PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-12
EXPEDIA, INC.
(Name of Registrant as Specified in Its Charter)
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calcdfulated and state how it was determined):
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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[LOGO OF EXPEDIA, INC.]
October 9, 2000
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Expedia, Inc., which will be held at the Holiday Inn, 1801 12th Avenue NW,
Issaquah, Washington on November 9, 2000, at 2:00 p.m. I look forward to
greeting as many of our shareholders as possible. Details of the business to
be conducted at the annual meeting are given in the attached Notice of Annual
Meeting and Proxy Statement.
Whether or not you attend the annual meeting it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to sign,
date, and promptly return the enclosed proxy in the enclosed postage-paid
envelope. If you decide to attend the annual meeting and vote in person, you
will of course have that opportunity.
On behalf of the Board of Directors, I would like to express our
appreciation for your interest in the affairs of Expedia.
Sincerely,
/s/ Richard N. Barton
Richard N. Barton
President and Chief Executive
Officer
EXPEDIA, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on November 9, 2000
To Our Shareholders:
The annual meeting of the shareholders of Expedia, Inc. will be held at the
Holiday Inn, 1801 12th Avenue NW, Issaquah, Washington, on November 9, 2000,
at 2:00 p.m. for the following purposes:
1. To elect directors.
2. To approve proposed amendments to the Expedia, Inc. 1999 Stock Option
Plan that provide for increases in the number of shares reserved for
issuance under such plan.
3. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on September 11, 2000
are entitled to notice of, and to vote at, this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mark S. Britton
Mark S. Britton, Secretary
Bellevue, Washington
October 9, 2000
IMPORTANT
Whether or not you expect to attend in person, we urge you to sign, date,
and return the enclosed Proxy at your earliest convenience. This will
ensure the presence of a quorum at the meeting. Promptly signing, dating,
and returning the Proxy will save us the expenses and extra work of
additional solicitation. An addressed envelope for which no postage is
required if mailed in the United States is enclosed for that purpose.
Sending in your Proxy will not prevent you from voting your stock at the
meeting if you desire to do so, as your Proxy is revocable at your option.
EXPEDIA, INC.
13810 SE Eastgate Way, Suite 400
Bellevue, Washington 98005
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
To Be Held November 9, 2000
This Proxy Statement, which was first mailed to shareholders on October 9,
2000, is furnished in connection with the solicitation of proxies by the Board
of Directors of Expedia, Inc., to be voted at Expedia's annual meeting of
shareholders, which will be held at 2:00 p.m. on November 9, 2000, at the
Holiday Inn, 1801 12th Avenue NW, Issaquah, Washington for the purposes set
forth in the accompanying Notice of Annual Meeting of Shareholders.
Shareholders who execute proxies have the right to revoke them at any time
prior to their exercise by delivering a signed statement to the Secretary of
Expedia(R) at or prior to the annual meeting or by executing another proxy
dated as of a later date. Expedia is paying all expenses related to the
solicitation of proxies for the annual meeting.
Shareholders of record at the close of business on September 11, 2000 will
be entitled to vote at the meeting. Each share will have one vote. On
September 11, 2000, there were 48,258,155 shares of common stock outstanding,
held of record by 377 shareholders.
1. ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
Our Board of Directors currently consists of seven members. Jay C. Hoag
joined the Board in August 2000 as part of a $50 million investment in Expedia
by affiliates of Technology Crossover Ventures ("TCV"). Mr. Hoag is a General
Partner of TCV.
All seven directors are to be elected at the annual meeting, to hold office
until the next annual meeting of shareholders and until their successors are
elected and qualified. We expect that the accompanying proxy will be voted in
favor of the following persons to serve as directors unless you indicate to
the contrary on your proxy card. We also expect that each of the nominees will
be available for election, but if any of them is not a candidate at the time
the election occurs, we expect that such proxy will be voted for the election
of another nominee to be designated by the Board of Directors to fill the
vacancy.
Nominees
Richard N. Barton, 33, founded Expedia in 1994. He has served as the
President and Chief Executive Officer and a Director of Expedia since
September 1999. Prior to this, he worked for Microsoft Corporation from 1991
to 1994 in various product management roles involving Windows(R) and MS-DOS.
Prior to joining Microsoft(R) in 1991, he worked as a strategy consultant for
Alliance Consulting Group. Mr. Barton received a B.S. in industrial
engineering from Stanford University.
Gregory B. Maffei, 40, has served as Chairman of the Board of Directors of
Expedia since 1999. Since January 2000, Mr. Maffei has served as the Chief
Executive Officer and a Director of 360networks Inc. From 1997 until January
2000, he was the Senior Vice President, Finance & Administration and Chief
Financial Officer of Microsoft. Previously, Mr. Maffei has held a number of
positions at Microsoft, including Vice President of Corporate Development,
Treasurer, and Director, Business Development & Investments. Prior to joining
Microsoft in 1993, he was with Citicorp Venture Capital, Pay N Pak Stores and
Dillon Read. Mr. Maffei received an A.B. degree from Dartmouth College and an
M.B.A. from Harvard Business School, where he was a Baker Scholar. Mr. Maffei
serves on the board of directors of Starbucks Corporation, Avenue A Inc. and
Optical Networks, Inc.
