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As Filed with the Securities and Exchange Commission on July 9, 2003

Registration No. 333-104973

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

INTERACTIVECORP
 (formerly USA Interactive)
 (Exact Name of Registrant as Specified in its Charter)

Delaware
(State or Other Jurisdiction
of Incorporation or Organization)		   4833
(Primary Standard Industrial
Classification Code Number)		   59-2712887
(I.R.S. Employer
Identification Number)

152 West 57th Street
New York, New York 10019
(212) 314-7300
(Address, including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)

David G. Ellen, Esq.
Vice President, Acting General Counsel and Secretary
InterActiveCorp
152 West 57th Street
New York, New York 10019
(212) 314-7300
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent For Service)

Copies to:

Pamela S. Seymon
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
(212) 403-1000		   Mark S. Britton
Senior Vice President,
General Counsel and Secretary
Expedia, Inc.
13810 SE Eastgate Way, Suite 400
Bellevue, Washington 98005
(425) 564-7200		   Peter D. Lyons
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
(212) 848-4000

        Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after this registration statement becomes effective and upon completion of the merger described in the enclosed information statement/prospectus.

        If the securities registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE

Title of each Class of
Securities to be Registered
   Amount to
be Registered
   Proposed Maximum
Offering Price
Per Security
   Proposed Maximum
Aggregate
Offering Price
   Amount of
Registration Fee(3)
Common Stock, par value $0.01 per share   138,595,999(1)   N/A   $3,955,034,762(2)   $319,963
Warrants to purchase 1.93875 shares of Common Stock   12,503,093(4)   N/A   $987,494,285(5)   $79,889
Common Stock, par value $0.01 per share   24,240,372(6)   N/A   N/A(7)   N/A
  Total               $399,852(8)
(1)
Based on the maximum number of shares of common stock, par value $0.01 per share, of the Registrant ("IAC common stock") that may be issued in connection with the merger described in the enclosed proxy and information statement/prospectus, calculated as the product of (a) 71,487,298 (the sum of (i) 50,646,686 shares of common stock, par value $0.01 per share, of Expedia, Inc. ("Expedia common stock") outstanding on April 11, 2003, plus (ii) 22,714,242 shares of Expedia common stock reserved for issuance upon the exercise of stock options and restricted stock units outstanding on April 11, 2003, less (iii) 1,873,630 shares of Expedia common stock held by the Registrant), multiplied by (b)1.93875, the exchange ratio in the merger. Outstanding shares exclude shares of Expedia common stock held by Expedia or any subsidiary of Expedia.

(2)
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f) and Rule 457(c) under the Securities Act, based on the product of (a) 71,487,298, multiplied by (b) $55.325, the average of the high and low sales prices for shares of Expedia common stock as reported on the Nasdaq National Market on April 25, 2003.

(3)
Calculated by multiplying 0.00008090 by the proposed maximum aggregate offering price.

(4)
Based on the maximum number of warrants ("IAC warrants") issuable upon the conversion of Expedia, Inc. warrants listed on the Nasdaq National Market ("Expedia warrants") on April 11, 2003.

(5)
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f), Rule 457(c) and Rule 457(i) under the Securities Act, based on the sum of (a) 662,413,867, the product of (i) 12,503,093, the number of Expedia warrants outstanding on April 11, 2003, multiplied by (ii) $52.98, the average of the high and low sales prices for an Expedia warrant as reported on the Nasdaq National Market on July 1, 2003, and (b) 325,080,418, the product of (i) 12,503,093 multiplied by (ii) 26.00, the exercise price to be received by the Registrant upon exercise of an IAC warrant.

(6)
Based on the maximum number of shares of IAC common stock issuable upon exercise of the IAC warrants, calculated by multiplying 12,503,093, the maximum number of IAC warrants being registered hereunder, by 1.93875, the number of shares of IAC common stock to be received upon exercise of an IAC warrant.

(7)
Pursuant to 457(i) under the Securities Act, the maximum amount of $26.00 per warrant that may be received in connection with the exercise of an IAC warrant has been added to the proposed offering price of the IAC warrant and no separate registration fee is payable in connection with the shares of IAC common stock issuable upon exercise of the IAC warrants. See note (5) above.

(8)
The total registration fee due in connection with this filing is $399,852. On or about May 2, 2003, a filing fee of $375,924 was paid in connection with the filing of the initial Registration Statement with the Commission. Accordingly, a fee payable upon filing of this Amendment No. 1 to the Registration Statement is $23,928.

        The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

LOGO

Dear Shareholders:

        As you may be aware, the board of directors of Expedia, based upon the unanimous approval and recommendation of a special committee of its disinterested directors, has approved a merger agreement that would result in Expedia becoming a wholly owned subsidiary of InterActiveCorp ( "IAC," formerly USA Interactive). In the merger, each outstanding share of Expedia common stock and Expedia Class B common stock (other than shares held by Expedia shareholders who validly perfect dissenters' rights under Washington law) will be converted into 1.93875 shares of IAC common stock and each outstanding warrant to purchase shares of Expedia common stock listed on the Nasdaq National Market will be converted into a warrant to acquire 1.93875 shares of IAC common stock. In connection with the merger, the special committee received an opinion of Morgan Stanley & Co. Incorporated to the effect that, as of March 18, 2003, the exchange ratio of 1.93875 pursuant to the merger agreeement was fair, from a financial point of view, to the holders of Expedia common stock (other than IAC and its affiliates).

        Both IAC and Expedia believe the merger will enhance shareholder value by providing Expedia shareholders, through a transaction that is tax-free to Expedia shareholders, with a significant premium for their Expedia shares, as well as the opportunity to participate in the growth and future value of IAC.

        Before we can proceed with the merger, the holders of a majority of the voting power of outstanding Expedia shares must vote in favor of adoption and approval of the merger agreement and the proposed merger at the special meeting of Expedia shareholders. Because IAC, which currently owns 94.9% of the combined voting power of Expedia's outstanding shares, has agreed to vote in favor of adoption and approval of the merger agreement and the proposed merger, approval of the merger by Expedia shareholders at the special meeting is assured.

        Your board of directors recommends that you vote FOR approval of the merger agreement and the transactions contemplated thereby.

        Whether or not you attend the special meeting, it is important that your shares be properly represented and voted at the meeting. Therefore, I urge you to sign, date and promptly return the enclosed proxy in the enclosed postage-paid envelope. Sending in your proxy will not prevent you from voting your shares at the meeting in person if you so desire, as your proxy is revocable at your option.

        Please see "Risk Factors" beginning on page 13 for a discussion of matters relating to an investment in IAC common stock and IAC warrants.

        IAC common stock is listed on the Nasdaq National Market under the symbol "IACI" and Expedia common stock is listed on the Nasdaq National Market under the symbol "EXPE." Based on the closing price of IAC common stock on July 8, 2003, the last practicable day before the printing of this proxy and information statement/prospectus, 1.93875 shares of IAC common stock had a value of $81.41. You should be aware that, because the number of shares of IAC common stock you will receive per Expedia share in the merger is fixed, the value of the consideration you will receive in the merger will fluctuate as the market price of IAC common stock changes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the IAC common stock to be issued in the merger or determined if the information contained in this proxy and information statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

The date of this proxy and information statement/prospectus is July 9, 2003
and it is first being mailed on or about July 11, 2003.

LOGO

Dear Stockholders:

        As you may be aware, the board of directors of InterActiveCorp ("IAC", formerly USA Interactive) and, based upon the unanimous approval and recommendation of a special committee of Expedia's disinterested directors, the board of directors of Expedia, has each approved a merger agreement that would result in Expedia becoming a wholly owned subsidiary of IAC. In the merger, each outstanding share of Expedia common stock and Expedia Class B common stock (other than shares held by Expedia shareholders who validly perfect dissenters' rights under Washington law) would be converted into 1.93875 shares of IAC common stock. IAC expects to issue approximately 99.9 million shares of IAC common stock at the closing of the merger.

        Under the Nasdaq rules, because IAC might issue in excess of 20% of its current outstanding common stock under the terms of the merger, before we can complete the merger, IAC stockholders must approve the issuance of the IAC common stock in the merger. Pursuant to a stockholders Agreement, each of Universal Studios, Inc., a subsidiary of Vivendi Universal S.A., and Liberty Media Corporation has granted to Barry Diller an irrevocable proxy over all IAC securities owned by Universal, Liberty and their affiliates for all matters, except for limited contingent matters, which require the consent of each of Mr. Diller and Liberty. The merger is not a contingent matter. As a result, Mr. Diller, through shares owned by him, as well as those owned by Liberty and Vivendi, controls approximately 64.1% of the combined voting power of IAC common stock and IAC Class B common stock, which is sufficient for approval by IAC stockholders of the issuance of the IAC securities in the merger. Mr. Diller has signed a written stockholder's consent approving the issuance of IAC securities in the merger. As a result, no action is required on the part of IAC stockholders. We are not asking IAC stockholders for a proxy and IAC stockholders are requested not to send IAC a proxy.

        IAC common stock is listed on the Nasdaq National Market under the symbol "IACI" and Expedia common stock is listed on the Nasdaq National Market under the symbol "EXPE." Based on the closing price of IAC common stock on the Nasdaq National Market on July 8, 2003, the last practicable day before the printing of this proxy and information statement/prospectus, 1.93875 shares of IAC common stock had a value of $81.41.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the IAC common stock to be issued in the merger or determined if the information contained in this proxy and information statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

        The date of this proxy and information statement/prospectus is July 9, 2003
and it is first being mailed on or about July 11, 2003.

EXPEDIA, INC.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on August 8, 2003

        A special meeting of shareholders of Expedia, Inc., a Washington corporation, will be held at 10:00 a.m., local time, on Friday, August 8, 2003 at the Doubletree Hotel, 300 112th Avenue SE, Bellevue, Washington, to consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of March 18, 2003, among USA Interactive, now InterActiveCorp or "IAC," Equinox Merger Corp., a wholly owned subsidiary of IAC, and Expedia (which we refer to in this proxy and information statement/prospectus as the merger agreement), and the transactions contemplated thereby. Under the terms of the merger agreement, among other things:

        Holders of record of shares of Expedia common stock and Expedia Class B common stock at the close of business on June 25, 2003 will be entitled to vote at the special meeting or any adjournment or postponement.

Bellevue, Washington
July 9, 2003

Whether or not you plan to attend the special meeting, please complete, sign and date the enclosed proxy card and return it promptly in the enclosed envelope.


IMPORTANT

        This document, which is sometimes referred to as the proxy and information statement/prospectus, constitutes (1) a proxy statement of Expedia to Expedia shareholders, (2) a prospectus of IAC to Expedia shareholders for the shares of IAC common stock that IAC will issue to Expedia shareholders in the merger, (3) a prospectus of IAC to holders of Expedia warrants listed on the Nasdaq National Market for the IAC warrants that IAC will issue to holders of such Expedia warrants, and (4) an information statement of IAC to IAC stockholders. This document also constitutes notice of the contemplated merger to the holders of outstanding warrants to acquire shares of Expedia common stock pursuant to the terms of the underlying warrant documents. As permitted under the rules of the U.S. Securities and Exchange Commission, or the SEC, this proxy and information statement/prospectus incorporates important business and financial information about IAC, Expedia and their affiliates that is contained in documents filed with the SEC and that is not included in or delivered with this proxy and information statement/prospectus. You may obtain copies of these documents, without charge, from the website maintained by the SEC at www.sec.gov, as well as other sources. See "Where You Can Find More Information" beginning on page 97. You may also obtain copies of these documents, without charge, from IAC and from Expedia by writing or calling:

InterActiveCorp
152 West 57th Street
New York, New York 10019
(212) 314-7300
Attention: Corporate Secretary		   Expedia, Inc.
13810 SE Eastgate Way, Suite 400
Bellevue, Washington 98005
(425) 564-7200
Attention: Corporate Secretary

        You may also obtain documents incorporated by reference into this proxy and information statement/prospectus by requesting them in writing or by telephone from MacKenzie Partners, Inc., the proxy solicitor for the merger, at the following address and telephone number:

GRAPHIC

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (collect)
(800) 322-2885 (toll-free)

        In order to obtain delivery of these documents prior to completion of the merger, you should request such documents no later than August 1, 2003.

        In "Questions and Answers About the Merger" and in the "Summary," we highlight selected information from this proxy and information statement/prospectus, but we have not included all of the information that may be important to you. To better understand the merger agreement and the merger, and for a complete description of their legal terms, you should carefully read this entire proxy and information statement/prospectus, including the appendices, as well as the documents that we have incorporated by reference into this proxy and information statement/prospectus. See "Where You Can Find More Information" beginning on page 97.



