing to Meet the
Service Criteria Goals: The Service Criteria Goals (which are indicated as
averages on a calendar month basis) from the Effective Date through
December 2001 are set forth below. The Service Criteria Goals shall apply
so long as the phone and email ratios (averaged on a calendar month basis)
are equal to or less than the phone and email ratios set forth in part 2
of Exhibit D. The parties agree that the liquidated damages and
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
8
<PAGE>
termination provisions set forth in Section 9 shall not apply in the
event WTT fails to satisfy these Service Criteria Goals. The Service
Criteria Goals for the last two years of the Agreement shall be
determined at the same time as when the Fees for the last two years of
the Agreement are determined in accordance with part 2 of Exhibit D,
provided, however, that at no time during the term of the Agreement
shall the new Service Criteria Goals be less than the Minimum Service
Criteria set forth above.
[*]
(a) If WTT in any calendar month exceeds all the Service Criteria Goals
set forth above or other service criteria set from time to time by the
parties, then MS shall pay [*] per Ticket sold during that calendar
month ("Incentive Amount"). The Incentive Amount shall be matched by
WTT and the total sum shall be allocated by WTT for "rewards" or
"incentives" for those WTT employees who directly or indirectly
provide the Services. Within fifteen (15) days after the end of each
calendar month during the term of the Agreement, WTT shall invoice MS
for any Incentive Amount that WTT may have earned during the calendar
month. WTT shall include a statement in sufficient detail to determine
the calculation of the Incentive Amount. MS shall pay the Incentive
Amount within thirty (30) days after receipt of the applicable
invoice. WTT shall additionally provide MS with reports on a calendar
month basis detailing how prior Incentive Amounts were distributed to
WTT employees.
(b) If WTT in any calendar month fails to satisfy the Services Criteria
Goals set forth above or other service criteria set from time-to-time
by the parties, then in addition to any other rights and remedies that
MS may have, WTT shall pay [*] per Ticket sold during that calendar
month ("Penalty Amount"). Within fifteen (15) days after the end of
each calendar month during the term of the Agreement, WTT shall pay MS
any Penalty Amount that WTT may owe to MS during the calendar month
and shall include a statement in sufficient detail to determine the
calculation of the Penalty Amount. Notwithstanding the foregoing,
however, no Penalty Amount for a calendar month shall be owing to MS
if the applicable MS forecast report provided to WTT for that month,
which MS will provide to WTT at two months prior to the commencement
of that month, underestimated the actual number of Tickets to be sold
during the month by more than [*] or the average phone and email
ratios for the calendar month are greater than the phone and email
ratios set forth in part 2 of Exhibit D.
3. WTT shall provide MS with daily reports regarding WTT's performance of
the Service in accordance with the Minimum Service Criteria and the
Service Criteria Goals.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
9
<PAGE>
Exhibit D - Tickets/Fees/Costs
1. Definition of "Ticket": all air tickets sold on MS Travel, less voids,
based upon reports received from ADS (WTT back office accounting system). By
way of example, if during a given month there were 100 Tickets ordered, but 10
Tickets were voided, then the total of Tickets which will appear on the ADS
Report will be 90. The payment of fees shall only apply to these 90 Tickets. By
way of further example, if during a given month there are 100 Tickets issued,
but 5 of the Tickets were refunded, the total of Tickets for the month, against
which fees would be charged would be 100. The ADS Report for that month would
also show 100 Tickets even though commission was only being received on 95
Tickets. As long as refunds do not exceed 1% of Tickets in which case the
parties will discuss how the split of costs above that level.
2. Fees for Services
(a) Fees through September 30, 2001:
November 1, 1998 - June 30, 1999 [*]
July 1, 1999 - June 30, 2000
July 1, 2000 - September 30, 2001
The fees are based upon reasonable contact ratios (phone ratio of [*] (call-
backs not included) and email ratio of [*] contacts per Ticket averaged over
a calender month). Fees for Services above these levels will during the full
term of the Agreement carry a [*] per minute surcharge for the phone time
and [*] per additional email.
(b) Fees for Services after September 30, 2001 and the remaining term of the
Agreement shall not exceed [*] per Ticket and will be calculated as follows:
(i) Determination of Base Cost: "Base Cost" shall be the lesser of
--------------------------
for the period January 1, 2001 through December 31, 2001. By
the end of the first calender quarter of 2002, WTT and MS shall
determine the Base Cost.
In addition to rights under the Original Agreement, starting from
September 30, 2001 and during the remaining term of the Agreement, MS
shall have the right to audit WTT's records relating to WTT Costs and
the determination of Base Cost. The MS finance team may conduct the
audit and MS shall bear the cost of the audit. MS at that time may
determine the appropriate costs basis (e.g., fully allocated or
variable) in its sole discretion for setting the Base Cost. The same
method will be used for both the base and subsequent periods.
(ii) Fee for October 1, 2001 - June 30, 2002; Fee for July 1, 2002 - June
--------------------------------------------------------------------
30, 2003: For the period October 1, 2001 through June 30, 2002, if
--------
the average WTT Cost per Ticket (measured as the average of WTT Costs
for the calendar months March, April and May 2002) is less than the
Base Cost, MS shall determine the difference (the "Difference"), and
the new Fee shall be set as [*] of the Difference. (For example:
[*] Alternatively, if the WTT Cost
per Ticket is equal to or greater than the Base Cost, then there will
be no adjustment to the Fee. [*]
The new Fee shall apply to the Tickets sold between October 1, 2001
through June 30, 2002. A retroactive credit of the Difference times
the number of Tickets sold between
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
10
<PAGE>
October 1, 2001 through June 30, 2002 will be paid by WTT to MS on or
before July 31, 2002.
This new Fee shall also apply to Tickets sold during the period
July 1, 2002 through June 30, 2003.
(iii) Fee for July 1, 2003 -- December 31, 2003: To determine the Fee for
-----------------------------------------
the period July 1, 2003 through December 3l, 2003, the parties shall
again perform the calculation described in the preceding paragraph
2(B)(ii) for the new period, using the same figure for Base Cost but
using the average WTT Cost per Ticket for the calendar months March,
April and May, 2003.
(iv) Notwithstanding any language in this paragraph, the parties agree
that at any time after September 30, 2001 and during the remaining
term of the Agreement, if the Fees are above the competitive market
rates, the parties shall renegotiate the Fees so that the new Fees
are competitive with the then-current market rates.
3. Costs
(a) MS shall bear the costs for the following items in connection with
the Services ("MS Costs"):
[*]
(b) WTT shall bear all traditional costs associated with providing the
Services ("WTT Costs"). Traditional costs are all costs that have been borne by
WTT and MS as of the Execution Date of the AMENDMENT NUMBER 1 except for the MS
Costs defined above.
(c) "Customer Charge-Backs" in connection with the Services is defined as
follows:
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
11
<PAGE>
Appendix 1
Changes to MS Travel
Within sixty (60) days after the Execution Date of AMENDMENT NUMBER 1 and
each anniversary after the Effective Date thereafter, WTT shall present its
list of requested product changes to MS. MS will commit up to [*] in MS
Travel changes requested by WTT and agreed to by MS (annually approximately
[*] hours provided, however if a proposed change is strategic to the
business of MS Travel then MS shall determine, in its sole discretion,
whether to make the proposed change. MS will deliver this value through up
to [*] charges on the site and [*] feature changes on the site per year on a
schedule to be reasonably agreed upon by the parties. MS will be solely
responsible for estimating the number of hours associated with building and
implementing the MS Travel product changes and determining the appropriate
manner in which to build and implement such changes.
