Filed by Expedia, Inc.
Pursuant to Rule 165 and Rule 425
under the Securities Act of 1933
Subject Company: Expedia, Inc.
Commission File No. 000-27429
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements regarding the pending acquisition of a controlling
interest in Expedia, Inc. ("Expedia") by USA Networks, Inc. ("USA").
Forward-looking statements may be identified by, among other things, the word
"will" and the assumption that the transaction with USA will be completed in
accordance with its terms. These statements are based on management's current
expectations and are subject to uncertainty and changes in circumstances. For
example, the transaction is subject to customary closing conditions and there is
a possibility the transaction may not be completed if any of these closing
conditions are not satisfied. We have based all of our forward-looking
statements on information available to us as of December 7, 2001, and we are not
obligated to update any of these forward-looking statements.
USA and Expedia filed a joint prospectus/proxy and information statement and
other relevant documents concerning USA's acquisition of Expedia with the
Securities and Exchange Commission ("SEC") on November 9, 2001. INVESTORS ARE
URGED TO READ THE JOINT PROSPECTUS/PROXY AND INFORMATION STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS FILED OR TO BE FILED IN THE FUTURE WITH THE SEC BECAUSE THOSE
DOCUMENTS CONTAIN IMPORTANT INFORMATION. Investors will be able to obtain such
documents free of charge at the SEC's website at www.sec.gov. In addition, such
documents may also be obtained free of charge by contacting USA Networks, Inc.,
152 West 57th Street, New York, New York, 10019, Attention: Investor Relations,
or Expedia, Inc., 13810 SE Eastgate Way, Suite 400, Bellevue, WA 98005,
Attention: Investor Relations. INVESTORS SHOULD READ THE JOINT PROSPECTUS/PROXY
AND INFORMATION STATEMENT CAREFULLY BEFORE MAKING ANY VOTING OR INVESTMENT
DECISIONS.
USA and its directors and officers may be deemed to be participants in the
offering of securities by USA, and Expedia and its directors and officers may be
deemed to be participants in the offering of securities by Expedia as well as in
solicitation of proxies from Expedia shareholders to adopt the agreement
providing for USA's acquisition of a controlling interest in Expedia. A detailed
list of the names and interests of USA's directors and executive officers is
contained in the definitive proxy and information statement on Schedule 14A
filed by USA with the SEC on April 9, 2001, and a detailed list of the names and
interests of Expedia's directors and officers is contained in the definitive
proxy and information statement on Schedule 14A filed by Expedia with the SEC on
October 11, 2000. Copies of those filings may be obtained free of charge at the
SEC's website at www.sec.gov.
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
[LOGO OF EXPEDIA, INC.]
[LOGO OF USA NETWORKS INC] [LOGO OF MICROSOFT]
The USA Networks Transaction:
Update for Expedia Employees
USA
1
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
Agenda
. Overview of the transaction
. Information & choices for Expedia shareholders
- Eligibility requirements
- Description of choices available to you
- Description of USAI securities
- Schedule & Next steps
- Considerations
2
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
Agenda (cont.)
. Information & choices for Expedia stock option holders?
- Choices available to you
- Eligibility requirements
- Description of Expedia Warrants
- Schedule & next steps
- Exercising options & exchanging for USAI securities
. Timetable for Shareholders & Optionholders
. Informational resources
3
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
The Transaction (1 of 3)
. USA Networks to purchase between 33.7 and 37.5 million shares
. For each share USA is offering a package of three USA securities
. Microsoft has committed to exchange all 33.7 million of its shares
. The transaction is expected to close on December 18, 2001
4
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
The Transaction (2 of 3)
. Expedia shareholders may...
- Exchange shares for USA securities on the same terms as Microsoft
- Hold their shares & receive Expedia warrants
- Sell their shares prior to the transaction
. Eligible Expedia stock option holders may...
- Hold their stock options & receive Expedia warrants or
- Exercise stock options prior to the transaction and
. Exchange shares for USA securities on the same terms as Microsoft
. Hold their shares and receive Expedia warrants
. Sell their shares prior to the transaction
5
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
The Transaction (3 of 3)
. Microsoft will no longer be Expedia's majority shareholder
- MSFT stock option holders must exercise or forfeit MSFT options (by March
18, 2002)
- MS Store & other MS-related benefits terminate at closing (on Dec. 18,
2001)
6
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
The Exchange
[arrow right] USAI offer
[LOGO OF Expedia Common Stock (up to to purchase
MICROSOFT] 33.7 million shares)* up to 37.5m
shares of
EXPE
____ ____
| | [arrow right]
| Other | Expedia Common Stock*
Shareholders
Who Elect to
| Exchange |
|____ ____| [arrow left] [LOGO OF
USAI Package of Securities USA NETWORKS INC]
. Common stock
. Preferred stock
. Warrants
*Microsoft has committed to exchange all of its shares, subject to the cutback.