TABLE OF CONTENTS

 
    
   Page
QUESTIONS AND ANSWERS ABOUT THE MERGER   i 
SUMMARY   1
  The Companies   1
  The Merger   1
  Treatment of Expedia Stock Options and Restricted Stock Awards   2
  Treatment of Expedia Warrants   2
  Expedia Shareholder Vote Required   2
  Recommendation to Expedia Shareholders   3
  Opinion of Financial Advisor to the Special Committee   3
  Interests of Certain Persons in the Merger   3
  Regulatory Approvals   3
  Accounting Treatment   4
  Comparison of Shareholder Rights   4
  Selected Historical Financial Information of IAC and Expedia   5
  Selected Unaudited Pro Forma Combined Condensed Financial Information of IAC   10
  Certain Historical and Pro Forma Per Share Data   11
RISK FACTORS   13
  Risks Relating to the Merger   13
  Risks Factors Relating to IAC   14
  Risk Factors Relating to the IAC Listed Warrants   16
CAUTIONARY STATEMENT CONCERNING FORWARD- LOOKING STATEMENTS   17
THE EXPEDIA SPECIAL MEETING   19
  Time and Place; Purposes   19
  Record Date; Voting Rights   19
  Quorum; Votes Required for Approval   19
  Voting; Revocation of Proxies   19
  Persons Making the Solicitation   20
  Voting Securities and Principal Holders Thereof   20
ACTION BY WRITTEN CONSENT OF    IAC STOCKHOLDERS   21
THE MERGER   22
  Background to the Merger   22
  Recommendation of the Special Committee and the Expedia Board of Directors   26
  Information and Factors Considered by the Special Committee   26
  Information and Factors Considered by the IAC Board of Directors   28
  Opinion of the Financial Advisor to the Special Committee   29
  Material United States Federal Income Tax Consequences   38
  Dissenters' Rights   42
  Regulatory Approvals Required for the Merger   45
  Shareholder Litigation   45
  Certain Effects of the Merger   46
  Accounting Treatment for the Merger   46
  Resale of IAC Common Stock and IAC Warrants   47
EXPEDIA 2003 FINANCIAL INFORMATION   48
  Operating Budget   48
  Actual Results and Forecast   48
RELATIONSHIPS WITH EXPEDIA   50
  Relationships Between Expedia and IAC   50
  OTHER RELATIONSHIPS   51
INTERESTS OF CERTAIN PERSONS IN THE MERGER   53
  Composition of the Expedia Board of Directors   53
  Expedia Stock Options and Other Equity-Based Awards   53
  IAC Equity, Stock Options and Other  Equity-Based Awards   54
  Compensation of Members of the Special Committee   54
  Employment Agreements   55
  Indemnification and Insurance   60
THE MERGER AGREEMENT   61
  General Terms of the Merger Agreement   61
  Treatment of Securities in the Merger   61
  Exchange of Certificates   64
  Representations and Warranties   67
  Covenants   68
  Conditions to the Merger   71
  Termination of the Merger Agreement   72
  Amendment; Waiver   73
  Fees and Expenses   73
  Special Committee Approval   73
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF IAC   74
DESCRIPTION OF IAC CAPITAL STOCK   81
  IAC Common Stock and IAC Class B Common Stock   81
  IAC Preferred Stock   82
  Anti-Takeover Provisions in IAC's By-laws   83
  Effect of Delaware Anti-Takeover Statute   84
  Action by Written Consent   84
  Transfer Agent   84
DESCRIPTION OF IAC LISTED WARRANTS   85
  Existing IAC Warrants   85
  IAC Stockholder Warrants   85
  IAC Employee Warrants   86
  Warrant Agent   86
COMPARISON OF SHAREHOLDER RIGHTS   87
WHERE YOU CAN FIND MORE INFORMATION   97
  General   97
  Reconciliations of Non-GAAP Financial Measures   99
LEGAL MATTERS   102
EXPERTS   102
MISCELLANEOUS   102
Appendix A: Agreement and Plan of Merger   A-1
Appendix B: Opinion of Morgan Stanley & Co. Incorporated   B-1
Appendix C: Chapter 23B.13 of the Washington Business Corporation Act   C-1


QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:
What is the proposed transaction?

A:
IAC is proposing to acquire all of the outstanding shares of Expedia common stock that it does not already own. The acquisition will be effected by the merger of a wholly owned subsidiary of IAC with and into Expedia, with Expedia surviving as a wholly owned subsidiary of IAC.

Q:
Why is IAC acquiring the remaining Expedia shares that it does not already own?

A:
IAC believes that the combined company will benefit from, among other things, the alignment of management interests and the ability of the combined company to offer improved and integrated products and services, in each case creating greater value for both IAC's stockholders and Expedia's shareholders. To review IAC's reasons for the merger, as well as the special committee's and Expedia's reasons for the merger, see the discussion beginning on page 26.

Q:
If I am an Expedia shareholder, what will I receive in exchange for my Expedia shares?

A:
If you are an Expedia shareholder, you will receive 1.93875 shares of IAC common stock in exchange for each share of Expedia common stock owned at the time the merger is completed (unless you properly exercise dissenters' rights). IAC will not issue fractional shares of IAC common stock. Any Expedia shareholder entitled to receive a fractional share of IAC common stock will receive a cash payment instead of a fractional share.

Q:
If I am an Expedia warrantholder, what will I receive in exchange for my Expedia warrants?

A:
Expedia Shareholder Warrants.     Each outstanding Expedia warrant to acquire one share of Expedia common stock that was issued to shareholders of Expedia in respect of their shares of Expedia common stock in the February 2002 transaction whereby IAC acquired a controlling interest in Expedia will be converted into an IAC warrant to acquire 1.93875 shares of IAC common stock. Each IAC stockholder warrant will have substantially equivalent rights to the converted Expedia shareholder warrant. We refer in this proxy and information statement/prospectus to the transaction whereby IAC acquired a controlling interest in Expedia as the IAC acquisition of control.
Q:
If I am an IAC stockholder, how will I be affected by the merger?

A:
After the merger, IAC stockholders will continue to own the IAC shares that they held immediately prior to the merger. However, because IAC plans to issue approximately 99.9 million new shares of IAC common stock in the merger to current Expedia shareholders, each outstanding IAC share immediately prior to the merger will represent a smaller percentage of a significantly larger company after the merger. IAC's public stockholders currently
Q:
How are the economic terms of the merger different from the terms of the contemplated exchange offer IAC announced on June 3, 2002?

A:
On June 3, 2002, IAC announced its intention to commence an exchange offer of 1.34845 shares of IAC common stock for each share of Expedia common stock that IAC did not own (after adjusting the exchange ratio to give effect to a two-for-one stock split of Expedia shares effective March 10, 2003), which represented a 7.5% premium over the closing price of Expedia common stock immediately prior to IAC's June 3, 2002 announcement. On June 5, 2002, IAC announced that it would not commence any exchange offer in the near future, and no exchange offer was ever commenced. The 1.93875 exchange ratio in the merger represents approximately a 30% premium based on the closing prices of Expedia and IAC common stock on March 18, 2003, the last trading date before IAC and Expedia announced the merger.

Q:
What vote of Expedia shareholders is needed to approve the merger?

A:
Under Washington law and Expedia's articles of incorporation, at the Expedia special meeting, the approval of the holders of Expedia shares representing a majority of the voting power of the outstanding shares of Expedia common stock and Expedia Class B common stock, voting together as a single class, is required in order to approve the merger. As of the record date for the special meeting, IAC controlled shares of Expedia common stock and Expedia Class B common stock representing 94.9% of the aggregate outstanding voting power of Expedia shares, and has agreed to vote such shares in favor of approval of the merger. As a result, approval of the merger at the special meeting by Expedia shareholders is assured.

Q:
Is a further vote of IAC stockholders needed to approve the merger?

A:
No. Delaware law allows stockholders to act by written consent instead of holding a meeting, unless prohibited by the company's certificate of incorporation. IAC's certificate of incorporation does not prohibit stockholder action by written consent. Since Barry Diller, who controls the vote of sufficient IAC shares to approve the issuance of IAC common stock in the merger by written consent, has already executed a written consent voting these shares in favor of the issuance of shares in the merger, no other vote of IAC stockholders is required.

Q:
Will I have dissenters' rights in connection with the merger?

A:
Under Washington law, holders of shares of Expedia common stock will be entitled to dissenters' rights in connection with the merger. Under Delaware law, holders of IAC shares are not entitled to any dissenters' rights. For a detailed discussion of the dissenters' rights of holders of shares of Expedia common stock, see "The Merger—Dissenters' Rights" beginning on page 42.

Q:
Will Expedia shareholders be taxed on the IAC common stock that they receive in exchange for their Expedia shares?

A:
The exchange of shares by Expedia shareholders is intended to be tax-free to Expedia shareholders for U.S. federal income tax purposes, except for taxes on cash received instead of fractional shares of IAC common stock and cash received by holders of shares of Expedia common stock properly exercising dissenters' rights in connection with the merger. We recommend that Expedia shareholders carefully read the complete explanation of the material U.S. federal income tax consequences of the merger beginning on page 38, and that Expedia shareholders consult their tax advisors for a full understanding of the tax consequences to them.

ii

Q:
Will holders of Expedia warrants be taxed on the conversion of their Expedia warrants into warrants to acquire IAC common stock?

A:
Maybe, depending on whether you hold Expedia employee warrants that will be converted into IAC employee warrants or any other Expedia warrant (including Expedia shareholder warrants). The conversion of Expedia warrants (other than Expedia employee warrants) into warrants to acquire IAC common stock is intended to be tax-free to Expedia warrantholders for U.S. federal income tax purposes. The tax treatment of the conversion of Expedia employee warrants into IAC employee warrants is not clear. We recommend that Expedia warrantholders carefully read the complete explanation of the material U.S. federal income tax consequences of the merger beginning on page 38, and that Expedia warrantholders consult their tax advisors for a full understanding of the tax consequences to them.

Q:
What do I need to do now?

A:
If you are an Expedia shareholder, after reviewing this proxy and information statement/prospectus, indicate on your proxy card how you want to vote on the merger, and sign, date and mail your proxy card in the enclosed return envelope as soon as possible, so that your shares may be represented at the special meeting. The meeting will take place on Friday, August 8, 2003. You may also grant your proxy by telephone, on the Internet or vote in person at the special meeting.
Q:
If my Expedia shares are held in street name by my broker, will my broker automatically vote my shares for me?

A:
No. Your broker will vote your shares only if you provide instructions to your broker on how to vote. You should fill out the voter instruction form sent to you by your broker with this proxy and information statement/prospectus and return the form to your broker.

Q:
If I am an Expedia shareholder, may I change my vote even after submitting a proxy card?

A:
Yes. If you are a holder of record, there are three ways you can change your proxy instructions after you have submitted your proxy card. First, you may send a written notice to the person to whom you submitted your proxy revoking your proxy. Second, you may complete and submit a new proxy card. The last proxy actually received by Expedia before the special meeting of Expedia shareholders will be counted, and any earlier proxies will be revoked. Third, you may attend the Expedia special meeting and vote in person. Any earlier proxy will thereby be revoked. However, simply attending the special meeting without voting will not revoke your proxy. You may also withdraw your proxy or change your vote by telephone or on the Internet as described in this proxy and information statement/prospectus.
Q:
Should I send in my Expedia stock certificates or Expedia warrant certificates now?

A:
No. After the merger is completed, Expedia shareholders will receive written instructions and a letter of transmittal for exchanging their shares of Expedia common stock for shares of IAC common stock and cash instead of fractional shares of IAC common stock, and holders of Expedia shareholder warrants will receive written instructions and a letter of transmittal for exchanging their Expedia shareholder warrants for IAC

iii

Q:
When do you expect to complete the merger?

A:
We currently expect to complete the merger promptly after the Expedia special meeting, provided that all conditions to closing have been satisfied or waived.

Q:
Where can I find more information?

A:
You may obtain more information from various sources, as set forth under "Where You Can Find More Information" beginning on page 97. If you have any questions about the merger, or would like copies of any of the documents we refer to in this proxy and information statement/prospectus, please call MacKenzie Partners, Inc., the proxy solicitor, toll-free at (800) 322-2885.

iv


SUMMARY

        The following summary highlights selected information from this proxy and information statement/prospectus and may not contain all of the information that is important to you. To better understand the merger, you should carefully read this entire document and the other documents to which this proxy and information statement/prospectus refers you. See "Where You Can Find More Information" beginning on page 97.

        Throughout this proxy and information statement/prospectus when we use the term "we," "us," or "our," we are referring to both IAC and Expedia.


The Companies

InterActiveCorp
152 West 57th Street
New York, New York 10019
(212) 314-7300

        InterActiveCorp (Nasdaq: IACI), formerly USA Interactive, is comprised of the following operating businesses: Expedia, Inc. (Nasdaq: EXPE), which oversees Interval International and TV Travel Shop; Hotels.com; HSN; Ticketmaster, which oversees Evite and ReserveAmerica; Match.com, which oversees uDate.com; Entertainment Publications; Citysearch; and Precision Response Corporation. IAC has also entered into an agreement to acquire LendingTree (Nasdaq: TREE), which is expected to be completed in the third quarter of 2003. The goal of IAC is to be the world's largest and most profitable interactive commerce company by pursuing a multi-brand strategy.

Expedia, Inc.
13810 SE Eastgate Way, Suite 400
Bellevue, Washington 98005
(425) 564-7200

        Expedia, Inc. is a leading provider of travel planning services. Expedia offers airplane, hotel and car reservations, trip cancellation waivers, and numerous smaller vacation and business travel services, like tickets to Broadway shows and 24-hour business travel support, that makes Expedia a one-stop travel shop for leisure and business travelers. Expedia offers services through Expedia-branded websites, co-branded websites, third-party websites, a tour operator, a corporate travel agency, and the telephone.

Equinox Merger Corp.
c/o InterActiveCorp
152 West 57th Street
New York, New York 10019
(212) 314-7300

        Equinox Merger Corp., a Washington corporation, is a wholly owned subsidiary of IAC created solely for the purpose of effecting the merger. In the merger, Equinox Merger Corp. will be merged with and into Expedia, with Expedia surviving the merger as a wholly owned subsidiary of IAC.


The Merger (Page 22)

        In the merger, Equinox Merger Corp. will merge with and into Expedia, and Expedia will survive the merger as a wholly owned subsidiary of IAC. In the merger, each share of Expedia common stock and Expedia Class B common stock (other than shares held by Expedia shareholders who properly exercise dissenters' rights) will be converted into the right to receive 1.93875 shares of IAC common stock and cash instead of a fractional share of IAC common stock. Based on shares of Expedia common stock outstanding as of June 15, 2003, IAC expects to issue approximately 99.9 million shares of IAC common stock at the closing of the merger. Immediately following the merger, it is anticipated that current shareholders of Expedia, other than IAC, will own approximately 15.7% of IAC's outstanding common stock, based on shares of Expedia common stock and IAC common stock outstanding as of June 15, 2003 and after giving effect to IAC's acquisition of the publicly held shares of Hotels.com that was completed on June 23, 2003.

        The merger agreement is the legal document that governs the merger and the other transactions contemplated by the merger agreement. We have attached the merger agreement as Appendix A to this proxy and


information statement/prospectus. We urge you to read it carefully and in its entirety.


Treatment of Expedia Stock Options and Restricted Stock Awards (Page 62)

        Upon completion of the merger, IAC will assume Expedia's employee stock options. As a result, options to acquire shares of Expedia common stock will be converted into options to acquire shares of IAC common stock, with the number of shares that each option represents a right to purchase and the exercise price per share being adjusted based on the exchange ratio, with substantially similar terms in all other respects. Existing stock options to acquire shares of IAC common stock will not be affected by the merger.

        Upon completion of the merger, IAC also will assume Expedia's obligations with respect to Expedia's restricted stock awards. As a result, Expedia restricted stock awards will be converted into IAC restricted stock awards, with the number of shares that each award represents being adjusted, based on the exchange ratio, with substantially similar terms and restrictions in all other respects.


Treatment of Expedia Warrants (Page 63)

        Upon completion of the merger, each outstanding Expedia shareholder warrant, which entitles its holder to acquire one share of Expedia common stock at an exercise price of $26.00 per warrant, will be converted into an IAC stockholder warrant. Each IAC stockholder warrant will entitle its holder to purchase 1.93875 shares of IAC common stock at any time on or prior to February 4, 2009 upon payment of an exercise price of $26.00, which is equal to an exercise price of $13.41 per share. Each IAC stockholder warrant will have substantially equivalent rights to the converted Expedia shareholder warrant.