Brad Chase, 39, has served as a Director of Expedia since 1999. Since April
1999, he has been Senior Vice President of the Consumer and Commerce Group of
Microsoft. Prior to his current position, Mr. Chase held a
1
number of positions at Microsoft since July 1987, most recently managing the
Windows Marketing and Developer Relations Group. Previously, he managed the
marketing and development teams for Microsoft Plus!, served as General Manager
for MS-DOS(R) and served in a variety of other management roles at Microsoft
in the applications division. Mr. Chase received a B.S. from the University of
California at Berkeley and an M.B.A. from Northwestern's Kellogg Graduate
School of Management.
Gerald Grinstein, 68, has served as a Director of Expedia since 1999. Mr.
Grinstein has been non-Executive Chairman of Agilent Technologies since 1999
and served as non-Executive Chairman of the Board of Delta Air Lines, Inc. He
is also a principal of Madrona Investment Group, L.L.C., a Seattle-based
investment company. From 1985 to 1991, Mr. Grinstein held a number of
positions at Burlington Northern, Inc., including serving as Chairman and
Chief Executive Officer from 1991 until his retirement in 1995. He is also a
director of PACCAR Inc., Vans, Inc., The Pittston Company and Imperial Sugar
Corporation. He previously served as a director of Browning-Ferris Industries,
Inc. and Sundstrand Corporation.
Jay C. Hoag, 42, has served as a Director of Expedia since August 2000.
Since June 1995, Mr. Hoag has been a General Partner of Technology Crossover
Ventures. From 1982 to 1994, he served in a variety of capacities at
Chancellor Capital Management, Inc. Mr. Hoag serves on the Board of Directors
of Autoweb.com, eLoyalty, EXE Technologies , iVillage Corporation, and several
privately held companies. He received his B.A. in Economics and Political
Science from Northwestern University and his M.B.A. from the University of
Michigan.
Laurie McDonald Jonsson, 51, has served as a Director of Expedia since 1999.
Since 1987, she has served as Chairperson and CEO of Stellar Travel, a
Seattle-based travel agency specializing in family, business and cruise
vacation travel, and President and CEO of Stellar International, an
international investment company. She also co-founded both Sundance Cruises
and Admiral Cruises. Ms. McDonald Jonsson serves on the board of directors of
the Commerce Bank, the Harvard University, John F. Kennedy School of
Government, Women's Leadership Board, and is also chair of Governor Locke's
Executive Women's Council, which sponsored the first all-women's trade and
study mission to Central Europe. She received a B.A. from the University of
Washington, an M.S.W. from the University of Michigan and completed Stanford
University's Executive Business Program.
Richard D. Nanula, 40, has served as a Director of Expedia since 1999. Since
1999, he has served as President and Chief Executive Officer of Broadband
Sports, Inc., an Internet-based media company focused on delivering unique
sports content to sports fans. Prior to this, Mr. Nanula was the President and
Chief Operating Officer of Starwood Hotels & Resorts, Inc. from 1998 to 1999.
Previously, Mr. Nanula held a variety of positions at The Walt Disney Company
from 1986 to 1998, serving most recently as Senior Executive Vice President
and Chief Financial Officer from 1996 to 1998, as President of The Disney
Stores from 1994 to 1996 and as Executive Vice President and Chief Financial
Officer from 1991 to 1994. Mr. Nanula received a B.S. from the University of
California, Santa Barbara and an M.B.A. from Harvard Business School.
Information Regarding the Board and its Committees
Our Board of Directors has an Audit Committee and a Compensation Committee.
There is no standing finance or nominating committee. The Audit Committee
meets with financial management, the internal auditors, and the independent
auditors to review internal accounting controls and accounting, auditing, and
financial reporting matters. The Compensation Committee reviews the
compensation of the Chief Executive Officer and other officers of the Company,
reviews executive bonus plan allocations, and grants stock options to officers
and employees of the Company under its stock option plan.
During fiscal 2000, Messrs. Grinstein, Maffei and Nanula served on the Audit
Committee, and Messrs. Chase and Grinstein and Ms. Jonsson served on the
Compensation Committee. However, the Board revised the composition of these
committees in July 2000. Presently, Messrs. Grinstein and Maffei and
Ms. Jonsson serve on the Audit Committee, and Messrs. Chase, Maffei and Nanula
serve on the Compensation Committee.
2
As Expedia has been a reporting company only since its separation from
Microsoft in November 1999, the Audit Committee did not meet during fiscal
2000 and the Compensation Committee met two times during fiscal 2000. The
entire Board of Directors met five times during the last fiscal year. Each of
Mr. Chase and Ms. Jonsson did not attend two meetings of the Board of
Directors and one meeting of the Compensation Committee.
Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are also our
employees are eligible to participate in our 1999 Stock Option Plan and will
be eligible to participate in the Expedia, Inc. 1999 Employee Share Purchase
Plan. Directors who are not employees are eligible to participate in our 1999
Stock Option Plan for Non-Employee Directors. Messrs. Chase and Maffei are
considered employees for purposes of administering the 1999 Stock Option Plan.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Gregory Maffei, our Chairman of the Board, serves on the Compensation
Committee. As stated above, Mr. Maffei is considered an employee for purposes
of administering the 1999 Stock Option Plan.
