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 September 4, 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") filed a joint
prospectus/proxy statement concerning USA's acquisition of Expedia with the
Securities and Exchange Commission ("SEC") on August 22, 2001. USA and Expedia
will file an amended joint prospectus/proxy statement with the SEC and have
filed and will file other relevant documents concerning USA's acquisition of
Expedia with the SEC. INVESTORS ARE URGED TO READ THE AMENDED 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 may 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 AMENDED 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 question and answer document was distributed by Expedia to each
of its employees on September 4, 2001.]
Following are answers to questions about the USA Networks transaction and the
choices Expedia employees will have with respect to stock options, warrants and
other matters. Should you have questions, please feel free to contact us.
However, keep in mind that no one at Expedia can give you investment advice.
This must come from your broker or financial advisor.
Section One: General Questions
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Question: Will we have to change our Expedia benefits because of the USA
Networks deal?
Answer: As of closing, there will be no change to our benefit programs
resulting from the USA Networks transaction. Changes may occur as a result of
our regular review of benefits for the annual open enrollment period or due to
changes in applicable law. Expedia also reserves the right to make changes to
any of its benefit plans in accordance with their terms.
Question: Will we still have the same senior management team at Expedia?
Answer: Yes, the senior management team, including Rich Barton, remains
committed to staying at Expedia and making it a success. Each of the senior
managers will enter into agreements with Expedia designed to retain those
managers for at least the next three years.
Question: Will our Board of Directors remain the same?
Answer: Our Board will be changing as a result of this transaction. The new
Board will be increased to 11 members and will include Barry Diller as Chairman
of Expedia. Including the Chairman, six Board members will be appointed by USA
Networks. The additional five members will be Rich Barton, Greg Stanger and
three independent directors. We are expecting two of these independent directors
to be Gregory Maffei and Jay Hoag, who currently serve on the Expedia Board. USA
and Expedia have not determined the other Board members at this time.
Question: Will all employees at Expedia receive the same "deal" through the USA
Networks transaction?
Answer: Yes. Each employee who is a shareholder has the following alternatives:
She can (i) exchange her Expedia shares for USA securities; however, keep in
mind that if holders of more than 37.5 million shares choose this alternative,
all shareholders will be able to exchange only a pro rata portion of their
shares, as USA has offered to purchase a maximum of 37.5 million shares; or (ii)
continue to hold her Expedia shares and, in addition, receive 0.192 Expedia
warrants for each of these shares. A shareholder can also do a combination of
(i) and (ii) by exchanging some shares and holding onto others.
Each Expedia employee who is an option holder has similar alternatives: He
can (x) exercise his vested options and become an Expedia shareholder, entitling
him to the choices described in clauses (i) and (ii) above; or (y) continue to
hold his vested options and receive 0.192 Expedia warrants for each of these
options.
Rich Barton and the Expedia executive team will have the same investment
alternatives described above. Additionally, as part of the deal, each corporate
VP and above will enter into an agreement with Expedia designed to retain that
manager for at least the next three years.
Question: What is the timeline for the transaction?
Answer: We filed the requisite documents for the transaction with the SEC on
August 22, 2001. We expect SEC review to take approximately 40 to 50 days. When
SEC review concludes, we will mail our proxy statement to shareholders,
notifying them of the date, time and location of our annual meeting. The meeting
will be approximately 30 days after we mail the proxy statement; however, we
expect the meeting to be in November sometime after the Expedia trading window
opens. We anticipate closing the transaction within a couple of days after the
annual meeting.
Question: How and when will shareholders receive information about the
transaction? When will they have to make a decision about whether they want to
exchange their Expedia stock for USA Networks securities?
Answer: Shareholders will receive a proxy statement through the mail, which
will provide all of the information about the transaction, particularly when and
how to elect to exchange Expedia stock for USA Networks securities if a
shareholder wishes to do so. The proxy statement will be sent either through
each shareholder's broker or directly to the shareholder if she holds share
certificates in her own name. Neither the date of mailing the proxy statement,
the date of the shareholders' meeting, nor the deadline for electing to exchange
has been set; however, we expect the election deadline to be the same date as
the shareholders' meeting.
Section Two: Review of Basic Information on Warrants for Option Holders
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Question: What will Expedia option holders receive?
Answer: Employee stock option holders will receive 0.192 warrants for each
Expedia stock option they own as of the date of the warrant distribution. For
example, if you have 100 stock options before the transaction, and do not
exercise any of those stock options, you will have 100 stock options and 19
warrants after the transaction.
Question: What is an Expedia warrant?
Answer: The Expedia warrants will be similar to a stock option, in that they
represent the right to buy Expedia stock once vested, at a specific price, by a
specific date. Unlike our employee stock options, however, the warrants will be
transferable. Expedia intends to register the warrants on a public securities
exchange under their own ticker symbol, to facilitate the development of a
public market for the warrants.
Question: Which stock options are eligible for the warrant issuance?
Answer: All outstanding stock options that were granted prior to August 2, 2001
are eligible for warrants. You must also hold those options on the date on which
the warrants are issued, so if you exercise your options before then, they no
longer remain eligible for warrant issuance. Instead, you will be treated in the
same manner as all other shareholders to the extent that you continue to hold
the Expedia shares received in the option exercise. The USA Networks agreement
was signed on the morning of July 16, 2001, so employees hired on or after July
16th are not eligible to receive warrants in connection with their new hire
grants.
Question: Are both vested and unvested outstanding stock options eligible?
Answer: Yes, warrants will be distributed on options that are vested and
unvested.
Question: What are the terms of the Expedia warrants?
Answer: Each vested warrant will entitle the holder to purchase a share of
stock at an exercise price of $52 per share. The warrants will expire in 7
years.