        Also upon completion of the merger, each outstanding Expedia employee warrant, whether vested or unvested, to acquire one share of Expedia common stock will be converted into one IAC employee warrant with the same vesting schedule as the converted Expedia employee warrant. Except with respect to vesting (including transferability prior to vesting) and withholding taxes, the IAC employee warrants will be identical in all material respects to the IAC stockholder warrants. Each IAC employee warrant will have substantially equivalent rights to the converted Expedia employee warrant.

        As of June 30, 2003, there were 8,116,054 Expedia shareholder warrants and 4,379,955 Expedia employee warrants outstanding.

        We refer in this proxy and information statement/prospectus to the Expedia shareholder warrants and the Expedia employee warrants collectively—which are currently listed on the Nasdaq National Market under the symbol "EXPEW"—as the Expedia listed warrants, and to the IAC stockholder warrants and the IAC employee warrants collectively—which will be listed on the Nasdaq National Market under the symbol "IACIZ" to the extent eligible for listing—as the IAC listed warrants.

        All other outstanding warrants to acquire Expedia common stock will either remain outstanding as Expedia warrants and become exercisable solely for shares of IAC common stock with the number of shares that each warrant represents a right to purchase and the exercise price per share being adjusted based on the exchange ratio, or be converted into warrants of IAC to acquire shares of IAC common stock, with substantially similar terms to the converted Expedia warrants, except that the number of shares that each warrant represents a right to purchase and the exercise price per share shall be adjusted based on the exchange ratio.


Expedia Shareholder Vote Required (Page 19)

        IAC and Expedia will only proceed with the merger if it is approved at the special meeting by holders of a majority of the shares of Expedia common stock and Expedia Class B common stock, voting together as a single class,

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outstanding on June 25, 2003, the record date, and the other conditions to the merger are satisfied or waived.

        As of the record date, IAC and its affiliates beneficially owned 1,873,630 shares of Expedia common stock and all of the Expedia Class B common stock, representing an ownership interest in Expedia of approximately 58% and a voting interest in Expedia of 94.9%. At the close of business on June 15, 2003, executive officers and directors of Expedia, excluding directors who are also officers and/or directors of IAC, beneficially owned approximately 17% of the outstanding shares of Expedia common stock, collectively representing 1% of the total outstanding voting power of Expedia on that date. IAC has agreed to vote all of its Expedia shares in favor of the proposal to approve the merger. Accordingly, approval of the proposal to approve the merger at the special meeting is assured.


Recommendation to Expedia Shareholders (Page 26)

        A special committee consisting entirely of non-management, disinterested directors of Expedia was appointed by the Expedia board of directors to represent the interests of Expedia's shareholders, other than IAC. The special committee unanimously approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously recommended that the Expedia board of directors approve the merger agreement and the transactions contemplated thereby.

        Based on the recommendation of the special committee, the Expedia board of directors unanimously approved the merger agreement, and unanimously recommends adoption and approval of the merger agreement and authorization of the merger by Expedia shareholders at the special meeting. The Expedia board of directors concurred with and adopted the analysis of the special committee with respect to the merger in deciding to recommend that shareholders vote "FOR" the adoption and approval of the merger agreement and authorization of the merger.

        You should refer to the factors considered by the special committee in approving and making its recommendation to the Expedia board of directors, and the factors considered by the Expedia board in making its decision to adopt and approve the merger. These factors are discussed beginning on page 26.


Opinion of Financial Advisor to the Special Committee (Page 29)

        In deciding to approve and recommend approval of the merger to the Expedia board of directors, the special committee considered the opinion of its financial advisor, Morgan Stanley & Co. Incorporated, to the effect that, as of March 18, 2003, and subject to and based on the assumptions and other considerations set forth in its written opinion, the exchange ratio of 1.93875 pursuant to the merger agreement was fair to the holders of Expedia common stock (other than IAC and its affiliates) from a financial point of view. The full text of Morgan Stanley's opinion is attached as Appendix B to this proxy and information statement/prospectus. Expedia recommends that its shareholders read the opinion of Morgan Stanley in its entirety.


Interests of Certain Persons in the Merger (Page 53)

        You should be aware that a number of directors and officers of Expedia, some of whom are also directors and/or officers of IAC, and other directors and officers of IAC, have interests in the merger that are different from, or in addition to, your interests as an Expedia shareholder or IAC stockholder. We describe these interests beginning on page 53.


Regulatory Approvals (Page 45)

        We are not aware of any material regulatory approvals required in connection with the merger. We intend to make all required filings under the Securities Act of 1933 and the Securities Exchange Act of 1934 relating to the merger.

        Shares of IAC common stock issued in the merger will not be subject to any restrictions on transfer arising under the Securities Act, except

3


for shares of IAC common stock issued to affiliates of either IAC or Expedia.


Accounting Treatment (Page 46)

        The merger will be accounted for under the purchase method of accounting in accordance with United States generally accepted accounting principles.


Comparison of Shareholder Rights (Page 87)

        If we successfully complete the merger, each Expedia shareholder (other than Expedia shareholders who properly exercise their dissenters' rights) will become a stockholder of IAC. The rights of IAC stockholders are governed by Delaware law and by IAC's charter and by-laws. IAC stockholders' rights under Delaware law and IAC's charter and by-laws differ in some material respects from Expedia shareholders' rights under Washington law and Expedia's articles of incorporation and bylaws. For a summary of these material differences, see the discussion beginning on page 87 of this proxy and information statement/prospectus.

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 Selected Historical Financial Information of IAC and Expedia

        We are providing the following selected financial information to assist you in analyzing the financial aspects of the merger. The selected IAC and Expedia financial data set forth below, including the accompanying notes, are qualified in their entirety by, and should be read in conjunction with, the historical consolidated financial statements and related notes contained in the annual, quarterly and other reports filed by IAC and Expedia with the SEC, which we have incorporated by reference into this proxy and information statement/prospectus. See "Where You Can Find More Information" beginning on page 97.

        The following table presents selected historical consolidated financial data for IAC for each of the years in the five-year period ended December 31, 2002, and for the three-month periods ended March 31, 2002 and 2003. This data was derived from IAC's audited and unaudited consolidated financial statements and reflects the operations and financial position of IAC at the dates and for the periods indicated. The financial statements for each of the five years in the period ended December 31, 2002 for IAC have been audited by Ernst & Young LLP, independent auditors. The financial statements for the three-month periods ended March 31, 2002 and 2003 are unaudited and are not necessarily indicative of results for any other interim period or for any calendar year.

        In August 2001, IAC completed its previously announced sale of all of the capital stock of certain USA Broadcasting subsidiaries that own 13 full-power television stations and minority interests in four additional full-power stations to Univision Communications Inc., or Univision. On May 7, 2002, IAC completed its transaction with Vivendi Universal, S.A., or Vivendi, in which the USA Entertainment Group, consisting of USA Cable, Studios USA, and USA Films, was contributed to Vivendi Universal Entertainment LLLP, or VUE, a new joint venture controlled by Vivendi. We have presented the financial position and results of operations of USA Broadcasting and USA Entertainment Group as discontinued operations in all periods presented.

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   Year Ended December 31,
   Three Months Ended
March 31,
  
 
   1998(1)(2)
   1999(3)
   2000(4)
   2001(5)
   2002(6)(7)
   2002(6)(10)
   2003(8)
  
 
    
    
   (In thousands, except per share data)
   (unaudited)
  
Statement of Operations Data:                                            
Net revenues   $ 1,639,828   $ 2,001,108   $ 2,964,612   $ 3,468,860   $ 4,621,224   $ 971,945   $ 1,392,066  
Operating profit (loss)     59,391     (48,842 )   (349,746 )   (216,423 )   86,753     27,783     93,489  
Earnings (loss) from continuing operations before cumulative effect of accounting change     26,848     (69,212 )   (172,398 )   (186,799 )   7,378     3,970     (106,796 )
Earnings (loss) before cumulative effect of accounting change     76,874     (27,631 )   (147,983 )   392,795     2,414,492     25,900     (106,796 )
Net earnings (loss) available to common shareholders     76,874     (27,631 )   (147,983 )   383,608     1,941,344     (437,456 )   (110,060 )
Basic earnings (loss) per common share from continuing operations available to common shareholders(9)(11):     0.09     (0.21 )   (0.48 )   (0.50 )   (0.01 )   0.01     (0.23 )
Diluted earnings (loss) per common share from continuing operations available to common shareholders(9)(11):     0.04     (0.21 )   (0.48 )   (0.50 )   (0.02 )   (0.01 )   (0.23 )
Basic earnings (loss) per common share before cumulative effect of accounting change available to common shareholders(9)(11):     0.27     (.08 )   (0.41 )   1.05     5.64     0.06     (0.23 )
Diluted earnings (loss) per common share before cumulative effect of accounting change available to common shareholders(9)(11):     0.21     (.08 )   (0.41 )   1.05     5.62     0.06     (0.23 )
Basic earnings (loss) per common share available to common shareholders(9)(11):     0.27     (.08 )   (0.41 )   1.03     4.55     (1.11 )   (0.23 )
Diluted earnings (loss) per common share available to common shareholders(9)(11):     0.21     (.08 )   (0.41 )   1.03     4.54     (0.53 )   (0.23 )
Balance Sheet Data (end of period):                                            
Working Capital   $ 443,408   $ 381,046   $ 355,157   $ 1,380,936   $ 3,080,766   $ 1,347,776   $ 2,812,679  
Total Assets     4,161,873     5,151,160     5,646,290     6,527,068     15,663,113     7,990,358     16,220,043  
Long-term obligations, net of current maturities     775,683     573,056     551,766     544,372     1,211,145     544,501     1,189,155  
Minority Interest     336,788     742,365     908,831     706,688     1,074,501     629,903     610,350  
Shareholders' equity     2,571,405     2,769,729     3,439,871     3,945,501     7,931,463     5,274,245     8,735,625  
Other Data:                                            
Net cash provided by (used in):                                            
Operating activities   $ (91,660 ) $ 77,760   $ 87,321   $ 298,335   $ 741,561   $ 13,586   $ 467,013  
Investing activities     (1,179,346 )   (468,318 )   (408,016 )   35,052     808,009     757,759     (778,343 )
Financing activities     1,297,654     100,204     58,163     56,256     716,621     (21,737 )   (102,150 )
Discontinued operations     304,173     267,651     86,266     348,174     (178,288 )   (18,451 )   (72,461 )
Effect of exchange rate changes     (1,501 )   (123 )   (2,687 )   (3,663 )   11,130     34     1,811  
Cash dividends declared per common share     —     —     —     —     —     —     —  
(1)
Net earnings available to common shareholders includes the operations of USA Cable and Studios USA since their acquisition by IAC from Universal Studios, Inc. on February 12, 1998 and the consolidated statement of operations data includes Citysearch since its acquisition by IAC on September 28, 1998.

(2)
Net earnings available to common shareholders for the year ended December 31, 1998 include a pre-tax gain of $74.9 million related to IAC's sale of its Baltimore television station during the first quarter of 1998 and a pre-tax gain of $109.0 million related to the purchase of Citysearch during the fourth quarter of 1998.

(3)
The consolidated statement of operations data include the operations of Hotels.com since its acquisition of control by IAC on May 10, 1999 and net earnings available to common shareholders includes the results of October Films and the domestic film distribution and development businesses of Universal (which previously operated Polygram Filmed Entertainment), collectively referred to as USA Films, that were acquired by IAC on May 28, 1999. USA

6

(4)
Includes a pre-tax gain of $104.6 million by Styleclick, Inc. related to IAC's exchange of its interest in Internet Shopping Network for 75% of Styleclick, Inc., a pre-tax gain of $3.7 million related to the Hotels.com initial public offering, and a pre-tax charge of $145.6 million related to impairment of Styleclick goodwill.

(5)
Net earnings available to common shareholders includes a gain of $517.8 million, net of tax, related to the sale of capital stock of certain USA Broadcasting subsidiaries and an after-tax expense of $9.2 million related to the cumulative effect of adoption as of January 1, 2001 of SOP 00-2, "Accounting by Producers or Distributors of Films."

(6)
In connection with IAC's acquisition of a controlling interest in Expedia, IAC issued approximately 13.1 million shares of Series A Redeemable Preferred Stock, or IAC preferred stock, at $50 face value ($656 million aggregate value), with a 1.99% annual dividend rate and which is convertible at any time into IAC common stock at an initial conversion price of $33.75. The conversion price will be adjusted downward pursuant to a specified formula if the average share price of IAC common stock over a ten-day trading period prior to conversion exceeds $35.10. Holders of IAC preferred stock may require IAC to purchase their shares on the fifth, seventh, tenth and fifteenth anniversary of the closing on February 4, 2002. IAC has the right to redeem the IAC preferred stock commencing on the tenth anniversary of

February 4, 2002. Any payment by IAC with respect to the dividend or pursuant to any redemption requested by holders of IAC preferred stock or by IAC may be made in cash or IAC common stock, or a combination thereof, at the option of IAC.

(7)
Net earnings available to common shareholders includes a gain of $2.4 billion, net of tax, related to the contribution of the USA Entertainment Group to VUE and an after-tax expense of $461.4 million related to the cumulative effect of adoption as of January 1, 2002 of Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets." Also includes results of TV Travel Group and Interval since their acquisition by IAC on May 1, 2002 and September 24, 2002, respectively.

(8)
Loss from continuing operations before cumulative effect of accounting change includes a charge related to IAC's proportionate share of the 2002 results of VUE which is recorded on a one-quarter lag due to delays in VUE's financial reporting. During the first quarter of 2003, IAC received the audited financial statements of VUE for the year ended December 31, 2002 which disclosed that VUE had recorded an impairment charge for goodwill and intangible assets and other long-lived assets of $4.5 billion in the period May 7, 2002 to December 31, 2002 based on VUE management's review of the estimated fair value of VUE as of December 4, 2002. IAC recorded its 5.44% proportionate share of this charge which amounted to approximately $245 million before a tax benefit of $96 million.

(9)
Earnings (loss) per common share data and shares outstanding retroactively reflect the impact of two-for-one stock splits of IAC common stock and IAC Class B common stock paid on February 24, 2000 and March 26, 1998. All share numbers give effect to such stock splits.

(10)
Net earnings available to common shareholders includes an after-tax expense of $461.4 million related to the cumulative effect of adoption as of January 1, 2002 of Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets."