BENEFICIAL OWNERSHIP
Beneficial Ownership of Principal Shareholders, Directors, and Management
The following table sets forth information regarding the beneficial
ownership of our common shares by our principal shareholders, directors and
executive officers, and our directors and executive officers as a group.
Amount and Nature of
Names Beneficial Ownership Percent of Class
----- -------------------- ----------------
Microsoft Corporation (1)............ 33,722,710 69.8%
TCV Funds (2)........................ 4,301,802 8.8%
Richard N. Barton (3)................ 296,007 *
Byron D. Bishop (4).................. 318,867 *
Erik C. Blachford (5)................ 73,905 *
Simon J. Breakwell (6)............... 55,310 *
Mark S. Britton...................... 4,476 *
Kathleen K. Dellplain (7)............ 7,455 *
Seth E. Eisner (8)................... 115,104 *
Gregory S. Stanger (9)............... 176,574 *
Gregory E. Slyngstad................. 256,736 *
Gregory B. Maffei (10)............... 601,081 1.2%
Brad Chase (11)...................... 164,705 *
Gerald Grinstein (12)................ 9,573 *
Laurie McDonald Jonsson.............. 6,000 *
Richard D. Nanula.................... 6,400 *
Jay C. Hoag (13)..................... 4,301,802 8.8%
All directors and officers as a group
(14)................................ 6,393,995 12.6%
- --------
(1) Microsoft's address is One Microsoft Way, Redmond, WA, 98052. The number
of shares owned includes warrants to purchase 120,452 shares of common
stock currently exercisable within 60 days of the date of the record
date.
(2) Consists of 3,654 shares held by TCV III (GP), 17,358 shares held by TCV
III L.P., 461,346 shares held by TCV III (Q), L.P. and 20,892 shares
held by TCV III Strategic Partners, L.P. (the forgoing four entities,
collectively, the "TCV III Funds"), 3,081,392 shares and 580,609
warrants held by TCV IV, L.P. and 114,901 shares and 21,650 warrants
held by TCV IV Strategic Partners, L.P. (the latter two entities,
collectively, the "TCV III Funds" and, together with the TCV IV Funds,
the "TCV Funds"). The
3
21,650 warrants to purchase common stock held by TCV IV Strategic
Partners, L.P. and 580,609 warrants to purchase common stock held by TCV
IV, L.P. are exercisable within 60 days. Mr. Hoag, a director of the
Company, is a Managing Member of Technology Crossover Management III,
L.L.C. which is the General Partner of each of the TCV III Funds and a
Managing Member of Technology Crossover Management IV, L.L.C. which is the
General Partner of each of the TCV IV Funds. Mr. Hoag disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein. The address for each of these persons and entities is c/o
Technology Crossover Ventures, 528 Ramona Street, Palo Alto, California
94301.
(3) Includes 283,876 shares that Mr. Barton has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(4) Includes 299,617 shares that Mr. Bishop has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(5) Includes 68,561 shares that Mr. Blachford has the right to purchase
under options that are currently exercisable or will be exercisable
within 60 days of the record date.
(6) Includes 50,310 shares that Mr. Breakwell has the right to purchase
under options that are currently exercisable or will be exercisable
within 60 days of the record date.
(7) Includes 5,955 shares that Ms. Dellplain has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(8) Includes 109,888 shares that Mr. Eisner has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(9) Includes 174,574 shares that Mr. Stanger has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(10) Includes 591,081 shares that Mr. Maffei has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(11) Includes 158,705 shares that Mr. Chase has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(12) Includes 1,355 shares that Mr. Grinstein has the right to purchase under
options that are currently exercisable or will be exercisable within 60
days of the record date.
(13) Consists of 3,699,543 shares and 602,259 warrants to purchase common
stock held by the TCV Funds (see footnote 2). The warrants are
exercisable within 60 days.
(14) Includes 3,699,543 shares and 602,259 warrants to purchase common stock
held be the TCV Funds (see footnotes 2 and 13). The warrants are
exercisable within 60 days.
* Less than one percent of the outstanding shares of common stock
4
Section 16(a) Beneficial Ownership Reporting Compliance
Each of our officers and directors and Microsoft filed their respective Form
3 late. These Forms 3 are Initial Statements of Beneficial Ownership and were
due on the date of the Company's Initial Public Offering.
EXECUTIVE OFFICER COMPENSATION
Cash Compensation
The following table discloses compensation received for the two fiscal years
ended June 30, 2000, by our Chief Executive Officer and four other highest paid
executive officers (collectively, the "Named Executive Officers").
