FindLaw | Find a Lawyer. Find Answers.
Are you a legal Professional?
My current location:
Los Angeles, CA
| Change location
| Featured Legal Services | |
|
(562) 435-1426
|
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF January 31, 2000 (this
"Agreement"), by and among Expedia, Inc., a Washington corporation ("Expedia"),
Travel Enterprises, Inc., a wholly owned subsidiary of Expedia and a Delaware
corporation ("Sub"), Travelscape.com, Inc., a Delaware corporation ("Company"),
and the undersigned security holders of Company (the "Principal Shareholders").
RECITALS
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein,
Expedia, Sub, Company, and the Principal Shareholders hereby agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
----------------------------
Agreement, Sub will be merged with and into Company (the "Merger"). A
Certificate of Merger and any other required documents (collectively, the
"Merger Documents"), substantially in the forms attached as Exhibit 1.1,
respectively, shall be duly prepared, executed, and acknowledged by Company and
Sub, and thereafter delivered to the Secretary of State of Delaware for filing,
as provided in the Delaware General Corporation Law (the "DGCL"), as soon as
practicable on or after the Closing Date (as defined in Section 1.2). The Merger
shall become effective at such time as the Merger Documents have been filed with
the Secretary of State of Delaware or at such time thereafter as is provided in
the Merger Documents (the "Effective Time"). Solely for purposes of
clarification, Company and the Principal Shareholders acknowledge and agree that
Expedia will have no obligation to make any payment or issue any shares under
this Agreement until Expedia has received written confirmation from the
Secretary of State of Delaware of the effectiveness of the Merger and Expedia
acknowledges and agrees that Expedia will have no right to the business of the
Company until the Principal Shareholders have received written confirmation from
the Secretary of the State of Delaware of the effectiveness of the Merger.
1.2 Closing. The closing of the Merger (the "Closing") will take place at
-------
10:00 a.m., Pacific time as soon as practicable (but no more than five (5)
business days) after satisfaction or waiver of the last to be fulfilled of the
conditions set forth in Article VI that by their terms are not to occur at the
Closing (the "Closing Date"), at the offices of Preston Gates & Ellis LLP in
Seattle, Washington, unless another time, date, or place is agreed to in writing
by the parties hereto. Any party to this Agreement, including such party's
representative(s), may participate in the Closing telephonically.
1.3 Effects of the Merger. At the Effective Time, (i) Sub shall be merged
---------------------
with and into Company (Company after the Merger is sometimes referred to herein
as the "Surviving
1
<PAGE>
Corporation"), (ii) the Certificate of Incorporation of Company shall be the
Certificate of Incorporation of the Surviving Corporation, as duly amended,
(iii) the Bylaws of Company shall be the Bylaws of the Surviving Corporation
until duly amended, (iv) the directors of Sub shall be the directors of the
Surviving Corporation, (v) the officers of Sub shall be the officers of the
Surviving Corporation, (vi) the issued and outstanding capital stock of Sub
shall become the issued and outstanding capital stock of the Surviving
Corporation, and (vii) the Merger shall, from and after the Effective Time, have
all the effects provided by applicable law.
1.4 Conversion of Company Securities.
--------------------------------
1.4.1 Company Shares.
--------------
(a) Each issued and outstanding Company Common Share and each issued
and outstanding Company Preferred Share (each as defined in Section 2.1.2
hereto), but excluding any Eligible Dissenting Shares, as defined in Section
1.10, shall, at the Effective Time, by virtue of the Merger, be converted,
without any action on the part of the holders thereof, into and Expedia shall
thereupon issue to the holders of the Company Common Shares and the Company
Preferred Shares a number of Expedia Common Shares ("Expedia Common Shares"),
pursuant to an exchange ratio ("Exchange Ratio") calculated in accordance with
the following and rounded to the nearest ten thousandth:
(i) Where the Expedia Closing Price (as defined below) is equal to or
less than 40.4126 per share but greater than or equal to 25.4126 per share,
the Exchange Ratio shall be equal to the quotient of the Adjusted Company
Share Price (as defined in Section 1.5) divided by the Initial Expedia
Price (as defined below);
Solely for purposes of example, where Initial Expedia Price is $35 at
signing and the Final Expedia Price is anywhere between $27.51 and
$42.49 at Closing and the price per Company Share is not adjusted
(i.e. $5.1446), the Exchange Ratio will be equal to $5.1446/$35, or
.1470 Expedia Common Shares per Company Share Equivalent.
(ii) Where the Expedia Closing Price is greater than 40.4126, the
Exchange Ratio shall be equal to the quotient of the Adjusted Company Share
Price divided by 40.4126; and
Solely for purposes of example, where the Initial Expedia Price is $35
at signing and the Final Expedia Price is $50.00 at Closing and the
price per Company Share is not adjusted (i.e. $5.1446), the Exchange
Ratio will be equal to $5.1446/$42.50, or .1210 Expedia Common Shares
per Company Share Equivalent.
(iii) In the event that upon such time as the conditions to closing
the Merger set forth in Article VI have been satisfied or waived the
Expedia Closing Price is less than 25.4126 but greater than 20.4126, the
Board of Directors of the Company shall have the right to terminate this
Agreement (such authority having been granted by the holders of Company
Shares by approving the Merger in accordance with the DGCL), provided,
2
<PAGE>
however, that no such right to terminate shall apply if Expedia shall
offer, in its sole discretion, to deliver Expedia Common Shares at an
Exchange Ratio equal to the quotient of the Adjusted Company Share Price
divided by 25.4126.
Solely for purposes of example, where the Initial Expedia Price is $35
at signing and the Final Expedia Price is $22 at Closing and the price
per Company Share is not adjusted (i.e. $5.1446), the Exchange Ratio
will be equal to $5.1446/$27.50, or .1871 Expedia Common Shares per
Company Share Equivalent.
(iv) In the event that upon such time as the conditions to closing
the Merger set forth in Article VI have been satisfied or waived the
Expedia Closing Price is less than 20.4126, the Board of Directors of the
Company shall have the right to terminate this Agreement (such authority
having been granted by the holders of Company Shares by approving the
Merger in accordance with the DGCL).
(b) Notwithstanding the foregoing, each issued and outstanding
Company Common Share, but excluding any Eligible Dissenting Shares, held by
Holders (as defined in Section 1.4.5) who upon the conversion of Company Shares
into Expedia Common Shares set forth in subsection (a), above, would be entitled
to receive a number of Expedia Common Shares which when multiplied by the
Initial Expedia Price as of the Effective Time would be equal to $140,000 or
less, shall at the Effective Time, by virtue of the Merger, and in lieu of the
conversion set forth in subsection (a), above, be converted, without any action
on the part of the holders thereof, into the right to receive and Expedia shall
promptly thereafter deliver immediately available funds equal to the Adjusted
Company Share Price as of the Effective Time.
(c) Schedule 1.4 sets forth as of the date hereof: (i) the Company
Common Shares, and all other rights to purchase any securities convertible into
Company Common Shares, (ii) the number of Company Common Share Equivalents as of
such date, and (iii) a pro forma computation of the consideration payable per
Company Common Share Equivalent, the Exchange Ratio and the Expedia Common
Shares to be issued in accordance with subsection (a), above or cash deliverable
in accordance with subsection (b), above, as of the Closing using an assumed
Expedia Closing Price (as defined below) as of such date. Schedule 1.4 shall be
revised and updated as of the Closing Date using the actual Expedia Closing
Price and reflecting any changes in Company Common Share Equivalents.
(d) For purposes of this Agreement, the "Expedia Closing Price" shall
mean the Expedia Average Price (as defined below) as of two (2) trading days
prior to the date set for Closing in accordance with Section 1.2. For purposes
of this Agreement, the "Initial Expedia Price" shall mean the Expedia Average
Price as of two (2) trading days prior to the execution of this Agreement. For
purposes of this Agreement, "Expedia Average Price" shall mean the average price
as publicly reported for the Nasdaq Stock Market as of 4:00 p.m. Eastern Time of
Expedia Common Shares over the last five (5) trading days prior to a specified
date, rounded to the nearest one hundredth of one cent. For purposes of this
Agreement, "Company Common Share Equivalents" shall mean all Company Common
Shares (as defined in Section 2.1.2) and all other securities convertible into
and rights to purchase Company Common Shares (in each
3
<PAGE>
instance assuming full exercise of the right to convert into or purchase Company
Common Shares) outstanding as of immediately prior to the Closing, but excluding
Company Common Share Equivalents, if any, which expire on or before the Closing
Date.
1.4.2 Company Options.
---------------
(a) Not less than seventeen (17) days prior to the anticipated
Closing Date, the Company shall provide to each of the holders of then
outstanding Company Options (as defined in Section 2.1.2) notice that, in
accordance with the Company Stock Plan (as defined in Section 2.1.2) but subject
to subsection (b), immediately below, each Company Option shall be accelerated
and the holders of Company options shall be given the opportunity to exercise
their Company Options for Company Common Shares. Such notice shall provide that
exercise may be made on a "net" basis (meaning that such Company Option shall be
exercised for the number of Company Common Shares underlying such option minus
the quotient of the aggregate exercise price for such Company Options divided by
Adjusted Company Share Price. Schedule 1.4 has been prepared on the basis that
assumes that all holders avail themselves of the right to exercise on an net
basis. Any unvested Company Options held by persons other than Company employees
as of the Effective Time shall be canceled as of the Effective Time.
(b) Notwithstanding the provisions of subsection (a) immediately
above, any and all Company Options held by certain persons who continue as
employees of Company or Expedia in senior management positions ("Senior
Managers") or as consultants of Company or Expedia following the Closing shall
be converted into a nonqualified stock option ("Expedia Option") to purchase
Expedia Common Shares in accordance with the offer letters or consulting
agreements of such persons with Expedia.
1.4.3 Founder Shares. The Expedia Common Shares issuable pursuant to
--------------
this Agreement to Thomas Breitling and Timothy Poster (the "Founders"), but
excluding the 10 percent (10%) of the shares held in escrow pursuant to Section
1.4.5, will be subject to certain other contractual restrictions set forth in
the offer letters between the Founders and Expedia.
1.4.4 Fractional Securities. No fraction of a Expedia Common Share or
---------------------
Expedia Option exercisable for a fraction of a Expedia Common Share will be
issued in the Merger. In lieu of such issuance, all Expedia Common Shares issued
to the Company shareholders shall be rounded to the closest whole Expedia Common
Share, and the number of Expedia Common Shares subject to any Expedia Option
shall be rounded to the nearest whole number of Expedia Common Shares.
1.4.5 Escrow Securities. Ten Percent (10%) of the Expedia Common
-----------------
Shares to be issued in the Merger shall be held by the Escrow Agent pursuant to
the Escrow Agreement attached as Exhibit 1.4.5 ("Escrow Agreement") to secure
claims by Expedia for indemnification pursuant to Article VII hereof. For
avoidance of doubt, the ten percent (10%) of Expedia Common Shares to be held in
escrow shall include Founder Shares and shares received upon exercise vested and
accelerated Company Options, but shall not include unvested Company Options to
be converted upon the Effective Time into Expedia Options, and cash received in
lieu of Expedia common Shares in accordance with Section 1.4.1(b) shall not be
subject to escrow.
