<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 17, 2000
--------------
Expedia, Inc.
-----------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Washington
-----------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-27429
- --------------------------------------------------------------------------------
(Commission File Number)
91-1996083
- --------------------------------------------------------------------------------
(IRS Employer Identification No.)
13810 SE Eastgate Way, Suite 400
Bellevue, WA 98005
-----------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (425) 564-7200
--------------
N/A
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets.
(a) On March 17, 2000, Expedia, Inc., a Washington corporation ("Expedia"),
completed the acquisition of Travelscape.com, Inc., a Delaware corporation
("Travelscape"). Travelscape is the leading branded Internet hotel
wholesaler and packager with discounted rate contracts at over 1,400 hotels
in 240 cities worldwide, and the operator of the Travelscape.com web site.
The acquisition of Travelscape was accomplished pursuant to an Agreement
and Plan of Reorganization dated January 31, 2000 (the "Travelscape
<PAGE>
Merger Agreement") by and among Expedia, Travel Enterprises, Inc., a
Delaware corporation and wholly-owned subsidiary of Expedia, and
Travelscape.
Pursuant to the Travelscape Merger Agreement, Expedia has issued
approximately 3.0 million shares, options and warrants (or cash equivalents
thereof) in exchange for all outstanding shares, options and warrants of
Travelscape. Each issued and outstanding share of Travelscape common stock
was exchanged for 0.1556 shares of Expedia common stock. Shareholders
holding shares of Travelscape common stock worth less than $140,000
received cash value for their shares from Expedia at a price of $5.1220 per
share for a total amount of $260,000. Expedia has also assumed
approximately $8.0 million of long-term debt and has retired approximately
$7.0 million of this debt. Expedia used its general corporate funds in
connection with the cash-out of shares and retirement of debt.
In connection with the Travelscape merger, Expedia acquired a parcel of
real property located at 8951 W. Sahara Ave, Las Vegas, Nevada, 89117. Such
property was used by Travelscape as its headquarters. Expedia intends to
maintain the property.
On March 17, 2000, Expedia also completed the acquisition of
VacationSpot.com, Inc., a Delaware corporation ("VacationSpot"), and
provider of the leading reservation network for vacation homes, rental
condos, inns and bed & breakfasts around the world. The acquisition of
VacationSpot was accomplished pursuant to an Agreement and Plan of
Reorganization dated January 30, 2000 (the "VacationSpot Merger Agreement")
by and among Expedia, VacationSub, Inc., a Delaware corporation and wholly-
owned subsidiary of Expedia, and VacationSpot.
Pursuant to the VacationSpot Merger Agreement, Expedia has issued
approximately 2.6 million shares and options in exchange for all of the
outstanding shares and options of VacationSpot. Each issued and
outstanding share of VacationSpot common and preferred stock was exchanged
for 0.1548 shares of Expedia common stock.
Expedia expects to incur total transaction costs of approximately $4
million in connection with these acquisitions, and will use its general
corporate funds to cover these costs.
Item 7. Exhibits. The following items are attached as exhibits hereto:
(a) Financial statements of businesses acquired
The financial statements of Travelscape and VacationSpot (together with the
related independent auditors' report) will be filed on or prior to the 60th
day after the date that this initial report on Form 8-K was required to be
filed, approximately June 2, 2000.
(b) Pro forma financial information
The unaudited pro forma condensed financial statements of Expedia and
related notes to pro forma condensed financial statements will be filed on
or prior to the 60th day after
2
<PAGE>
the date that this initial report on Form 8-K was required to be filed,
approximately June 2, 2000.
(c) Exhibits
Exhibit 2.1 Agreement and Plan of Reorganization by and among Expedia, Travel
Enterprises, Inc., Travelscape, and certain principal
stockholders of Travelscape, dated January 31, 2000 and as
amended on March 13, 2000 and March 15, 2000.
Exhibit 2.2 Agreement and Plan of Reorganization by and among Expedia,
VacationSub, Inc., VacationSpot, and the principal stockholders
of VacationSpot, dated January 30, 2000.
Exhibit 99.1 Press release of Expedia dated March 21, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXPEDIA, INC.
/s/ Gregory S. Stanger
---------------------------
Name: Gregory S. Stanger
Title: Vice President and Chief
Financial Officer
Dated: April 3, 2000
3
<PAGE>
Travelscope Agreement and Plan of Reorganization Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF January 31, 2000 (this
"Agreement"), by and among Expedia, Inc., a Washington corporation ("Expedia"),
Travel Enterprises, Inc., a wholly owned subsidiary of Expedia and a Delaware
corporation ("Sub"), Travelscape.com, Inc., a Delaware corporation ("Company"),
and the undersigned security holders of Company (the "Principal Shareholders").
RECITALS
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein,
Expedia, Sub, Company, and the Principal Shareholders hereby agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
----------------------------
Agreement, Sub will be merged with and into Company (the "Merger"). A
Certificate of Merger and any other required documents (collectively, the
"Merger Documents"), substantially in the forms attached as Exhibit 1.1,
respectively, shall be duly prepared, executed, and acknowledged by Company and
Sub, and thereafter delivered to the Secretary of State of Delaware for filing,
as provided in the Delaware General Corporation Law (the "DGCL"), as soon as
practicable on or after the Closing Date (as defined in Section 1.2). The Merger
shall become effective at such time as the Merger Documents have been filed with
the Secretary of State of Delaware or at such time thereafter as is provided in
the Merger Documents (the "Effective Time"). Solely for purposes of
clarification, Company and the Principal Shareholders acknowledge and agree that
Expedia will have no obligation to make any payment or issue any shares under
this Agreement until Expedia has received written confirmation from the
Secretary of State of Delaware of the effectiveness of the Merger and Expedia
acknowledges and agrees that Expedia will have no right to the business of the
Company until the Principal Shareholders have received written confirmation from
the Secretary of the State of Delaware of the effectiveness of the Merger.
1.2 Closing. The closing of the Merger (the "Closing") will take place at
-------
10:00 a.m., Pacific time as soon as practicable (but no more than five (5)
business days) after satisfaction or waiver of the last to be fulfilled of the
conditions set forth in Article VI that by their terms are not to occur at the
Closing (the "Closing Date"), at the offices of Preston Gates & Ellis LLP in
Seattle, Washington, unless another time, date, or place is agreed to in writing
by the parties hereto. Any party to this Agreement, including such party's
representative(s), may participate in the Closing telephonically.
1.3 Effects of the Merger. At the Effective Time, (i) Sub shall be merged
---------------------
with and into Company (Company after the Merger is sometimes referred to herein
as the "Surviving
1
<PAGE>
Corporation"), (ii) the Certificate of Incorporation of Company shall be the
Certificate of Incorporation of the Surviving Corporation, as duly amended,
(iii) the Bylaws of Company shall be the Bylaws of the Surviving Corporation
until duly amended, (iv) the directors of Sub shall be the directors of the
Surviving Corporation, (v) the officers of Sub shall be the officers of the
Surviving Corporation, (vi) the issued and outstanding capital stock of Sub
shall become the issued and outstanding capital stock of the Surviving
Corporation, and (vii) the Merger shall, from and after the Effective Time, have
all the effects provided by applicable law.
1.4 Conversion of Company Securities.
--------------------------------
1.4.1 Company Shares.
--------------
(a) Each issued and outstanding Company Common Share and each issued
and outstanding Company Preferred Share (each as defined in Section 2.1.2
hereto), but excluding any Eligible Dissenting Shares, as defined in Section
1.10, shall, at the Effective Time, by virtue of the Merger, be converted,
without any action on the part of the holders thereof, into and Expedia shall
thereupon issue to the holders of the Company Common Shares and the Company
Preferred Shares a number of Expedia Common Shares ("Expedia Common Shares"),
pursuant to an exchange ratio ("Exchange Ratio") calculated in accordance with
the following and rounded to the nearest ten thousandth:
(i) Where the Expedia Closing Price (as defined below) is equal to or
less than 40.4126 per share but greater than or equal to 25.4126 per share,
the Exchange Ratio shall be equal to the quotient of the Adjusted Company
Share Price (as defined in Section 1.5) divided by the Initial Expedia
Price (as defined below);
Solely for purposes of example, where Initial Expedia Price is $35 at
signing and the Final Expedia Price is anywhere between $27.51 and
$42.49 at Closing and the price per Company Share is not adjusted
(i.e. $5.1446), the Exchange Ratio will be equal to $5.1446/$35, or
.1470 Expedia Common Shares per Company Share Equivalent.
(ii) Where the Expedia Closing Price is greater than 40.4126, the
Exchange Ratio shall be equal to the quotient of the Adjusted Company Share
Price divided by 40.4126; and
Solely for purposes of example, where the Initial Expedia Price is $35
at signing and the Final Expedia Price is $50.00 at Closing and the
price per Company Share is not adjusted (i.e. $5.1446), the Exchange
Ratio will be equal to $5.1446/$42.50, or .1210 Expedia Common Shares
per Company Share Equivalent.
(iii) In the event that upon such time as the conditions to closing
the Merger set forth in Article VI have been satisfied or waived the
Expedia Closing Price is less than 25.4126 but greater than 20.4126, the
Board of Directors of the Company shall have the right to terminate this
Agreement (such authority having been granted by the holders of Company
Shares by approving the Merger in accordance with the DGCL), provided,
2
<PAGE>
however, that no such right to terminate shall apply if Expedia shall
offer, in its sole discretion, to deliver Expedia Common Shares at an
Exchange Ratio equal to the quotient of the Adjusted Company Share Price
divided by 25.4126.
Solely for purposes of example, where the Initial Expedia Price is $35
at signing and the Final Expedia Price is $22 at Closing and the price
per Company Share is not adjusted (i.e. $5.1446), the Exchange Ratio
will be equal to $5.1446/$27.50, or .1871 Expedia Common Shares per
Company Share Equivalent.
(iv) In the event that upon such time as the conditions to closing
the Merger set forth in Article VI have been satisfied or waived the
Expedia Closing Price is less than 20.4126, the Board of Directors of the
Company shall have the right to terminate this Agreement (such authority
having been granted by the holders of Company Shares by approving the
Merger in accordance with the DGCL).
(b) Notwithstanding the foregoing, each issued and outstanding
Company Common Share, but excluding any Eligible Dissenting Shares, held by
Holders (as defined in Section 1.4.5) who upon the conversion of Company Shares
into Expedia Common Shares set forth in subsection (a), above, would be entitled
to receive a number of Expedia Common Shares which when multiplied by the
Initial Expedia Price as of the Effective Time would be equal to $140,000 or
less, shall at the Effective Time, by virtue of the Merger, and in lieu of the
conversion set forth in subsection (a), above, be converted, without any action
on the part of the holders thereof, into the right to receive and Expedia shall
promptly thereafter deliver immediately available funds equal to the Adjusted
Company Share Price as of the Effective Time.
(c) Schedule 1.4 sets forth as of the date hereof: (i) the Company
Common Shares, and all other rights to purchase any securities convertible into
Company Common Shares, (ii) the number of Company Common Share Equivalents as of
such date, and (iii) a pro forma computation of the consideration payable per
Company Common Share Equivalent, the Exchange Ratio and the Expedia Common
Shares to be issued in accordance with subsection (a), above or cash deliverable
in accordance with subsection (b), above, as of the Closing using an assumed
Expedia Closing Price (as defined below) as of such date. Schedule 1.4 shall be
revised and updated as of the Closing Date using the actual Expedia Closing
Price and reflecting any changes in Company Common Share Equivalents.
(d) For purposes of this Agreement, the "Expedia Closing Price" shall
mean the Expedia Average Price (as defined below) as of two (2) trading days
prior to the date set for Closing in accordance with Section 1.2. For purposes
of this Agreement, the "Initial Expedia Price" shall mean the Expedia Average
Price as of two (2) trading days prior to the execution of this Agreement. For
purposes of this Agreement, "Expedia Average Price" shall mean the average price
as publicly reported for the Nasdaq Stock Market as of 4:00 p.m. Eastern Time of
Expedia Common Shares over the last five (5) trading days prior to a specified
date, rounded to the nearest one hundredth of one cent. For purposes of this
Agreement, "Company Common Share Equivalents" shall mean all Company Common
Shares (as defined in Section 2.1.2) and all other securities convertible into
and rights to purchase Company Common Shares (in each
3
<PAGE>
instance assuming full exercise of the right to convert into or purchase Company
Common Shares) outstanding as of immediately prior to the Closing, but excluding
Company Common Share Equivalents, if any, which expire on or before the Closing
Date.
1.4.2 Company Options.
---------------
(a) Not less than seventeen (17) days prior to the anticipated
Closing Date, the Company shall provide to each of the holders of then
outstanding Company Options (as defined in Section 2.1.2) notice that, in
accordance with the Company Stock Plan (as defined in Section 2.1.2) but subject
to subsection (b), immediately below, each Company Option shall be accelerated
and the holders of Company options shall be given the opportunity to exercise
their Company Options for Company Common Shares. Such notice shall provide that
exercise may be made on a "net" basis (meaning that such Company Option shall be
exercised for the number of Company Common Shares underlying such option minus
the quotient of the aggregate exercise price for such Company Options divided by
Adjusted Company Share Price. Schedule 1.4 has been prepared on the basis that
assumes that all holders avail themselves of the right to exercise on an net
basis. Any unvested Company Options held by persons other than Company employees
as of the Effective Time shall be canceled as of the Effective Time.
(b) Notwithstanding the provisions of subsection (a) immediately
above, any and all Company Options held by certain persons who continue as
employees of Company or Expedia in senior management positions ("Senior
Managers") or as consultants of Company or Expedia following the Closing shall
be converted into a nonqualified stock option ("Expedia Option") to purchase
Expedia Common Shares in accordance with the offer letters or consulting
agreements of such persons with Expedia.
1.4.3 Founder Shares. The Expedia Common Shares issuable pursuant to
--------------
this Agreement to Thomas Breitling and Timothy Poster (the "Founders"), but
excluding the 10 percent (10%) of the shares held in escrow pursuant to Section
1.4.5, will be subject to certain other contractual restrictions set forth in
the offer letters between the Founders and Expedia.
1.4.4 Fractional Securities. No fraction of a Expedia Common Share or
---------------------
Expedia Option exercisable for a fraction of a Expedia Common Share will be
issued in the Merger. In lieu of such issuance, all Expedia Common Shares issued
to the Company shareholders shall be rounded to the closest whole Expedia Common
Share, and the number of Expedia Common Shares subject to any Expedia Option
shall be rounded to the nearest whole number of Expedia Common Shares.
1.4.5 Escrow Securities. Ten Percent (10%) of the Expedia Common
-----------------
Shares to be issued in the Merger shall be held by the Escrow Agent pursuant to
the Escrow Agreement attached as Exhibit 1.4.5 ("Escrow Agreement") to secure
claims by Expedia for indemnification pursuant to Article VII hereof. For
avoidance of doubt, the ten percent (10%) of Expedia Common Shares to be held in
escrow shall include Founder Shares and shares received upon exercise vested and
accelerated Company Options, but shall not include unvested Company Options to
be converted upon the Effective Time into Expedia Options, and cash received in
lieu of Expedia common Shares in accordance with Section 1.4.1(b) shall not be
subject to escrow.
4
<PAGE>
The Expedia Common Shares to be held on behalf of the holders of Company Common
Shares and Expedia Preferred Shares as of the Effective Time (collectively, the
"Holders") are set forth on Schedule 1.4 on a pro forma basis which shall be
revised as of Closing. Execution of the Escrow Agreement by each Holder
receiving Expedia Common Shares under Section 1.4.1(a) (or any attorney in fact
appointed by such Holder) is a condition precedent to receiving the Expedia
Common Shares by such Holder.
1.5 Price Per Company Share. The term "Adjusted Company Share Price" shall
-----------------------
mean Five United States Dollars and Fourteen and Fourty Six Hundredths Cents
(U.S.$5.1446) per Company Share and Company Share Equivalent, provided that, in
the event that the Company's Net Liabilities, as defined below, set forth on the
Company's Final Pro Forma Closing Balance Sheet (as defined in Section 2.1.6
hereof) are greater than the amount of Net Liabilities set forth on the balance
sheet in the Company's Financial Statements (as defined in Section 2.1.6) of
December 31, 1999 (the amount of such difference being hereinafter referred to
as "Increased Liabilities"), then the Adjusted Company Share Price shall be
equal to the product of $5.1446 multiplied by a fraction, the numerator of which
is $100,000,000 minus the Increased Liabilities and the denominator of which is
$100,000,000. For purposes of the foregoing, "Net Liabilities" as of December
31, 1999 shall mean total liabilities, less the sum of (a) deferred revenue,
accounts payable and accrued expenses up to 70% of previous 90 days gross
bookings, plus (b) Current assets at December 31, 1999; and "Net Liabilities" on
the Company's Final Pro Forma Closing Balance Sheet shall mean total
liabilities, less the sum (a) deferred revenue, accounts payable and accrued
expenses up to 70% of previous 90 days gross bookings, plus (b) Adjusted Current
Assets (as defined below) at the Closing. "Adjusted Current Assets" shall be
computed as follows: Current assets plus: (i) capital expenditures of up to
$166,667 per month made between December 31, 1999 and Closing, (ii) expenses
incurred that are directly attributable to this transaction up to the amount set
forth on the estimate delivered under Section 5.4, (iii) security deposits made
between December 31, 1999 and Closing, and (iv) beginning in March 2000, the
expected EBITDA loss of $927,226 in March 2000 and $714,362 in April 2000 (for
purposes of this calculation, the Closing date will be rounded to the nearest
half month). In the event that the certain Engagement Letter between CIBC World
Markets and Company dated July 2, 1999, shall not be terminated or released in
full to the reasonable satisfaction of Expedia on or prior to Closing, the
Adjusted Company Share Price shall be further adjusted to be equal to the
product of the Adjusted Company Share Price calculated in accordance with the
above multiplied by .9868.
1.6 Delivery of Certificates or Cash. At or as soon as practicable after
--------------------------------
the Effective Time, Expedia will send to the holders of Company Shares (i) a
letter of transmittal in customary form and containing such provisions as
Expedia may reasonably specify (including a notice of election to opt out of
registering for sale Expedia Common Shares subject to registration under Section
1.9.2), and (ii) instructions for use in effecting the surrender of certificates
representing Company Shares in exchange for either certificates representing
Expedia Common Shares or cash in accordance with Section 1.4.1. After the
Effective Time, and after receiving such letter of transmittal, each Shareholder
of a certificate or other documentation representing Company Shares, other than
Eligible Dissenting Shares, shall surrender such certificates or other
documentation to Expedia or the exchange agent designated by Expedia and letter
of transmittal, and those Holders whose Company Shares are converted into
Expedia Common Shares under
5
<PAGE>
Section 1.4.1(a) shall in addition deliver duly executed counterparts of the
Investment Agreement (as defined in Section 5.1) and Escrow Agreement and such
other duly executed documentation as may be reasonably required by Expedia or
the exchange agent to effect a transfer of such shares. Promptly following such
surrender and delivery each Holder shall be entitled to receive either a
certificate or other documentation for the applicable number of Expedia Common
Shares calculated pursuant to Section 1.4.1(a), except as provided in Section
1.4.5, or cash calculated pursuant to Section 1.4.1(b), which shall be delivered
by check. If any certificate representing Company Shares shall have been lost,
stolen or destroyed, Expedia may, in its discretion and as a condition precedent
to the delivery of consideration hereunder, require the owner of such lost,
stolen or destroyed certificate representing Company Shares to provide an
appropriate affidavit and indemnity against any claim that may be made against
Expedia or the Surviving Corporation with respect to such certificate
representing Company Shares. Execution and delivery of an Escrow Agreement and
an Investment Agreement shall be a condition precedent to the issuance of the
Expedia Common Shares to each Holder whose Company Shares are converted into
Expedia Common Shares under Section 1.4.1(a).
1.7 Tax-Free Reorganization. The Merger is intended to be a
-----------------------
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and this Agreement is intended to constitute a
"plan of reorganization" within the meaning of the regulations promulgated under
Section 368 of the Code. Notwithstanding the foregoing, no party shall be
relieved of any obligation or denied any right set forth hereunder in the event
it is determined that the tax consequences differ from those intended or those
described in the solicitation statement/private placement memorandum (if any) or
otherwise.
1.8 No Further Ownership Rights in Company Common Shares or Company
---------------------------------------------------------------
Options. All Expedia Common Shares issued on or after the Effective Time upon
- -------
cancellation of the Company Common Shares or replacement of the Company Options
in accordance with the terms hereof shall respectively be deemed to have been
delivered in full satisfaction of all rights pertaining to the Company Common
Shares or the Company Options. After the Effective Time, there shall be no
transfers on the stock transfer books of Company of the Company Common Shares or
the Company Options.
1.9 Regulation D and Registration Statements.
----------------------------------------
1.9.1 Regulation D Offering. Each holder of Company Shares shall
---------------------
execute such documents as may be reasonably required by Expedia to determine
such holder's qualification as an "accredited investor," as that term is defined
in Rule 501 of Regulation D under the Securities Act of 1933 (the "1933 Act") or
as a person with the financial sophistication required to be a purchaser
pursuant to Rule 506(b)(2)(ii) of Regulation D. Company agrees, if required
under the provisions of Rule 506, to provide, at its sole expense, any
shareholder reasonably determined by Expedia as not having the requisite
financial sophistication with a purchaser representative who can provide such
shareholder with the requisite financial sophistication.
1.9.2 Registration Rights.
-------------------
6
<PAGE>
(a) Expedia shall prepare and file with the Securities and
Exchange Commission registration statements on the form under the 1933 Act that
Expedia determines to be the least burdensome available (such registration
statement and the prospectus included therein being referred to as the
"Registration Statement", regardless of the form actually used) to register for
resale Expedia Common Shares issued in the Merger to the Company shareholders,
and their permitted transferees (collectively, the "New Expedia Shareholders"),
and shall use its commercially reasonable efforts to have pursuant to this
paragraph (a) no more than one such Registration Statement declared effective
under the 1933 Act by and kept continuously effective during the following dates
and upon the following conditions:
(i) From May 15, 2000 through June 16, 2000, provided that
Expedia shall receive a demand for registration as of such dates from holders of
not less than twenty five percent (25%) of the Expedia Common Shares issued in
the Merger on or prior to April 1, 2000 if the Effective Time has occurred prior
to April 1, 2000 or April 8, 2000 if the Effective Time has occurred after April
1, 2000 and on or prior to April 8, 2000.
(ii) From August 1, 2000 through August 13, 2000, provided that
Expedia shall receive a demand for registration as of such dates from holders of
not less than twenty five percent (25%) of the Expedia Common Shares issued in
the Merger after April 8, 2000 and on or prior to July 1, 2000 and, provided
that no Registration Statement was made effective pursuant to subsection (i),
above, unless such lack of effectiveness resulted from a withdrawal of the
demand for such registration or the failure of the holders of Expedia Common
Shares making such demand to provide to Expedia the requisite information for
such filing or through other fault of the holders of Expedia Common Shares.
Upon receipt of a demand under (i) or (ii) above, Expedia shall within five (5)
business days thereafter deposit with the United States post office or national
courier service notice to holders making such demand of Expedia's election
whether the Registration Statement to be filed shall be for an underwritten
secondary offering, an underwritten primary offering by Expedia in which holders
issuing such demand shall be permitted to participate, or a secondary offering
under Section 415 under the 1933 Act. An underwritten primary offering by
Expedia may include an offering of Expedia Common Shares, derivative instruments
that are economically substantially equivalent to Expedia Common Shares, or
securities convertible into either Expedia Common Shares or derivative
instruments that are economically substantially equivalent to Expedia Common
Shares. Should Expedia elect to undertake any such underwritten primary offering
after receiving a demand under subsection (i), Expedia will include in such
registration first, the aggregate number of securities to be issued by Expedia,
and second, as many of the shares of Expedia Common Shares covered by the demand
made under (i) as the managing underwriter shall determine is its sole
discretion are permitted by market conditions, provided that in no event shall
the shares of such holders included in such demand be less than the greater of
(A) 15% of the Expedia Common Shares issuable under the Registration Statement
for such offering or (B) Expedia Common Shares with a value of $22.5 million at
the time of such offering, provided that no more than 750,000 shares shall be
registered pursuant to this clause (B). Expedia shall select the managing
underwriters for any underwritten offering made pursuant to this subsection in
its sole discretion. Each Registration Statement shall list as selling
7
<PAGE>
shareholders each New Expedia Shareholder still holding Expedia Common Shares
that has (A) provided to Expedia the requisite information for such filing and
(B) requested to be included in such demand on or prior to last date required to
make such request. Notwithstanding the foregoing, if Expedia shall furnish the
New Expedia Shareholders entitled to be listed as selling shareholders on a
Registration Statement under this subsection a certificate signed by an officer
of Expedia stating that in the good faith judgment of the Board of Directors of
Expedia, it would be detrimental to Expedia for such Registration Statement to
be filed or made effective, then Expedia shall have the right to defer such
filing or the effective date of such Registration Statement until the next date
upon which Expedia would be obligated to use its commercially reasonable efforts
to make a Registration Statement effective, provided that Expedia shall not have
the right to defer any such filing more than once.
(b) If at any time after the Effective Time, Expedia proposes to
register any Expedia Common Shares, derivative instruments that are economically
substantially equivalent to Expedia Common Shares, or securities convertible
into either Expedia Common Shares or derivative instruments that are
economically substantially equivalent to Expedia Common Shares under the 1933
Act on any Registration Statement (other than a registration statement subject
to Section 1.9.2 (b)) prescribed by the Securities Exchange Commission, which
registration shall permit a public secondary offering or distribution (other
than any form solely for registration of securities issuable pursuant to
employee equity or option ownership plans or as consideration for business
combinations), not less than thirty (30) days prior to each such registration,
Expedia shall give to the New Expedia Shareholders written notice of such
proposal which shall describe in detail the proposed registration and
distribution and, upon the written request of any New Expedia Shareholders given
within fifteen (15) days after the date of any such notice, provided that such
holders shall have provided to Expedia the requisite information for such
filing, proceed to include in such registration such Expedia Common Shares as
have been requested by any such holder to be included in such registration.
Expedia will in each instance use its commercially reasonable efforts to cause
Expedia Common Shares subject to such request to be registered under the 1933
Act; provided, that in the event such registration is an underwritten primary
offering on behalf of Expedia and the managing underwriters advise Expedia in
writing that, in their opinion, the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, Expedia will include in such registration (i) first, the aggregate
number of securities to be issued by Expedia, (ii) second, the shares of Expedia
common stock registrable under any demand for registration giving rise to the
right of registration of New Expedia Shareholders under this subsection (b); and
(iii) third, Expedia Common Shares requested to be included in such registration
under this subsection (b) together with other securities requested to be
included in such registration, such shares to be treated on a pro rata basis.
Expedia shall select the managing underwriters for any offering made pursuant to
this subsection (b) in its sole discretion.
(c) As soon as practicable after Form S-3 becomes available to
Expedia, provided that Expedia Common Shares held by New Expedia Shareholders
remain outstanding at such time, Expedia shall prepare and file with the
Securities Exchange Commission a Registration Statement on Form S-3 to register
for resale Expedia Common Shares issued in the Merger to the New Expedia
Shareholders. Expedia shall use its commercially
8
<PAGE>
reasonable efforts to have such Registration Statement declared effective under
the 1933 Act as promptly as practicable after such filing. Expedia shall use its
commercially reasonable efforts to cause such registration statement to continue
to be effective and the prospectus contained therein to be updated as reasonably
deemed necessary by Expedia to enable the New Expedia Shareholders to resell the
Expedia Common Shares that were issued in the Merger.
(d) Expedia shall use its commercially reasonable efforts to
cause any Registration Statement filed under Sections 1.9.2(a), 1.9.2(b) and
1.9.2(c) to continue to be effective during the time specified for such and the
prospectus contained therein to be updated during such time to enable the New
Expedia Shareholders making a demand for registration under subsection (a) or
exercising their rights under subsection (b) or entitled to registration under
subsection (c) to resell during such time the Expedia Common Shares that were
issued in the Merger over the Nasdaq Stock Market or such other national market
as Expedia Common Shares may be traded. Expedia shall also endeavor to take any
action required to be taken under any applicable state securities laws in
connection with the issuance of Expedia Common Shares in the Merger and the
resale of those shares pursuant to the Registration Statement. Expedia agrees to
use its commercially reasonable efforts to cause the Expedia Common Shares
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
holders of such Expedia Common Shares to consummate the disposition of such
Expedia Common Shares and cause all such Expedia Common Shares to be listed on
each securities exchange or national quotation system on which Expedia's common
stock is then listed. Each holder of shares covered by a Registration Statement
agrees that if (i) Expedia determines that the prospectus in such Registration
Statement needs to be amended or supplemented to comply with the requirements of
the 1933 Act, (ii) a stop order suspending the effectiveness of the registration
statement is issued by the Securities Exchange Commission, or (iii) Expedia
shall, in good faith and for business reasons, enter into negotiations relating
to or otherwise commence a material business transaction, including, without
limitation, the acquisition or divestiture of assets or the offering or sale of
securities, then Expedia shall promptly notify each such holder and each such
holder shall immediately cease making offers and sales of Expedia Common Shares
and return all remaining prospectuses to Expedia. Any New Expedia Shareholder
selling stock registered under the Registration Statement shall indemnify
Expedia, its officers and directors, each underwriter and selling broker, if
any, and each person, if any, who controls Expedia, against liability (including
liability under the 1933 Act and the Securities Exchange Act of 1934 ("1934
Act") arising by reason of any statement contained in the Registration
Statement, that such New Expedia Shareholder provided to Expedia in writing
explicitly for use in the Registration Statement, being false or misleading or
omitting to state a material fact necessary to be stated in order that the
statements made in the Registration Statement, in the circumstances in which
they are made, not be misleading; provided, however, that any obligation of any
New Expedia Shareholder to provide indemnity hereunder shall not exceed the
proceeds received by such New Expedia Shareholder from a sale of Expedia Common
Shares under the Registration Statement. Expedia shall indemnify each New
Expedia Shareholder selling stock registered under the Registration Statement,
and each underwriter and selling broker, if any, against liability (including
liability under the 1933 and 1934 Acts) arising by reason of any statement
(other than a statement provided by such New Expedia Shareholder as described
above) in the Registration Statement included therein being false or misleading
or omitting to state a material fact necessary to be stated in order that the
statements made in or incorporated by reference in the Registration Statement,
in the circumstances in which they are made, not be misleading. Expedia may
suspend sales of Expedia Common Shares pursuant to the Registration
9
<PAGE>
Statement if it determines in good faith that such statements are materially
misleading or contain material omissions, provided that Expedia shall (a) make a
corrective filing as soon as practicable, (b) use its commercially reasonable
efforts to cause any amendment to the Registration Statement to be declared
effective and (c) use its commercially reasonable efforts to cause the
Registration Statement to become useable as soon as practicable thereafter.
(e) Notwithstanding the foregoing, no holder of Expedia Common
Shares received on account of Company Warrants shall be entitled to have their
Expedia Common Shares registered under any Registration Statement under this
Section 1.9.2 unless such holder shall have exercised such Company Warrants in
accordance with Section 6.2.16. The obligations of Expedia pursuant to this
Section 1.9.2 shall expire on the earlier of (i) the sale or other disposition
of all of the Expedia Shares issued in the Merger (excluding any Expedia Shares
which are subject to, or acquired pursuant to the exercise of, Expedia Options
more than five (5) weeks after the Effective Time), or (ii) the ability of all
New Expedia Shareholders to dispose of all such shares within a single three (3)
month period pursuant to Rule 144 under the 1933 Act provided Rule 144 is
available for sales by such New Expedia Shareholders. Expedia shall, at its cost
and expense, provide the holders of Expedia Common Shares issued pursuant to the
Merger with copies of prospectuses as such holders may request. Expedia shall
pay all expenses incident to the performance by it of its registration
obligations under this Section 1.9.2. The Holders selling Expedia Common Shares
pursuant to this Section 1.9.2 shall be responsible for the payment of any
brokerage and sales commission, fees and expenses of any counsel retained by
such Holders, and any transfer taxes relating to the sale or disposition of such
shares.
