punctuation">



Exhibit 10.4


 


EXECUTION
COPY


 


 


EMPLOYEE
MATTERS AGREEMENT


 


 


by and
between


 


 


IAC/INTERACTIVECORP


 


 


and


 


 


EXPEDIA,
INC.


 


 


Dated as
of August 9, 2005


 





















 


TABLE OF CONTENTS


 


	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  
	
  1.1

  	
  Affiliate

  	
   

  
	
  1.2

  	
  Agreement

  	
   

  
	
  1.3

  	
  Ancillary Agreements

  	
   

  
	
  1.4

  	
  Approved Leave of Absence

  	
   

  
	
  1.5

  	
  ASO
  Contract

  	
   

  
	
  1.6

  	
  Auditing
  Party

  	
   

  
	
  1.7

  	
  Award

  	
   

  
	
  1.8

  	
  Benefit
  Plan

  	
   

  
	
  1.9

  	
  Close of the Effective Date

  	
   

  
	
  1.10

  	
  COBRA

  	
   

  
	
  1.11

  	
  Code

  	
   

  
	
  1.12

  	
  Committee

  	
   

  
	
  1.13

  	
  Covered
  Employees

  	
   

  
	
  1.14

  	
  Current
  Term

  	
   

  
	
  1.15

  	
  Effective
  Date

  	
   

  
	
  1.16

  	
  Effective
  Time

  	
   

  
	
  1.17

  	
  Effective Time Year

  	
   

  
	
  1.18

  	
  ERISA

  	
   

  
	
  1.19

  	
  Expedia

  	
   

  
	
  1.20

  	
  Expedia Common Stock

  	
   

  
	
  1.21

  	
  Expedia
  Employee

  	
   

  
	
  1.22

  	
  Expedia
  Entities

  	
   

  
	
  1.23

  	
  Expedia Executive Benefit Plans

  	
   

  
	
  1.24

  	
  Expedia Flexible Benefit Plan

  	
   

  
	
  1.25

  	
  Expedia Long-Term Incentive Plan

  	
   

  
	
  1.26

  	
  Expedia
  Ratio

  	
   

  
	
  1.27

  	
  Expedia Retirement Savings Plan

  	
   

  
	
  1.28

  	
  Expedia Retirement Savings Plan Trust

  	
   

  
	
  1.29

  	
  Expedia Stock Value

  	
   

  
	
  1.30

  	
  Former Expedia Employee

  	
   

  
	
  1.31

  	
  Former IAC Employee

  	
   

  
	
  1.32

  	
  Group Insurance Policies

  	
   

  
	
  1.33

  	
  Health and Welfare Plans

  	
   

  
	
  1.34

  	
  HIPAA

  	
   

  
	
  1.35

  	
  HMO

  	
   

  
	
  1.36

  	
  HMO
  Agreements

  	
   

  
	
  1.37

  	
  IAC

  	
   

  
	
  1.38

  	
  IAC
  Common Stock

  	
   

  
	
  1.39

  	
  IAC Compensation/Benefits Committee

  	
   

  
	
  1.40

  	
  IAC
  Employee

  	
   

  
	
  1.41

  	
  IAC
  Entities

  	
   

  



 


i





















 


	
  1.42

  	
  IAC Executive Benefit Plans

  	
   

  
	
  1.43

  	
  IAC Executive Deferred Compensation Plan

  	
   

  
	
  1.44

  	
  IAC Flexible Benefit Plans

  	
   

  
	
  1.45

  	
  IAC Incentive Plans

  	
   

  
	
  1.46

  	
  IAC Long-Term Incentive Plans

  	
   

  
	
  1.47

  	
  IAC Post-Separation Stock Value

  	
   

  
	
  1.48

  	
  IAC
  Ratio

  	
   

  
	
  1.49

  	
  IAC Retirement Savings Plan

  	
   

  
	
  1.50

  	
  IAC Severance Pay Program

  	
   

  
	
  1.51

  	
  IAC
  Stock Value

  	
   

  
	
  1.52

  	
  Immediately after the Effective Date

  	
   

  
	
  1.53

  	
  Liabilities

  	
   

  
	
  1.54

  	
  Medical
  Plan

  	
   

  
	
  1.55

  	
  NASDAQ

  	
   

  
	
  1.56

  	
  Non-parties

  	
   

  
	
  1.57

  	
  Option

  	
   

  
	
  1.58

  	
  Participating Company

  	
   

  
	
  1.59

  	
  Person

  	
   

  
	
  1.60

  	
  Restricted
  Stock

  	
   

  
	
  1.61

  	
  Restricted Stock Unit

  	
   

  
	
  1.62

  	
  Reverse Stock Split

  	
   

  
	
  1.63

  	
  Separated Businesses

  	
   

  
	
  1.64

  	
  Separation

  	
   

  
	
  1.65

  	
  Separation Agreement

  	
   

  
	
  1.66

  	
  Subsidiaries

  	
   

  
	
  1.67

  	
  Tax Sharing Agreement

  	
   

  
	
  1.68

  	
  Transferred Account Balances

  	
   

  
	
  1.69

  	
  U.S.

  	
   

  
	
  1.70

  	
  VEBA

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  GENERAL PRINCIPLES

  	
   

  
	
  2.1

  	
  Employment of Expedia Employees

  	
   

  
	
  2.2

  	
  Assumption and Retention of Liabilities;
  Related Assets

  	
   

  
	
  2.3

  	
  Expedia Participation in IAC Benefit Plans

  	
   

  
	
  2.4

  	
  Terms of Participation by Expedia Employees
  in Expedia Benefit Plans

  	
   

  
	
  2.5

  	
  Commercially Reasonable Efforts

  	
   

  
	
  2.6

  	
  Regulatory Compliance

  	
   

  
	
  2.7

  	
  Approval by IAC as Sole Stockholder

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  SAVINGS
  PLANS

  	
   

  
	
  3.1

  	
  Savings
  Plan

  	
   

  
	
  3.2

  	
  Stock Considerations

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  HEALTH AND WELFARE PLANS

  	
   

  
	
  4.1

  	
  General

  	
   

  
	
   

  	
  (a)                                  Establishment of Expedia Health and Welfare
  Plans

  	
   

  
	
   

  	
  (b)                                 Retention of Sponsorship and Liabilities

  	
   

  



 


ii





















 


	
  4.2

  	
  Vendor
  Contracts

  	
   

  
	
   

  	
  (a)                                  Third-Party ASO Contracts, Group Insurance
  Policies and HMOs

  	
   

  
	
   

  	
  (b)                                 Effect of Change in Rates

  	
   

  
	
  4.3

  	
  Flexible Benefit Plan

  	
   

  
	
  4.4

  	
  Workers’ Compensation Liabilities

  	
   

  
	
  4.5

  	
  Payroll Taxes and Reporting of Compensation

  	
   

  
	
  4.6

  	
  COBRA and HIPAA Compliance

  	
   

  
	
  4.7

  	
  VEBA

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  EXECUTIVE BENEFITS AND OTHER BENEFITS

  	
   

  
	
  5.1

  	
  Assumption of Obligations

  	
   

  
	
  5.2

  	
  IAC Incentive Plans

  	
   

  
	
   

  	
  (a)                                  Expedia Bonus Awards

  	
   

  
	
   

  	
  (b)                                 IAC Bonus Awards

  	
   

  
	
  5.3

  	
  IAC Long-Term Incentive Plans

  	
   

  
	
   

  	
  (a)                                  Vested Old IAC Options

  	
   

  
	
   

  	
  (b)                                 Unvested Old IAC Options Held by IAC
  Employees and Former IAC Employees other than Barry Diller

  	
   

  
	
   

  	
  (c)                                  Unvested Old IAC Options Held by Expedia
  Employees and Former Expedia Employees other than Barry Diller

  	
   

  
	
   

  	
  (d)                                 Unvested Old IAC Options Held by Mr. Diller

  	
   

  
	
   

  	
  (e)                                  IAC Restricted Stock Units Held by IAC
  Employees and Former IAC Employees

  	
   

  
	
   

  	
  (f)                                    IAC Restricted Stock Units Held by Expedia
  Employees and Former Expedia Employees

  	
   

  
	
   

  	
  (g)                                 IAC Restricted Stock

  	
   

  
	
   

  	
  (h)                                 Foreign Grants/Awards

  	
   

  
	
   

  	
  (i)                                     Miscellaneous Option and Other Award Terms

  	
   

  
	
   

  	
  (j)                                     Waiting Period for Exercisability of
  Options and Grant of Options and Awards

  	
   

  
	
   

  	
  (k)                                  Restrictive Covenants

  	
   

  
	
  5.4

  	
  Registration Requirements

  	
   

  
	
  5.5

  	
  IAC Executive Deferred Compensation Plans

  	
   

  
	
  5.6

  	
  Severance

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  GENERAL AND ADMINISTRATIVE

  	
   

  
	
  6.1

  	
  Sharing of Participant Information

  	
   

  
	
  6.2

  	
  Reasonable Efforts/Cooperation

  	
   

  
	
  6.3

  	
  No Third-Party Beneficiaries

  	
   

  
	
  6.4

  	
  Audit Rights With Respect to Information
  Provided

  	
   

  
	
  6.5

  	
  Fiduciary
  Matters

  	
   

  
	
  6.6

  	
  Consent of Third Parties

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  MISCELLANEOUS

  	
   

  
	
  7.1

  	
  Effect If Effective Time Does Not Occur

  	
   

  
	
  7.2

  	
  Relationship of Parties

  	
   

  
	
  7.3

  	
  Affiliates

  	
   

  



 


iii





















 


	
  7.4

  	
  Notices

  	
   

  
	
  7.5

  	
  Incorporation of Separation Agreement Provisions

  	
   

  



 


iv





















 


EMPLOYEE MATTERS
AGREEMENT


 


This Employee
Matters Agreement (this “Agreement”),
dated as of August 9, 2005, with effect as of the Effective Time, is
entered into by and between IAC/InterActiveCorp, a Delaware corporation (“IAC”), and
Expedia, Inc., a Delaware corporation (“Expedia”).