4
<PAGE>
The Expedia Common Shares to be held on behalf of the holders of Company Common
Shares and Expedia Preferred Shares as of the Effective Time (collectively, the
"Holders") are set forth on Schedule 1.4 on a pro forma basis which shall be
revised as of Closing. Execution of the Escrow Agreement by each Holder
receiving Expedia Common Shares under Section 1.4.1(a) (or any attorney in fact
appointed by such Holder) is a condition precedent to receiving the Expedia
Common Shares by such Holder.
1.5 Price Per Company Share. The term "Adjusted Company Share Price" shall
-----------------------
mean Five United States Dollars and Fourteen and Fourty Six Hundredths Cents
(U.S.$5.1446) per Company Share and Company Share Equivalent, provided that, in
the event that the Company's Net Liabilities, as defined below, set forth on the
Company's Final Pro Forma Closing Balance Sheet (as defined in Section 2.1.6
hereof) are greater than the amount of Net Liabilities set forth on the balance
sheet in the Company's Financial Statements (as defined in Section 2.1.6) of
December 31, 1999 (the amount of such difference being hereinafter referred to
as "Increased Liabilities"), then the Adjusted Company Share Price shall be
equal to the product of $5.1446 multiplied by a fraction, the numerator of which
is $100,000,000 minus the Increased Liabilities and the denominator of which is
$100,000,000. For purposes of the foregoing, "Net Liabilities" as of December
31, 1999 shall mean total liabilities, less the sum of (a) deferred revenue,
accounts payable and accrued expenses up to 70% of previous 90 days gross
bookings, plus (b) Current assets at December 31, 1999; and "Net Liabilities" on
the Company's Final Pro Forma Closing Balance Sheet shall mean total
liabilities, less the sum (a) deferred revenue, accounts payable and accrued
expenses up to 70% of previous 90 days gross bookings, plus (b) Adjusted Current
Assets (as defined below) at the Closing. "Adjusted Current Assets" shall be
computed as follows: Current assets plus: (i) capital expenditures of up to
$166,667 per month made between December 31, 1999 and Closing, (ii) expenses
incurred that are directly attributable to this transaction up to the amount set
forth on the estimate delivered under Section 5.4, (iii) security deposits made
between December 31, 1999 and Closing, and (iv) beginning in March 2000, the
expected EBITDA loss of $927,226 in March 2000 and $714,362 in April 2000 (for
purposes of this calculation, the Closing date will be rounded to the nearest
half month). In the event that the certain Engagement Letter between CIBC World
Markets and Company dated July 2, 1999, shall not be terminated or released in
full to the reasonable satisfaction of Expedia on or prior to Closing, the
Adjusted Company Share Price shall be further adjusted to be equal to the
product of the Adjusted Company Share Price calculated in accordance with the
above multiplied by .9868.
1.6 Delivery of Certificates or Cash. At or as soon as practicable after
--------------------------------
the Effective Time, Expedia will send to the holders of Company Shares (i) a
letter of transmittal in customary form and containing such provisions as
Expedia may reasonably specify (including a notice of election to opt out of
registering for sale Expedia Common Shares subject to registration under Section
1.9.2), and (ii) instructions for use in effecting the surrender of certificates
representing Company Shares in exchange for either certificates representing
Expedia Common Shares or cash in accordance with Section 1.4.1. After the
Effective Time, and after receiving such letter of transmittal, each Shareholder
of a certificate or other documentation representing Company Shares, other than
Eligible Dissenting Shares, shall surrender such certificates or other
documentation to Expedia or the exchange agent designated by Expedia and letter
of transmittal, and those Holders whose Company Shares are converted into
Expedia Common Shares under
5
<PAGE>
Section 1.4.1(a) shall in addition deliver duly executed counterparts of the
Investment Agreement (as defined in Section 5.1) and Escrow Agreement and such
other duly executed documentation as may be reasonably required by Expedia or
the exchange agent to effect a transfer of such shares. Promptly following such
surrender and delivery each Holder shall be entitled to receive either a
certificate or other documentation for the applicable number of Expedia Common
Shares calculated pursuant to Section 1.4.1(a), except as provided in Section
1.4.5, or cash calculated pursuant to Section 1.4.1(b), which shall be delivered
by check. If any certificate representing Company Shares shall have been lost,
stolen or destroyed, Expedia may, in its discretion and as a condition precedent
to the delivery of consideration hereunder, require the owner of such lost,
stolen or destroyed certificate representing Company Shares to provide an
appropriate affidavit and indemnity against any claim that may be made against
Expedia or the Surviving Corporation with respect to such certificate
representing Company Shares. Execution and delivery of an Escrow Agreement and
an Investment Agreement shall be a condition precedent to the issuance of the
Expedia Common Shares to each Holder whose Company Shares are converted into
Expedia Common Shares under Section 1.4.1(a).
1.7 Tax-Free Reorganization. The Merger is intended to be a
-----------------------
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and this Agreement is intended to constitute a
"plan of reorganization" within the meaning of the regulations promulgated under
Section 368 of the Code. Notwithstanding the foregoing, no party shall be
relieved of any obligation or denied any right set forth hereunder in the event
it is determined that the tax consequences differ from those intended or those
described in the solicitation statement/private placement memorandum (if any) or
otherwise.
1.8 No Further Ownership Rights in Company Common Shares or Company
---------------------------------------------------------------
Options. All Expedia Common Shares issued on or after the Effective Time upon
-------
cancellation of the Company Common Shares or replacement of the Company Options
in accordance with the terms hereof shall respectively be deemed to have been
delivered in full satisfaction of all rights pertaining to the Company Common
Shares or the Company Options. After the Effective Time, there shall be no
transfers on the stock transfer books of Company of the Company Common Shares or
the Company Options.
1.9 Regulation D and Registration Statements.
----------------------------------------
1.9.1 Regulation D Offering. Each holder of Company Shares shall
---------------------
execute such documents as may be reasonably required by Expedia to determine
such holder's qualification as an "accredited investor," as that term is defined
in Rule 501 of Regulation D under the Securities Act of 1933 (the "1933 Act") or
as a person with the financial sophistication required to be a purchaser
pursuant to Rule 506(b)(2)(ii) of Regulation D. Company agrees, if required
under the provisions of Rule 506, to provide, at its sole expense, any
shareholder reasonably determined by Expedia as not having the requisite
financial sophistication with a purchaser representative who can provide such
shareholder with the requisite financial sophistication.
1.9.2 Registration Rights.
-------------------
6
<PAGE>
(a) Expedia shall prepare and file with the Securities and
Exchange Commission registration statements on the form under the 1933 Act that
Expedia determines to be the least burdensome available (such registration
statement and the prospectus included therein being referred to as the
"Registration Statement", regardless of the form actually used) to register for
resale Expedia Common Shares issued in the Merger to the Company shareholders,
and their permitted transferees (collectively, the "New Expedia Shareholders"),
and shall use its commercially reasonable efforts to have pursuant to this
paragraph (a) no more than one such Registration Statement declared effective
under the 1933 Act by and kept continuously effective during the following dates
and upon the following conditions:
(i) From May 15, 2000 through June 16, 2000, provided that
Expedia shall receive a demand for registration as of such dates from holders of
not less than twenty five percent (25%) of the Expedia Common Shares issued in
the Merger on or prior to April 1, 2000 if the Effective Time has occurred prior
to April 1, 2000 or April 8, 2000 if the Effective Time has occurred after April
1, 2000 and on or prior to April 8, 2000.
(ii) From August 1, 2000 through August 13, 2000, provided that
Expedia shall receive a demand for registration as of such dates from holders of
not less than twenty five percent (25%) of the Expedia Common Shares issued in
the Merger after April 8, 2000 and on or prior to July 1, 2000 and, provided
that no Registration Statement was made effective pursuant to subsection (i),
above, unless such lack of effectiveness resulted from a withdrawal of the
demand for such registration or the failure of the holders of Expedia Common
Shares making such demand to provide to Expedia the requisite information for
such filing or through other fault of the holders of Expedia Common Shares.
Upon receipt of a demand under (i) or (ii) above, Expedia shall within five (5)
business days thereafter deposit with the United States post office or national
courier service notice to holders making such demand of Expedia's election
whether the Registration Statement to be filed shall be for an underwritten
secondary offering, an underwritten primary offering by Expedia in which holders
issuing such demand shall be permitted to participate, or a secondary offering
under Section 415 under the 1933 Act. An underwritten primary offering by
Expedia may include an offering of Expedia Common Shares, derivative instruments
that are economically substantially equivalent to Expedia Common Shares, or
securities convertible into either Expedia Common Shares or derivative
instruments that are economically substantially equivalent to Expedia Common
Shares. Should Expedia elect to undertake any such underwritten primary offering
after receiving a demand under subsection (i), Expedia will include in such
registration first, the aggregate number of securities to be issued by Expedia,
and second, as many of the shares of Expedia Common Shares covered by the demand
made under (i) as the managing underwriter shall determine is its sole
discretion are permitted by market conditions, provided that in no event shall
the shares of such holders included in such demand be less than the greater of
(A) 15% of the Expedia Common Shares issuable under the Registration Statement
for such offering or (B) Expedia Common Shares with a value of $22.5 million at
the time of such offering, provided that no more than 750,000 shares shall be
registered pursuant to this clause (B). Expedia shall select the managing
underwriters for any underwritten offering made pursuant to this subsection in
its sole discretion. Each Registration Statement shall list as selling
7
<PAGE>
shareholders each New Expedia Shareholder still holding Expedia Common Shares
that has (A) provided to Expedia the requisite information for such filing and
(B) requested to be included in such demand on or prior to last date required to
make such request. Notwithstanding the foregoing, if Expedia shall furnish the
New Expedia Shareholders entitled to be listed as selling shareholders on a
Registration Statement under this subsection a certificate signed by an officer
of Expedia stating that in the good faith judgment of the Board of Directors of
Expedia, it would be detrimental to Expedia for such Registration Statement to
be filed or made effective, then Expedia shall have the right to defer such
filing or the effective date of such Registration Statement until the next date
upon which Expedia would be obligated to use its commercially reasonable efforts
to make a Registration Statement effective, provided that Expedia shall not have
the right to defer any such filing more than once.
(b) If at any time after the Effective Time, Expedia proposes to
register any Expedia Common Shares, derivative instruments that are economically
substantially equivalent to Expedia Common Shares, or securities convertible
into either Expedia Common Shares or derivative instruments that are
economically substantially equivalent to Expedia Common Shares under the 1933
Act on any Registration Statement (other than a registration statement subject
to Section 1.9.2 (b)) prescribed by the Securities Exchange Commission, which
registration shall permit a public secondary offering or distribution (other
than any form solely for registration of securities issuable pursuant to
employee equity or option ownership plans or as consideration for business
combinations), not less than thirty (30) days prior to each such registration,
Expedia shall give to the New Expedia Shareholders written notice of such
proposal which shall describe in detail the proposed registration and
distribution and, upon the written request of any New Expedia Shareholders given
within fifteen (15) days after the date of any such notice, provided that such
holders shall have provided to Expedia the requisite information for such
filing, proceed to include in such registration such Expedia Common Shares as
have been requested by any such holder to be included in such registration.
Expedia will in each instance use its commercially reasonable efforts to cause
Expedia Common Shares subject to such request to be registered under the 1933
Act; provided, that in the event such registration is an underwritten primary
offering on behalf of Expedia and the managing underwriters advise Expedia in
writing that, in their opinion, the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, Expedia will include in such registration (i) first, the aggregate
number of securities to be issued by Expedia, (ii) second, the shares of Expedia
common stock registrable under any demand for registration giving rise to the
right of registration of New Expedia Shareholders under this subsection (b); and
(iii) third, Expedia Common Shares requested to be included in such registration
under this subsection (b) together with other securities requested to be
included in such registration, such shares to be treated on a pro rata basis.
