Filed by Expedia, Inc.
Pursuant to Rule 165 and Rule 425
under the Securities Act of 1933
Subject Company: Expedia, Inc.
Commission File No. 000-27429
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements regarding our expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements can be identified
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or comparable terms. These statements are based on
management's current expectations and are subject to uncertainty and changes in
circumstances. Actual results may differ materially from these expectations due
to changes in global economic, business, competitive market and regulatory
factors or failure of the transactions described to be completed for any reason.
We have based all of our forward-looking statements on information available to
us as of July 16, 2001 and we are not obligated to update any of these forward-
looking statements. You should note that our actual results could differ
materially from the forward-looking statements.
USA Networks, Inc. ("USA") and Expedia, Inc. ("Expedia") will file a joint
prospectus/proxy statement and other relevant documents concerning USA's
acquisition of Expedia with the Securities and Exchange Commission ("SEC").
INVESTORS ARE URGED TO READ THE JOINT PROSPECTUS/PROXY STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS FILED OR TO BE FILED IN THE FUTURE WITH THE SEC BECAUSE THOSE
DOCUMENTS CONTAIN IMPORTANT INFORMATION. Investors will be able to obtain such
documents free of charge at the SEC's website at www.sec.gov. In addition, such
documents may also be obtained free of charge by contacting USA Networks, Inc.,
152 West 57th Street, New York, New York, 10019, Attention: Investor Relations,
or Expedia, Inc., 13810 SE Eastgate Way, Suite 400, Bellevue, WA 98005,
Attention: Investor Relations. INVESTORS SHOULD READ THE JOINT PROSPECTUS/PROXY
STATEMENT CAREFULLY WHEN IT BECOMES AVAILABLE BEFORE MAKING ANY VOTING OR
INVESTMENT DECISION.
USA and its directors and officers may be deemed to be participants in the
offering of securities by USA, and Expedia and its directors and officers may be
deemed to be participants in the offering of securities by Expedia as well as in
the solicitation of proxies from Expedia shareholders to adopt the agreement
providing for USA's acquisition of a controlling interest in Expedia. A
detailed list of the names and interests of USA's directors and executive
officers is contained in the definitive proxy statement on Schedule 14A filed by
USA with the SEC on April 9, 2001, and a detailed list of the names and
interests of Expedia's directors and executive officers is contained in the
definitive proxy statement on Schedule 14A filed by Expedia with the SEC on
October 11, 2000. Copies of those filings may be obtained free of charge at the
SEC's website at www.sec.gov.
* * * *
[THE FOLLOWING DOCUMENT WAS CIRCULATED BY EXPEDIA TO ALL EMPLOYEES OF EXPEDIA
VIA ELECTRONIC MAIL ON JULY 16, 2001.]
As you know we are taking a huge step forward today through USA Network's
purchase of Microsoft's majority ownership in Expedia. Rich's mail explained in
broad terms what this change means in terms of new opportunities and direct
benefits for the company.
Just as importantly, how does this affect all of you?
I. Overall impact: Business as usual
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. We will continue to be an independently run, publicly traded company with the
same Expedia culture...the one you came here and stayed here for. Passion for
the company, our products and customers, drive to perform our best, placing
our highest value on employees and treating them with respect and dignity,
and having fun. We're here for the long term and don't intend to change our
culture and values, except to strive to keep getting better.
. There will be no change in our benefits, compensation and employee related
policies, except as part of our normal annual review to ensure we have
programs that are cost effective and competitive with the market.
. There will be no impact on people's jobs and who they report to.
. We will continue to utilize Microsoft's services as before (such as MSExpense
and corpnet), although we will continue with our plans to independently
provide our own services and systems by the end of the fiscal year.
. For those employees who came over from Microsoft, there will be an impact if
you still hold vested Microsoft options. As communicated at the time of the
spinoff, you will have three months following the close of the transaction
(estimated to be in 3 months or so) to exercise your MS stock options, since
Microsoft's drop in ownership will prevent Expedia employees from remaining
in the MS stock option plan.
. There will be no impact on the salary increases, bonus and stock grants for
the current review period. Our process continues as planned, with
compensation changes scheduled to be wrapped up and finalized this week.
II. Overview of impact on you as an Expedia shareholder or stock option holder
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Although this is technically an agreement between USA Networks and Microsoft,
the deal announced today is also beneficial to Expedia employees who have stock
options (that's almost everyone in the company), and employees who are actual
Expedia shareholders.
. First, there will be no impact on Expedia stock options. Employees will
continue to keep their current stock options, with no changes from before.
. For those who hold Expedia stock options as of 7/15/01, the "plus" is that
there will be a distribution of Expedia warrants (warrants are similar to
stock options).
. For those who are also Expedia shareholders, they will have a choice of
a) Exchanging their Expedia stock for a bundle of USA Networks stock and
warrants - this is the Microsoft transaction that is also being
offered to all current Expedia shareholders, or
b) Keeping their Expedia stock as is (i.e. not exchanging Expedia stock
for USAI stocks & warrants), and instead receiving an additional
distribution of Expedia warrants.