Microsoft
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential
12
<PAGE>
Exhibit A-Services
------------------
WTP will provide the following travel services (the "Services"):
Service Description
- ------- -----------
1. Take call Answer incoming call from MS Travel
customer who has made a reservation
using MS Travel but has not completed
the reservation, or from MS Travel
customer in need of en route travel
assistance.
2. Complete reservation Obtain any additional information
required from MS Travel Customer,
including any necessary billing
information; book travel reservation
using ARC and BSP numbers assigned to MS
or to WTP (including but not limited to
those numbers assigned to WTP "Doing
Business As Microsoft"); validate
reservation and obtain confirmation from
travel supplier.
3. Issue air travel tickets Issue ARC or BSP tickets for airline
travel purchased by MS Travel customer.
4. Distribute travel documents Prepare itinerary for MS Travel customer
showing all travel reservations and
purchases; distribute and deliver to
customer with any tickets issued via
carrier pursuant to Exhibit C, Section
3.
5. Assist traveler Make any necessary changes to
reservation; facilitate exchanges,
refunds, rebookings, and cancellations
in the event of travel interruption
for any reason.
6. Perform ARC/IATA Accounting Report to ARC and/or IATA weekly (or on
a more frequent basis if required or
permitted by ARC/IATA) all ARC/IATA
transactions to enable payment of
commissions to MS; provide copies to MS.
Microsoft Confidential Page 21
<PAGE>
7. Invoice deferred payment travel Cooperate with DESIGNATED CRS(S) to
suppliers (non-air) prepare invoices on behalf of MS to car
rental companies, hotels, and any other
travel suppliers who are paid directly
by MS Travel customer at time of travel,
using the MS-negotiated commission/event
fee.
8. Collect payments from deferred Operate a lockbox for receipt of
payment travel suppliers commissions/transaction fees from
deferred payment travel suppliers.
9. Reconcile deferred payment Reconcile commissions/transaction fees
commissions/transaction fees received from deferred payment suppliers
with reservation records.
10. Account for WTP-assigned MS Account for MS Travel reservations
Travel commissions booked using WTP ARC or BSP numbers;
include commissions/transaction fees so
earned in amounts deposited daily to the
MS bank account.
11. Account for international travel Account for international or other
"split ticketing" transactions from MS
Travel customers referred to WTP outside
the U.S. domestic airline GDS systems;
include [*] of commissions so earned in
amounts deposited daily to the MS bank
account.
12. Remit commissions/transaction Deposit daily the
fees to MS commissions/transaction fees earned for
MS Travel reservations, including the
MS portion of international travel
reservations, into the MS bank account.
13. Perform reservation quality Utilize CoRRe(TM) and/or other quality
control control systems to maintain reservation
quality standards pursuant to Exhibit C,
to obtain seat assignments, and to
provide international travel
immunization and visa requirements;
provide manual quality control at time
of ticketing for manual reservations.
14. Provide Services in Canada Contract with GTS to provide travel
services in Canada.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 22
<PAGE>
15. Provide full accounting Prepare and submit reports to MS
pursuant to Exhibit G.
Microsoft Confidential Page 23
<PAGE>
Exhibit B-MS Deliverables
-------------------------
1. MS will provide the following equipment to be used by WTP for the sole
purpose of providing the Services under this Agreement:
(a) Thirteen (13) PC workstations to be used at Druid Hills Facility;
(b) Two (2) network servers, one each for Druid Hills Facility and
Peachtree City Facility;
(c) Telecommunications equipment sufficient to provide connectivity to
Redmond from each Facility for access to Expedia User Management Tools; and
(d) Four (4) GB Server workstations with mirrored drives for TravelMan.
2. MS will provide the following software products to be used by WTP for the
sole purpose of providing the Services under this Agreement:
(a) Two (2) complete CD-format packages of Microsoft Windows `95, one
for each Facility;
(b) Thirty-five (35) licenses for Windows `95, to be distributed between
the two Facilities;
(c) Microsoft Internet Browser for each workstation at each facility;
(d) Microsoft Mail Client for each workstation at each facility;
(e) Access and connection to Redmond to Expedia User Management
Tools.
3. MS will provide the following services to assist WTP in providing the
Services under this Agreement:
(a) Installation and maintenance of all equipment and software described
in the preceding Sections 1 and 2 of this Exhibit B;
(b) Train-the-trainer training on each software product described in
Section 2 of this Exhibit B, and for Expedia User Management Tools.
4. In addition to the equipment, software and services provided above, MS will
pay for the following items used by WTP for the sole purpose of providing the
Services under this Agreement:
Microsoft Confidential Page 24
<PAGE>
(a) Paper consumables and U.S. Postal Service postage (WTP will purchase
directly and back-bill MS on the monthly invoice submitted pursuant to Section 2
of this Agreement);
(b) Establishment and per-minute charges for the toll-free telephone
number used by MS Travel customers to reach WTP;
(c) Overnight and expedited delivery of travel documents to MS Travel
customers (MS will provide airbills to be used by WTP);
(d) QuikTix Services or similar services, provided that WTP shall provide
all back-office accounting and phone and email customer support;
(e) Credit card clearing services;
(f) Establishment and maintenance of the lockbox and bank account to be
used by WTP as described in Exhibit A.
Additional equipment and software products to be provided by MS will be mutually
agreed upon as necessary to handle volume growth.
Microsoft Confidential Page 25
<PAGE>
Exhibit C - Service Process Requirements
----------------------------------------
WTP will provide sufficient staff to meet the following requirements and
standards:
1. With regard to MS Travel Customers
(a) [*] of calls answered in [*] seconds or less;
(b) Call backs in [*]
(c) [*] of customers "very satisfied" with service, based on surveys using
measures to be agreed upon by the parties;
(d) Written report within 30 days when research is required;
(e) Formalized escalation procedures and call scripts to be agreed upon by
the parties.
2. With regard to MS
(a) Response to requests from MS Operations Manager within [*];
(b) Sales volume and revenue amounts available on a daily basis.
3. With regard to travel document delivery
(a) Same day as flight: ETDN or E-Ticket (where applicable)
(b) 1 day before flight: ETDN or E-Ticket (where applicable)
(c) 2 days before flight: ETDN, E-Ticket, overnight service (priority
or 2 day if applicable)
(d) 3 days before flight: E-Ticket, overnight service/2 day
(e) 4-10 days before flight: E-Ticket, overnight service/2 day
(f) 10+ days before flight: E-Ticket, US Mail
These delivery schedules are subject to change pursuant to the procedures
manual to be prepared and maintained as set forth in Section 1(a) of the
Agreement.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 26
<PAGE>
EXHIBIT D - PAYMENTS
----------------------
1. Components of WTP Compensation: MS will compensate WTP for providing the
Services, including those set forth in Exhibit A based on the following
components: (a) Retail Event Fees; (b) One Time Implementation Fee; and (c)
Fixed Cost Protection Amounts. Each of these components is subject to all
conditions and restrictions as set forth in this Agreement and in this
Exhibit D.
2. Definitions
(a) "TA/CSR" means a WTP travel agent or customer service representative.
(b) "CRS" means a commercial computer reservation service, such as
Worldspan, Sabre, or Apollo/Galileo.
(c) "NP" means a non participating CRS airline, hotel, or car rental
company.
(d) "Event" means any activity where WTP receives compensation from MS due
to back office processing and/or TA/CSR time.
(e) "Event Class" means a group of one or more Events that incur similar
back office processing costs.
(f) "Event Cost" means a back office processing cost for an Event.