Annual Compensation
--------------------
Salary Underlying All Other
Name and Principal Positions(1) Year ($)(2) Bonus ($) Options(3) Compensation
- ------------------------------- ---- ---------- --------- ---------- ------------
Richard N. Barton............................ 2000 161,078 64,500 100,000 --
President, Chief Executive Officer 1999 119,072 50,000 -- --
Officer and Director
Byron D. Bishop.............................. 2000 148,167 30,000 -- --
Senior Vice President, 1999 128,231 49,000 -- --
Transportation and Core Technology
Simon J. Breakwell........................... 2000 121,042 36,000 31,741 --
Senior Vice President and Managing Director, 1999 105,157 6,500 10,000 8,194(4)
Expedia Europe
Seth E. Eisner............................... 2000 128,167 26,000 63,482 --
Senior Vice President, 1999 108,584 23,700 10,000 --
Operations and Supplier Services
Gregory S. Stanger........................... 2000 124,904 31,772 50,786 --
Senior Vice President and 1999 101,427 35,591 40,000 --
Chief Financial Officer
- --------
(1) Prior to October 1, 1999, each of these officers was employed by Microsoft
(2) Includes amounts deferred at the election of the Named Executive Officers
pursuant to Expedia's 401(k)
Plan.
(3) The amounts stated for 1999 reflect the number of Microsoft options
received by each Named Executive Officer in that fiscal year. Upon
Expedia's initial public offering, the unvested portion of these options,
which was approximately 87.5%, converted to Expedia options at a rate of
6.3482 to 1. The vested portion of these options did not convert and
remained as Microsoft options. The amounts stated for 2000 reflect: (i)
the number of Expedia options received by each Named Executive Officer in
exchange for Microsoft options granted in that fiscal year; plus (ii) the
number of Expedia options received by each Named Executive Officer in that
fiscal year.
(4) Reflects a one-time reimbursement for moving expenses.
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Compensation Pursuant to Stock Options
The following table provides information on option grants in fiscal 2000 to
the Named Executive Officers as of June 30, 2000.
Individual Grants
---------------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options/SARs of Stock Price Appreciation
Underlying Granted to Exercise or for Option Term
Options/SARs Employees in Base Expiration -----------------------------------
Name Granted (#) (1) Fiscal Year Price ($/Sh) Date 0% ($) 5% ($) 10% ($)
- ---- --------------- ------------ ------------ ---------- ---------- ----------- ------------
Richard N. Barton....... 100,000 0.6% $14.00 11/9/2006 $ -- $ 569,941 $ 1,328,204
Byron D. Bishop......... -- -- -- -- $ -- -- --
Simon J. Breakwell...... 31,741 0.2% $13.52 7/30/2006 $ -- $ 174,671 $ 407,059
Seth E. Eisner.......... 63,482 0.4% $13.52 7/30/2006 $ -- $ 349,343 $ 814,117
Gregory S. Stanger...... 50,786 0.3% $13.52 7/30/2006 $ -- $ 279,476 $ 651,299
------- --- ------ --------- ---------- ----------- ------------
Totals for Named
Executives............. 246,009 1.5% $ -- $ 1,373,431 $ 3,200,679
======= === ========== =========== ============
All Shareholders........ $8,866,248 $61,548,541 $133,379,097
========== =========== ============
- --------
(1) The amounts in this column reflect: (i) the number of Expedia options
received by each Named Executive Officer in exchange for Microsoft
options granted in that fiscal year, plus (ii) the number of Expedia
options received by each Named Executive Officer in that fiscal year.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information on option exercises in fiscal 2000
by the Named Executive Officers and the value of such officers' unexercised
options at June 30, 2000.
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options
Acquired Year-End(#) at Fiscal Year-End($)
on Exercise Value Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------------- ----------- ------------- ----------- -------------
Richard N. Barton....... -- $ -- 259,005 809,374 $2,670,919 $7,228,691
Byron D. Bishop......... 15,000 237,645 264,702 728,005 2,746,860 7,393,094
Simon J. Breakwell...... -- -- 23,171 125,060 219,190 850,197
Seth E. Eisner.......... -- -- 60,499 199,461 692,917 1,384,740
Gregory S. Stanger...... -- -- 96,176 349,151 988,252 2,491,769
Richard N. Barton Employment Agreement
During fiscal 2000, we had an employment agreement with Richard N. Barton,
which provides that, if he is terminated by Expedia during his first two years
of employment for reasons set forth in the agreement, he will receive the
salary and stock option vesting which he would have otherwise received as an
Expedia employee.
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REPORT OF THE EXPEDIA, INC. BOARD
OF DIRECTORS COMPENSATION COMMITTEE
During fiscal 2000, Expedia's compensation policy for executive officers was
similar to that for other company employees. Expedia's compensation program
for officers is designed to attract and retain outstanding employees with a
compensation package including competitive salaries, incentive bonuses,
benefits, and stock options. The Compensation Committee of the Board of
Directors approves guidelines and actual allocations for each officer's annual
compensation package. These annual compensation packages are targeted to be in
line with the 50th percentile of total compensation paid by comparable
companies in the Internet and other industries. The comparable companies
selected for compensation comparison purposes differ from the companies
included in the Morgan Stanley Internet Commerce Index, which is used in the
Performance Graph included below.
The compensation program for executive officers focuses on long-term
incentives and, therefore, officers' salaries are generally less than those
paid by comparable companies in the Internet and technology industries.
Individual salary levels are based the officer's level of responsibility,
historical performance, relevant experience and breadth of knowledge. Each
officer is eligible to receive a discretionary bonus of up to 15% of the
officer's base salary, based upon predetermined subjective performance goals.