 


RECITALS:


 


WHEREAS, IAC
and Expedia have entered into a Separation Agreement pursuant to which the
Parties (as defined below) have set out the terms on which, and the conditions
subject to which, they wish to implement the Separation (as defined in the
Separation Agreement) (such agreement, as amended, restated or modified from
time to time, the “Separation
Agreement”).


 


WHEREAS, in
connection therewith, IAC and Expedia have agreed to enter into this Agreement
to allocate between them assets, liabilities and responsibilities with respect
to certain employee compensation, pension and benefit plans, programs and
arrangements and certain employment matters.


 


NOW THEREFORE,
in consideration of the mutual agreements, covenants and other provisions set
forth in this Agreement, the Parties hereby agree as follows:


 


ARTICLE I

DEFINITIONS


 


Unless
otherwise defined in this Agreement, capitalized words and expressions and
variations thereof used in this Agreement or in its Appendices have the
meanings set forth below.  Capitalized
terms used herein and not otherwise defined shall have the meanings set forth
in the Separation Agreement.


 


1.1                                 “Affiliate”
has the meaning given that term in the Separation Agreement.


 


1.2                                 “Agreement”
means this Employee Matters Agreement, including all the Schedules hereto.


 


1.3                                 “Ancillary
Agreements” has the meaning given that term in the Separation Agreement.


 


1.4                                 “Approved
Leave of Absence” means an absence from active service (i) due to an
individual’s inability to perform his or her regular job duties by reason of
illness or injury and resulting in eligibility to receive benefits pursuant to
the terms of the IAC Short-Term Disability Plan or the IAC Long-Term Disability
Plan, or (ii) pursuant to an approved leave policy with a guaranteed right
of reinstatement.


 


1.5                                 “ASO
Contract” has the meaning set forth in Section 4.2(a).


 


1.6                                 “Auditing
Party” has the meaning set forth in Section 6.4(a).


 





















 


1.7                                 “Award”
when immediately preceded by “IAC,” means IAC Restricted Stock and IAC
Restricted Stock Units and, when immediately preceded by “Expedia,” means
Expedia Restricted Stock and Restricted Stock Units.


 


1.8                                 “Benefit
Plan” means, with respect to an entity or any of its Subsidiaries, (a) each
“employee welfare benefit plan” (as defined in Section 3(1) of ERISA)
and all other employee benefits arrangements, policies or payroll practices
(including, without limitation, severance pay, sick leave, vacation pay, salary
continuation, disability, retirement, deferred compensation, bonus, stock
option or other equity-based compensation, hospitalization, medical insurance
or life insurance) sponsored or maintained by such entity or by any of its
Subsidiaries (or to which such entity or any of its Subsidiaries contributes or
is required to contribute) and (b) all “employee pension benefit plans”
(as defined in Section 3(2) of ERISA), occupational pension plan or
arrangement or other pension arrangements sponsored, maintained or contributed
to by such entity or any of its Subsidiaries (or to which such entity or any of
its Subsidiaries contributes or is required to contribute).  When immediately preceded by “IAC,” Benefit Plan means any Benefit Plan
sponsored, maintained or contributed to by IAC or an IAC Entity.  When immediately preceded by “Expedia,”
Benefit Plan means any Benefit Plan sponsored, maintained or contributed to by
Expedia or any Expedia Entity.


 


1.9                                 “Close
of the Effective Date” means 11:59:59 P.M., Eastern Standard Time or
Eastern Daylight Time (whichever shall then be in effect), on the Effective Date.


 


1.10                           “COBRA”
means the continuation coverage requirements for “group health plans” under
Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and as codified in Code § 4980B and ERISA §§ 601 through
608.


 


1.11                           “Code”
means the Internal Revenue Code of 1986, as amended, or any successor federal
income tax law.  Reference to a specific
Code provision also includes any proposed, temporary or final regulation in
force under that provision.


 


1.12                           “Committee”
has the meaning set forth in Section 5.3(a).


 


1.13                           “Covered
Employees” has the meaning set forth in Section 4.3.


 


1.14                           “Current
Term” has the meaning set forth in Section 4.4(b).


 


1.15                           “Effective
Date” has the meaning given that term in the Separation Agreement.


 


1.16                           “Effective
Time” has the meaning given that term in the Separation Agreement.


 


1.17                           “Effective
Time Year” means the calendar year during which the Effective Time occurs.


 


1.18                           “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.  Reference to a specific provision of ERISA
also includes any proposed, temporary or final regulation in force under that
provision.


 


1.19                           “Expedia”
has the meaning set forth in the preamble to this Agreement.


 


2





















 


1.20                           “Expedia
Common Stock” has the meaning given that term in the Separation Agreement.


 


1.21                           “Expedia
Employee” means any individual who, immediately prior to the Effective
Time, is either actively employed by, or then on Approved Leave of Absence from,
an Expedia Entity.


 


1.22                           “Expedia
Entities” means the Expedia Group as defined in the Separation Agreement
and any business or operations (whether current or historical regardless of
whether discontinued or sold) included in the Separated Businesses.


 


1.23                           “Expedia
Executive Benefit Plans” means the executive benefit and nonqualified
plans, programs, and arrangements established, sponsored, maintained, or agreed
upon, by any Expedia Entity for the benefit of employees and former employees
of any Expedia Entity before the Close of the Effective Date.


 


1.24                           “Expedia
Flexible Benefit Plan” means the flexible benefit plan to be established by
Expedia pursuant to Section 4.3 of this Agreement as in effect as of the
time relevant to the applicable provision of this Agreement.


 


1.25                           “Expedia
Long-Term Incentive Plan” means the long-term incentive plan or program to
be established by Expedia, effective immediately prior to the Effective Date,
in connection with the treatment of Awards as described in Article V.


 


1.26                           “Expedia
Ratio” means 1.12444, the
quotient obtained by dividing the IAC Stock Value by the Expedia Stock Value.


 


1.27                           “Expedia
Retirement Savings Plan” means the 401(k) and profit sharing plan to be
established by Expedia pursuant to Section 3.1 of this Agreement, as in
effect as of the time relevant to the applicable provision of this agreement.


 


1.28                           “Expedia
Retirement Savings Plan Trust” means a trust relating to the Expedia
Retirement Savings Plan intended to qualify under Section 401(a) and
be exempt under Section 501(a) of the Code.


 


1.29                           “Expedia
Stock Value” means $22.50, the closing per-share price of Expedia Common
Stock trading in the “when issued market” on August 8, 2005, as listed on
the NASDAQ as of 4:00 P.M., Eastern Daylight Time.


 


1.30                           “Former
Expedia Employee” means any individual who as of the Effective Time is a
former employee of the Expedia Group or the IAC Group, and whose last
employment with the Expedia Group or IAC Group, was with an Expedia Entity.


 


1.31                           “Former
IAC Employee” means any individual who as of the Effective Time is a former
employee of the IAC Group or the Expedia Group, and whose last employment with
the IAC Group or Expedia Group, was with an IAC Entity.


 


1.32                           “Group
Insurance Policies” has the meaning set forth in Section 4.2(a).


 


3





















 


1.33                           “Health
and Welfare Plans” means any plan, fund or program which was established or
is maintained for the purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise, medical, dental,
surgical or hospital care or benefits, or benefits in the event of sickness,
accident, disability, death or unemployment, or vacation benefits,
apprenticeship or other training programs or day care centers, scholarship
funds, or prepaid legal services, including any such plan, fund or program as
defined in Section 3(1) of ERISA. 
When immediately preceded by “IAC,” Health and Welfare Plans means each
Health and Welfare Plan that is an IAC Benefit Plan.  When immediately preceded by “Expedia,”
Health and Welfare Plans means each Health and Welfare Plan that is an Expedia
Benefit Plan.