(g) "TA/CSR Cost" means a back office cost for the number of minutes of
TA/CSR time necessary for any Event.
(h) "Management Fee" means an additional compensation payable at [*] of the
Event Costs and TA/CSR Costs. This Management Fee is already included
in the amounts listed in the Retail Event Matrix set forth in
Attachment 1.
(i) "Event Class Fee" means the Event Costs plus the applicable Management
Fee for an Event Class.
(j) "TA/CSR Fee" means the TA/CSR Costs plus the applicable Management Fee.
(k) "Retail Event Fee" means the total compensation payable per Event,
which includes the Event Costs, TA/CSR Costs and the Management Fee.
(l) "Event Class A" means Events for Air Tickets, PNR rejected, and
Traditional TA events (manual bookings made with CRS participating
suppliers).
(m) "Event Class B" means Events for airline: lost tickets, exchange
tickets, void tickets, refund tickets, and debit memos.
(n) "Event Class C" means Events for hotel and/or car reservations that
require documentation.
(o) "Event Class D" means an Event for a manual booking made for a NP
travel agent airline ticket.
(p) "Event Class E" means an Event for a manual booking made for a NP hotel
or car company, a NP Etix air ticket, or a NP ticket-less air booking.
(q) "Event Class F" means an Event for travel supplier commission
collection.
(r) "Event Class G" means an Event for quality control of a hotel or car
reservation.
(s) "Event Class H" means an Event for the handling and responding of
customer service email inquiries through email.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 27
<PAGE>
(t) "Air Tickets" means an Event for bookings for air travel process
electronically through the MS automated reservation system without
intervention of a TA/CSR. Costs cover printing, ticket packaging,
accounting and reporting ("back office functions").
(u) "PNR Rejected" means an Event for a rejection by the CRS after the
electronic booking has been made, due to airline schedule change(s).
The TA/CSR will correct the booking and communicate the correction to
the traveler via phone. Costs cover TA/CSR minutes and all back office
functions.
(v) "Lost Tickets" means an Event for processing a lost airline ticket
application, including TA/CSR minutes and all back office functions.
(w) "Exchange Tickets" means an Event for processing a new air ticket in
exchange for a previously issued ticket. Costs cover TA/CSR minutes and
all back office functions.
(x) "Void Tickets" means an Event for voiding an air ticket which was
issued but not delivered. Costs cover TA/CSR minutes and all back
office functions.
(y) "Refund Tickets" means an Event for voiding an air ticket which was
issued and delivered. Costs cover TA/CSR minutes and all back office
functions.
(z) "Debit Memo" means an Event for processing an airline debit memo,
resulting from incorrect pricing from either the electronic reservation
system or the CRS. Costs include all back office functions.
(aa) "Hotel Change/Cancel" means an Event for processing changes or
cancellations to hotel reservations. Costs include TA/CSR minutes and
all back office functions.
(bb) "Car Change/Cancel" means an Event for processing changes or
cancellations to car reservations. Costs include TA/CSR minutes and all
back office functions.
3 Retail Event Fees.
WTP will reduce the Retail Event Fees in the event that event
thresholds are reached during the term of this Agreement. For purposes of this
calculation, the first year will begin on the announced launch date for the MS
Travel Service and will include events accumulated during "Alpha" and "Beta"
test periods preceding such launch date. The reduced Retail Event Fees will take
effect at the date the threshold is met. Retail Event Fees are set forth on
Attachment 1.
Events and costs per event shall be added to Attachment 1 as agreed to
by the parties.
4. One-Time Implementation Fee. In addition to the Retail Event Fees payable
pursuant to the preceding sections, MS will pay WTP a one-time
implementation fee of [*] pursuant to Section 2(b) upon execution of this
Agreement. In the event the MS Travel Event count volume reaches [*] during
the first full year following launch of the MS Travel Service (the Event
count to also include the Alpha and Beta test periods prior to such launch),
WTP will reimburse [*] in the first month following the end of the first
full year following launch of the MS Travel Service.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 28
<PAGE>
5. Fixed Cost Protection Amounts. In the event the total Retail Event Fees
payable to WTP pursuant to the Retail Event Fee Matrix in Section 3 of this
Exhibit D during each of the following Service Periods do not exceed the
Fixed Cost Protection Amounts corresponding to that Service Period, MS will
relinquish to WTP the difference by which the Fixed Cost Protection Amounts
as listed below exceed such fees payable. Payment and reconciliation shall
work as follows: "Alpha" and "Beta" amounts will be paid by MS to WTP
pursuant to Section 2(b) upon execution of this Agreement. Should total
Retail Event Fees exceed the Fixed Cost Protection Amounts corresponding to
that Service Period, MS will deduct the Fixed Cost Protection Amount from
the monthly compensation payable to WTP after such event occurs pursuant to
Section 2 of this Agreement titled "Payments". In the event that total
Retail Event Fees do not exceed the Fixed Cost Protection Amounts
corresponding to that Service Period, WTP shall retain the portion of the
Fixed Cost Protection Amount which represents the difference between the
Fixed Cost Protection Amount and the total Retail Event Fees for such
Service Period, and shall reimburse MS the remainder of the Fixed Cost
Protection Amount (which remainder should equal the total Retail Event Fees
for such Service Period). Payments under Section 5 of this Exhibit D are
not affected by, nor do they affect, compensation payable to WTP under this
Exhibit D other than Retail Event Fees, or any other payment described in
this Agreement or its Exhibits.
Service Period Fixed Cost Protection Amount
"Alpha" Test as designated by MS [*]
"Beta" Test as designated by MS
6. Credits: Any payments due WTP pursuant to this Exhibit D may be reduced by
the amount of any payment then due MS from WTP as provided in this
Agreement or any Exhibit hereto.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 29
<PAGE>
Attachment 1 to Exhibit D - Payments
A. Event Class Fees and TA/CSR Fees to be used to calculate Retail Event Fees:
[*]
B. Agreed-Upon Retail Event Fees for Specified Events. For each such specified
Event, the Retail Event Fees shall be as indicated irrespective of actual back
office processing costs or TA/CSR minutes for any such event.
Retail Event Fees
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Microsoft Confidential Page 30
<PAGE>
Exhibit E - MS Policies
-----------------------
Introduction
The following code of conduct is not a contract. It is intended solely to
provide general guidance to vendors and their representatives to assist them in
functioning smoothly and efficiently while performing work for Microsoft.
Microsoft is committed to promoting a positive work environment. We expect our
vendors and their employees, agents, and subcontractors (collectively,
"representatives") to adhere to the same standards of conduct and behavior that
we expect from our own employees while you and your representatives are on
Microsoft property or doing business with Microsoft.
The information outlined below is important and should be read carefully. All
third party vendors will be required to educate and, when appropriate, train
their representatives to ensure they are aware of Microsoft's expectations
regarding their behavior and the consequences of any breaches of Microsoft
policies.
The policies summarized below are non-exhaustive, and there may be other conduct
not specifically listed that would be unacceptable. Microsoft expects that
vendors and their representatives will conduct themselves in a professional
manner at all times while on Microsoft property or while doing business with
Microsoft. Microsoft may require the immediate removal of any vendor
representative who behaves in a manner that is unlawful or inconsistent with any
Microsoft policy, or that is otherwise deemed harmful to Microsoft's business.
E-mail
Electronic mail, or e-mail, provides an easy-to-use, efficient means of
communicating. The following guidelines for preparing and sending e-mail are
designed to ensure that each vendor and its representatives use the e-mail
system in an appropriate manner.