Expedia shall select the managing underwriters for any offering made pursuant to
this subsection (b) in its sole discretion.
(c) As soon as practicable after Form S-3 becomes available to
Expedia, provided that Expedia Common Shares held by New Expedia Shareholders
remain outstanding at such time, Expedia shall prepare and file with the
Securities Exchange Commission a Registration Statement on Form S-3 to register
for resale Expedia Common Shares issued in the Merger to the New Expedia
Shareholders. Expedia shall use its commercially
8
<PAGE>
reasonable efforts to have such Registration Statement declared effective under
the 1933 Act as promptly as practicable after such filing. Expedia shall use its
commercially reasonable efforts to cause such registration statement to continue
to be effective and the prospectus contained therein to be updated as reasonably
deemed necessary by Expedia to enable the New Expedia Shareholders to resell the
Expedia Common Shares that were issued in the Merger.
(d) Expedia shall use its commercially reasonable efforts to
cause any Registration Statement filed under Sections 1.9.2(a), 1.9.2(b) and
1.9.2(c) to continue to be effective during the time specified for such and the
prospectus contained therein to be updated during such time to enable the New
Expedia Shareholders making a demand for registration under subsection (a) or
exercising their rights under subsection (b) or entitled to registration under
subsection (c) to resell during such time the Expedia Common Shares that were
issued in the Merger over the Nasdaq Stock Market or such other national market
as Expedia Common Shares may be traded. Expedia shall also endeavor to take any
action required to be taken under any applicable state securities laws in
connection with the issuance of Expedia Common Shares in the Merger and the
resale of those shares pursuant to the Registration Statement. Expedia agrees to
use its commercially reasonable efforts to cause the Expedia Common Shares
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
holders of such Expedia Common Shares to consummate the disposition of such
Expedia Common Shares and cause all such Expedia Common Shares to be listed on
each securities exchange or national quotation system on which Expedia's common
stock is then listed. Each holder of shares covered by a Registration Statement
agrees that if (i) Expedia determines that the prospectus in such Registration
Statement needs to be amended or supplemented to comply with the requirements of
the 1933 Act, (ii) a stop order suspending the effectiveness of the registration
statement is issued by the Securities Exchange Commission, or (iii) Expedia
shall, in good faith and for business reasons, enter into negotiations relating
to or otherwise commence a material business transaction, including, without
limitation, the acquisition or divestiture of assets or the offering or sale of
securities, then Expedia shall promptly notify each such holder and each such
holder shall immediately cease making offers and sales of Expedia Common Shares
and return all remaining prospectuses to Expedia. Any New Expedia Shareholder
selling stock registered under the Registration Statement shall indemnify
Expedia, its officers and directors, each underwriter and selling broker, if
any, and each person, if any, who controls Expedia, against liability (including
liability under the 1933 Act and the Securities Exchange Act of 1934 ("1934
Act") arising by reason of any statement contained in the Registration
Statement, that such New Expedia Shareholder provided to Expedia in writing
explicitly for use in the Registration Statement, being false or misleading or
omitting to state a material fact necessary to be stated in order that the
statements made in the Registration Statement, in the circumstances in which
they are made, not be misleading; provided, however, that any obligation of any
New Expedia Shareholder to provide indemnity hereunder shall not exceed the
proceeds received by such New Expedia Shareholder from a sale of Expedia Common
Shares under the Registration Statement. Expedia shall indemnify each New
Expedia Shareholder selling stock registered under the Registration Statement,
and each underwriter and selling broker, if any, against liability (including
liability under the 1933 and 1934 Acts) arising by reason of any statement
(other than a statement provided by such New Expedia Shareholder as described
above) in the Registration Statement included therein being false or misleading
or omitting to state a material fact necessary to be stated in order that the
statements made in or incorporated by reference in the Registration Statement,
in the circumstances in which they are made, not be misleading. Expedia may
suspend sales of Expedia Common Shares pursuant to the Registration
9
<PAGE>
Statement if it determines in good faith that such statements are materially
misleading or contain material omissions, provided that Expedia shall (a) make a
corrective filing as soon as practicable, (b) use its commercially reasonable
efforts to cause any amendment to the Registration Statement to be declared
effective and (c) use its commercially reasonable efforts to cause the
Registration Statement to become useable as soon as practicable thereafter.
(e) Notwithstanding the foregoing, no holder of Expedia Common
Shares received on account of Company Warrants shall be entitled to have their
Expedia Common Shares registered under any Registration Statement under this
Section 1.9.2 unless such holder shall have exercised such Company Warrants in
accordance with Section 6.2.16. The obligations of Expedia pursuant to this
Section 1.9.2 shall expire on the earlier of (i) the sale or other disposition
of all of the Expedia Shares issued in the Merger (excluding any Expedia Shares
which are subject to, or acquired pursuant to the exercise of, Expedia Options
more than five (5) weeks after the Effective Time), or (ii) the ability of all
New Expedia Shareholders to dispose of all such shares within a single three (3)
month period pursuant to Rule 144 under the 1933 Act provided Rule 144 is
available for sales by such New Expedia Shareholders. Expedia shall, at its cost
and expense, provide the holders of Expedia Common Shares issued pursuant to the
Merger with copies of prospectuses as such holders may request. Expedia shall
pay all expenses incident to the performance by it of its registration
obligations under this Section 1.9.2. The Holders selling Expedia Common Shares
pursuant to this Section 1.9.2 shall be responsible for the payment of any
brokerage and sales commission, fees and expenses of any counsel retained by
such Holders, and any transfer taxes relating to the sale or disposition of such
shares.
1.9.3 S-8 Registration Statement. Expedia shall cause the Expedia
--------------------------
Common Shares issuable upon exercise of the replacement Expedia Options to be
registered, or to be issued pursuant to a then effective registration statement
on Form S-8 ("S-8"), no later than thirty (30) calendar days after the Effective
Time and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such
replacement Expedia Options remain outstanding.
1.10 Appraisal Rights. Notwithstanding any provision of this Agreement to
----------------
the contrary, each outstanding share of Company Shares, as defined below, the
holder of which has demanded and perfected such holder's right to an appraisal
with respect to the Merger and to be paid the fair value of such shares in
accordance with Section 262 et seq. of the DGCL and, as of the Effective Time,
has not effectively withdrawn or lost such appraisal rights, shall not be
converted into or represent a right to receive the Merger Consideration, but the
holder thereof shall be entitled only to such rights as are granted by the DGCL
("Eligible Dissenting Shares"). Company shall give Expedia (i) prompt written
notice of any notice of intent to demand appraisal for any Company Shares,
withdrawals of such notices, and any other instruments served pursuant to the
DGCL or any other provisions of Delaware law and received by the Company, and
(ii) the opportunity to conduct jointly all negotiations and proceedings with
respect to such demands for appraisal under the DGCL. Company shall not, except
with the prior written consent of Expedia, voluntarily make any payment with
respect to any demands for appraisal by holders of Company Shares or offer to
settle or settle any such demands.
10
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Company and Principal Shareholders.
--------------------------------------------------------------------
Except as disclosed in a document referring specifically to the representations
and warranties in this Agreement which identifies by section number the section
and subsection to which such disclosure relates and is delivered by Company to
Expedia and Sub prior to the execution of this Agreement (the "Company
Disclosure Schedule"), and whether or not the Company Disclosure Schedule is
referred to in a specific section or subsection, Company and the Principal
Shareholders, jointly and severally, represent and warrant to Expedia and Sub as
follows:
2.1.1 Organization, Standing and Power. Company is a corporation duly
--------------------------------
organized and validly existing and in good standing under the laws of the State
of Delaware, has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which a
failure to so qualify would have a material adverse effect on the Business
Condition (as hereinafter defined) of Company. The Company Disclosure Schedule
sets forth each jurisdiction in which the Company is so qualified, licensed or
admitted to do business. As used in this Agreement, "Business Condition" with
respect to any entity shall mean the business, financial condition, results of
operations, assets or Prospects (as defined below) (without giving effect to the
consequences of the transactions contemplated by this Agreement) of such entity
or entities including Subsidiaries taken as a whole. In this Agreement, a
"Subsidiary" of any corporation or other entity means a corporation,
partnership, limited liability company or other entity of which such corporation
or entity directly or indirectly owns or controls voting securities or other
interests which are sufficient to elect a majority of the Board of Directors or
other managers of such corporation, partnership, limited liability company or
other entity and "Prospects" shall mean events, conditions, facts or
developments which are known to Company and which in the reasonable course of
events are expected to have a material effect on future operations of the
business as presently conducted by Company. Company has delivered or made
available to Expedia complete and correct copies of the certificate of
incorporation, bylaws, and/or other primary charter and organizational documents
("Charter Documents") of Company, in each case, as amended to the date hereof.
The minute books and stock records of Company have been provided or made
available to Expedia in their entirety and contain correct and complete records
of all material proceedings and actions taken at all meetings of, or effected by
written consent of, the shareholders of Company and its Board of Directors, and
all original issuances and subsequent transfers, repurchases, and cancellations
of Company Common Shares. The Company Disclosure Schedule contains a complete
and correct list of the officers and directors of Company since its
incorporation.
2.1.2 Capital Structure.
-----------------
(a) The authorized capital stock of Company consists of
50,000,000 shares of Company Common Stock, $0.01 par value, ("Company Common
Shares") of which 15,042,500 shares are issued and outstanding, and 5,000,000
shares of Preferred Stock, $0.01 par value, ("Company Preferred Shares," and
together with the Company Common Shares, the "Company Shares") of which
1,272,569 have been designated as Series A Convertible
11
<PAGE>
Preferred Stock of which all shares are issued and outstanding. As of the date
hereof, 3,000,000 Company Common Shares are reserved for issuance upon the
exercise of outstanding stock options under Company's 1998 Stock Plan (the
"Company Stock Plan"), options for 2,275,000 Company Common Shares have been
granted and 725,000 remain outstanding, and options to purchase 1,695,000
Company Common Shares have been issued outside of the Company Stock Plan and
remain outstanding (together with options outstanding under the Company Stock
Plan, the "Company Options") and warrants to purchase 1,003,585 Company Common
Shares ("Company Warrants") are outstanding. All Company Warrants shall either
be exercised for Company Common Shares (on a net exercise basis) effective as of
the Closing Date and be reflected on the Schedule 1.4 as of the Effective Time,
or at the Effective Time, terminated, provided, however, that the Company
Warrants held by America West Airlines, Inc., Heidrick & Struggles, Inc. and
Meristar Hotels & Resorts, Inc. ("Assumed Warrants") shall be assumed by Expedia
and shall be exercisable for the number of Expedia Common Shares equal to the
number of Company Common Shares underlying such Assumed Warrant multiplied by
the Exchange Ratio, at an exercise price equal to the exercise price set forth
in such Assumed Warrant divided by the Exchange Ratio. All Company Options
shall, in accordance with Section 1.4.2, either be exercised for Company Common
Shares effective two (2) days prior to the Closing Date or at such time be
terminated, and Company Common Shares issued upon such exercise and such
terminated Company Options shall be reflected on the Schedule 1.4 as of the
Effective Time. All Company Common Share Equivalents and other securities
outstanding as of January 29, 2000 are set forth on Schedule 1.4.