 


1.34                           “HIPAA”
means the health insurance portability and accountability requirements for “group
health plans” under the Health Insurance Portability and Accountability Act of
1996, as amended.


 


1.35                           “HMO”
means a health maintenance organization that provides benefits under the IAC
Medical Plans or the Expedia Medical Plans.


 


1.36                           “HMO
Agreements” has the meaning set forth in Section 4.2(a).


 


1.37                           “IAC”
has the meaning set forth in the preamble to this Agreement.


 


1.38                           “IAC
Common Stock” means, with respect to periods prior to the Separation,
shares of common stock, $0.01 par value per share, of IAC, and with respect to
periods following the Separation, shares of common stock, $0.001 par value per
share, of IAC.


 


1.39                           “IAC
Compensation/Benefits Committee” means the Compensation/Benefits Committee
of the IAC Board of Directors, or any subcommittee thereof.


 


1.40                           “IAC
Employee” means any individual who, immediately prior to the Close of the
Effective Date, is either actively employed by, or then on Approved Leave of
Absence from, any IAC Entity.


 


1.41                           “IAC
Entities” means the members of the IAC Group, as defined in the Separation
Agreement, and their respective Subsidiaries and Affiliates, excluding any
business or operations (whether current or historical, regardless of whether
discontinued or sold) that are included in the Separated Businesses.


 


1.42                           “IAC
Executive Benefit Plans” means the executive benefit and nonqualified
plans, programs, and arrangements established, sponsored, maintained, or agreed
upon, by any IAC Entity for the benefit
of employees and former employees of any IAC Entity before the Close of the
Effective Date.


 


1.43                           “IAC
Executive Deferred Compensation Plan” means the IAC Executive Deferred
Compensation Plan in effect as of the time relevant to the applicable provision
of this Agreement.


 


4





















 


1.44                           “IAC
Flexible Benefit Plans” means the IAC Healthcare FSA and the IAC Dependent
Care FSA, as in effect as of the time relevant to the applicable provision of
this Agreement.


 


1.45                           “IAC
Incentive Plans” means any of the annual or short term incentive plans of
IAC, all as in effect as of the time relevant to the applicable provisions of
this Agreement.


 


1.46                           “IAC
Long-Term Incentive Plans” means any of the Silver King Communications, Inc.
1995 Stock Incentive Plan, HSN, Inc. 1997 Stock and Annual Incentive Plan,
USA Interactive Amended and Restated 2000 Annual Stock and Incentive Plan, IAC/InterActiveCorp
2005 Stock and Annual Incentive Plan, Home Shopping Network, Inc. 1996
Stock Option Plan for Employees, Equity and Bonus Compensation Agreement with
Barry Diller, Expedia, Inc. 1999 Amended and Restated Stock Option Plan,
the Hotels Reservations Network, Inc. 2000 Stock Plan, Ticketmaster
Online-Citysearch, Inc. 1996 Stock Option Plan, Ticketmaster
Online-Citysearch, Inc. 1998 Stock Option Plan, Ticketmaster 1999 Stock
Plan, and Ticketweb, Inc. 2000 Stock Plan, Styleclick, Inc. 1995
Stock Option Plan, Servicemagic, Inc. Amended and Restated 1999 Stock
Option Plan and Precision Response Corporation Amended and Restated 1996
Incentive Stock Plan, Expedia, Inc. Amended and Restated 2001 Stock Plan,
1998 Stock Option Plan of LendingTree, Inc., Amended and Restated Stock
Incentive Plan of LendingTree, Inc., the Silver King Communications, Inc.
Directors Stock Option Plan, Hotwire, Inc. 2000 Equity Incentive Plan and
any other stock incentive plan of IAC, all as in effect as of the time relevant
to the applicable provisions of this Agreement.


 


1.47                           “IAC
Post-Separation Stock Value” means $28.10, the closing per-share price of
IAC Common Stock in the “when issued market” on August 8, 2005, as listed
on the NASDAQ as of 4:00 P.M. Eastern Daylight time.


 


1.48                           “IAC
Ratio” means 0.90036, the quotient obtained by dividing the IAC Stock Value
by the IAC Post-Separation Stock Value.


 


1.49                           “IAC
Retirement Savings Plan” means the InterActiveCorp Retirement Savings Plan
as in effect as of the time relevant to the applicable provision of this
Agreement.


 


1.50                           “IAC
Severance Pay Program” means any severance plan, policy, program or other
arrangement as in effect as of the time relevant to the applicable provision of
this Agreement.


 


1.51                           “IAC
Stock Value” means $25.30, the closing per-share price of the IAC Common
Stock trading “regular way with due bills” on August 8, 2005, as listed on
the NASDAQ as of 4:00 P.M., Eastern Daylight Time.


 


1.52                           “Immediately
after the Effective Date” means on the first moment of the day after the
Effective Date.


 


1.53                           “Liabilities”
has the meaning given that term in the Separation Agreement.


 


1.54                           “Medical
Plan” when immediately preceded by “IAC,” means the Benefit Plan under
which medical benefits are provided to IAC Employees established and maintained
by


 


5





















 


IAC.  When immediately preceded by Expedia, Medical
Plan means the Benefit Plan under which medical benefits are provided to
Expedia Employees to be established by Expedia pursuant to Article IV.


 


1.55                           “NASDAQ”
means the National Association of Securities Dealers Inc. Automated Quotation
System.


 


1.56                           “Non-parties”
has the meaning set forth in Section 6.4(b).


 


1.57                           “Option”
when immediately preceded by “Old IAC,” means an option (either nonqualified or
incentive) to purchase shares of IAC Common Stock prior to the Effective Time
pursuant to an IAC Long-Term Incentive Plan. 
When immediately preceded by “New IAC,” Option means an option (either
nonqualified or incentive) to purchase shares of IAC Common Stock following the
Effective Time pursuant to an IAC Long-Term Incentive Plan.  When immediately preceded by “Expedia,”
Option means an option (either nonqualified or incentive) to purchase shares of
Expedia Common Stock following the Effective Time pursuant to the Expedia
Long-Term Incentive Plan.


 


1.58                           “Participating
Company” means (a) IAC and (b) any other Person (other than an
individual) that participates in a plan sponsored by any IAC Entity.


 


1.59                           “Person”
has the meaning given that term in the Separation Agreement.


 


1.60                           “Restricted
Stock” when immediately preceded by “IAC,” means shares of IAC Common Stock
that are subject to restrictions on transferability and a risk of forfeiture
and are issued under an IAC Benefit Plan and, when immediately preceded by “Expedia,”
means shares of Expedia Common Stock that are subject to restrictions on
transferability and a risk of forfeiture and are issued under an Expedia Benefit
Plan.


 


1.61                           “Restricted
Stock Unit” when immediately preceded by “IAC,” means units issued under an
IAC Benefit Plan representing a general unsecured promise by IAC to pay the
value of shares of IAC Common Stock in cash or shares of IAC Common Stock and,
when immediately preceded by “Expedia,” means units issued under the Expedia
Long-Term Incentive Plan representing a general unsecured promise by Expedia to
pay the value of shares of Expedia Common Stock in cash or shares of Expedia
Common Stock.


 


1.62                           “Reverse
Stock Split” means the one-for-two reverse stock split of IAC Common Stock
that IAC will complete immediately prior to the Effective Time.


 


1.63                           “Separated
Businesses” has the meaning given that term in the Separation Agreement.


 


1.64                           “Separation”
has the meaning given that term in the Separation Agreement.


 


1.65                           “Separation
Agreement” has the meaning set forth in the recitals to this Agreement.


 


1.66                           “Subsidiaries”
has the meaning given that term in the Separation Agreement.


 


6





















 


1.67                           “Tax
Sharing Agreement” means the Tax Sharing Agreement entered into as of the
date hereof between IAC and Expedia.


 


1.68                           “Transferred
Account Balances” has the meaning set forth in Section 4.3.


 


1.69                           “U.S.”
means the 50 United States of America and the District of Columbia.


 


1.70                           “VEBA”
when immediately preceded by IAC, means the IAC Health and Welfare Benefit
Trust.  When immediately preceded by
Expedia, VEBA means the Expedia Health and Welfare Benefit Trust to be established
by Expedia pursuant to Section 4.7 that corresponds to the IAC VEBA.


 


ARTICLE II

GENERAL PRINCIPLES


 


2.1                                 Employment
of Expedia Employees.  All Expedia
Employees shall continue to be employees of Expedia or another Expedia Entity,
as the case may be, immediately after the Effective Time.