E-mail may not be used as a forum for political, religious, or other debates, or
as a form of entertainment (for example, chain letters). Use of e-mail must be
limited to Microsoft business. All e-mail group aliases (a pre-defined group of
users) must be for Microsoft business.
To informally exchange information over the computer on a variety of topics, use
the Microsoft Bulletin Board system.
Microsoft e-mail names are confidential. Do not give e-mail names to anyone
outside of Microsoft. Do not share your password with anyone, attempt to gain
access to anyone else's e-mail account, or use another's email account without
permission.
Microsoft Confidential Page 31
<PAGE>
Microsoft prohibits obscene, profane, or otherwise offensive material from being
broadcast across the Microsoft network.
Non-solicitation Policy
Microsoft wants to provide a work environment that allows all employees, and all
vendors and their representatives to complete their tasks with the least amount
of disruption. Accordingly, vendors, their representatives, and any other non-
Microsoft employees are not allowed (while on Microsoft property or while using
Microsoft owned equipment) to engage in solicitation or distribution of
literature. This policy prohibits soliciting or handing out materials for any
purpose.
WTP Access to Information and Property
E-mail and its contents, as well as any other data stored on or transmitted by
Microsoft-owned equipment, is the property of Microsoft and may be accessed by
Microsoft at any time. Accordingly, the content of e-mail, voice mail, and
similar data should not be regarded as protected by any personal right of
privacy.
Additionally, in order to evaluate and improve customer service, Microsoft may
monitor, as necessary, the telephone calls of vendors and their representatives
who work in customer service positions.
Any facilities or equipment, including but not limited to offices, desks,
computers, electronic media, motor vehicles, or lockers used by vendors and
their representatives while on Microsoft property or while conducting Microsoft
related business, may be assessed by Microsoft as needed. Accordingly, you
should not consider protected by any personal right of privacy anything brought
onto or stored on Microsoft property stored on Microsoft equipment, or used
while working on Microsoft related business. Any Microsoft property used by
vendors and their representatives while performing Microsoft related business
remains the property of Microsoft.
Gifts
Microsoft employees cannot accept payments of any amount or gifts or favors
valued in excess of $100 from persons or firms with which we have business
dealings, unless prior approval is obtained from a vice president or more senior
company official. Accordingly, you and your representatives should refrain from
giving to Microsoft employees gifts with a value of more than $100.
Insider Trading
All Microsoft employees, agency temporaries, independent contractors, and vendor
representatives are considered "insiders" for the purposes of state or federal
securities
Microsoft Confidential Page 32
<PAGE>
laws that prohibit insider trading. As an insider, no vendor nor vendor
representative may buy or sell Microsoft's or another company's stock when in
possession of information about Microsoft or another company that is not
available to the investing public and that could influence an investor's
decision to buy stock.
New insider-trading laws carry stiff penalties, and the Securities and Exchange
Commission (SEC) has a mandate to enforce these laws aggressively. Because of
Microsoft's visibility and the volatility of our stock, Microsoft is carefully
watched by the SEC. The company can be negatively affected by insider trading
and may terminate the services of, or refuse to do further business with, anyone
found to have engaged in illegal insider trading.
Proper Use of Software
The unauthorized duplication and use of software and/or documentation by
Microsoft vendors or contractors is a violation of the copyright laws of the
United States and all the other countries in which Microsoft Corporation and its
subsidiaries maintain offices. This applies equally to Microsoft software,
whether a Beta or a final version, and to non-Microsoft software. Violation of
copyright laws can subject vendors and Microsoft to liability for significant
civil and criminal penalties. In addition, Microsoft devotes considerable
resources around the world to educate software users about their obligation to
use and manage software properly. In order for this effort to be effective and
benefit the software industry, Microsoft must lead by example.
The following practices, unless granted by a specific license, are among those
prohibited by this policy:
Making additional copies of third-party software products for your use on
other computers.
Making copies of software (third-party or Microsoft) for friends or
associates.
Distributing software over a network.
Providing copies of software to bulletin board services
Helpdesk maintains a list of software products that have been licensed to
Microsoft for network use or on a site-license basis. Each department that
acquires third-party software is responsible for retaining proof of proper
licensing of that software, such as end user license agreements, original disks
and manuals, and receipts. If you have questions regarding the terms of any
third-party license agreement, contact Law and Corporate Affairs.
Failure to follow this policy can result in action against the vendor and its
representative, including termination of the vendor representative's services
and/or termination of Microsoft's contract with the vendor.
Confidentiality
Microsoft Confidential Page 33
<PAGE>
All information supplied by Microsoft to vendors and their representatives
should be regarded as confidential unless otherwise notified. Vendors and their
representatives are not authorized to speak to the press on Microsoft's behalf,
unless expressly authorized to do so by Microsoft's Public Relations group.
Prior to performing any work for Microsoft, all vendors will be required to sign
a contract that includes a nondisclosure agreement.
Vendor Standards
Microsoft expects its chosen vendors to operate in the best interest of the
company at all times. It is expected that all equipment, manpower & services
will be provided at the highest quality level while maintaining flexibility and
cost effectiveness.
It is the responsibility of the vendor to inform its Microsoft contact (or a
member of Microsoft management) when situations develop that require the vendor
to operate in direct violation of the guidelines set forth in this document.
Additionally, in the event a Microsoft employee has a relationship (spouse or
other family relation, friend, domestic partner, etc.) with a vendor that might
create a conflict of interest or the appearance of a conflict of interest,
Microsoft senior management approval is required prior to contracting for the
services of said vendor.
Microsoft Confidential Page 34
<PAGE>
Exhibit F - WTP Deliverables
----------------------------
In addition to the Services to be provided by WTP pursuant to Section 1 and
Exhibit A of this Agreement, WTP shall provide the following:
1. Establishment and maintenance of CRS equipment and connectivity to the
Peachtree Facility;
2. IVR phone prompting and reporting (MS reserves the right to assume this
responsibility), including call overflow capabilities to auxiliary facilities;
3. General ledger/back office accounting system sufficient to provide reports as
set forth in Exhibit G and otherwise to provide the Services as set forth in
this Agreement;
4. A copy of travel agency management reporting software used to provide reports
specified in Exhibit G, to be provided to MS, as well as access to the Travel
Agency Management Reporting Software;
5. Storage of agent coupons, voids, ARC sales reports, agent sales summaries,
settlement authorization forms, and other necessary forms;
6. Risk assessment services for international travel;
7. Development of CoRRe to support email capability per TTG development
specifications.
8. CRS scripts to increase agent productivity.
9. Equipment to dynamically change IVR recording and equipment to play "hold"
advertising.
Microsoft Confidential Page 35
<PAGE>
Exhibit G - WTP Reporting Requirements
--------------------------------------
See Attached
Microsoft Confidential
Page 36
<PAGE>
Prepared by World Travel Partners 9/10/9? Page 1
11/30/96
Telephone Performance Report
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
MS Bill Page 1
STATEMENT SAMPLE
- --------------------------------------------------------------------------------
WORLDTRAVEL PARTNER
Online Fulfillment Services
- --------------------------------------------------------------------------------
Microsoft Corporation MS SKU # .....