(11)
The following table adjusts IAC's reported net earnings (loss) and basic and diluted net earnings (loss) per share to exclude amortization expense related to goodwill and other intangible assets with indefinite lives as if Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets," was effective January 1, 1999:

(tables appear on next page)

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   Year Ended December 31,
  
 
   1999
   2000
   2001
  
 
   (In thousands, except per share data)

  
Earnings (loss) from continuing operations available to common shareholders                    
 
Reported loss from continuing operations available to common shareholders
 
$
(69,212
)
$
(172,398
)
$
(186,799
)
  Add: goodwill amortization     71,859     166,705     134,077  
   
 
 
 
  Earnings (loss) from continuing operations—as adjusted   $ 2,647   $ (5,693 ) $ (52,722 )
   
 
 
 

Basic earnings (loss) per share from continuing operations available to common shareholders—as adjusted:
 
 
 
 
 
 
 
 
 
 
  Reported basic loss per share   $ (0.21 ) $ (0.48 ) $ (0.50 )
  Add: goodwill amortization     0.22   $ 0.46   $ 0.36  
   
 
 
 
  Adjusted basic earnings (loss) per share   $ 0.01   $ (0.02 ) $ (0.14 )
   
 
 
 

Diluted earnings (loss) per share from continuing operation available to common shareholders—as adjusted:
 
 
 
 
 
 
 
 
 
 
  Reported diluted loss per share   $ (0.21 ) $ (0.48 ) $ (0.50 )
  Add: goodwill amortization     0.22     0.46     0.36  
   
 
 
 
  Adjusted diluted earnings (loss) per share   $ 0.01   $ (0.02 ) $ (0.14 )
   
 
 
 
NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS                    
 
Net earnings (loss) available to common shareholders
 
$
(27,631
)
$
(147,983
)
$
383,608
 
  Add: goodwill amortization     104,704     206,151     176,413  
   
 
 
 
  Net earnings available to common shareholders—as adjusted   $ 77,073   $ 58,168   $ 560,021  
   
 
 
 
 
Basic earnings (loss) per share—as adjusted:
 
 
 
 
 
 
 
 
 
 
  Reported basic net earnings (loss) per share   $ (0.08 ) $ (0.41 ) $ 1.03  
  Add: goodwill amortization     0.32     0.57     0.47  
   
 
 
 
  Adjusted basic net earnings per share   $ 0.24   $ 0.16   $ 1.50  
   
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
 
 
 
  Reported diluted net earnings (loss) per share   $ (0.08 ) $ (0.41 ) $ 1.03  
  Add: goodwill amortization     0.29     0.57     0.47  
   
 
 
 
  Adjusted diluted net earnings per share   $ 0.21   $ 0.16   $ 1.50  
   
 
 
 

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        In February 2002, Expedia changed its fiscal year from June 30 to December 31. The following table presents selected historical consolidated financial data for Expedia for each of the years in the four-year period ended June 30, 2001, the six months ended December 31, 2001, the year ended December 31, 2002, and the three-month periods ended March 31, 2002 and 2003. This data was derived from Expedia's audited and unaudited consolidated financial statements and reflects the operations and financial position of Expedia at the dates and for the periods indicated. The financial statements for the year ended December 31, 2002 have been audited by Ernst & Young LLP, independent auditors. The financial statements for all periods prior to 2002 have been audited by Deloitte & Touche LLP, independent auditors. The financial statements for the three-month periods ended March 31, 2002 and 2003 are unaudited and are not necessarily indicative of results for any other interim period or for any calendar year.

 
    
    
    
    
    
    
   Three Months
Ended
March 31,
  
 
   Years ended June 30,
   Six-month
period ended
December 31,
2001
    
  
 
   Year ended
December 31,
2002
  
 
   1998
   1999
   2000
   2001
   2002
   2003
  
 
   (In thousands, except per share data)

   (unaudited)

  
Statement of Operations Data:                                                  
  Merchant revenues   $ —   $ —   $ 10,912   $ 64,548   $ 68,423   $ 339,137   $ 57,650   $ 116,741  
  Agency revenues     6,866     24,677     59,534     122,987     81,545     231,817     51,741     77,855  
  Advertising and other revenues     6,961     14,022     24,185     34,685     11,272     19,644     6,615     4,164  
   
 
 
 
 
 
 
 
 
  Revenues     13,827     38,699     94,631     222,220     161,240     590,598     116,006     198,760  
   
 
 
 
 
 
 
 
 
  Cost of merchant revenues     —     —     3,369     17,567     19,325     98,770     14,793     30,677  
  Cost of agency revenues     8,996     14,548     34,136     53,427     31,287     87,771     19,503     24,504  
  Cost of advertising and other revenues     696     1,402     2,643     3,280     1,555     2,726     848     533  
   
 
 
 
 
 
 
 
 
  Cost of revenues     9,692     15,950     40,148     74,274     52,167     189,267     35,144     55,714  
   
 
 
 
 
 
 
 
 
  Gross profit     4,135     22,749     54,483     147,946     109,073     401,331     80,862     143,046  
   
 
 
 
 
 
 
 
 
  Operating expenses     33,613     42,351     96,599     137,381     76,887     255,893     51,804     88,928  
  Operating expenses—non-cash                 87,914     92,254     24,176     24,901     10,374     12,233  
   
 
 
 
 
 
 
 
 
      Total operating expenses     33,613     42,351     184,513     229,635     101,063     280,794     62,178     101,161  
  Income (loss) from operations     (29,478 )   (19,602 )   (130,030 )   (81,689 )   8,010     120,537     18,684     41,885  
  Net interest income and other     —     —     2,353     4,591     2,543     11,276     2,683     2,562  
  Share of joint venture net loss     —     —     —     —     (769 )   (711 )   (247 )   (242 )
  IAC merger related expense     —     —     —     —     (7,691 )   (11,566 )   (9,860 )   (2,002 )
   
 
 
 
 
 
 
 
 
  Income (loss) before provision for income taxes     (29,478 )   (19,602 )   (127,677 )   (77,098 )   2,093     119,536     11,260     42,203  
  Provision for income taxes     —     —     —     —     —     (49,543 )   (4,614 )   (15,337 )
   
 
 
 
 
 
 
 
 
  Net income (loss)   $ (29,478 ) $ (19,602 ) $ (127,677 ) $ (77,098 ) $ 2,093   $ 69,993   $ 6,646   $ 26,866  
   
 
 
 
 
 
 
 
 
  Net income (loss) per share:                                                  
    Basic     —     —     —   $ (0.82 ) $ 0.02   $ 0.62   $ 0.06   $ 0.23  
    Diluted     —     —     —   $ (0.82 ) $ 0.02   $ 0.55   $ 0.05   $ 0.20  
    Pro forma basic and diluted     —   $ (0.30 ) $ (1.68 )   —     —     —              
  Weighted average number of shares outstanding:                                                  
    Basic     —     —     —     94,420     102,342     113,072     108,558     118,316  
    Diluted     —     —     —     94,420     124,384     127,972     122,848     132,028  
    Pro forma basic and diluted     —     66,000     76,088     —     —     —              

Balance Sheet Data
(end of period):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Cash and cash equivalents   $ —   $ —   $ 60,670   $ 182,161   $ 238,374   $ 218,219   $ 365,431   $ 269,641  
  Working capital     4,814     1,390     20,122     96,147     116,487     270,945     113,090     313,355  
  Total assets     8,333     5,756     273,050     389,844     404,555     859,913     646,558     1,075,532  
  Deferred merchant bookings     —     —     14,424     80,326     52,965     149,348     152,840     270,202  
  Unearned revenues     7,963     6,215     9,696     1,545     1,574     4,772     2,092     5,048  
  Long-term liabilities, net of current portion     5,820     3,851     4,557     1,303     —     —     272     —  
  Accumulated deficit     (67,162 )   (86,764 )   —     —     —     —     0     —  
  Retained deficit     —     —     (123,172 )   (200,327 )   (198,261 )   (128,328 )   (184,300 )   (126,473 )
  Total stockholders' equity (owner's net deficit)     (92 )   (1,675 )   207,496     230,999     249,101     486,006     322,496     525,828  

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 Selected Unaudited Pro Forma Combined Condensed Financial Information of IAC

        The following selected unaudited pro forma combined condensed financial information for the year ended December 31, 2002 (for income statement purposes) and as of and for the three month period ended March 31, 2003 is presented to show the results of operations and financial position of IAC as if the following transactions had occurred as of the beginning of the period presented or as of the balance sheet date, as applicable: (1) the IAC acquisition of control, completed on February 4, 2002, (2) IAC's contribution of the USA Entertainment Group to VUE completed on May 7, 2002 (the VUE transaction), (3) the transaction in which Liberty Media Corporation, or Liberty, exchanged its shares of Home Shopping Network, Inc., or Holdco, for 31.6 million shares of IAC common stock and 1.6 million shares of IAC Class B common stock on June 27, 2002 (the Holdco exchange), (4) the merger of Ticketmaster with a wholly owned subsidiary of IAC completed on January 17, 2003 (the Ticketmaster merger), (5) the proposed Expedia merger and (6) the merger of Hotels.com with a wholly owned subsidiary of IAC (the Hotels.com merger).

        You should read this selected unaudited pro forma combined condensed financial information in conjunction with the selected historical and pro forma financial information included in this proxy and information statement/prospectus and the financial statements of IAC and Expedia and accompanying notes that are incorporated by reference into this proxy and information statement/prospectus. You should not rely on the unaudited pro forma financial information as an indication of the results of operations or financial position that would have been achieved if the transactions described above had taken place at the beginning of the periods presented for the statements of operations and as of March 31, 2003 for the balance sheet or of the results of operations or financial position of IAC after the completion of the transactions.

 
   Pro Forma
  
 
   Year Ended
December 31, 2002
   Three Months Ended
March 31, 2003
  
 
   (In thousands, except per share data)
  

Statement of Operations Data:
 
 
 
 
 
 
 
  Net revenues   $ 4,656,711   $ 1,392,066  
  Operating income (loss)     (229,125 )   22,162  
  Loss from continuing operations before preferred dividend     (131,043 )   (131,328 )
Loss per share from continuing operations:              
  Basic and diluted   $ (0.21 ) $ (0.21 )
Balance Sheet Data (end of period):              
  Working capital         $ 2,812,679  
  Total assets           20,380,185  
  Long-term obligations, including current portion           1,206,030  
  Minority interest           61,940  
  Common stock exchangeable for preferred interest           1,428,530  
  Shareholders' equity           13,306,078  

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Certain Historical and Pro Forma Per Share Data

        In the following table we present historical per share data for IAC and Expedia as of and for the three months ended March 31, 2003 and as of and for the year ended December 31, 2002, and combined pro forma per share data for IAC and equivalent pro forma per share data for Expedia as of and for the three months ended March 31, 2003 and as of and for the year ended December 31, 2002. The pro forma per share data, which we present for comparative purposes only, assumes that the Ticketmaster merger completed on January 17, 2003, the proposed Expedia merger and the Hotels.com merger completed on June 23, 2003 had each been completed on January 1, 2002 at the beginning of each fiscal period presented for income statement purposes and for balance sheet purposes it assumes that the proposed Expedia merger and Hotels.com merger had been completed at the balance sheet date. IAC did not declare any cash dividends on its common stock during the periods presented.

        The unaudited comparative per share data does not purport to be, and you should not rely on it as, indicative of (1) the results of operations or financial position which would have been achieved if any of the foregoing transactions had been completed at the beginning of the period or as of the date indicated, or (2) the results of operations or financial position which may be achieved in the future. The unaudited pro forma per share data does not reflect any payment that may be required to be made in connection with the exercise of dissenters' rights by holders of Expedia common stock in connection with the merger.

        It is important that when you read this information, you read along with it the separate financial statements and accompanying notes of IAC that are incorporated by reference into this proxy and information statement/prospectus. It is also important that you read the pro forma combined condensed financial information and accompanying notes that we have included in this information statement/prospectus beginning on page 74 under "Unaudited Pro Forma Combined Condensed Financial Statements of IAC."

 
   IAC Historical Per Share Data
   Combined IAC Pro Forma Per Share Data
   Expedia Historical Per Share Data
   Expedia Equivalent Pro Forma Per Share Data(1)
  
Book value per share:                          
March 31, 2003   $ 17.55   $ 20.73   $ 4.40   $ 40.18  
December 31, 2002   $ 17.61   $ 20.90   $ 4.12   $ 40.51  
Earnings (loss) per share from continuing operations, before dividend to preferred shareholders:                          
Basic for the three months ended March 31, 2003   $ (0.22 ) $ (0.21 ) $ 0.23   $ (0.41 )
Diluted for the three months ended March 31, 2003   $ (0.22 ) $ (0.21 ) $ 0.20   $ (0.41 )
Basic for the twelve months ended December 31, 2002   $ 0.02   $ (0.21 ) $ 0.62   $ (0.41 )
Diluted for the twelve months ended December 31, 2002   $ 0.00   $ (0.21 ) $ 0.55   $ (0.41 )
Cash dividends per common share:                          
March 31, 2003     —     —     —     —  
December 31, 2002     —     —     —     —  
(1)
We calculated the Expedia equivalent pro forma per share data by multiplying the applicable combined IAC pro forma per share data by 1.93875, the exchange ratio in the merger.

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        The following table sets forth the high and low sale prices for a share of IAC common stock and for a share of Expedia common stock (after giving effect to a two-for-one stock split of Expedia shares effective March 10, 2003), rounded to the nearest cent, for the periods indicated. The prices below are as quoted on the Nasdaq National Market, based on published financial sources.

 
   IAC
Common Stock
   Expedia
Common Stock
 
   High
   Low
   High
   Low
2003                        
Third Quarter (through July 8, 2003)   $ 42.88   $ 38.38   $ 82.75   $ 74.09
Second Quarter     40.12     25.07     76.70     48.25
First Quarter     29.09     20.73     55.16     27.93
2002                        
Fourth Quarter     29.80     15.31     39.31     18.85
Third Quarter     24.11     16.25     30.98     20.55
Second Quarter     33.53     19.55     42.33     26.15
First Quarter     33.22     25.41     35.00     19.78
2001                        
Fourth Quarter     27.84     17.45     20.86     11.46
Third Quarter     28.44     16.45     25.92     9.55
Second Quarter     28.20     20.16     23.85     6.09
First Quarter     24.94     17.69     9.25     4.56

        On March 18, 2003, the last trading day before we announced the merger, IAC common stock closed at $26.49 per share and Expedia common stock closed at $38.90 per share. On July 8, 2003, the last practicable day before the printing of this proxy and information statement/prospectus, IAC common stock closed at $41.99 per share and Expedia common stock closed at $80.94 per share. You may obtain more recent stock price quotes from most newspapers or other financial sources and we encourage you to do so.