Why are Expedia shareholders and option holders receiving additional Expedia
warrants? Expedia and USA wanted to provide a way to reward shareholders for
retaining their Expedia stock and to provide additional incentive and reward to
employees. This is much in line with our philosophy that employees should have
a personal stake in the company's future with opportunities for stock ownership
and the chance to share in the company's success.
III. Details on how this impacts Expedia stock option holders
--------------------------------------------------------------
We're going to talk about how this affects Expedia option holders first, since
this affects almost all current Expedia employees. These are the main points:
. All employees who as of 7/15/01 hold Expedia stock options will receive
approximately one Expedia warrant for every five shares of Expedia stock
options that they hold (the exact ratio is 0.1920).
. A warrant is like a stock option, in that it gives you the right to buy
Expedia stock in the future at a specified price. At the time that it is
granted to you, you do not have to pay any money to buy Expedia stock nor
do you have pay any taxes if you are in the USA (We are currently
confirming the tax treatment in Europe and Canada, and will communicate
this information for employees in
those countries as soon as possible). It is entirely up to you as to
whether and when you exercise those warrants and convert them into actual
Expedia shares, or exercise and sell them at the same time.
The features of these Expedia warrants are described below:
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Number of warrants to be issued About 1 Expedia warrant for every 5 Expedia options
(0.192 ratio) - both vested and unvested options
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Exercise price $52.00/share
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Vesting schedule Vesting of the warrant will closely follow the vesting
of the stock options on which they are based.
. Part 1: No warrants will be vested for the first 90
days following the close of the deal
. Part 2: After the 90 days have passed, all warrants
will vest according to the dates of the
underlying options
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Term (life) of the warrant 7 years
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Traded on the stock market Unlike stock options, the warrants themselves can be
traded (sold to another buyer) in the future on one of
the stock market exchanges such as the NASDAQ (the exact
stock exchange has not been determined yet).
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Employee taxes Employees will be taxed either on the sale of the
warrant to someone else, or when you exercise your
warrant to purchase Expedia stock
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In the event of termination of employment In the event you decide to leave Expedia, you will be
able to keep your vested warrants and you may exercise
them up to 7 years following the date of the warrant.
If you leave before the warrants are vested (e.g. if you
leave before the first 90 days are up) you will forfeit
all of your warrants. After the 90 days are up, you may
still keep your vested warrants even if you leave
Expedia (but you lose your unvested warrants).
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IV. Details on how this impacts Expedia shareholders
----------------------------------------------------
Some employees are not just stock option holders, they have also purchased
shares of Expedia stock and so are considered an Expedia shareholder.
. For those employees who are Expedia shareholders, they will receive
warrants based on their stock options, PLUS they will have a choice of
exchanging their stock from Expedia stock to a bundle of securities
issued by USA Networks - USAI common stock, a new series of USAI
preferred stock, and a warrant in USA Networks stock. They may also
choose instead to continue to hold their Expedia stock and receive a
warrant which is similar to those granted to employee option holders for
Expedia shares (without the vesting restrictions, of course). They may
choose a combination of the two as well by exchanging some but not all of
their stock.
Before we begin, let's address this question - "Am I an Expedia shareholder with
the right to exchange my shares as part of this deal?"
You are an Expedia shareholder who is part of this deal if you bought (and
still hold) your shares of stock through:
. The open market (for example, through your own stock broker or through
a firm like E-Trade),
. The Employee Stock Purchase Plan (ESPP) where you deducted money from
your paycheck and then purchased & held shares at the end of the six
month period
. The Expedia Directed Stock Program, in which you bought IPO shares at
the time of Expedia's initial public offering, or
. Exercising your options (purchasing shares of stock with cash) and
holding them as stock (not selling at the same time, or later).
Put another way, Expedia shareholders are those who actually paid money out
of their own pocket to buy shares of Expedia stock and did not subsequently
sell those shares of stock to someone else. If you only have Expedia stock
options, then you are not an Expedia shareholder.
Background of "Tagalong Right" and how this affects all current Expedia
Shareholders
At the time of the creation of Expedia and spinoff from Microsoft, Microsoft
agreed that it would not sell its shares to anyone without having the same offer
made to all shareholders. Therefore, this stock transaction between USA
Networks and Microsoft is important for all Expedia shareholders to understand,
as they will have the ability to have a similar package.
Brief Explanation of USA Networks Inc. Package
USA Networks is offering to buy Expedia stock at the purchase value of
approximately $40.00 per share (not $40 in cash). This is a package made up of
three (3) parts:
. $17.50 worth of USA Networks Inc. (USAI) common stock
(Provided that the exchange ratio of USA common shares to Expedia common
shares will be no higher than 0.5645 and no lower than 0.7609).
. $17.50 worth of USA Networks Inc. (USAI) preferred stock
This will equal 0.35 shares of a newly issued USA convertible preferred
stock with a face value of $17.50 per Expedia share. The general features
of these preferred stock are that 1) it pays a dividend on a regular
basis, that dividend can be paid in cash or stock by USA Networks, and it
is convertible into common stock at a ratio that changes with the stock
price of USA Networks Inc. and 2) it has 2 votes, instead of 1 vote.