One Microsoft Way Invoice Date: 9-Nov-96
Redmond WA 98052-6399 Billing Period Oct-96
Attn: Angela Schwartz
[*]
- -----------------------------------------------------
Make Check Payable to: WorldTravel Partners
6 West Druid Hills Drive
Atlanta, GA 30329
(404) 728-8787
Attn: Accounting
- -----------------------------------------------------
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
WORLDTRAVEL PARTNER
Online Fulfillment Services
Transaction Detail Report
November O1- November 30, 1996
Back Office Events
- ------------------
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Page 1
<PAGE>
WORLDTRAVEL PARTNER
Online Fulfillment Services
Transaction Detail Report
November O1- November 30, 1996
Online Support Services
- -----------------------
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
Page 1
<PAGE>
<TABLE>
<S> <C> <C> <C>
XYZ Company HI-MARK
PERIOD 1: 10/1/94 TO 12/31/94 PERIOD 2: 1/1/94 TO 12/31/94 Executive Summary TRAVEL SYSTEMS
</TABLE>
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
XYZ Company
Top Five Air/Car/Hotel
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
XYZ Company
Department Summary
12/1/94 TO 12/31/94
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
=========================================================================================
DEPT FULL FARE LOW FARE FARE PAID FARE AVOID FARE OVER
=========================================================================================
<S> <C> <C> <C> <C> <C>
0012 Administration $ 36,568 $ 17,744 $ 18,176 $ 18,392 $ 432
0055 Facilities Management $ 5,903 $ 2,494 $ 2,494 $ 3,409 $ 0
0060 Plan $ 27,166 $ 14,113 $ 17,139 $ 10,027 $ 3,026
0082 Sales $252,903 $126,600 $133,785 $119,118 $ 7,185
0084 Service $ 82,500 $ 30,319 $ 31,355 $ 51,145 $ 1,036
0091 Maintenance $ 23,620 $ 11,237 $ 12,050 $ 11,570 $ 813
0092 Planning & Design $114,141 $ 64,351 $ 67,023 $ 47,118 $ 2,672
0095 Finance $ 34,799 $ 18,106 $ 18,187 $ 16,612 $ 81
=========================================================================================
Company Total $577,599 $284,964 $300,208 $277,390 $15,245
</TABLE>
[LOGO OF HI-MARK TRAVEL SYSTEMS APPEARS HERE]
Produced by Travel Man for Windows - 1-800-343-1647
<PAGE>
XYZ Company
Dollars Spent by Month
1/1/94 TO 12/31/94
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MONTH NAME TICKET PRICE TICKET COUNT AVERAGE TICKET % TO TOTAL # TKTS % TO TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jan $42,853.58 77 $556.54 10.5% 9.5%
Feb $19,892.00 53 $375.32 4.9% 6.5%
Mar $41,189.18 89 $462.80 10.1% 10.9%
Apr $37,202.73 83 $448.23 9.1% 10.2%
May $40,440.44 78 $518.47 9.9% 9.6%
Jun $26,311.17 63 $417.64 6.5% 7.7%
Jul $26,336.31 51 $516.40 6.5% 6.3%
Aug $35,414.48 63 $562.13 8.7% 7.7%
Sep $40,007.89 69 $579.82 9.8% 8.5%
Oct $36,071.51 79 $456.60 8.9% 9.7%
Nov $27,953.86 52 $537.57 6.9% 6.4%
Dec $33,809.89 57 $593.16 8.3% 7.0%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
TOTALS: $407,483.04 814 $500.59 100.0% 100.0%
- --------------------------------------------------------------------------------------------------
</TABLE>
[LOGO OF HI-MARK TRAVEL SYSTEMS APPEARS HERE]
Produced by Travel Man for Windows - 1-800-343-1647
<PAGE>
ABC COMPANY
HI-MARK TRAVEL SYSTEMS
TOP 100 CITY PAIRS
01/01/94 TO 09/30/94
<TABLE>
<CAPTION>
============================================================================================
RANK MARKET TICKETED DL TICKETED DL MKT DL TOTAL TOTAL SEG
CITY SEGMENTS SEGMENTS SHARE DOLLARS VALUE
============================================================================================
<S> <C> <C> <C> <C> <C> <C>
1 ATL-RDU 513 431 84.0% 64,288.63 74,223.24
2 CLT-RDU 259 0.0% 18,540.03
3 DFW-RDU 230 62 27.0% $ 4,225.42 37,020.04
4 PHL-RDU 155 0.0% 18,270.12
5 ORD-RDU 97 0.0% 19,946.44
6 CLT-GSP 94 0.0% $ 7,144.50
7 BOS-RDU 89 0.0% 15,677.99
8 PIT-RDU 88 0.0% $ 7,482.75
9 DCA-RDU 76 0.0% $ 6,305.53
10 DFW-LAS 69 42 60.9% $ 3,874.83 $ 7,354.78
11 CVG-RDU 67 67 100.0% $ 8,094.41 $ 8,094.41
12 EWR-RDU 67 0.0% $ 9,737.18
13 CHA-CLT 64 0.0% $ 6,739.16
14 BWI-RDU 59 0.0% $ 6,683.04
15 ATL-CHA 57 53 93.0% $ 5,323.65 $ 5,323.65
16 MIA-RDU 46 0.0% $ 2,948.17
17 DTW-RDU 45 0.0% $ 5,055.40
18 ATL-DHN 44 44 100.0% $ 7,797.28 $ 7,797.28
19 ATL-GSO 43 4 9.3% $ 0.00 $ 2,120.08
20 EYW-MIA 39 0.0% $ 2,038.22
21 GRR-PIT 35 0.0% $ 6,485.45
22 DEN-DFW 34 6 17.6% $ 1,459.08 $ 6,800.85
23 MDT-RDU 31 0.0% $ 5,520.06
24 GSP-RDU 30 0.0% $ 3,870.82
25 LGA-RDU 30 0.0% $ 4,347.54
26 BNA-RDU 29 0.0% $ 5,419.54
27 ATL-STR 28 28 100.0% $ 5,559.00 $ 5,559.00
28 ATL-GSP 27 27 100.0% $ 4,121.78 $ 4,121.78
29 LHR-PLH 26 0.0% $ 2,476.80
30 DFW-SJC 26 6 23.1% $ 1,890.00 $ 5,559.13
31 BWI-MDT 26 0.0% $ 1,920.00
32 ATL-LAS 26 26 100.0% $ 0.00 $ 0.00
33 RDU-TPA 25 0.0% $ 2,754.51
34 MDT-PHL 22 0.0% $ 242.73
35 DFW-SFO 21 2 9.5% $ 370.92 $ 3,154.54
36 MCO-RDU 21 0.0% $ 2,071.79
37 CVG-TOL 20 20 100.0% $ 1,291.84 $ 1,291.84
38 ORD-SJC 20 0.0% $ 3,192.73
39 CLE-RDU 19 0.0% $ 3,612.70
40 PHL-YYZ 18 0.0% $ 1,679.00
41 CLT-DTW 17 0.0% $ 1,106.36
============================================================================================
</TABLE>
<PAGE>
HI-MARK TRAVEL SYSTEMS AIR TRAVEL REPORT 07/01/94 TO 09/30/94
DEPT: 0081 7 of 57
<TABLE>
<CAPTION>
ISSUE DEPART FARE REGULAR LOWEST
INVOICE# DATE A/P DATE ORIGIN DESTINATION FLIGHT BASIS FARE FARE
- ---------------------------------------------------------------------------------------------------------------------------
SIRUR/PRAKASH
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIRUR/PRAKASH 3 Transaction(s) Average Advance Purchase Days = 1.33 4,022.46 2,783.46
- ---------------------------------------------------------------------------------------------------------------------------
WILLIAMS/MILTON G JR
097036 30-Sep 3 03-Oct RALEIGH/DURHAM ORLANDO, FL AA 1049 H265PL 1,124.00 470.00
ORLANDO, FL MELBOURNE, FL 0
04-Oct MELBOURNE, FL ATLANTA, GA DL 970 HSP6
04-Oct ATLANTA, GA RALEIGH/DURHAM DL 382 HSP6
094627 19-Aug 9 28-Aug RALEIGH/DURHAM CINCINNATI, OH DL 412 C/C6972 3,414.15 1,338.15
28-Aug CINCINNATI, OH FRANKFURT DL 48 C/C6972
03-Sep FRANKFURT CINCINNATI, OH DL 49 C/C6972
03-Sep CINCINNATI, OH RALEIGH/DURHAM DL 1731 C/C6972
- ---------------------------------------------------------------------------------------------------------------------------
WILLIAMS/MILTON G JR 2 Transaction(s) Average Advance Purchase Days = 6.00 4,538.15 1,808.15
- ---------------------------------------------------------------------------------------------------------------------------
YATES/WILLY
096632 22-Sep 4 26-Sep RALEIGH/DURHAM GREENVILLE, S AA 3279 V26SPL 803.00 218.00
28-Sep GREENVILLE, S RALEIGH/DURHAM AA 3276 V26SPL
- ---------------------------------------------------------------------------------------------------------------------------
YATES/WILLY 1 Transaction(s) Average Advance Purchase Days = 4.00 803.00 218.00
- ---------------------------------------------------------------------------------------------------------------------------
0081 12 Transaction(s) Average Advance Purchase Days = 4.00 16,071.61 8,065.61
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ISSUE FARE FARE FARE