(b) All outstanding Company Shares are, and any Company Shares
issued upon exercise of any Company Options will be, validly issued, fully paid,
nonassessable and not subject to any preemptive rights, or to any agreement to
which Company is a party or by which Company may be bound. The Company Plan and
the Company Options issued thereunder have been duly authorized in accordance
with applicable law and are valid and enforceable in accordance with their
terms. Except for the shares described above issuable pursuant to the exercise
of Company Options and Company Warrants, there are not any options, warrants,
calls, conversion rights, commitments, agreements, contracts, understandings,
restrictions, arrangements or rights of any character to which Company is a
party or by which Company may be bound obligating Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the capital
stock of Company, or obligating Company to grant, extend or enter into any such
option, warrant, call, conversion right, conversion payment, commitment,
agreement, contract, understanding, restriction, arrangement or right. Company
does not have outstanding any bonds, debentures, notes or other indebtedness the
holders of which (i) have the right to vote (or convertible or exercisable into
securities having the right to vote) with holders of Company Shares on any
matter ("Company Voting Debt") or (ii) are or will become entitled to receive
any payment as a result of the execution of this Agreement or the completion of
the transactions contemplated hereby. No liquidation preferences are payable
with respect to the capital stock of the Company as a result of the Merger. All
Company Common Share Equivalents and other securities outstanding as of the date
of this Agreement are set forth on Schedule 1.4, and no Company Common Share
Equivalents are held by Company in its treasury. Other than Company Options
subject to vesting as set forth in Schedule 1.4, none of the Company Shares are
subject to conditional vesting, forfeiture or other similar restrictions.
12
<PAGE>
2.1.3 Authority. The execution, delivery, and performance of this
---------
Agreement by Company (including but not limited to the execution, delivery, and
performance of the agreements and transactions contemplated by this Agreement)
has been duly authorized by all necessary action of the Board of Directors of
Company. Certified copies of the resolutions adopted by the Board of Directors
of Company approving this Agreement and the Merger have been provided to
Expedia. Each of Company and the Principal Shareholders has duly and validly
executed and delivered this Agreement and each of the agreements contemplated
hereby, and this Agreement and each of the agreements contemplated hereby
constitutes a valid, binding, and enforceable obligation of Company and each of
the Principal Shareholders, as applicable, in accordance with its terms.
2.1.4 Compliance with Laws and Other Instruments. Company holds, and
------------------------------------------
at all times has held, all licenses, permits, and authorizations from all
Governmental Entities, (as defined below) necessary for the lawful conduct of
its business pursuant to all applicable statutes, laws, ordinances, rules, and
regulations of all such authorities having jurisdiction over it or any part of
its operations, excepting, however, when such failure to hold would not have a
material adverse effect on Company's Business Condition. There are no violations
or claimed violations known by Company or any Principal Shareholder of any such
license, permit, or authorization or any such statute, law, ordinance, rule or
regulation. Neither the execution and delivery of this Agreement by Company and
any Principal Shareholder nor the performance by Company and the Principal
Shareholders of their obligations under this Agreement will, in any material
respect, violate any provision of laws or will conflict with, result in the
material breach of any of the terms or conditions of, constitute a material
breach of any of the terms or conditions of, constitute a material default
under, permit any party to accelerate any right under, renegotiate, or
terminate, require consent, approval, or waiver by any party under, or result in
the creation of any lien, charge, encumbrance, or restriction upon any of the
properties, assets, or Company Common Shares pursuant to, any of the Charter
Documents or any agreement (including, without limitation, government
contracts), indenture, mortgage, franchise, license, permit, lease or other
instrument of any kind to which Company is a party or by which Company or any of
its assets is bound or affected. No consent, approval, order or authorization of
or registration, declaration or filing with or exemption by or notice to
(collectively "Consents"), any court, administrative agency, commission or other
governmental authority or instrumentality, whether domestic or foreign (each a
"Governmental Entity") or other third-party is required by or with respect to
Company in connection with the execution and delivery of this Agreement by
Company or the consummation by Company of the transactions contemplated hereby,
except for (i) the filing of a premerger notification report and all other
required documents by Expedia and Company, and the expiration of all applicable
waiting periods, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") and (ii) the filing of the appropriate Merger
Documents with the Secretary of State of Delaware and except for such other
Consents, which if not obtained or made would not have a material adverse effect
on Company's Business Condition.
2.1.5 Technology and Intellectual Property Rights.
-------------------------------------------
(a) The "Company Intellectual Property" consists of the
following:
13
<PAGE>
(i) all patents, trademarks, trade names, service marks, mask
works, domain names, copyrights and any renewal rights, applications and
registrations for any of the foregoing, and all trade dress, net lists,
schematics, technology, manufacturing processes, customer and supplier lists,
trade secrets, know-how, moral rights, computer software programs or
applications (in both source and object code form) owned by Company;
(ii) all goodwill associated with trademarks, trade names
service marks and trade dress owned by Company;
(iii) all software and firmware listings, and updated software
source code, and complete system build software and instructions related to all
software described in the Company Disclosure Schedule pursuant to Section
2.1.5(b) hereof owned by Company;
(iv) all documents, records and files relating to design, end
user documentation, manufacturing, quality control, sales, marketing or customer
support for all intellectual property described herein owned by Company;
(v) all other tangible or intangible proprietary information and
materials owned by Company; and
(vi) all license and other rights in any third party product,
intellectual property, proprietary or personal rights, documentation, or
tangible or intangible property, including without limitation the types of
intellectual property and tangible and intangible proprietary information
described in (i) through (v) above;
that are being, and/or have been, used, or are currently under development for
use, in the business of Company as it has been, is currently or is currently
anticipated to be (up to the Closing), conducted. Company Intellectual Property
described in clauses (i) to (v) above is referred to herein as "Company Owned
Intellectual Property" and Company Intellectual Property described in clause
(vi) above is referred to herein as "Company Licensed Intellectual Property."
Unless otherwise noted, all references to "Company Intellectual Property" shall
refer to both Company Owned Intellectual Property and Company Licensed
Intellectual Property.
(b) The Company Disclosure Schedule lists: (i) all patents,
registered copyrights, mask works, trademarks, service marks, domain names,
trade dress, any renewal rights for any of the foregoing, and any applications
and registrations for any of the foregoing, that are included in the Company
Owned Intellectual Property; (ii) all hardware products and tools, software
products and tools, and services that are currently published, offered, or under
development by Company; (iii) all licenses, sublicenses and other agreements to
which Company is a party and pursuant to which any end user or other third party
is authorized to have access to or use the Company Intellectual Property or
exercise any other right with regard thereto; (iv) all Company Licensed
Intellectual Property (other than license agreements for standard "shrink
wrapped, off the shelf," commercially available, third party products used by
the Company); and (v) any obligations of exclusivity, noncompetition,
nonsolicitation, first refusal or first
14
<PAGE>
negotiation to which Company is subject under any agreement concerning Company
Intellectual Property that does not fall within the ambit of (iii) or (iv)
above. The disclosures described in (iii), (iv), and (v) hereof include the
names and dates of the relevant agreements, as well as the identities of the
parties to the relevant agreements.
(c) The Company Intellectual Property consists solely of items
and rights which are either: (i) owned by Company by assignment or otherwise;
(ii) in the public domain; or (iii) rightfully used and authorized for use by
Company and its successors pursuant to a valid license or other agreement.
Company has all rights in the Company Intellectual Property necessary to carry
out Company's current and anticipated future (up to the Closing) activities and
has or had all rights in the Company Intellectual Property reasonably necessary
to carry out Company's former activities, including without limitation, and
solely to the extent necessary to carry out such activities, rights to make,
use, exclude others from using, reproduce, modify, adapt, create derivative
works based on, translate, distribute (directly and indirectly), disclose,
transmit, display and perform publicly, license, rent, lease, assign, and sell
the Company Intellectual Property in all geographic locations and fields of use,
and to sublicense any or all such rights to third parties, including the right
to grant further sublicenses. All software and firmware listings that are part
of the Company Owned Intellectual Property are adequately commented in
accordance with generally accepted standard industry practices.
(d) Company is not, nor as a result of the execution or delivery
of this Agreement and all other agreements contemplated hereby, or performance
of Company's obligations hereunder or thereunder, will Company be, in violation
of any license, sublicense, or other agreement relating to the Company
Intellectual Property to which Company is a party or otherwise bound. Except as
specifically described in the Company Disclosure Schedule, Company is not
obligated to provide any consideration (whether financial or otherwise) to any
third party, nor is any third party otherwise entitled to any consideration,
with respect to any exercise of rights by Company or its successors or licensees
in the Company Intellectual Property.
(e) The use, reproduction, modification, distribution,
licensing, sublicensing, sale, or any other exercise of rights in any Company
Owned Intellectual Property or any other authorized exercise of rights in or to
the Company Owned Intellectual Property by Company or its successors or
licensees does not infringe any copyright, patent, trade secret, trademark,
service mark, trade name, firm name, logo, trade dress, mask work, moral right,
other intellectual property right, right of privacy, right of publicity, or
right in personal or other data of any person. Further, to the knowledge of
Company and the Principal Shareholders, the use, reproduction, modification,
distribution, licensing, sublicensing, sale, or any other exercise of rights in
any Company Licensed Intellectual Property or any other authorized exercise of
rights in or to the Company Licensed Intellectual Property by Company or its
licensees does not infringe any copyright, patent, trade secret, trademark,
service mark, trade name, firm name, logo, trade dress, mask work, moral right,
other intellectual property right, right of privacy, right of publicity or right
in personal or other data of any person. No claims (i) challenging the validity,
effectiveness, or ownership by Company of any of the Company Intellectual
Property, or (ii) to the effect that the use, reproduction, modification,
manufacturing, distribution, licensing, sublicensing, sale, or any other
exercise of rights in any Company Intellectual Property
15
<PAGE>
by Company or its successors or licensees infringes, or will infringe on, any
intellectual property or other proprietary or personal right of any person, have
been asserted or, to the knowledge of Company and the Principal Shareholders,
are threatened by any person nor, to the knowledge of Company and the Principal
Shareholders, are there any valid grounds for any bona fide claim of any such
kind. All granted or issued patents and all registered mask works, domain names,
and trademarks listed on the Company Disclosure Schedule and all copyright
registrations held by Company are valid, enforceable and subsisting. To the
knowledge of Company and the Principal Shareholders, there is no unauthorized
use, infringement, or misappropriation of any of the Company Owned Intellectual
Property by any employee, or former employee, or other third party.
(f) No parties other than Company possess any current or
contingent rights to any source code that is part of the Company Owned
Intellectual Property (including, without limitation, through any escrow
account).
(g) The Company Disclosure Schedule lists all parties who have
created any portion of, or otherwise have any rights in or to, the Company Owned
Intellectual Property other than employees of Company whose work product was
created by them within the scope of their employment by Company and constitutes
works made for hire owned by Company. Company has secured from all parties who
are not employees and who have created any material portion of, or otherwise
have any rights in or to, the Company Owned Intellectual Property valid and
enforceable written assignments or licenses of any such work or other rights to
Company and has provided true and complete copies of such assignments or
licenses to Expedia.
(h) The Company Disclosure Schedule includes a true and complete
list of support and maintenance agreements relating to Company Owned
Intellectual Property or to which Company is a party as to Company Licensed
Intellectual Property, including the identity of the parties and the respective
dates of such agreements.
(i) Company has obtained legally binding written agreements from
all employees and third parties with whom Company has shared confidential
proprietary information (i) of Company or (ii) received from others which
Company is obligated to treat as confidential, which agreements require such
employees and third parties to keep such information confidential.
