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
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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
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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.
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1.2 Closing. The closing of the Merger (the "Closing") will take place at
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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
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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.
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1.4.1 Company Shares.
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(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
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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
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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.
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(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.
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(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
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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
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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
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Merger having a value equal to ten percent (10%) of the Final Valuation,
(including ten percent (10%) of
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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
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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
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$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
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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
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"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.
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1.8 No Further Ownership Rights in Company Common Shares or Company
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Options. All Expedia Common Shares issued on or after the Effective Time upon
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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.
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1.9.1 Regulation D Offering. Each holder of Company Shares shall
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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.
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(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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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(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,
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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
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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
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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,
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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.
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(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;
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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
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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.
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(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;
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(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
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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.
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(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
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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
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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,
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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;
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(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
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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
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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
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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
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
(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
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
"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
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
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
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
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
(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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Agreement and Plan of Reorganization - Expedia Inc. and VacationSpot.com Inc.
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