INVOICE# DATE A/P PAID AVOIDANCE COVERAGE CD
- -----------------------------------------------------------------
SIRUR/PRAKASH
- -----------------------------------------------------------------
<S> <C> <C> <C>
SIRUR/PRAKASH 2,783.46 1,239.00 0.00
- -----------------------------------------------------------------
WILLIAMS/MILTON G JR
097036 30-Sep 3 470.00 654.00 0.00 B
094627 19-Aug 9 3,414.15 0.00 2,076.00 B
- -----------------------------------------------------------------
WILLIAMS/MILTON G JR 3,884.15 654.00 2,076.00 B
- -----------------------------------------------------------------
YATES/WILLY
096632 22-Sep 4 218.00 585.00 0.00 B
- -----------------------------------------------------------------
YATES/WILLY 218.00 585.00 0.00
- -----------------------------------------------------------------
0081 10,721.61 5,350.00 2,656.00
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit H - Rules for Use of Microsoft Name
-------------------------------------------
WTP's use of Microsoft's name pursuant to the provisions of Section 3(a) of
the Agreement is further conditioned upon the following restrictions:
(1) Restricted Use of Mark. WTP is not entitled to use the name
----------------------
"Microsoft" on, without limitation, signage, letterhead, business cards, in
advertising, telephone directory listings, invoices or on any other materials
connected to WTP's business and business practices, except for those materials
designed and approved by MS. WTP is not entitled either by implication or
otherwise to any title in the MS trademarks, service marks, trade names, logos
or symbols. WTP agrees to comply with guidelines for use of the name "Microsoft"
as may be prescribed by MS from time to time. WTP agrees not to form a company,
commercial organization, firm or legal entity with a name incorporating as part
of its name the word "Microsoft" or any similar word and not to apply for any
registration of or to claim any rights in the word "Microsoft" or any similar
word as a trade name, trademark or service mark.
(2) Quality Requirements. WTP agrees that use of Microsoft's name for
--------------------
answering incoming telephone calls from, making outbound callbacks to, and
providing travel documents to MS Travel customers pursuant to providing
Services, as permitted under the Agreement will be at the same level of quality
previously established by and as prescribed from time to time by MS and will be
at least commensurate with industry standards.
(3) Reservation of Rights. All rights not expressly granted are reserved
---------------------
by Microsoft.
(4) No Prejudice of Rights. WTP agrees not to take any action or fail to
----------------------
take action which would prejudice the rights of MS in the name "Microsoft" or
any other trademark, service mark, logo, trade name or symbol of Microsoft
Corporation.
(5) Protection of Trademarks, Service Marks, Logos and Trade Names. WTP
--------------------------------------------------------------
agrees to report to MS, as soon as possible after it comes to WTP's notice, any
suspected infringement or disparaging use of the "Microsoft" trade name or any
trade name, trademark, service mark, logo, or symbol owned by MS.
(6) Misuse. This Agreement may be terminated immediately if WTP misuses
------
(including, but not limited to, infringement, disparagement and dilution) the
name Microsoft or any other trademark, service mark, logo, trade name or symbol
of MS.
(7) No Further Conveyances. WTP shall not assign, transfer or sublicense
----------------------
the rights granted in the Agreement or this Exhibit H (or any right granted
herein) in any manner, except as specifically provided in this Agreement.
Microsoft Confidential Page 37
<PAGE>
Exhibit I - Non-Disclosure Agreement Between the Parties
--------------------------------------------------------
See Attached
Microsoft Confidential Page 38
<PAGE>
MICROSOFT CORPORATION STANDARD NON-DISCLOSURE AGREEMENT
This AGREEMENT (the "Agreement") is between MICROSOFT CORPORATION, a
Washington corporation ("MS"), and WORLD TRAVEL PARTNERS ("COMPANY") and entered
into this 8/th/ day of Jan 1996
In consideration of the mutual promises and covenants contained in this
Agreement, MS disclosure of confidential information to COMPANY, and any
payments made or to be made by MS or COMPANY, the parties hereto agree as
follows:
1. Confidential Information and Confidential Materials
---------------------------------------------------
(a) "Confidential Information" means nonpublic information that MS
designates as being confidential or which, under the circumstances surrounding
disclosure, ought to be treated as confidential "Confidential Information"
includes, without limitation, information relating to released or unreleased MS
software or hardware products, the marketing or promotion of any MS product, MS
business policies or practices, and information received from others that MS is
obligated to treat as confidential. Confidential Information disclosed to
COMPANY by any MS Subsidiary and/or agents is covered by this Agreement.
(b) Confidential Information shall not include any information that: (i)
is or subsequently becomes publicly available without COMPANY's breach of any
obligation owed MS: (ii) became known to COMPANY prior to MS disclosure of such
information to COMPANY: (iii) became known to COMPANY from a source other than
MS other than by the breach of an obligation of confidentiality owed to MS: or
(iv) is independently developed by COMPANY.
(c) "Confidential Materials" shall mean all tangible materials containing
Confidential Information, including without limitation written or printed
documents and computer disks or tapes, whether machine or user readable.
2. Restrictions
------------
(a) COMPANY shall not disclose any Confidential Information to third
parties for five (5) years following the date of its disclosure by MS to
COMPANY, except to COMPANY's consultants as provided below. However, COMPANY may
disclose Confidential Information in accordance with judicial or other
governmental order, provided COMPANY shall give MS reasonable notice prior to
such disclosure and shall comply with any applicable protective order or
equivalent.
(b) COMPANY shall take reasonable security precautions, at least as great
as the precautions it takes to protect its own confidential information, to
keep confidential the Confidential Information, COMPANY may disclose
confidential information or Confidential Materials only to COMPANY's employees
or consultants on a need-to-know basis. COMPANY shall execute appropriate
written agreements with its employees and consultants sufficient to enable it to
comply with all the provisions of this Agreement.
(c) Confidential Information and Confidential Materials may be disclosed,
reproduced, summarized or distributed only in pursuance of COMPANY's business
relationship with MS, and only as otherwise provided hereunder, COMPANY agrees
to segregate all such Confidential Materials form the confidential materials of
others in order to prevent commingling.
(d) COMPANY may not reverse engineer, decompile or disassemble any
software disclosed to COMPANY.