 


2.2                                 Assumption
and Retention of Liabilities; Related Assets.


 


(a)                                  As
of the Effective Date, except as expressly provided in this Agreement, the IAC
Entities shall assume or retain and IAC hereby agrees to pay, perform, fulfill and discharge, in due
course in full (i) all Liabilities under all IAC Benefit Plans, (ii) all
Liabilities with respect to the employment or termination of employment of all
IAC Employees, Former IAC Employees and their dependents and beneficiaries, and
other service providers (including any individual who is, or was, an
independent contractor, temporary employee, temporary service worker,
consultant, freelancer, agency employee, leased employee, on-call worker,
incidental worker, or nonpayroll worker of any IAC Entity or in any other
employment, non-employment, or retainer arrangement, or relationship with any
IAC Entity), in each case to the extent arising in connection with or as a
result of employment with or the performance of services to any IAC Entity, and
(iii) any other Liabilities expressly assigned to IAC under this Agreement. 
All assets held in trust to fund the IAC Benefit Plans and all insurance
policies funding the IAC Benefit Plans shall be IAC Assets (as defined in the
Separation Agreement), except to the extent specifically provided otherwise in
this Agreement.


 


(b)                                 From
and after the Effective Date, except as expressly provided in this Agreement,
Expedia and the Expedia Entities shall assume or retain, as applicable, and Expedia hereby agrees to pay, perform,
fulfill and discharge, in due course in full, (i) all Liabilities under
all Expedia Benefit Plans, (ii) all Liabilities with respect to the
employment or termination of employment of all Expedia Employees, Former
Expedia Employees and their dependents and beneficiaries, and other service
providers (including any individual who is, or was, an independent contractor,
temporary employee, temporary service worker, consultant, freelancer, agency
employee, leased employee, on-call worker, incidental worker, or nonpayroll
worker of Expedia or any Expedia Entity or in any other employment,
non-employment, or retainer arrangement, or relationship with Expedia or an
Expedia Entity), in each case to the extent arising in connection with or as a
result of employment with or the performance of services to


 


7





















 


any Expedia Entity and (iii) any other Liabilities
expressly assigned to Expedia or any Expedia Entity under this Agreement.


 


2.3                                 Expedia
Participation in IAC Benefit Plans.  Except
as expressly provided in this Agreement, effective as of the Close of the
Effective Date, Expedia and each other Expedia Entity shall cease to be a
Participating Company in any IAC Benefit Plan, and IAC and Expedia shall take
all necessary action before the Effective Date to effectuate such cessation as
a Participating Company.


 


2.4                                 Terms
of Participation by Expedia Employees in Expedia Benefit Plans.  IAC and Expedia shall agree on methods and
procedures, including, without limitation, amending the respective Benefit Plan
documents, to prevent Expedia Employees from receiving duplicative benefits
from the IAC Benefit Plans and the Expedia Benefit Plans.  With respect to Expedia Employees, each
Expedia Benefit Plan shall provide that all service, all compensation and all
other benefit-affecting determinations that, as of the Close of the Effective
Date were recognized under the corresponding IAC Benefit Plan shall, as of
Immediately after the Effective Date receive full recognition, credit and
validity and be taken into account under such Expedia Benefit Plan to the same
extent as if such items occurred under such Expedia Benefit Plan, except to the
extent that duplication of benefits would result or for benefit accrual to the
extent that Expedia adopts a final average pay defined benefit pension plan.


 


2.5                                 Commercially
Reasonable Efforts.  IAC and Expedia
shall use commercially reasonable efforts to (a) enter into any necessary
agreements to accomplish the assumptions and transfers contemplated by this
Agreement; and (b) provide for the maintenance of the necessary
participant records, the appointment of
the trustees and the engagement of recordkeepers, investment managers,
providers, insurers, etc.


 


2.6                                 Regulatory
Compliance.  IAC and Expedia shall,
in connection with the actions taken pursuant to this Agreement, cooperate in
making any and all appropriate filings required under the Code, ERISA and any
applicable securities laws, implementing all appropriate communications with
participants, transferring appropriate records and taking all such other
actions as may be necessary and appropriate to implement the provisions of this
Agreement in a timely manner.


 


2.7                                 Approval
by IAC as Sole Stockholder.  Prior to
the Effective Time, IAC shall cause Expedia to adopt the Expedia 2005 Long-Term
Incentive Plan.


 


ARTICLE III

SAVINGS PLANS


 


3.1                                 Savings
Plan.  Effective as of the Effective
Date, Expedia shall establish the Expedia Retirement Savings Plan and the Expedia
Retirement Savings Plan Trust.  As soon
as practical following the establishment of the Expedia Retirement Savings Plan
and the Expedia Retirement Savings Plan Trust, IAC shall cause the accounts of
the Expedia Employees to be transferred to the Expedia Retirement Savings Plan
and the Expedia Retirement Savings Plan Trust in cash or such other assets as
mutually agreed by IAC and Expedia, and Expedia shall cause the Expedia
Retirement Savings Plan to assume and be solely responsible for all Liabilities



 


8





















 


for plan benefits (but not
legal Liabilities, such as penalties for violation of law, if applicable,
relating to the administration of plan benefits by IAC prior to the Effective
Time and during such time as IAC owned 100% of an Expedia Entity with respect
to which IAC administered plan benefits, it being understood that Expedia shall
be responsible for such legal Liabilities incurred during such periods prior to
the Effective Time during which IAC did not own 100% of such Expedia Entities)
under the Expedia Retirement Savings Plan to or relating to Expedia Employees
whose accounts are transferred from the IAC Retirement Savings Plan.  Notwithstanding the foregoing, IAC Common
Stock that is held in the accounts of Expedia Employees and any outstanding
participant loans to Expedia Employees whose accounts are transferred under the
IAC Retirement Savings Plan shall be transferred to the Expedia Retirement
Savings Plan in kind and shall thereafter be treated in the manner set forth in
Section 3.2.  IAC and Expedia agree
to cooperate in making all appropriate filings and taking all reasonable
actions required to implement the provisions of this Section 3.1; provided
that Expedia acknowledges that it will be responsible for complying with any
requirements and applying for any determination letters with respect to the
Expedia Retirement Savings Plan.


 


3.2                                 Stock
Considerations.  To the extent that
IAC Employees and Former IAC Employees receive shares of Expedia Common Stock
in connection with the Separation with respect to IAC Common Stock held under
the IAC Retirement Savings Plan, such shares will be deposited in an Expedia
Common Stock Fund under the IAC Retirement Savings Plan.  To the extent that Expedia Employees and
Former Expedia Employees hold shares of IAC Common Stock in their IAC Common
Stock Fund under the Expedia Retirement Savings Plan following the transfer
from the IAC Retirement Savings Plan to the Expedia Retirement Savings Plan set
forth in Section 3.1, the Expedia Retirement Savings Plan shall permit
such employees to continue to hold such shares in an IAC Common Stock Fund
under the Expedia Retirement Savings Plan following such transfer.  Following the Effective Date, Expedia
Employees and Former Expedia Employees shall not be permitted to acquire shares
of IAC Common Stock in the IAC Common Stock Fund under the Expedia Retirement
Savings Plan and IAC Employees and Former IAC Employees shall not be permitted
to acquire shares of Expedia Common Stock in the Expedia Common Stock Fund
under the IAC Retirement Savings Plan.  IAC
and Expedia shall assume sole responsibility for ensuring that their respective
Savings Plans are maintained in compliance with applicable laws with respect to
holding shares of common stock of the other entity.


 


ARTICLE IV

HEALTH AND WELFARE PLANS


 


4.1                                 General.


 


(a)                                  Establishment
of Expedia Health and Welfare Plans. 
Effective as of the Effective Date, Expedia shall adopt Health and
Welfare Plans for the benefit of Expedia Employees, and Expedia shall be
responsible for all Liabilities relating to, arising out of or resulting from
health and welfare coverage or claims
incurred by or on behalf of Expedia Employees or their covered dependents under
the Expedia Health and Welfare Plans prior to, on or after the Effective Date.


 


9





















 


(b)                                 Retention
of Sponsorship and Liabilities.  Following
the Effective Date, IAC shall retain:


 


(i)                                     sponsorship of all
IAC Health and Welfare Plans and any trust or other funding arrangement
established or maintained with respect to such plans, including any “voluntary
employee’s beneficiary association,” or any assets held as of the Effective
Date with respect to such plans; and


 


(ii)                                  all Liabilities
relating to, arising out of, or resulting from health and welfare coverage or
claims incurred by or on behalf of IAC
Employees or Former IAC Employees or their covered dependents under the IAC
Health and Welfare Plans prior to, on or before the Effective Date.


 


IAC shall not
assume any Liability relating to health and welfare claims incurred by or on
behalf of Expedia Employees or Former Expedia Employees or their respective
covered dependents prior to, on or after the Effective Date, and such claims
shall be satisfied pursuant to Section 4.1(a).  A claim or Liability (1) for medical,
dental, vision and/or prescription drug benefits shall be deemed to be incurred
upon the rendering of health services giving rise to the obligation to pay such
benefits; (2) for life insurance and accidental death and dismemberment
and business travel accident insurance benefits and workers’ compensation
benefits shall be deemed to be incurred upon the occurrence of the event giving
rise to the entitlement to such benefits; (3) for salary continuation or
other disability benefits shall be deemed to be incurred upon the effective
date of an individual’s disability giving rise to the entitlement to such
benefits under the applicable disability policy; and (4) for a period of
continuous hospitalization shall be deemed to be incurred on the date of
admission to the hospital.