(j) Company has obtained any and all necessary consents from
consumers with regard to the Company's collection and dissemination of personal
consumer information in accordance with Company's privacy policy as published on
its website. Company's practices regarding the collection and use of consumer
personal information are in accordance with Company's privacy policy as
published on its website.
(k) The Company Owned Intellectual Property is, and any products
manufactured and commercially released by Company or currently under
development, are fully Year 2000 Compliant in all material respects and will not
cease to be fully Year 2000 Compliant in any material respect at any time during
or after the calendar year AD 2000. To the knowledge
16
<PAGE>
of Company and the Principal Shareholders, the Company Licensed Intellectual
Property is fully Year 2000 Compliant in all material respects and will not
cease to be fully Year 2000 Compliant in any material respect at any time prior
to, during or after the calendar year 2000. Schedule 2.1.5(k) sets forth the
tests, inquiries and other activities undertaken by Company up to Closing, with
respect to the Year 2000 Compliant nature of any and all Company Intellectual
Property. For the purposes of this Agreement, "Year 2000 Compliant" means that
neither the performance nor the functionality of any Company Intellectual
Property is or will be materially affected by dates prior to, during or after
the calendar year AD 2000 and in particular (but without limitation):
(i) such Company Intellectual Property accurately receives,
provides and processes, and will accurately receive, provide and process,
date/time data (including calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries, including without limitation
calendar years 1999 and 2000;
(ii) such Company Intellectual Property will not malfunction,
cease to function, provide invalid or incorrect results or cause any
interruption in the operation of the business of Company as a result of any
date/time data;
(iii) date-based functionality of such Company Intellectual
Property behaves and will continue to behave consistently for dates prior to,
during and after the calendar year 2000;
(iv) in all interfaces and data storage of such Company
Intellectual Property, the century in any date is and will be specified either
explicitly or by unambiguous algorithms or inferencing rules; and
(v) the calendar year 2000 is and will be recognized as a leap
year by such Company Intellectual Property.
2.1.6 Financial Statements. Company has delivered to Expedia its
--------------------
audited financial statements as of December 31, 1998, its reviewed financial
statements for the quarter ending March 31, 1999 and its internally prepared
financial statements for the quarters ending June 30, 1999, September 30, 1999
and December 31, 1999, and at Closing the Company shall deliver its audited
financial statements as of December 31, 1999, each of which financial statements
include balance sheets and statements of income and cash flow as of the date of
such (such financial statements are collectively referred to as the "Financial
Statements"). The Financial Statements: (i) are in accordance with the books and
records of Company, (ii) present fairly, in all material respects, the financial
position of Company as of the dates indicated and the results of its operations
for each of the periods indicated, and (iii) have been prepared in accordance
with generally accepted accounting principles consistently applied except as
described in the Company Disclosure Schedule, subject to ordinary year-end
adjustments and notes. There are no material off-balance sheet liabilities,
claims or obligations of any nature, whether accrued, absolute, contingent,
anticipated, or otherwise, whether due or to become due, that are not shown or
provided for either in the Financial Statements or the Company Disclosure
Schedule. The liabilities of Company were incurred in the ordinary course of
Company's
17
<PAGE>
business. The "Pro Forma Closing Balance Sheet" attached as Schedule 2.1.6 sets
forth, based on reasonable assumptions relating to the operation of the business
conducted by Company, the balance sheet as of the estimated Closing Date. A
"Final Pro Forma Closing Balance Sheet" will be prepared and delivered in
accordance with Section 6.2.12, and when so delivered, shall be (i) in
accordance with the books and records of Company and on a basis consistent with
the Financial Statements and Pro Forma Closing Balance Sheet, (ii) present
fairly, in all material respects, the financial position of Company as of the
Closing Date and the results of its operations for the Closing Date, and (iii)
have been prepared in accordance with generally accepted accounting principles
consistently applied.
2.1.7 Taxes.
-----
(a) Company has timely filed (or caused to be filed) all
federal, state, local and foreign tax returns, reports, elections and
information statements ("Returns") required to be filed by it, which Returns are
true, correct and complete in all respects, and paid all taxes required to be
paid as shown on such Returns. All taxes required to be paid in respect of the
periods covered by such Returns ("Return Periods") on or prior to Closing have
either been paid or fully accrued on the books of Company. Company has fully
accrued all unpaid taxes in respect of all periods prior to Closing on the Pro
Forma Closing Balance Sheet. Company has not taken any position on any tax
return or filing which is or would be subject to penalties under Section 6662 of
the Code. Company has not requested or been granted any extension of time to
file any Return. There is no difference between the amounts of the book basis
and the tax basis of any asset of Company that is not reflected in an
appropriate accrual of deferred tax liability on the books of Company or fully
reflected in the Financial Statements. All material elections with respect to
taxes made by or with respect to the Company are set forth on Company Disclosure
Schedule. Company has provided Expedia true and correct copies of all Returns,
all correspondence with any taxing authority, all Return work papers, any tax
planning memoranda prepared for the Company and other tax data (except for
memoranda and other tax data as to which the Company has asserted or reasonably
could assert is privileged under applicable law).
(b) No deficiencies or adjustments for any tax have been
claimed, proposed or assessed or threatened. Company Disclosure Schedule
accurately sets forth the years for which Company's federal and state income tax
returns, respectively, have been audited and any years which are the subject of
a pending audit by the Internal Revenue Service ("IRS") and the applicable state
taxing agencies. Company is not subject to any pending or threatened tax audit
or examination. Company Financial Statements contain adequate accruals for all
unpaid taxes. Company has not entered into any agreements, waivers or other
arrangements in respect of the statute of limitations in respect of its taxes or
tax returns. Company Disclosure Schedule sets forth as of December 31, 1998 (i)
the tax basis of the Company in its assets, (ii) the current and accumulated
earnings and profits of the Company, (iii) the amount of any net operating loss
carryover, net capital loss carryover, unused investment credit or other credit
carryover and charitable contribution carryover of the Company, (iv) the amount
of any deferred gain or loss allocable to the Company or excess loss account of
the Company, and (v) a list of all partnerships, limited liability companies or
other legal business entities (within the meaning of Treas. Reg. Section
701.7701-3) in which the Company has an interest.
18
<PAGE>
(c) For the purposes of this Agreement, the terms "tax" and
"taxes" shall include all federal, state, local and foreign taxes, assessments,
duties, tariffs, registration fees, and other governmental charges including
without limitation all income, franchise, property, production, sales, use,
payroll, license, windfall profits, severance, withholding, excise, gross
receipts, amounts collected by the Company as taxes and other taxes, as well as
any interest, additions or penalties relating thereto and any interest in
respect of such additions or penalties.
(d) There are no liens for taxes upon the assets of Company
except for taxes that are not yet payable. Company has withheld all taxes
required to be withheld in respect of wages, salaries and other payments to all
employees, officers and directors and any taxes required to be withheld from any
other person and has timely paid all such amounts withheld to the proper taxing
authority.
(e) No consent or agreement has been made under Section 341(f)
of the Code, by or on behalf of Company or any predecessor thereof. Company is
not and has not been a party to any tax sharing or tax allocation agreement. No
item of income or gain reported by the Company for financial accounting purposes
in any pre-closing period is required to be included in taxable income in any
post-closing period. Company has never been a member of any affiliated group of
corporations within the meaning of Section 1504 of the Code other than a group
the common parent of which was the Company. Company has not participated in, or
cooperated with, an international boycott within the meaning of Section 999 of
the Code. Company is not required to include in income any adjustment pursuant
to Section 481(a) of the Code (or similar provisions of other law or
regulations) in its current or in any future taxable period, by reason of a
change in accounting method; nor does Company have any knowledge that the IRS
(or other taxing authority) has proposed, or is considering, any such change in
accounting method. Company is not a party to any agreement, contract, or
arrangement that would result in the payment of any "excess parachute payment"
within the meaning of Section 280G of the Code or any similar provision of
foreign, state or local law ("Excess Parachute Payment"). Company does not have
and has not had a "permanent establishment" (as defined in any applicable income
tax treaty) in any country other than the United States. Company and the
Principal Shareholders will take all action required by Section 280G of the Code
and the Regulations thereunder necessary to ensure that no payment in connection
with the Merger constitutes an Excess Parachute Payment. Company has made no
election under Section 197 of the Code. There are no outstanding rulings or
requests for rulings from any taxing authority with respect to Company.
(f) The use of any net operating loss carryover, net capital
loss carryover, unused investment credit or other credit carryover of Company is
not subject to any limitation pursuant to Section 382 of the Code or otherwise
(except as such limitation may be imposed as a result of the transactions
contemplated under this Agreement). Company is not and has never been a real
property holding corporation within the meaning of Section 897 of the Code. None
of the assets of Company is property that is required to be treated as owned by
any other person pursuant to the "safe harbor lease" provisions of former
Section 168(f)(8) of the Code and in effect immediately prior to the enactment
of the Tax Reform Act of 1986 and none of the assets of Company is "tax exempt
use property" within the meaning of Section 168(h) of the Code. None of the
assets of Company secures any debt the interest on which is tax exempt under
19
<PAGE>
Section 103 of the Code. Company is liable for no taxes of any person other than
the Company and its Subsidiaries under the provisions of Treas. Reg. Section
1.1502-6(a).
2.1.8 Absence of Certain Changes and Events. Since September 30,
-------------------------------------
1999, there has not been:
(a) Any transaction involving more than $20,000 entered into by
Company other than in the ordinary course of business; any change (or any
development or combination of developments of which Company or the Principal
Shareholders has knowledge which is reasonably likely to result in such a
change) in Company's Business Condition, other than changes in the ordinary
course of business which in the aggregate have not been materially adverse to
Company's Business Condition; or, without limiting the foregoing, any loss of or
damage to any of the properties of Company due to fire or other casualty, or any
other loss, whether or not insured, amounting to more than $20,000 in the
aggregate;
(b) Any declaration, payment, or setting aside of any dividend
or other distribution to or for the holders of any Company Common Shares;
(c) Any termination, modification, or rescission of, or waiver
by Company of rights under, any existing contract having or likely to have a
material adverse effect on Company's Business Condition or any other contract or
arrangement with an Internet portal or distributor;
(d) Any discharge or satisfaction by Company of any lien or
encumbrance, or any payment of any obligation or liability (absolute or
contingent) other than current liabilities shown on the balance sheet included
in the Financial Statements as of September 30, 1999 and current liabilities
incurred since September 30, 1999 in the ordinary course of business; or
(e) Any mortgage, pledge, imposition of any security interest,
claim, encumbrance, or other restriction on any of the assets, tangible or
intangible, of Company.
2.1.9 Accounts Receivable. All of the accounts receivable shown on
-------------------
the Pro Forma Closing Balance Sheet and the Final Pro Forma Closing Balance
Sheet have been collected or are good and collectible in the aggregate recorded
amounts thereof (less the allowance for doubtful accounts also appearing in such
Pro Forma Closing Balance Sheet and Final Pro Forma Closing Balance Sheet
balance sheet and net of returns and payment discounts allowable by Company's
policies) and can reasonably be anticipated to be paid in full without outside
collection efforts within sixty (60) days of the due date, subject to no
counterclaims or setoffs.