. $5.00 worth (Black-Scholes value) of USA Networks Inc. (USAI) warrants.
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Number of warrants to be issued Approximately 0.4176 warrants issued for every Expedia
share owned (depending on USA Networks price at closing)
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Exercise price $35.10/share
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Vesting schedule All USA Network warrants are fully vested immediately
upon receipt. They are yours to have with no
restrictions, just as your stock was your own.
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Term (life) of the warrant 7 years
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Traded on the stock market The USA warrants themselves will also be traded (can be
sold to another buyer) in the future on one of the stock
market exchanges such as the NASDAQ.
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Employee taxes Employees will be taxed either on the sale of the
warrant to someone else, or when you exercise your
warrant to purchase Expedia stock
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In the event of termination of employment The USA Networks warrants are not tied to your
employment at Expedia. In the event you decide to
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leave Expedia, you will be able to take all of your USA
Networks warrants with you and you may exercise them up
to 7 years following the date of the warrant.
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Choices for Expedia shareholders
All Expedia shareholders are being given the same offer that Microsoft has, but
there are two important points to note.
. First, Expedia shareholders do not have to accept this offer, if they
want to just keep their shares of Expedia as they are right now...in
Expedia stock. They can just decline to exchange their shares.
. The second point is that Expedia shareholders may not be able to convert
all of their Expedia shares to USAI stock and warrants, even if they want
to. Why? Because there is a limit to the number of Expedia shares that
USA Networks will be purchasing, and if more Expedia shareholders are
interested than what is possible, the number of shares converted will be
cut back for each interested shareholder on a prorated basis.
Details of the possible number of shares to be purchased by USA Networks:
. USA Networks is offering to purchase up to 37.5 million shares of Expedia
stock.
. Microsoft currently owns approximately 70% of Expedia shares, or 33.7
million shares.
. If more than 37.5 million shares of Expedia stock are voted to be
exchanged, then all interested shareholders will be cut back on a
prorated basis. If, for example, 46.87 shares were voted to be exchanged,
then 37.5 million available divided by 46.87 million shares (33.7 million
of MS + 13.17 million of others) = 80%. Every shareholder would be given
80% of their request, including Microsoft.
Those shares that do not become exchanged for USA Networks stock and warrants,
either because the shareholder chose not to or because a prorated cut back
occurred, will remain as Expedia, Inc. stock and instead will receive about one
Expedia, Inc. Warrant for each 5 shares of Expedia shares owned (0.1920 ratio).
These warrants will be similar to the ones given to Expedia option holders,
except that they will not have any vesting restrictions.
V. Order of events & tentative schedule
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1. Formal, written documentation will be sent out to all shareholders and
option holders. (Date TBD)
2. There will be a special shareholder's meeting in a few months where
shareholders can vote their requests to exchange anywhere between 0-100% of
their Expedia shares for the USA Networks package. They will also vote their
approval on the entire transaction.
3. About 10 days before this special shareholder's meeting, eligible Expedia
option holders will be offered their set of Expedia warrants, again based on the
approximate ratio of 1 warrant for every 5 Expedia options.
4. Employees will be required to accept their warrants within a specified time
period. When employees accept their warrants, they will have to agree to not
exercise any of the underlying options until the close of the deal (which should
occur shortly after the shareholder's meeting).
5. After the official close of the deal (shortly after the shareholder's
meeting), shareholders will receive their new stock and warrants in USA
Networks.
VI. Where to get additional information
----------------------------------------
Confused? Want to know more about what a warrant is? Here are some ways for
you to get more information:
Informational meetings:
. Bellevue: There will be a number of sessions held this week. The first
ones will be on Tuesday, July 17th, at 8:30 AM and then repeated at 10:00
AM that day. More sessions will be scheduled for Wednesday and Thursday;
the schedule will be sent out shortly with a sign up sheet, as there is a
space limit to the room. Location info will be sent out later today.
. Europe/Canada - Conference calls will be set up this week. The schedule
will be sent out shortly.
. Las Vegas: There will be a number of sessions on Friday, July 20th. The
schedule will be sent out shortly.
Contact regarding your stock options and ESPP
. Questions in general - e-mail "expbene"
. Questions on your Expedia stock options or ESPP? For current account
information, you may visit the PaineWebber website at
www.csbs.painewebber.com/expe or contact a PaineWebber Customer Service
Representative at 1-877-540-5554 between the hours of 9 a.m. and 6 p.m.
EST (6 a.m. - 3 p.m. PST) to utilize the IVR or to speak with a
Registered Representative.
FAQ materials will be sent out
We will be sending out additional information in the form of "Frequently
Asked Questions." Look for the first one to come in the next day or so.
VII. Summary
-------------
We know that while this is an exciting time for us all, there are a lot of
details here that are complex and difficult to understand. We encourage you to
seek out information - ask us the questions so we can help you understand your
choices better, and we also urge you to stay focused on serving our customers &
suppliers with a great product.