 


4.2                                 Vendor
Contracts.


 


(a)                                  Third-Party
ASO Contracts, Group Insurance Policies and HMOs.  IAC and Expedia shall use commercially
reasonable efforts to obligate the third
party administrator to each administrative-services-only contract with a
third-party administrator that relates to any of the IAC Health and Welfare
Plans (an “ASO Contract”), each group insurance policy that relates to
any of the IAC Health and Welfare Plans (“Group Insurance Policies”) and
each agreement with a Health Maintenance Organization that provides medical
services under the IAC Health and Welfare Plans (“HMO Agreements”), in
each case, in existence as of the date of this Agreement that is applicable to
Expedia Employees, to enter into a separate ASO Contract, Group Insurance
Policy and HMO Agreement, as applicable, with Expedia providing for
substantially similar terms and conditions as are contained in the ASO
Contracts, Group Insurance Policies and HMO Agreements, as applicable, to which
IAC is a party.  Such terms and
conditions shall include the financial and termination provisions, performance
standards, methodology, auditing policies, quality measures and reporting
requirements.


 


(b)                                 Effect
of Change in Rates.  IAC and Expedia
shall use commercially reasonable efforts to cause each of the insurance
companies and third-party administrators
providing services and benefits under the IAC Health and Welfare Plans and the
Expedia Health and Welfare Plans to maintain the premium and/or administrative
rates based on the aggregate number of participants in both the IAC Health and
Welfare Plans and the Expedia Health and


 


10





















 


Welfare Plans as of Immediately Prior to the
Effective Date through the end of the year in which the Effective Date occurs.  To the extent they are not successful in such
efforts, IAC and Expedia shall each bear the revised premium or administrative
rates attributable to the individuals covered by their respective Health and
Welfare Plans.


 


4.3                                 Flexible
Benefit Plan.  Effective as of the
Effective Date, Expedia shall establish the Expedia Flexible Benefit Plan.  Prior to the Effective Date, IAC and Expedia
shall take all actions necessary or appropriate so that, effective as of the
Close of the Effective Date, (a) the account balances (whether positive or
negative) (the “Transferred Account Balances”) under the health care
reimbursement program, the transit and parking reimbursement program and the dependent
care reimbursement program of the IAC Flexible Benefit Plan (all of such
accounts, “IAC Flexible Benefit Plan”) of the Expedia Employees who are
participants in IAC Flexible Benefit Plan (the “Covered Employees”) shall be
transferred to the Expedia Flexible Benefit Plan; (b) the elections,
contribution levels and coverage levels of the Covered Employees shall apply
under the Expedia Flexible Benefit Plan in the same manner as under the IAC
Flexible Benefit Plan; and (c) the Covered Employees shall be reimbursed
from the Expedia Flexible Benefit Plan for claims incurred at any time during
the plan year of the IAC Flexible Benefit Plan in which the Effective Time
occurs submitted to the Expedia Flexible Benefit Plan from and after the
Effective Date on the same basis and the same terms and conditions as under the
IAC Flexible Benefit Plan.


 


4.4                                 Workers’
Compensation Liabilities.


 


(a)                                  Except
as provided below, all workers’ compensation Liabilities relating to, arising
out of, or resulting from any claim by an IAC Employee, Former IAC Employee,
Expedia Employee and Former Expedia Employee that results from an accident
occurring, or from an occupational disease
which becomes manifest, on or before the Close of the Effective Date shall be
retained by IAC.  All workers’
compensation Liabilities relating to, arising out of, or resulting from any
claim by an IAC Employee or Former IAC Employee that results from an accident
occurring, or from an occupational disease which becomes manifest, on or after
the Effective Date shall be retained by IAC. 
All workers’ compensation Liabilities relating to, arising out of, or
resulting from any claim by an Expedia Employee or Former Expedia Employee that
results from an accident occurring, or from an occupational disease which
becomes manifest, on or after the Effective Date shall be retained by Expedia.  For purposes of this Agreement, a compensable
injury shall be deemed to be sustained upon the occurrence of the event giving
rise to eligibility for workers’ compensation benefits or at the time that an
occupational disease becomes manifest, as the case may be.  IAC, Expedia and the other Expedia Entities
shall cooperate with respect to any notification to appropriate governmental
agencies of the Effective Time and the issuance of new, or the transfer of
existing, workers’ compensation insurance policies and claims handling
contracts.


 


(b)                                 The
parties acknowledge that Expedia and the Expedia Entities have been part of IAC’s
workers’ compensation insurance program for certain periods prior to the Effective Date. 
For the program covering the term October 1, 2004 to the Effective
Date (the “Current Term”), IAC will continue to administer the program
and absorb all administrative costs associated with this obligation, and
Expedia agrees to the following cost adjustments.  Expedia will receive a pro-rated return
premium covering the period from the Effective Date to October 1, 2005.


 


11





















 


The return premium will be received either on October 31,
2005 after Expedia fulfills its obligation of reimbursement to IAC for all
monthly insurance charges up to October 1, 2005 or through the forgiveness
of pre-paid insurance obligations of the Expedia Entities to IAC from the
Effective Date to October 1, 2005.  In
addition, for both the program covering the Current Term and programs covering
periods prior to the start of the Current Term, the Expedia Entities will be
eligible for a one-time dividend, valued and payable on October 31, 2008,
based on ultimate loss development as advised by IAC broker/consultants or
recognized authority selected by IAC and reasonably acceptable to Expedia.


 


4.5                                 Payroll
Taxes and Reporting of Compensation. 
IAC and Expedia shall, and shall cause the other IAC Entities and the
other Expedia Entities to, respectively, take such action as may be reasonably
necessary or appropriate in order to minimize Liabilities related to payroll
taxes after the Effective Date.  IAC and
Expedia shall, and shall cause the other IAC Entities and the other Expedia
Entities to, respectively, each bear its responsibility for payroll tax
obligations and for the proper reporting to the appropriate governmental
authorities of compensation earned by their respective employees after the
Close of the Effective Date, including compensation related to the exercise of
Options.


 


4.6                                 COBRA
and HIPAA Compliance.  IAC shall be
responsible for administering compliance with the health care continuation
requirements of COBRA, the certificate of creditable coverage requirements of
HIPAA, and the corresponding provisions of the IAC Health and Welfare Plans
with respect to IAC Employees and Former IAC Employees and their covered
dependents who incur a COBRA qualifying event or loss of coverage under the IAC
Health and Welfare Plans at any time before, on or after the Effective Time.  Expedia or another Expedia Entity shall be
responsible for administering compliance with the health care continuation
requirements of COBRA, the certificate of creditable coverage requirements of
HIPAA, and the corresponding provisions of the Expedia Health and Welfare Plans
and/or the IAC Health and Welfare Plans with respect to Expedia Employees and
Former Expedia Employees and their covered dependents who incur a COBRA
qualifying event or loss of coverage under the Expedia Health and Welfare Plans
and/or the IAC Health and Welfare Plans at any time before, on or after the
Effective Time.  The Parties hereto agree
that the consummation of the transactions contemplated by this Agreement and
the Separation Agreement shall not constitute a COBRA qualifying event for any
purpose of COBRA.


 


4.7                                 VEBA.  Effective as of the Effective Date, Expedia
shall establish the Expedia VEBA for the purpose of funding certain Expedia
Health and Welfare Plans.  As soon as
practicable following the Effective Date, IAC shall contribute a lump sum
amount in cash to Expedia equal to the excess, if any, of (a) IAC budget
rates for self-insured medical, dental and vision care plans applicable to
Expedia Employees and Former Expedia Employees, in each case, from January 1,
2005 through the Effective Date over (b) the sum of actual claims paid to
Expedia Employees and Former Expedia Employees from self-insured medical,
dental and vision care plans from January 1, 2005 through the Effective
Date, which amount shall be contributed by Expedia to the Expedia VEBA upon
receipt by Expedia from IAC.


 


12





















 


ARTICLE V

EXECUTIVE BENEFITS AND OTHER BENEFITS


 


5.1                                 Assumption
of Obligations.  Except as provided
in this Agreement, effective as of the Effective Time, Expedia shall assume and
be solely responsible for all Liabilities to or relating to Expedia Employees
and Former Expedia Employees under all IAC Executive Benefit Plans and Expedia
Executive Benefit Plans.  The Parties
hereto agree that none of the transactions contemplated by the Separation
Agreement or any of the Ancillary Agreements, including, without limitation,
this Agreement, constitutes a “change in control,” “change of control” or
similar term, as applicable, within the meaning of any Employee Benefit Plan.


 


5.2                                 IAC
Incentive Plans.


 


(a)                                  Expedia
Bonus Awards.  Expedia shall be
responsible for determining all bonus awards that would otherwise be payable
under the IAC Incentive Plans to Expedia
Employees for the Effective Time Year.  Expedia
shall also determine for Expedia Employees (i) the extent to which
established performance criteria (as interpreted by Expedia, in its sole
discretion) have been met, and (ii) the payment level for each Expedia
Employee.  Expedia shall assume all
Liabilities with respect to any such bonus awards payable to Expedia Employees
for the Effective Time Year and thereafter.