1.9.3 S-8 Registration Statement. Expedia shall cause the Expedia
--------------------------
Common Shares issuable upon exercise of the replacement Expedia Options to be
registered, or to be issued pursuant to a then effective registration statement
on Form S-8 ("S-8"), no later than thirty (30) calendar days after the Effective
Time and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such
replacement Expedia Options remain outstanding.
1.10 Appraisal Rights. Notwithstanding any provision of this Agreement to
----------------
the contrary, each outstanding share of Company Shares, as defined below, the
holder of which has demanded and perfected such holder's right to an appraisal
with respect to the Merger and to be paid the fair value of such shares in
accordance with Section 262 et seq. of the DGCL and, as of the Effective Time,
has not effectively withdrawn or lost such appraisal rights, shall not be
converted into or represent a right to receive the Merger Consideration, but the
holder thereof shall be entitled only to such rights as are granted by the DGCL
("Eligible Dissenting Shares"). Company shall give Expedia (i) prompt written
notice of any notice of intent to demand appraisal for any Company Shares,
withdrawals of such notices, and any other instruments served pursuant to the
DGCL or any other provisions of Delaware law and received by the Company, and
(ii) the opportunity to conduct jointly all negotiations and proceedings with
respect to such demands for appraisal under the DGCL. Company shall not, except
with the prior written consent of Expedia, voluntarily make any payment with
respect to any demands for appraisal by holders of Company Shares or offer to
settle or settle any such demands.
10
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Company and Principal Shareholders.
--------------------------------------------------------------------
Except as disclosed in a document referring specifically to the representations
and warranties in this Agreement which identifies by section number the section
and subsection to which such disclosure relates and is delivered by Company to
Expedia and Sub prior to the execution of this Agreement (the "Company
Disclosure Schedule"), and whether or not the Company Disclosure Schedule is
referred to in a specific section or subsection, Company and the Principal
Shareholders, jointly and severally, represent and warrant to Expedia and Sub as
follows:
2.1.1 Organization, Standing and Power. Company is a corporation duly
--------------------------------
organized and validly existing and in good standing under the laws of the State
of Delaware, has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which a
failure to so qualify would have a material adverse effect on the Business
Condition (as hereinafter defined) of Company. The Company Disclosure Schedule
sets forth each jurisdiction in which the Company is so qualified, licensed or
admitted to do business. As used in this Agreement, "Business Condition" with
respect to any entity shall mean the business, financial condition, results of
operations, assets or Prospects (as defined below) (without giving effect to the
consequences of the transactions contemplated by this Agreement) of such entity
or entities including Subsidiaries taken as a whole. In this Agreement, a
"Subsidiary" of any corporation or other entity means a corporation,
partnership, limited liability company or other entity of which such corporation
or entity directly or indirectly owns or controls voting securities or other
interests which are sufficient to elect a majority of the Board of Directors or
other managers of such corporation, partnership, limited liability company or
other entity and "Prospects" shall mean events, conditions, facts or
developments which are known to Company and which in the reasonable course of
events are expected to have a material effect on future operations of the
business as presently conducted by Company. Company has delivered or made
available to Expedia complete and correct copies of the certificate of
incorporation, bylaws, and/or other primary charter and organizational documents
("Charter Documents") of Company, in each case, as amended to the date hereof.
The minute books and stock records of Company have been provided or made
available to Expedia in their entirety and contain correct and complete records
of all material proceedings and actions taken at all meetings of, or effected by
written consent of, the shareholders of Company and its Board of Directors, and
all original issuances and subsequent transfers, repurchases, and cancellations
of Company Common Shares. The Company Disclosure Schedule contains a complete
and correct list of the officers and directors of Company since its
incorporation.
2.1.2 Capital Structure.
-----------------
(a) The authorized capital stock of Company consists of
50,000,000 shares of Company Common Stock, $0.01 par value, ("Company Common
Shares") of which 15,042,500 shares are issued and outstanding, and 5,000,000
shares of Preferred Stock, $0.01 par value, ("Company Preferred Shares," and
together with the Company Common Shares, the "Company Shares") of which
1,272,569 have been designated as Series A Convertible
11
<PAGE>
Preferred Stock of which all shares are issued and outstanding. As of the date
hereof, 3,000,000 Company Common Shares are reserved for issuance upon the
exercise of outstanding stock options under Company's 1998 Stock Plan (the
"Company Stock Plan"), options for 2,275,000 Company Common Shares have been
granted and 725,000 remain outstanding, and options to purchase 1,695,000
Company Common Shares have been issued outside of the Company Stock Plan and
remain outstanding (together with options outstanding under the Company Stock
Plan, the "Company Options") and warrants to purchase 1,003,585 Company Common
Shares ("Company Warrants") are outstanding. All Company Warrants shall either
be exercised for Company Common Shares (on a net exercise basis) effective as of
the Closing Date and be reflected on the Schedule 1.4 as of the Effective Time,
or at the Effective Time, terminated, provided, however, that the Company
Warrants held by America West Airlines, Inc., Heidrick & Struggles, Inc. and
Meristar Hotels & Resorts, Inc. ("Assumed Warrants") shall be assumed by Expedia
and shall be exercisable for the number of Expedia Common Shares equal to the
number of Company Common Shares underlying such Assumed Warrant multiplied by
the Exchange Ratio, at an exercise price equal to the exercise price set forth
in such Assumed Warrant divided by the Exchange Ratio. All Company Options
shall, in accordance with Section 1.4.2, either be exercised for Company Common
Shares effective two (2) days prior to the Closing Date or at such time be
terminated, and Company Common Shares issued upon such exercise and such
terminated Company Options shall be reflected on the Schedule 1.4 as of the
Effective Time. All Company Common Share Equivalents and other securities
outstanding as of January 29, 2000 are set forth on Schedule 1.4.
(b) All outstanding Company Shares are, and any Company Shares
issued upon exercise of any Company Options will be, validly issued, fully paid,
nonassessable and not subject to any preemptive rights, or to any agreement to
which Company is a party or by which Company may be bound. The Company Plan and
the Company Options issued thereunder have been duly authorized in accordance
with applicable law and are valid and enforceable in accordance with their
terms. Except for the shares described above issuable pursuant to the exercise
of Company Options and Company Warrants, there are not any options, warrants,
calls, conversion rights, commitments, agreements, contracts, understandings,
restrictions, arrangements or rights of any character to which Company is a
party or by which Company may be bound obligating Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the capital
stock of Company, or obligating Company to grant, extend or enter into any such
option, warrant, call, conversion right, conversion payment, commitment,
agreement, contract, understanding, restriction, arrangement or right. Company
does not have outstanding any bonds, debentures, notes or other indebtedness the
holders of which (i) have the right to vote (or convertible or exercisable into
securities having the right to vote) with holders of Company Shares on any
matter ("Company Voting Debt") or (ii) are or will become entitled to receive
any payment as a result of the execution of this Agreement or the completion of
the transactions contemplated hereby. No liquidation preferences are payable
with respect to the capital stock of the Company as a result of the Merger. All
Company Common Share Equivalents and other securities outstanding as of the date
of this Agreement are set forth on Schedule 1.4, and no Company Common Share
Equivalents are held by Company in its treasury. Other than Company Options
subject to vesting as set forth in Schedule 1.4, none of the Company Shares are
subject to conditional vesting, forfeiture or other similar restrictions.
12
<PAGE>
2.1.3 Authority. The execution, delivery, and performance of this
---------
Agreement by Company (including but not limited to the execution, delivery, and
performance of the agreements and transactions contemplated by this Agreement)
has been duly authorized by all necessary action of the Board of Directors of
Company. Certified copies of the resolutions adopted by the Board of Directors
of Company approving this Agreement and the Merger have been provided to
Expedia. Each of Company and the Principal Shareholders has duly and validly
executed and delivered this Agreement and each of the agreements contemplated
hereby, and this Agreement and each of the agreements contemplated hereby
constitutes a valid, binding, and enforceable obligation of Company and each of
the Principal Shareholders, as applicable, in accordance with its terms.
2.1.4 Compliance with Laws and Other Instruments. Company holds, and
------------------------------------------
at all times has held, all licenses, permits, and authorizations from all
Governmental Entities, (as defined below) necessary for the lawful conduct of
its business pursuant to all applicable statutes, laws, ordinances, rules, and
regulations of all such authorities having jurisdiction over it or any part of
its operations, excepting, however, when such failure to hold would not have a
material adverse effect on Company's Business Condition. There are no violations
or claimed violations known by Company or any Principal Shareholder of any such
license, permit, or authorization or any such statute, law, ordinance, rule or
regulation. Neither the execution and delivery of this Agreement by Company and
any Principal Shareholder nor the performance by Company and the Principal
Shareholders of their obligations under this Agreement will, in any material
respect, violate any provision of laws or will conflict with, result in the
material breach of any of the terms or conditions of, constitute a material
breach of any of the terms or conditions of, constitute a material default
under, permit any party to accelerate any right under, renegotiate, or
terminate, require consent, approval, or waiver by any party under, or result in
the creation of any lien, charge, encumbrance, or restriction upon any of the
properties, assets, or Company Common Shares pursuant to, any of the Charter
Documents or any agreement (including, without limitation, government
contracts), indenture, mortgage, franchise, license, permit, lease or other
instrument of any kind to which Company is a party or by which Company or any of
its assets is bound or affected. No consent, approval, order or authorization of
or registration, declaration or filing with or exemption by or notice to
(collectively "Consents"), any court, administrative agency, commission or other
governmental authority or instrumentality, whether domestic or foreign (each a
"Governmental Entity") or other third-party is required by or with respect to
Company in connection with the execution and delivery of this Agreement by
Company or the consummation by Company of the transactions contemplated hereby,
except for (i) the filing of a premerger notification report and all other
required documents by Expedia and Company, and the expiration of all applicable
waiting periods, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") and (ii) the filing of the appropriate Merger
Documents with the Secretary of State of Delaware and except for such other
Consents, which if not obtained or made would not have a material adverse effect
on Company's Business Condition.
2.1.5 Technology and Intellectual Property Rights.
-------------------------------------------
(a) The "Company Intellectual Property" consists of the
following:
13
<PAGE>
(i) all patents, trademarks, trade names, service marks, mask
works, domain names, copyrights and any renewal rights, applications and
registrations for any of the foregoing, and all trade dress, net lists,
schematics, technology, manufacturing processes, customer and supplier lists,
trade secrets, know-how, moral rights, computer software programs or
applications (in both source and object code form) owned by Company;
(ii) all goodwill associated with trademarks, trade names
service marks and trade dress owned by Company;
(iii) all software and firmware listings, and updated software
source code, and complete system build software and instructions related to all
software described in the Company Disclosure Schedule pursuant to Section
2.1.5(b) hereof owned by Company;
(iv) all documents, records and files relating to design, end
user documentation, manufacturing, quality control, sales, marketing or customer
support for all intellectual property described herein owned by Company;
(v) all other tangible or intangible proprietary information and
materials owned by Company; and
(vi) all license and other rights in any third party product,
intellectual property, proprietary or personal rights, documentation, or
tangible or intangible property, including without limitation the types of
intellectual property and tangible and intangible proprietary information
described in (i) through (v) above;
that are being, and/or have been, used, or are currently under development for
use, in the business of Company as it has been, is currently or is currently
anticipated to be (up to the Closing), conducted. Company Intellectual Property
described in clauses (i) to (v) above is referred to herein as "Company Owned
Intellectual Property" and Company Intellectual Property described in clause
(vi) above is referred to herein as "Company Licensed Intellectual Property."
Unless otherwise noted, all references to "Company Intellectual Property" shall
refer to both Company Owned Intellectual Property and Company Licensed
Intellectual Property.
(b) The Company Disclosure Schedule lists: (i) all patents,
registered copyrights, mask works, trademarks, service marks, domain names,
trade dress, any renewal rights for any of the foregoing, and any applications
and registrations for any of the foregoing, that are included in the Company
Owned Intellectual Property; (ii) all hardware products and tools, software
products and tools, and services that are currently published, offered, or under
development by Company; (iii) all licenses, sublicenses and other agreements to
which Company is a party and pursuant to which any end user or other third party
is authorized to have access to or use the Company Intellectual Property or
exercise any other right with regard thereto; (iv) all Company Licensed
Intellectual Property (other than license agreements for standard "shrink
wrapped, off the shelf," commercially available, third party products used by
the Company); and (v) any obligations of exclusivity, noncompetition,
nonsolicitation, first refusal or first
14
<PAGE>
negotiation to which Company is subject under any agreement concerning Company
Intellectual Property that does not fall within the ambit of (iii) or (iv)
above. The disclosures described in (iii), (iv), and (v) hereof include the
names and dates of the relevant agreements, as well as the identities of the
parties to the relevant agreements.
(c) The Company Intellectual Property consists solely of items
and rights which are either: (i) owned by Company by assignment or otherwise;
(ii) in the public domain; or (iii) rightfully used and authorized for use by
Company and its successors pursuant to a valid license or other agreement.
Company has all rights in the Company Intellectual Property necessary to carry
out Company's current and anticipated future (up to the Closing) activities and
has or had all rights in the Company Intellectual Property reasonably necessary
to carry out Company's former activities, including without limitation, and
solely to the extent necessary to carry out such activities, rights to make,
use, exclude others from using, reproduce, modify, adapt, create derivative
works based on, translate, distribute (directly and indirectly), disclose,
transmit, display and perform publicly, license, rent, lease, assign, and sell
the Company Intellectual Property in all geographic locations and fields of use,
and to sublicense any or all such rights to third parties, including the right
to grant further sublicenses. All software and firmware listings that are part
of the Company Owned Intellectual Property are adequately commented in
accordance with generally accepted standard industry practices.
(d) Company is not, nor as a result of the execution or delivery
of this Agreement and all other agreements contemplated hereby, or performance
of Company's obligations hereunder or thereunder, will Company be, in violation
of any license, sublicense, or other agreement relating to the Company
Intellectual Property to which Company is a party or otherwise bound. Except as
specifically described in the Company Disclosure Schedule, Company is not
obligated to provide any consideration (whether financial or otherwise) to any
third party, nor is any third party otherwise entitled to any consideration,
with respect to any exercise of rights by Company or its successors or licensees
in the Company Intellectual Property.
(e) The use, reproduction, modification, distribution,
licensing, sublicensing, sale, or any other exercise of rights in any Company
Owned Intellectual Property or any other authorized exercise of rights in or to
the Company Owned Intellectual Property by Company or its successors or
licensees does not infringe any copyright, patent, trade secret, trademark,
service mark, trade name, firm name, logo, trade dress, mask work, moral right,
other intellectual property right, right of privacy, right of publicity, or
right in personal or other data of any person. Further, to the knowledge of
Company and the Principal Shareholders, the use, reproduction, modification,
distribution, licensing, sublicensing, sale, or any other exercise of rights in
any Company Licensed Intellectual Property or any other authorized exercise of
rights in or to the Company Licensed Intellectual Property by Company or its
licensees does not infringe any copyright, patent, trade secret, trademark,
service mark, trade name, firm name, logo, trade dress, mask work, moral right,
other intellectual property right, right of privacy, right of publicity or right
in personal or other data of any person. No claims (i) challenging the validity,
effectiveness, or ownership by Company of any of the Company Intellectual
Property, or (ii) to the effect that the use, reproduction, modification,
manufacturing, distribution, licensing, sublicensing, sale, or any other
exercise of rights in any Company Intellectual Property
15
<PAGE>
by Company or its successors or licensees infringes, or will infringe on, any
intellectual property or other proprietary or personal right of any person, have
been asserted or, to the knowledge of Company and the Principal Shareholders,
are threatened by any person nor, to the knowledge of Company and the Principal
Shareholders, are there any valid grounds for any bona fide claim of any such
kind. All granted or issued patents and all registered mask works, domain names,
and trademarks listed on the Company Disclosure Schedule and all copyright
registrations held by Company are valid, enforceable and subsisting. To the
knowledge of Company and the Principal Shareholders, there is no unauthorized
use, infringement, or misappropriation of any of the Company Owned Intellectual
Property by any employee, or former employee, or other third party.
(f) No parties other than Company possess any current or
contingent rights to any source code that is part of the Company Owned
Intellectual Property (including, without limitation, through any escrow
account).
(g) The Company Disclosure Schedule lists all parties who have
created any portion of, or otherwise have any rights in or to, the Company Owned
Intellectual Property other than employees of Company whose work product was
created by them within the scope of their employment by Company and constitutes
works made for hire owned by Company. Company has secured from all parties who
are not employees and who have created any material portion of, or otherwise
have any rights in or to, the Company Owned Intellectual Property valid and
enforceable written assignments or licenses of any such work or other rights to
Company and has provided true and complete copies of such assignments or
licenses to Expedia.
(h) The Company Disclosure Schedule includes a true and complete
list of support and maintenance agreements relating to Company Owned
Intellectual Property or to which Company is a party as to Company Licensed
Intellectual Property, including the identity of the parties and the respective
dates of such agreements.
(i) Company has obtained legally binding written agreements from
all employees and third parties with whom Company has shared confidential
proprietary information (i) of Company or (ii) received from others which
Company is obligated to treat as confidential, which agreements require such
employees and third parties to keep such information confidential.
(j) Company has obtained any and all necessary consents from
consumers with regard to the Company's collection and dissemination of personal
consumer information in accordance with Company's privacy policy as published on
its website. Company's practices regarding the collection and use of consumer
personal information are in accordance with Company's privacy policy as
published on its website.
(k) The Company Owned Intellectual Property is, and any products
manufactured and commercially released by Company or currently under
development, are fully Year 2000 Compliant in all material respects and will not
cease to be fully Year 2000 Compliant in any material respect at any time during
or after the calendar year AD 2000. To the knowledge
16
<PAGE>
of Company and the Principal Shareholders, the Company Licensed Intellectual
Property is fully Year 2000 Compliant in all material respects and will not
cease to be fully Year 2000 Compliant in any material respect at any time prior
to, during or after the calendar year 2000. Schedule 2.1.5(k) sets forth the
tests, inquiries and other activities undertaken by Company up to Closing, with
respect to the Year 2000 Compliant nature of any and all Company Intellectual
Property. For the purposes of this Agreement, "Year 2000 Compliant" means that
neither the performance nor the functionality of any Company Intellectual
Property is or will be materially affected by dates prior to, during or after
the calendar year AD 2000 and in particular (but without limitation):
(i) such Company Intellectual Property accurately receives,
provides and processes, and will accurately receive, provide and process,
date/time data (including calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries, including without limitation
calendar years 1999 and 2000;
(ii) such Company Intellectual Property will not malfunction,
cease to function, provide invalid or incorrect results or cause any
interruption in the operation of the business of Company as a result of any
date/time data;
(iii) date-based functionality of such Company Intellectual
Property behaves and will continue to behave consistently for dates prior to,
during and after the calendar year 2000;
(iv) in all interfaces and data storage of such Company
Intellectual Property, the century in any date is and will be specified either
explicitly or by unambiguous algorithms or inferencing rules; and
(v) the calendar year 2000 is and will be recognized as a leap
year by such Company Intellectual Property.
2.1.6 Financial Statements. Company has delivered to Expedia its
--------------------
audited financial statements as of December 31, 1998, its reviewed financial
statements for the quarter ending March 31, 1999 and its internally prepared
financial statements for the quarters ending June 30, 1999, September 30, 1999
and December 31, 1999, and at Closing the Company shall deliver its audited
financial statements as of December 31, 1999, each of which financial statements
include balance sheets and statements of income and cash flow as of the date of
such (such financial statements are collectively referred to as the "Financial
Statements"). The Financial Statements: (i) are in accordance with the books and
records of Company, (ii) present fairly, in all material respects, the financial
position of Company as of the dates indicated and the results of its operations
for each of the periods indicated, and (iii) have been prepared in accordance
with generally accepted accounting principles consistently applied except as
described in the Company Disclosure Schedule, subject to ordinary year-end
adjustments and notes. There are no material off-balance sheet liabilities,
claims or obligations of any nature, whether accrued, absolute, contingent,
anticipated, or otherwise, whether due or to become due, that are not shown or
provided for either in the Financial Statements or the Company Disclosure
Schedule. The liabilities of Company were incurred in the ordinary course of
Company's
17
<PAGE>
business. The "Pro Forma Closing Balance Sheet" attached as Schedule 2.1.6 sets
forth, based on reasonable assumptions relating to the operation of the business
conducted by Company, the balance sheet as of the estimated Closing Date. A
"Final Pro Forma Closing Balance Sheet" will be prepared and delivered in
accordance with Section 6.2.12, and when so delivered, shall be (i) in
accordance with the books and records of Company and on a basis consistent with
the Financial Statements and Pro Forma Closing Balance Sheet, (ii) present
fairly, in all material respects, the financial position of Company as of the
Closing Date and the results of its operations for the Closing Date, and (iii)
have been prepared in accordance with generally accepted accounting principles
consistently applied.
2.1.7 Taxes.
-----
(a) Company has timely filed (or caused to be filed) all
federal, state, local and foreign tax returns, reports, elections and
information statements ("Returns") required to be filed by it, which Returns are
true, correct and complete in all respects, and paid all taxes required to be
paid as shown on such Returns. All taxes required to be paid in respect of the
periods covered by such Returns ("Return Periods") on or prior to Closing have
either been paid or fully accrued on the books of Company. Company has fully
accrued all unpaid taxes in respect of all periods prior to Closing on the Pro
Forma Closing Balance Sheet. Company has not taken any position on any tax
return or filing which is or would be subject to penalties under Section 6662 of
the Code. Company has not requested or been granted any extension of time to
file any Return. There is no difference between the amounts of the book basis
and the tax basis of any asset of Company that is not reflected in an
appropriate accrual of deferred tax liability on the books of Company or fully
reflected in the Financial Statements. All material elections with respect to
taxes made by or with respect to the Company are set forth on Company Disclosure
Schedule. Company has provided Expedia true and correct copies of all Returns,
all correspondence with any taxing authority, all Return work papers, any tax
planning memoranda prepared for the Company and other tax data (except for
memoranda and other tax data as to which the Company has asserted or reasonably
could assert is privileged under applicable law).
(b) No deficiencies or adjustments for any tax have been
claimed, proposed or assessed or threatened. Company Disclosure Schedule
accurately sets forth the years for which Company's federal and state income tax
returns, respectively, have been audited and any years which are the subject of
a pending audit by the Internal Revenue Service ("IRS") and the applicable state
taxing agencies. Company is not subject to any pending or threatened tax audit
or examination. Company Financial Statements contain adequate accruals for all
unpaid taxes. Company has not entered into any agreements, waivers or other
arrangements in respect of the statute of limitations in respect of its taxes or
tax returns. Company Disclosure Schedule sets forth as of December 31, 1998 (i)
the tax basis of the Company in its assets, (ii) the current and accumulated
earnings and profits of the Company, (iii) the amount of any net operating loss
carryover, net capital loss carryover, unused investment credit or other credit
carryover and charitable contribution carryover of the Company, (iv) the amount
of any deferred gain or loss allocable to the Company or excess loss account of
the Company, and (v) a list of all partnerships, limited liability companies or
other legal business entities (within the meaning of Treas. Reg. Section
701.7701-3) in which the Company has an interest.
18
<PAGE>
(c) For the purposes of this Agreement, the terms "tax" and
"taxes" shall include all federal, state, local and foreign taxes, assessments,
duties, tariffs, registration fees, and other governmental charges including
without limitation all income, franchise, property, production, sales, use,
payroll, license, windfall profits, severance, withholding, excise, gross
receipts, amounts collected by the Company as taxes and other taxes, as well as
any interest, additions or penalties relating thereto and any interest in
respect of such additions or penalties.
(d) There are no liens for taxes upon the assets of Company
except for taxes that are not yet payable. Company has withheld all taxes
required to be withheld in respect of wages, salaries and other payments to all
employees, officers and directors and any taxes required to be withheld from any
other person and has timely paid all such amounts withheld to the proper taxing
authority.
(e) No consent or agreement has been made under Section 341(f)
of the Code, by or on behalf of Company or any predecessor thereof. Company is
not and has not been a party to any tax sharing or tax allocation agreement. No
item of income or gain reported by the Company for financial accounting purposes
in any pre-closing period is required to be included in taxable income in any
post-closing period. Company has never been a member of any affiliated group of
corporations within the meaning of Section 1504 of the Code other than a group
the common parent of which was the Company. Company has not participated in, or
cooperated with, an international boycott within the meaning of Section 999 of
the Code. Company is not required to include in income any adjustment pursuant
to Section 481(a) of the Code (or similar provisions of other law or
regulations) in its current or in any future taxable period, by reason of a
change in accounting method; nor does Company have any knowledge that the IRS
(or other taxing authority) has proposed, or is considering, any such change in
accounting method. Company is not a party to any agreement, contract, or
arrangement that would result in the payment of any "excess parachute payment"
within the meaning of Section 280G of the Code or any similar provision of
foreign, state or local law ("Excess Parachute Payment"). Company does not have
and has not had a "permanent establishment" (as defined in any applicable income
tax treaty) in any country other than the United States. Company and the
Principal Shareholders will take all action required by Section 280G of the Code
and the Regulations thereunder necessary to ensure that no payment in connection
with the Merger constitutes an Excess Parachute Payment. Company has made no
election under Section 197 of the Code. There are no outstanding rulings or
requests for rulings from any taxing authority with respect to Company.
(f) The use of any net operating loss carryover, net capital
loss carryover, unused investment credit or other credit carryover of Company is
not subject to any limitation pursuant to Section 382 of the Code or otherwise
(except as such limitation may be imposed as a result of the transactions
contemplated under this Agreement). Company is not and has never been a real
property holding corporation within the meaning of Section 897 of the Code. None
of the assets of Company is property that is required to be treated as owned by
any other person pursuant to the "safe harbor lease" provisions of former
Section 168(f)(8) of the Code and in effect immediately prior to the enactment
of the Tax Reform Act of 1986 and none of the assets of Company is "tax exempt
use property" within the meaning of Section 168(h) of the Code. None of the
assets of Company secures any debt the interest on which is tax exempt under
19
<PAGE>
Section 103 of the Code. Company is liable for no taxes of any person other than
the Company and its Subsidiaries under the provisions of Treas. Reg. Section
1.1502-6(a).
2.1.8 Absence of Certain Changes and Events. Since September 30,
-------------------------------------
1999, there has not been:
(a) Any transaction involving more than $20,000 entered into by
Company other than in the ordinary course of business; any change (or any
development or combination of developments of which Company or the Principal
Shareholders has knowledge which is reasonably likely to result in such a
change) in Company's Business Condition, other than changes in the ordinary
course of business which in the aggregate have not been materially adverse to
Company's Business Condition; or, without limiting the foregoing, any loss of or
damage to any of the properties of Company due to fire or other casualty, or any
other loss, whether or not insured, amounting to more than $20,000 in the
aggregate;
(b) Any declaration, payment, or setting aside of any dividend
or other distribution to or for the holders of any Company Common Shares;
(c) Any termination, modification, or rescission of, or waiver
by Company of rights under, any existing contract having or likely to have a
material adverse effect on Company's Business Condition or any other contract or
arrangement with an Internet portal or distributor;
(d) Any discharge or satisfaction by Company of any lien or
encumbrance, or any payment of any obligation or liability (absolute or
contingent) other than current liabilities shown on the balance sheet included
in the Financial Statements as of September 30, 1999 and current liabilities
incurred since September 30, 1999 in the ordinary course of business; or
(e) Any mortgage, pledge, imposition of any security interest,
claim, encumbrance, or other restriction on any of the assets, tangible or
intangible, of Company.
2.1.9 Accounts Receivable. All of the accounts receivable shown on
-------------------
the Pro Forma Closing Balance Sheet and the Final Pro Forma Closing Balance
Sheet have been collected or are good and collectible in the aggregate recorded
amounts thereof (less the allowance for doubtful accounts also appearing in such
Pro Forma Closing Balance Sheet and Final Pro Forma Closing Balance Sheet
balance sheet and net of returns and payment discounts allowable by Company's
policies) and can reasonably be anticipated to be paid in full without outside
collection efforts within sixty (60) days of the due date, subject to no
counterclaims or setoffs.
2.1.10 Leases in Effect. All real property leases and subleases as to
----------------
which Company is a party and any amendments or modifications thereof are listed
on the Company Disclosure Schedule (each a "Lease" and collectively, the
"Leases") and are valid, in full force and effect, enforceable, and there are no
existing defaults, and Company has not received or given notice of default or
claimed default with respect to any Lease, nor is there any event that
20
<PAGE>
with notice or lapse of time, or both, would constitute a default thereunder.
The Company does not own and has never owned any interest in real property other
than leasehold interests.
2.1.11 Personal Property. Company has good and marketable title, free
-----------------
and clear of all title defects, security interests, pledges, options, claims,
liens, encumbrances, and restrictions of any nature whatsoever (including,
without limitation, leases, chattel mortgages, conditional sale contracts,
purchase money security interests, collateral security arrangements, and other
title or interest-retaining agreements) to all inventory, receivables,
furniture, machinery, equipment, and other personal property, tangible or
otherwise, reflected on the December 31, 1999 balance sheet included in the
Financial Statements or used in Company's business as of the date of such
balance sheet even if not reflected thereon, except for acquisitions and
dispositions in the ordinary course of business. The Company Disclosure Schedule
lists (i) all computer equipment and (ii) all other personal property having a
book value of $10,000 or more, which are used by Company in the conduct of its
business, and all such equipment and property are in good operating condition
and repair, reasonable wear and tear excepted.
2.1.12 Certain Transactions. None of the employees, directors,
--------------------
officers, or shareholders of Company, or any member of any of their families (as
defined below), is presently a party to, or was a party to during the year
preceding the date of this Agreement, any transaction with Company, including,
without limitation, any contract, agreement, or other arrangement (i) providing
for the furnishing of services to or by, (ii) providing for rental of real or
personal property to or from, or (iii) otherwise requiring payments to or from,
any such person or any corporation, partnership, trust, or other entity in which
any such person has or had a 5%-or-more interest (as a shareholder, partner,
beneficiary, or otherwise) or is or was a director, officer, employee, or
trustee other than for services rendered by a shareholder as an employee of
Company. None of Company's employees, officers or directors has any material
interest in any property, real or personal, tangible or intangible, including
inventions, copyrights, trademarks or trade names, used in or pertaining to the
business of Company, or any supplier, distributor or customer of Company, except
for the normal rights of a shareholder, and except for rights under existing
employee benefit plans and employment agreements copies of which have been
provided to Expedia. For purposes of this Agreement "families" shall include all
individuals who by reason of ancestry, adoption or marriage have a common parent
or grandparent.
2.1.13 Litigation and Other Proceedings. Neither Company nor any of
--------------------------------
its officers, directors, or employees is a party to any pending or, to the
knowledge of Company and the Principal Shareholders, threatened action, suit,
labor dispute (including any union representation proceeding), proceeding,
investigation, or discrimination claim in or by any court or governmental board,
commission, agency, department, or officer, or any arbitrator, arising from the
actions or omissions of Company or, in the case of an individual, from acts in
his or her capacity as an officer, director, or employee of Company which
individually or in the aggregate would be materially adverse to Company. Company
is not subject to any order, writ, judgment, decree, or injunction that has a
material adverse effect on Company's Business Condition.
2.1.14 No Defaults. Company is not, nor has Company received notice
-----------
that it would be with the passage of time, in default or violation of any term,
condition or provision of (i) the Charter Documents of Company; (ii) any
judgment, decree or order applicable to
21
<PAGE>
Company; or (iii) any loan or credit agreement, note, bond, mortgage, indenture,
contract, agreement, lease, license or other instrument to which Company is now
a party or by which it or any of its properties or assets may be bound, except
for defaults and violations which, individually or in the aggregate, would not
have a material adverse effect on the Business Condition of Company.