*If more than 37.5 million shares of Expedia stock are offered to be exchanged,
all shareholders (including MSFT) will be cut back on a prorated basis.
7
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
Information and Choices
for Expedia shareholders
8
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Eligibility to Exchange Shares or
Vote on Transaction
Eligibility to Exchange:
- All shares held as of December 17, 2001
- Examples:
. Purchases through the open market
. Purchases through the ESPP (up to June 30th purchase)
. Purchases through the exercise of stock options and holding of the
underlying shares
Eligibility to Vote:
- All shares held as of October 15, 2001
9
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Expedia Shareholders will have 3 choices
_____ _____ _____ _____ _____ _____
| | | | | |
| HOLD Expedia | | EXCHANGE | | |
| shares & | | shares for: | | |
receive approx. one SELL
Expedia warrant shares in
per five shares USAI Common Stock the open
held OR USAI Preferred Stock OR market
USAI Warrants
(actual ratio=
0.1920 warrants
for 1 share)
|[LOGO OF EXPEDIA, INC.]| | [LOGO OF | | |
| | | [USA NETWORKS INC] | | |
|_____ _____| |_____ _____| |_____ _____|
- or a combination of the three choices -
10
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Expedia Shareholder: Hold
. Expedia shareholders will receive
approximately 1 Expedia warrant for every 5
Expedia shares*
* (actual ratio = 0.1920 warrants for 1 share)
- Exercise price: $52
- 7 year term
- 100% immediate vesting
- will be tradable on NASDAQ (symbol = EXPEW)
Subject to...
1) Market liquidity or buyer interest
2) Insider trading policies (including trading windows)
3) Transaction fees
11
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Expedia Shareholder:
Hold Example
As of the closing of After Transaction
the transaction
[arrow right]
1 warrant (approximately)* 100 EXPE Common
for every 5 options &
100 EXPE Common 19 EXPE Warrants +
Cash for 0.2 fractional
warrant*
*(actual ratio = 0.1920 warrants for 1 share)
12
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Expedia Shareholder: Exchange
Exchange some or all Expedia Common Stock for USAI package of securities which
include:
- USAI Common Stock
- USAI Preferred Stock
- USAI Warrants
Note 1: The number of Expedia shares exchanged will be determined as of
12/17/01, based on # of shares electing to exchange and following prorated
cutback if more than 37.5 million shares are offered to be exchanged.
Note 2: The exchange ratios of the USA securities per Expedia share will depend
on (i) USA's stock price prior to the transaction and (ii) the number of
Expedia shares exchanged
13
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
USAI Securities
USAI Common Stock
- One vote per share
- Exchange ratio & value depends on
. Total # of Expedia shares exchanged
. Measurement period price of USAI common stock
- If 37.5 million shares exchange:
. 0.76 shares if USAI price [is less than or equal to] $23.00
. $17.50 of value if USAI price [is greater than] $23 and [less than] $31
. 0.56 shares if USAI price [is greater than or equal to] $31
14
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
USAI Securities
USAI Preferred Stock
- 0.35 to 0.39 shares per Expedia share
- Two votes per share
- $50 face value
- 1.99% annual dividend on face value
- Convertible, at any time, into at least 1.48 shares of USAI common stock,
more if USAI stock price is above $35.10
- At the 5, 7, 10, and 15 year anniversaries, holder may redeem shares for
$50 in cash or USAI stock
- Traded in public market under ________ ticker
- Actual exchange ratio & value depends on total # of Expedia shares exchanged
15
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
USAI Package of Securities
USAI Warrants
- $35.10 Exercise Price
- 7 year term
- Immediately vested upon receipt
- Traded on Public Exchange under ______ ticker
- Actual exchange ratio & value depends on
. Measurement period price of USAI common stock
- Number of warrants per Expedia share
. If USAI price [is less than or equal to] $25.75, then 0.45
. If USAI price [is greater than] $25.75 and [less than] $28.25, see Annex F
. If USAI price [is greater than]+ $28.25, then 0.39
16
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Taxation of USAI Securities - (for US employees)
At Exchange: No Tax
At Sale: Short Term or Long Term Capital Gain/Loss
17
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Next Steps for Shareholders
Packet of materials sent to your home:
. Proxy card for voting
- Complete & mail in by 12/17/01 at 5 PM Eastern Time
. If you want to hold your Expedia shares as is (& receive EXPE warrants),
there is no need to do anything else
. If you want to exchange some or all shares,
complete the yellow election form/letter of transmittal (return with your
Expedia Stock Certificate) or follow broker instructions