        IAC has never paid any cash dividends on shares of IAC common stock, and Expedia has never paid cash dividends on shares of Expedia common stock. IAC and Expedia currently anticipate that they will retain all of their future earnings available for distribution to the holders of IAC common stock and Expedia common stock, respectively, for use in the expansion and operation of their respective businesses, and do not anticipate paying any cash dividends on shares of IAC common stock or Expedia common stock in the immediate future.

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RISK FACTORS

        As a result of the merger, Expedia's businesses will be subject to the following new or increased risks related to IAC's other businesses and/or the structure of the merger. In addition, as a result of the merger, IAC's stockholders will be subject to the following new or increased risks related to Expedia and/or the structure of the merger. In addition to the risks described below, the combined company will continue to be subject to the risks described in the documents that Expedia and IAC have filed with the SEC that are incorporated by reference into this proxy and information statement/prospectus. If any of the risks described below or in the documents incorporated by reference into this proxy and information statement/prospectus actually occur, the business, financial condition, results of operations or cash flows of the combined company could be materially adversely affected. The risks below should be considered along with the other information included or incorporated by reference into this proxy and information statement/prospectus.


Risks Relating to the Merger

        In the merger, each Expedia share will be exchanged for a fixed number of shares of IAC common stock based on a fixed exchange ratio. IAC and Expedia will not adjust the exchange ratio as a result of any change in the market price of IAC common stock between the date of this proxy and information statement/prospectus and the date Expedia shareholders receive shares of IAC common stock in exchange for shares of Expedia common stock. The market price of IAC common stock will likely be different, and may be lower, on the date Expedia shareholders receive shares of IAC common stock than the market price of shares of IAC common stock today as a result of changes in the business, operations or prospects of IAC, market reactions to the proposed merger, general market and economic conditions and other factors. Expedia shareholders are urged to obtain current market quotations for IAC common stock and Expedia common stock. See "Summary—Certain Historical and Pro Forma Per Share Data—Comparative Per Share Market Price Information and Dividend Policy."

        If the merger is completed, all holders of outstanding Expedia shares (other than Expedia shareholders who validly perfect dissenters' rights under Washington law) immediately prior to the merger will become holders of IAC common stock. Although IAC currently owns approximately 58% of the outstanding shares of Expedia common stock, IAC also owns and operates other businesses. Accordingly, IAC's results of operations and business, as well as the trading price of IAC common stock, may be affected by factors different from or in addition to those affecting Expedia's results of operations and business and the price of Expedia common stock.

        If the merger is not completed for any reason, the price of Expedia common stock may decline to the extent that the current market price of Expedia common stock reflects a market assumption that the merger will be completed. In addition, if the merger is not completed, there can be no assurance that Expedia will continue to operate its business in the manner in which it is presently operated.

        Several purported class action lawsuits have been filed with respect to the merger in King County Superior Court in the State of Washington against IAC, Expedia and individual officers and members

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of the board of directors of Expedia. These lawsuits allege, in essence, that the defendants breached their fiduciary duties to Expedia's public shareholders by entering into and/or approving the merger agreement, which allegedly does not reflect the true value of Expedia. The lawsuits seek to enjoin consummation of the merger and/or to rescind the merger, and damages in an unspecified amount. Please refer to "The Merger—Shareholder Litigation."

        While IAC and Expedia each believes that the allegations in the cases are without merit, no assurances can be given as to the outcome of any of these lawsuits. Furthermore, one of the conditions to the closing of the transactions contemplated by the merger agreement is that no injunction issued by any court preventing the consummation of the transactions be in effect. No assurances can be given that these lawsuits will not result in such an injunction being issued, which could prevent or delay the closing of the transactions contemplated by the merger agreement.


Risk Factors Relating to IAC

        IAC is dependent upon the continued contributions of its senior corporate management, particularly Mr. Barry Diller, the chairman and chief executive officer of IAC, and certain key employees for its future success. Mr. Diller does not have an employment agreement with IAC, although he has been granted options to purchase a substantial number of shares of IAC common stock.

        If Mr. Diller no longer serves in his positions at IAC, IAC's business, as well as the market price of IAC common stock, could be substantially adversely affected. IAC cannot assure you that it will be able to retain the services of Mr. Diller or any other members of its senior management or key employees.

        Subject to the terms of an amended and restated shareholders agreement, dated as of December 16, 2001, among Universal Studios, Inc., or Universal, Liberty, Mr. Diller and Vivendi, Mr. Diller effectively controls the outcome of all matters submitted to a vote or for the consent of IAC's stockholders (other than with respect to the election by the holders of IAC common stock of 25% of the members of IAC's board of directors (rounded up to the nearest whole number) and matters as to which a separate class vote of the holders of IAC common stock or IAC preferred stock is required under Delaware law).

        In addition, under an amended and restated governance agreement, dated as of December 16, 2001, among USA Interactive, now InterActiveCorp, Vivendi, Universal, Liberty and Mr. Diller, each of Mr. Diller and Liberty generally has the right to consent to limited matters in the event that IAC's ratio of total debt to EBITDA, as defined in the governance agreement, equals or exceeds 4:1 over a continuous 12-month period. IAC cannot assure you that Mr. Diller and Liberty will consent to any such matter at a time when IAC is highly leveraged, in which case IAC would not be able to engage in such transactions or take such actions.

        Upon Mr. Diller's permanent departure from IAC, Liberty generally would be able to control IAC through its ownership of shares of IAC Class B common stock.

        A fundamental requirement for online commerce and communications is the secure transmission of confidential information, such as credit card numbers or other personal information, over public networks. IAC's current security measures may not be adequate and, if any compromise of IAC's security were to occur, it could have a detrimental effect on IAC's reputation and adversely affect its ability to attract customers. As IAC's operations continue to grow in both size and scope, IAC will need to improve and upgrade its systems and infrastructure. This may require IAC to commit

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substantial financial, operational and technical resources before the volume of business increases, with no assurance that the volume of business will increase.

        IAC relies on its own affiliates' and third-party computer systems and service providers to facilitate and process a portion of its transactions. Any interruptions, outages or delays in these services, or a deterioration in their performance, could impair IAC's ability to process transactions for its customers and the quality of service IAC can offer to them. It is unlikely that IAC could make up for the level of orders lost in these circumstances by increased phone orders.

        IAC's subsidiaries rely on computer and other systems in order to provide their services to customers. At times, IAC subsidiaries may experience occasional system interruptions that make some or all systems unavailable or prevent the subsidiaries from efficiently fulfilling orders or providing services to third parties. To prevent system interruptions, IAC and its subsidiaries continually add additional software and hardware and upgrade systems and network infrastructure to accommodate both increased traffic on websites and increased sales volume. Computer and communications systems of IAC and its subsidiaries could be damaged or interrupted by fire, flood, power loss, telecommunications failure, break-ins, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins and similar events or disruptions. Any of these events could cause system interruption, delays and loss of critical data, and could prevent IAC subsidiaries from providing services to third parties. While IAC and its subsidiaries do have backup systems for certain aspects of operations, the systems are not fully redundant and disaster recovery planning may not be sufficient for all eventualities. In addition, IAC and its subsidiaries may have inadequate insurance coverage or insurance limits to compensate for losses from a major interruption. If any of this were to occur, it could damage the reputation of IAC and its subsidiaries and be expensive to remedy.

        IAC's businesses in general are sensitive to trends or events that are outside of IAC's control. For example, adverse trends or events, such as general economic downturns, decreases in consumer spending, work stoppages and political instability, may reduce the popularity and frequency of the events to which IAC sells tickets, reduce travel and may affect call center and other operations in areas where these trends or events occur. The occurrence of any of these adverse trends or events could significantly impact IAC's businesses, results of operations or financial condition. In addition, IAC's stock price may be adversely affected by negative reports of the results of operations or declines in the stock price of companies in which IAC is a major stockholder, regardless of the effect these negative reports or stock price declines may have on IAC's business, financial condition, results of operations or cash flow.

        In the aftermath of the terrorist attacks of September 11, 2001, the travel industry experienced a protracted decrease in demand for air travel due to fears regarding additional acts of terrorism and increased costs and reduced operations by airlines due, in part, to new security directives adopted by the Federal Aviation Administration. IAC cannot predict the future scope and effects of these changes, which could significantly impact IAC's long-term results of operations or financial condition.

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        IAC's future growth may be a function, in part, of acquisitions. To the extent that IAC grows through acquisitions, it will face the operational and financial risks commonly encountered with that type of a strategy. IAC would also face operational risks, such as failing to assimilate the operations and personnel of the acquired businesses, disrupting its ongoing business, dissipating its limited management resources and impairing its relationships with employees and customers of acquired businesses as a result of changes in ownership and management. Some of IAC's acquisitions may not be successful and their performances may result in the impairment of their carrying value.

        A number of proposed laws and regulations regarding the Internet, including with respect to consumer privacy, have been proposed or considered that could impact IAC's businesses. IAC cannot predict whether any of these types of laws or regulations will be enacted or amended and what effect, if any, such laws or regulations would have on its businesses, financial condition or results of operations. In addition, the application of various sales, use and other tax provisions under state and local law to IAC's historical and new products and services sold via the Internet, television and telephone is subject to interpretation by the applicable taxing authorities. IAC believes it is compliant with these tax provisions, but there can be no assurances that taxing authorities will not take a contrary position or that such positions will not have a material adverse effect on IAC's businesses, financial condition and results of operations.


Risk Factors Relating to the IAC Listed Warrants

        The unvested IAC employee warrants are subject to the same vesting requirements as the Expedia option in respect of which the Expedia employee warrant being exchanged was issued. Until an IAC employee warrant is vested, such IAC warrant is neither exercisable nor transferable.

        The IAC listed warrants described in this proxy and information statement/prospectus are a new type of security for which there is currently no public market. If these securities are traded after their initial issuance, they may trade at a discount from their initial valuations, depending on the market for similar securities, the price of IAC common stock, IAC's performance, prevailing interest rates, and other factors. In addition, we do not know whether an active trading market will develop for the IAC listed warrants.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

        This proxy and information statement/prospectus and the SEC filings that are incorporated by reference into this proxy and information statement/prospectus contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. For those statements, both IAC and Expedia claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements relating to IAC's and Expedia's anticipated financial performance, business prospects, new developments, new merchandising strategies and similar matters, and/or statements preceded by, followed by or that include the words "believes," "could," "should," "expects," "anticipates," "estimates," "intends," "plans," "projects," "seeks," or similar expressions. These forward-looking statements are necessarily estimates reflecting the best judgment of each company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that could have a material adverse effect on the merger and/or on each company's businesses, financial condition or results of operations. In addition, investors should consider the other information contained in or incorporated by reference into IAC's and Expedia's filings with the SEC, including their Annual Reports on Form 10-K for the fiscal year ended December 31, 2002, especially in the Management's Discussion and Analysis sections contained therein, their most recent Quarterly Reports on Form 10-Q and their Current Reports on Form 8-K. Other unknown or unpredictable factors also could have material adverse effects on IAC's and Expedia's future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this proxy and information statement/prospectus may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this proxy and information statement/prospectus.

        You should understand that the following important factors, in addition to those discussed elsewhere in this proxy and information statement/prospectus and in the documents incorporated into this proxy and information statement/prospectus by reference, could affect IAC's and Expedia's future results and could cause those results to differ materially from those expressed in the forward-looking statements:

17

        Neither IAC nor Expedia is under any obligation, and neither IAC nor Expedia intends, to make publicly available any update or other revisions to any of the forward-looking statements contained in this proxy and information statement/prospectus to reflect circumstances existing after the date of this proxy and information statement/prospectus or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

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THE EXPEDIA SPECIAL MEETING

        This proxy and information statement/prospectus is furnished to Expedia shareholders in connection with the solicitation of proxies by the Expedia board of directors from the holders of Expedia common stock for use at the special meeting of Expedia shareholders. This proxy and information statement/prospectus is also furnished to Expedia shareholders as a prospectus of IAC in connection with the issuance by IAC of shares of IAC common stock to Expedia shareholders in connection with the merger.

        We are first furnishing this proxy and information statement/prospectus to Expedia shareholders on or about July 11, 2003.


Time and Place; Purposes

        The special meeting will be held at the Doubletree Hotel, 300 112th Avenue SE, Bellevue, Washington, on Friday, August 8, 2003, at 10:00 a.m., local time. At the special meeting (and any adjournment or postponement thereof), Expedia shareholders will be asked to consider and vote upon a proposal to approve the merger agreement and the transactions contemplated thereby.


Record Date; Voting Rights

        The board of directors of Expedia has fixed the close of business on June 25, 2003 as the record date for the determination of the holders of Expedia common stock and Expedia Class B common stock entitled to receive notice of, and to vote at, the special meeting. Only holders of record of shares of Expedia common stock and Expedia Class B common stock on the record date are entitled to vote at the special meeting. On the record date, there were 53,463,158 shares of Expedia common stock outstanding held by 163 holders of record and 69,002,382 shares of Expedia Class B common stock outstanding held by one holder of record.


Quorum; Votes Required for Approval

        The presence, in person or by proxy, of the holders of a majority of the votes eligible to be cast by the holders of outstanding shares of Expedia common stock and Expedia Class B common stock is necessary to constitute a quorum at the special meeting. The affirmative vote of holders of Expedia shares representing a majority of the voting power of the outstanding shares of Expedia common stock and Expedia Class B common stock, voting together as a single class, is required to approve the merger agreement and the transactions contemplated thereby at the special meeting.

        As of the record date, IAC and its affiliates beneficially owned 1,873,630 shares of Expedia common stock and all of the Expedia Class B common stock, representing an ownership interest in Expedia of approximately 58% and a voting interest in Expedia of 94.9%. IAC has agreed to vote all of its Expedia shares in favor of the proposal to approve the merger. Accordingly, approval of the proposal to approve the merger at the special meeting is assured.


Voting; Revocation of Proxies

        If you are the record holder of shares of Expedia common stock, you can vote your shares in any of four ways:

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        All shares of Expedia common stock represented by properly executed proxies received prior to or at the special meeting and not revoked will be voted in accordance with the instructions indicated in such proxies. If no instructions are indicated on a properly executed returned proxy, such proxies will be voted FOR the proposal to approve the merger agreement and transactions contemplated thereby. Proxies voted against the proposal to approve the merger agreement will not be voted in favor of any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies.