2.1.10 Leases in Effect. All real property leases and subleases as to
----------------
which Company is a party and any amendments or modifications thereof are listed
on the Company Disclosure Schedule (each a "Lease" and collectively, the
"Leases") and are valid, in full force and effect, enforceable, and there are no
existing defaults, and Company has not received or given notice of default or
claimed default with respect to any Lease, nor is there any event that
20
<PAGE>
with notice or lapse of time, or both, would constitute a default thereunder.
The Company does not own and has never owned any interest in real property other
than leasehold interests.
2.1.11 Personal Property. Company has good and marketable title, free
-----------------
and clear of all title defects, security interests, pledges, options, claims,
liens, encumbrances, and restrictions of any nature whatsoever (including,
without limitation, leases, chattel mortgages, conditional sale contracts,
purchase money security interests, collateral security arrangements, and other
title or interest-retaining agreements) to all inventory, receivables,
furniture, machinery, equipment, and other personal property, tangible or
otherwise, reflected on the December 31, 1999 balance sheet included in the
Financial Statements or used in Company's business as of the date of such
balance sheet even if not reflected thereon, except for acquisitions and
dispositions in the ordinary course of business. The Company Disclosure Schedule
lists (i) all computer equipment and (ii) all other personal property having a
book value of $10,000 or more, which are used by Company in the conduct of its
business, and all such equipment and property are in good operating condition
and repair, reasonable wear and tear excepted.
2.1.12 Certain Transactions. None of the employees, directors,
--------------------
officers, or shareholders of Company, or any member of any of their families (as
defined below), is presently a party to, or was a party to during the year
preceding the date of this Agreement, any transaction with Company, including,
without limitation, any contract, agreement, or other arrangement (i) providing
for the furnishing of services to or by, (ii) providing for rental of real or
personal property to or from, or (iii) otherwise requiring payments to or from,
any such person or any corporation, partnership, trust, or other entity in which
any such person has or had a 5%-or-more interest (as a shareholder, partner,
beneficiary, or otherwise) or is or was a director, officer, employee, or
trustee other than for services rendered by a shareholder as an employee of
Company. None of Company's employees, officers or directors has any material
interest in any property, real or personal, tangible or intangible, including
inventions, copyrights, trademarks or trade names, used in or pertaining to the
business of Company, or any supplier, distributor or customer of Company, except
for the normal rights of a shareholder, and except for rights under existing
employee benefit plans and employment agreements copies of which have been
provided to Expedia. For purposes of this Agreement "families" shall include all
individuals who by reason of ancestry, adoption or marriage have a common parent
or grandparent.
2.1.13 Litigation and Other Proceedings. Neither Company nor any of
--------------------------------
its officers, directors, or employees is a party to any pending or, to the
knowledge of Company and the Principal Shareholders, threatened action, suit,
labor dispute (including any union representation proceeding), proceeding,
investigation, or discrimination claim in or by any court or governmental board,
commission, agency, department, or officer, or any arbitrator, arising from the
actions or omissions of Company or, in the case of an individual, from acts in
his or her capacity as an officer, director, or employee of Company which
individually or in the aggregate would be materially adverse to Company. Company
is not subject to any order, writ, judgment, decree, or injunction that has a
material adverse effect on Company's Business Condition.
2.1.14 No Defaults. Company is not, nor has Company received notice
-----------
that it would be with the passage of time, in default or violation of any term,
condition or provision of (i) the Charter Documents of Company; (ii) any
judgment, decree or order applicable to
21
<PAGE>
Company; or (iii) any loan or credit agreement, note, bond, mortgage, indenture,
contract, agreement, lease, license or other instrument to which Company is now
a party or by which it or any of its properties or assets may be bound, except
for defaults and violations which, individually or in the aggregate, would not
have a material adverse effect on the Business Condition of Company.
2.1.15 Major Contracts. Company is not a party to or subject to:
---------------
(a) Any union contract, or any employment contract or
arrangement providing for future compensation, written or oral, with any
officer, consultant, director or employee;
(b) Any plan or contract or arrangement, written or oral,
providing for bonuses, pensions, deferred compensation, retirement payments,
profit-sharing, or the like;
(c) Any joint venture contract or arrangement or any other
agreement which has involved or is expected to involve a sharing of profits;
(d) Any OEM agreement, distribution agreement, volume purchase
agreement, corporate end user sales or service agreement or manufacturing
agreement in which the amount involved exceeds annually, or is expected to
exceed in the aggregate during any twelve (12) month period $20,000 or pursuant
to which Company has granted or received manufacturing rights, most favored
nation pricing provisions or exclusive marketing, reproduction, publishing or
distribution rights related to any product, group of products or territory;
(e) Any lease for real or personal property in which the amount
of payments which Company is required to make on an annual basis exceeds
$20,000;
(f) Any material agreement, license, franchise, permit,
indenture or authorization which has not been terminated or performed in its
entirety and not renewed which may be, by its terms, terminated, impaired or
adversely affected by reason of the execution of this Agreement, the Closing of
the Merger, or the consummation of the transactions contemplated hereby or
thereby;
(g) Any instrument evidencing or related in any way to
indebtedness incurred in the acquisition of companies or other entities or
indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, or otherwise which
individually is in the amount of $20,000 or more;
(h) Any material license agreement, either as licensor or
licensee (excluding nonexclusive hardware and software licenses granted to
distributors or end-users in the ordinary course of business consistent with
prior practice); or
(i) Any contract containing covenants purporting to limit
Company's freedom to compete in any line of business in any geographic area.
22
<PAGE>
All contracts, arrangements, plans, agreements, leases, licenses,
franchises, permits, indentures, authorizations, instruments and other
commitments which are required to be listed in the Company Disclosure Schedule
pursuant to this Section 2.1.15 are valid and in full force and effect and
Company has not, nor, to the best knowledge of Company, has any other party
thereto, breached any material provisions of, or entered into default in any
material respect under the terms thereof.
2.1.16 Material Relations. To Company and the Principal Shareholders'
------------------
knowledge, none of the parties to any of the major contracts identified in the
Company Disclosure Schedule pursuant to Section 2.1.15, if any, have terminated,
or in any way expressed an intent to materially reduce or terminate the amount
of its business with Company in the future.
2.1.17 Insurance and Banking Facilities. The Company Disclosure
--------------------------------
Schedule contains a complete and correct list of (i) all contracts of insurance
or indemnity of Company in force at the date of this Agreement (including name
of insurer or indemnitor, agent, annual premium, coverage, deductible amounts,
and expiration date) and (ii) the names and locations of all banks in which
Company has accounts or safe deposit boxes, the designation of each such account
and safe deposit box, and the names of all persons authorized to draw on or have
access to each such account and safe deposit box. All premiums and other
payments due from Company with respect to any such contracts of insurance or
indemnity have been paid, and Company does not know of any fact, act, or failure
to act which has or might cause any such contract to be canceled or terminated.
All material known claims for insurance or indemnity have been presented.
2.1.18 Employees. Company does not have any written contract of
---------
employment or other employment agreement with any of its employees that is not
terminable at will by Company. Company is not a party to any pending, or to
Company's knowledge, threatened, labor dispute. Company has complied in all
material respects with all applicable federal, state, and local laws,
ordinances, rules and regulations and requirements relating to the employment of
labor, including but not limited to the provisions thereof relating to wages,
hours, collective bargaining, payment of social security, unemployment and
withholding taxes, and ensuring equality of opportunity for employment and
advancement of minorities and women. There are no claims pending, or threatened
to be brought, in any court or administrative agency by any former or current
Company employees for compensation, pending severance benefits, vacation time,
vacation pay or pension benefits, or any other claim pending from any current or
former employee or any other person arising out of Company's status as employer,
whether in the form of claims for employment discrimination, harassment, unfair
labor practices, grievances, wrongful discharge or otherwise.
2.1.19 Employee Benefit Plans. Each employee benefit plan ("Plan")
----------------------
covering active, former, or retired employees of Company is listed in the
Company Disclosure Schedule. Company has made available to Expedia a copy of
each Plan, and where applicable, any related trust agreement, annuity, or
insurance contract. No annual reports (Form 5500) have been required to be filed
with the Internal Revenue Service. To the extent applicable, each Plan
23
<PAGE>
complies, in all material respects, with the requirements of the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
any Plan intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified and has remained
tax-qualified to this date and its related trust is tax-exempt and has been so
since its creation. No Plan is covered by Title IV of ERISA or Section 412 of
the Code. No "prohibited transaction", as defined in ERISA Section 406 or Code
Section 4975 has occurred with respect to any Plan. Each Plan has been
maintained and administered in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Plans. There are no pending or anticipated claims against or otherwise involving
any of the Plans and no suit, action, or other litigation (excluding claims for
benefits incurred in the ordinary course of Plan activities) has been brought
against or with respect to any Plan. All contributions, reserves, or premium
payments to the Plan, accrued to the date hereof have been made or provided for.
Company has not incurred any liability under Subtitle C or D of Title IV of
ERISA with respect to any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by Company, or any entity
which is considered one employer with Company under Section 4001 of ERISA.
Company has not incurred any withdrawal liability under Subtitle E of Title IV
of ERISA with respect to any "multi-employer plan." within the meaning of
Section 4001(a)(3) of ERISA. There are no restrictions on the rights of Company
to amend or terminate any Plan without incurring any liability thereunder.
Company has not engaged in or is a successor or parent corporation to an entity
that has engaged in a transaction described in ERISA Section 4069. There have
been no amendments to, written interpretation of, or announcement (whether or
not written) by Company relating to, or change in employee participation or
coverage under, any Plan. Neither Company nor any of its ERISA affiliates have
any current or projected liability in respect of post-employment or post-
retirement welfare benefits for retired or former employees of Company other
than health care continuation benefits required to be provided under applicable
law. No tax under Section 4980B of the Code has been incurred in respect of any
Plan that is a group health plan, as defined in Section 5000(b)(1) of the Code.
Except as disclosed on the Company Disclosure Schedule, Company has administered
the executive compensation Plans, if any, in a manner which will not result in a
compensation charge against earnings or the loss of deductions for federal and
state income tax purposes.
2.1.20 Certain Agreements. Except as contemplated by this Agreement,
------------------
neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby will: (i) result in any payment by Company
(including, without limitation, severance, unemployment compensation, parachute
payment, bonus or otherwise) becoming due to any director, employee or
independent contractor of Company under any Plan, agreement or otherwise, (ii)
materially increase any benefits otherwise payable under any Plan or agreement,
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits.
2.1.21 Guarantees and Suretyships. Company has no powers of attorney
--------------------------
outstanding (other than those issued in the ordinary course of business with
respect to tax matters), and Company has no obligations or liabilities (absolute
or contingent) as guarantor, surety, cosigner, endorser, co-maker, indemnitor,
or otherwise respecting the obligations or
24
<PAGE>
liabilities of any person, corporation, partnership, joint venture, association,
organization, or other entity.
2.1.22 Brokers and Finders. Neither Company nor the Principal
-------------------
Shareholders has retained any broker, finder, or investment banker in connection
with this Agreement or any of the transactions contemplated by this Agreement,
nor does or will Company owe any fee or other amount to any broker, finder, or
investment banker in connection with this Agreement or the transactions
contemplated by this Agreement.
2.1.23 Certain Payments. Neither Company nor the Principal
----------------
Shareholders acting on behalf of Company, nor to the best knowledge of Company
and the Principal Shareholders, any person or other entity acting on behalf of
Company has, directly or indirectly, on behalf of or with respect to Company:
(i) made an unreported political contribution, (ii) made or received any payment
which was not legal to make or receive, (iii) engaged in any transaction or made
or received any payment which was not properly recorded on the books of Company,
(iv) created or used any "off-book" bank or cash account or "slush fund," or (v)
engaged in any conduct constituting a violation of the Foreign Corrupt Practices
Act of 1977.