2.1.15 Major Contracts. Company is not a party to or subject to:
---------------
(a) Any union contract, or any employment contract or
arrangement providing for future compensation, written or oral, with any
officer, consultant, director or employee;
(b) Any plan or contract or arrangement, written or oral,
providing for bonuses, pensions, deferred compensation, retirement payments,
profit-sharing, or the like;
(c) Any joint venture contract or arrangement or any other
agreement which has involved or is expected to involve a sharing of profits;
(d) Any OEM agreement, distribution agreement, volume purchase
agreement, corporate end user sales or service agreement or manufacturing
agreement in which the amount involved exceeds annually, or is expected to
exceed in the aggregate during any twelve (12) month period $20,000 or pursuant
to which Company has granted or received manufacturing rights, most favored
nation pricing provisions or exclusive marketing, reproduction, publishing or
distribution rights related to any product, group of products or territory;
(e) Any lease for real or personal property in which the amount
of payments which Company is required to make on an annual basis exceeds
$20,000;
(f) Any material agreement, license, franchise, permit,
indenture or authorization which has not been terminated or performed in its
entirety and not renewed which may be, by its terms, terminated, impaired or
adversely affected by reason of the execution of this Agreement, the Closing of
the Merger, or the consummation of the transactions contemplated hereby or
thereby;
(g) Any instrument evidencing or related in any way to
indebtedness incurred in the acquisition of companies or other entities or
indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, or otherwise which
individually is in the amount of $20,000 or more;
(h) Any material license agreement, either as licensor or
licensee (excluding nonexclusive hardware and software licenses granted to
distributors or end-users in the ordinary course of business consistent with
prior practice); or
(i) Any contract containing covenants purporting to limit
Company's freedom to compete in any line of business in any geographic area.
22
<PAGE>
All contracts, arrangements, plans, agreements, leases, licenses,
franchises, permits, indentures, authorizations, instruments and other
commitments which are required to be listed in the Company Disclosure Schedule
pursuant to this Section 2.1.15 are valid and in full force and effect and
Company has not, nor, to the best knowledge of Company, has any other party
thereto, breached any material provisions of, or entered into default in any
material respect under the terms thereof.
2.1.16 Material Relations. To Company and the Principal Shareholders'
------------------
knowledge, none of the parties to any of the major contracts identified in the
Company Disclosure Schedule pursuant to Section 2.1.15, if any, have terminated,
or in any way expressed an intent to materially reduce or terminate the amount
of its business with Company in the future.
2.1.17 Insurance and Banking Facilities. The Company Disclosure
--------------------------------
Schedule contains a complete and correct list of (i) all contracts of insurance
or indemnity of Company in force at the date of this Agreement (including name
of insurer or indemnitor, agent, annual premium, coverage, deductible amounts,
and expiration date) and (ii) the names and locations of all banks in which
Company has accounts or safe deposit boxes, the designation of each such account
and safe deposit box, and the names of all persons authorized to draw on or have
access to each such account and safe deposit box. All premiums and other
payments due from Company with respect to any such contracts of insurance or
indemnity have been paid, and Company does not know of any fact, act, or failure
to act which has or might cause any such contract to be canceled or terminated.
All material known claims for insurance or indemnity have been presented.
2.1.18 Employees. Company does not have any written contract of
---------
employment or other employment agreement with any of its employees that is not
terminable at will by Company. Company is not a party to any pending, or to
Company's knowledge, threatened, labor dispute. Company has complied in all
material respects with all applicable federal, state, and local laws,
ordinances, rules and regulations and requirements relating to the employment of
labor, including but not limited to the provisions thereof relating to wages,
hours, collective bargaining, payment of social security, unemployment and
withholding taxes, and ensuring equality of opportunity for employment and
advancement of minorities and women. There are no claims pending, or threatened
to be brought, in any court or administrative agency by any former or current
Company employees for compensation, pending severance benefits, vacation time,
vacation pay or pension benefits, or any other claim pending from any current or
former employee or any other person arising out of Company's status as employer,
whether in the form of claims for employment discrimination, harassment, unfair
labor practices, grievances, wrongful discharge or otherwise.
2.1.19 Employee Benefit Plans. Each employee benefit plan ("Plan")
----------------------
covering active, former, or retired employees of Company is listed in the
Company Disclosure Schedule. Company has made available to Expedia a copy of
each Plan, and where applicable, any related trust agreement, annuity, or
insurance contract. No annual reports (Form 5500) have been required to be filed
with the Internal Revenue Service. To the extent applicable, each Plan
23
<PAGE>
complies, in all material respects, with the requirements of the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
any Plan intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified and has remained
tax-qualified to this date and its related trust is tax-exempt and has been so
since its creation. No Plan is covered by Title IV of ERISA or Section 412 of
the Code. No "prohibited transaction", as defined in ERISA Section 406 or Code
Section 4975 has occurred with respect to any Plan. Each Plan has been
maintained and administered in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Plans. There are no pending or anticipated claims against or otherwise involving
any of the Plans and no suit, action, or other litigation (excluding claims for
benefits incurred in the ordinary course of Plan activities) has been brought
against or with respect to any Plan. All contributions, reserves, or premium
payments to the Plan, accrued to the date hereof have been made or provided for.
Company has not incurred any liability under Subtitle C or D of Title IV of
ERISA with respect to any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by Company, or any entity
which is considered one employer with Company under Section 4001 of ERISA.
Company has not incurred any withdrawal liability under Subtitle E of Title IV
of ERISA with respect to any "multi-employer plan." within the meaning of
Section 4001(a)(3) of ERISA. There are no restrictions on the rights of Company
to amend or terminate any Plan without incurring any liability thereunder.
Company has not engaged in or is a successor or parent corporation to an entity
that has engaged in a transaction described in ERISA Section 4069. There have
been no amendments to, written interpretation of, or announcement (whether or
not written) by Company relating to, or change in employee participation or
coverage under, any Plan. Neither Company nor any of its ERISA affiliates have
any current or projected liability in respect of post-employment or post-
retirement welfare benefits for retired or former employees of Company other
than health care continuation benefits required to be provided under applicable
law. No tax under Section 4980B of the Code has been incurred in respect of any
Plan that is a group health plan, as defined in Section 5000(b)(1) of the Code.
Except as disclosed on the Company Disclosure Schedule, Company has administered
the executive compensation Plans, if any, in a manner which will not result in a
compensation charge against earnings or the loss of deductions for federal and
state income tax purposes.
2.1.20 Certain Agreements. Except as contemplated by this Agreement,
------------------
neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby will: (i) result in any payment by Company
(including, without limitation, severance, unemployment compensation, parachute
payment, bonus or otherwise) becoming due to any director, employee or
independent contractor of Company under any Plan, agreement or otherwise, (ii)
materially increase any benefits otherwise payable under any Plan or agreement,
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits.
2.1.21 Guarantees and Suretyships. Company has no powers of attorney
--------------------------
outstanding (other than those issued in the ordinary course of business with
respect to tax matters), and Company has no obligations or liabilities (absolute
or contingent) as guarantor, surety, cosigner, endorser, co-maker, indemnitor,
or otherwise respecting the obligations or
24
<PAGE>
liabilities of any person, corporation, partnership, joint venture, association,
organization, or other entity.
2.1.22 Brokers and Finders. Neither Company nor the Principal
-------------------
Shareholders has retained any broker, finder, or investment banker in connection
with this Agreement or any of the transactions contemplated by this Agreement,
nor does or will Company owe any fee or other amount to any broker, finder, or
investment banker in connection with this Agreement or the transactions
contemplated by this Agreement.
2.1.23 Certain Payments. Neither Company nor the Principal
----------------
Shareholders acting on behalf of Company, nor to the best knowledge of Company
and the Principal Shareholders, any person or other entity acting on behalf of
Company has, directly or indirectly, on behalf of or with respect to Company:
(i) made an unreported political contribution, (ii) made or received any payment
which was not legal to make or receive, (iii) engaged in any transaction or made
or received any payment which was not properly recorded on the books of Company,
(iv) created or used any "off-book" bank or cash account or "slush fund," or (v)
engaged in any conduct constituting a violation of the Foreign Corrupt Practices
Act of 1977.
2.1.24 Environmental Matters. To the best knowledge of Company and
---------------------
the Principal Shareholders:
(a) There has not been a discharge or release on any real
property owned or leased by Company (the "Real Property") of any Hazardous
Material (as defined below) in violation of any federal, state or local statute,
regulation, rule or order applicable to health, safety and the environment,
including without limitation, contamination of soil, groundwater or the
environment, generation, handling, storage, transportation or disposal of
Hazardous Materials or exposure to Hazardous Materials ("Environmental Laws"),
except for those that would not, individually or in the aggregate have a
material adverse effect on Company;
(b) No Hazardous Material has been used by Company in the
operation of Company's business in amounts that would violate any Environmental
Laws;
(c) Company has not received from any Governmental Entity or
third party any request for information, notice of claim, demand letter, or
other notification, notice or information that Company is or may be potentially
subject to or responsible for any investigation or clean-up or other remediation
of Hazardous Material present on any Real Property;
(d) There have been no environmental investigations, studies,
audits, tests, reviews, or other analyses, the purpose of which was to discover,
identify, or otherwise characterize the condition of the soil, groundwater, air,
or presence of asbestos at any of the Real Property sites;
(e) There is no asbestos present in any Real Property owned or
operated by Company, and no asbestos has been removed from any Real Property
while such Real Property was owned or operated by Company; and
25
<PAGE>
(f) There are no underground storage tanks on, in or under any
of the Real Property and no underground storage tanks have been closed or
removed from any Real Property which are or have been in the ownership of
Company.
"Hazardous Material" means any substance (i) that is a "hazardous waste" or
"hazardous substance" under any federal, state or local statute, regulation,
rule, or order, (ii) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, or otherwise hazardous and is regulated by any Governmental Entity,
(iii) the presence of which on any of the Real Property causes or threatens to
cause a nuisance on any of the Real Property or to adjacent properties or poses
or threatens to pose a hazard to the health or safety of persons on or about any
of the Real Property, or (iv) the presence of which on adjacent properties could
constitute a trespass by Company or the then current owner(s) of any of the Real
Property.
2.1.25 Business Relations. The Company Disclosure Schedule sets forth
------------------
all suppliers of Company representing five percent (5%) or more of Company's
costs or revenues for the eleven (11) months ended November 30, 1999 and their
has been no material change in such suppliers since that date. No material
customer or supplier or co-party to any Internet distribution or portal
agreement of Company has threatened to cease to do business with Company,
whether as a result of a transaction such as set forth herein or otherwise.
Since December 31, 1998, the Company has not experienced any material
difficulties either in obtaining suppliers or Internet distributors or in its
material relationships with current suppliers or Internet distributors necessary
for the operation of its business as presently conducted, and to Company's
knowledge no such material difficulties are anticipated, pending or threatened,
whether in connection with the operation of the Company's business as presently
conducted or its business Prospects. Company is not required to provide any
bonding or other security for any of its suppliers.
2.1.26 Disclosure. Neither the representations or warranties made by
----------
Company or the Principal Shareholders in this Agreement, nor the final Company
Disclosure Schedule or any other certificate executed and delivered by Company
or the Principal Shareholders pursuant to this Agreement, when taken together,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.
2.1.27 Real Property. All Real Property of the Company is listed on
-------------
the Company Disclosure Schedule. No other real property has been owned, leased
or licensed by Company. The Company has good and marketable title, free and
clear of all material title defects, security interests, pledges, options,
claims, liens, encumbrances and restrictions (including without limitation,
mortgages and deeds of trust), in fee simple absolute with respect to the
portion of Real Property identified on the Company Disclosure Schedule as being
owned, and as a leasehold estate with respect to the portion of Real Property
identified on the Company Disclosure Schedule as being leased. The Real Property
is in good operating condition (normal wear and tear excepted) and is suitable
for the uses in which it is currently being employed and is free from any known
material defect. The use and operation of the Real Property is in full
compliance with applicable material provisions of building and fire codes and
zoning and land
26
<PAGE>
use laws. All certificates of occupancy and other building permits are in full
force and effect, without default by or notice of default to the Company. All
water, sewer, gas, electric, electronic communications and drainage facilities
and all other utilities required by law, statute, rule or regulation or by the
Company's use and operation of the Real Property are installed on the Real
Property and are adequate to service the Real Property under its current use.
The Company has all material easements and rights of way necessary for the
operation of the Company's business as presently conducted. There are no
condemnation proceedings pending, or to the knowledge of Company, threatened in
respect of the Real Property. The Company has no contractual obligation to
purchase, sell, offer a right of first refusal or a right of first offer with
respect to any real property. The Company has granted no option to purchase real
property. There are no leases, subleases, licenses, occupancy agreements or
other agreements, oral or written, under the Company is the lessor of any
portion of the Real Property or sublessor under any lease.
2.1.28 Reliance. The foregoing representations and warranties are
--------
made by Company and the Principal Shareholders with the knowledge and
expectation that Expedia and Sub are placing reliance thereon.
2.2 Representations and Warranties of Expedia and Sub. Except as disclosed
-------------------------------------------------
in a document referring specifically to the representations and warranties in
this Agreement which identifies by section number the section and subsection to
which such disclosure relates and is delivered by Expedia to Company prior to
the execution of this Agreement (the "Expedia Disclosure Schedule"), Expedia and
Sub represent and warrant to Company as follows:
2.2.1 Organization, Standing and Power. Expedia is a corporation duly
--------------------------------
organized and validly existing under the laws of Washington, and Sub is a
corporation duly organized and validly existing under the laws of Delaware, and
each has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which a
failure to so qualify would have a material adverse effect on the Business
Condition of Expedia.
2.2.2 Authority. The execution, delivery, and performance of this
---------
Agreement by Expedia and Sub has been duly authorized by all necessary corporate
action of Expedia and Sub. Each of Expedia and Sub has duly and validly executed
and delivered this Agreement, and this Agreement constitutes a valid, binding,
and enforceable obligation of each of Expedia and Sub in accordance with its
terms.
2.2.3 Compliance with Laws and Other Instruments. Neither the
------------------------------------------
execution and delivery of this Agreement by Expedia or Sub nor the performance
by Expedia or Sub of its obligations under this Agreement will violate any
material provision of law or will conflict with, result in the breach of any of
the terms and conditions of, constitute a default under, permit any party to
accelerate any right under, renegotiate or terminate, require consent, approval,
or waiver by any party under, or result in the creation of any lien, charge, or
encumbrance upon any of the properties, assets, or shares of capital stock of
Expedia pursuant to any charter document of Expedia or Sub or any agreement,
indenture, mortgage, franchise, license, permit, lease, or other instrument of
any kind to which Expedia is a party or by which Expedia or any of its assets
are
27
<PAGE>
bound or affected. No Consent is required by or with respect to Expedia or Sub
in connection with the execution and delivery of this Agreement by Expedia or
Sub or the consummation by Expedia or Sub of the transactions contemplated
hereby or thereby, except for the filing of the Merger Documents with the
Secretary of State of Delaware and such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
material adverse effect on Expedia's Business Condition.
2.2.4 Financial Statements and SEC Documents. Expedia has made
--------------------------------------
available to Company complete and accurate copies, as amended or supplemented,
of its (a) Form S-1 Registration Statement under the 1933 Act, as amended on
October 26, 1999 and November 8, 1999 and the prospectus dated November 9, 1999
contained in the Form S-1 Registration Statement and (b) all other reports filed
by Expedia pursuant to Section 13 of the 1934 Act with the SEC since November 9,
1999 (such reports are collectively referred to herein as the "SEC Documents").
The SEC Documents constitute all of the documents required to be filed by
Expedia under Section 13 of the 1934 Act with the SEC since November 9, 1999 and
were prepared in accordance with the requirements of the 1934 Act. The SEC
Documents (including without limitation all information and filings incorporated
therein by reference) are, as of the time filed, accurate and complete and
contain and will contain no material misstatement and do not omit to state any
fact necessary to make the statements therein not misleading.
2.2.5 Capital Shares. The Expedia Common Shares issuable in the
--------------
Merger are duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement and the Merger Documents will be
validly issued, fully paid, nonassessable and not subject to any preemptive
rights. Except as set forth in Schedule 2.2.5, attached hereto, the authorized,
issued and outstanding capital shares of Expedia are as set forth in the SEC
Documents as of the dates of the financial statements or other information
included in the SEC Documents.
2.2.6 Disclosure. Neither the representations or warranties made by
----------
Expedia or Sub in this Agreement, nor the final Expedia Disclosure Schedule or
any other certificate executed and delivered by Expedia pursuant to this
Agreement, when taken together, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein not misleading in light of the circumstances
under which they were furnished.
2.2.7 Intellectual Property Rights. Except as otherwise described in
----------------------------
Expedia's Securities and Exchange Commission filings: (a) Expedia owns or
possesses adequate rights to use all trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as currently conducted, (b) Expedia does not expect the expiration of
any patents, patent rights, trade secrets, trademarks, service marks, trade
names or copyrights which would result in a material adverse effect on Expedia,
(c) Expedia has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of Expedia by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which would result in a
material adverse effect on Expedia, and (d) Expedia has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade
28
<PAGE>
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to have a
material adverse effect on Expedia. Except as otherwise disclosed in Expedia's
Securities and Exchange Commission filings, to the knowledge of Expedia there is
no claim being made against Expedia regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how, trade
marks, service marks, trade names or copyrights. Except as otherwise disclosed
in Expedia's Securities and Exchange Commission filings, to its knowledge,
Expedia does not in the current conduct of its business nor as or currently
proposed to be conducted within the next eleven (11) months following execution
of the Agreement infringe any patent of any third party, or any discovery,
invention, product or process which is the subject of a patent applications
filed by a third party, known to Expedia, which such infringement is reasonably
likely to result in a material adverse effect on Expedia. As used in this
Section only, references to the "knowledge" of expectations of Expedia shall
mean only the actual knowledge and expectations of the officers of Expedia.
2.2.8 Reliance. The foregoing representations and warranties are made
--------
by Expedia and Sub with the knowledge and expectation that Company is and the
Principal Shareholders are placing reliance thereon.
2.2.9 Tax Matters. Prior to the Merger, Expedia will be in control of
-----------
Sub within the meaning of Section 368(c)(1) of the Code. Expedia has no plan or
intention to reacquire any of the Expedia Common Shares issued in connection
with the Merger. Expedia has no plan or intention to liquidate the Surviving
Corporation, to merge the Surviving Corporation with or into another corporation
other than Expedia, to sell or otherwise dispose of the capital stock of the
Surviving Corporation, except for transfers of shares of the Surviving
Corporation to corporations controlled by Expedia or to cause the Surviving
Corporation to sell or otherwise dispose of any assets, except for dispositions
made in the ordinary course of business, transfers of assets to a corporation
controlled by the Surviving Corporation and transfers the result of which shall
not affect the treatment of the Merger under Section 368 of the Code. The
Surviving Corporation will continue the historic business of the Company or use
a significant portion of the Company's historic business assets in a business.
ARTICLE III
COVENANTS OF COMPANY
During the period from the date of this Agreement (except as otherwise
indicated) and continuing until the earlier of the termination of this Agreement
or the Effective Time (or later where so indicated), each of Company and the
Principal Shareholders, jointly and severally, agree (except as expressly
contemplated by this Agreement, as specifically permitted by, or as set forth
in, the Company Disclosure Schedule or otherwise permitted by Expedia's prior
written consent):
3.1 Conduct of Business.
-------------------
3.1.1 Ordinary Course. Company shall carry on its business in the
---------------
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and
29
<PAGE>
policies to preserve intact its present business organizations, keep available
the services of its present officers, consultants, and employees and preserve
its relationships with customers, suppliers, distributors and others having
business dealings with it. Company shall promptly notify Expedia of any event or
occurrence or emergency which is not in the ordinary course of business of
Company and which is material and adverse to Company's Business Condition. The
foregoing notwithstanding, Company shall not, except as approved in writing by
Expedia:
(a) enter into any commitment or transaction (i) to be performed
over a period longer than six months in duration, or (ii) to purchase assets or
services (other than raw materials, supplies, or cash equivalents) for a
purchase price in excess of $20,000;
(b) grant any bonus, severance, or termination pay to any
officer, director, independent contractor or employee of Company;
(c) except for agreements (i) involving expenditures by Company
or financial exposure of Company reasonably understood to amount in the
aggregate to less than $50,000, (ii) which are terminable in accordance with
their terms on not less than ninety (90) days notice, or (iii) hotel revenue
sharing agreements providing for not more than ten percent (10%) of applicable
hotel revenues to be directed to the other party thereto, enter into or amend
any agreements (A) pursuant to which any other party is granted marketing,
publishing or distribution rights of any type or scope with respect to any
hardware or software or Internet content products of Company, or (B) related to
Internet advertising or provision of Internet travel services or related
Internet content with any owner or operator of internet sites other than
Expedia;
(d) except in the ordinary course of business and consistent
with prior practice, enter into or terminate or fail to exercise any right to
extend or renew any contracts, arrangements, plans, agreements, leases,
licenses, franchises, permits, indentures, authorizations, instruments or
commitments, or amend or otherwise change the terms thereof;
(e) commence a lawsuit other than: (i) for the routine
collection of bills, (ii) in such cases where Company in good faith determines
that failure to commence suit would result in a material impairment of a
valuable aspect of Company's business, provided Company consults with Expedia
prior to filing such suit, or (iii) for a breach of this Agreement;
(f) materially modify existing discounts or other terms and
conditions with dealers, distributors and other resellers of Company's products;
(g) materially modify the terms and conditions of existing
strategic partnering agreements or enter into new strategic partnering
agreements; or
(h) accelerate the vesting or otherwise modify any restricted
stock option, warrant, or other outstanding rights or other securities.
3.1.2 Dividends, Issuance of or Changes in Securities. Company shall
-----------------------------------------------
not: (i) declare or pay any dividends on or make other distributions to its
stockholders (whether in cash, shares or property), (ii) issue, deliver, sell,
or authorize, propose or agree to, or commit to
30
<PAGE>
the issuance, delivery, or sale of any shares of its capital stock of any class,
any Company Voting Debt or any securities convertible into its capital stock,
any options, warrants, calls, conversion rights, commitments, agreements,
contracts, understandings, restrictions, arrangements or rights of any character
obligating Company to issue any such shares, Company Voting Debt or other
convertible securities, (iii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of Company, (iv)
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock, or (v) propose any of the foregoing.
3.1.3 Governing Documents. Company shall not amend its Charter
-------------------
Documents.
3.1.4 No Acquisitions. Company shall not acquire or agree to acquire
---------------
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to make any such acquisition.
3.1.5 No Dispositions. Company shall not sell, lease, license,
---------------
transfer, mortgage, encumber or otherwise dispose of any of its assets or
cancel, release, or assign any indebtedness or claim, except in the ordinary
course of business consistent with prior practice.
3.1.6 Indebtedness. Company shall not incur any indebtedness for
------------
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise.
3.1.7 Compensation. Company shall not adopt or amend any Plan or pay
------------
any pension or retirement allowance not required by any existing Plan. Company
shall not enter into or modify or accelerate the disposition of benefits under
any employment contracts, increase the salaries, wage rates or fringe benefits
of its officers, directors or employees or pay bonuses or other remuneration
except for current salaries and other remuneration for which Company is
obligated pursuant to a written agreement a copy of which has been provided to
Expedia.
3.1.8 Claims. Company shall not settle any claim, action or
------
proceeding, except in the ordinary course of business consistent with past
practice.
3.2 Access to Properties and Records. Throughout the period between the
--------------------------------
date of this Agreement and the Closing, Company shall give Expedia and its
representatives full access, upon reasonable notice and during reasonable
business hours but in such a manner as not unduly to disrupt the business of
Company, to its premises, properties, contracts, commitments, books, records,
and affairs, and shall provide Expedia with such financial, technical, and
operating data and other information pertaining to its business as Expedia may
request, provided that such information is reasonably related to Expedia's
planning of post-Merger integration of the Company into its business and,
provided further that the Company shall have no obligation to provide access to
information reasonably deemed by Company to be proprietary, including its source
code. With Company's prior consent, which shall not be unreasonably withheld,
Expedia shall be entitled to make appropriate inquiries of third parties in the
course of its investigation.
31
<PAGE>
3.3 Breach of Representations and Warranties. Except as expressly
----------------------------------------
permitted by this Agreement, neither Company nor any Principal Shareholder will
take any action that would cause or constitute a breach of any of the
representations and warranties set forth in Section 2.1 or that would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event that would cause or constitute
such a breach or inaccuracy, Company or the Principal Shareholders will give
detailed notice thereof to Expedia and will use their best efforts to prevent or
promptly remedy such breach or inaccuracy.
3.4 Consents. Company will promptly apply for or otherwise seek, and use
--------
its commercially reasonable efforts to obtain, all consents and approvals, and
make all filings, required with respect to the consummation of the Merger,
including without limitation, compliance with and consents and approvals under
the HSR Act.
3.5 Tax Returns. Company shall promptly provide Expedia with copies of all
-----------
tax returns, reports and information statements that have been filed or are
filed prior to the Closing Date.
3.6 Shareholder Approval. Each of the Principal Shareholders agrees to
--------------------
vote all of such Shareholder's Company Shares, to the extent allowed by the
Company's Charter Documents or applicable law, for the approval of this
Agreement and the appropriate Merger Documents as required by the DGCL by
written consent solicited by Company for such purpose or at a special meeting of
Principal Shareholders called for such purpose.
3.7 Preparation of Disclosure and Solicitation Materials. As promptly as
----------------------------------------------------
practicable after the execution of this Agreement, Company will promptly submit
to its shareholders, information and documents relating to Company, its business
or operations, Expedia, its business or operations, the terms of the Merger and
this Agreement, and the material facts concerning all payments which in the
absence of shareholder approval would be "Parachute Payments" as defined in Code
Section 280G(b)(2), in form and substance reasonably satisfactory to Expedia and
its counsel, to satisfy all requirements of applicable state and federal
securities laws, the DGCL and Code Section 280G(b)(5)(B) and the regulations
thereunder. Company will not provide or publish to its Shareholders any material
concerning it or its affiliates that violates the DGCL, the 1933 Act or the 1934
Act with respect to the transactions contemplated hereby.
3.8 Exclusivity; Acquisition Proposals. Unless and until this Agreement
----------------------------------
shall have been terminated by either party pursuant to Article VIII hereof and
thereafter subject to Section 8.5, neither Company nor any of the Principal
Shareholders shall (and each shall use its best efforts to ensure that none of
its officers, directors, agents, representatives or affiliates) take or cause or
permit any person to take, directly or indirectly, any of the following actions
with any party other than Expedia and its designees: (i) solicit, encourage,
initiate or participate in any negotiations, inquiries or discussions with
respect to any offer or proposal to acquire all or any significant part of its
business, assets or capital shares whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the
32
<PAGE>
foregoing, an "Acquisition Transaction"), (ii) disclose, in connection with an
Acquisition Transaction, any information not customarily disclosed to any person
other than Expedia or its representatives concerning Company's business or
properties or afford to any person other than Expedia or its representatives or
entity access to its properties, books or records, except in the ordinary course
of business and as required by law or pursuant to a governmental request for
information (and then only after giving prior notice to Expedia), (iii) enter
into or execute any agreement relating to an Acquisition Transaction, or (iv)
make or authorize any public statement, recommendation or solicitation in
support of any Acquisition Transaction or any offer or proposal relating to an
Acquisition Transaction other than with respect to the Merger. In addition, if
Company is contacted by any third party expressing interest in an Acquisition
Transaction, Company will promptly notify Expedia in writing of such contact.
3.9 Employees. Prior to Closing, Company agrees to terminate such
---------
employees as Expedia may designate in writing at least two (2) business days
prior to Closing and use its best efforts to obtain releases from such employees
substantially in the form attached hereto as Exhibit 3.9. Company shall pay all
severance expenses, if any, associated with termination of such employees.
Expedia shall consult with the Principal Shareholders prior to determining which
employees, if any, shall be terminated.
3.10 Notice of Events. Throughout the period between the date of this
----------------
Agreement and the Closing, Company shall promptly advise Expedia of any and all
material events and developments concerning its financial position, results of
operations, assets, liabilities, or business or any of the items or matters
concerning Company covered by the representations, warranties, and covenants of
Company and the Principal Shareholders contained in this Agreement. During such
period Company shall promptly provide notice to Expedia as soon as practicable
after receiving notice of or becoming aware of the expiration or termination or
any event which with the passage of time is reasonably expected to result in
expiration or termination of any contracts, arrangements, plans and agreements
(a) pursuant to which any other party is granted marketing, publishing or
distribution rights of any type or scope with respect to any hardware or
software or Internet content products of Company, (b) related to Internet
advertising or provision of Internet travel services or related Internet content
with any owner or operator of internet sites other than Expedia or (c) pursuant
to which any other party is granted rights to share revenues from hotel and air
travel bookings. The Disclosure Schedule identifies all such contracts,
arrangements, plans and agreements which by their terms will expire or are
reasonably expected to be terminated prior to the "outside date" provided for in
Section 8.4 and which were not terminable at will or set to expire in less than
ninety (90) days at the time in which entered.
3.11 Best Efforts. Company and the Principal Shareholders will use their
------------
best efforts to effectuate the transactions contemplated hereby and to fulfill
and cause to be fulfilled the conditions to Closing under this Agreement.
ARTICLE IV
COVENANTS OF EXPEDIA
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time (or later
where so indicated), Expedia
33
<PAGE>
agrees (except as expressly contemplated by this Agreement or with Company's
prior written consent) that either it or Sub will take or cause the following
actions to be taken:
4.1 Breach of Representations and Warranties. Neither Expedia nor Sub will
----------------------------------------
take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Section 2.2 or which would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, Expedia will give detailed notice thereof to
Company and will use its best efforts to prevent or promptly remedy such breach
or inaccuracy.
4.2 Conduct of Business by Expedia Pending the Merger. Expedia shall
-------------------------------------------------
promptly notify Company of any event or occurrence that is material and adverse
to the Business Condition of Expedia; provided, however; that the disclosure of
such event or occurrence in a Expedia SEC Document shall satisfy such
requirement so long as such Expedia SEC Document is filed within a reasonable
period of time after Expedia becomes aware of such event or occurrence and in
any event prior to the Effective Time. In the event Expedia shall agree to
acquire by merging or consolidating with, by purchasing an equity interest in,
or a portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof and any such business or assets to be acquired includes products that
could reasonably be considered to be competitive with the Company's business
generally related to the development and sale of travel services over the
Internet (a "Competitive Business"), Expedia shall either (i) delay any filings
required to be made by Expedia under the HSR Act with respect to such
acquisition until the applicable waiting period with respect to the Merger under
the HSR Act shall have expired or have been earlier terminated or (ii) agree
with the applicable Governmental Entity to hold separate such Competitive
Business or take similar actions that would cause such Governmental Entity to
permit promptly the expiration or termination of the waiting period under the
HSR Act with respect to the Merger.
4.3 1934 Act Materials. Expedia shall provide Company and its shareholders
------------------
with the information relating to Expedia as required by Rule 502(b) of
Regulation D of the 1933 Act.
4.4 Consents. Expedia will promptly apply for or otherwise seek, and use
--------
its best efforts to obtain, all consents and approvals, and make filings,
required with respect to the consummation of the Merger.
4.5 Best Efforts. Each of Expedia and Sub will use its best efforts to
------------
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to Closing under this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
In addition to the foregoing, Expedia, Sub, Company and the Principal
Shareholders each agree to take the following actions after the execution of
this Agreement.
34
<PAGE>
5.1 Investment Agreements. All resale of Expedia Common Shares by the New
---------------------
Expedia Shareholders shall be subject to the restrictions imposed by the
investment agreements in the form attached as Exhibit 5.1 (including the
restriction set forth in Sections 1.9 and 5.7), which shall be entered into by
each New Expedia Shareholder and Expedia (the "Investment Agreements"). Expedia
shall be entitled to place appropriate legends on the certificate evidencing any
Expedia Common Shares to be received by New Expedia Shareholders pursuant to the
terms of this Agreement and to issue appropriate stop transfer instructions to
the transfer agent for Expedia Common Shares consistent with the terms of the
Investment Agreements.