        If you grant your proxy by telephone or on the Internet, you should not return your proxy card. Instructions on how to grant your proxy by telephone or on the Internet are given on the proxy card included with this document. If you own shares that are registered in someone else's name, for example, a broker, you need to direct that person to vote those shares or obtain an authorization from them and vote those shares yourself at the meeting.

        Abstentions may be specified on the proxy. A properly executed proxy marked ABSTAIN will be counted as present for purposes of determining whether there is a quorum. Because the affirmative votes required for approval of the merger agreement at the special meeting is, as described above, a percentage of the combined voting power of the outstanding shares entitled to vote, whether or not voted, a proxy marked ABSTAIN will have the effect of a vote against the proposal to approve the merger agreement. In addition, the failure of a shareholder of Expedia to return a proxy and to vote in person at the special meeting will have the effect of a vote cast against the proposal to approve the merger agreement.

        Shares represented by "broker non-votes," which are shares held by brokers or nominees that are represented at a meeting but with respect to which the broker or nominee is not empowered to vote on a particular proposal, will also be counted for purposes of determining whether there is a quorum at the special meeting but will not be voted. Those shares will be counted for purposes of determining the combined voting power of Expedia common stock outstanding on the record date and, accordingly, will have the same effect as a vote cast against the proposal to approve the merger.

        A shareholder may revoke its proxy at any time prior to its use by delivering to the Secretary of Expedia a signed notice of revocation or a later-dated, signed proxy, submitting another properly completed proxy by telephone or the Internet, or by attending the special meeting and voting in person. Attendance at the special meeting will not in itself constitute the revocation of a proxy.


Persons Making the Solicitation

        The proxies of the shareholders of Expedia are being solicited by Expedia's board of directors. The cost of solicitation of proxies will be paid by Expedia. In addition to solicitation by mail, officers and regular employees of Expedia may solicit proxies in person or by mail, telephone, Internet, facsimile or other means of electronic transmission. The extent to which this is necessary depends entirely upon how promptly proxy cards are returned. Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries to send the proxy materials to beneficial owners and Expedia will, upon request, reimburse such brokerage houses and custodians for their reasonable expenses in so doing. Expedia shareholders are urged to send in their proxies without delay.

        Expedia has retained MacKenzie Partners, Inc. to distribute proxy solicitation materials to brokers, banks and other nominees and to assist in the solicitation of proxies from Expedia shareholders. The fee for such firm's sevice is estimated not to exceed $15,000 plus reimbursement for reasonable out-of-pocket costs and expenses.

        Expedia shareholders should not send in any stock certificates with their proxy cards. Expedia shareholders will receive a transmittal letter with instructions for the surrender of their Expedia stock certificates as soon as practicable after completion of the merger.


Voting Securities and Principal Holders Thereof

        Information regarding the security ownership of Expedia's directors and executive officers and persons known to Expedia to own more than 5% of the outstanding Expedia common stock is incorporated in this proxy and information statement/prospectus by reference to Expedia's Annual Report on Form 10-K for the year ended December 31, 2002, as amended.

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 ACTION BY WRITTEN CONSENT OF IAC STOCKHOLDERS

        This proxy and information statement/prospectus is furnished to IAC stockholders in connection with action taken by the written consent of IAC stockholders to approve the issuance of IAC securities in the merger, which transaction is described in further detail under "The Merger" in this proxy and information statement/prospectus.

        Under Nasdaq rules, because IAC might issue in excess of 20% of its current outstanding common stock in the merger, before we can complete the merger, IAC stockholders must approve the issuance of the IAC common stock in the merger. Under Section 228 of the Delaware General Corporation Law, stockholders are permitted to approve any action that would be taken at any annual or special meeting without a meeting, without prior notice and without a vote, by written consent of the holders of the minimum number of votes that would be necessary to authorize the action at a meeting if all stockholders entitled to vote were present and voted. In addition, pursuant to a stockholders agreement, each of Universal and Liberty has granted to Mr. Diller an irrevocable proxy over all IAC securities owned by Universal, Liberty and their affiliates for all matters, except for limited contingent matters, which requires the consent of each of Mr. Diller and Liberty. The merger is not one of these contingent matters. As a result, Mr. Diller, through shares owned by him, as well as those owned by Liberty and Vivendi, controls 64.1% of the combined voting power of IAC common stock and IAC Class B common stock, which is sufficient for approval by IAC stockholders of the issuance of the IAC securities in the merger. Mr. Diller has signed a written stockholder's consent approving the issuance of IAC securities in the merger. As a result, no further action is required on the part of IAC stockholders. Approval of the issuance of IAC securities in the transactions has been obtained without the vote of any other IAC stockholder.

        WE ARE NOT ASKING IAC STOCKHOLDERS FOR A PROXY AND IAC STOCKHOLDERS ARE REQUESTED NOT TO SEND A PROXY TO IAC.

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THE MERGER

        This section of the proxy and information statement/prospectus describes certain aspects of the merger agreement and the proposed merger. The following description does not purport to be complete and is qualified in its entirety by reference to the merger agreement, which is attached as Appendix A to this proxy and information statement/prospectus and is incorporated herein by reference. We urge Expedia shareholders and IAC stockholders to read the merger agreement carefully and in its entirety.


Background to the Merger

        On February 4, 2002, IAC acquired a controlling interest in Expedia from Microsoft Corporation in exchange for IAC securities. As part of the IAC acquisition of control, certain other Expedia shareholders also elected to exchange their Expedia shares for IAC securities. Upon consummation of the IAC acquisition of control, IAC owned all of the outstanding shares of Expedia Class B common stock, representing approximately 64% of Expedia's outstanding shares, and 94.9% of the voting interest in Expedia. As of June 30, 2003, IAC's ownership and voting interests in Expedia were approximately 58% and 94.9%, respectively.

        In the spring of 2002, following the IAC acquisition of control, IAC's management began to explore the possibility of simultaneously increasing its equity interest in its public subsidiaries, including Expedia, to up to 100%. Beginning in May of 2002, IAC's senior management held discussions with IAC's financial advisor, Allen & Company LLC, or Allen & Co., and IAC's special outside counsel, Wachtell, Lipton, Rosen & Katz, or Wachtell Lipton, to consider the possible acquisition of the shares of its public subsidiaries that IAC did not own and the means by which those acquisitions might be accomplished. After consulting IAC's advisors, IAC's management discussed with the IAC board of directors its consideration of one or more possible transactions in which IAC would acquire all or a portion of the equity interests in one or more of its publicly held subsidiaries that it did not already own. At that meeting, the IAC board of directors authorized IAC management to proceed with one or more of the contemplated transactions if management so chose to proceed, including through offers made directly to the shareholders of its public subsidiaries and on the terms generally discussed with the directors.

        On June 1, 2002 and June 2, 2002, Mr. Barry Diller, chairman and chief executive officer of IAC, and Mr. Richard Barton, Expedia's then chairman and chief executive officer, held telephonic conversations with certain of Expedia's disinterested directors and management directors to inform them that IAC intended to commence offers to increase IAC's equity interest in each of Expedia, Ticketmaster, and Hotels.com to up to 100%. Also on June 2, 2002, IAC sent a letter to the board of directors of Expedia. The letter formally expressed IAC's intention, publicly announced on June 3, 2002, to commence an exchange offer for the publicly held shares of Expedia to increase IAC's equity ownership in Expedia to 100%. IAC's letter, which presented an exchange ratio, after giving effect to a two-for-one stock split of Expedia shares effective March 10, 2003, of 1.34845 shares of IAC common stock for each share of Expedia common stock, reflected a premium of 7.5% to the market price of Expedia shares at the close of the Nasdaq National Market on May 31, 2002, the last trading day prior to the date of the letter. The directors of Ticketmaster and Hotels.com who were not members of the IAC board of directors or IAC's management received analogous letters from IAC. All subsequent exchange ratios and other per-share amounts in this background section reflect the two-for-one stock split of Expedia shares effective March 10, 2003.

        On June 3, 2002, the Expedia board of directors formed a special committee composed of all of Expedia's directors who were neither officers or directors of IAC nor officers of Expedia to review and evaluate the possible exchange offer to Expedia's public shareholders by IAC. The special committee consisted of Messrs. Thomas Breitling, Jay Hoag, Reed Hundt and Gregory Maffei, with Mr. Maffei

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serving as the chairman. The special committee of disinterested directors retained Shearman & Sterling, as independent legal advisors to the special committee on June 5, 2002, and retained Morgan Stanley, as independent financial advisors to the special committee on June 8, 2002.

        On June 5, 2002, IAC issued a press release publicly announcing that, "[a]lthough we had anticipated commencing exchange offers relatively quickly, market reaction—including the effect we believe arbitrageurs have had on the exchange ratio—has precluded a quick process. Therefore, we will not commence any exchange offers in the near future." IAC also announced that, although circumstances may change, it did not have any intention at that time to increase any of the exchange ratios applicable to the exchange offers. Finally, IAC reaffirmed its intention to unify IAC with its majority owned public subsidiaries, and announced that it would work with the special committees formed by the boards of directors of its publicly-held subsidiaries (including the special committee), their advisors and the management of such subsidiaries to discuss IAC's proposal and possible alternative transaction structures to accomplish IAC's goals.

        The special committee met with its advisors numerous times in June and July 2002 to consider IAC's statements and to evaluate financial, business and legal matters related thereto, including the special committee's fiduciary duties in considering a possible transaction with IAC. During this period, Morgan Stanley commenced a preliminary due diligence review of Expedia and IAC. During June and July 2002, senior management of IAC and members of the special committee had periodic discussions exploring the possibility of a transaction between IAC and Expedia. During these discussions, members of the special committee conveyed to IAC's senior management that the special committee did not believe the proposed offer fairly valued Expedia and that, were a formal exchange offer on terms similar to those described in IAC's June 3rd announcement commenced, the special committee would most likely advise Expedia shareholders not to tender their shares.

        The special committee met intermittently with its advisors for status updates from August through October 2002. On October 9, 2002, senior IAC management held separate telephonic conversations with members of the special committee and the other members of the Expedia board of directors to inform them that IAC was announcing a transaction with Ticketmaster and ending the processes to acquire up to 100% of the equity interests in Expedia and Hotels.com that were commenced on June 3, 2002. On October 10, 2002, IAC and Ticketmaster publicly announced that they had entered into an agreement whereby IAC would acquire the publicly held shares of Ticketmaster. Also, as part of the announcement, IAC stated that it was ending the process to acquire the shares of Expedia and Hotels.com that it did not already own, and the special committee was disbanded shortly thereafter.

        In January 2003, Mr. Barton began discussing with Mr. Diller and certain members of Expedia management the possibility of resigning from his post as chief executive officer. As part of such discussions, Mr. Diller suggested that Mr. Barton serve as a director of IAC. Shortly thereafter, in the context of the chief executive officer transition discussions, there were informal discussions exploring the possibility of a transaction whereby IAC would acquire the shares of Expedia it did not already own. These talks, which included a discussion of a range of exchange ratios and structures, including combinations of cash and stock as consideration for such acquisition, continued through late January 2003, but no agreement was reached and the talks were discontinued.

        On February 5, 2003, Expedia announced that Mr. Barton would resign as president and chief executive officer effective March 31, 2003, and that Mr. Erik C. Blachford, then president of Expedia North America, would succeed Mr. Barton as president and chief executive officer of Expedia and join the Expedia board of directors. Also, during this time frame, it was discussed that the slate of directors to be recommended by the Expedia board of directors in connection with the 2003 annual meeting of shareholders would include up to three independent directors different from those currently serving on the Expedia board of directors.

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        In late February, informal discussions regarding a potential acquisition by IAC of the publicly held Expedia shares recommenced.

        In the first week of March 2003, IAC's vice chairman discussed with Mr. Hoag a potential transaction in which Expedia would merge with a wholly owned subsidiary of IAC and the public shareholders of Expedia would receive IAC shares at an exchange ratio of 1.8875 shares of IAC common stock for each share of Expedia common stock. Expedia's disinterested directors held various discussions regarding the proposal, including consultations with Morgan Stanley and with members of Expedia management regarding the valuation of, and prospects for, Expedia, and shortly thereafter, advised IAC management that it would consider a deal at a higher exchange ratio that included a significant cash portion. Specifically, the disinterested directors proposed that shareholders of Expedia would have the option to elect to convert their Expedia shares into IAC shares at an exchange ratio of 2.0 shares of IAC common stock for each share of Expedia common stock, or convert their Expedia shares into cash at $42.50 per share of Expedia common stock. The election of cash would be subject to pro ration if the aggregate amount of cash elected exceeded the cash component of the consideration. Over the next several days, IAC senior management and the special committee discussed various exchange ratios and transactions in which the consideration was comprised of all stock or a combination of cash and stock. Senior management of IAC then proposed terms pursuant to which the public shareholders of Expedia could elect to convert each of their shares of Expedia common stock into 1.92875 shares of IAC common stock or $42.50 in cash, with the election of cash subject to pro ration if the aggregate amount of cash elected exceeded $250 million.

        On March 11, 2003, the IAC board of directors met and senior management of IAC informed the IAC board of directors of the status of the discussions between IAC and Expedia, including the exchange ratios and cash consideration being discussed, and members of the board expressed their uniform support for a transaction. Mr. Barton recused himself from the portion of the IAC board of directors meeting during which the possible transaction with Expedia was discussed.

        On March 12, 2003, the disinterested directors of Expedia, certain members of Expedia management, Shearman & Sterling, and Morgan Stanley met telephonically to discuss IAC's proposal and discuss the process for evaluating a possible transaction. Expedia's disinterested directors anticipated that a reconstitution of the special committee to consider the proposal was imminent, and determined that they should organize due diligence on IAC, which due diligence commenced promptly thereafter.

        On March 13, 2003, the Expedia board of directors acted by unanimous written consent to reconstitute the special committee composed of all of the disinterested directors to review and evaluate the proposed merger transaction whereby IAC would acquire the publicly held shares of Expedia. The special committee again consisted of Messrs. Breitling, Hoag, Hundt and Maffei. On March 14, 2003, the special committee appointed Mr. Hoag to serve as the chairman, retained Shearman & Sterling as independent legal advisors to the special committee and confirmed that the June 8, 2002 engagement of Morgan Stanley as the special committee's independent financial advisors continued to be in effect.