2.1.24 Environmental Matters. To the best knowledge of Company and
---------------------
the Principal Shareholders:
(a) There has not been a discharge or release on any real
property owned or leased by Company (the "Real Property") of any Hazardous
Material (as defined below) in violation of any federal, state or local statute,
regulation, rule or order applicable to health, safety and the environment,
including without limitation, contamination of soil, groundwater or the
environment, generation, handling, storage, transportation or disposal of
Hazardous Materials or exposure to Hazardous Materials ("Environmental Laws"),
except for those that would not, individually or in the aggregate have a
material adverse effect on Company;
(b) No Hazardous Material has been used by Company in the
operation of Company's business in amounts that would violate any Environmental
Laws;
(c) Company has not received from any Governmental Entity or
third party any request for information, notice of claim, demand letter, or
other notification, notice or information that Company is or may be potentially
subject to or responsible for any investigation or clean-up or other remediation
of Hazardous Material present on any Real Property;
(d) There have been no environmental investigations, studies,
audits, tests, reviews, or other analyses, the purpose of which was to discover,
identify, or otherwise characterize the condition of the soil, groundwater, air,
or presence of asbestos at any of the Real Property sites;
(e) There is no asbestos present in any Real Property owned or
operated by Company, and no asbestos has been removed from any Real Property
while such Real Property was owned or operated by Company; and
25
<PAGE>
(f) There are no underground storage tanks on, in or under any
of the Real Property and no underground storage tanks have been closed or
removed from any Real Property which are or have been in the ownership of
Company.
"Hazardous Material" means any substance (i) that is a "hazardous waste" or
"hazardous substance" under any federal, state or local statute, regulation,
rule, or order, (ii) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, or otherwise hazardous and is regulated by any Governmental Entity,
(iii) the presence of which on any of the Real Property causes or threatens to
cause a nuisance on any of the Real Property or to adjacent properties or poses
or threatens to pose a hazard to the health or safety of persons on or about any
of the Real Property, or (iv) the presence of which on adjacent properties could
constitute a trespass by Company or the then current owner(s) of any of the Real
Property.
2.1.25 Business Relations. The Company Disclosure Schedule sets forth
------------------
all suppliers of Company representing five percent (5%) or more of Company's
costs or revenues for the eleven (11) months ended November 30, 1999 and their
has been no material change in such suppliers since that date. No material
customer or supplier or co-party to any Internet distribution or portal
agreement of Company has threatened to cease to do business with Company,
whether as a result of a transaction such as set forth herein or otherwise.
Since December 31, 1998, the Company has not experienced any material
difficulties either in obtaining suppliers or Internet distributors or in its
material relationships with current suppliers or Internet distributors necessary
for the operation of its business as presently conducted, and to Company's
knowledge no such material difficulties are anticipated, pending or threatened,
whether in connection with the operation of the Company's business as presently
conducted or its business Prospects. Company is not required to provide any
bonding or other security for any of its suppliers.
2.1.26 Disclosure. Neither the representations or warranties made by
----------
Company or the Principal Shareholders in this Agreement, nor the final Company
Disclosure Schedule or any other certificate executed and delivered by Company
or the Principal Shareholders pursuant to this Agreement, when taken together,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.
2.1.27 Real Property. All Real Property of the Company is listed on
-------------
the Company Disclosure Schedule. No other real property has been owned, leased
or licensed by Company. The Company has good and marketable title, free and
clear of all material title defects, security interests, pledges, options,
claims, liens, encumbrances and restrictions (including without limitation,
mortgages and deeds of trust), in fee simple absolute with respect to the
portion of Real Property identified on the Company Disclosure Schedule as being
owned, and as a leasehold estate with respect to the portion of Real Property
identified on the Company Disclosure Schedule as being leased. The Real Property
is in good operating condition (normal wear and tear excepted) and is suitable
for the uses in which it is currently being employed and is free from any known
material defect. The use and operation of the Real Property is in full
compliance with applicable material provisions of building and fire codes and
zoning and land
26
<PAGE>
use laws. All certificates of occupancy and other building permits are in full
force and effect, without default by or notice of default to the Company. All
water, sewer, gas, electric, electronic communications and drainage facilities
and all other utilities required by law, statute, rule or regulation or by the
Company's use and operation of the Real Property are installed on the Real
Property and are adequate to service the Real Property under its current use.
The Company has all material easements and rights of way necessary for the
operation of the Company's business as presently conducted. There are no
condemnation proceedings pending, or to the knowledge of Company, threatened in
respect of the Real Property. The Company has no contractual obligation to
purchase, sell, offer a right of first refusal or a right of first offer with
respect to any real property. The Company has granted no option to purchase real
property. There are no leases, subleases, licenses, occupancy agreements or
other agreements, oral or written, under the Company is the lessor of any
portion of the Real Property or sublessor under any lease.
2.1.28 Reliance. The foregoing representations and warranties are
--------
made by Company and the Principal Shareholders with the knowledge and
expectation that Expedia and Sub are placing reliance thereon.
2.2 Representations and Warranties of Expedia and Sub. Except as disclosed
-------------------------------------------------
in a document referring specifically to the representations and warranties in
this Agreement which identifies by section number the section and subsection to
which such disclosure relates and is delivered by Expedia to Company prior to
the execution of this Agreement (the "Expedia Disclosure Schedule"), Expedia and
Sub represent and warrant to Company as follows:
2.2.1 Organization, Standing and Power. Expedia is a corporation duly
--------------------------------
organized and validly existing under the laws of Washington, and Sub is a
corporation duly organized and validly existing under the laws of Delaware, and
each has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which a
failure to so qualify would have a material adverse effect on the Business
Condition of Expedia.
2.2.2 Authority. The execution, delivery, and performance of this
---------
Agreement by Expedia and Sub has been duly authorized by all necessary corporate
action of Expedia and Sub. Each of Expedia and Sub has duly and validly executed
and delivered this Agreement, and this Agreement constitutes a valid, binding,
and enforceable obligation of each of Expedia and Sub in accordance with its
terms.
2.2.3 Compliance with Laws and Other Instruments. Neither the
------------------------------------------
execution and delivery of this Agreement by Expedia or Sub nor the performance
by Expedia or Sub of its obligations under this Agreement will violate any
material provision of law or will conflict with, result in the breach of any of
the terms and conditions of, constitute a default under, permit any party to
accelerate any right under, renegotiate or terminate, require consent, approval,
or waiver by any party under, or result in the creation of any lien, charge, or
encumbrance upon any of the properties, assets, or shares of capital stock of
Expedia pursuant to any charter document of Expedia or Sub or any agreement,
indenture, mortgage, franchise, license, permit, lease, or other instrument of
any kind to which Expedia is a party or by which Expedia or any of its assets
are
27
<PAGE>
bound or affected. No Consent is required by or with respect to Expedia or Sub
in connection with the execution and delivery of this Agreement by Expedia or
Sub or the consummation by Expedia or Sub of the transactions contemplated
hereby or thereby, except for the filing of the Merger Documents with the
Secretary of State of Delaware and such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
material adverse effect on Expedia's Business Condition.
2.2.4 Financial Statements and SEC Documents. Expedia has made
--------------------------------------
available to Company complete and accurate copies, as amended or supplemented,
of its (a) Form S-1 Registration Statement under the 1933 Act, as amended on
October 26, 1999 and November 8, 1999 and the prospectus dated November 9, 1999
contained in the Form S-1 Registration Statement and (b) all other reports filed
by Expedia pursuant to Section 13 of the 1934 Act with the SEC since November 9,
1999 (such reports are collectively referred to herein as the "SEC Documents").
The SEC Documents constitute all of the documents required to be filed by
Expedia under Section 13 of the 1934 Act with the SEC since November 9, 1999 and
were prepared in accordance with the requirements of the 1934 Act. The SEC
Documents (including without limitation all information and filings incorporated
therein by reference) are, as of the time filed, accurate and complete and
contain and will contain no material misstatement and do not omit to state any
fact necessary to make the statements therein not misleading.
2.2.5 Capital Shares. The Expedia Common Shares issuable in the
--------------
Merger are duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement and the Merger Documents will be
validly issued, fully paid, nonassessable and not subject to any preemptive
rights. Except as set forth in Schedule 2.2.5, attached hereto, the authorized,
issued and outstanding capital shares of Expedia are as set forth in the SEC
Documents as of the dates of the financial statements or other information
included in the SEC Documents.
2.2.6 Disclosure. Neither the representations or warranties made by
----------
Expedia or Sub in this Agreement, nor the final Expedia Disclosure Schedule or
any other certificate executed and delivered by Expedia pursuant to this
Agreement, when taken together, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein not misleading in light of the circumstances
under which they were furnished.
2.2.7 Intellectual Property Rights. Except as otherwise described in
----------------------------
Expedia's Securities and Exchange Commission filings: (a) Expedia owns or
possesses adequate rights to use all trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as currently conducted, (b) Expedia does not expect the expiration of
any patents, patent rights, trade secrets, trademarks, service marks, trade
names or copyrights which would result in a material adverse effect on Expedia,
(c) Expedia has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of Expedia by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which would result in a
material adverse effect on Expedia, and (d) Expedia has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade
28
<PAGE>
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to have a
material adverse effect on Expedia. Except as otherwise disclosed in Expedia's
Securities and Exchange Commission filings, to the knowledge of Expedia there is
no claim being made against Expedia regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how, trade
marks, service marks, trade names or copyrights. Except as otherwise disclosed
in Expedia's Securities and Exchange Commission filings, to its knowledge,
Expedia does not in the current conduct of its business nor as or currently
proposed to be conducted within the next eleven (11) months following execution
of the Agreement infringe any patent of any third party, or any discovery,
invention, product or process which is the subject of a patent applications
filed by a third party, known to Expedia, which such infringement is reasonably
likely to result in a material adverse effect on Expedia. As used in this
Section only, references to the "knowledge" of expectations of Expedia shall
mean only the actual knowledge and expectations of the officers of Expedia.
2.2.8 Reliance. The foregoing representations and warranties are made
--------
by Expedia and Sub with the knowledge and expectation that Company is and the
Principal Shareholders are placing reliance thereon.
2.2.9 Tax Matters. Prior to the Merger, Expedia will be in control of
-----------
Sub within the meaning of Section 368(c)(1) of the Code. Expedia has no plan or
intention to reacquire any of the Expedia Common Shares issued in connection
with the Merger. Expedia has no plan or intention to liquidate the Surviving
Corporation, to merge the Surviving Corporation with or into another corporation
other than Expedia, to sell or otherwise dispose of the capital stock of the
Surviving Corporation, except for transfers of shares of the Surviving
Corporation to corporations controlled by Expedia or to cause the Surviving
Corporation to sell or otherwise dispose of any assets, except for dispositions
made in the ordinary course of business, transfers of assets to a corporation
controlled by the Surviving Corporation and transfers the result of which shall
not affect the treatment of the Merger under Section 368 of the Code. The
Surviving Corporation will continue the historic business of the Company or use
a significant portion of the Company's historic business assets in a business.