At the discretion of the Compensation Committee, each officer is also eligible
to receive a financial-performance bonus if, in the sole discretion of the
committee, the company achieved superior financial performance during the
fiscal year. Each officer is also eligible for annual stock option grants
structured to promote the company's success by aligning employee financial
interests with long-term shareholder value. Stock option grants are based on
various subjective factors, including each officer's responsibilities, their
expected future contributions to the company, and their prior option grants.
The Compensation Committee annually reviews and approves the compensation of
Richard N. Barton, the company's President and Chief Executive Officer. As an
executive officer of the company, Mr. Barton is subject to the same
compensation guidelines as discussed above. In fiscal 2000, Mr. Barton
received both a discretionary bonus and a financial-performance bonus. The
Compensation Committee granted these bonuses based upon Mr. Barton's
individual performance and Expedia's overall performance during the fiscal
year, as well as the fact that Mr. Barton's compensation is significantly
lower than that of chief executives of comparable companies.
As indicated above, the Company's compensation policy is primarily based
upon the practice of pay-for-performance. Section 162(m) of the Internal
Revenue Code imposes a limitation on the deductibility of nonperformance-based
compensation in excess of $1 million paid to the Named Executive Officers. The
Committee currently believes that the Company should be able to continue to
manage its executive compensation program for the Named Executive Officers so
as to preserve the related federal income tax deductions, although individual
exceptions may occur.
COMPENSATION COMMITTEE
Brad Chase
Gregory B. Maffei
Richard D. Nanula
7
PERFORMANCE GRAPH
The following Performance Graph compares, for the period that our common
stock has been publicly traded (since November 10, 1999), the cumulative total
stockholder return for Expedia, The Nasdaq Stock Market (U.S. Companies) Index
(the "Nasdaq Market Index"), and The Morgan Stanley Internet Commerce Index
(the "Morgan Stanley Index"). The Performance Graph assumes that $100 was
invested beginning on the date of our initial public offering in each of
Expedia and the indexes. Total return performance for the Nasdaq Market Index
and the Morgan Stanley Index is weighted based on the market capitalization of
the companies included in each index and assumes that dividends are
reinvested. In fiscal 2000, we did not declare or pay any dividends on our
common stock. Immediately following the Performance Graph is a chart of the
numerical plot-points that support the graph. We caution that the stock price
performance shown in the graph below should not be considered indicative of
potential future stock price performance.
[PERFORMANCE GRAPH]
11/10/1999 6/30/2000
---------- ---------
Expedia, Inc. ...................................... $100.00 $106.00
Nasdaq Market Index................................. 100.00 125.00
Morgan Stanley Index................................ 100.00 51.00
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Relationship with Microsoft
In October 1996, Microsoft launched its online travel services through
Expedia. On October 1, 1999, Microsoft separated the Expedia assets and
contributed them to us in exchange for 33,000,000 shares of common stock or
100% of our outstanding common stock at that date. Currently, Microsoft owns
approximately 69.8% of our outstanding common stock.
Microsoft cancelled all of the unvested options of Microsoft employees who
chose to join Expedia in connection with our initial public offering in
November 1999 and we replaced the canceled options with Expedia
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options, that had equivalent vesting schedules and in-the-money values and
comparable other terms as the canceled Microsoft options.
Along with contributions of ownership of intellectual property described
below, Microsoft contributed to Expedia other assets such as computers and
securities of Expedia Canada Corp.
Microsoft assigned to us a number of contracts having to do with the Expedia
business. Many of these have intellectual property components. Generally,
where the contract only impacts the Expedia business and no other units of
Microsoft, it was assigned to Expedia. To our knowledge, Microsoft has
obtained all necessary consents to these assignments where applicable.
We also entered into a number of other agreements that were necessary to
separate the Expedia assets from Microsoft and to facilitate the operation of
the Expedia assets after such separation. Each of these agreements is
summarized below. Although these agreements were not negotiated on an arm's
length basis, we believe that the terms of these agreements, when taken as a
whole, are at least as favorable to Expedia as those which would have resulted
from arm's length negotiations with parties other than Microsoft. We intend to
negotiate any future agreements with Microsoft on the same basis.
Services Agreement
On October 1, 1999, we entered into a services agreement with Microsoft
whereby Microsoft will provide us with certain administrative and operational
services.
Under the services agreement, Microsoft has continued to provide us with the
types of services described above. In return, we pay Microsoft fees based on
the total cost of the services. The services agreement is for an initial
period ending December 31, 2000 with one-year renewals if the parties agree on
fees. The agreement is cancelable by us upon 30 days written notice and by
Microsoft upon 180 days written notice. We have begun developing our own
resources in some of these areas. Certain services have been discontinued. For
additional services that are no longer needed, adjustments to the services
agreement fees must be mutually agreed upon.
License Agreements
In a set of license agreements, Microsoft provides us with rights to
intellectual property to be used in our business.
Microsoft assigned to us the trademarks and domain names associated with the
name "Expedia." In addition, Microsoft assigned to us copyrights for software
relating to online travel services.
We license the right to use some of Microsoft's retail products and other
technology pursuant to our license agreements with Microsoft. We also license
the server technology related to the Expedia Maps service. In addition, we
have a license to all of Microsoft's patents relating to the operation of our
websites. All of the licenses relating to Expedia specific software content
and data and patents are royalty-free and perpetual.