        From March 14 through March 18, 2003, the members of the special committee and its advisors frequently discussed the status of the negotiations and the terms of the proposed transaction with IAC, including holding three meetings of the full special committee. At the special committee meetings, the special committee directed two disinterested directors to negotiate certain economic and other terms of the proposed transaction with IAC's senior management, including requesting a condition to the proposed transaction requiring a majority of Expedia's shareholders (other than IAC) to approve the transaction, while pursuing a transaction that, once signed, had few conditions to closing. In addition, at the meeting on March 14, the special committee, in evaluating the proposed transaction, considered the then current economic and political conditions, including the possibility of the commencement of war, and determined it would be in the best interests of the Expedia shareholders (other than IAC) to

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complete negotiations of the terms of a possible transaction with IAC and determine whether to approve a transaction prior to the commencement of war.

        During this same period, members of the special committee and its financial advisors spoke frequently with senior IAC management and its financial advisors regarding the proposed terms of the transaction, and the respective legal advisors spoke frequently regarding the draft merger agreement, a copy of which had been circulated by IAC's legal advisors on March 14, 2003. The special committee, Expedia management and the special committee's financial advisors also updated the due diligence performed by them in June and July 2002 and performed supplemental due diligence on Expedia and IAC.

        On March 17 and March 18, 2003, members of the special committee and senior IAC management spoke intermittently to discuss the special committee's views of the IAC proposal and negotiate certain terms of the transaction. During discussions regarding the financial terms of the proposed transaction, IAC management informed the special committee that IAC was no longer prepared to include the cash component of the consideration, after which they discussed alternative proposals in which a limited "collar" would be placed on the exchange ratio or in which the exchange ratio would be increased. Members of the special committee and Morgan Stanley reviewed and considered the financial impact of the various alternatives. In addition, on March 17, 2003, IAC's senior management specifically rejected the special committee's request to condition the transaction on its approval by a majority of the Expedia shareholders, other than IAC.

        On March 18, 2003, IAC's senior management and the special committee negotiated the final terms of the proposed transaction, which included an increased exchange ratio of 1.93875, no cash component to the merger consideration or collar on the exchange ratio, and a merger agreement with few conditions to closing and no condition which would permit IAC to terminate the merger agreement if Expedia's business was subject to a material adverse effect, including as a consequence of war or terrorism.

        On March 18, 2003, the IAC board of directors (with Mr. Barton recused from the meeting) held a special meeting to consider the proposed transaction. At the meeting, IAC's senior management and financial and legal advisors presented to the IAC board of directors the background of the proposed transaction, a strategic and financial analysis of the proposed transaction and a summary of the legal issues relating to the proposed transaction. Following discussion by the IAC board of directors, the IAC board of directors, by the unanimous vote of the directors present at the meeting, approved the proposed transaction, including the merger agreement, subject to finalization by IAC's management and its legal advisors of the necessary documentation, and recommended that the holders of IAC shares approve and adopt the merger agreement.

        The special committee and its advisors met in the evening of March 18, 2003, to consider whether to recommend approval of the proposed transaction to the Expedia board of directors. At the meeting, Shearman & Sterling reviewed the fiduciary duties and other responsibilities of the special committee in connection with its consideration of the proposed transaction. The special committee was updated on the results of the negotiations with IAC and its legal advisors. The special committee and its advisors reviewed the terms of the proposed transaction and the merger agreement. Morgan Stanley led a discussion of the financial terms of the transaction and then rendered its oral opinion, subsequently confirmed in writing, to the effect that, as of March 18, 2003 and subject to and based upon the assumptions and other considerations set forth in its written opinion, the exchange ratio of 1.93875 pursuant to the merger agreement was fair to the holders of Expedia common stock, other than IAC and its affiliates, from a financial point of view. Upon completing its deliberations, the special committee unanimously resolved to approve the merger agreement and recommend that the Expedia board of directors approve the proposed merger agreement and the transactions contemplated thereby.

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        Promptly following the special committee meeting, the Expedia board of directors held a meeting. The special committee reported the results of its special committee meeting and delivered its recommendation to the Expedia board of directors that it approve the merger agreement and the transactions contemplated thereby and declare advisable and recommend that the shareholders of Expedia adopt and approve the merger agreement and the transactions contemplated thereby. The Expedia board of directors, by the unanimous vote of all of the Expedia directors other than those who are officers or directors of IAC, as well as by the unanimous vote of the directors present at the meeting, determined that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, the holders of Expedia common stock, other than IAC and its affiliates, approved the merger agreement and the transactions contemplated thereby, and declared advisable and recommended that the shareholders of Expedia adopt and approve the merger agreement and approve the transactions contemplated thereby.

        The parties finalized the terms of the merger agreement through the night of March 18, 2003. Upon completion of these negotiations, the parties executed the merger agreement, a copy of which has been filed as an exhibit to this proxy and information statement/prospectus, and IAC and Expedia issued a joint press release announcing the execution of the merger agreement on March 19, 2003.


Recommendation of the Special Committee and the Expedia Board of Directors

        At a meeting held on March 18, 2003, the special committee unanimously approved the merger agreement and unanimously resolved to recommend that the Expedia board of directors approve the merger agreement and the transactions contemplated thereby.

        The Expedia board of directors, by the unanimous vote of the directors present at the meeting, approved the merger agreement, and recommends adoption and approval of the merger agreement and authorization of the merger by Expedia shareholders at the special meeting. The Expedia board of directors concurred with and adopted the analysis of the special committee summarized below with respect to the merger in deciding to recommend that shareholders vote "FOR" the adoption and approval of the merger agreement and authorization of the merger.


Information and Factors Considered by the Special Committee

        In reaching its decision to approve the merger agreement and recommend that the Expedia board of directors approve the merger agreement and the transactions contemplated thereby, the special committee consulted with its financial advisors and legal counsel, as well as Expedia's management, and carefully considered a number of factors and potential benefits, including the following:

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        The special committee also considered and, as appropriate, balanced against the potential benefits of the merger a number of neutral and potentially negative factors, including the following:

        After detailed consideration of these factors, the special committee concluded the potential benefits of the merger outweighed these considerations and determined that the merger was fair to, and in the best interests of, Expedia and its shareholders, other than IAC.

        The above discussion of the information and factors considered by the special committee is not exhaustive and does not include all factors considered by the special committee. In evaluating the merger, the members of the special committee considered their knowledge of the business, financial condition and prospects of Expedia, and the advice of its advisors. In light of the number and variety of factors that the special committee considered in connection with its evaluation of the merger, the special committee did not find it practicable to assign relative weights to the foregoing factors. Rather, the special committee made its determination based upon the total mix of information available to it. In addition, individual members of the special committee may have given different weights to different factors. Based on the factors outlined above, the special committee determined that the merger was fair to, and in the best interests of, Expedia and its shareholders, other than IAC.

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 Information and Factors Considered by the IAC Board of Directors

        In making its decision to approve the merger agreement and the merger, the IAC board of directors considered the following positive factors relating to the merger:

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        In making its decision to approve the merger agreement, including the merger, the IAC board of directors also considered the following negative factors relating to the merger:

        In making its decision to approve the merger agreement, including the merger, the IAC board of directors also considered the following neutral factors relating to the merger:

        The IAC board of directors believed that the negative factors were substantially outweighed by the benefits anticipated from the merger.

        The foregoing discussion of the information and factors considered by the IAC board of directors is not intended to be exhaustive, but includes the material factors considered. In view of the variety of factors considered in connection with its evaluation of the merger, the IAC board of directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors each director considered in reaching his or her determination.


Opinion of the Financial Advisor to the Special Committee

        Under an engagement letter dated June 8, 2002, as amended, the special committee retained Morgan Stanley to provide it with financial advisory services and a financial opinion letter in connection with the merger. At the meeting of the special committee on March 18, 2003, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, to the effect that, as of March 18, 2003 and subject to and based upon the assumptions and other considerations set forth in its written opinion, the exchange ratio of 1.93875 pursuant to the merger agreement was fair to the holders of Expedia common stock, other than IAC and its affiliates, from a financial point of view.

        The full text of the written opinion of Morgan Stanley, dated as of March 18, 2003, is attached as Appendix B. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We recommend that you read the entire opinion carefully. Morgan Stanley's opinion is directed to the special committee and addresses only the fairness, from a financial point of view, of the exchange ratio pursuant to the merger agreement to the holders of the Expedia common stock, other than IAC and its affiliates, as of the date of the opinion. It does not address any other aspects of the merger and does not constitute a recommendation to any holder of Expedia common stock as to how such shareholder should vote with respect to the merger or any matter relating to the merger. The summary of the opinion of Morgan Stanley set forth in this proxy and information statement/prospectus is qualified in its entirety by reference to the full text of the opinion.

        In connection with rendering its opinion, Morgan Stanley, among other things:

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        Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information reviewed by it for the purposes of its opinion. With respect to the internal financial statements, other financial and operating data, and financial forecasts, including certain strategic, financial and operational benefits anticipated from the combination of Expedia and IAC, Morgan Stanley assumed that they have been reasonably prepared on bases reflecting the management's best currently available estimates and judgments of the future financial performance of Expedia and IAC, respectively. Morgan Stanley has not made any independent valuation or appraisal of the assets or liabilities or technology of Expedia or IAC, nor has it been furnished with any such appraisals. In arriving at its opinion, Morgan Stanley relied primarily on publicly available information on IAC provided by IAC or equity research analysts who cover IAC and certain internal financial statements provided by IAC. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without material modification or waiver, including among other things, that the merger will be treated as a tax-free reorganization pursuant to the Internal Revenue Code of 1986, as amended.

        Morgan Stanley's opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, March 18, 2003.

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        In arriving at its opinion, Morgan Stanley was not authorized to solicit, and it did not solicit interest from any party with respect to the acquisition, business combination or other extraordinary transaction involving Expedia or its assets.

        Morgan Stanley's opinion was not intended to be and does not constitute a recommendation to any holder of Expedia common stock regarding their vote on the merger. In addition, Morgan Stanley's opinion does not in any manner address the prices at which the IAC common stock or the Expedia common stock will actually trade at any time.

        The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

        Morgan Stanley noted that the implied value per share of Expedia common stock was $51.36, based on the closing price per share of IAC common stock on March 18, 2003.

        Historical Trading Range.    Morgan Stanley reviewed the range of closing prices of Expedia common stock for different time periods, ending March 18, 2003, the last trading day prior to the date Morgan Stanley rendered its opinion. Morgan Stanley observed the following:

Period ending
March 18, 2003
   Value per share
of Expedia
common stock
Last 30 days   $ 28.06 - $39.38
Last 60 days   $ 28.06 - $39.38
Last Twelve Months   $ 19.84 - $42.02

        Comparable Company Trading Analysis.    Morgan Stanley compared certain publicly available financial information of Expedia with publicly available information for the following interactive commerce companies:

    Expedia
Comparable Companies
Amazon.com, Inc.
AOL Time Warner Inc.
eBay Inc.
Hotels.com
priceline.com Incorporated
Sabre Holdings Corporation
TMP Worldwide Inc.
IAC
Yahoo! Inc.		    

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        In conducting its analysis, Morgan Stanley applied the relevant financial multiples of the comparable companies to two financial forecast scenarios, the first provided by Expedia management, which is referred to as the "Management Case," and the second based upon publicly available financial information, which is referred to as the "Street Case." The Management Case was based on management's internal estimates of Expedia's revenue and earnings for calendar year 2003, as of March 4, 2003. The Street Case was based on a Morgan Stanley equity research report dated March 13, 2003, which was chosen in part because of it closely reflected the mean revenue and EPS estimates for 2003 as reported by I/B/E/S as of March 18, 2003, which was the last trading day prior to the date Morgan Stanley rendered its opinion. The research report contained revenue estimates of $845 million for 2003, while the I/B/E/S mean revenue estimate for the same period was $846 million. For earnings, the research report contained an estimate of $1.17 per share of Expedia common stock for 2003, while the I/B/E/S mean earnings estimate for the same period was $1.16 per share. I/B/E/S is a database owned and operated by Thomson Financial, which contains estimated and actual earnings, cash flows, dividends, sales, and pre-tax income data for companies in the United States, Europe, Asia and emerging markets.

        Morgan Stanley then estimated the implied value per share of Expedia common stock for the Management Case and the Street Case as of March 18, 2003. Morgan Stanley estimated the implied value per share of Expedia common stock as follows:

Calendar year financial statistic
   Expedia
financial
statistic
   Comparable
company
reference
range
   Implied
value per share
of Expedia
common stock
Management Case              
Price to 2003 estimated cash earnings per share   $ 1.22   30x - 40x   $36.53 - $48.71
Price to 2003 unlevered estimated cash earnings per share, plus net cash   $ 1.13   30x - 40x   $38.19 - $49.47
2003 price/estimated cash earnings per share to growth   $ 1.22   1.0x - 1.5x   $36.53 - $54.80

Street Case
 
 
 
 
 
 
 
Price to 2003 estimated cash earnings per share   $ 1.17   30x - 40x   $34.98 - $46.64
Price to 2003 unlevered estimated cash earnings per share, plus net cash   $ 1.11   30x - 40x   $37.57 - $48.65
2003 price/estimated cash earnings per share to growth   $ 1.17   1.0x - 1.5x   $34.98 - $52.47

        No company utilized in the comparable company analysis is identical to Expedia. In evaluating the comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Expedia. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable company data.

        Exchange Ratio and Price Premium Analysis.    Morgan Stanley reviewed the ratios of the closing prices of Expedia common stock divided by the corresponding closing prices of IAC common stock over various periods ending on March 18, 2003, which are referred to as period average exchange ratios. Morgan Stanley then examined the premiums represented by the exchange ratio pursuant to the

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merger agreement of 1.93875 over these period average exchange ratios, and found them to be as follows:

Period ending
March 18, 2003
   Period average
exchange ratio
   Transaction premium
to period average
exchange ratio
  
March 18, 2003   1.47 x 32 %
Last 5 days   1.47 x 32 %
Last 10 days   1.47 x 32 %
Last 20 days   1.44 x 34 %
Last 30 days   1.41 x 37 %
Last 60 days   1.42 x 37 %
Last 90 days   1.41 x 38 %
Last 120 days   1.37 x 41 %
Last 12 month (high)   1.50 x 29 %
Last 12 months (Low)   1.01 x 92 %
Last 12 months   1.30 x 49 %
Initial June 2002 IAC proposal   1.35 x 44 %

        Morgan Stanley then examined the premiums represented by the deal price implied by the exchange ratio over these period average prices for Expedia, and found them to be as follows:


Period ending
March 18, 2003
 
Period
average
price
 
Transaction premium
to period average
price
 
March 18, 2003   $ 38.90   32 %
Last 30 days   $ 33.26   54 %

        The initial June proposal is based on the press release issued by IAC on June 3, 2002 in which it announced that it intended to commence an exchange offer or pursue a transaction to acquire all of the publicly held shares of Expedia at an exchange ratio of 2.6969x (on a pre-split basis), or 1.34845x (on a post-split basis).