 


(b)                                 IAC
Bonus Awards.  IAC shall retain all
Liabilities with respect to any bonus awards payable under the IAC Incentive
Plans to IAC Employees for the Effective
Time Year and thereafter.


 


5.3                                 IAC
Long-Term Incentive Plans.  IAC and
Expedia shall use commercially reasonable efforts to take all actions necessary
or appropriate so that each outstanding Option and Award granted under any IAC
Long-Term Incentive Plan held by any individual shall be adjusted as set forth
in this Article V.  The adjustments
set forth below shall be the sole adjustments made with respect to Old IAC
Options, IAC Restricted Stock Units and IAC Restricted Stock in connection with
the Reverse Stock Split and the other transactions contemplated by the
Separation Agreement.


 


(a)                                  Vested
Old IAC Options.  As determined by
the Compensation/Benefits Committee of the IAC Board of Directors (the “Committee”)
pursuant to its authority under the
applicable IAC Long-Term Incentive Plan, each Old IAC Option that is vested as
of the Effective Time shall be converted into both an Expedia Option and a New
IAC Option and shall otherwise be subject to the same terms and conditions
after the Effective Time as the terms and conditions applicable to such Old IAC
Option immediately prior to the Effective Time; provided, however,
that from and after the Effective Time (i) the number of shares of IAC
Common Stock subject to such New IAC Option, rounded down to the nearest whole
share, shall be equal to one half the number of shares of IAC Common Stock
subject to such Old IAC Option immediately prior to the Reverse Stock Split and
the Effective Time, (ii) the number of shares of Expedia Common Stock
subject to such Expedia Option, rounded down to the nearest whole share, shall
be equal to one half the number of shares of IAC Common Stock subject to the
Old IAC Option immediately prior to the Reverse Stock Split and the Effective
Time, (iii) the per share exercise price of such New IAC Option, rounded
up to the nearest whole cent, shall be equal to the


 


13





















 


quotient obtained by dividing (x) the per
share exercise price of such Old IAC Option immediately prior to the Reverse
Stock Split and the Effective Time by (y) the IAC Ratio and (iv) the per
share exercise price of the Expedia Option, rounded up to the nearest whole
cent, shall be equal to the quotient obtained by dividing (x) the per share
exercise price of the Old IAC Option immediately prior to the Reverse Stock
Split and the Effective Time by (y) the Expedia Ratio; provided, however, the exercise price, the number of shares of IAC Common Stock and
Expedia Common Stock subject to such options and the terms and conditions of
exercise of such options shall be determined in a manner consistent with the
requirements of Section 409A of the Code; provided, further, that, in the case of any Old IAC Option to
which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code as of immediately prior to the Effective Time, the
exercise price, the number of shares of IAC Common Stock and Expedia Common
Stock subject to such option and the terms and conditions of exercise of such
option shall be determined in a manner consistent with the requirements of Section 424(a) of
the Code.


 


(b)                                 Unvested
Old IAC Options Held by IAC Employees and Former IAC Employees other than Barry
Diller.  As determined by the
Committee pursuant to its authority
under the applicable IAC Long-Term Incentive Plan, each Old IAC Option held by
an IAC Employee or a Former IAC Employee (other than Barry Diller) that is
unvested as of the Effective Time shall be subject to the same terms and
conditions after the Effective Time as the terms and conditions applicable to
such Old IAC Option immediately prior to the Effective Time; provided, however, that from and after the Effective Time (i) the number of shares
of IAC Common Stock subject to such New IAC Option, rounded down to the nearest
whole share, shall be equal to the product of (x) the number of shares of IAC
Common Stock subject to such Old IAC Option immediately prior to the Reverse
Stock Split and the Effective Time and (y) the IAC Ratio and (ii) the per
share exercise price of such New IAC Option, rounded up to the nearest whole
cent, shall be equal to the quotient obtained by dividing (x) the per share
exercise price of such Old IAC Option immediately prior to the Reverse Stock
Split and the Effective Time by (y) the IAC Ratio; provided, however, the exercise price, the number of shares of IAC Common Stock subject
to such option and the terms and conditions of exercise of such option shall be
determined in a manner consistent with the requirements of Section 409A of
the Code; provided, further, that, in the case of any Old IAC Option to which Section 421 of
the Code applies by reason of its qualification under Section 422 of the
Code as of immediately prior to the Effective Time, the exercise price, the
number of shares of IAC Common Stock subject to such option and the terms and
conditions of exercise of such option shall be determined in a manner
consistent with the requirements of Section 424(a) of the Code.


 


(c)                                  Unvested
Old IAC Options Held by Expedia Employees and Former Expedia Employees other
than Barry Diller.  As determined by
the Committee pursuant to its authority
under the applicable IAC Long-Term Incentive Plan, each Old IAC Option held by
an Expedia Employee or Former Expedia Employee (other than Barry Diller) that
is unvested as of the Effective Time shall be converted into an Expedia Option
and shall otherwise be subject to the same terms and conditions after the
Effective Time as the terms and conditions applicable to such Old IAC Option
immediately prior to the Effective Time; provided, however, that from and after the Close of the
Effective Time (i) the number of shares of Expedia Common Stock subject to
such Option, rounded down to the nearest whole share, shall be equal to the
product of (x) the number of shares of IAC Common Stock subject to such Old IAC
Option immediately prior to


 


14





















 


the Reverse Stock Split and the Effective Time
and (y) the Expedia Ratio and (ii) the per share exercise price of such
Expedia Option, rounded up to the nearest whole cent, shall be equal to the
quotient obtained by dividing (x) the per share exercise price of such Old IAC
Option immediately prior to the Reverse Stock Split and the Effective Time by
(y) the Expedia Ratio; provided, however, the exercise price, the number of shares of
Expedia Common Stock subject to such option and the terms and conditions of
exercise of such option shall be determined in a manner consistent with the
requirements of Section 409A of the Code; provided, further, that, in the case of any Old IAC Option to
which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code as of the Effective Time, the exercise price, the
number of shares of Expedia Common Stock subject to such option and the terms
and conditions of exercise of such option shall be determined in a manner
consistent with the requirements of Section 424(a) of the Code.


 


(d)                                 Unvested
Old IAC Options Held by Mr. Diller. 
As determined by the Committee pursuant to its authority under the applicable IAC Long-Term Incentive Plan, each
Old IAC Option held by Barry Diller that is unvested as of the Effective Time
shall be converted into both an Expedia Option and a New IAC Option and shall
otherwise be subject to the same terms and conditions after the Effective Time
as the terms and conditions applicable to such Old IAC Option immediately prior
to the Effective Time; provided, however, that from and after the Effective Time (i) the
number of shares of IAC Common Stock subject to such New IAC Option, rounded
down to the nearest whole share, shall be equal to one half the number of
shares of IAC Common Stock subject to such Old IAC Option immediately prior to
the Reverse Stock Split and the Effective Time, (ii) the number of shares
of Expedia Common Stock subject to such Expedia Option, rounded down to the
nearest whole share, shall be equal to one half the number of shares of IAC
Common Stock subject to the Old IAC Option immediately prior to the Reverse
Stock Split and the Effective Time, (iii) the per share exercise price of
such New IAC Option, rounded up to the nearest whole cent, shall be equal to
the quotient obtained by dividing (x) the per share exercise price of such Old
IAC Option immediately prior to the Reverse Stock Split and the Effective Time
by (y) the IAC Ratio and (iv) the per share exercise price of the Expedia
Option, rounded up to the nearest whole cent, shall be equal to the quotient
obtained by dividing (x) the per share exercise price of the Old IAC Option
immediately prior to the Reverse Stock Split and the Effective Time by (y) the
Expedia Ratio; provided, however, the exercise price, the number of shares of IAC Common Stock and
Expedia Common Stock subject to such options and the terms and conditions of
exercise of such options shall be determined in a manner consistent with the
requirements of Section 409A of the Code. 
Following completion of the Effective Time, the satisfaction of
conditions to vesting of Mr. Diller’s New IAC Options governed by this Section 5.3(d) will
be determined based on Mr. Diller’s employment with IAC, and the
satisfaction of conditions to vesting of Mr. Diller’s Expedia Options
governed by this Section 5.3(d) will be determined based on Mr. Diller’s
employment with Expedia.


 


(e)                                  IAC
Restricted Stock Units Held by IAC Employees and Former IAC Employees.  As determined by the Committee pursuant to its authority under the applicable
IAC Long-Term Incentive Plan, each IAC Restricted Stock Unit held by an IAC
Employee or a Former IAC Employee shall be subject to the same terms and
conditions after the Effective Time as the terms and conditions applicable to
such IAC Restricted Stock Unit immediately prior to the Effective Time; provided, however, that from and after the Close of the Effective Time, the number of
shares of IAC Common Stock covered by each IAC Restricted Stock Unit, rounded
to


 


15





















 


the nearest whole share, shall be equal to the
product of (x) the number of shares of IAC Common Stock covered by such IAC
Restricted Stock Unit immediately prior to the Reverse Stock Split and the
Effective Time and (y) the IAC Ratio.