Microsoft holds licenses to various third-party software programs, content
and data that are useful in our business. Where the license to Microsoft
permits, Microsoft sublicensed these rights to us. We must reimburse Microsoft
for any fees due to the licensor for these sublicenses. As part of the
licenses granted by Microsoft to us for technology and data related to our
Expedia Maps service, we have agreed to provide Microsoft websites with
mapping services to the extent the services are requested by Microsoft.
Tax Allocation Agreement
Effective October 1, 1999, we entered into a tax allocation agreement with
Microsoft Corporation that generally adopts the "percentage of tax liability"
method of Regulations section 1.1552-1(a)(2) as its "basic method" and the
"percentage" method of Regulations section 1.1502-33(d)(3) as its
complementary method.
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Under the "percentage of tax liability" method, a member's allocable share
of consolidated tax liability is equal to the tax liability of the group
multiplied by a fraction, the numerator of which is the separate return tax
liability of such member and the denominator of which is the sum of the
separate return tax liability of all the members.
This basic allocation method is modified by the complementary "percentage"
method. Under the percentage method, in the event a loss or credit is
generated by a member, such member is compensated at the time the loss or
credit is absorbed by the other members of the Microsoft group. In our case,
however, 7.5% of the benefit we generate and is absorbed by the other members
of the Microsoft group will be retained by Microsoft as a "fee" because we are
being paid for tax attributes prior to the time we could have used them to
reduce our tax liability.
Under the terms of this agreement, each party computes its tax liability as
if it were a separate corporation. In making this computation, Microsoft is
entitled to deduct on its separate tax return a portion of the cost
attributable to the Microsoft stock options that we assume. The parties take
this deduction into account under the normal tax accounting rules, so the
deduction generally occurs on the exercise of the options. The portion of this
cost that Microsoft deducts is equal to the excess of the fair market value of
the shares to be acquired on exercise of the option on the date we employ the
optionee over the exercise price of the assumed option. We determine this
amount on the date that we employ each optionee.
We may be reimbursed by Microsoft for tax losses incurred during the period
from October 1, 1999 to March 17, 2000 which are utilized on the Microsoft
consolidated U.S. federal tax return. On March 18, 2000, Microsoft's
investment in Expedia fell below 80% ownership. As such, from March 18, 2000
onward, Expedia must file a separate tax return. Any losses not utilized by
Microsoft will be carried forward by Expedia and can be used on our separate
return to offset any future taxable income.
Carriage and Cross Promotion Agreement
We have entered into a carriage and cross promotion agreement with Microsoft
under which the Company will receive premium placement on Microsoft's domestic
and international MSN.com website, the Hotmail(R) email service and the
WebTV(R) platform. This agreement has a five-year term, however, it is subject
to renegotiation at the end of two years. The travel channel on the MSN.com
website is a customized version of our Expedia.com website that includes both
our logo and MSN's logo. This website is the exclusive travel transaction
service offered on Microsoft's websites, except in international markets where
we do not have a presence. We develop, maintain and host this website.
The MSN(R) advertising sales team sells and keeps all revenues from the sale
of up to 52.0 million banner advertisements during the first year of this
agreement and up to 57.2 million banner advertisements during the second year
of the agreement. Revenues resulting from these sales are received and
retained by Microsoft, in addition to the annual fees which we pay to
Microsoft under this agreement. MSN sells all banner advertisements at a price
responsive to market conditions.
Under the agreement, the parties agreed to restrictions regarding the sale
of banner advertising on MSN.com and the co-branded travel channel on MSN.com.
Microsoft will receive a flat annual fee of $2.0 million during the first
year of the agreement and will receive $2.2 million during the second year. In
addition, we will pay incentive fees to the extent that the number of
completed airline transactions from the MSN.com website exceeds our forecasts.
The fees and terms of sale of banner advertisements will depend on agreement
between the parties for the remaining three years under this agreement.
Shareholder Agreement
We entered into a shareholder agreement with Microsoft relating to the
transfer and registration of the common stock owned by Microsoft.
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Microsoft has agreed not to dispose of the common stock which it owns for 12
months following our initial public offering in November 1999. Microsoft may,
however, submit a written request to us to be relieved from this lock-up
period prior to its expiration. Only a majority of our outside directors may
grant this request.
Microsoft and Expedia have agreed that, for a period of one year from the
date of our initial public offering, no employee of either company will
solicit for the purpose of hiring any employee of the other company. Microsoft
also agreed that, for a period of three years following our initial public
offering, it will not engage in our business, including acquiring more than 5%
of a competing business. The shareholder agreement generally defines our
business as any online service for reserving or purchasing travel services,
such as airline tickets, hotel rooms, rental cars, cruises and resort vacation
packages, accessed with an interactive electronic device enabling the user to
view information and respond with additional information.
Microsoft has the right to require us to do our best to register under the
Securities Act all shares of common stock owned by Microsoft. These demand
registration rights include the condition that we would not be required to
effect more than one demand registration in any 12-month period. Microsoft
also has the right to participate, or "piggy-back," in equity offerings
initiated by us, subject to reduction of the size of the offering on the
advice of the managing underwriter. Microsoft will pay all expenses relating
to the demand registration requests under the shareholder agreement, and we
will pay all expenses relating to the performance of, or compliance with,
"piggy-back" registrations under the shareholder agreement. In either case,
however, Microsoft will be responsible for underwriters' discounts and selling
commissions with respect to the registrable shares being sold and the fees and
expenses of its counsel in connection with this registration.