Question: What can I do with warrants?
Answer: Unvested warrants must be held until they vest. Vested warrants can be:
HELD: This means taking no action now and holding your warrants as an
investment.
EXERCISED: This means converting your warrants into shares by purchasing shares
at the exercise price. You can exercise your vested warrants at anytime before
they expire.
EXERCISED AND SOLD: This means converting your warrants into Expedia shares by
purchasing shares at the exercise price and reselling them into the market.
This allows you to pocket the difference between your purchase price and your
sale price.
SOLD: This means selling your warrants for cash either though a securities
exchange, assuming the warrants are successfully listed, or in a private
transaction. You can sell your vested warrants anytime until they expire.
Question: What happens if I don't exercise or sell my vested warrants within
seven years?
Answer: If you do not exercise or sell your vested warrants within seven years
of the date they were issued to you, they will expire and be worthless.
Question: Will the warrants issued for stock options have a vesting schedule?
Answer: Yes. Each warrant will vest at the same time as the stock option upon
which it was granted. Additionally, none of the warrants issued to option
holders will be exercisable or transferable until 90 days after they are issued.
So even if you receive a warrant for a vested stock option, you may not exercise
or transfer the warrant until you have held it for 90 days.
Question: Do warrants have voting rights?
Answer: No. Only shares of stock have voting rights.
Section Three: Warrants for Employee Stock Option Holders
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Question: Does this USA Networks transaction affect my current Expedia employee
stock options?
Answer: No, your existing stock options will not change in any way. You will
continue to have the right to buy Expedia stock, according to the same vesting
schedule, exercise price, and expiration date currently in place.
Question: Can I still exercise my Expedia stock options or do a cashless
exercise (same day sale) right now? Will I still receive warrants on those
options that I exercised?
Answer: You may still exercise your vested Expedia stock options in accordance
with Expedia's Insider Trading Policy which contains trading restrictions for
certain employees, particularly with respect to cashless exercises when the
trading window is closed.
If you exercise your options before the warrants are issued, there are two
scenarios possible: (i) If you sell the Expedia stock resulting from the option
exercise, you will no longer have the stock options or the underlying stock. You
will not receive warrants for the options that you exercised or stock that you
sold; (ii) If you do NOT sell the underlying Expedia stock (for example, you
could pay cash for the option exercise price), you will become an Expedia
shareholder. You will not receive warrants for the options that you exercised,
but you will receive warrants for the stock that you continue to hold (assuming
that you do not elect to exchange that stock for USA securities).
Question: When will the warrants be distributed?
Answer: We have not determined the exact date, but option holders will receive
their warrants in respect of their options at least 10 days prior to the closing
of the transaction and shareholders will receive their warrants at the time of
closing.
Question: Will I receive warrants for all of my options?
Answer: Options that were granted on or prior to August 2, 2001 are eligible
for warrants, as long as they are not exercised prior to the date that the
warrants are issued. This includes the August 2, 2001 review option grants. The
USA Networks agreement was signed on the morning of July 16, 2001, so employees
hired on or after July 16th are not eligible to receive warrants in connection
with their new hire grants.
Question: If I elect to exchange my Expedia stock or options for USA
securities, can I do it before the Expedia trading window opens?
Answer: Under Expedia's Insider Trading Policy, employees with access to
certain non-public, material information (e.g., Dashboard, Finance Server, etc.)
may transact in Expedia securities only during specified trading windows. These
employees must observe the trading window restrictions in exercising their
options (through a cashless exercise) and in electing to exchange their Expedia
stock for USA securities. The trading window in which employees may elect to
exchange will open two full trading days after Expedia announces its earnings
for the first quarter of fiscal 2002. We will time the earnings release,
shareholders' meeting and closing of the transaction so that employee
shareholders and option holders will be able to exercise their options (in a
cashless exercise) prior to the warrant distribution date and be able to elect
to exchange their Expedia stock after the trading window opens.
Question: What is the difference between an Expedia stock option and an Expedia
warrant?
Answer: The primary difference is that the warrants can be transferred. Stock
options issued to employees cannot be transferred, only exercised by the option
holder. Expedia intends to register the warrants on a public securities exchange
under their own ticker symbol, to facilitate the development of a public market
for the warrants.
Question: Will I receive warrants every year?
Answer: Receiving warrants is a one-time benefit resulting from the agreement
among Expedia, USA Networks and Microsoft. You will not receive any additional
warrants.
Question: Who will be administering the warrants? Will it be PaineWebber?
Answer: PaineWebber, the firm that presently administers our Expedia stock
options, has informed us that their systems are unable to accommodate our
warrants, and therefore they will not be able to administer the warrants. We are
investigating different alternatives at this time, but as yet do not know which
firm will administer the warrants.
Section Four: Taxes on Expedia Warrants for Option Holders (U.S. Employees
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Only)
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Note: The following is a general description of the U.S. Federal income tax
consequences relating to the warrants and does not address, among other things,
the employment, foreign, state and local tax consequences of the transaction.
Personal circumstances vary and we urge you to consult with your personal tax
advisor.
Question: Will I be taxed at the time that I receive Expedia warrants as an
option holder?
Answer: No.
Question: When are warrants taxed?
Answer: Warrants are taxed at the earlier of (i) when you exercise the right to
purchase shares of Expedia, or (ii) when you sell the warrant.
Question: How are warrants taxed at exercise?
Answer: Similar to a stock option, a warrant is taxed at ordinary income rates
on the difference between the exercise price of the warrant and the market value
of the stock underlying warrant at the time of exercise.
Question: How are warrants taxed at sale?
Answer: A warrant is generally taxed at ordinary income rates on the difference
between what you paid for the warrant ($0) and the proceeds from the sale of the
warrant.