 


(f)                                    IAC
Restricted Stock Units Held by Expedia Employees and Former Expedia Employees.  As determined by the Committee pursuant to
its authority under the applicable IAC Long-Term Incentive Plan, each IAC Restricted Stock Unit held by an
Expedia Employee or a Former Expedia Employee as of the Effective Time shall be
converted into an Expedia Restricted Stock Unit, and shall otherwise be subject
to the same terms and conditions after the Effective Time as the terms and
conditions applicable to such IAC Restricted Stock Unit immediately prior to
the Effective Time; provided, however, that from and after the Close of the Effective Time, the number of
shares of Expedia Common Stock covered by such Expedia Restricted Stock Unit
held by the participant, as applicable, rounded to the nearest whole share,
shall be equal to the product of (x) the number of shares of IAC Common Stock
covered by such IAC Restricted Stock Unit immediately prior to the Reverse
Stock Split and the Effective Time and (y) the Expedia Ratio.


 


(g)                                 IAC
Restricted Stock.  Shares of IAC
Restricted Stock that are outstanding immediately prior to the Reverse Stock
Split and the Effective Time shall be
treated in the Reverse Stock Split and the Reclassification (as defined in the
Separation Agreement) in the same manner as other outstanding shares of IAC
common stock are treated in the Reverse Stock Split and the Reclassification
and will otherwise be subject to the same terms and conditions (including
vesting conditions) applicable to such shares of IAC Restricted Stock
immediately prior to the Reverse Stock Split and the Effective Time.


 


(h)                                 Foreign
Grants/Awards.  To the extent that
the IAC Awards or any of the Old IAC Options are granted to non-U.S.  employees under any domestic or foreign equity-based incentive program sponsored by an IAC
Entity, IAC and Expedia shall use their commercially reasonable efforts to
preserve, at and after the Effective Time, the value and tax treatment accorded
to such Old IAC Options and such IAC Awards granted to non-U.S. employees under
any domestic or foreign equity-based incentive program sponsored by an IAC
Entity.


 


(i)                                     Miscellaneous
Option and Other Award Terms.  After
the Effective Date, New IAC Options and IAC Awards adjusted pursuant to Section 5.3, regardless of by whom held, shall be
settled by IAC pursuant to the terms of the applicable IAC Long-Term Incentive
Plan, and Expedia Options and Expedia Awards, regardless of by whom held, shall
be settled by Expedia pursuant to the terms of the Expedia Long-Term Incentive
Plan.  Accordingly, it is intended that,
to the extent of the issuance of such Expedia Options and Expedia Awards in
connection with the adjustment provisions of this Section 5.3, the Expedia
Long-Term Incentive Plan shall be considered a successor to each of the IAC
Long-Term Incentive Plans and to have assumed the obligations of the applicable
IAC Long-Term Incentive Plan to make the adjustment of the IAC Options and IAC
Awards as set forth in this Section 5.3. 
The Effective Time shall not constitute a termination of employment for
any Expedia Employees for purposes of any New IAC Option or IAC Award and,
except as otherwise provided in this Agreement, with respect to grants adjusted
pursuant to this Section 5.3, employment with Expedia shall be treated as
employment with IAC with respect to New IAC Options or IAC Awards held by
Expedia Employees and employment with IAC shall be treated as employment with
Expedia with respect


 


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to Expedia Options and Expedia Awards held by
IAC Employees.  Mr. Diller shall be
treated as an IAC Employee with respect to continued exercisability of vested
New IAC Options and Mr. Diller shall be treated as an Expedia Employee
with respect to continued exercisability of vested Expedia Options.


 


(j)                                     Waiting
Period for Exercisability of Options and Grant of Options and Awards.  The New IAC Options and Expedia Options shall
not be exercisable during a period
beginning on a date prior to the Effective Date determined by IAC in its sole
discretion, and continuing until the IAC Post-Separation Stock Value and the
Expedia Stock Value are determined after the Effective Time, or such longer
period as IAC, with respect to New IAC Options, and Expedia, with respect to
Expedia Options, determines necessary to implement the provisions of this Section 5.3.  The IAC Restricted Stock Units and Expedia
Restricted Stock Units shall not be settled during a period beginning on a date
prior to the Effective Date determined by IAC in its sole discretion, and continuing
until the IAC Post-Separation Stock Value and the Expedia Stock Value are
determined immediately after the Effective Time, or such longer period as IAC,
with respect to IAC Restricted Stock Units, and Expedia, with respect to
Expedia Restricted Stock Units, determines necessary to implement the
provisions of this Section 5.3.


 


(k)                                  Restrictive
Covenants.  Following the Effective
Date, Expedia shall use commercially reasonable efforts to monitor the Expedia
Employees and Former Expedia Employees to determine whether any such Expedia
Employees or Former Expedia Employees have breached any of the restrictive covenants in the agreements evidencing the
terms of their New IAC Options and IAC Awards. 
As soon as practicable following Expedia’s reasonable belief that an
Expedia Employee or Former Expedia Employee has breached any such covenant,
Expedia shall provide IAC in writing with the name and address of such employee
or former employee and the name and address of the enterprise in which such
employee or former employee is believed to have been engaged.  Notwithstanding the foregoing or anything in
any agreement evidencing the terms of any New IAC Options and IAC Awards or
otherwise to the contrary, it shall not be a violation of any IAC
non-competition or non-solicitation of clients or customers covenant for an
Expedia Employee to engage in acts on behalf of Expedia or an Expedia Entity
that are otherwise prohibited by the terms of such non-competition or
non-solicitation of clients or customers covenants and it shall not be a
violation of any Expedia non-competition or non-solicitation of clients or
customers covenant for an IAC Employee to engage in acts on behalf of IAC or an
IAC Entity that are otherwise prohibited by the terms of such non-competition or
non-solicitation of clients or customers covenants.  In addition, following the Effective Time,
the restrictive covenants (including without limitation any proprietary rights
agreements or confidential information covenants) to which any Expedia Employee
or Former Expedia Employee are party shall run in favor of Expedia (and, to the
extent relating to IAC, shall run in favor of IAC to the same extent that they
ran in favor of IAC immediately prior to the Effective Time; provided,
that the Effective Time shall be treated as a termination of employment from
IAC for purposes of the duration of IAC’s ability to enforce the restrictive
covenant) and the restrictive covenants to which any IAC Employee or Former IAC
Employee are party shall run in favor of IAC. 
Any employment agreement between IAC and an Expedia Employee or Former
Expedia Employee shall as of the Effective Time be assigned by IAC to Expedia
and assumed by Expedia.


 


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5.4                                 Registration
Requirements.  As soon as possible
following the time as of which the Registration Statement (as defined in the
Separation Agreement) is declared effective by the Securities and Exchange
Commission but in any case before the Effective Date and before the date of
issuance or grant of any Expedia Option and/or shares of Expedia Common Stock
pursuant to this Article V, Expedia agrees that it shall file a Form S-8
Registration Statement with respect to and cause to be registered pursuant to
the Securities Act of 1933, as amended, the shares of Expedia Common Stock
authorized for issuance under the Expedia Long-Term Incentive Plan as required
pursuant to such Act and any applicable rules or regulations thereunder,
with such registration to be effective prior to the Effective Date.  IAC agrees that, following the Effective
Date, it shall use reasonable efforts to continue to maintain a Form S-8
Registration Statement with respect to and cause to be registered pursuant to
the Securities Act of 1933, as amended, the shares of IAC Common Stock
authorized for issuance under the IAC Long-Term Incentive Plans as required
pursuant to such Act and any applicable rules or regulations thereunder.


 


5.5                                 IAC
Executive Deferred Compensation Plans. 
Effective as of the Effective Date, Expedia shall establish a deferred
compensation plan that is substantially identical to the IAC Executive Deferred
Compensation Plan to provide benefits to Expedia Employees and Former Expedia
Employees from and after the Effective Date who were participants in the IAC
Executive Deferred Compensation Plan as of immediately prior to the Effective
Date.


 


5.6                                 Severance.  An Expedia Employee shall not be deemed to
have terminated employment for purposes of determining eligibility for
severance benefits in connection with or in anticipation of the consummation of
the transactions contemplated by the Separation Agreement.  Expedia shall be solely responsible for all
Liabilities in respect of all costs arising out of payments and benefits
relating to the termination or alleged termination of any Expedia Employee or
Former Expedia Employee’s employment that occurs prior to, as a result of, in
connection with or following the consummation of the transactions contemplated by the Separation Agreement, including any
amounts required to be paid (including any payroll or other taxes), and the
costs of providing benefits, under any applicable severance, separation,
redundancy, termination or similar plan, program, practice, contract,
agreement, law or regulation (such benefits to include any medical or other
welfare benefits, outplacement benefits, accrued vacation, and taxes).