5.2 Legal Conditions to the Merger. Each of Expedia and Company will take
------------------------------
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on it with respect to the Merger. Each of Expedia, Company
and the Principal Shareholders will take all reasonable actions to obtain (and
to cooperate with the other parties in obtaining) any Consent required to be
obtained or made by Company or Expedia in connection with the Merger, or the
taking of any action contemplated thereby or by this Agreement, including,
without limitation, compliance with and consents and approvals required under
the HSR Act.
5.3 Employee Benefits. Certain employees of Company will be offered the
-----------------
opportunity to continue employment with Company and/or commence an employment
relationship with Expedia, provided, however, that nothing contained herein or
in the offer letters shall be considered as requiring Company or Expedia to
continue any specific plan or benefit, or to confer upon any employee,
beneficiary, dependent, legal representative or collective bargaining agent of
such employee any right or remedy of any nature or kind whatsoever under or by
reason of this Agreement, including without limitation any right to employment
or to continued employment for any specified period, at any specified location
or under any specified job category, except as specifically provided for in an
offer letter or other agreement of employment. It is specifically understood
that continued employment with Company or employment with Expedia is not offered
or implied for any other employees of Company and any continuation of employment
with Company after the Closing shall be at will.
5.4 Expenses. If the Merger is not consummated, all fees, costs and other
--------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expense. Provided that Company shall have provided to Expedia prior to the
execution of this Agreement a reasonable estimate of all such expenses of
Company, Expedia agrees to pay or cause to be paid all such fees, costs and
expenses provided that such do not materially differ from such estimate, and, in
any event, such expenses shall be accrued on the Final Pro Forma Closing Balance
Sheet (but in no event shall such accrual affect the calculation of the Adjusted
Company Share Price under Section 1.5).
5.5 Additional Agreements. In case at any time after the Effective Time
---------------------
any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
Company, the proper officers and directors of each corporation which is a party
to this Agreement shall take all such necessary action.
35
<PAGE>
5.6 Public Announcements. Neither Expedia, Company nor the Principal
--------------------
Shareholders shall disseminate any press release or other announcement
concerning this Agreement or the transactions contemplated herein to any third
party (except to the directors, officers and employees of the parties to this
Agreement whose direct involvement is necessary for the consummation of the
transactions contemplated under this Agreement, to the attorneys and accountants
of the parties hereto, or except as Expedia determines in good faith to be
required by the federal securities laws after consultation with Company and its
counsel) without the prior written consent of each of the other parties hereto.
It is anticipated that Expedia will issue a press release shortly following the
execution of this Agreement which shall be made available to Company and its
counsel for review and consultation.
5.7 Lock-Up. Other than sales under an effective Registration Statement
-------
under Section 1.9.2, during the period beginning on the Effective Date and
continuing to and including the date One Hundred Fifty (150) days thereafter, in
addition to any other restrictions on sale of Expedia Common Shares issuable in
the Merger applicable to any New Expedia Shareholder, no New Expedia Shareholder
shall offer, sell, contract to sell or otherwise dispose of any shares of
Expedia Common Shares received by such shareholder in the Merger. Nothing in
this Section shall restrict the ability of a New Expedia Shareholder to pledge
shares pursuant to margin loans.
5.8 Tax Matters. Company shall properly and timely file all Returns with
-----------
respect to the Company required to be filed prior to the Closing Date as well as
a 1999 Return signed by KPMG Peat Marwick LLP and shall pay all taxes required
to be paid prior to the Closing Date, including amounts due under such 1999
Return, taking into account any applicable extensions. Company shall (i) notify
Expedia promptly if it receives notice of any tax audit, the assessment of any
tax, the assertion of any tax lien, or any request, notice or demand for taxes
by any taxing authority, (ii) provide Expedia a description of any such matter
in reasonable detail (including a copy of any written materials received from
the taxing authority), and (iii) take no action with respect to such matter
without the consent of Expedia. Neither the Principal Shareholders nor the
Company shall (i) make or revoke any tax election which may affect the Company,
(ii) execute any waiver of restrictions on assessment of any tax, or (iii) enter
into any agreement or settlement with respect to any tax without the approval of
Expedia, which shall not be unreasonably withheld. The Principal Shareholders
shall arrange to have all Returns of the Company with respect to periods ending
on or prior to the Closing Date prepared and filed at the Company's expense, and
signed by a current officer of the Company. Any Returns referred to in this
Section shall be prepared on a basis consistent with past practice and shall be
subject to the approval of Expedia, which approval shall occur timely and which
shall not be unreasonably withheld. The Principal Shareholders, Expedia and the
Company shall cooperate in good faith in the preparation of such Returns, any
returns required to be filed by the Principal Shareholders for period prior to
the Effective Time, and in any tax audit or examination of the Company or the
Principal Shareholders and shall retain and make available to any other party
any documentation which is necessary or required for the preparation of such
Returns, the Principal Shareholders returns or in connection with any such audit
or examination.
5.9 HSR Act Filings.
---------------
5.9.1 Filings and Cooperation. Each of Expedia and Company shall take
-----------------------
all reasonable steps (i) to make or cause to be made with fifteen (15) days of
the execution of this
36
<PAGE>
Agreement the filings required of such party or any of its affiliates or
Subsidiaries under the HSR Act with respect to the Merger and the other
transactions provided for in this Agreement, (ii) to comply in a timely manner
with any request under the HSR Act for additional information, documents, or
other material received by such party or any of its affiliates or Subsidiaries
from the Federal Trade Commission or the Department of Justice or other
Governmental Entity in respect of such filings, the Merger, or such other
transactions, and (iii) to cooperate with the other party in connection with any
such filing and in connection with resolving any investigation or other inquiry
of any such agency or other Governmental Entity under any Antitrust Laws (as
defined in Section 5.9.2) with respect to any such filing, the Merger, or any
such other transaction. Each party shall promptly inform the other party of any
material communication with, and any proposed understanding, undertaking, or
agreement with, any Governmental Entity regarding any such filings, the Merger,
or any such other transactions. Neither party shall participate in any meeting
with any Governmental Entity in respect of any such filings, investigation, or
other inquiry without giving the other party notice of the meeting and, to the
extent permitted by such Governmental Entity, the opportunity to attend and
participate.
5.9.2 Objections. Each of Expedia and Company shall take all
----------
reasonable steps to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the Merger or any other transactions
provided for in this Agreement under the HSR Act, the Sherman Act, as amended,
the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and
any other federal, state or foreign statutes, rules, regulations, orders, or
decrees that are designed to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade (collectively,
"Antitrust Laws"). In connection therewith, if any administrative or judicial
action or proceeding is instituted (or threatened to be instituted) challenging
the Merger as violative of any Antitrust Law, and, if by mutual agreement,
Expedia and Company decide that litigation is in their best interests, each of
Expedia and Company shall cooperate vigorously to contest and resist any such
action or proceeding and to have vacated, lifted, reversed, or overturned any
decree, judgment, injunction, or other order, whether temporary, preliminary, or
permanent (each an "Order"), that is in effect and that prohibits, prevents, or
restricts consummation of the Merger. Each of Expedia and Company shall take
such reasonable action as may be required to cause the expiration of the notice
periods under the HSR Act or other Antitrust Laws with respect to the Merger and
such other transactions as promptly as possible after the execution of this
Agreement. Notwithstanding anything to the contrary in this Section 5.9.2 or in
Section 5.9.1, (y) neither Expedia nor any of its Subsidiaries shall be required
to divest any of their respective businesses, product lines, or assets, or to
take or agree to take any other action or agree to any limitation that would
have a material adverse effect on the drawing and diagramming software business
of Expedia combined with the Surviving Corporation after Closing, and (z)
neither Company nor its Subsidiaries shall be required to divest any of their
respective businesses, product lines, or assets, or to take or agree to take any
other action or agree to any limitation that would have a material adverse
effect on the Business Condition of Company.
5.9.3 Rights. Nothing contained in this Section 5.9 shall be construed
------
to prevent any party from exercising its right to terminate pursuant to Section
8.4 hereof.
5.10 Founders' Loans. Upon the Effective Time, Expedia shall forgive
---------------
outstanding loans from the Company to the Founders not in excess of $270,000.
37
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
6.1.1 Governmental Approvals. Other than the filing of the Merger
----------------------
Documents with the Secretary of State of Delaware, all Consents legally required
for the consummation of the Merger and the transactions contemplated by this
Agreement, including any consents and approvals under the HSR Act, shall have
been filed, occurred, or been obtained, other than such Consents, for which the
failure to obtain would have no material adverse effect on the consummation of
the Merger or the other transactions contemplated hereby or on the Business
Condition of Expedia or Company.
6.1.2 No Restraints. No statute, rule, regulation, executive order,
-------------
decree or injunction shall have been enacted, entered, promulgated or enforced
by any United States court or Governmental Entity of competent jurisdiction
which enjoins or prohibits the consummation of the Merger.
6.2 Conditions of Obligations of Expedia and Sub. The obligations of
--------------------------------------------
Expedia and Sub to effect the Merger are subject to the satisfaction of the
following conditions unless waived by Expedia and Sub:
6.2.1 Representations and Warranties of Company and the Principal
-----------------------------------------------------------
Shareholders. The representations and warranties of Company and the Principal
- ------------
Shareholders set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except: (i) as otherwise contemplated
by this Agreement, or (ii) in respects that will not have a material adverse
effect on Company's Business Condition on either a stand alone or a pro forma
basis. Expedia shall have received a certificate signed by each of Timothy M.
Poster, Stephen L. Cavallaro and Thomas C. Breitling (or any successor thereof
at Company), individually as shareholders and as officers of Company, to such
effect on the Closing Date.
6.2.2 Performance of Obligations of Company and the Principal
-------------------------------------------------------
Shareholders. Company and the Principal Shareholders shall have performed in all
- ------------
material respects all agreements and covenants required to be performed by them
under this Agreement prior to the Closing Date, and Expedia shall have received
a certificate signed by each of Timothy M. Poster, Stephen L. Cavallaro and
Thomas C. Breitling (or any successor thereof at Company), individually as
shareholders and as officers of Company, to such effect on the Closing Date.
6.2.3 Investment and Escrow Agreements. Expedia shall have received
--------------------------------
Escrow Agreements from each holder of Company Shares that are convertible into
Expedia Common Shares and each holder of Company Options and Investment
Agreements from each
38
<PAGE>
holder of Company Shares that are convertible into Expedia Common Shares, in
each case duly executed by such holder or such holder's attorney in fact.
6.2.4 Offer Letters for Required Employees. As of the Closing, four
------------------------------------
of the five the employees of Company listed on Schedule 6.2.4 and not less than
eighty percent (80%) of the other employees of Company (exclusive of non-
supervisory and non-management call center employees) offered employment with
Expedia on terms substantially similar to their employment with Company (the
"Required Employees") shall have (a) signed, and not taken any action or
expressed any intent to terminate or modify, an offer letter accepting
employment with Company or Expedia together with any such other agreements as
are customarily executed by new employees of Expedia or its Subsidiaries or
other affiliates in form and content satisfactory to Expedia and (b) repaid to
Company all loans to (other than loans to be forgiven pursuant to Section 5.10)
and other amounts outstanding from such Required Employees.
6.2.5 Noncompetition Agreements. Each of the persons set forth in
-------------------------
Schedule 6.2.5 shall have executed a two year Noncompetition Agreement
substantially in the form attached as Exhibit 6.2.5 and not taken any action or
expressed any intent to terminate or modify such agreements.
6.2.6 Legal Action. There shall not be overtly threatened or pending
------------
any action, proceeding or other application before any court or Governmental
Entity brought by any person or Governmental Entity: (i) challenging or seeking
to restrain or prohibit the consummation of the transactions contemplated by
this Agreement, or seeking to obtain any damages caused by such transactions
which if successful would have a material adverse effect on the viability of
such transactions; or (ii) seeking to prohibit or impose any limitations on
Expedia's ownership or operation of all or any portion of Company's business or
assets, or to compel Expedia to dispose of or hold separate all or any portion
of its or Company's business or assets as a result of the transactions
contemplated by the Agreement which if successful would have a material adverse
effect on the viability of such transactions.
6.2.7 Opinion of Counsel. Expedia shall have received an opinion
------------------
dated as of the Closing Date of the Morgan Lewis and Bockius, counsel to
Company, substantially in the form attached as Exhibit 6.2.7.
6.2.8 Consents. Expedia shall have received duly executed copies of
--------
all third-party consents, approvals, assignments, waivers, authorizations or
other certificates contemplated by this Agreement or the Company Disclosure
Schedule or reasonably deemed necessary by Expedia's legal counsel to provide
for the continuation in full force and effect of any and all contracts and
leases of Company and for Expedia to consummate the transactions contemplated
hereby in form and substance reasonably satisfactory to Expedia, except for such
thereof the absence of which shall not have a material adverse effect on
Company's Business Condition or the benefits of the transactions provided for in
this Agreement.
6.2.9 Termination of Rights and Certain Securities. Any registration
--------------------------------------------
rights, rights of refusal, rights to any liquidation preference, or redemption
rights relating to any security of Company shall have been terminated or waived
in writing as of the Closing. Except as set
39
<PAGE>
forth in Schedule 1.4, no warrants, options, convertible securities or other
rights to purchase or acquire any securities of Company shall be outstanding.
6.2.10 Assignments of Personal Rights to Company Intellectual
------------------------------------------------------
Property. The Principal Shareholders, employees, and independent contractors
- --------
(including former independent contractors) of Company shall have executed such
assignments and other documentation as may be reasonably requested by Expedia to
effectively transfer or confirm the transfer of all right, title and interest to
the Company Intellectual Property to Company and/or Expedia as its successor.
6.2.11 No Casualty. There shall not have been any damage, destruction
-----------
or loss, whether or not covered by insurance, materially and adversely affecting
the proprietary software, documentation or other Company Intellectual Property
where there are no undamaged duplicate copies of such proprietary software,
documentation or other Company Intellectual Property in the possession of
Company.
6.2.12 Company Financial Statements and Pro Forma Closing Balance
----------------------------------------------------------
Sheet. Company shall have provided Expedia with audited financial statements of
- -----
Company as of December 31, 1999 and the Final Pro Forma Closing Balance Sheet
(as defined in Section 2.1.6) which shall have been prepared in good faith, in a
form reasonably satisfactory to Expedia. The Final Pro Forma Balance Sheet shall
not reflect a material adverse change in Company from the Pro Forma Balance
Sheet attached as Schedule 2.1.6.
6.2.13 Shareholder Approvals; Dissenting Shares. This Agreement and
----------------------------------------
the Merger shall have been approved by not less than the number of shareholders
required to approve the Merger under the DGCL, any Parachute Payments shall have
been approved by not less than seventy five percent (75%) of the voting power of
the outstanding Company Shares held by persons not receiving Parachute Payments
that are the subject of such vote, and all persons who are "disqualified
persons" as defined in Section 280G of the Code and the regulations thereunder
shall have acknowledged in writing that their receipt of any Parachute Payment
is subject to the approval of shareholders set forth in Section 280G of the Code
and the regulations thereunder, and holders of not more than five percent (5%)
of the voting power of outstanding Company Shares shall not have perfected
appraisal rights under the DGCL.
6.2.14 Accredited Investors. No more than thirty-five (35) of the
--------------------
persons that will become New Expedia Shareholders following the Closing shall
not be "accredited investors" as defined under Regulation D of the 1933 Act, and
Expedia shall have received a certificate signed by an officer of the Company to
that effect that is reasonably satisfactory to Expedia.
6.2.15 Waiver or Termination of Certain Rights. Meristar Hotels and
---------------------------------------
Prime Hospitality shall have executed waivers in form and substance reasonably
satisfactory to Expedia of their right to terminate their respective agreements
with Company dated June 22, 1999 and June 24, 1999 upon a "change in control"
and upon the Company's failure to make a public offering of its common stock
within six months of the date of such agreements; and each employee of Company
with an employment agreement with Company shall have terminated such employment
agreement (provided that no such waiver shall affect Stephen Cavallaro's right
40
<PAGE>
to receive severance under Section 3 of his employment agreement six months from
Closing as set forth in his Consulting Agreement with Expedia).
6.2.16 Exercise of Warrants. Holders of Company Warrants (other than
--------------------
Assumed Warrants) representing not more than one percent (1%) of the Company's
fully diluted Common Shares shall not have exercised their Warrants (on a net
exercise basis) for Company Shares as of the Closing Date (or waived their right
to have such Company Warrants assumed by a party acquiring the Company by
merger).
6.2.17 1999 Tax Return. The 1999 Return of the Company signed by KPMG
---------------
Peat Marwick LLP shall have been filed by the Company.
6.2.18 Conveyance of Real Property. Expedia shall have received
---------------------------
documentation, reasonably satisfactory to Expedia, that title to the real
property currently used by the Company in the conduct of its Business but owned
by Timothy Poster, if any, has been conveyed to the Company in fee simple
absolute, free and clear of any mortgages, liens and deeds of trust (other than
mortgages, liens and deeds of trust securing indebtedness of the Company set
forth in the Financial Statements and the Final Pro Forma Closing Balance
Sheet).
6.3 Conditions of Obligation of Company. The obligation of Company and the
-----------------------------------
Principal Shareholders to effect the Merger is subject to the satisfaction of
the following conditions unless waived by Company and the Principal
Shareholders:
6.3.1 Representations and Warranties of Expedia and Sub. The
-------------------------------------------------
representations and warranties of Expedia and Sub set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, except as otherwise contemplated by this Agreement, and Company shall have
received a certificate signed on behalf of Expedia by an officer of Expedia to
such effect.
6.3.2 Performance of Obligations of Expedia and Sub. Expedia and Sub
---------------------------------------------
shall have performed in all material respects all agreements and covenants
required to be performed by them under this Agreement prior to the Closing Date,
and Company shall have received a certificate signed on behalf of Expedia by an
officer of Expedia to such effect.
6.3.3 Opinion of Expedia's Counsel. Company and the Principal
----------------------------
Shareholders have received an opinion dated the Closing Date of Preston Gates &
Ellis llp, counsel to Expedia, substantially in the form attached as Exhibit
6.3.3.
41
<PAGE>
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification Relating to Agreement. The Holders (other than the
-------------------------------------
Principal Shareholders), by reason of the approval by the Holders of the Merger
and/or each Holder's acceptance of the consideration provided for in Section 1.4
and by the execution of the Escrow Agreement pursuant to Section 1.4.4 which is
a condition to receiving such consideration, severally but not jointly, and the
Principal Shareholders, jointly and severally, shall, agree to defend,
indemnify, and hold Expedia harmless from and against, and to reimburse Expedia
with respect to, any and all losses, damages, liabilities, claims, judgments,
settlements, fines, costs, and expenses (including attorneys' fees)
("Indemnifiable Amounts") of every nature whatsoever incurred by Expedia by
reason of or arising out of or in connection with (i) any breach, or any claim
(including claims by parties other than Expedia) that if true, would constitute
a breach, by Company or the Principal Shareholders of any representation or
warranty of Company or the Principal Shareholders contained in this Agreement or
in any certificate or other document delivered to Expedia pursuant to the
provisions of this Agreement, (ii) the failure, partial or total, of Company or
the Principal Shareholders to perform any agreement or covenant required by this
Agreement to be performed by it or them, (iii) any action or omission by
Company, the Principal Shareholders, their affiliates, agents or representatives
relating to this Agreement, and (iv) any federal or state tax liability, or
asserted liability of the Company relating to any period of time prior to and
through the Closing which is not disclosed in the Financial Statements or the
Final Pro Forma Closing Balance Sheet, and in each case without giving effect to
any "materiality" limitations or references to "material adverse effect" set
forth therein. The obligations of any Holder to indemnify Expedia shall be
determined without regard to any right to indemnification to which any Holder
may have in his or her capacity as an officer, director, employee, agent or any
other capacity of Company and no Holder shall be entitled to any indemnification
from Company or the Surviving Corporation for amounts paid hereunder. There
shall be no right of contribution from Company or any successor to Company.
7.2 Claims for Indemnification. With respect to any claims or demands by
--------------------------
third parties, other than claims or demands covered by Section 7.3, whenever
Expedia shall have received a written notice that such a claim or demand has
been asserted or threatened, or whenever Expedia shall seek indemnification
pursuant to this Article VII, Expedia shall notify the "Holders' Representative"
(as designated in the Escrow Agreement) of such claim or demand and of the facts
within Expedia's knowledge that relate thereto within a reasonable time after
receiving such written notice. The Holders' Representative shall then have the
right to contest, negotiate or settle any such claim or demand through counsel
of his own selection, satisfactory to Expedia and solely at the Holders' own
cost, risk, and expense. Notwithstanding the preceding sentence, the Holders
shall not settle, compromise, or offer to settle or compromise any such claim or
demand without the prior written consent of Expedia, which consent shall not be
unreasonably withheld. By way of illustration and not limitation it is
understood that Expedia may object to a settlement or compromise which includes
any provision which in its reasonable judgment may have an adverse impact on or
establish an adverse precedent for the Business Condition of Expedia or any of
its Subsidiaries. Expedia shall not have the right to object to a settlement
which consists solely of the payment of a monetary damage amount and which is
subject to full indemnification under this Agreement. If the Holders'
Representative fails to give
42
<PAGE>
written notice to Expedia of his intention to contest or settle any such claim
or demand within twenty (20) calendar days after Expedia has notified the
Holders' Representative that any such claim or demand has been made in writing
and received by Expedia, or if any such notice is given but any such claim or
demand is not promptly contested by the Holders' Representative, Expedia shall
have the right to satisfy and discharge the same by payment, compromise, or
otherwise, in accordance with the procedures set forth in the Escrow Agreement.
Expedia may also, if it so elects and entirely within its own discretion, defend
any such claim or demand if the Holders' Representative fails to give notice of
his intention to contest or settle any such claim or demand, in which event
Expedia and its affiliates shall be entitled to indemnification to the full
extent of the Total Escrow (as defined in the Escrow Agreement ) for any and all
costs, losses, liabilities, and expenses whatsoever, including without
limitation reasonable attorneys' and other professional fees, that Expedia may
sustain, suffer, incur, or become subject to as a result of Expedia's decision
to defend any such claim or demand.
7.3 Tax Contests. Notwithstanding any of the foregoing, the Holders shall
------------
have no right to control any federal or state income tax audit, and Expedia
shall have the sole right to conduct any tax audit or other tax contest relating
to the Expedia tax return, subject to the provisions of this paragraph.
Notwithstanding the foregoing, in the event of any audit of the reorganization
of the Company effected January 21, 1999, Expedia shall have no right to control
such audit, and the Principal Shareholders shall have the sole right to conduct
any tax audit or other tax contest relating to such, subject to the provisions
of this paragraph. The party controlling the response to an audit under this
paragraph shall (A) consult with the other parties with respect to the
resolution of any issue that would affect such other parties in that or any
other taxable year, and (B) not settle any such issue, or file any amended
Return relating to such issue, without the consent of the other parties, which
consent shall not unreasonably be withheld. Where consent to a settlement is
withheld by another party pursuant to clause (B) of the preceding sentence, such
other party may continue or initiate any further proceedings at its own expense,
provided, that the liability of the first party, after giving effect to this
Agreement, shall not exceed the liability that would have resulted from the
settlement or amended return. In the event any Indemnifiable Amounts arise out
of such tax audits, the party controlling such audit will notify the other party
and the Holders' Representative and allow him to comment on any written
submissions relating to any Indemnifiable Amounts.
7.4 Limitations. The representations, warranties, covenants and agreements
-----------
of Company and the Principal Shareholders set forth in this Agreement shall
survive the Closing and the consummation of the transactions contemplated by
this Agreement and shall continue until September 30, 2001 (the "Termination
Date"), at which time all representations and warranties shall expire, provided,
however, that the obligation to indemnify Expedia for breaches of the
representations, warranties and covenants in Sections 2.1.7 and 5.8 relating to
taxes (as defined in Section 2.1.7) shall continue until thirty (30) days after
the expiration of all statutes of limitations applicable to such taxes.
Notwithstanding any other provision in this Article VII, Indemnifiable Amounts
to be paid by the Holders and Principal Shareholders shall be satisfied solely
by the securities deposited into escrow pursuant to Section 1.4.5, provided that
(i) the representations, warranties and covenants in Sections 2.1.7 and 5.8
relating to taxes, other than taxes arising out of the Company's reorganization
in January 1999, if any, and (ii) obligations of the Principal Shareholders for
Indemnifiable Amounts arising out of willful misstatements,
43
<PAGE>
willful omissions or fraud of Company or the Principal Shareholders shall not be
subject to such limitation.
7.5 Binding Effect. The indemnification obligations of the Holders
--------------
contained in this Article VII are an integral part of this Agreement and Merger
in the absence of which Expedia would not have entered into this Agreement.
7.6 Other Remedies. Nothing contained in this Article VII shall be in lieu
--------------
of, or constitute a waiver of, any remedies at law or in equity that Expedia may
otherwise have against the Holders or Principal Shareholders for wrongful action
by such persons, including without limitation claims arising out of willful
misstatements, willful omissions or fraud of Company or the Principal
Shareholders.
7.7 Tax Consequences. As stated in Section 1.7, it is the intent of the
----------------
parties that the Merger is intended to be a "reorganization" within the meaning
of Section 368 of the Code; however, except as otherwise provided in Section
7.8, no party or its counsel shall have any obligation, of indemnification or
otherwise, in the event it is determined that the tax consequences differ from
those intended or those described in the solicitation statement/private
placement memorandum or otherwise.
7.8 Indemnity by Expedia. Expedia agrees to defend, indemnify, and hold
--------------------
the Holders harmless from and against, and to reimburse Holders with respect to,
any and all losses, damages, liabilities, claims, judgments, settlements, fines,
costs, and expenses incurred by Holders by reason of or arising out of or in
connection with any breach of its representation and warranty in Section 2.2.9.
ARTICLE VIII
TERMINATION
8.1 Mutual Agreement. This Agreement may be terminated at any time prior
----------------
to the Effective Time by the written consent of Expedia and Company.
8.2 Termination by Expedia. This Agreement may be terminated by Expedia
----------------------
alone, by means of written notice to Company, if there has been a material
breach by Company or any of the Principal Shareholders of any representation,
warranty, covenant or agreement set forth in the Agreement or other ancillary
agreements, which breach has not been cured within ten (10) business days
following receipt by Company of notice of such breach.
8.3 Termination by Company. This Agreement may be terminated by Company
----------------------
alone, by means of written notice to Expedia, as set forth in Section
1.4.1(a)(iii) or (iv) or if there has been a material breach by Expedia of any
representation, warranty, covenant or agreement set forth in the Agreement or
other ancillary agreements, which breach has not been cured within (10) ten
business days following receipt by Expedia of notice of such breach.
44
<PAGE>
8.4 Outside Date. This Agreement may be terminated by Expedia alone or by
------------
Company alone by means of written notice if the Effective Time does not occur on
or prior to May 15, 2000.
8.5 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Company or Expedia as provided in this Article, this Agreement shall
forthwith become void and have no effect, and there shall be no liability or
obligation on the part of Expedia, Company, Sub or their respective officers or
directors or the Principal Shareholders, except that (i) the provisions of
Sections 5.4, 5.6, 9.2, 9.11, and any other confidentiality agreement between
the parties shall survive any such termination and abandonment, and (ii) no
party shall be released or relieved from any liability arising from the willful
breach by such party of any of its representations, warranties, covenants or
agreements as set forth in this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Agreement, including the exhibits and schedules
----------------
delivered pursuant to this Agreement, any confidentiality agreement between the
parties and any other agreement between the parties of equal date herewith,
contain all of the terms and conditions agreed upon by the parties relating to
the subject matter of this Agreement and supersede all prior agreements,
negotiations, correspondence, undertakings, and communications of the parties,
whether oral or written, respecting that subject matter.
9.2 Governing Law. Other than corporate matters with respect to the Merger
-------------
which shall be governed by Delaware laws, as applicable, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Washington as applied to agreements entered into and entirely to be performed
within that state, without regard to the conflict of laws provisions thereof.
Company, the Principal Shareholders and the Holders' Representative consent to
jurisdiction and venue in King County, Washington.
9.3 Notices. All notices, requests, demands or other communications which
-------
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given: (i) on the date of delivery
if personally delivered by hand, (ii) upon the third day after such notice is
(a) deposited in the United States mail, if mailed by registered or certified
mail, postage prepaid, return receipt requested, or (b) sent by a nationally
recognized overnight express courier, or (iii) by facsimile upon written
confirmation (other than the automatic confirmation that is received from the
recipient's facsimile machine) of receipt by the recipient of such notice:
45
<PAGE>
If to Expedia or Sub: Expedia, Inc.
-------------------- 13810 SE Eastgate Way, Suite 400
Bellevue, WA 98008
Attention: Mark S. Britton, Vice
President and General Counsel
Telephone No.: (425) 564-7332
Facsimile No.: (425) 564-7240
With a copy to: Preston Gates & Ellis LLP
-------------- Suite 5000
701 Fifth Avenue
Seattle, WA 98104-7078
Attention: Richard B. Dodd
Telephone No.: (206) 623-7580
Facsimile No.: (206) 623-7022
If to Company: Travelscape.com, Inc.
------------- 8951 W. Sahara Ave.
Las Vegas, Nevada 89117
Telephone No.: (702) 938-2100
Facsimile No.: (702) 735-4320
With a copy to: Morgan, Lewis & Bockius LLP
-------------- 300 S. Grand Avenue, 22nd Floor
Los Angeles, CA 90071
Attention: Peter P. Wallace
Telephone No. (213) 612-2532
Facsimile No: (213) 612-2554
If to Holders' Tim Poster
-------------- Travelscape.com, Inc.
Representative: 8951 West Sahara Avenue
-------------- Las Vegas, NV 89117
Telephone No.: (702) 938-2100
Facsimile No.: (702) 735-4320
Such addresses may be changed, from time to time, by means of a notice
given in the manner provided in this Section 9.3.
9.4 Severability. If any provision of this Agreement is held to be
------------
unenforceable for any reason, it shall be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement shall be
deemed valid and enforceable to the full extent. If it is ever held that any
covenant hereunder is too broad to permit enforcement of such covenant to its
fullest extent, each party agrees that a court of competent jurisdiction may
enforce such covenant to the maximum
46
<PAGE>
extent permitted by law, and each party hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such covenant.
9.5 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained in this Agreement, including the exhibits and schedules
delivered pursuant to this Agreement, shall survive the Effective Time; provided
that such survival is subject to termination in accordance with Section 7.4.
9.6 Assignment. No party to this Agreement may assign, by operation of law
----------
or otherwise, all or any portion of its rights, obligations, or liabilities
under this Agreement without the prior written consent of the other party to
this Agreement, which consent may be withheld in the absolute discretion of the
party asked to grant such consent. Any attempted assignment in violation of this
Section 9.6 shall be voidable and shall entitle the other party to this
Agreement to terminate this Agreement at its option in addition to any and all
other remedies that may be available to such party at law or in equity. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
9.7 Counterparts. This Agreement may be executed in two or more partially
------------
or fully executed counterparts each of which shall be deemed an original and
shall bind the signatory, but all of which together shall constitute but one and
the same instrument. The execution and delivery of a Signature Page - Agreement
and Plan of Reorganization in the form annexed to this Agreement by any party
hereto who shall have been furnished the final form of this Agreement shall
constitute the execution and delivery of this Agreement by such party.
9.8 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of each of the parties hereto.
9.9 Extension, Waiver. At any time prior to the Effective Time, any party
-----------------
hereto may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements, covenants or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
9.10 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits or Schedules, such reference shall be to a Section, Exhibit
or Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes," and "including" when used therein shall be deemed in each case to be
followed by the words "without limitation." The table of contents, index to
defined terms, references to sections of the Company Disclosure Schedule or
Expedia Disclosure Schedule, and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The phrase "made available" in this Agreement
shall mean that the information referred to has been made available, if
requested, by the party to whom such information is to be
47
<PAGE>
made available. The phrase "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to January 30, 2000.