ARTICLE III
COVENANTS OF COMPANY
During the period from the date of this Agreement (except as otherwise
indicated) and continuing until the earlier of the termination of this Agreement
or the Effective Time (or later where so indicated), each of Company and the
Principal Shareholders, jointly and severally, agree (except as expressly
contemplated by this Agreement, as specifically permitted by, or as set forth
in, the Company Disclosure Schedule or otherwise permitted by Expedia's prior
written consent):
3.1 Conduct of Business.
-------------------
3.1.1 Ordinary Course. Company shall carry on its business in the
---------------
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and
29
<PAGE>
policies to preserve intact its present business organizations, keep available
the services of its present officers, consultants, and employees and preserve
its relationships with customers, suppliers, distributors and others having
business dealings with it. Company shall promptly notify Expedia of any event or
occurrence or emergency which is not in the ordinary course of business of
Company and which is material and adverse to Company's Business Condition. The
foregoing notwithstanding, Company shall not, except as approved in writing by
Expedia:
(a) enter into any commitment or transaction (i) to be performed
over a period longer than six months in duration, or (ii) to purchase assets or
services (other than raw materials, supplies, or cash equivalents) for a
purchase price in excess of $20,000;
(b) grant any bonus, severance, or termination pay to any
officer, director, independent contractor or employee of Company;
(c) except for agreements (i) involving expenditures by Company
or financial exposure of Company reasonably understood to amount in the
aggregate to less than $50,000, (ii) which are terminable in accordance with
their terms on not less than ninety (90) days notice, or (iii) hotel revenue
sharing agreements providing for not more than ten percent (10%) of applicable
hotel revenues to be directed to the other party thereto, enter into or amend
any agreements (A) pursuant to which any other party is granted marketing,
publishing or distribution rights of any type or scope with respect to any
hardware or software or Internet content products of Company, or (B) related to
Internet advertising or provision of Internet travel services or related
Internet content with any owner or operator of internet sites other than
Expedia;
(d) except in the ordinary course of business and consistent
with prior practice, enter into or terminate or fail to exercise any right to
extend or renew any contracts, arrangements, plans, agreements, leases,
licenses, franchises, permits, indentures, authorizations, instruments or
commitments, or amend or otherwise change the terms thereof;
(e) commence a lawsuit other than: (i) for the routine
collection of bills, (ii) in such cases where Company in good faith determines
that failure to commence suit would result in a material impairment of a
valuable aspect of Company's business, provided Company consults with Expedia
prior to filing such suit, or (iii) for a breach of this Agreement;
(f) materially modify existing discounts or other terms and
conditions with dealers, distributors and other resellers of Company's products;
(g) materially modify the terms and conditions of existing
strategic partnering agreements or enter into new strategic partnering
agreements; or
(h) accelerate the vesting or otherwise modify any restricted
stock option, warrant, or other outstanding rights or other securities.
3.1.2 Dividends, Issuance of or Changes in Securities. Company shall
-----------------------------------------------
not: (i) declare or pay any dividends on or make other distributions to its
stockholders (whether in cash, shares or property), (ii) issue, deliver, sell,
or authorize, propose or agree to, or commit to
30
<PAGE>
the issuance, delivery, or sale of any shares of its capital stock of any class,
any Company Voting Debt or any securities convertible into its capital stock,
any options, warrants, calls, conversion rights, commitments, agreements,
contracts, understandings, restrictions, arrangements or rights of any character
obligating Company to issue any such shares, Company Voting Debt or other
convertible securities, (iii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of Company, (iv)
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock, or (v) propose any of the foregoing.
3.1.3 Governing Documents. Company shall not amend its Charter
-------------------
Documents.
3.1.4 No Acquisitions. Company shall not acquire or agree to acquire
---------------
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to make any such acquisition.
3.1.5 No Dispositions. Company shall not sell, lease, license,
---------------
transfer, mortgage, encumber or otherwise dispose of any of its assets or
cancel, release, or assign any indebtedness or claim, except in the ordinary
course of business consistent with prior practice.
3.1.6 Indebtedness. Company shall not incur any indebtedness for
------------
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise.
3.1.7 Compensation. Company shall not adopt or amend any Plan or pay
------------
any pension or retirement allowance not required by any existing Plan. Company
shall not enter into or modify or accelerate the disposition of benefits under
any employment contracts, increase the salaries, wage rates or fringe benefits
of its officers, directors or employees or pay bonuses or other remuneration
except for current salaries and other remuneration for which Company is
obligated pursuant to a written agreement a copy of which has been provided to
Expedia.
3.1.8 Claims. Company shall not settle any claim, action or
------
proceeding, except in the ordinary course of business consistent with past
practice.
3.2 Access to Properties and Records. Throughout the period between the
--------------------------------
date of this Agreement and the Closing, Company shall give Expedia and its
representatives full access, upon reasonable notice and during reasonable
business hours but in such a manner as not unduly to disrupt the business of
Company, to its premises, properties, contracts, commitments, books, records,
and affairs, and shall provide Expedia with such financial, technical, and
operating data and other information pertaining to its business as Expedia may
request, provided that such information is reasonably related to Expedia's
planning of post-Merger integration of the Company into its business and,
provided further that the Company shall have no obligation to provide access to
information reasonably deemed by Company to be proprietary, including its source
code. With Company's prior consent, which shall not be unreasonably withheld,
Expedia shall be entitled to make appropriate inquiries of third parties in the
course of its investigation.
31
<PAGE>
3.3 Breach of Representations and Warranties. Except as expressly
----------------------------------------
permitted by this Agreement, neither Company nor any Principal Shareholder will
take any action that would cause or constitute a breach of any of the
representations and warranties set forth in Section 2.1 or that would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event that would cause or constitute
such a breach or inaccuracy, Company or the Principal Shareholders will give
detailed notice thereof to Expedia and will use their best efforts to prevent or
promptly remedy such breach or inaccuracy.
3.4 Consents. Company will promptly apply for or otherwise seek, and use
--------
its commercially reasonable efforts to obtain, all consents and approvals, and
make all filings, required with respect to the consummation of the Merger,
including without limitation, compliance with and consents and approvals under
the HSR Act.
3.5 Tax Returns. Company shall promptly provide Expedia with copies of all
-----------
tax returns, reports and information statements that have been filed or are
filed prior to the Closing Date.
3.6 Shareholder Approval. Each of the Principal Shareholders agrees to
--------------------
vote all of such Shareholder's Company Shares, to the extent allowed by the
Company's Charter Documents or applicable law, for the approval of this
Agreement and the appropriate Merger Documents as required by the DGCL by
written consent solicited by Company for such purpose or at a special meeting of
Principal Shareholders called for such purpose.
3.7 Preparation of Disclosure and Solicitation Materials. As promptly as
----------------------------------------------------
practicable after the execution of this Agreement, Company will promptly submit
to its shareholders, information and documents relating to Company, its business
or operations, Expedia, its business or operations, the terms of the Merger and
this Agreement, and the material facts concerning all payments which in the
absence of shareholder approval would be "Parachute Payments" as defined in Code
Section 280G(b)(2), in form and substance reasonably satisfactory to Expedia and
its counsel, to satisfy all requirements of applicable state and federal
securities laws, the DGCL and Code Section 280G(b)(5)(B) and the regulations
thereunder. Company will not provide or publish to its Shareholders any material
concerning it or its affiliates that violates the DGCL, the 1933 Act or the 1934
Act with respect to the transactions contemplated hereby.
3.8 Exclusivity; Acquisition Proposals. Unless and until this Agreement
----------------------------------
shall have been terminated by either party pursuant to Article VIII hereof and
thereafter subject to Section 8.5, neither Company nor any of the Principal
Shareholders shall (and each shall use its best efforts to ensure that none of
its officers, directors, agents, representatives or affiliates) take or cause or
permit any person to take, directly or indirectly, any of the following actions
with any party other than Expedia and its designees: (i) solicit, encourage,
initiate or participate in any negotiations, inquiries or discussions with
respect to any offer or proposal to acquire all or any significant part of its
business, assets or capital shares whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the
32
<PAGE>
foregoing, an "Acquisition Transaction"), (ii) disclose, in connection with an
Acquisition Transaction, any information not customarily disclosed to any person
other than Expedia or its representatives concerning Company's business or
properties or afford to any person other than Expedia or its representatives or
entity access to its properties, books or records, except in the ordinary course
of business and as required by law or pursuant to a governmental request for
information (and then only after giving prior notice to Expedia), (iii) enter
into or execute any agreement relating to an Acquisition Transaction, or (iv)
make or authorize any public statement, recommendation or solicitation in
support of any Acquisition Transaction or any offer or proposal relating to an
Acquisition Transaction other than with respect to the Merger. In addition, if
Company is contacted by any third party expressing interest in an Acquisition
Transaction, Company will promptly notify Expedia in writing of such contact.
3.9 Employees. Prior to Closing, Company agrees to terminate such
---------
employees as Expedia may designate in writing at least two (2) business days
prior to Closing and use its best efforts to obtain releases from such employees
substantially in the form attached hereto as Exhibit 3.9. Company shall pay all
severance expenses, if any, associated with termination of such employees.
Expedia shall consult with the Principal Shareholders prior to determining which
employees, if any, shall be terminated.
3.10 Notice of Events. Throughout the period between the date of this
----------------
Agreement and the Closing, Company shall promptly advise Expedia of any and all
material events and developments concerning its financial position, results of
operations, assets, liabilities, or business or any of the items or matters
concerning Company covered by the representations, warranties, and covenants of
Company and the Principal Shareholders contained in this Agreement. During such
period Company shall promptly provide notice to Expedia as soon as practicable
after receiving notice of or becoming aware of the expiration or termination or
any event which with the passage of time is reasonably expected to result in
expiration or termination of any contracts, arrangements, plans and agreements
(a) pursuant to which any other party is granted marketing, publishing or
distribution rights of any type or scope with respect to any hardware or
software or Internet content products of Company, (b) related to Internet
advertising or provision of Internet travel services or related Internet content
with any owner or operator of internet sites other than Expedia or (c) pursuant
to which any other party is granted rights to share revenues from hotel and air
travel bookings. The Disclosure Schedule identifies all such contracts,
arrangements, plans and agreements which by their terms will expire or are
reasonably expected to be terminated prior to the "outside date" provided for in
Section 8.4 and which were not terminable at will or set to expire in less than
ninety (90) days at the time in which entered.
3.11 Best Efforts. Company and the Principal Shareholders will use their
------------
best efforts to effectuate the transactions contemplated hereby and to fulfill
and cause to be fulfilled the conditions to Closing under this Agreement.
ARTICLE IV
COVENANTS OF EXPEDIA
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time (or later
where so indicated), Expedia
33
<PAGE>
agrees (except as expressly contemplated by this Agreement or with Company's
prior written consent) that either it or Sub will take or cause the following
actions to be taken:
4.1 Breach of Representations and Warranties. Neither Expedia nor Sub will
----------------------------------------
take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Section 2.2 or which would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, Expedia will give detailed notice thereof to
Company and will use its best efforts to prevent or promptly remedy such breach
or inaccuracy.
4.2 Conduct of Business by Expedia Pending the Merger. Expedia shall
-------------------------------------------------
promptly notify Company of any event or occurrence that is material and adverse
to the Business Condition of Expedia; provided, however; that the disclosure of
such event or occurrence in a Expedia SEC Document shall satisfy such
requirement so long as such Expedia SEC Document is filed within a reasonable
period of time after Expedia becomes aware of such event or occurrence and in
any event prior to the Effective Time. In the event Expedia shall agree to
acquire by merging or consolidating with, by purchasing an equity