Expedia 2009 Annual Report Download - page 24

Mr. Diller currently controls Expedia. If Mr. Diller ceases to control the company, Liberty Media
Corporation may effectively control the company.
Subject to the terms of a Stockholders Agreement between Mr. Diller and Liberty Media Corporation,
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 could 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 59% of the
combined voting power of the outstanding Expedia capital stock as of January 20, 2010.
In addition, under a Governance Agreement among Mr. Diller, Liberty Media Corporation and Expedia,
Inc., as amended, each of Mr. Diller and Liberty generally has the right to consent to limited matters in the event
that we incur debt such that our ratio of total debt to EBITDA, as defined in the Governance Agreement, equals
or exceeds 8:1 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.
We may be unable to access capital when necessary or desirable.
The availability of funds depends in significant measure on capital markets and liquidity factors over which
we exert no control. Particularly in light of existing uncertainty in the capital and credit markets, we can provide
no assurance that sufficient financing will be available on desirable or even any terms to fund investments,
acquisitions, stock repurchases, dividends or extraordinary actions or that our counterparties in any such
financings would honor their contractual commitments. In addition, any downgrade of our debt ratings by
Standard & Poor’s, Moody’s Investor Service or similar ratings agencies, increases in general interest rate levels
or further weakening in the credit markets could increase our cost of capital. More recent experience suggests
credit spreads can be significantly higher for companies with lower credit ratings, impacting returns for
bondholders and increasing the cost of potential future debt issuances.
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