9.11 Confidentiality. Company and the Principal Shareholders agree to keep
---------------
confidential and not to disclose the terms and conditions of this Agreement
specifically including, without limitation, the price payable per share of
Company Common Stock Equivalents, the aggregate consideration payable hereunder
and number of Expedia Common Shares to be issued and to advise all Company
officers, directors, stockholders and employees (and counsel to Company and its
stockholders) of this obligation and to indemnify and hold Expedia harmless from
any breach of this agreement in accordance with the provisions of Article VII.
9.12 Arbitration. The parties shall endeavor to resolve all disputes by
-----------
agreement and to that end shall each provide the other with sufficient
descriptions and information regarding its position to permit informed
assessments and decisions. Any disagreement, claim, demand, controversy, or
dispute which arises after the Closing in any way relating to this Agreement and
the performance or alleged breach by the parties, whether involving questions of
law or fact or both and regardless of the nature thereof or the remedy therefor,
which is not settled by agreement of the parties shall be resolved pursuant to
the arbitration provisions in Section 2.3.3 of the Escrow Agreement.
48
<PAGE>
SIGNATURE PAGE - AGREEMENT AND PLAN OF REORGANIZATION
IN WITNESS WHEREOF, Expedia, Sub, Company and the Principal Shareholders
have executed this Agreement as of the date first written above.
EXPEDIA, INC. TRAVELSCAPE.COM, INC.
By /s/ Richard N. Barton By /s/ Stephen L. Cavallaro
--------------------------- ----------------------------
Name: Richard N. Barton Name: Stephen L. Cavallaro
Title: CEO Title: President and CEO
TRAVEL ENTERPRISES, INC.
By /s/ Mark Britton
---------------------------
Name: Mark Britton
Title: Secretary
PRINCIPAL SHAREHOLDERS:
/s/ Thomas Breitling
- ------------------------------
Thomas Breitling
/s/ Timothy Poster
- ------------------------------
Timothy Poster
49
<PAGE>
First Amendment to Travelscape Agreement and Plan of Reorganization
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION (the "Amendment") is
dated as of March 13, 2000, and is entered into by and among EXPEDIA, INC., a
Washington corporation ("Expedia), TRAVEL ENTERPRISES, INC., a Delaware
corporation ("Sub"), TRAVELSCAPE.COM, INC., a Delaware corporation ("Company"),
and PRINCIPAL SHAREHOLDERS OF TRAVELSCAPE.COM, INC. ("Principal Shareholders")
with reference to the following facts:
RECITALS
--------
A. On January 31, 2000, the parties entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement");
B. Section 9.8 provides that the Reorganization Agreement may be amended by an
agreement in writing signed on behalf of Expedia, Sub, Company, and Principal
Shareholders;
C. The parties now desire to amend the Reorganization Agreement, as more
particularly set forth below:
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals of facts, and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 1.4.5 of the Reorganization Agreement is amended as follows.
The following shall be added at the end of the first sentence:
"provided, that no Expedia Common Shares issuable to the holders of
---------
Company Preferred Shares shall be subject to such escrow". The second
sentence shall be amended to add the words "Company Preferred Shares"
immediately following the words "but shall not include ..."
2. Except as amended by this Amendment, the Agreement of Reorganization
shall otherwise remain in full force and effect.
3. The interpretation and construction of this Amendment, and all matters
relating hereto, shall be governed by the laws of the State of
Washington applicable to agreements executed and to be performed
solely within such State.
4. This Amendment may be executed in one or more counterparts all of
which taken together shall constitute one instrument.
[Signature Page follows]
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have fixed their signatures as of the
date first written above.
EXPEDIA, INC. TRAVELSCAPE.COM, INC.
By: /s/ Richard N. Barton By: /s/ Stephen L. Cavallaro
--------------------------- ------------------------------
Name: Richard N. Barton Name: Stephen L. Cavallaro
Title: CEO Title: President and CEO
TRAVEL ENTERPRISES, INC.
By: /s/ Mark Britton
---------------------------
Name: Mark Britton
Title: Secretary
PRINCIPAL SHAREHOLDERS
/s/ Thomas Breitling
- ------------------------------
Thomas Breitling
/s/ Timothy Poster
- ------------------------------
Timothy Poster
2
<PAGE>
Second Amendment to Travelscape Agreement and Plan of Reorganization
SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS SECOND AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment") is dated as of March 15, 2000, and is entered into by and among
EXPEDIA, INC., a Washington corporation ("Expedia), TRAVEL ENTERPRISES, INC., a
Delaware corporation ("Sub"), TRAVELSCAPE.COM, INC., a Delaware corporation
("Company"), and PRINCIPAL SHAREHOLDERS OF TRAVELSCAPE.COM, INC. ("Principal
Shareholders") with reference to the following facts:
RECITALS
--------
A. On January 31, 2000, the parties entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement");
B. Section 9.8 provides that the Reorganization Agreement may be amended by an
agreement in writing signed on behalf of Expedia, Sub, Company, and Principal
Shareholders
C The Reorganization Agreement has been amended once in the First Amendment
to the Agreement and Plan of Reorganization dated March 13, 2000 (the "First
Amendment");
D. The parties now desire to further amend the Reorganization Agreement, as
more particularly set forth below:
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals of facts, and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 1.5 of the Reorganization Agreement is amended such that the
number ".9868" in the last sentence of Section 1.5 shall be amended to
read ".9956".
2. Except as amended by this Amendment and the First Amendment, the
Agreement of Reorganization shall otherwise remain in full force and
effect.
5. The interpretation and construction of this Amendment, and all matters
relating hereto, shall be governed by the laws of the State of
Washington applicable to agreements executed and to be performed
solely within such State.
6. This Amendment may be executed in one or more counterparts all of
which taken together shall constitute one instrument.
[Signature Page follows]
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have fixed their signatures as of the
date first written above.
EXPEDIA, INC. TRAVELSCAPE.COM, INC.
By: /s/ Richard N. Barton By: /s/ Stephen L. Cavallaro
-------------------------- -----------------------------
Name: Richard N. Barton Name: Stephen L. Cavallaro
Title: CEO Title: President and CEO
TRAVEL ENTERPRISES, INC.
By: /s/ Mark Britton
---------------------------
Name: Mark Britton
Title: Secretary
PRINCIPAL SHAREHOLDERS
/s/ Thomas Breitling
- -------------------------------
Thomas Breitling
/s/ Timothy Poster
- -------------------------------
Timothy Poster
2
<PAGE>
Exhibit 2.2
VacationSpot Agreement and Plan of Reorganization
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF January 30, 2000 (this
"Agreement"), by and among Expedia, Inc., a Washington corporation ("Expedia"),
VacationSub, Inc., a Delaware corporation and wholly owned subsidiary of Expedia
("Sub"), VacationSpot.com, Inc., a Delaware corporation ("Company"), and Steven
D. Murch and Greg Slyngstad, the principal stockholders of Company (the
"Principal Stockholders").
RECITALS
A. The Boards of Directors of Company, Expedia and Sub believe it is in
the best interests of their respective companies and the stockholders of their
respective companies that Company and Sub combine into a single company through
the merger of Sub and Company and, in furtherance thereof, have approved such
merger. Pursuant to the Merger, among other things, the Company Common Shares
(as defined below) shall be converted into Expedia Common Shares (as defined
below), at the rates set forth herein.
B. Company, Expedia and Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
----
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein,
Expedia, Sub, Company, and the Principal Stockholders hereby agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
----------------------------
Agreement, Sub will be merged with and into Company (the "Merger"). A
Certificate of Merger and any other required documents (collectively the "Merger
Documents"), substantially in the form attached as Exhibit 1.1 shall be duly
prepared, executed and acknowledged by Company and Sub, and thereafter delivered
to the Secretary of State of Delaware for filing, as provided in the Delaware
General Corporation Law (the "DGCL"), as soon as practicable on or after the
Closing Date (as defined in Section 1.2). The Merger shall become effective at
such time as the Merger Documents have been filed with the Secretary of State of
Delaware or at such time thereafter as is provided in the Merger Documents (the
"Effective Time"). Solely for purposes of clarification, Company and the
Principal Stockholders acknowledge and agree that Expedia will have no
obligation to make any payment or issue any shares under this Agreement until
the Merger has been confirmed in writing by the Secretary of State of Delaware.
1
<PAGE>
1.2 Closing. The closing of the Merger (the "Closing") will take place at
-------
10:00 a.m., local time as soon as practicable (but no more than five (5)
business days) after satisfaction or waiver of the last to be fulfilled of the
conditions set forth in Article VI, that by their terms are not to occur at the
Closing (the "Closing Date"), at the offices of Preston Gates & Ellis LLP,
Seattle, Washington, unless another time, date or place is agreed to in writing
by the parties hereto.
1.3 Effects of the Merger. At the Effective Time, (i) Sub shall be merged
---------------------
with and into Company (Company after the Merger is sometimes referred to herein
as the "Surviving Corporation"), (ii) the Certificate of Incorporation of
Company shall be the Certificate of Incorporation of the Surviving Corporation,
(iii) the Bylaws of Company shall be the Bylaws of the Surviving Corporation
until duly amended, (iv) the directors of Sub shall be the directors of the
Surviving Corporation, (v) the officers of Sub shall be the officers of the
Surviving Corporation, (vi) the issued and outstanding capital stock of Sub
shall become the issued and outstanding capital stock of the Surviving
Corporation, and (vii) the Merger shall, from and after the Effective Time, have
all the effects provided by applicable law.
1.4 Conversion of Company Securities.
--------------------------------
1.4.1 Company Shares.
--------------
(a) Each issued and outstanding Company Common Share (as
defined in Section 2.1.2 hereto and other than Eligible Appraisal Shares, as
defined in Section 1.4.4 below) shall, at the Effective Time, by virtue of the
Merger, be converted, without any action on the part of the holders thereof,
into, and Expedia shall thereupon issue to the holders of Company Common Shares,
a number of shares of Expedia common stock, par value $.01 per share ("Expedia
Common Shares"), pursuant to an exchange ratio ("Exchange Ratio") calculated by:
(i) dividing the Final Valuation (as defined in Section 1.5) by the number of
Company Common Share Equivalents (as defined below) which amount is referred to
as the "Per Share Consideration," and (ii) dividing the Per Share Consideration
by the Applicable Price. For purposes of this Agreement, the "Applicable Price"
shall be $42.4187 unless the "Expedia Average Closing Price," which is defined
as the average closing price as publicly reported for the Nasdaq Stock Market as
of 4:00 p.m. Eastern Time of Expedia Common Shares over the last five (5)
trading days ending the trading day prior to the date hereof:
. exceeds $53.0234, in which case the Exchange Ratio shall be
calculated as follows: (i) by dividing (x) the product obtained by
multiplying the Final Valuation by 125% by (y) the number of
Company Common Share Equivalents (if this clause applies, such
amount shall be referred to as the "Per Share Consideration" rather
than the amount referenced in the prior sentence or following
clause), and (ii) by dividing the Per Share Consideration by the
Expedia Average Closing Price; or
. is less than $31.8140, in which case the Exchange Ratio shall be
calculated as follows: (i) dividing (x) the product obtained by
multiplying the Final Valuation by 75% by (y) the number of Company
Common Share Equivalents (if this clause
2
<PAGE>
applies, such amount shall be referred to as the "Per Share
Consideration" rather than the amount referenced in the prior
sentence or preceding clause) and (ii) dividing the Per Share
Consideration by the Expedia Average Closing Price.
(b) For purposes of this Agreement, "Company Common Share
Equivalents" shall mean all Company Common Shares (as defined in Section 2.1.2)
and all other securities convertible into and rights to purchase Company Common
Shares (in each instance assuming full exercise of the right to convert into or
purchase Company Common Shares) outstanding as of the Closing, but excluding
Company Common Share Equivalents, if any, which expire on or before the Closing
Date. Schedule 1.4 sets forth as of the date hereof: (i) Company Common Shares,
and all other rights to purchase any securities convertible into Company Common
Shares, (ii) the number of Company Common Share Equivalents as of such date, and
(iii) a pro forma computation of the Per Share Consideration, the Exchange Ratio
and the Expedia Common Shares to be issued as of the Closing using an assumed
Expedia Average Closing Price of $42.4187. Schedule 1.4 shall be revised and
updated as of the Closing Date to reflect any changes in Company Common Share
Equivalents, Final Valuation and Per Share Consideration.
1.4.2 Replacement of Options. At the Effective Time, each of the
----------------------
then outstanding Company Options (as defined in Section 2.1.2) shall by virtue
of the Merger and at the Effective Time, and without any further action on the
part of any holder thereof, be replaced by a nonqualified stock option to
purchase that number of Expedia Common Shares ("Expedia Option") determined by
multiplying the number of Company Common Shares subject to such Company Option
at the Effective Time by the Exchange Ratio, at an exercise price per share of
Expedia Common Shares equal to the exercise price per share of such Company
Option immediately prior to the Effective Time divided by the Exchange Ratio.
Any unvested Company Options held by Company employees who do not continue as
Company employees or do not become employees of Expedia as of the Effective Time
shall be canceled in accordance with the terms of the Company's 1999 Stock
Option Plan (the "Company Plan"). Each replacement Expedia Option shall be
issued pursuant to the Expedia 1999 Employee Stock Option Plan (the "Stock
Option Plan"). The vesting schedule for the replacement Expedia Options for each
holder of Company Options is set forth on Schedule 1.4 and the form of the
replacement Expedia Option is attached as Exhibit 1.4.2. Each recipient of a
replacement Expedia Option, including the replacement Expedia Options to be
issued to the "Required Employees" set forth on Schedule 6.2.4, shall be deemed
to be an "Optionee" under the 1999 Plan.
1.4.3 Restricted Shares.
-----------------
(a) Two-thirds (2/3) of the Expedia Common Shares issuable
pursuant to this Agreement to the Principal Stockholders will be subject to
forfeiture under certain conditions (the "Restricted Shares"). Subject to the
forfeiture provisions set forth in Section 1.4.3(b), one half of the Restricted
Shares shall vest and no longer be subject to such restrictions on the date
which is nine (9) months from the Effective Time and the other half of the
Restricted Shares shall vest and no longer be subject to such restrictions on
the date that is eighteen (18) months from the Effective Time.
3
<PAGE>
(b) Each of the Principal Stockholders shall agree not to
sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by
operation of law or otherwise, their Restricted Shares except as permitted by
this Agreement. The Restricted Shares owned by each Principal Stockholder will
vest so long as such Principal Stockholder has not terminated his employment
with Expedia for "Good Reason" or his employment has been terminated by Expedia
for "Cause." If employment is terminated for Good Reason or without Cause, all
of the Restricted Shares shall vest and no longer be subject to such
restrictions. For purposes of the foregoing, "Cause" shall mean termination
resulting from a good faith determination by the board of directors of Expedia
that there has been: (i) a repeated failure or refusal to follow the policies
and directives of Expedia and failure to remedy performance within a reasonable
time after written notice; (ii) a willful breach of the duties of the employee's
position and failure to remedy performance within a reasonable time after
written notice; or (iii) any act by the employee involving disloyalty to
Expedia, embezzlement, theft, material dishonesty, or a conviction of or plea of
nolo contendere to a crime involving moral turpitude or a felony. For purposes
of this Agreement, "Good Reason" shall mean termination resulting from (w)
death, (x) Permanent Disability, (y) Expedia's breach of an employment agreement
of the Principal Stockholder, or (z) the relocation of Expedia's principal
executive offices outside of the Pacific Northwest. In the event that Expedia
determines that there is a basis for termination for Cause, Expedia shall give
written notice to the Principal Stockholder of the basis for such conclusion and
such Principal Stockholder shall be given a ten (10) day period commencing on
the receipt of such notice to take corrective action to cure or correct the
offending act or behavior; provided that no cure period shall be allowed on the
conviction or plea of nolo condendere to a crime involving moral turpitude or a
felony. "Permanent Disability" shall mean a physical or mental condition whereby
the Principal Stockholder is unable to perform the customary duties of the
Principal Stockholder's position on a basis satisfactory to Expedia for a
continuous period of six (6) months or longer.
1.4.4 Appraisal Rights. Any holder of Company Shares that are
----------------
outstanding on the record date for the determination of the Principal
Stockholders entitled to vote for or against the Merger who did not vote such
shares in favor of the Merger, or sign and deliver a written consent thereto
with respect to such shares (the Company Shares then outstanding that are not
thus voted or as to which such consents are not signed and delivered are
referred to as "Eligible Appraisal Shares"), will be entitled to exercise
appraisal rights pursuant to Section 262 of the DGCL ("Section 262 ") with
respect to such Eligible Appraisal Shares, provided that such stockholder meets
all the requirements of Section 262 with respect to such shares.
1.4.5 Fractional Securities. No fraction of an Expedia Common Share
---------------------
or Expedia Option exercisable for a fraction of a Expedia Common Share will be
issued in the Merger. In lieu of such issuance, all Expedia Common Shares
issued to Company stockholders shall be rounded to the closest whole Expedia
Common Share, and the number of Expedia Common Shares subject to any Expedia
Option shall be rounded to the nearest whole number of Expedia Common Shares.
1.4.6 Escrow Securities. Expedia Common Shares to be issued in the
-----------------
Merger having a value equal to ten percent (10%) of the Final Valuation,
(including ten percent (10%) of
4
<PAGE>
the Restricted Shares) shall be held by the Custodian pursuant to the Escrow
Agreement attached as Exhibit 1.4.6 ("Escrow Agreement") to secure claims by
Expedia for indemnification pursuant to Article VII hereof. The Expedia Common
Shares to be held on behalf of the holders of Company Common Shares (the
"Holders") are set forth on Schedule 1.4 on a pro forma basis which shall be
revised as of Closing. Execution of the Escrow Agreement by the Company
Stockholders is a condition precedent to receiving the Expedia Common Shares.
1.4.7 Adjustments. The Exchange Ratio shall be adjusted to reflect
-----------
fully the effect of any stock split, reverse split, stock dividend (including
any dividend or distribution of securities convertible into Expedia Common Stock
or Company Capital Stock), reorganization, recapitalization or other like change
with respect to Expedia Common Stock or Company Capital Stock occurring after
the date of this Agreement and prior to the Effective Time.
1.5 Final Valuation. The term "Final Valuation" of Company shall mean
---------------
$108,174,482 plus an amount equal to the maximum aggregate proceeds with respect
to the exercise of all Company Options that are assumed by Expedia as of the
Closing minus the amount, if any, by which Company's cash as set forth on
Company's Final Pro Forma Closing Balance Sheet (as defined in Section 2.1.6
hereof) is less than the following: $8.8 million minus the product of $25,000
times the number of days which elapse between January 31, 2000 and the Closing
Date. In addition, the Final Valuation shall be further reduced by the amount,
if any, by which current accounts receivable are less than the sum of Company's
total liabilities (excluding amounts payable under Company's office lease) as of
the Closing Date. For purposes of the foregoing, "current accounts receivable"
shall mean those accounts receivable, which as of the Closing are fewer than
sixty (60) days old, excluding any other receivables as to which Company has
reason to suspect that collection is unlikely. The Final Valuation reflects an
initial valuation of $115,000,000 adjusted to reflect the ownership of Expedia
or Microsoft (as defined in Section 6.1.3) in Company which shall be cancelled
prior to the Closing. The Final Valuation will be adjusted prior to Closing to
reflect any changes to the capitalization of Company between the date hereof and
the Closing.
1.6 Delivery of Certificates. After the Effective Time, each holder of a
------------------------
certificate or other documentation representing Company Common Shares shall
surrender such certificates or other documentation to Expedia or the exchange
agent designated by Expedia, together with duly executed counterparts of the
Investment Agreement (as defined in Section 5.1) (by those holders of Company
Common Shares) and Escrow Agreement and such other duly executed documentation
as may be reasonably required by Expedia or the exchange agent to effect a
transfer of such shares, and upon such surrender each Company stockholder shall
be entitled to receive a certificate or other documentation for the applicable
number of Expedia Common Shares calculated pursuant to Section 1.4, except as
provided in Section 1.4.4. Execution and delivery of an Escrow Agreement and an
Investment Agreement shall be a condition precedent to the issuance of the
Expedia Common Shares to each Holder.
1.7 Tax-Free Reorganization. The Merger is intended to be a
-----------------------
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and this Agreement is intended to constitute a
"plan of reorganization" within the meaning of the regulations promulgated under
Section 368 of the Code.
5
<PAGE>
1.8 No Further Ownership Rights in Company Common Shares or Company
---------------------------------------------------------------
Options. All Expedia Common Shares issued on or after the Effective Time upon
- -------
cancellation of the Company Common Shares or replacement of the Company Options
in accordance with the terms hereof shall be deemed to have been delivered in
full satisfaction of all rights pertaining to the Company Common Shares or
Company Options. After the Effective Time, there shall be no transfers on the
stock transfer books of Company of the Company Common Shares or Company Options.
1.9 Regulation D and Registration Statements.
----------------------------------------
1.9.1 Regulation D Offering. Each holder of Company Shares shall
---------------------
execute such documents as may be reasonably required by Expedia to determine
such holder's qualification as an "accredited investor," as that term is defined
in Rule 501 of Regulation D under the Securities Act of 1933 (the "1933 Act") or
as a person with the financial sophistication required to be a purchaser
pursuant to Rule 506(b)(2)(ii) of Regulation D. Company agrees, if required
under the provisions of Rule 506, to provide, at its sole expense, any
stockholder reasonably determined by Expedia as not having the requisite
financial sophistication with a purchaser representative who can provide such
stockholder with the requisite financial sophistication.
1.9.2 Registration Rights.
-------------------
(a) Expedia shall prepare and file with the Securities and Exchange
Commission registration statements on the form under the 1933 Act that
Expedia determines to be the least burdensome available (such registration
statement and the prospectus included therein being referred to as the
"Registration Statement", regardless of the form actually used) to register
for resale Expedia Common Shares issued in the Merger to the Company
shareholders, and their permitted transferees (collectively, the "New
Expedia Shareholders"), and shall use its commercially reasonable efforts
to have no more than one such Registration Statement declared effective
under the 1933 Act by and kept continuously effective during the following
dates and upon the following conditions:
(i) From May 15, 2000 through June 16, 2000, provided that
--------
Expedia shall receive a demand for registration as of such dates from
holders of not less than twenty five percent (25%) of the Expedia Common
Shares issued in the Merger on or prior to April 1, 2000 if the Effective
Time has occurred prior to April 1, 2000 or April 8, 2000 if the Effective
Time has occurred after April 1, 2000 and on or prior to April 8, 2000.
(ii) From August 1, 2000 through August 13, 2000, provided that
---------
Expedia shall receive a demand for registration as of such dates from
holders of not less than twenty five percent (25%) of the Expedia Common
Shares issued in the Merger after April 8, 2000 and on or prior to July 1,
2000 and, provided that no Registration Statement was made effective
--------
pursuant to subsection (i), above, unless such lack of effectiveness
resulted from a withdrawal of the demand for such registration or the
failure of the holders of Expedia Common Shares making such demand to
provide to Expedia the
6
<PAGE>
requisite information for such filing or through other fault of the holders
of Expedia Common Shares.
Upon receipt of a demand under (i) or (ii) above, Expedia shall within five
(5) business days thereafter deposit with the United States post office or
national courier service notice to holders making such demand of Expedia's
election whether the Registration Statement to be filed shall be for an
underwritten secondary offering, an underwritten primary offering by Expedia
in which holders issuing such demand shall be permitted to participate, or a
secondary offering under Section 415 under the 1933 Act. An underwritten
primary offering by Expedia may include an offering of Expedia Common Shares,
derivative instruments that are economically substantially equivalent to
Expedia Common Shares, or securities convertible into either Expedia Common
Shares or derivative instruments that are economically substantially
equivalent to Expedia Common Shares. Should Expedia elect to undertake any
such underwritten primary offering after receiving a demand under subsection
(i) or (ii), Expedia will include in such registration first, the aggregate
number of securities to be issued by Expedia, and second, as many of the
shares of Expedia Common Shares covered by the demand made under (i) as the
managing underwriter shall determine is its sole discretion are permitted by
market conditions, provided that in no event shall the shares of such holders
included in such demand be less than the greater of (A) 15% of the Expedia
Common Shares issuable in the Merger or (B) Expedia Common Shares with a value
of $22.5 million at the time of such offering, provided that no more than
--------
750,000 shares shall be registered pursuant to this clause (B). Expedia shall
select the managing underwriters for any underwritten offering made pursuant
to this subsection in its sole discretion. Each Registration Statement shall
list as selling shareholders each New Expedia Shareholder still holding
Expedia Common Shares that has (A) provided to Expedia the requisite
information for such filing and (B) requested to be included in such demand on
or prior to last date required to make such demand. Notwithstanding the
foregoing, if Expedia shall furnish the New Expedia Shareholders entitled to
be listed as selling shareholders on a Registration Statement under this
subsection a certificate signed by an officer of Expedia stating that in the
good faith judgment of the Board of Directors of Expedia, it would be
detrimental to Expedia for such Registration Statement to be filed or made
effective, then Expedia shall have the right to defer such filing or the
effective date of such Registration Statement until the next date upon which
Expedia would be obligated to use its commercially reasonable efforts to make
a Registration Statement effective, provided that Expedia shall not have the
--------
right to defer more than once.
(b) If at any time after the Effective Time, Expedia proposes to
register any Expedia Common Shares, derivative instruments that are economically
substantially equivalent to Expedia Common Shares, or securities convertible
into either Expedia Common Shares or derivative instruments that are
economically substantially equivalent to Expedia Common Shares under the 1933
Act on any Registration Statement (other than a registration statement subject
to Section 1.9.2(a) prescribed by the Securities Exchange Commission, which
registration shall permit a public secondary offering or distribution (other
than any form solely for registration of securities issuable pursuant to
employee equity or option ownership plans or as consideration for business
combinations), not less than thirty (30) days prior to each such registration,
Expedia shall give to the New Expedia Shareholders written notice of such
proposal which shall describe in detail the proposed registration and
distribution and, upon the written
7
<PAGE>
request of any New Expedia Shareholders given within fifteen (15) days after the
date of any such notice, provided that such holders shall have provided to
--------
Expedia the requisite information for such filing, proceed to include in such
registration such Expedia Common Shares as have been requested by any such
holder to be included in such registration. Expedia will in each instance use
its commercially reasonable efforts to cause Expedia Common Shares subject to
such request to be registered under the 1933 Act; provided, that in the event
--------
such registration is an underwritten primary offering on behalf of Expedia and
the managing underwriters advise Expedia in writing that, in their opinion, the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering, Expedia will include in such
registration (i) first, the aggregate number of securities to be issued by
Expedia, (ii) second, the shares of Expedia common stock registrable under any
demand for registration giving rise to the right of registration of New Expedia
Shareholders under this subsection (b); and (iii) third, Expedia Common Shares
requested to be included in such registration under this subsection (b) together
with other securities requested to be included in such registration, such shares
to be treated on a pro rata basis. Expedia shall select the managing
underwriters for any offering made pursuant to this subsection (b) in its sole
discretion.
(c) As soon as practicable after Form S-3 becomes available to Expedia,
provided that Expedia Common Shares held by New Expedia Shareholders remain
- --------
outstanding at such time, Expedia shall prepare and file with the Securities
Exchange Commission a Registration Statement on Form S-3 to register for resale
Expedia Common Shares issued in the Merger to the New Expedia Shareholders.
Expedia shall use its commercially reasonable efforts to have such Registration
Statement declared effective under the 1933 Act as promptly as practicable after
such filing. Expedia shall use its commercially reasonable efforts to cause
such registration statement to continue to be effective and the prospectus
contained therein to be updated as reasonably deemed necessary by Expedia to
enable the New Expedia Shareholders to resell the Expedia Common Shares that
were issued in the Merger.
(d) Expedia shall use its commercially reasonable efforts to cause any
Registration Statement filed under Sections 1.9.2(a), 1.9.2(b) and 1.9.2(c) to
continue to be effective during the time specified for such and the prospectus
contained therein to be updated during such time to enable the New Expedia
Shareholders making a demand for registration under subsection (a) or exercising
their rights under subsection (b) or entitled to registration under subsection
(c) to resell during such time the Expedia Common Shares that were issued in the
Merger over the Nasdaq Stock Market or such other national market as Expedia
Common Shares may be traded. Expedia shall also endeavor to take any action
required to be taken under any applicable state securities laws in connection
with the issuance of Expedia Common Shares in the Merger and the resale of those
shares pursuant to the Registration Statement. Expedia agrees to use its
commercially reasonable efforts to cause the Expedia Common Shares covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the holders
of such Expedia Common Shares to consummate the disposition of such Expedia
Common Shares and cause all such Expedia Common Shares to be listed on each
securities exchange or national quotation system on which Expedia's common stock
is then listed. Each holder of shares covered by a Registration Statement agrees
that if (i) Expedia determines that the prospectus in such
8
<PAGE>
Registration Statement needs to be amended or supplemented to comply with the
requirements of the 1933 Act, (ii) a stop order suspending the effectiveness of
the registration statement is issued by the Securities Exchange Commission, or
(iii) Expedia shall, in good faith and for business reasons, enter into
negotiations relating to or otherwise commence a material business transaction,
including, without limitation, the acquisition or divestiture of assets or the
offering or sale of securities, then Expedia shall promptly notify each such
holder and each such holder shall immediately cease making offers and sales of
Expedia Common Shares and return all remaining prospectuses to Expedia. Any New
Expedia Shareholder selling stock registered under the Registration Statement
shall indemnify Expedia, its officers and directors, each underwriter and
selling broker, if any, and each person, if any, who controls Expedia, against
liability (including liability under the 1933 Act and the Securities Exchange
Act of 1934 ("1934 Act") arising by reason of any statement contained in the
Registration Statement, that such New Expedia Shareholder provided to Expedia in
writing explicitly for use in the Registration Statement, being false or
misleading or omitting to state a material fact necessary to be stated in order
that the statements made in the Registration Statement, in the circumstances in
which they are made, not be misleading; provided, however, that any obligation
of any New Expedia Shareholder to provide indemnity hereunder shall not exceed
the proceeds received by such New Expedia Shareholder from a sale of Expedia
Common Shares under the Registration Statement. Expedia shall indemnify each New
Expedia Shareholder selling stock registered under the Registration Statement,
and each underwriter and selling broker, if any, against liability (including
liability under the 1933 and 1934 Acts) arising by reason of any statement
(other than a statement provided by such New Expedia Shareholder as described
above) in the Registration Statement included therein being false or misleading
or omitting to state a material fact necessary to be stated in order that the
statements made in or incorporated by reference in the Registration Statement,
in the circumstances in which they are made, not be misleading. Expedia may
suspend sales of Expedia Common Shares pursuant to the Registration Statement if
it determines in good faith that such statements are materially misleading or
contain material omissions, provided that Expedia shall (x) make a corrective
filing as soon as practicable, (y) use its commercially reasonable efforts to
cause any amendment to the Registration Statement to be declared effective and
(z) use its commercially reasonable efforts to cause the Registration Statement
to become useable as soon as practicable thereafter.
1.9.3 Option Registration Statement. For those Company employees who are
-----------------------------
employed by Expedia after the Effective Time, Expedia shall cause the Expedia
Common Shares issuable upon exercise of the Expedia Options to be registered
under the 1933 Act no later than thirty (30) calendar days after the Effective
Time and shall use its best efforts to maintain the effectiveness of the
applicable registration statement or registration statements for so long as such
replacement Expedia Options remain outstanding.