- Actual number of shares exchanged not determined until after the Dec. 17th
Shareholder Meeting
18
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Considerations relating to disposition of shares
. Expected short and long term performance of EXPE stock and USAI securities
. Expected marketability for new classes of securities
. Tax consequences of holding, selling or exchanging shares
. Diversification of personal holdings
. Expedia not providing investment advice
19
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
Information and choices
for Eligible Expedia stock
option holders
20
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Expedia stock option holders will have 2 choices
______ ______ ______ ______
| | | |
| HOLD Expedia options & | | |
| Receive approximately 1 | | |
| Expedia warrant per 5 | | EXERCISE options and |
options held have the three choices
that are available to
(actual ratio=0.1920 warrants OR shareholders
for 1 share)
| | | |
| | | |
| [LOGO OF EXPEDIA, INC.] | | |
|______ ______| |______ ______|
- or a combination of the two choices -
21
[LOGO OF EXPEDIA, INC.] For Employee Shareholders
--------------------------------------------------------------------------------
Expedia Shareholders will have 3 choices
_____ _____ _____ _____ _____ _____
| | | | | |
| HOLD Expedia | | EXCHANGE | | |
| shares & | | shares for: | | |
receive approx. one SELL
Expedia warrant shares in
per five shares USAI Common Stock the open
held OR USAI Preferred Stock OR market
USAI Warrants
(actual ratio=
0.1920 warrants
for 1 share)
|[LOGO OF EXPEDIA, INC.]| | [LOGO OF | | |
| | | [USA NETWORKS INC] | | |
|_____ _____| |_____ _____| |_____ _____|
- or a combination of the three choices -
22
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Employee stock options that are eligible for warrants
Vested and unvested stock options that were:
. Granted to employees employed as of July 15, 2001
. Granted on and before August 2, 2001
. Held (outstanding) as of December 7, 2001
23
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Eligible Expedia Stock Option Holders
Will receive approximately 1 Expedia warrant for every 5 Expedia outstanding
options*
. (actual ratio = 0.1920 warrants for 1 option)
On Dec. 7, 2001 [ARROW RIGHT] After Transaction
1 warrant (approximately)* 100 EXPE Options
100 EXPE Options for every 5 options &
(vested & unvested) 19 EXPE Warrants
(vested & unvested)
+ cash for 0.2
fractional warrant*
24
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
What is an Expedia Warrant?
A warrant is similar to a non-qualified stock option. It is the right to
buy a share of Expedia stock
- At a specific price ($52)
- By a specific date (7 year term - expires on or about December 18, 2008,
the 7th anniversary of USA/Expedia closing)
Can be traded on NASDAQ once vested (symbol = EXPEW)
25
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
What can you do with EXPE warrants?
You can:
- Hold & do nothing (subject to expiration after approximately 7 years)
- Exercise and...
. Hold shares of EXPE stock
. Sell shares of EXPE stock
- Sell the warrant itself*
*Subject to...
1) Market liquidity or buyer interest
2) Insider trading policies (including trading windows)
3) Transaction fees
4) Withholding taxes (exercising & selling are each taxable transactions)
26
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Vesting of Warrants
. Warrants vest on the same schedule as the underlying stock options
. REMINDER: Stock option vesting schedule:
- 1/8 vested after one year from grant
- 1/8 vested every six months thereafter
- Fully vested after 4 1/2 years from date of grant
27
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Vesting Schedule Example
Options
| | | | | / / |
|---------|----------|---------|-------------|--------------/ /-------|----|
| | | | | / / |
08/01/00 08/01/01 02/01/02 08/01/02 02/01/05 08/01/07
1,000 125 125 125 1,000 Expiration
options vest vest vest 100%
granted vested
28
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Vesting Schedule
Warrants
192
Warrants 192
Issued 24 24 100%
24 vested vest vest vested Expiration
12/07/01 02/01/02 08/01/02 02/01/05 approx. 12/18/08
| | | | / / |
|-----------|---------|-------------|------------------/ /---|-----|
| | | | / / |
Options
| | | | | / / |
|---------|----------|---------|-------------|--------------/ /-------|----|
| | | | | / / |
08/01/00 08/01/01 02/01/02 08/01/02 02/01/05 08/01/07
1,000 125 125 125 1,000 Expiration
options vest vest vest 100%
granted vested
29
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Taxation of Expedia Warrants (US employees)
At Issuance: No Tax
At Vest: No Tax
At Exercise: Ordinary Income Tax
At Sale of Expedia Stock (resulting from exercised warrants): Short Term or Long
Term Capital Gain/Loss
At Sale of Warrant: Ordinary Income Tax (on sale proceeds, tax basis in warrant
is $0)
Note: Taxes will be withheld by warrant administrator.