3. Rights and Remedies
-------------------
(a) COMPANY shall notify MS immediately upon discovery of any unauthorized
use or disclosure of Confidential Information and/or Confidential Materials, or
any other breach of this Agreement by COMPANY, and will cooperate with MS in
every reasonable way to help MS regain possession of the Confidential
Information and/or Confidential Materials and prevent its further unauthorized
use.
(b) COMPANY shall return all originals, copies, reproductions and
summaries of Confidential Information and Confidential Materials at MS request
or, at MS option, certify destruction of the same.
(c) COMPANY acknowledges that monetary damages may not be a sufficient
remedy for unauthorized disclosure of Confidential Information and that MS shall
be entitled, without waiving any other rights or remedies, to such injunctive or
equitable relief as may be deemed proper by a court of competent jurisdiction.
(d) MS may visit COMPANY's premises, with reasonable prior notice and
during normal business hours, to review COMPANY's compliance with the terms of
this Agreement.
4. Miscellaneous
-------------
(a) All Confidential Information and Confidential Materials are and shall
remain the property of MS. By disclosing information to COMPANY, MS does not
grant any express or implied right to COMPANY to or under MS patents,
copyrights, trademarks, or trade secret information.
(b) If MS provides pre-release software as Confidential Information or
Confidential Materials under this Agreement, such pre-release software is
provided "as is" without warranty of any kind. COMPANY agrees that neither MS
nor its suppliers shall be liable for any damages whatsoever relating to
COMPANY's use of such pre-release software.
(c) Any software and documentation provided under this Agreement is
provided to COMPANY with RESTRICTED RIGHTS. Use, duplication, or disclosure by
the Government is subject to restrictions as set forth in subparagraph
(c)(1)(ii) of The Rights in Technical Data and Computer Software clause at DFARS
252.227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer Software
- - Restricted Rights at 48 CFR 52.227-19, as applicable. Manufacturer is
Micrsoft Corporation, One Microsoft Way, Redmond, WA 98052-6399.
(d) COMPANY agrees that it does not intend nor will it, directly or
indirectly, export or re-export (i) any Confidential Information or Materials or
(ii) any product (or any part thereof), process, or service that is the direct
product of the Confidential Information or Materials (A) to any country that is
subject to U.S. export restrictions (currently including, but not necessarily
limited to, Cuba, the Federal Republic of Yugoslavia (Serbia and Montenegro),
Iran, Iraq, Libya; North Korea, and Syria), or to any national of any such
country, wherever located, who intends to transmit or transport the products
back to such country; (B) to any end-user who COMPANY knows or has reason to
know will utilize them in the design, development or production of nuclear,
chemical or biological weapons; or (C) to any end-user who has been prohibited
form participating in U.S. export transactions by any federal agency of the U.S.
government.
(e) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and merges all prior discussions
between them as Confidential Information. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed by
both parties. None of the previous of this Agreement shall be deemed to have
been waived by any act or sequiesence on the part of MS, its agents, or
employees, but only by an instrument in writing signed by an authorized officer
of MS. No waiver of any provision of this Agreement shall constitute a waiver of
any other provision(s) or of the same provision on another occasion.
(f) If either MS or COMPANY employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees. This Agreement shall be
construed and controlled by the laws of the State of Washington, and COMPANY
further consents to jurisdiction by the state and federal courts sitting in the
State of Washington. Process may be served on either party by U.S. Mail, postage
prepaid, certified or registered, return receipt requested, or by such other
method as is authorized by the Washington Long Arm Statute.
(g) Subject to the limitations set forth in this Agreement, this Agreement
will inure to the benefit of and be binding upon the parties, their successors
and assigns.
(h) 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.
(i) All obligations created by this Agreement shall survive change or
termination of the parties' business relationship.
5. Suggestions and Feedback
------------------------
MS may from time to time request suggestions, feedback or other information form
COMPANY concerning Confidential Information or on released or unreleased MS
software or hardware. Any suggestions, feedback or other disclosurer made by
COMPANY are and shall be entirely voluntary on COMPANY's part and shall not
create any obligations on the part of MS or a confidential relationship between
COMPANY and MS. MS shall be free to disclose and use COMPANY's suggestions,
feedback, or other information as MS sees fit, entirely without obligations of
any kind to COMPANY.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
COMPANY: WORLD TRAVEL
---------------------
Address: 1055 L5 Nox Park 8
---------------------
ATLANTA GA
---------------------
By: /s/ Gary R. Schumacher
-------------------------
Name: Gary R. Schumacher
------------------------
Title: SR.VP
-----------------------
Date: 1/8/96
------------------------
MICROSOFT CORPORATION
By: /s/ Angela Schwartz
-------------------------
Name: Angela Schwartz
------------------------
Title: Operations Manager
-----------------------
Date: 1/8/96
------------------------
MS Contact:__________________
<PAGE>
Exhibit J - Certificate of Insurance
------------------------------------
See Attached
Microsoft Confidential Page 39
<PAGE>
- --------------------------------------------------------------------------------
ACORD (TM) CERTIFICATE OF LIABILITY INSURANCE DATE(MM/DD/YY)
<TABLE>
<S> <C> 9/06/96
------------------------------------------------------
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
Sedgwick James of Ga., Inc. ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
Suite 500, South Tower HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR
3333 Peachtree Rd. NE ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW
Atlanta, Georgia 30326-1043 ------------------------------------------------------
404-237-8444 COMPANIES AFFORDING COVERAGE
</TABLE>
COMPANY
A Connecticut Indemnity Company
INSURED
WorldTravel Partners, L.P. COMPANY
Att: Alison Ehrlich B
1055 Lenox Park Blvd Ste 420
Atlanta GA 30319 COMPANY
C
COMPANY
D
- --------------------------------------------------------------------------------
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN
ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED.
NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER
DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY
PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT
TO ALL THE TERMS. EXCLUSIONS AND CONDITIONS OF SUCH POLICIES LIMITS SHOWN
MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<TABLE>
<CAPTION>
CO TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LIMITS
LTR DATE (MM/DD/YY) DATE (MM/DD/YY)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GENERAL LIABILITY GENERAL AGGREGATE S
COMMERCIAL GENERAL LIABILITY PRODUCTS - COMP/OP AGG S
CLAIMS MADE OCCUR PERSONAL & ADV INJURY S
OWNER'S & CONTRACTORS PROT EACH OCCURRENCE S
FIRE DAMAGE (Any one fire) S
MED EXP (Any one person) S
- ------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT S
ANY AUTO
ALL OWNED AUTOS BODILY INJURY S
SCHEDULED AUTOS (Per person)
HIRED AUTOS BODILY INJURY S
(Per accident)
NON-OWNED AUTOS
PROPERTY DAMAGE S
- ------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY-EA ACCIDENT S
ANY AUTO OTHER THAN AUTO ONLY:
EACH ACCIDENT S
AGGREGATE S
- ------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE S
UMBRELLA FORM AGGREGATE S
OTHER THAN UMBRELLA FORM
- ------------------------------------------------------------------------------------------------------------------------------
WORKERS COMPENSATION AND WC STATU- OTH-
EMPLOYERS' LIABILITY TORY LIMITS ER
EL EACH ACCIDENT S
THE PROPRIETOR/ INCL EL DISEASE POLICY LIMIT S
PARTNERS/EXECUTIVE
OFFICERS ARE: EXCL EL DISEASE -EA EMPLOYEE S
- ------------------------------------------------------------------------------------------------------------------------------
OTHER TA107051 5/01/96 5/01/97
TRAVEL AGENTS $5,000,000 PER
ERROR & OMISSIONS OCCURRENCE
- ------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
- ------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE
MICROSOFT CORPORATION THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR
1 MICROSOFT WAY TO MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED
REDMOND, WA 98052-6399 TO THE LEFT, BUT FAILURE TO MALL SUCH NOTICE SHALL IMPOSE NO
OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS
AGENTS OR REPRESENTATIVES.