1.10 Delivery of Certificates. At or as soon as practicable after the
------------------------
Effective Time, Expedia or its transfer agent will send to the holders of
Company Shares (i) a letter of transmittal in customary form and containing such
provisions as Expedia may reasonably specify, and (ii) instructions for use in
effecting the surrender of certificates representing Company Shares in exchange
for certificates representing Expedia Common Shares. After the Effective Time,
and after receiving such letter of transmittal, each stockholder of a
certificate or other documentation representing Company Shares or Company
Options, other than Eligible Appraisal Shares, shall surrender such certificates
or other documentation to Expedia or the exchange agent designated
9
<PAGE>
by Expedia and letter of transmittal and such other duly executed documentation
as may be reasonably required by Expedia or the exchange agent to effect a
transfer of such shares or options, and upon such surrender each stockholder
shall be entitled to receive a certificate or other documentation for the
applicable number of Expedia Common Shares or Expedia Options calculated
pursuant to Section 1.4, except as provided in Section 1.4.6. Execution and
delivery of an Investment Agreement and Escrow Agreement shall be a condition
precedent to the issuance of the Expedia Common Shares to each Company
stockholder. If any certificate representing Company Shares shall have been
lost, stolen or destroyed, Expedia may, in its discretion and as a condition
precedent to the issuance of any certificate representing Expedia Common Shares,
require the owner of such lost, stolen or destroyed certificate representing
Company Shares to provide an appropriate affidavit and indemnity against any
claim that may be made against Expedia or the Surviving Corporation with respect
to such certificate representing Company Shares. If any documentation
representing Company Options shall have been lost, stolen or destroyed, Expedia
may, in its discretion and as a condition precedent to the issuance of any
documentation representing Expedia Options, require the owner of such lost,
stolen or destroyed documentation representing Company Options to provide an
appropriate affidavit and indemnity against any claim that may be made against
Expedia or the Surviving Corporation with respect to such documentation
representing Company Options. Until so surrendered, each Certificate will be
deemed from and after the Effective Time, for all corporate purposes, to
evidence the ownership of the number of full shares of Expedia Common Stock into
which such shares of Company Capital Stock shall have been so converted. If any
certificate for shares of Expedia Common Stock is to be issued in a name other
than that in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of such issuance that the Certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will have paid to Expedia or any
agent designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Expedia Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Expedia or any agent designated by it that
such tax has been paid or is not payable.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Company and Principal Stockholders.
--------------------------------------------------------------------
Except as disclosed in a document referring specifically to the representations
and warranties in this Agreement which identifies by section number the section
and subsection to which such disclosure relates and is delivered by Company to
Expedia and Sub prior to the execution of this Agreement (the "Company
Disclosure Schedule"), and whether or not the Company Disclosure Schedule is
referred to in a specific section or subsection, Company and the Principal
Stockholders, jointly and severally, represent and warrant to Expedia and Sub as
follows:
2.1.1 Organization, Standing and Power. Company is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware, has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which a
failure to so qualify would have a material adverse effect on the Business
Condition (as hereinafter defined) of Company. As used in this Agreement,
"Business
10
<PAGE>
Condition" with respect to any entity shall mean the business, financial
condition, results of operations, assets or prospects (as defined below)
(without giving effect to the consequences of the transactions contemplated by
this Agreement) of such entity or entities including Subsidiaries taken as a
whole. In this Agreement, a "Subsidiary" of any corporation or other entity
means a corporation, partnership, limited liability company or other entity of
which such corporation or entity directly or indirectly owns or controls voting
securities or other interests which are sufficient to elect a majority of the
Board of Directors or other managers of such corporation, partnership, limited
liability company or other entity and "prospects" shall mean events, conditions,
facts or developments which are known to Company and which in the reasonable
course of events are expected to have a material effect on future operations of
the business as presently conducted by Company. Each of the Company Subsidiaries
are set forth on the Company Disclosure Schedule. Company has delivered to
Expedia complete and correct copies of the certificate of incorporation, bylaws,
and/or other primary charter and organizational documents ("Charter Documents")
of Company and each of its Subsidiaries, in each case, as amended to the date
hereof. The minute books and stock records of Company contain correct and
complete records of all material proceedings and actions taken at all meetings
of, or effected by written consent of, the Principal Stockholders of Company and
its Board of Directors, and all original issuances and subsequent transfers,
repurchases, and cancellations of Company Common Shares. The Company Disclosure
Schedule contains a complete and correct list of the officers and directors of
Company since its incorporation.
2.1.2 Capital Structure.
-----------------
(a) The authorized capital stock of Company consists of
30,000,000 shares of Company Common Stock, $0.001 par value, ("Company Common
Shares") of which 8,085,196 shares are issued and outstanding, and 18,000,000
shares of Preferred Stock, $0.001 par value, ("Company Preferred Shares") of
which (i) 1,346,666 have been designated as Series A Preferred Stock ("Series A
Shares") of which 1,010,000 Series A Shares are issued and outstanding, (ii)
1,346,666 have been designated as Series A-1 Preferred Stock ("Series A-1
Shares") of which no Series A-1 Shares are outstanding, (iii) 4,600,000 have
been designated as Series B Preferred Stock ("Series B Shares") of which
4,362,498 Series B Shares are outstanding, (iv) 4,600,000 have been designated
as Series B-1 Preferred Stock ("Series B-1 Shares") of which no Series B-1
Shares are outstanding, (v) 3,000,000 have been designated as Series C Preferred
Stock ("Series C Shares") of which 1,999,900 Series C Shares are outstanding,
and (vi) 3,000,000 have been designated as Series C-1 Preferred Stock ("Series
C-1 Shares") of which no Series C-1 Shares are outstanding. The Company Common
Shares and the Company Preferred Shares are collectively referred to herein as
the "Company Shares".
(b) As of the date hereof, 2,500,000 Company Common Shares are
reserved for issuance upon the exercise of outstanding stock options under
Company's "1999 Stock Option Plan" (the "Company Stock Plan"), options for
2,405,934 Company Common Shares have been granted and remain outstanding (the
"Company Options"). No options to purchase Company Common Shares have been
issued outside of the Company Stock Plan and remain outstanding. Warrants to
purchase 136,436 Company Common Shares and 336,666 Series A Shares are
outstanding. Such warrants shall either be exercised into Company Common Shares
or Series A Shares, as applicable, prior to the Closing, be cancelled by the
holder thereof,
11
<PAGE>
or at the Effective Time, terminate. All Company Common Share Equivalents and
other securities outstanding as of January 28, 2000 are set forth on Schedule
1.4.
(c) All outstanding Company Shares are, and any Company Shares issued
upon exercise of any Company Options will be, validly issued, fully paid,
nonassessable and not subject to any preemptive rights, or to any agreement to
which Company is a party or by which Company may be bound. Except for the shares
described above issuable pursuant to the exercise of Company Options and
warrants, there are not any options, warrants, calls, conversion rights,
commitments, agreements, contracts, understandings, restrictions, arrangements
or rights of any character to which Company is a party or by which Company may
be bound obligating Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Company, or
obligating Company to grant, extend or enter into any such option, warrant,
call, conversion right, conversion payment, commitment, agreement, contract,
understanding, restriction, arrangement or right. Company does not have
outstanding any bonds, debentures, notes or other indebtedness the holders of
which (i) have the right to vote (or convertible or exercisable into securities
having the right to vote) with holders of Company Shares on any matter ("Company
Voting Debt") or (ii) are or will become entitled to receive any payment as a
result of the execution of this Agreement or the completion of the transactions
contemplated hereby.
2.1.3 Authority. The execution, delivery, and performance of this
---------
Agreement by Company (including but not limited to the execution, delivery, and
performance of the agreements and transactions contemplated by this Agreement)
has been duly authorized by all necessary action of the Board of Directors of
Company. Certified copies of the resolutions adopted by the Board of Directors
of Company approving this Agreement and the Merger have been provided to
Expedia. Each of Company and the Principal Stockholders has duly and validly
executed and delivered this Agreement and each of the agreements contemplated
hereby, and this Agreement and each of the agreements contemplated hereby
constitutes a valid, binding, and enforceable obligation of Company and each of
the Principal Stockholders, as applicable, in accordance with its terms.
2.1.4 Compliance with Laws and Other Instruments. Each of Company and its
------------------------------------------
Subsidiaries holds, and at all times has held, all licenses, permits, and
authorizations from all Governmental Entities, (as defined below) necessary for
the lawful conduct of its business pursuant to all applicable statutes, laws,
ordinances, rules, and regulations of all such authorities having jurisdiction
over it or any part of its operations, excepting, however, when such failure to
hold would not have a material adverse effect on Company's Business Condition.
There are no violations or claimed violations known by Company or the Principal
Stockholders of any such license, permit, or authorization or any such statute,
law, ordinance, rule or regulation. Neither the execution and delivery of this
Agreement by Company and the Principal Stockholders nor the performance by
Company and the Principal Stockholders of their obligations under this Agreement
will, in any material respect, violate any provision of laws or will conflict
with, result in the material breach of any of the terms or conditions of,
constitute a material breach of any of the terms or conditions of, constitute a
material default under, permit any party to accelerate any right under,
renegotiate, or terminate, require consent, approval, or waiver by any party
under, or result in the creation of any lien, charge, encumbrance, or
restriction upon any of the properties,
12
<PAGE>
assets, or Company Common Shares pursuant to, any of the Charter Documents or
any agreement (including, without limitation, government contracts), indenture,
mortgage, franchise, license, permit, lease or other instrument of any kind to
which Company is a party or by which Company or any of its assets is bound or,
to its knowledge, affected. No consent, approval, order or authorization of or
registration, declaration or filing with or exemption by (collectively
"Consents"), any court, administrative agency or commission or other
governmental authority or instrumentality, whether domestic or foreign (each a
"Governmental Entity") is required by or with respect to Company in connection
with the execution and delivery of this Agreement by Company or the consummation
by Company of the transactions contemplated hereby, except for (i) the filing of
a premerger notification report and all other required documents by Expedia and
Company, and the expiration of all applicable waiting periods, under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and
(ii) the filing of the appropriate Merger Documents with the Secretary of State
of Delaware and except for such other Consents, which if not obtained or made
would not have a material adverse effect on Company's Business Condition.
2.1.5 Technology and Intellectual Property Rights.
-------------------------------------------
(a) The "Company Intellectual Property" consists of the following:
(i) all patents, trademarks, trade names, service marks,
mask works, domain names, copyrights and any renewal rights, applications and
registrations for any of the foregoing, and all trade dress, net lists,
schematics, technology, manufacturing processes, customer and supplier lists,
trade secrets, know-how, moral rights, computer software programs or
applications (in both source and object code form) owned by Company;
(ii) all goodwill associated with trademarks, trade names
service marks and trade dress owned by Company;
(iii) all software and firmware listings, and updated software
source code, and complete system build software and instructions related to all
software described in the Company Disclosure Schedule pursuant to Section
2.1.5(b) hereof owned by Company;
(iv) all documents, records and files relating to design, end
user documentation, manufacturing, quality control, sales, marketing or customer
support for all intellectual property described herein owned by Company;
(v) all other tangible or intangible proprietary information
and materials owned by Company; and
(vi) all license and other rights in any third party product,
intellectual property, proprietary or personal rights, documentation, or
tangible or intangible property, including without limitation the types of
intellectual property and tangible and intangible proprietary information
described in (i) through (v) above;
13
<PAGE>
that are being, and/or have been, used, or are currently under development for
use, in the business of Company as it has been, is currently or is currently
anticipated to be (up to the Closing), conducted. Company Intellectual Property
described in clauses (i) to (v) above is referred to herein as "Company Owned
Intellectual Property" and Company Intellectual Property described in clause
(vi) above is referred to herein as "Company Licensed Intellectual Property."
Unless otherwise noted, all references to "Company Intellectual Property" shall
refer to both Company Owned Intellectual Property and Company Licensed
Intellectual Property.
(b) The Company Disclosure Schedule lists: (i) all patents,
registered copyrights, mask works, trademarks, service marks, domain names,
trade dress, any renewal rights for any of the foregoing, and any applications
and registrations for any of the foregoing, that are included in the Company
Owned Intellectual Property; (ii) all hardware products and tools, software
products and tools, and services that are currently published, offered, or under
development by Company; (iii) all licenses, sublicenses and other agreements to
which Company is a party and pursuant to which any end user or other third party
is authorized to have access to or use the Company Intellectual Property or
exercise any other right with regard thereto; (iv) all Company Licensed
Intellectual Property (other than license agreements for standard "shrink
wrapped, off the shelf," commercially available, third party products used by
Company); and (v) any obligations of exclusivity, noncompetition,
nonsolicitation, first refusal or first negotiation to which Company is subject
under any agreement that does not fall within the ambit of (iii) or (iv) above.
The disclosures described in (iii), (iv), and (v) hereof include the names and
dates of the relevant agreements, as well as the identities of the parties to
the relevant agreements.
(c) The Company Intellectual Property consists solely of items and
rights which are either: (i) owned by Company; (ii) in the public domain; or
(iii) rightfully used and authorized for use by Company and its successors
pursuant to a valid license or other agreement. Company has all rights in the
Company Intellectual Property necessary to carry out Company's current and
anticipated future (up to the Closing) activities and has or had all rights in
the Company Intellectual Property reasonably necessary to carry out Company's
former activities, including without limitation, and solely to the extent
necessary to carry out such activities, rights to make, use, exclude others from
using, reproduce, modify, adapt, create derivative works based on, translate,
distribute (directly and indirectly), disclose, transmit, display and perform
publicly, license, rent, lease, assign, and sell the Company Intellectual
Property in all geographic locations and fields of use, and to sublicense any or
all such rights to third parties, including the right to grant further
sublicenses. All software and firmware listings that are part of the Company
Owned Intellectual Property are adequately commented in accordance with
generally accepted standard industry practices.
(d) Company is not, nor as a result of the execution or delivery of
this Agreement and all other agreements contemplated hereby, or performance of
Company's obligations hereunder or thereunder, will Company be, in violation of
any license, sublicense, or other agreement relating to the Company Intellectual
Property to which Company is a party or otherwise bound. Except as specifically
described in the Company Disclosure Schedule, Company is not obligated to
provide any consideration (whether financial or otherwise) to any
14
<PAGE>
third party, nor is any third party otherwise entitled to any consideration,
with respect to any exercise of rights by Company or its successors or licensees
in the Company Intellectual Property.
(e) The use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any Company Owned
Intellectual Property or any other authorized exercise of rights in or to the
Company Owned Intellectual Property by Company or its successors or licensees
does not and will not infringe any copyright, patent, trade secret, trademark,
service mark, trade name, firm name, logo, trade dress, mask work, moral right,
other intellectual property right, right of privacy, right of publicity, or
right in personal or other data of any person. Further, to the knowledge of
Company and the Principal Stockholders, the use, reproduction, modification,
distribution, licensing, sublicensing, sale, or any other exercise of rights in
any Company Licensed Intellectual Property or any other authorized exercise of
rights in or to the Company Licensed Intellectual Property by Company or its
licensees does not and will not infringe any copyright, patent, trade secret,
trademark, service mark, trade name, firm name, logo, trade dress, mask work,
moral right, other intellectual property right, right of privacy, right of
publicity or right in personal or other data of any person. No claims (i)
challenging the validity, effectiveness, or ownership by Company of any of the
Company Intellectual Property, or (ii) to the effect that the use, reproduction,
modification, manufacturing, distribution, licensing, sublicensing, sale, or any
other exercise of rights in any Company Intellectual Property by Company or its
successors or licensees infringes, or will infringe on, any intellectual
property or other proprietary or personal right of any person, have been
asserted or, to the knowledge of Company and the Principal Stockholders, are
threatened by any person nor, to the knowledge of Company and the Principal
Stockholders, are there any valid grounds for any bona fide claim of any such
kind. All granted or issued patents and all registered mask works, domain
names, and trademarks listed on the Company Disclosure Schedule and all
copyright registrations held by Company are valid, enforceable and subsisting.
To the knowledge of Company and the Principal Stockholders, there is no
unauthorized use, infringement, or misappropriation of any of the Company Owned
Intellectual Property by any employee, or former employee, or other third party.
(f) No parties other than Company possess any current or contingent
rights to any source code that is part of the Company Owned Intellectual
Property (including, without limitation, through any escrow account).
(g) The Company Disclosure Schedule lists all parties who have created
any portion of, or otherwise have any rights in or to, the Company Owned
Intellectual Property other than employees of Company whose work product was
created by them within the scope of their employment by Company and constitutes
works made for hire owned by Company. Company has secured from all parties who
are not employees and who have created any material portion of, or otherwise
have any rights in or to, the Company Owned Intellectual Property valid and
enforceable written assignments or licenses of any such work or other rights to
Company and has provided true and complete copies of such assignments or
licenses to Expedia.
15
<PAGE>
(h) The Company Disclosure Schedule includes a true and complete list
of support and maintenance agreements relating to Company Owned Intellectual
Property or to which Company is a party as to Company Licensed Intellectual
Property, including the identity of the parties and the respective dates of such
agreements.
(i) Company has obtained legally binding written agreements from all
employees and third parties with whom Company has shared confidential
proprietary information (i) of Company or (ii) received from others which
Company is obligated to treat as confidential, which agreements require such
employees and third parties to keep such information confidential.
(j) Company has obtained any and all necessary consents from consumers
with regard to Company's collection and dissemination of personal consumer
information in accordance with Company's privacy policy as published on its
website. Company's practices regarding the collection and use of consumer
personal information are in accordance with Company's privacy policy as
published on its website.
(k) The Company Owned Intellectual Property is, and any products
manufactured and commercially released by Company or currently under
development, are fully Year 2000 Compliant in all material respects and will not
cease to be fully Year 2000 Compliant in any material respect at any time during
or after the calendar year A.D. 2000. To the knowledge of Company and the
Principal Stockholders, the Company Licensed Intellectual Property is fully Year
2000 Compliant in all material respects and will not cease to be fully Year 2000
Compliant in any material respect at any time during or after the calendar year
2000. Schedule 2.1.5(k) sets forth the tests, inquiries and other activities
undertaken by Company up to the Closing, with respect to the Year 2000 Compliant
nature of any and all Company Intellectual Property. For the purposes of this
Agreement, "Year 2000 Compliant" means that neither the performance nor the
functionality of any Company Intellectual Property is or will be materially
affected by dates prior to, during or after the calendar year A.D. 2000 and in
particular (but without limitation):
(i) such Company Intellectual Property accurately receives,
provides and processes, and will accurately receive, provide and process,
date/time data (including calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries;
(ii) such Company Intellectual Property will not malfunction,
cease to function, provide invalid or incorrect results or cause any
interruption in the operation of the business of Company as a result of any
date/time data;
(iii) date-based functionality of such Company Intellectual
Property behaves and will continue to behave consistently for dates prior to,
during and after the calendar year 2000;
16
<PAGE>
(iv) in all interfaces and data storage of such Company
Intellectual Property, the century in any date is and will be specified either
explicitly or by unambiguous algorithms or inferencing rules; and
(v) the calendar year 2000 is and will be recognized as a leap
year by such Company Intellectual Property.
2.1.6 Financial Statements. Company has delivered to Expedia
--------------------
unaudited balance sheets as of December 31, 1998 and as of September 30, 1999,
and the related unaudited statements of income for the years ended December 31,
1998 and for the nine months ended September 30, 1999 (such balance sheets and
statements of income are collectively referred to as the "Financial
Statements"). The Financial Statements: (i) are in accordance with the books and
records of Company, (ii) present fairly, in all material respects, the financial
position of Company as of the dates indicated and the results of its operations
for each of the periods indicated, and (iii) have been prepared in accordance
with generally accepted accounting principles consistently applied except as
described in the Company Disclosure Schedule. There are no material off-balance
sheet liabilities, claims or obligations of any nature, whether accrued,
absolute, contingent, anticipated, or otherwise, whether due or to become due,
that are not shown or provided for either in the Financial Statements or the
Company Disclosure Schedule. The liabilities of Company were incurred in the
ordinary course of Company's business. The "Pro Forma Closing Balance Sheet"
attached as Schedule 2.1.6 sets forth, based on reasonable assumptions relating
to the operation of the business conducted by Company, the projected balance
sheet as of the estimated Closing Date. A "Final Pro Forma Closing Balance
Sheet" will be prepared, and any updates or revisions of such statement will be
prepared, on a basis consistent with the Financial Statements and Schedule
2.1.6.
2.1.7 Taxes.
-----
(a) Each of Company and VacationSpot, S.A., a Belgian
corporation and a Subsidiary of Company ("Foreign Subsidiary"), has timely filed
(or caused to be filed) all federal, state, local and foreign tax returns,
reports, elections and information statements ("Returns") required to be filed
by it, which Returns are true, correct and complete in all respects, and paid
all taxes required to be paid as shown on such Returns. All taxes required to be
paid in respect of the periods covered by such Returns ("Return Periods") or
prior to Closing have either been paid or fully accrued on the books of Company
and Foreign Subsidiary. Company and Foreign Subsidiary have fully accrued all
unpaid taxes in respect of all periods prior to Closing on the Pro Forma Closing
Balance Sheet. Company has not taken any position on any tax return or filing
which is or would be subject to penalties under Section 6662 of the Code. Except
as set forth in the Company Disclosure Schedule, neither Company nor Foreign
Subsidiary has requested or been granted any extension of time to file any
Return the filing of which is pending. There is no difference between the
amounts of the book basis and the tax basis of any asset of Company or Foreign
Subsidiary that is not reflected in an appropriate accrual of deferred tax
liability on the books of Company or Foreign Subsidiary or fully reflected in
the Pro Forma Closing Balance Sheet or the Financial Statements. Company has
provided Expedia true and correct copies of all Returns, all correspondence with
any taxing authority, all
17
<PAGE>
tax work papers, any tax planning memoranda prepared for Company and Foreign
Subsidiary and other tax data.
(b) No deficiencies or adjustments for any tax have been
claimed, proposed or assessed or threatened. Company Disclosure Schedule
accurately sets forth the years for which Company's federal and state income tax
returns, respectively, have been audited and any years which are the subject of
a pending audit by the Internal Revenue Service ("IRS") and the applicable state
taxing agencies. Except as so disclosed, , neither Company nor Foreign
Subsidiary is subject to any pending or, to the knowledge of Company, threatened
tax audit or examination. Neither Company nor Foreign Subsidiary has entered
into any agreements, waivers or other arrangements in respect of the statute of
limitations in respect of its taxes or tax returns. Company Disclosure Schedule
sets forth as of the date hereof a list of all joint ventures, partnerships,
limited liability companies or other business entities (within the meaning of
Treas. Reg. Section 701.7701-3) in which Company or Foreign Subsidiary has an
interest.
(c) For the purposes of this Agreement, the terms "tax" and
"taxes" shall include all federal, state, local and foreign taxes, assessments,
duties, tariffs, registration fees, and other governmental charges including
without limitation all income, franchise, property, production, sales, use,
payroll, license, windfall profits, severance, withholding, excise, gross
receipts and other taxes, as well as any interest, additions or penalties
relating thereto and any interest in respect of such additions or penalties.
(d) There are no liens for taxes upon the assets of Company or
Foreign Subsidiary except for taxes that are not yet payable or which are being
contested in good faith and for which adequate reserves have been established on
the Financial Statements. Each of Company and Foreign Subsidiary has withheld
all taxes required to be withheld in respect of wages, salaries and other
payments to all employees, officers and directors and any taxes required to be
withheld from any other person and has timely paid all such amounts withheld to
the proper taxing authority.
(e) No consent or agreement has been made under Section 341(f)
of the Code, by or on behalf of Company or any predecessor thereof. Neither
Company nor Foreign Subsidiary is or has been a party to any tax sharing or tax
allocation agreement. No item of income or gain reported by Company or Foreign
Subsidiary for financial accounting purposes in any pre-closing period is
required to be included in taxable income in any post-closing period. Company
has never been a member of any affiliated group of corporations within the
meaning of Section 1504 of the Code. Company has not participated in, or
cooperated with, an international boycott within the meaning of Section 999 of
the Code. Neither Company nor Foreign Subsidiary is required to include in
income any adjustment pursuant to Section 481(a) of the Code (or similar
provisions of other law or regulations) in its current or in any future taxable
period, by reason of a change in accounting method; nor does Company of Foreign
Subsidiary have any knowledge that the IRS (or other taxing authority) has
proposed, or is considering, any such change in accounting method. Company is
not a party to any agreement, contract, or arrangement that would result in the
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code or any similar provision of foreign, state or local law ("Excess
Parachute Payment"), including agreements, contracts or arrangements that will
not
18
<PAGE>
result in Excess Parachute Payments because they can and will be approved prior
to the Effective Time in a manner meeting the requirements of Section
280G(b)(5)(B) of the Code. Company does not have and has not had a "permanent
establishment" (as defined in any applicable income tax treaty) in any country
other than the United States. Company and the Principal Stockholders will take
all action necessary to obtain shareholder approvals meeting the requirements of
Section 280G(b)(5) of the Code and the Regulations thereunder, and will
otherwise act in good faith using best efforts to ensure that no payment in
connection with the Merger constitutes an Excess Parachute Payment. Company has
made no election under Section 13261(g)(2) of P.L. 103-66, relating to the
application of Section 197 of the Code. There are no outstanding rulings or
requests for rulings from any taxing authority with respect to Company.
(f) Neither Company nor Foreign Subsidiary is or has ever been a
real property holding corporation within the meaning of Section 897 of the Code.
None of the assets of Company is property that is required to be treated as
owned by any other person pursuant to the "safe harbor lease" provisions of
former Section 168(f)(8) of the Code and in effect immediately prior to the
enactment of the Tax Reform Act of 1986 and none of the assets of Company is
"tax exempt use property" within the meaning of Section 168(h) of the Code. None
of the assets of Company secures any debt the interest on which is tax exempt
under Section 103 of the Code. Company is liable for no taxes under the
provisions of Treas. Reg. Section 1.1502-6(a).
(g) With the exception of Foreign Subsidiary, Company has no
Subsidiary which is resident for taxation purposes in a jurisdiction other than
the United States. Foreign Subsidiary is resident for taxation purposes in
Belgium and no other jurisdictions, and does not have and has not had a
permanent establishment in any country other than Belgium. Foreign Subsidiary
has been a controlled foreign corporation within the meaning of Section 957 of
the Code at all times since its acquisition by Company. Foreign Subsidiary is
not and has not been since its acquisition by Company a passive foreign
investment company within the meaning of Section 1297 of the Code. Company has
or, prior to the Closing Date, will have made an election pursuant to Section
338 of the Code to treat its acquisition of Foreign Subsidiary as an asset
acquisition.
2.1.8 Absence of Certain Changes and Events. Since September 30, 1999,
-------------------------------------
there has not been:
(a) Any transaction involving more than $10,000 entered into by
Company other than in the ordinary course of business; any change (or any
development or combination of developments of which Company or the Principal
Stockholders has knowledge which is reasonably likely to result in such a
change) in Company's Business Condition, other than changes in the ordinary
course of business which in the aggregate have not been materially adverse to
Company's Business Condition; or, without limiting the foregoing, any loss of or
damage to any of the properties of Company due to fire or other casualty, or any
other loss, whether or not insured, amounting to more than $10,000 in the
aggregate;
(b) Any declaration, payment, or setting aside of any dividend
or other distribution to or for the holders of any Company Common Shares;
19
<PAGE>
(c) Any termination, modification, or rescission of, or waiver
by Company of rights under, any existing contract having or likely to have a
material adverse effect on Company's Business Condition;
(d) Any discharge or satisfaction by Company of any lien or
encumbrance, or any payment of any obligation or liability (absolute or
contingent) other than current liabilities shown on the balance sheet included
in the Financial Statements as of September 30, 1999 and current liabilities
incurred since September 30, 1999 in the ordinary course of business; or
(e) Any mortgage, pledge, imposition of any security interest,
claim, encumbrance, or other restriction on any of the assets, tangible or
intangible, of Company.
2.1.9 Accounts Receivable. All of the accounts receivable shown on
-------------------
the balance sheet included in the Financial Statements as of September 30, 1999
have been collected or are good and collectible in the aggregate recorded
amounts thereof (less the allowance for doubtful accounts also appearing in such
September 30, 1999 balance sheet and net of returns and payment discounts
allowable by Company's policies) and can reasonably be anticipated to be paid in
full without outside collection efforts within sixty (60) days of the due date,
subject to no counterclaims or setoffs.
2.1.10 Leases in Effect. All real property leases and subleases as to
----------------
which Company and its Subsidiaries are a party and any amendments or
modifications thereof are listed on the Company Disclosure Schedule (each a
"Lease" and collectively, the "Leases") and are valid, in full force and effect,
enforceable, and there are no existing defaults, and Company has not received or
given notice of default or claimed default with respect to any Lease, nor is
there any event that with notice or lapse of time, or both, would constitute a
default thereunder.
2.1.11 Personal Property. Company has good and marketable title, free
-----------------
and clear of all title defects, security interests, pledges, options, claims,
liens, encumbrances, and restrictions of any nature whatsoever (including,
without limitation, leases, chattel mortgages, conditional sale contracts,
purchase money security interests, collateral security arrangements, and other
title or interest-retaining agreements) to all inventory, receivables,
furniture, machinery, equipment, and other personal property, tangible or
otherwise, reflected on the September 30, 1999 balance sheet included in the
Financial Statements or used in Company's business as of the date of such
balance sheet even if not reflected thereon, except for acquisitions and
dispositions since September 30, 1999 in the ordinary course of business. The
Company Disclosure Schedule lists (i) all computer equipment and (ii) all other
personal property having a book value of $5,000 or more, which are used by
Company in the conduct of its business, and all such equipment and property are
in good operating condition and repair, reasonable wear and tear excepted.
2.1.12 Certain Transactions. None of the directors, officers, or
--------------------
Principal Stockholders of Company, or any member of any of their families (as
defined below), is presently a party to, or was a party to during the year
preceding the date of this Agreement, any
20
<PAGE>
transaction with Company, including, without limitation, any contract,
agreement, or other arrangement (i) providing for the furnishing of services to
or by, (ii) providing for rental of real or personal property to or from, or
(iii) otherwise requiring payments to or from, any such person or any
corporation, partnership, trust, or other entity in which any such person has or
had a 5%-or-more interest (as a stockholder, partner, beneficiary, or otherwise)
or is or was a director, officer, employee, or trustee other than for services
rendered by the Principal Stockholders as employees of Company. None of
Company's officers or directors has any material interest in any property, real
or personal, tangible or intangible, including inventions, copyrights,
trademarks or trade names, used in or pertaining to the business of Company, or
any supplier, distributor or customer of Company, except for the normal rights
of a stockholder, and except for rights under existing employee benefit plans.
For purposes of this Agreement "families" shall include all individuals who by
reason of ancestry, adoption or marriage have a common parent or grandparent.
2.1.13 Litigation and Other Proceedings. Neither Company, its
--------------------------------
Subsidiaries, nor any of its officers, directors, or employees is a party to any
pending or, to the knowledge of Company and the Principal Stockholders,
threatened action, suit, labor dispute (including any union representation
proceeding), proceeding, investigation, or discrimination claim in or by any
court or governmental board, commission, agency, department, or officer, or any
arbitrator, arising from the actions or omissions of Company, its Subsidiaries
or, in the case of an individual, from acts in his or her capacity as an
officer, director, or employee of Company which individually or in the aggregate
would be materially adverse to Company. Company is not subject to any order,
writ, judgment, decree, or injunction that has a material adverse effect on
Company's Business Condition.
2.1.14 No Defaults. Neither Company nor any of its Subsidiaries is,
-----------
nor has Company or any of its Subsidiaries received notice that it would be with
the passage of time, in default or violation of any term, condition or provision
of (i) the Charter Documents of Company; (ii) any judgment, decree or order
applicable to Company; or (iii) any loan or credit agreement, note, bond,
mortgage, indenture, contract, agreement, lease, license or other instrument to
which Company is now a party or by which it or any of its properties or assets
may be bound, except for defaults and violations which, individually or in the
aggregate, would not have a material adverse effect on the Business Condition of
Company.