 


ARTICLE VI

GENERAL AND ADMINISTRATIVE


 


6.1                                 Sharing
of Participant Information.  IAC and
Expedia shall share, and IAC shall cause each other IAC Entity to share, and
Expedia shall cause each other Expedia Entity to share with each other and
their respective agents and vendors (without obtaining releases) all
participant information necessary for the efficient and accurate administration
of each of the Expedia Benefit Plans and the IAC Benefit Plans.  IAC and Expedia and their respective
authorized agents shall, subject to applicable laws, be given reasonable and
timely access to, and may make copies of, all information relating to the
subjects of this Agreement in the custody of the other Party, to the extent
necessary for such administration.  Until
the Close of the Effective Date, all participant information shall be provided
in the manner and medium applicable to Participating Companies in IAC Benefit
Plans generally, and thereafter until December 31, 2006,


 


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all participant information
shall be provided in a manner and medium as may be mutually agreed to by IAC
and Expedia.


 


6.2                                 Reasonable
Efforts/Cooperation.  Each of the
Parties hereto will use its commercially reasonable efforts to promptly take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.  Each of the Parties hereto shall cooperate
fully on any issue relating to the transactions contemplated by this Agreement
for which the other Party seeks a determination letter or private letter ruling
from the Internal Revenue Service, an advisory opinion from the Department of
Labor or any other filing (including, but not limited to, securities filings
(remedial or otherwise)), consent or approval with respect to or by a
governmental agency or authority in any jurisdiction in the United States or
abroad.


 


6.3                                 No
Third-Party Beneficiaries.  This
Agreement is solely for the benefit of the Parties and is not intended to
confer upon any other Persons any rights or remedies hereunder.  Except as expressly provided in this
Agreement, nothing in this Agreement shall preclude IAC or any other IAC
Entity, at any time after the Close of the Effective Date, from amending,
merging, modifying, terminating, eliminating, reducing, or otherwise altering
in any respect any IAC Benefit Plan, any benefit under any Benefit Plan or any
trust, insurance policy or funding vehicle related to any IAC Benefit Plan.  Except as expressly provided in this
Agreement, nothing in this Agreement shall preclude Expedia or any other
Expedia Entity, at any time after the Close of the Effective Date, from
amending, merging, modifying, terminating, eliminating, reducing, or otherwise
altering in any respect any Expedia Benefit Plan, any benefit under any Benefit
Plan or any trust, insurance policy or funding vehicle related to any Expedia
Benefit Plan.


 


6.4                                 Audit
Rights With Respect to Information Provided.


 


(a)                                  Each
of IAC and Expedia, and their duly authorized representatives, shall have the
right to conduct reasonable audits with respect to all information required to
be provided to it by the other Party under this Agreement.  The Party conducting the audit (the “Auditing Party”)
may adopt reasonable procedures and
guidelines for conducting audits and the selection of audit representatives
under this Section 6.4.  The
Auditing Party shall have the right to make copies of any records at its
expense, subject to any restrictions imposed by applicable laws and to any
confidentiality provisions set forth in the Separation Agreement, which are
incorporated by reference herein.  The
Party being audited shall provide the Auditing Party’s representatives with
reasonable access during normal business hours to its operations, computer
systems and paper and electronic files, and provide workspace to its
representatives.  After any audit is
completed, the Party being audited shall have the right to review a draft of
the audit findings and to comment on those findings in writing within thirty
business days after receiving such draft.


 


(b)                                 The
Auditing Party’s audit rights under this Section 6.4 shall include the
right to audit, or participate in an audit facilitated by the Party being audited, of any Subsidiaries and
Affiliates of the Party being audited and to require the other Party to request
any benefit providers and third parties with whom the Party being audited has a
relationship, or agents of such Party, to agree to such an audit to the extent
any such Persons are affected by or addressed


 


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in this Agreement (collectively, the “Non-parties”).  The
Party being audited shall, upon written request from the Auditing Party,
provide an individual (at the Auditing Party’s expense) to supervise any audit
of a Non-party.  The Auditing Party shall
be responsible for supplying, at the Auditing Party’s expense, additional
personnel sufficient to complete the audit in a reasonably timely manner.  The responsibility of the Party being audited
shall be limited to providing, at the Auditing Party’s expense, a single
individual at each audited site for purposes of facilitating the audit.


 


6.5                                 Fiduciary
Matters.  It is acknowledged that
actions required to be taken pursuant to this Agreement may be subject to
fiduciary duties or standards of conduct under ERISA or other applicable law,
and no Party shall be deemed to be in violation of this Agreement if it fails
to comply with any provisions hereof based upon its good faith determination
that to do so would violate such a fiduciary duty or standard.  Each Party shall be responsible for taking
such actions as are deemed necessary and appropriate to comply with its own
fiduciary responsibilities and shall fully release and indemnify the other
Party for any Liabilities caused by the failure to satisfy any such
responsibility.


 


6.6                                 Consent
of Third Parties.  If any provision
of this Agreement is dependent on the consent of any third party (such as a
vendor) and such consent is withheld, the Parties hereto shall use commercially
reasonable efforts to implement the applicable provisions of this Agreement to
the full extent practicable.  If any
provision of this Agreement cannot be implemented due to the failure of such
third party to consent, the Parties hereto shall negotiate in good faith to
implement the provision in a mutually satisfactory manner.  The phrase “commercially reasonable efforts”
as used herein shall not be construed to require any Party to incur any
non-routine or unreasonable expense or Liability or to waive any right.


 


ARTICLE VII

MISCELLANEOUS


 


7.1                                 Effect
If Effective Time Does Not Occur.  If
the Separation Agreement is terminated prior to the Effective Date, then this
Agreement shall terminate and all actions and events that are, under this
Agreement, to be taken or occur effective immediately prior to or as of the
Close of the Effective Date, or Immediately after the Effective Date, or
otherwise in connection with the Separation Transactions, shall not be taken or
occur except to the extent specifically agreed by IAC and Expedia.


 


7.2                                 Relationship
of Parties.  Nothing in this
Agreement shall be deemed or construed by the Parties or any third party as
creating the relationship of principal and agent, partnership or joint venture
between the Parties, it being understood and agreed that no provision contained
herein, and no act of the Parties, shall be deemed to create any relationship
between the Parties other than the relationship set forth herein.


 


7.3                                 Affiliates.  Each of IAC and Expedia shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements
and obligations set forth in this Agreement to be performed by another IAC
Entity or an Expedia Entity, respectively.


 


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7.4                                 Notices.  All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed given to
a Party when (a) delivered to the appropriate address by hand or by nationally recognized overnight
courier service (costs prepaid); (b) sent by facsimile with confirmation
of transmission by the transmitting equipment; or (c) received or rejected
by the addressee, if sent by certified mail, return receipt requested, in each
case to the following addresses and facsimile numbers and marked to the
attention of the person (by name or title) designated below (or to such other
address, facsimile number or person as a Party may designate by notice to the
other Parties):


 


(a)                                  if
to IAC:


 


IAC/InterActiveCorp

152 West 57th Street

New York, NY 10019

Attention:  General Counsel

Facsimile No.:  (212) 632-9642


 


with copies
to:


 


Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, NY 10019

Attention:  Michael S. Katzke, Esq.

Facsimile No.:  (212) 403-2345


 


(b)                                 if
to Expedia:


 


Expedia, Inc.

3150 139th Ave SE

Bellevue, WA 98005

Attention:  General Counsel

Fax:  (425) 679-7251


 


7.5                                 Incorporation
of Separation Agreement Provisions.  The
following provisions of the Separation Agreement are hereby incorporated herein
by reference, and unless otherwise expressly specified herein, such provisions
shall apply as if fully set forth herein mutatis mutandis (references in this Section 7.5
to an “Article” or “Section” shall mean Articles or Sections of the Separation
Agreement, and references in the material incorporated herein by reference
shall be references to the Separation Agreement):  Article VII (relating to Survival and
Indemnification); Article XI (relating to Further Assurances); Article IX
(relating to Exchange of Information; Confidentiality); Article X
(relating to Dispute Resolution); Article XIII (relating to Sole
Discretion of IAC; Termination); Article XIV (relating to Miscellaneous).


 


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IN WITNESS
WHEREOF, the Parties have caused this Employee Matters Agreement to be duly
executed as of the day and year first above written.


 


	
   

  	
  IAC/INTERACTIVECORP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gregory
  R. Blatt

  	
   

  
	
   

  	
   

  	
  Name:  Gregory
  R. Blatt

  
	
   

  	
   

  	
  Title:    Executive
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXPEDIA,
  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Keenan
  M. Conder

  	
   

  
	
   

  	
   

  	
  Name:  Keenan
  M. Conder

  
	
   

  	
   

  	
  Title:    Senior
  Vice President

  



 


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