AUTHORIZED REPRESENTATIVE
/s/ MICHAEL B. DENNIS
</TABLE>
ACORD 25-5 (1/95) (c) ACORD CORPORATION 1988
<PAGE>
Exhibit K - Employee Non-Disclosure Agreement Form
--------------------------------------------------
See Attached
Microsoft Confidential Page 40
<PAGE>
EXHIBIT K
AGREEMENT
This agreement is made as of the ____________ day of _______________ 1996, by
and between World Travel Partners, L.P. ("WTP, L.P.") a Georgia Limited
Partnership, and ____________________ ("Employee").
Employee hereby acknowledges that during the term of employment, employee will
have access to trade secrets and Confidential Information distinctive to their
Subject Business and their customers or prospective customers with whom WTP,
L.P. or any affiliated partnership currently does business or has directly
contacted within the last twelve (12) months (collectively "Customers").
Employee recognizes that the services performed by Employee are special, unique,
and extraordinary and that, by reason of employment with WTP, L.P. or an
affiliated partnership, Employee will receive, develop, or otherwise acquire
Confidential Information and training specific to our Subject Business.
Further, Employee recognizes WTP, L.P.'s need to protect its legitimate business
interest, and that any attempt to solicit either the Customers or employees of
WTP, L.P. in the case of Employee's termination would adversely affect WTP,
L.P.'s ability to do so.
Therefore, in consideration of continuing employment and other good and valuable
consideration, Employee agrees:
a) Employee will not disclose or use, directly or indirectly, any
Confidential Information Employee obtains during the course of Employee's
employment related the Subject Business or Customers of WTP, L.P.
b) during the Employee's employment and for a period of eighteen (18)
months after the termination of employment for whatever reason, Employee will
not directly or indirectly call on, solicit, or take away or attempt to call on
solicit or take away any Customer or employee of WTP, L.P. for the purpose of
providing goods, services, or information that are competitive with those
offered by the Subject Business.
The term "Confidential Information" shall mean and include any information, data
and know-how relating to the business of WTP that is disclosed to Employee by
WTP, L.P. or known to Employee as a result of Employee's relationship with WTP,
L.P. and not generally within public domain (whether constituting a trade secret
or not), including without limitation, all administrative procedures, product
development and technical data, sales and/or marketing information, customer
account records, payment plans, training and operations material, memoranda and
manuals, personnel records, pricing information, and financial information
concerning or relating to the Subject Business and/or the Customers, employees
and affairs of WTP, L.P.
The term "Subject Business" shall mean and include WTP, L.P.'s travel agency
business and/or its travel related and technology businesses which engage in the
sale of transportation, accommodation, related services, products, software, and
travel advisory services and any related information associated with the
aforementioned businesses.
This Agreement shall be interpreted by the laws of the State of Georgia. If it
is determined that any part of this agreement is unenforceable, then only such
parts will be deemed unenforceable and all other parts will be enforceable to
the extent possible.
Agreed:
World Travel Partners, L.P. Employee ________________________
By:_________________________ Print Name:______________________
<PAGE>
Acknowledgment
As a condition to having the opportunity to perform services in connection with
the Microsoft Expedia service,__________ [Fill in Employee's name] ___________
("Employee") hereby acknowledges and agrees that all nonpublic information
- ------------
Employee learns about Microsoft Corporation ("Microsoft") and its business,
Expedia, in the course of Employee's employment with World Travel Partners, L.P.
("WTP") is considered to be "Confidential Information" under the Agreement
between Employee and WTP and Employee shall keep such information confidential
pursuant to the terms of such Agreement and for five (5) years after Employee
acquires or learns such Confidential Information.
Such Confidential Information shall include, without limitation, information
relating to released or unreleased Microsoft software or hardware products or
services, the marketing or promotion of any Microsoft product or service,
Microsoft's business policies or practices, and information Microsoft receives
from others that Microsoft is required to keep confidential. Confidential
Information shall not include any information that (i) is or subsequently
becomes publicly available without Employee's breach of any obligation owed to
WTP or Microsoft, (ii) became known to Employee prior to WTP's or Microsoft's
disclosure of such information to Employee, (iii) became known to Employee from
a source other than WTP or Microsoft other than by a breach of an obligation of
confidentiality owed to WTP or Microsoft, or (iv) is independently developed by
Employee.
DATED:________________
______________________
(Signature)
______________________
(Print Name)
Microsoft Confidential Page 41
<PAGE>
EXHIBIT L
END USER SOFTWARE LICENSE AGREEMENT
BETWEEN TTG AND OFS
See Attached
Microsoft Confidential Page 42
<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 Parent or Subsidiary of the Company.
<PAGE>
(h) "Maximum Annual Employee Grant" shall have the meaning set forth
-----------------------------
in Section 5(e).
(i) "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").
(j) "Nonqualified Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
------
(l) "Optioned Shares" shall mean the Common Shares subject to an
---------------
Option.
(m) "Optionee" shall mean an Employee who receives an Option.
--------
(n) "Outside Director" shall have the same meaning as defined or
----------------
interpreted for purposes of Section 162(m) of the Code.
(o) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) 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.
(e) The maximum number of Shares with respect to which an Option or
Options may be granted to any Employee in any one taxable year of the Company
shall not exceed shares (the "Maximum Annual Employee Grant").
6. Term of Plan. The Plan shall become effective upon its adoption
------------
by the Board. It shall continue in effect until , unless sooner
terminated under Section 14 of the Plan.
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. Non-Transferability of Options. 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.
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 is subject to approval by the
--------------------
shareholders of the Company at the Annual Meeting of Shareholders to be held on
_________________.
10
<PAGE>
EXHIBIT 10.11
EXPEDIA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As approved by the Board of .Directors
on ______________ and the
Shareholders on _______________
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 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. Notwithstanding the foregoing, no
participant may purchase more than 1,000 shares of stock during any single
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 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
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 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
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 shares in any year, or in the case
of a newly elected director for more than 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 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>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Expedia, an
operating unit of Microsoft Corporation, on Form S-1 of our report dated
September 21, 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
September 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,970
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,970
<PP&E> 3,045
<DEPRECIATION> (2,659)
<TOTAL-ASSETS> 5,756
<CURRENT-LIABILITIES> 3,631
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,675)
<TOTAL-LIABILITY-AND-EQUITY> (5,756)
<SALES> 38,699
<TOTAL-REVENUES> 38,699
<CGS> 15,950
<TOTAL-COSTS> 15,950
<OTHER-EXPENSES> 42,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,602)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,602)
<DISCONTINUED> 0
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</TABLE>
<PAGE>
Exhibit 99.1
Consent of Person About to Become Director for Brad Chase
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: September 22, 1999 /s/ Brad Chase
-------------------------------------
Brad Chase
<PAGE>
Exhibit 99.2
Consent of Person About to Become Director for Gerald Grinstein
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: September 22, 1999 /s/ Gerald Grinstein
-------------------------------------
Gerald Grinstein
<PAGE>
Exhibit 99.3
Consent of Person About to Become Director for Richard N. Nanula
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: September 22, 1999 /s/ Richard N. Nanula
-------------------------------------
Richard N. Nanula