2.1.15 Major Contracts. Neither Company nor any of its Subsidiaries
---------------
is a party to or subject to:
(a) Any union contract, or any employment contract or
arrangement providing for future compensation, written or oral, with any
officer, consultant, director or employee;
(b) Any plan or contract or arrangement, written or oral,
providing for bonuses, pensions, deferred compensation, retirement payments,
profit-sharing, or the like;
(c) Any joint venture contract or arrangement or any other
agreement which has involved or is expected to involve a sharing of profits;
21
<PAGE>
(d) Any OEM agreement, distribution agreement, volume purchase
agreement, corporate end user sales or service agreement or manufacturing
agreement in which the amount involved exceeds annually, or is expected to
exceed in the aggregate over the life of the contract $10,000 or pursuant to
which Company has granted or received manufacturing rights, most favored nation
pricing provisions or exclusive marketing, reproduction, publishing or
distribution rights related to any product, group of products or territory;
(e) Any lease for real or personal property in which the amount
of payments which Company is required to make on an annual basis exceeds
$10,000;
(f) Any material agreement, license, franchise, permit,
indenture or authorization which has not been terminated or performed in its
entirety and not renewed which may be, by its terms, terminated, impaired or
adversely affected by reason of the execution of this Agreement, the Closing of
the Merger, or the consummation of the transactions contemplated hereby or
thereby;
(g) Except for trade indebtedness incurred in the ordinary
course of business, any instrument evidencing or related in any way to
indebtedness incurred in the acquisition of companies or other entities or
indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, or otherwise which
individually is in the amount of $10,000 or more;
(h) Any material license agreement, either as licensor or
licensee (excluding nonexclusive hardware and software licenses granted to
distributors or end-users in the ordinary course of business consistent with
prior practice); or
(i) Any contract containing covenants purporting to limit
Company's freedom to compete in any line of business in any geographic area.
All contracts, arrangements, plans, agreements, leases, licenses,
franchises, permits, indentures, authorizations, instruments and other
commitments which are listed in the Company Disclosure Schedule pursuant to this
Section 2.1.15 are valid and in full force and effect and Company has not, nor,
to the best knowledge of Company, has any other party thereto, breached any
material provisions of, or entered into default in any material respect under
the terms thereof.
2.1.16 Material Relations. To Company's and the Principal
------------------
Stockholders' knowledge, none of the parties to any of the major contracts
identified in the Company Disclosure Schedule pursuant to Section 2.1.15 have
terminated, or in any way expressed an intent to materially reduce or terminate
the amount of its business with Company or its Subsidiaries in the future.
2.1.17 Insurance and Banking Facilities. The Company Disclosure
--------------------------------
Schedule contains a complete and correct list of (i) all contracts of insurance
or indemnity of Company in force at the date of this Agreement (including name
of insurer or indemnitor, agent, annual premium, coverage, deductible amounts,
and expiration date) and (ii) the names and locations of
22
<PAGE>
all banks in which Company has accounts or safe deposit boxes, the designation
of each such account and safe deposit box, and the names of all persons
authorized to draw on or have access to each such account and safe deposit box.
All premiums and other payments due from Company with respect to any such
contracts of insurance or indemnity have been paid, and Company does not know of
any fact, act, or failure to act which has or might cause any such contract to
be canceled or terminated. All material known claims for insurance or indemnity
have been presented.
2.1.18 Employees. Neither Company nor any of its Subsidiaries has any
---------
written contract of employment or other employment agreement with any of its
employees that is not terminable at will by Company. Company is not a party to
any pending, or to Company's knowledge, threatened, labor dispute. Company has
complied in all material respects with all applicable federal, state, and local
laws, ordinances, rules and regulations and requirements relating to the
employment of labor, including but not limited to the provisions thereof
relating to wages, hours, collective bargaining, payment of social security,
unemployment and withholding taxes, and ensuring equality of opportunity for
employment and advancement of minorities and women. There are no claims
pending, or threatened to be brought, in any court or administrative agency by
any former or current Company employees for compensation, pending severance
benefits, vacation time, vacation pay or pension benefits, or any other claim
pending from any current or former employee or any other person arising out of
Company's status as employer, whether in the form of claims for employment
discrimination, harassment, unfair labor practices, grievances, wrongful
discharge or otherwise.
2.1.19 Employee Benefit Plans. Each employee benefit plan ("Plan")
----------------------
covering active, former, or retired employees of Company or its Subsidiaries is
listed in the Company Disclosure Schedule. Company has made available to
Expedia a copy of each Plan, and where applicable, any related trust agreement,
annuity, or insurance contract. No annual reports (Form 5500) have been
required to be filed with the Internal Revenue Service. To the extent
applicable, each Plan complies, in all material respects, with the requirements
of the Employee Retirement Income Security Act of 1974 as amended ("ERISA"), and
the Code, and any Plan intended to be qualified under Section 401(a) of the Code
has been determined by the Internal Revenue Service to be so qualified and has
remained tax-qualified to this date and its related trust is tax-exempt and has
been so since its creation. No Plan is covered by Title IV of ERISA or Section
412 of the Code. No "prohibited transaction," as defined in ERISA Section 406
or Code Section 4975 has occurred with respect to any Plan. Each Plan has been
maintained and administered in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Plans. There are no pending or anticipated claims against or otherwise
involving any of the Plans and no suit, action, or other litigation (excluding
claims for benefits incurred in the ordinary course of Plan activities) has been
brought against or with respect to any Plan. All contributions, reserves, or
premium payments to the Plan, accrued to the date hereof have been made or
provided for. Company has not incurred any liability under Subtitle C or D of
Title IV of ERISA with respect to any "single-employer plan," within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly maintained by Company, or
any entity which is considered one employer with Company under Section 4001 of
ERISA. Company has not incurred any withdrawal liability under Subtitle E of
Title IV of ERISA with respect to any
23
<PAGE>
"multiemployer plan." within the meaning of Section 4001(a)(3) of ERISA. There
are no restrictions on the rights of Company to amend or terminate any Plan
without incurring any liability thereunder. Company has not engaged in or is a
successor or parent corporation to an entity that has engaged in a transaction
described in ERISA Section 4069. There have been no amendments to, written
interpretation of, or announcement (whether or not written) by Company relating
to, or change in employee participation or coverage under, any Plan. Neither
Company nor any of its ERISA affiliates have any current or projected material
liability in respect of post-employment or post-retirement welfare benefits for
retired or former employees of Company other than health care continuation
benefits required to be provided under applicable law. No tax under Section
4980B of the Code has been incurred in respect of any Plan that is a group
health plan, as defined in Section 5000(b)(1) of the Code. Except as disclosed
on the Company Disclosure Schedule, Company has administered the executive
compensation Plans, if any, in a manner which will not result in a compensation
charge against earnings or the loss of deductions for federal and state income
tax purposes.
2.1.20 Certain Agreements. Except as contemplated by this Agreement
------------------
(or as set forth in the Company Disclosure Schedule), neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will: (i) result in any payment by Company or any of its
Subsidiaries (including, without limitation, severance, unemployment
compensation, parachute payment, bonus or otherwise) becoming due to any
director, employee or independent contractor of Company under any Plan,
agreement or otherwise, (ii) materially increase any benefits otherwise payable
under any Plan or agreement, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
2.1.21 Guarantees and Suretyships. Company has no powers of attorney
--------------------------
outstanding (other than those issued in the ordinary course of business with
respect to tax matters), and Company has no obligations or liabilities (absolute
or contingent) as guarantor, surety, cosigner, endorser, co-maker, indemnitor,
or otherwise respecting the obligations or liabilities of any person,
corporation, partnership, joint venture, association, organization, or other
entity.
2.1.22 Brokers and Finders. Neither Company nor the Principal
-------------------
Stockholder has retained any broker, finder, or investment banker in connection
with this Agreement or any of the transactions contemplated by this Agreement,
nor does or will Company owe any fee or other amount to any broker, finder, or
investment banker in connection with this Agreement or the transactions
contemplated by this Agreement.
2.1.23 Certain Payments. Neither Company nor the Principal
----------------
Stockholders acting on behalf of Company, nor to the best knowledge of Company
and the Principal Stockholders, any person or other entity acting on behalf of
Company has, directly or indirectly, on behalf of or with respect to Company:
(i) made an unreported political contribution, (ii) made or received any payment
which was not legal to make or receive, (iii) engaged in any transaction or made
or received any payment which was not properly recorded on the books of Company,
(iv) created or used any "off-book" bank or cash account or "slush fund," or (v)
engaged in any conduct constituting a violation of the Foreign Corrupt Practices
Act of 1977.
24
<PAGE>
2.1.24 Environmental Matters. To the best knowledge of Company and the
---------------------
Principal Stockholders:
(a) There has not been a discharge or release on any real
property owned or leased by either Company or its Subsidiaries (the "Real
Property") of any Hazardous Material (as defined below) in violation of any
federal, state or local statute, regulation, rule or order applicable to health,
safety and the environment, including without limitation, contamination of soil,
groundwater or the environment, generation, handling, storage, transportation or
disposal of Hazardous Materials or exposure to Hazardous Materials
("Environmental Laws"), except for those that would not, individually or in the
aggregate have a material adverse effect on Company;
(b) No Hazardous Material has been used by Company in the
operation of Company's business in amounts that would violate any Environmental
Laws;
(c) Company has not received from any Governmental Entity or
third party any request for information, notice of claim, demand letter, or
other notification, notice or information that Company is or may be potentially
subject to or responsible for any investigation or clean-up or other remediation
of Hazardous Material present on any Real Property;
(d) There have been no environmental investigations, studies,
audits, tests, reviews, or other analyses, the purpose of which was to discover,
identify, or otherwise characterize the condition of the soil, groundwater, air,
or presence of asbestos at any of the Real Property sites;
(e) There is no asbestos present in any Real Property presently
owned or operated by Company, and no asbestos has been removed from any Real
Property while such Real Property was owned or operated by Company; and
(f) There are no underground storage tanks on, in or under any
of the Real Property and no underground storage tanks have been closed or
removed from any Real Property which are or have been in the ownership of
Company.
"Hazardous Material" means any substance (i) that is a "hazardous
waste" or "hazardous substance" under any federal, state or local statute,
regulation, rule, or order, (ii) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, or otherwise hazardous and is regulated by any
Governmental Entity, (iii) the presence of which on any of the Real Property
causes or threatens to cause a nuisance on any of the Real Property or to
adjacent properties or poses or threatens to pose a hazard to the health or
safety of persons on or about any of the Real Property, or (iv) the presence of
which on adjacent properties could constitute a trespass by Company or the then
current owner(s) of any of the Real Property.
2.1.25 Disclosure. Neither the representations or warranties
----------
made by Company or the Principal Stockholders in this Agreement, nor the final
Company Disclosure Schedule or any other certificate executed and delivered by
Company or the Principal Stockholders pursuant to this Agreement, when taken
together, contains any untrue statement of a material fact, or
25
<PAGE>
omits to state a material fact necessary to make the statements or facts
contained herein or therein not misleading in light of the circumstances under
which they were furnished.
2.1.26 Information Supplied. None of the information supplied
--------------------
or to be supplied by Company, its auditors, attorneys, financial advisors or
other consultants or advisors for inclusion in the Consent Solicitation
Statement\Private Placement Memorandum to be prepared and distributed to all
holders of Company Shares (the "PPM"), will not, at the time of the mailing of
the PPM or any amendment or supplement thereto, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they are made, not misleading.
2.1.27 Reliance. The foregoing representations and warranties
--------
are made by Company and the Principal Stockholders with the knowledge and
expectation that Expedia and Sub are placing reliance thereon.
2.2 Representations and Warranties of Expedia and Sub. Except as
-------------------------------------------------
disclosed in a document referring specifically to the representations and
warranties in this Agreement which identifies by section number the section and
subsection to which such disclosure relates and is delivered by Expedia to
Company prior to the execution of this Agreement (the "Expedia Disclosure
Schedule"), Expedia and Sub represent and warrant to Company and the Principal
Stockholders as follows:
2.2.1 Organization, Standing and Power. Each of Expedia and Sub
--------------------------------
is a corporation duly organized and validly existing under the laws of the
states of their respective jurisdictions, has all requisite power and authority
to own, lease and operate its properties and to carry on its businesses as now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which a failure to so qualify would have a material adverse
effect on the Business Condition of Expedia. Sub was incorporated solely for the
purpose of effectuating the transactions contemplated by this Agreement and has
conducted no business to date otherwise.
2.2.2 Authority. The execution, delivery, and performance of this
---------
Agreement by Expedia and Sub (including but not limited to the execution,
delivery, and performance of the agreements and transactions contemplated by
this Agreement) has been duly authorized by all necessary corporate action of
Expedia and Sub. Certified copies of the resolutions adopted by the Board of
Directors of Expedia and Sub approving this Agreement and the Merger have been
provided to Company. Each of Expedia and Sub has duly and validly executed and
delivered this Agreement, and this Agreement constitutes a valid, binding, and
enforceable obligation of each of Expedia and Sub in accordance with its terms.
2.2.3 Compliance with Laws and Other Instruments. Neither the
------------------------------------------
execution and delivery of this Agreement by Expedia or Sub nor the performance
by Expedia or Sub of its obligations under this Agreement will violate any
provision of law or will conflict with, result in the breach of any of the terms
and conditions of, constitute a default under, permit any party to accelerate
any right under, renegotiate or terminate, require consent, approval, or waiver
by any
26
<PAGE>
party under, or result in the creation of any lien, charge, or encumbrance upon
any of the properties, assets, or shares of capital stock of Expedia pursuant to
any charter document of Expedia or Sub or any agreement, indenture, mortgage,
franchise, license, permit, lease, or other instrument of any kind to which
Expedia is a party or by which Expedia or any of its assets are bound or
affected. No Consent is required by or with respect to Expedia or Sub in
connection with the execution and delivery of this Agreement by Expedia or Sub
or the consummation by Expedia or Sub of the transactions contemplated hereby or
thereby, except for (i) the filing of a premerger notification report and all
other required documents by Expedia and Company, and the expiration of all
applicable waiting periods, under the HSR Act and (ii) the filing of the Merger
Documents with the Secretary of State of Delaware and such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not have a material adverse effect on Expedia's Business Condition.
2.2.4 Financial Statements and SEC Documents. Expedia has made
--------------------------------------
available to Company complete and accurate copies, as amended or supplemented,
of its (a) Form S-1 Registration Statement under the 1933 Act, as amended and
the prospectus dated November 9, 1999 contained in the Form S-1 Registration
Statement and (b) all other reports filed by Expedia pursuant to Section 13 of
the 1934 Act with the SEC since November 9, 1999 (such reports are collectively
referred to herein as the "SEC Documents"). The SEC Documents constitute all of
the documents required to be filed by Expedia under Section 13 of the 1934 Act
with the SEC since November 9, 1999 and were prepared in accordance with the
requirements of the 1934 Act. The SEC Documents (including without limitation
all information and filings incorporated therein by reference) are, as of the
time filed, accurate and complete and contain no material misstatement and do
not omit to state any fact necessary to make the statements therein not
misleading.
2.2.5 Capital Shares. The Expedia Common Shares issuable in the
--------------
Merger are duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement and the Merger Documents will be
validly issued, fully paid, nonassessable and not subject to any preemptive
rights. Assuming the validity and accuracy of the representations of each
Company stockholder set forth in Section 1.1 of the Investment Agreement, such
Expedia Common Shares shall be issued in compliance with federal and state
securities laws. The authorized, issued and outstanding capital shares of
Expedia are as set forth in the SEC Documents as of the dates of the financial
statements or other information included in the SEC Documents. All outstanding
shares of capital stock of Expedia and Sub are duly authorized, validly issued,
fully paid, nonassessable and not subject to any preemptive rights.
2.2.6 Disclosure. Neither the representations or warranties made by
----------
Expedia or Sub in this Agreement, nor the final Expedia Disclosure Schedule or
any other certificate executed and delivered by Expedia pursuant to this
Agreement, when taken together, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein not misleading in light of the circumstances
under which they were furnished.
2.2.7 Reliance. The foregoing representations and warranties are
--------
made by Expedia and Sub with the knowledge and expectation that Company is and
the Principal Stockholders are placing reliance thereon.
27
<PAGE>
2.2.8 Tax Matters. Neither Expedia nor any of its subsidiaries nor,
-----------
to the knowledge of Expedia, any of their respective affiliates or agents is
aware of any agreement, plan or other circumstance that would prevent the Merger
from constituting a transaction under Section 368(a) of the Code.
2.2.9 No Vote Required. No vote of the shareholders of Expedia is
----------------
required by law, Expedia's Articles of Incorporation or Bylaws or otherwise in
order for Expedia and Sub to consummate the Merger and the transactions
contemplated hereby.
2.2.10 Information Supplied. None of the information supplied or to
--------------------
be supplied or incorporated by reference by Expedia, Sub, its auditors,
attorneys, financial advisors or other consultants or advisors for inclusion in
the PPM, will not, at the time of the mailing of the PPM and any amendment or
supplement thereto, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading.
ARTICLE III
COVENANTS OF COMPANY
During the period from the date of this Agreement (except as otherwise
indicated) and continuing until the earlier of the termination of this Agreement
or the Effective Time (or later where so indicated), each of Company and the
Principal Stockholders, jointly and severally, agree (except as expressly
contemplated by this Agreement, as specifically permitted by, or as set forth
in, the Company Disclosure Schedule or otherwise permitted by Expedia's prior
written consent):
3.1 Conduct of Business.
-------------------
3.1.1 Ordinary Course. Company shall carry on its business in the
---------------
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve intact
its present business organizations, keep available the services of its present
officers, consultants, and employees and preserve its relationships with
customers, suppliers, distributors and others having business dealings with it.
Company shall promptly notify Expedia of any event or occurrence or emergency
which is not in the ordinary course of business of Company and which is material
and adverse to Company's Business Condition. The foregoing notwithstanding,
Company shall not, except as approved in writing by Expedia, which approval
shall not be unreasonably withheld:
(a) enter into any commitment or transaction (i) to be
performed over a period longer than six months in duration, or (ii) to purchase
assets (other than raw materials, supplies, or cash equivalents) for a purchase
price in excess of $10,000;
(b) grant any bonus, severance, or termination pay to any
officer, director, independent contractor or employee of Company;
28
<PAGE>
(c) enter into or amend any agreements pursuant to which any
other party is granted marketing, publishing or distribution rights of any type
or scope with respect to any hardware or software products of Company;
(d) except in the ordinary course of business consistent with
prior practice, enter into or terminate any contracts, arrangements, plans,
agreements, leases, licenses, franchises, permits, indentures, authorizations,
instruments or commitments, or amend or otherwise change the terms thereof;
(e) commence a lawsuit other than: (i) for the routine
collection of bills, (ii) in such cases where Company in good faith determines
that failure to commence suit would result in a material impairment of a
valuable aspect of Company's business, provided Company consults with Expedia
prior to filing such suit, or (iii) for a breach of this Agreement;
(f) materially modify existing discounts or other terms and
conditions with dealers, distributors and other resellers of Company's products;
(g) materially modify the terms and conditions of existing
corporate end user licenses or service agreements or enter into new corporate
end user licenses or service agreements except in the case of agreements
presently being negotiated (provided that Company shall not grant exclusive
marketing, reproduction, publishing, distribution or other rights related to any
product, group of products or territory pursuant to any such agreements
presently being negotiated); or
(h) accelerate the vesting or otherwise modify any restricted
stock, or other outstanding rights or other securities.
3.1.2 Dividends, Issuance of or Changes in Securities. Neither
-----------------------------------------------
Company nor its Subsidiaries shall: (i) declare or pay any dividends on or make
other distributions to its stockholders (whether in cash, shares or property),
(ii) issue, deliver, sell, or authorize, propose or agree to, or commit to the
issuance, delivery, or sale of any shares of its capital stock of any class, any
Company Voting Debt or any securities convertible into its capital stock, any
options, warrants, calls, conversion rights, commitments, agreements, contracts,
understandings, restrictions, arrangements or rights of any character obligating
Company to issue any such shares, Company Voting Debt or other convertible
securities, other than (a) issuances of Company Common Stock upon the exercise
of options granted under the Company 1999 Stock Option Plan or (b) issuances of
securities issuable upon conversion or exercise of outstanding convertible or
exercisable securities, (iii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of Company, (iv)
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock, or (v) propose any of the foregoing.
3.1.3 Governing Documents. Neither Company nor its Subsidiaries shall
-------------------
amend its Charter Documents.
3.1.4 No Acquisitions. Company shall not acquire or agree to acquire
---------------
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any
29
<PAGE>
other manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to make
any such acquisition.
3.1.5 No Dispositions. Company shall not sell, lease, license,
---------------
transfer, mortgage, encumber or otherwise dispose of any of its assets or
cancel, release, or assign any indebtedness or claim, except in the ordinary
course of business consistent with prior practice.
3.1.6 Indebtedness. Company shall not incur any indebtedness for
------------
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise.
3.1.7 Compensation. Company shall not adopt or amend any Plan or
------------
pay any pension or retirement allowance not required by any existing Plan.
Company shall not enter into or modify any employment contracts, increase the
salaries, wage rates or fringe benefits of its officers, directors or employees
or pay bonuses or other remuneration except for current salaries and other
remuneration for which Company is obligated pursuant to a written agreement a
copy of which has been provided to Expedia.
3.1.8 Claims. Company shall not settle any claim, action or
------
proceeding, except in the ordinary course of business consistent with past
practice.
3.2 Access to Properties and Records. Throughout the period between the
--------------------------------
date of this Agreement and the Closing, Company shall give Expedia and its
representatives full access, during reasonable business hours but in such a
manner as not unduly to disrupt the business of Company, to its premises,
properties, contracts, commitments, books, records, and affairs, and shall
provide Expedia with such financial, technical, and operating data and other
information pertaining to its business as Expedia may request. With Company's
prior consent, which shall not be unreasonably withheld, Expedia shall be
entitled to make appropriate inquiries of third parties in the course of its
investigation.
3.3 Breach of Representations and Warranties. Except as specifically
----------------------------------------
permitted by this Agreement, neither Company nor any Principal Stockholder will
take any action that would cause or constitute a breach of any of the
representations and warranties set forth in Section 2.1 or that would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event that would cause or constitute
such a breach or inaccuracy, Company or the Principal Stockholders will give
detailed notice thereof to Expedia and will use their best efforts to prevent or
promptly remedy such breach or inaccuracy.
3.4 Consents. Company will promptly apply for or otherwise seek, and use
--------
its best efforts to obtain, all consents and approvals, and make all filings,
required with respect to the consummation of the Merger.
3.5 Tax Returns. Company shall promptly provide Expedia with copies of
-----------
all tax returns, reports and information statements that have been filed or are
filed prior to the Closing Date.
30
<PAGE>
3.6 Stockholder Approval. Each of the Principal Stockholders agrees to
--------------------
vote all of such Principal Stockholder's Company Common Shares, to the extent
allowed by Company's Governing Documents or applicable law, for the approval of
this Agreement and the appropriate Merger Documents as required by the DGCL by
written consent solicited by Company for such purpose or at a special meeting of
Company stockholders called for such purpose.
3.7 Preparation of Disclosure and Solicitation Materials. As promptly as
----------------------------------------------------
practicable after the execution of this Agreement, Company will promptly submit
to its stockholders, information and documents relating to Company, its business
or operations, Expedia, its business or operations, the terms of the Merger and
this Agreement, and the material facts concerning all payments which in the
absence of shareholder approval would be "Parachute Payments" as defined in
Section 280G(b)(2) of the Code, in form and substance satisfactory to Expedia
and its counsel, to satisfy all requirements of applicable state and federal
securities laws, the DGCL and, to the extent within the power of the Company,
Section 280G(b)(5)(B) of the Code and the regulations thereunder. Company will
not provide or publish to its stockholders any material concerning it or its
affiliates that violates the DGCL, the 1933 Act or the 1934 Act with respect to
the transactions contemplated hereby.
3.8 Exclusivity; Acquisition Proposals. Unless and until this Agreement
----------------------------------
shall have been terminated by either party pursuant to Article VIII hereof and
thereafter subject to Section 8.4, neither Company nor any of the Principal
Stockholders shall (and each shall use its best efforts to ensure that none of
its officers, directors, agents, representatives or affiliates) take or cause or
permit any person to take, directly or indirectly, any of the following actions
with any party other than Expedia and its designees: (i) solicit, knowingly
encourage, initiate or participate in any negotiations, inquiries or discussions
with respect to any offer or proposal to acquire all or any significant part of
its business, assets or capital shares whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the foregoing, an "Acquisition Transaction"), (ii) disclose, in
connection with an Acquisition Transaction, any information not customarily
disclosed to any person other than Expedia or its representatives concerning
Company's business or properties or afford to any person other than Expedia or
its representatives or entity access to its properties, books or records, except
in the ordinary course of business and as required by law or pursuant to a
governmental request for information (and then only after giving prior notice to
Expedia), (iii) enter into or execute any agreement relating to an Acquisition
Transaction, or (iv) make or authorize any public statement, recommendation or
solicitation in support of any Acquisition Transaction or any offer or proposal
relating to an Acquisition Transaction other than with respect to the Merger.
In addition, if Company is contacted by any third party expressing interest in
an Acquisition Transaction, Company will promptly notify Expedia in writing of
such contact.
3.9 Employees. Prior to Closing, Company agrees to terminate the
---------
employees listed on Schedule 3.9 and use its best efforts to obtain releases
from such employees substantially in the form attached hereto as Exhibit 3.9.
Company shall pay all severance expenses, if any, associated with termination of
such employees.
31
<PAGE>
3.10 Notice of Events. Throughout the period between the date of this
----------------
Agreement and the Closing, Company shall promptly advise Expedia of any and all
material events and developments concerning its financial position, results of
operations, assets, liabilities, or business or any of the items or matters
concerning Company covered by the representations, warranties, and covenants of
Company and the Principal Stockholders contained in this Agreement.
3.11 Best Efforts. Company and the Principal Stockholders will use their
------------
best efforts to effectuate the transactions contemplated hereby and to fulfill
and cause to be fulfilled the conditions to Closing under this Agreement.
3.12 Employee Benefits Matters. To the extent that service is relevant
-------------------------
for eligibility, vesting and (except as would result in duplication of benefits)
benefit accruals under any employee benefit plan, program or arrangement
maintained by Expedia or any Subsidiary of Expedia, such plan, program or
arrangement shall credit each employee of Company or any Subsidiary of Company
(a "Company Employee") who participate therein for service on or prior to the
Effective Time with Company or any Subsidiary of Company or any Affiliate or
predecessor of any of them. Expedia agrees to offer to Company Employees
benefits commensurate with those benefits conferred to Expedia employees
similarly situated. In addition, Expedia shall (i) waive limitations on
benefits relating to any pre-existing conditions under any Expedia or Subsidiary
of Expedia welfare benefit plan in which Company Employees may participate and
(ii) recognize, for purposes of annual deductible and out-of-pocket limits under
its medical and dental plans, deductible and out-of-pocket expenses paid by
Company Employees and their respective dependents under Company's and any of its
Subsidiary's medical, dental and other healthcare plans in the calendar year in
which the Effective Time occurs. Provided, however, that any Company Employee
who continues with Expedia shall not be eligible to enter the Expedia 401(k)
plan until the next regular entry date set forth in the Expedia 401(k) plan.
ARTICLE IV
COVENANTS OF EXPEDIA
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time (or later
where so indicated), Expedia agrees (except as expressly contemplated by this
Agreement or with Company's prior written consent) that either it or Sub will
take or cause the following actions to be taken:
4.1 Breach of Representations and Warranties. Neither Expedia nor Sub
----------------------------------------
will take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Section 2.2 or which would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, Expedia will give detailed notice thereof to
Company and will use its best efforts to prevent or promptly remedy such breach
or inaccuracy.
32
<PAGE>
4.2 1933 Act Materials. If required by the 1933 Act, Expedia shall
------------------
provide Company and its stockholders with the information relating to Expedia as
required by Rule 502(b) of Regulation D of the 1933 Act and copies of all SEC
filings.
4.3 Consents. Expedia will promptly apply for or otherwise seek, and use
--------
its best efforts to obtain, all consents and approvals, and make filings,
required with respect to the consummation of the Merger.
4.4 Best Efforts. Each of Expedia and Sub will use its best efforts to
------------
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to Closing under this Agreement.
4.5 Conduct of Business by Expedia Pending the Merger. Expedia shall
-------------------------------------------------
promptly notify Company of any event or occurrence that is material and adverse
to the Business Condition of Expedia; provided, however, that the disclosure of
such event or occurrence in a Expedia SEC Document shall satisfy such
requirement so long as such Expedia SEC Document is filed within a reasonable
period of time after Expedia becomes aware of such event or occurrence and in
any event prior to the Effective Time. In the event Expedia or any of its
Subsidiaries shall agree to acquire by merging or consolidating with, by
purchasing an equity interest in, or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof and any such business or assets to be
acquired includes products that could reasonably be considered to be competitive
with the Company's business generally related to the online booking of
properties (a "Competitive Business"), Expedia shall either (i) delay any
filings required to be made by Expedia under the HSR Act with respect to such
acquisition until the applicable waiting period with respect to the Merger under
the HSR Act shall have expired or have been earlier terminated or (ii) agree
with the applicable Governmental Entity to hold separate such Competitive
Business or take similar actions that would cause such Governmental Entity to
permit promptly the expiration or termination of the waiting period under the
HSR Act with respect to the Merger.
4.6 Tax Free Reorganization. Expedia shall not knowingly take any action
-----------------------
(either before or after the Closing) that would cause the Merger to fail to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
Expedia agrees to file its federal and applicable state income tax returns
consistent with treatment of the Merger as a reorganization.
4.7 Nasdaq Listing. Expedia will use its commercially reasonable best
--------------
efforts (i) to cause the shares of Expedia Common Stock to be issued in the
Merger to be quoted upon the Effective Time on the Nasdaq National Market or
listed on such national securities exchange as Expedia Common Stock is listed
and (ii) to cause the shares of Expedia Common Stock issued upon the exercise of
assumed Company Options to be quoted upon issuance on the Nasdaq National Market
or listed on such national securities exchange as shares of Expedia Common Stock
are listed.
ARTICLE V
ADDITIONAL AGREEMENTS
33
<PAGE>
In addition to the foregoing, Expedia, Sub, Company and the Principal
Stockholders each agree to take the following actions after the execution of
this Agreement.
5.1 Investment Agreements. All resale of Expedia Common Shares by the New
---------------------
Expedia Shareholders shall be subject to the restrictions imposed by the
Registration Statement and investment agreements in the form attached as Exhibit
5.1 which shall be entered into by each New Expedia Shareholder and Expedia (the
"Investment Agreements"). Expedia shall be entitled to place appropriate
legends on the certificate evidencing any Expedia Common Shares to be received
by New Expedia Shareholders pursuant to the terms of this Agreement and to issue
appropriate stop transfer instructions to the transfer agent for Expedia Common
Shares consistent with the terms of the Investment Agreements.
5.2 Legal Conditions to the Merger. Each of Expedia and Company will take
------------------------------
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on it with respect to the Merger. Each of Expedia, Company
and the Principal Stockholders will take all reasonable actions to obtain (and
to cooperate with the other parties in obtaining) any Consent required to be
obtained or made by Company or Expedia in connection with the Merger, or the
taking of any action contemplated thereby or by this Agreement.
5.3 HSR Act Filings.
---------------
5.3.1 Filings and Cooperation. Each of Expedia and Company shall
-----------------------
take all reasonable steps (i) promptly to make or cause to be made the filings
required of such party or any of its Affiliates or Subsidiaries under the HSR
Act with respect to the Merger and the other transactions provided for in this
Agreement, (ii) to comply in a timely manner with any request under the HSR Act
for additional information, documents, or other material received by such party
or any of its Affiliates or Subsidiaries from the Federal Trade Commission or
the Department of Justice or other Governmental Entity in respect of such
filings, the Merger, or such other transactions, and (iii) to cooperate with the
other party in connection with any such filing and in connection with resolving
any investigation or other inquiry of any such agency or other Governmental
Entity under any Antitrust Laws (as defined in Section 5.3.2) with respect to
any such filing, the Merger, or any such other transaction. Company shall
promptly inform Expedia of any material communication with, and any proposed
understanding, undertaking, or agreement with, any Governmental Entity regarding
any such filings, the Merger, or any such other transactions. Company shall not
participate in any meeting with any Governmental Entity in respect of any such
filings, investigation, or other inquiry without giving Expedia notice of the
meeting and, to the extent permitted by such Governmental Entity, the
opportunity to attend and participate.
