Expedia 2006 Annual Report Download - page 21

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Mr. Diller currently controls Expedia; and if Mr. Diller ceases to control the company, Liberty
Media Corporation may effectively control the company.
Subject to the terms of the Stockholders Agreement, Mr. Diller holds an irrevocable proxy to vote shares
of Expedia stock held by Liberty. Accordingly, Mr. Diller effectively controls the outcome of all matters
submitted to a vote or for the consent of our stockholders (other than with respect to the election by the
holders of common stock of 25% of the members of the Board of Directors and matters as to which Delaware
law requires a separate class vote). Upon Mr. Diller’s permanent departure from Expedia, the irrevocable
proxy would terminate and depending on the capitalization of Expedia at such time, Liberty may effectively
control the voting power of our capital stock. Mr. Diller, through shares he owns beneficially as well as those
subject to the irrevocable proxy, controlled approximately 55% of the combined voting power of the
outstanding Expedia capital stock as of December 31, 2006 and approximately 58% as of January 19, 2007,
following our repurchase of 30 million shares of our common stock.
In addition, under the Governance Agreement, each of Mr. Diller and Liberty generally has the right to
consent to limited matters in the event that our ratio of total debt to EBITDA, as defined in the Governance
Agreement, equals or exceeds 4:1 over a continuous 12-month period. We cannot assure you that Mr. Diller
and Liberty will consent to any such matter at a time when we are highly leveraged, in which case we would
not be able to engage in such transactions or take such actions.
As a result of Mr. Diller’s ownership interests and voting power, and Liberty’s ownership interests and
voting power upon Mr. Diller’s permanent departure from us, Mr. Diller is currently, and in the future Liberty
may be, in a position to control or influence significant corporate actions, including, corporate transactions
such as mergers, business combinations or dispositions of assets and determinations with respect to our
significant business direction and policies. This concentrated control could discourage others from initiating
any potential merger, takeover or other change of control transaction that may otherwise be beneficial to us.
Actual or potential conflicts of interest may develop between Expedia management and directors,
on the one hand, and the management and directors of IAC, on the other.
Mr. Diller serves as our Chairman of the Board of Directors and Senior Executive, while retaining his
role as Chairman and Chief Executive Officer of IAC, and Mr. Kaufman serves as Vice Chairman of both
Expedia and IAC. The fact that Messrs. Diller and Kaufman hold positions with both companies and own
both IAC and Expedia stock could create, or appear to create, potential conflicts of interest for each of
Messrs. Diller and Kaufman when facing decisions that may affect both IAC and Expedia. Both
Messrs. Diller and Kaufman may also face conflicts of interest with regard to the allocation of their time
between IAC and Expedia.
Our certificate of incorporation provides that no officer or director of Expedia who is also an officer or
director of IAC will be liable to Expedia or its stockholders for breach of any fiduciary duty by reason of the
fact that any such individual directs a corporate opportunity to IAC instead of Expedia, or does not
communicate information regarding a corporate opportunity to Expedia because the officer or director has
directed the corporate opportunity to IAC. This corporate opportunity provision may have the effect of
exacerbating the risk of conflicts of interest between IAC and Expedia because the provision effectively
shields an overlapping director/executive officer from liability for breach of fiduciary duty in the event that
such director or officer chooses to direct a corporate opportunity to IAC instead of Expedia.
Changing laws, rules and regulations and legal uncertainties may adversely affect our business or
financial performance.
Our business and financial performance could be adversely affected by unfavorable changes in or
interpretations of existing, or the promulgation of new laws, rules and regulations applicable to us and our
businesses, including those relating to the internet and online commerce, consumer protection and privacy,
could decrease demand for products and services, increase costs and/or subject us to additional liabilities. For
example, there is, and will likely continue to be, an increasing number of laws and regulations pertaining to
the internet and online commerce, which may relate to liability for information retrieved from or transmitted
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