Our Relationship with Technology Crossover and Microsoft Ventures Resulting
from the Private Placement of Shares with TCV IV, L.P., TCV IV Strategic
Partners, L.P. and Microsoft in August 2000.
As part of the private placement of our common stock with the TCV Funds and
Microsoft, we entered into a registration rights agreement whereby we must do
our best to register under the Securities Act of 1933 before February 1, 2001,
all shares of common stock issued to the TCV Funds and Microsoft in the
transaction, including shares issued upon the exercise of warrants issued in
the private placement. As part of this registration rights agreement, we also
agreed to pay all expenses, excluding the fees of Microsoft's or the TCV
Funds' legal counsel, relating to the registration process under this
registration rights agreement.
Jay Hoag is a founding general partner of TCV, an affiliate of the TCV
Funds, and, as part of the private placement, Mr. Hoag became a director of
Expedia.
Conflict of Interest Policies
We continue to conduct business with Microsoft, which may give rise to
conflicts of interest and our Articles of Incorporation contain policies
relating to the resolution of these conflicts of interest. These policies
regulate and guide our business relationships generally with the following
parties:
. Microsoft
. Microsoft's customers or suppliers
. other corporations, partnerships or other business entities in which one
or more of our directors have a financial interest (a "related entity")
. the directors and officers of a related entity
. one or more of our officers and directors
If we enter into a contract or transaction with the above parties, the
contract or transaction is not void or voidable solely because:
. the party with which we entered into the contract or transaction was one
of the above parties
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. any of our directors or officers who could be considered a related party
were present at or participated in the meeting or their votes were
counted at the meeting of our board of directors which authorized the
contract or transaction
Further, if we enter into a contract or transaction with any of the above
parties, our Articles of Incorporation generally provide that any related
party and any of our directors and officers who could be considered a related
party shall have fully satisfied their fiduciary duties to us and our
stockholders and have been deemed to have acted in good faith and not for an
improper personal benefit as long as any of the following conditions are met:
. the material facts about the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the contract
or transaction is authorized by the affirmative vote of a majority of
the directors who are considered disinterested
. the material facts about the transaction are disclosed or are known to
our stockholders entitled to vote on the transaction, and the
transaction is approved in good faith by vote of the shareholders of a
majority of the then outstanding common stock not owned by Microsoft or
a related entity
. the transaction is completed according to standards which are approved
by the affirmative vote of a majority of the disinterested directors or
by vote of the stockholders of a majority of our then outstanding common
stock not owned by Microsoft or a related entity
. the transaction is fair to us when it is authorized by our board of
directors or our stockholders
2. PROPOSAL FOR APPROVAL OF AMENDMENTS TO EXPEDIA, INC. 1999 STOCK PLAN
On September 26, 2000, by unanimous consent, our board of directors
authorized an amendment to the Expedia, Inc. 1999 Stock Option Plan, subject
to stockholder approval. This amendment would increase the number of shares of
common stock reserved for issuance under the Stock Option Plan from 4,000,000
to 11,500,000 shares.
The amendment also provides for an automatic annual increase in the number
of shares of common stock reserved for issuance under the Stock Option Plan.
Beginning on the first day of our fiscal 2001, this automatic annual increase
will equal: (i) the lesser of (a) 5% of the outstanding shares of common stock
as of the end of the immediately preceding fiscal year, and (b) 5,000,000
shares; or (ii) a lesser amount determined by the plan administrator; provided
that any shares from any such increase in previous years that are not actually
issued will be added to the aggregate number of shares available for issuance
under the Stock Option Plan.
The following is a description of the material features of the Stock Option
Plan. You may obtain a copy of this plan by writing to Mark S. Britton, our
General Counsel, at the address listed on page 1.
Description of the Stock Option Plan
The Stock Option Plan provides for the grant to our employees, officers and
employee directors of nonstatutory stock options. Non-employee directors are
not eligible for option grants under the Stock Option Plan. Messrs. Chase and
Maffei are considered to be employee directors and will be eligible to
participate in the Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors or a
committee of the Board of Directors (the "Administrator"). The Administrator
determines the terms of options granted under the Stock Option Plan, including
the number of shares to be issued upon exercise of the option, exercise price,
term and exercisability. The exercise price of any stock option granted to an
optionee who owns stock representing more than 10% of the voting power of our
outstanding capital stock (a "10%+ Stockholder") must equal at least 110% of
the fair market value of the common stock on the date of grant. The exercise
price of all stock options other than to 10%+ Stockholders may be less than,
equal to or greater than the fair market value of our common stock on the
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date of grant. Payment of the exercise price may be made in cash, check,
delivery of shares of our common stock, if the Optionee is an officer of
Expedia, or other consideration determined by the Administrator. The
Administrator determines the term of options. The term of any stock option
granted under the Stock Option Plan may not exceed 10 years; provided,
however, that the term of an option qualifying under Section 422 of the Code
may not exceed five years for 10%+ Stockholders. Options may not be
transferred by the optionee other than by will or the laws of descent or
distribution or for estate planning purposes. Options granted are exercisable
at such times and under such conditions as determined by the Board at the time
of the grant or as permissible under the terms of the Stock Option Plan.