5.3.2 Objections. Each of Expedia and Company shall take all
----------
reasonable steps to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the Merger or any other transactions
provided for in this Agreement under the HSR Act, the Sherman Act, as amended,
the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and
any other federal, state or foreign statutes, rules, regulations, orders, or
decrees that are designed to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade (collectively,
"Antitrust Laws"). In connection therewith,
34
<PAGE>
if any administrative or judicial action or proceeding is instituted (or
threatened to be instituted) challenging the Merger as violative of any
Antitrust Law, and, if by mutual agreement, Expedia and Company decide that
litigation is in their best interests, each of Expedia and Company shall
cooperate vigorously to contest and resist any such action or proceeding and to
have vacated, lifted, reversed, or overturned any decree, judgment, injunction,
or other order, whether temporary, preliminary, or permanent (each an "Order"),
that is in effect and that prohibits, prevents, or restricts consummation of the
Merger. Each of Expedia and Company shall take such reasonable action as may be
required to cause the expiration of the notice periods under the HSR Act or
other Antitrust Laws with respect to the Merger and such other transactions as
promptly as possible after the execution of this Agreement. Notwithstanding
anything to the contrary in this Section 5.3.2 or in Section 5.3.1, (x) Expedia
shall not be required to divest any of its respective businesses, product lines,
or assets, or to take or agree to take any other action or agree to any
limitation that would have a material adverse effect on vacation planning
business of Expedia combined with the Surviving Corporation after Closing, (y)
neither Company nor its Subsidiaries shall be required to divest any of their
respective businesses, product lines, or assets, or to take or agree to take any
other action or agree to any limitation that would have a material adverse
effect on the Business Condition of Company and (z) neither Expedia nor Company
(nor any of their Subsidiaries) shall be required to continue to contest or
resist any action or proceeding brought by a Governmental Entity if it concludes
that such action is no longer in its best interest.
5.4 Employee Benefits. Certain employees of Company will be offered the
-----------------
opportunity to continue employment with Company and/or commence an employment
relationship with Expedia, provided, however, that nothing contained herein or
in the offer letters shall be considered as requiring Company or Expedia to
continue any specific plan or benefit, or to confer upon any employee,
beneficiary, dependent, legal representative or collective bargaining agent of
such employee any right or remedy of any nature or kind whatsoever under or by
reason of this Agreement, including without limitation any right to employment
or to continued employment for any specified period, at any specified location
or under any specified job category, except as specifically provided for in an
offer letter or other agreement of employment. It is specifically understood
that continued employment with Company or employment with Expedia is not offered
or implied for any other employees of Company and any continuation of employment
with Company after the Closing shall be at will.
5.5 Expenses. Whether or not the Merger is consummated, all fees, costs
--------
and other expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expense and, with respect to expenses of Company, to the extent
not paid prior to the Closing such expenses shall be accrued on the Final Pro
Forma Closing Balance Sheet.
5.6 Additional Agreements. In case at any time after the Effective Time
---------------------
any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
Company, the proper officers and directors of each corporation which is a party
to this Agreement shall take all such necessary action.
35
<PAGE>
5.7 Public Announcements. Neither Expedia, Company nor the Principal
--------------------
Stockholders shall disseminate any press release or other announcement
concerning this Agreement or the transactions contemplated herein to any third
party (except to the directors, officers and employees of the parties to this
Agreement whose direct involvement is necessary for the consummation of the
transactions contemplated under this Agreement, to the attorneys and accountants
of the parties hereto, or except as Expedia determines in good faith to be
required by the federal securities laws after consultation with Company) without
the prior written consent of each of the other parties hereto. It is
anticipated that a mutually acceptable joint press release shall be issued only
after the Closing.
5.8 Officers and Directors. Expedia agrees that all rights to
----------------------
indemnification (including advancement of expenses) existing on the date hereof
in favor of the present or former officers, directors and employees of Company
or any of its Subsidiaries (collectively, the "Indemnified Parties") with
respect to actions taken in their capacities as officers, directors and
employees prior to the Effective Time as provided in Company's Certificate of
Incorporation or Bylaws, employment agreements and indemnification agreements
shall survive the Merger and continue in full force and effect for a period of
three years following the Effective Time and shall be guaranteed by Expedia.
This Section 5.8 shall survive the consummation of the Merger at the Effective
Time, and is intended to be for the benefit of, and shall be enforceable by, the
Indemnified Parties, their heirs and personal representatives and shall be
binding on the Surviving Corporation and its respective successors and assigns.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
6.1.1 Governmental Approvals. Other than the filing of the Merger
----------------------
Documents with the Secretary of State of Delaware, all Consents legally required
for the consummation of the Merger and the transactions contemplated by this
Agreement, including any consents and approvals under the HSR Act, shall have
been filed, occurred, or been obtained, other than such Consents, for which the
failure to obtain would have no material adverse effect on the consummation of
the Merger or the other transactions contemplated hereby or on the Business
Condition of Expedia or Company.
6.1.2 No Restraints. No statute, rule, regulation, executive order,
-------------
decree or injunction shall have been enacted, entered, promulgated or enforced
by any United States court or Governmental Entity of competent jurisdiction
which enjoins or prohibits the consummation of the Merger.
6.1.3 Termination of Ownership by Expedia. All shares, warrants or
-----------------------------------
other evidences of equity ownership of Company owned by Expedia or Microsoft
Corporation, a Washington corporation ("Microsoft") shall be terminated and
cancelled by Company and
36
<PAGE>
Expedia or Microsoft, as applicable, immediately prior to, and subject to the
occurrence of, the Effective Time.
6.2 Conditions of Obligations of Expedia and Sub. The obligations of
--------------------------------------------
Expedia and Sub to effect the Merger are subject to the satisfaction of the
following conditions unless waived by Expedia and Sub:
6.2.1 Representations and Warranties of Company and the Principal
-----------------------------------------------------------
Stockholders. The representations and warranties of Company and the Principal
- ------------
Stockholders set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated by
this Agreement. Expedia shall have received a certificate signed by each of
Steven D. Murch and Greg Slyngstad, individually as stockholders and as officers
of Company, to such effect on the Closing Date.
6.2.2 Performance of Obligations of Company and the Principal
-------------------------------------------------------
Stockholders. Company and the Principal Stockholders shall have performed
- ------------
in all material respects all agreements and covenants required to be performed
by them under this Agreement prior to the Closing Date, and Expedia shall have
received a certificate signed by each of Steven D. Murch and Greg Slyngstad,
individually as stockholders and as officers of Company, to such effect on the
Closing Date and except such representations and warranties which address
matters only as of a particular date which shall remain true and correct in all
material respects as of such dates.
6.2.3 Investment and Escrow Agreements. Expedia shall have received
--------------------------------
duly executed Escrow Agreements and Investment Agreements from each stockholder.
6.2.4 Employment Agreements for Required Employees. As of the
--------------------------------------------
Closing, each of the Required Employees listed on Schedule 6.2.4 shall have
signed, and not taken any action or expressed any intent to terminate or modify,
an offer letter accepting employment with Company or Expedia together with any
such other agreements as are customarily executed by new employees of Expedia or
its Subsidiaries or other affiliates in form and content satisfactory to
Expedia.
6.2.5 Noncompetition Agreements. Each of the Principal Stockholders
-------------------------
shall have executed a Noncompetition Agreement substantially in the form
attached as Exhibit 6.2.5 and not taken any action or expressed any intent to
terminate or modify such agreements.
6.2.6 Legal Action. There shall not be overtly threatened or
------------
pending any action, proceeding or other application before any court or
Governmental Entity brought by any person or Governmental Entity: (i)
challenging or seeking to restrain or prohibit the consummation of the
transactions contemplated by this Agreement, or seeking to obtain any damages
caused by such transactions which if successful would have a material adverse
effect on the viability of such transactions; or (ii) seeking to prohibit or
impose any limitations on Expedia's ownership or operation of all or any portion
of Company's business or
37
<PAGE>
assets as a result of the transactions contemplated by the Agreement which if
successful would have a material adverse effect on the viability of such
transactions.
6.2.7 Opinion of Counsel. Expedia shall have received an opinion
------------------
dated as of the Closing Date of the Venture Law Group, counsel to Company,
substantially in the form attached as Exhibit 6.2.7.
6.2.8 Stockholder Approvals. This Agreement, the Merger shall have
---------------------
been approved by the requisite voting power of the outstanding Company Shares
under applicable law and no more than five percent (5%) of the outstanding
Company Shares shall be Eligible Appraisal Shares.
6.2.9 Consents. Expedia shall have received duly executed copies
--------
of all third-party consents, approvals, assignments, waivers, authorizations or
other certificates contemplated by this Agreement or the Company Disclosure
Schedule or reasonably deemed necessary by Expedia's legal counsel to provide
for the continuation in full force and effect of any and all material contracts
and leases of Company and for Expedia to consummate the transactions
contemplated hereby in form and substance reasonably satisfactory to Expedia,
except for such thereof as Expedia and Company shall have agreed in writing
shall not be obtained.
6.2.10 Termination of Rights and Certain Securities. Any registration
--------------------------------------------
rights, rights of refusal, rights to any liquidation preference, or redemption
rights relating to any security of Company shall have been terminated or waived
in writing as of the Closing. Except as set forth in Schedule 1.4, no warrants,
options, convertible securities or other rights to purchase or acquire any
securities of Company shall be outstanding.
6.2.11 Assignments of Personal Rights to Company Intellectual
------------------------------------------------------
Property. The Principal Stockholders, employees, and independent contractors
- --------
(including former independent contractors) of Company shall have executed such
assignments and other documentation as may be reasonably requested by Expedia to
effectively transfer or confirm the transfer of all right, title and interest to
the Company Intellectual Property to Company and/or Expedia as its successor.
6.2.12 No Casualty. There shall not have been any damage,
-----------
destruction or loss, whether or not covered by insurance, materially and
adversely affecting the material proprietary software, documentation or other
Company Intellectual Property where there are no undamaged duplicate copies of
such proprietary software, documentation or other Company Intellectual Property
in the possession of Company. Company shall have delivered copies of its source
code, Company website information and code and other Company Intellectual
Property as requested by Expedia.
6.2.13 Financial Statement Matters. Company shall have provided
---------------------------
Expedia with the Final Pro Forma Closing Balance Sheet (as defined in Section
2.1.6) which shall have been prepared in good faith, in a form reasonably
satisfactory to Expedia and shall not reflect a material adverse change in
Company from the Pro Forma Balance Sheet attached as Schedule 2.1.6. In
addition, Company shall have provided Expedia with financial statements audited
by an
38
<PAGE>
independent public accountant for the years ended December 31, 1998 and 1999
satisfactory for inclusion in a Form 8-K filing with the SEC disclosing the
transactions contemplated by this Agreement.
6.2.14 Transaction Expenses. Expedia shall have received from
--------------------
Company a true, correct and complete schedule of all expenses paid or incurred
in conjunction with the negotiation, preparation, execution and performance of
this Agreement and the transactions contemplated hereby by or on behalf of
Company through the Closing Date (the "Company Expenses"), accompanied by a
certificate signed by the President of Company certifying the accuracy and
completeness thereof.
6.2.15 Tax Matters. The Company shall have filed with the IRS a
-----------
Form 8023, in form reasonably satisfactory to counsel to Expedia, as
contemplated by Section 2.7(g) hereof.
6.3 Conditions of Obligation of Company. The obligation of Company and
-----------------------------------
the Principal Stockholders to effect the Merger is subject to the satisfaction
of the following conditions unless waived by Company and the Principal
Stockholders:
6.3.1 Representations and Warranties of Expedia and Sub. The
-------------------------------------------------
representations and warranties of Expedia and Sub set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, except as otherwise contemplated by this Agreement, and Company shall have
received a certificate signed on behalf of Expedia by an officer of Expedia to
such effect.
6.3.2 Performance of Obligations of Expedia and Sub. Expedia and
---------------------------------------------
Sub shall have performed in all material respects all agreements and covenants
required to be performed by them under this Agreement prior to the Closing Date,
and Company shall have received a certificate signed on behalf of Expedia by an
officer of Expedia to such effect.
6.3.3 Opinion of Expedia's Counsel. Company and the Principal
----------------------------
Stockholders have received an opinion dated the Closing Date of Preston Gates &
Ellis llp, counsel to Expedia, substantially in the form attached as Exhibit
6.3.3.
6.3.4 Tax Opinion. Company and the Principal Stockholders shall have
-----------
received an opinion dated the Closing Date of Venture Law Group, counsel to
Company and the Principal Stockholders, relating to the tax-free treatment of
the Merger. In connection therewith, such counsel may rely on reasonable
representations of the Company and the stockholders of Company.
6.3.5 Listing. Expedia shall have filed an Application for the
-------
Listing of Additional Shares with Nasdaq with respect to the Expedia Common
Shares to be issued in the Merger.
39
<PAGE>
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification Relating to Agreement. The stockholders of Company,
-------------------------------------
by reason of the approval by the stockholders of the Merger and/or each
stockholder's acceptance of the consideration provided for in Section 1.4 and by
the execution of the Escrow Agreement pursuant to Section 1.4.6 which is a
condition to receiving such consideration, shall, jointly and severally, agree
to defend, indemnify, and hold Expedia harmless from and against, and to
reimburse Expedia with respect to, any and all losses, damages, liabilities,
claims, judgments, settlements, fines, costs, and expenses (including attorneys'
fees) ("Indemnifiable Amounts") of every nature whatsoever incurred by Expedia
by reason of or arising out of or in connection with (i) any breach, or any
claim (including claims by parties other than Expedia) that if true, would
constitute a breach, by Company or the Principal Stockholders of any
representation or warranty of Company or the Principal Stockholders contained in
this Agreement or in any certificate or other document delivered to Expedia
pursuant to the provisions of this Agreement, (ii) the failure, partial or
total, of Company or the Principal Stockholders to perform any agreement or
covenant required by this Agreement to be performed by it or them, (iii) any
action or omission by Company, the Principal Stockholders, their affiliates,
agents or representatives relating to this Agreement, and (iv) any unpaid
federal or state tax liability, or asserted liability of Company relating to any
period of time prior to and through the Closing which is not recorded as a
liability in the Financial Statements or the Final Pro Forma Closing Balance
Sheet, and in each case without giving effect to any "materiality" limitations
or references to "material adverse effect" set forth therein. The obligations of
any Holder to indemnify Expedia shall be determined without regard to any right
to indemnification to which any Holder may have in his or her capacity as an
officer, director, employee, agent or any other capacity of Company and no
Holder shall be entitled to any indemnification from Company or the Surviving
Corporation for amounts paid hereunder. There shall be no right of contribution
from Company or any successor to Company.
7.2 Third Party Claims. With respect to any claims or demands by third
------------------
parties, other than claims or demands covered by Section 7.3, whenever Expedia
shall have received a written notice that such a claim or demand has been
asserted or threatened, Expedia shall notify the "Representative" (as designated
in the Escrow Agreement) of such claim or demand and of the facts within
Expedia's knowledge that relate thereto within a reasonable time after receiving
such written notice. The Representative shall then have the right to contest,
negotiate or settle any such claim or demand through counsel of his own
selection, satisfactory to Expedia and solely at the Holders' own cost, risk,
and expense. Notwithstanding the preceding sentence, the Holders shall not
settle, compromise, or offer to settle or compromise any such claim or demand
without the prior written consent of Expedia, which consent shall not be
unreasonably withheld. By way of illustration and not limitation it is
understood that Expedia may object to a settlement or compromise which includes
any provision which in its reasonable judgment may have an adverse impact on or
establish an adverse precedent for the Business Condition of Expedia or any of
its Subsidiaries. Expedia shall not have the right to object to a settlement
which consists solely of the payment of a monetary damage amount and which is
subject to full indemnification under this Agreement. If the Representative
fails to give written notice to Expedia of his intention to contest or settle
any such claim or demand within twenty (20) calendar days after
40
<PAGE>
Expedia has notified the Representative that any such claim or demand has been
made in writing and received by Expedia, or if any such notice is given but any
such claim or demand is not promptly contested by the Representative, Expedia
shall have the right to satisfy and discharge the same by payment, compromise,
or otherwise, in accordance with the procedures set forth in the Escrow
Agreement. Expedia may also, if it so elects and entirely within its own
discretion, defend any such claim or demand if the Representative fails to give
notice of his intention to contest or settle any such claim or demand, in which
event Expedia and its affiliates shall be entitled to indemnification to the
full extent of the Escrowed Shares (as defined in the Escrow Agreement ) for any
and all costs, losses, liabilities, and expenses whatsoever, including without
limitation reasonable attorneys' and other professional fees, that Expedia may
sustain, suffer, incur, or become subject to as a result of Expedia's decision
to defend any such claim or demand.
7.3 Tax Contests. Notwithstanding any of the foregoing, the Holders shall
------------
have no right to control or participate in any federal or state income tax
audit, and Expedia shall have the sole right to conduct any tax audit or other
tax contest relating to the Expedia tax return. In the event any Indemnifiable
Amounts arise out of such tax audits, Expedia will notify the Representative
prior to taking any action with respect thereto and allow him or her to comment
on any written submissions relating to any Indemnifiable Amounts.
7.4 Limitations. Notwithstanding any other provision in this Article VII,
-----------
Expedia shall be entitled to indemnification only if the aggregate Indemnifiable
Amounts exceed Seventy-Five Thousand Dollars ($75,000) (the "Threshold Amount"),
provided that at such time as the amount to which Expedia is entitled to be
indemnified exceeds the Threshold Amount, Expedia shall be entitled to be
indemnified up to the full Indemnifiable Amounts including the Threshold Amount.
Notwithstanding any other provision in this Article VII, Indemnifiable Amounts
to be paid by the Company stockholders shall be satisfied solely by the
securities deposited into escrow pursuant to Section 1.4.6, provided that the
obligations of the Company stockholders for Indemnifiable Amounts arising out of
breaches of the representations, warranties and covenants in Section 2.1.7
relating to taxes, and fraud or willful misstatements or willful omissions by
the Principal Stockholders or Company shall not be subject to the foregoing
limitation (but in no event shall Company stockholders be obligated to pay
aggregate Indemnifiable Amounts, arising out of fraud or willful misstatements
or willful omissions by the Principal Stockholders (each, a "Fraudulent Act")).
With respect to Indemnifiable Amounts arising out of a Fraudulent Act: (i) no
Principal Stockholder responsible for all or a part of such Fraudulent Act shall
be entitled to contribution from any Company stockholder who was not responsible
for a part of such Fraudulent Act, (ii) each Principal Stockholder responsible
for all or a part of such Fraudulent Act shall indemnify and hold harmless each
Company shareholder who was not responsible for any part of such Fraudulent Act
from and against all Indemnifiable Amounts paid, payable or satisfied by such
Company stockholder (other than by means of the securities deposited into escrow
pursuant to Section 1.4.6) provided that Expedia's right to be indemnified by
such Principal Stockholder shall have a priority to the claims of other Company
stockholders, and (iii) no Principal Stockholder responsible for all or a part
of such Fraudulent Act shall have his liability limited by this Section.
7.5 Time Limit. The provisions of this Article VII shall apply only to
----------
Indemnifiable Amounts which are incurred or relate to claims which are asserted
or overtly threatened within
41
<PAGE>
one year from the Closing Date; provided (i) that the obligation of the Company
stockholders to indemnify Expedia for breaches of the representations,
warranties and covenants in Sections 2.1.7 relating to taxes (as defined in
Section 2.1.7) shall continue until thirty (30) days after the expiration of all
statutes of limitations applicable to such taxes and (ii) that obligations of
the Company stockholders for Indemnifiable Amounts arising out of fraud or
willful misstatements or omissions of Company or the Principal Stockholders will
not have a time limit.
7.6 Binding Effect. The indemnification obligations of the Holders
--------------
contained in this Article VII are an integral part of this Agreement and Merger
in the absence of which Expedia would not have entered into this Agreement.
ARTICLE VIII
TERMINATION
8.1 Mutual Agreement. This Agreement may be terminated at any time prior
----------------
to the Effective Time by the written consent of Expedia and Company.
8.2 Termination by Expedia. This Agreement may be terminated by Expedia
----------------------
alone, by means of written notice to Company, if there has been a material
breach by Company or any of the Principal Stockholders of any representation,
warranty, covenant or agreement set forth in the Agreement or other ancillary
agreements, which breach has not been cured within ten (10) business days
following receipt by Company of notice of such breach.
8.3 Termination by Company. This Agreement may be terminated by Company
----------------------
alone, by means of written notice to Expedia, if there has been a material
breach by Expedia of any representation, warranty, covenant or agreement set
forth in the Agreement or other ancillary agreements, which breach has not been
cured within ten (10) business days following receipt by Expedia of notice of
such breach.
8.4 Stockholder Approval. This Agreement may be terminated by either
--------------------
Expedia or Company if any approval of the stockholders of Company shall not have
been obtained by reason of the failure to obtain the required vote upon a vote
taken at any Company stockholders meeting or any adjournment thereof.
8.5 Injunction. This Agreement may be terminated by either Expedia or
----------
Company if any permanent injunction or other order of a court or other competent
authority preventing the Merger shall have become final and not subject to
appeal.
8.6 Outside Date. This Agreement may be terminated by Expedia alone or by
------------
Company alone by means of written notice if the Effective Time does not occur on
or prior to June 30, 2000.
8.7 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Company or Expedia as provided in this Article, this Agreement shall
forthwith become void and
42
<PAGE>
have no effect, and there shall be no liability or obligation on the part of
Expedia, Company, Sub or their respective officers or directors or the Principal
Stockholders, except that (i) the provisions of Sections 5.5, 5.7, 9.2, 9.11,
and any other confidentiality agreement between the parties shall survive any
such termination and abandonment, and (ii) no party shall be released or
relieved from any liability arising from the willful breach by such party of any
of its representations, warranties, covenants or agreements as set forth in this
Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Agreement, including the exhibits and
----------------
schedules delivered pursuant to this Agreement, and any confidentiality
agreement between the parties, contain all of the terms and conditions agreed
upon by the parties relating to the subject matter of this Agreement and
supersede all prior agreements, negotiations, correspondence, undertakings, and
communications of the parties, whether oral or written, respecting that subject
matter.
9.2 Governing Law. Other than corporate matters with respect to the
-------------
Merger which shall be governed by Delaware laws, as applicable, this Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Washington as applied to agreements entered into and entirely to be performed
within that state, without regard to the conflict of laws provisions thereof.
Expedia, Company, the Principal Stockholders and the Representative consent to
jurisdiction and venue in King County, Washington.
9.3 Notices. All notices, requests, demands or other communications which
-------
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given: (i) on the date of
delivery if personally delivered by hand, (ii) upon the third day after such
notice is (a) deposited in the United States mail, if mailed by registered or
certified mail, postage prepaid, return receipt requested, or (b) sent by a
nationally recognized overnight express courier, or (iii) by facsimile upon
written confirmation (other than the automatic confirmation that is received
from the recipient's facsimile machine) of receipt by the recipient of such
notice:
If to Expedia or Sub: Expedia, Inc.
--------------------- 13810 SE Eastgate Way, Suite 400
Bellevue, WA 98005
Attention: Mark S. Britton,
Vice President and General Counsel
Telephone No.: (425) 564-7332
Facsimile No.: (425) 564-7240
With a copy to: Preston Gates & Ellis LLP
-------------- 5000 Bank of America Tower
701 Fifth Avenue
Seattle, WA 98104-7078
Attention: Mark R. Beatty
Telephone No.: (206) 623-7580
Facsimile No.: (206) 623-7022
43
<PAGE>
If to Company: VacationSpot.com, Inc.
------------- 2200 Sixth Avenue, Suite 1122
Or the Principal Stockholders Seattle, WA 98121
Attention: Steve Murch
Telephone No.: (206) 256-0504
Facsimile No.: (206) 256-0502
With a copy to: Venture Law Group
-------------- 4750 Carillon Point
Kirkland, Washington 98033
Attention: John Robertson
Telephone No. (425) 739-8700
Facsimile No: (425) 739-8750
If to the Carla S. Newell
--------- 575 High Street
Representative: Suite 400, Palo Alto, CA 94301
-------------- Telephone No.: (650) 614-8210
Facsimile No.: (650) 614-8222
Such addresses may be changed, from time to time, by means of a notice
given in the manner provided in this Section 9.3.
9.4 Severability. If any provision of this Agreement is held to be
------------
unenforceable for any reason, it shall be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement shall be
deemed valid and enforceable to the full extent.
9.5 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained in this Agreement, including the exhibits and schedules
delivered pursuant to this Agreement, shall survive the Effective Time and
except for claims permitted by Section 7.5, such survival shall terminate one
year from the Effective Time.
9.6 Assignment. No party to this Agreement may assign, by operation of
----------
law or otherwise, all or any portion of its rights, obligations, or liabilities
under this Agreement without the prior written consent of the other party to
this Agreement, which consent may be withheld in the absolute discretion of the
party asked to grant such consent. Any attempted assignment in violation of
this Section 9.6 shall be voidable and shall entitle the other party to this
Agreement to terminate this Agreement at its option in addition to any and all
other remedies that may be available to such party at law or in equity.
9.7 Counterparts. This Agreement may be executed in two or more partially
------------
or fully executed counterparts each of which shall be deemed an original and
shall bind the signatory, but all of which together shall constitute but one and
the same instrument. The execution and delivery of a Signature Page - Agreement
and Plan of Reorganization in the form annexed to this
44
<PAGE>
Agreement by any party hereto who shall have been furnished the final form of
this Agreement shall constitute the execution and delivery of this Agreement by
such party.
9.8 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of each of the parties hereto.
9.9 Extension, Waiver. At any time prior to the Effective Time, any party
-----------------
hereto may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements, covenants or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
9.10 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits or Schedules, such reference shall be to a Section, Exhibit
or Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes," and "including" when used therein shall be deemed in each case to be
followed by the words "without limitation." The table of contents, index to
defined terms, and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.11 Confidentiality. Prior to any required disclosure by Expedia pursuant
---------------
to applicable laws, or any other disclosure by Expedia, Company and the
Principal Stockholders agree to keep confidential and not to disclose the terms
and conditions of this Agreement specifically including, without limitation, the
Final Valuation and number of Expedia Common Shares to be issued and to advise
all Company officers, directors, stockholders and employees (and counsel to
Company and its stockholders) of this obligation and to indemnify and hold
Expedia harmless from any breach of this agreement in accordance with the
provisions of Article VII.
9.12 Arbitration. The parties shall endeavor to resolve all disputes by
-----------
agreement and to that end shall each provide the other with sufficient
descriptions and information regarding its position to permit informed
assessments and decisions. Any disagreement, claim, demand, controversy, or
dispute which arises after the Closing in any way relating to this Agreement and
the performance or alleged breach by the parties, whether involving questions of
law or fact or both and regardless of the nature thereof or the remedy therefor,
which is not settled by agreement of the parties shall be resolved pursuant to
the arbitration provisions in Section 2.3.3 of the Escrow Agreement.
45
<PAGE>
SIGNATURE PAGE - AGREEMENT AND PLAN OF REORGANIZATION
IN WITNESS WHEREOF, Expedia, Sub, Company and the Principal Stockholders
have executed this Agreement as of the date first written above.
EXPEDIA, INC. VACATIONSPOT.COM, INC.
By /s/ Richard N. Barton By /s/ Steven D. Murch
------------------------------------ ------------------------
Name: Richard N. Barton Name: Steven D. Murch
Title: President Title: President
VACATIONSUB, INC.
By /s/ Mark Britton
-------------------------------------
Name: Mark Britton
Title: Vice President and Secretary
PRINCIPAL STOCKHOLDERS:
/s/ Steven D. Murch /s/ Greg Slyngstad
- --------------------------------------- ---------------------------
Steven D. Murch Greg Slyngstad
46
<PAGE>
Exhibit 99.1
Press Release of Expedia
Expedia, Inc. Closes Acquisitions of Travelscape.com, Inc. and VacationSpot.com,
Inc.
Lodging Acquisitions Provide Expedia Customers With Access to Lowest Prices and
Widest Selection on the Internet
BELLEVUE, Wash., March 21 /PRNewswire/ -- Expedia(R), Inc. (Nasdaq: EXPE - news)
---- ----
today announced that on March 17, 2000, it closed the acquisitions of two
leading players in the Internet lodging industry, Travelscape.com, Inc. and
VacationSpot.com, Inc. The acquisitions firmly position Expedia as the leader in
Internet lodging with 65,000 lodging properties worldwide, guaranteed lowest
hotel rates in 240 cities, and a combined run rate of approximately 2 million
room nights per year.
In the two separate transactions Expedia, Inc. has acquired:
-- Travelscape.com, Inc. -- the leading branded Internet hotel wholesaler
and packager with discounted rate contracts at over 1,400 hotels in
240 cities worldwide, operating the Travelscape.com
( http://www.travelscape.com ) website. By contracting with hotel
--------------------------
properties for inventory at wholesale prices, the company is able to
offer customers guaranteed lowest prices and discounts of up to 70%.
Travelscape.com also offers savings on a wide variety of air and hotel
packages.
-- VacationSpot.com, Inc. -- the leading reservation network for vacation
homes, rental condos, inns and bed & breakfasts around the world,
operating the VacationSpot.com ( http://www.vacationspot.com ) and
---------------------------
Rent-a-Holiday.com ( http://www.rent-a-holiday.com ) websites. The
-----------------------------
company's websites offer over 25,000 unique properties in more than
4,000 vacation destinations and more than 100 countries worldwide.
VacationSpot.com offers property managers easy-to-use infrastructure
to make their lodging inventory instantly bookable online.
"The lodging industry represents an enormous opportunity for Expedia," said
Richard Barton, president and CEO of Expedia, Inc. "To date, finding a hotel,
vacation rental, or condominium online has been a complex process. With the
addition of Travelscape.com, Inc. and VacationSpot.com, Inc. to the existing
Expedia hotel business we are able to simplify their search for the perfect
place to stay and provide our customers with a range of options that is
unparalleled on or off the Internet."
Terms
Expedia, Inc. has issued approximately 2.6 million shares and options in
exchange for all of the outstanding shares, options and warrants of
VacationSpot.com, Inc. As of December 31, 1999, VacationSpot.com, Inc. had a
cash position of approximately $10 million. Expedia, Inc. has issued
approximately 3.0 million shares, options and warrants, in exchange for all
outstanding shares, options and warrants of Travelscape.com, Inc. Expedia is
also assuming and retiring
1
<PAGE>
long-term debt of approximately $8 million as part of the Travelscape.com, Inc.
acquisition. As of December 31, 1999, Travelscape.com, Inc. had a cash position
of approximately $4 million. Expedia, Inc. expects to incur total transaction
expenses of approximately $4 million in connection with these acquisitions. The
company will account for the transactions under the purchase method of
accounting.
About Expedia, Inc.
Expedia, Inc. operates the Expedia.com(TM) online travel service in the United
States with localized versions for travelers in Canada, Germany and the United
Kingdom. To help customers Travel Right, Expedia provides the best combination
of air, car, and hotel booking, vacation package and cruise offers, destination
information, and point-to-point mapping. According to Media Metrix, Expedia.com
was the most visited travel website for February 2000 with more than 5.3 million
unique visitors.
This press release contains forward-looking statements relating to future events
or future financial performance that involve risks and uncertainties. Such
statements can be identified by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or comparable terms.
These statement are only predictions and actual results could differ materially
from those anticipated in these statements based upon a number of factors
including final adjustments made in closing the quarter and those identified in
the Company's filings with the SEC.
For investor information about Expedia, Inc: http://investor.expedia.com, or
---------------------------
call the Company's Investor Relations team at 425-564-7233.
NOTE: Expedia and Expedia.com are either registered trademarks or trademarks of
Expedia, Inc. in the U.S. and Canada.
SOURCE: Expedia, Inc.
___________________________
2