30
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Next Steps for Option Holders
Dec. 7, 2001 - Warrant issuance date
Between now & closing
- Do nothing - warrants tradeable/exercisable after 90 days & vesting)
31
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Next Steps for Option Holders
Between now & closing
- Exercise underlying options - Warrants forfeited as option holder
. If options exercised & held as shares, then warrants issued as a
shareholder upon closing of USA transaction
. If options exercised & shares exchanged for USAI package of securities,
receive no warrants unless exchange oversubscribed and retain Expedia
shares (on prorated basis) and receive Expedia warrants as shareholder upon
closing of USA transaction
. If options exercised & sold, then no warrants issued for those
exercised/sold options (NOTE: Insiders may trade only through December 15,
2001.)
32
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Next Steps for Option Holders
90 day blackout period - betw. Dec. 7, 2001 - March 7, 2002
- You may not exercise, transfer or trade warrants
33
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Warrant Schedule
12/7/01 12/18/01 3/8/02
/ / /
/ / /
----------------------------------------------------------------------\
Option holder Exercise of options warrants \
warrants has no effect on can be \
forfeited if warrants exercised or \
options traded /
exercised /
/
----------------------------------------------------------------------/
| 90 day blackout period |
| cannot exercise or trade warrants |
|___________________________________|
| | |
| | |
\ / \ / \ /
Warrant Anticipated Warrants
Issuance closing of USA can be
Date transaction exercised
34
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
What Next for Option Holders?
Packet of materials sent to your home:
. Same materials as packet to shareholders
. If you are a shareholder, you will also receive a separate packet for your
shares of Expedia stock
. NO REQUIREMENT TO DO ANYTHING if you keep your Expedia options as is
35
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
What Next for Option Holders?
Around December 7th or 10th, 2001:
- HR will send you a prospectus relating to the issuance of warrants and a
statement with: number of warrants issued, grant date, exercise price &
vesting schedule
- Nothing to sign or return!
Prior to March 8, 2002:
- You will receive more information on Mellon Investor Services procedures for
exercising & selling warrants
36
[LOGO OF EXPEDIA, INC.] For Stock Option Holders
--------------------------------------------------------------------------------
Exercising Options and Exchanging for USAI securities
If you want to exercise your stock options for Expedia shares & participate in
the exchange, you must:
. Exercise & hold Expedia shares by December 14 (Paine Webber requirement)
. Hold shares electronically (no paper certificates)
. Contact Paine Webber for instructions
- Actual number of shares exchanged not determined until after the Dec. 17th
Shareholder Meeting
Note: The exercise of options is a taxable event.
37
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
Considerations relating to exercising options & exchanging for USAI securities
. Same considerations relating to disposition of shares
. Gain on the exercise of options taxed as ordinary income
. Forfeiture of potential future option value
. Risk of proration
38
[LOGO OF EXPEDIA, INC.] For Stock Option and Shareholders
--------------------------------------------------------------------------------
Tentative timetable
--------------------------------------------------------------------------------
Date Shareholders Stock Option Holders
--------------------------------------------------------------------------------
November 14 Mailing commenced Mailing commenced
--------------------------------------------------------------------------------
December 7 Warrants issued
--------------------------------------------------------------------------------
December 7 - Warrants forfeited if options are
closing exercised during this period
("Exercise & holds" become
Expedia shares)
--------------------------------------------------------------------------------
December 17 Shareholder Meeting Deadline for converting EXPE
-Deadline for shareholder options to shares & participate in
to elect to exchange shares election (see shareholder
& turn in EXPE stock requirements)
certificates (or guarantee
delivery)
-Deadline for voting
(proxy card)
--------------------------------------------------------------------------------
December 18 Close of deal Close of deal
(projected
date)
--------------------------------------------------------------------------------
After Warrants are issued to Warrants cannot be exercised
shareholder shareholders who do not transferred or traded for 90 days
meeting elect to exchange (12/7/01 thru 3/7/02)
--------------------------------------------------------------------------------
39
[LOGO OF EXPEDIA, INC.]
--------------------------------------------------------------------------------
Informational Resources
. Resource for both shareholders & stock option holders
MacKenzie Partners, Inc.
1-800-322-2885
40