In the event of a change in control as defined in the plan, the Stock Option
Plan requires that each outstanding option be assumed or an equivalent option
substituted by the successor corporation. In the event that a successor
corporation refuses to assume each option or substitute an equivalent option,
the Administrator shall provide for the optionee to have the right to exercise
the option as to all of the shares covered by the option, including shares as
to which the option would not otherwise be exercisable, in which case each
option will be exercisable for 15 days from the date of such determination.
The Board of Directors has the authority to amend or terminate the Stock
Option Plan as long as such action does not affect any outstanding option and
provided that stockholder approval shall be required for an amendment to
increase the number of shares reserved for the Stock Option Plan. If not
terminated earlier, the Stock Option Plan will terminate in ten years.
Vote Required and Board Recommendation
The affirmative vote of holders of a majority of the shares of common stock
represented at the meeting is required for approval of the proposed amendments
to the Stock Option Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ADOPTION OF THIS PROPOSED INCREASE.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 2001 annual
meeting of shareholders must be received by Expedia no later than June 12,
2001 to be included in our Proxy Statement and form of proxy related to that
meeting.
SOLICITATION OF PROXIES
Expedia's Board of Directors is soliciting the proxy accompanying this Proxy
Statement. Our officers and other senior management may also solicit proxies.
None of the foregoing individuals will receive any additional compensation for
their solicitation services. Such solicitations may be made personally, or by
mail, facsimile, telephone, telegraph, messenger, or via the Internet. We will
pay persons holding shares of common stock in their names or in the names of
nominees, but not owning such shares beneficially, such as brokerage houses,
banks, and other fiduciaries, for the expense of forwarding solicitation
materials to their principals. We will also pay all of the costs of soliciting
proxies.
VOTING TABULATION
Vote Required
Under the Washington Business Corporation Act, the election of the Company's
Directors requires a plurality of the votes represented in person or by proxy
at the meeting. Votes cast by proxy or in person at the meeting will be
tabulated by ChaseMellon Shareholder Services, LLC.
Effect of an Abstention and Broker Non-Votes
A shareholder who abstains from voting on any or all proposals will be
included in the number of shareholders present at the meeting for the purpose
of determining the presence of a quorum. Abstentions will
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not be counted either in favor of or against the election of the nominees or
other proposals. Under the rules of the National Association of Securities
Dealers, brokers holding stock for the accounts of their clients who have not
been given specific voting instructions as to a matter by their clients may
vote their clients' proxies in their own discretion.
AUDITORS
Representatives of Deloitte & Touche LLP, independent public auditors for
Expedia for fiscal 2000 and the current fiscal year, will be present at the
Annual Meeting, will have an opportunity to make a statement, and will be
available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors does not intend to bring any other business before
the meeting, and so far as is known to the Board, no matters are to be brought
before the meeting except as specified in the notice of the meeting. However,
as to any other business that may properly come before the meeting, we expect
that proxies, in the form enclosed, will be voted on these matters in
accordance with the judgment of the persons voting such proxies.
DATED: Bellevue, Washington, October 9, 2000.
A COPY OF OUR FORM 10-K REPORT FOR FISCAL YEAR 2000, CONTAINING INFORMATION
ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE UPON REQUEST. PLEASE WRITE TO:
INVESTOR RELATIONS DEPARTMENT
EXPEDIA, INC.
13810 SE EASTGATE WAY, SUITE 400
BELLEVUE, WA 98005
14
EXPEDIA, INC.
P R O X Y
FOR ANNUAL MEETING OF THE SHAREHOLDERS OF
EXPEDIA, INC.
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoints RICHARD N. BARTON and GREGORY B. MAFFEI,
and each of them, with full power of substitution, as proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of the Company
to be held at the Holiday Inn, 1801 12th Avenue NW, Issaquah, Washington on
November 9, 2000, at 2:00 p.m. and at any adjournments thereof.
(Continued, and to be marked, dated and signed, on the other side)
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Please mark
your votes [X]
as indicated in
this example.
1. Election of directors: FOR election WITHHOLD vote
Richard N. Barton Jay C. Hoag of all from all
Gregory B. Maffei Laurie McDonald Jonsson nominees nominees
Brad Chase Richard D. Nanula [ ] [ ]
Gerald Grinstein
Except for nominee(s) listed above from whom vote is withheld:
--------------------------------------------------------------
2. Proposal to amend the Expedia, Inc. 1999 Stock FOR AGAINST ABSTAIN
Option Plan to increase the number of shares [ ] [ ] [ ]
reserved for issuance under such plan.
3. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
This proxy when properly signed will be voted in the
manner directed herein by the undersigned shareholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2.
______
| IMPORTANT -- PLEASE SIGN AND RETURN PROMPTLY.
| When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership,
please sign in partnership name by an authorized person.
Signature Signature, if held jointly Dated: , 2000
-------------------------------------- ---------------------------------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
. FOLD AND DETACH HERE .