        Discounted Equity Value.    Morgan Stanley performed an analysis of the implied present value per share of Expedia common stock on a standalone basis based on Expedia's projected future equity value using the Management Case and the Street Case scenarios. To calculate the Discounted Equity Value for these scenarios, Morgan Stanley used the 2003 earnings per share estimate grown at a long-term projected annual growth rate of 35% for 2004 and 2005 earnings per share, multiplied those results by the next calendar year multiple range indicated in the table below, and then discounted the result by 15% for one year for the 2004 statistic, and by two years for the 2005 statistic. Morgan Stanley estimated the implied value per share of Expedia common stock as follows:

Calendar year
financial statistic
   Expedia
financial
statistic
   Next calendar year
multiple range
   Discount
rate
   Implied value per
share of Expedia
common stock
Management case                    
2004 estimated cash earnings per share   $ 1.58   25x - 35x   15.0 % $ 34.42 - $48.18
2005 estimated cash earnings per share   $ 2.06   25x - 35x   15.0 % $ 39.91 - $54.47

Street case
 
 
 
 
 
 
 
 
 
 
2004 estimated cash earnings per share   $ 1.52   25x - 35x   15.0 % $ 32.95 - $46.13
2005 estimated cash earnings per share   $ 1.97   25x - 35x   15.0 % $ 37.25 - $52.15

        Discounted Cash Flow.    Morgan Stanley performed discounted cash flow analyses using the Street Case financial forecasts. In arriving at the estimated values per share of Expedia common stock,

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Morgan Stanley discounted the calendar year 2003 through 2010 forecasted free cash flows using a discount rate of 10% to 15%. A terminal EBITDA multiple of 8.0x to 11.0x was applied to the final year of free cash flow. Using this methodology, the estimated values per share of Expedia common stock ranged from $34.13 to $52.38.

        Equity Research Analysts' Price Targets.    Morgan Stanley reviewed the range of available price targets set by equity research analysts for Expedia and applied a discount rate of 15% on those values to arrive at an estimated present value per share of Expedia common stock that ranged from $30.43 to $43.48.

        Comparable Company Trading Analysis.    Morgan Stanley compared certain publicly available financial information of IAC with publicly available information for the following interactive commerce and media companies:

IAC Comparable Companies

Amazon.com, Inc.
AOL Time Warner Inc.
eBay Inc.
News Corporation
Viacom Inc.
Yahoo! Inc.

        In conducting its analysis, Morgan Stanley applied the relevant financial multiples of the comparable companies to publicly available securities research analyst estimates of various financial statistics for IAC. Because IAC owns approximately 51% of Expedia on a fully diluted basis and 60% based on primary shares, IAC reports its financial results on a consolidated basis under GAAP, which includes in its financial statements the impact of its ownership of Expedia. Morgan Stanley estimated the implied value per share of IAC common stock as follows:

Calendar year financial statistic
   IAC financial
statistic
   Comparable company
reference range
   Implied value per
share of IAC common stock
Aggregate value to 2003 estimated earnings before interest, taxes, depreciation and amortization (or EBITDA)   $759 MM   10x - 15x   $ 21.02 - $28.22
Price to 2003 estimated cash earnings per share   $0.75   25x - 35x   $ 18.77 - $26.28
Price to 2003 estimated unlevered cash earnings per share, plus net cash   $0.68   25x - 35x   $ 23.21 - $29.98

        Using the implied values per share of IAC common stock set forth in the table above and the implied values per share of Expedia common stock estimated in the Expedia comparable company trading analysis summarized above, the ratios implied by these implied values per share ranged from:


in each case compared to the exchange ratio pursuant to the merger agreement of 1.93875.

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        No company utilized in the comparable company analysis is identical to IAC. In evaluating the comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of IAC. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable company data.

        Discounted Equity Value.    Morgan Stanley performed an analysis of the implied present value per share of IAC common stock on a standalone basis based on the projected future equity value of IAC using publicly available equity research analyst projections as of March 18, 2003 for IAC's cash earnings projections for calendar year 2003. To calculate the projected earnings for 2004 and 2005, Morgan Stanley used the 2003 earnings per share estimate and grew the earnings annually by 20%, which was the I/B/E/S long-term growth rate for IAC as of March 18, 2003, multiplied those results by a next calendar year multiple range indicated in the table below, and then discounted the result by 15% for one year for the 2004 statistic, and for two years for the 2005 statistic. Morgan Stanley estimated the implied value per share of IAC common stock as follows:

Calendar year financial statistic
   IAC financial
statistic
   Next calendar
year multiple
range
   Discount
rate
   Implied value per
share of IAC
common stock
2004 estimated cash earnings per share   $ 0.90   25.0x - 35.0x   15.0 % $ 19.59 - $27.42
2005 estimated cash earnings per share   $ 1.08   25.0x - 35.0x   15.0 % $ 20.44 - $28.61
2004 estimated unlevered cash earnings per share, plus net cash   $ 0.83   25.0x - 35.0x   15.0 % $ 24.27 - $31.46
2005 estimated unlevered cash earnings per share, plus net cash   $ 1.01   25.0x - 35.0x   15.0 % $ 25.33 - $32.95

Using the implied values per share of IAC common stock set forth in the table above and the implied values per share of Expedia common stock estimated in the Expedia discounted equity value analysis summarized above, the ratios implied by these implied values per share ranged from:

in each case compared to the exchange ratio pursuant to the merger agreement of 1.93875.

        Equity Research Analysts' Price Targets.    Morgan Stanley reviewed the range of available price targets set by equity research analysts for IAC and applied a discount rate of 15% on those values to arrive at an estimated present value per share of IAC common stock that ranged from $26.09 to $33.04. Using these implied values per share of IAC common stock and the implied values per share of Expedia common stock estimated in the Expedia equity research analysts' price targets analysis summarized above, the ratios implied by these implied values per share ranged from 1.2x to 1.3x, compared to the exchange ratio pursuant to the merger agreement of 1.93875.

        Contribution Analysis.    Morgan Stanley performed a contribution analysis to estimate how much IAC and Expedia would contribute to the combined company on a pro forma basis, and calculated the implied equity ownership based on such contribution of EBITDA and cash net income (with

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adjustments for respective net cash balances for the EBITDA analysis). The analysis assumes IAC growing at 25% and Expedia growing at 30% on an EBITDA basis, and IAC growing at 20% and Expedia growing at 30% on a cash net income basis (based on I/B/E/S growth rates). Morgan Stanley calculated an implied exchange ratio ranging from 1.17x to 1.23x using projected EBITDA contributions, and 1.5x to 1.7x using projected cash earnings contributions, in each case compared to the exchange ratio pursuant to the merger agreement of 1.93875.

        Analysis of Selected Precedent Minority Buy-Back Transactions.    Morgan Stanley compared publicly available information for selected minority buy-back transactions to the relevant statistics for Expedia. The transactions reviewed included transactions announced since January 1, 2000, in which a shareholder that owned between 50% and 90% of the shares of a company sought to purchase the remaining shares it did not own, and where the total equity value of the target company exceeded $100 million. The following table lists the minority buy-back transactions reviewed by Morgan Stanley:

Selected Precedent Minority Buy-Back Transactions

Target
   Acquiror
Aquila   Utilicorp/Aquila
Azurix Corp   Enron Corp
BHC Communications Inc.   News Corp Ltd
CareInsite   Healtheon/WebMD
CSFBdirect   CSFB
Hartford Life (ITT Hartford)   Hartford Financial Services
Hertz Corp   Ford Motor Co.
Homestead Village Inc.   Security Capital Group
Howmet Intl Inc.   Alcoa Inc.
Intimate Brands   Limited
Liberty Digital   Liberty Media Corp
Liberty Financial Companies   Liberty Mutual Insurance
Marketing America   Miracle Marketing
McAfee.com   Network Associates
Spectra-Physics   Thermo Electron Corp
Swiss Army Brands   Victorinox AG
TD Waterhouse   Toronto Dominion
Thermedics   Thermo Electron Corp
Thermo Instrument Systems   Thermo Electron Corp
Ticketmaster   InterActiveCorp
Travelers Property Casualty   Citigroup Inc.
Travelocity   Sabre Holdings
TyCom   Tyco Intl.
Unigraphics Solutions Inc.   Electronic Data Systems
Vastar Resources Inc.   BP Amoco Inc.
Westfield America   Westfield America Trust

        For each transaction, Morgan Stanley analyzed, as of the announcement date, the premium offered by the acquiror to the target's closing price one day prior to announcement of the transaction, which is referred to as the "one day price premium", and the premium to the 30-day average exchange ratio prior to announcement of the transaction, which is referred to as the "30-day average exchange ratio premium." In these transactions, the range of final price premia to the one-day unaffected price was from 2% to 140%, with a median of 25%, and the range of final price premia to the 30-day average

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unaffected price ranged from (16%) to 50%, with a median of (8)%. Based on this analysis, Morgan Stanley calculated the implied exchange ratio per share of Expedia common stock as follows:

Precedent minority buy back transaction financial statistic
   Precedent
transaction
reference
range
   Unaffected
metric
(exchange
ratio)
   Implied exchange
ratio
Premium to one-day unaffected price   20% - 30%   1.468x   1.8x - 1.9x
Premium to the 30-day average exchange ratio premium   (8)% - 24%   1.411x   1.3x - 1.7x

        In addition, by applying the price premiums and exchange ratio premiums of the IAC and Ticketmaster merger to Expedia, Morgan Stanley calculated an implied exchange ratio ranging from 1.52x to 1.72x, compared to the exchange ratio pursuant to the merger agreement of 1.93875.

        No company or transaction utilized in the analysis of selected precedent minority buy back transactions is identical to Expedia, IAC or the merger. In evaluating the precedent minority buy back transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond the control of Expedia which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable company or transaction data.

        Accretion/Dilution Analysis.    Morgan Stanley analyzed the pro forma impact of the merger on the combined projected cash earnings per share of IAC for the year ending December 31, 2003 using the Street Case financial forecasts. Morgan Stanley's analysis indicated that, excluding the impact of potential synergies, the merger would result in cash earnings per share dilution of approximately 5% for the calendar year ending December 31, 2003, and the combined company would have to realize synergies of approximately $49 million in the calendar year ending December 31, 2003 in order for the transaction to be neutral to the earnings per share.

        In connection with the review of the merger by the special committee, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley's view of the actual value of Expedia or IAC. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of Expedia or IAC. Any estimates contained in Morgan Stanley's analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

        Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness of the exchange ratio pursuant to the merger agreement from a financial point of view to the holders of Expedia common stock, other than IAC and its affiliates, and in connection with the delivery of its opinion to the special committee. These analyses do not purport to be appraisals or to reflect the prices at which shares of Expedia common stock or IAC common stock might actually trade.

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        The exchange ratio pursuant to the merger agreement was determined through arm's-length negotiations between the special committee and IAC and was approved by the special committee. Morgan Stanley provided advice to the special committee during these negotiations. Morgan Stanley did not, however, recommend any specific exchange ratio to the special committee or that any specific exchange ratio constituted the only appropriate exchange ratio for the merger.

        In addition, as described elsewhere in this statement, Morgan Stanley's opinion and its presentation to the special committee was one of many factors taken into consideration by the special committee in reaching their recommendation with regard to the merger. Consequently, the analyses as described above should not be viewed in any way as determinative of the opinion of the special committee.

        The special committee retained Morgan Stanley based upon Morgan Stanley's qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes. In the ordinary course of business, Morgan Stanley or its affiliates may at any time hold long or short positions, may trade or otherwise effect transactions, for its own account or for the account of customers in the equity and other securities of Expedia or IAC. In addition, in the past Morgan Stanley has provided financial advice and financing services to Expedia and has received fees in connection with such services. Morgan Stanley may also seek to provide financial advice and financing services to IAC.

        Under the engagement letter, Morgan Stanley provided financial advisory services and its opinion in connection with the merger, and Expedia agreed to pay Morgan Stanley a customary fee for its services. Expedia has also agreed to reimburse Morgan Stanley for its expenses incurred in performing its services. In addition, Expedia has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley's engagement.


Material United States Federal Income Tax Consequences

        The following description summarizes the material U.S. federal income tax consequences of the merger to holders of Expedia common stock and Expedia warrants. The discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, regulations under the Code, administrative rulings and judicial decisions, all as in effect as of the date of this proxy and information statement/prospectus and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. Any change in the foregoing could affect the continuing validity of the tax consequences described in this proxy and information statement/prospectus. Except as described below with respect to the conversion of Expedia employee warrants into IAC employee warrants, neither IAC nor Expedia has requested or intends to request an advance ruling from the U.S. Internal Revenue Service, or the IRS, as to the tax consequences of the merger. This description is not binding on the IRS, and there can be no assurance that the IRS will not disagree with or challenge any of the conclusions described below.

        This description applies only to holders of Expedia common stock or Expedia warrants who are U.S. persons. For purposes of this description, the term "U.S. person" means:

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        This description is not a comprehensive description of all the tax consequences that may be relevant to holders of Expedia common stock or Expedia warrants. In the case of Expedia common stock and Expedia warrants (other than Expedia employee warrants), it applies only to holders that hold their Expedia common stock or Expedia warrants as capital assets within the meaning of Section 1221 of the Code (each referred to as a "holder"). No attempt has been made to address all aspects of U.S. federal taxation that may be relevant to a particular shareholder or warrantholder in light of its personal circumstances or to shareholders or warrantholders subject to special treatment under the U.S. federal income tax laws, including:

        In addition, this discussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the merger or the conversion of Expedia warrants into IAC warrants. It does not address the tax consequences of any transaction other than the merger.

EACH HOLDER OF EXPEDIA COMMON STOCK AND EXPEDIA WARRANTS SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER.

        The merger has been structured to qualify as a reorganization for U.S. federal income tax purposes. Assuming the merger so qualifies, a holder will not recognize any gain or loss upon receipt of IAC common stock in exchange for such holder's Expedia common stock, except in respect of cash received instead of a fractional share of IAC common stock (as discussed below). The aggregate adjusted tax basis of the shares of IAC common stock (including fractional shares deemed received and redeemed as described below) received in the merger will be equal to the aggregate adjusted tax basis of the shares of Expedia common stock surrendered for the IAC common stock. The holding period of the IAC common stock (including fractional shares deemed received and redeemed as described below) will include the period during which the shares of Expedia common stock were held. IAC and Expedia will not be required to complete the merger unless IAC receives an opinion from Wachtell, Lipton, Rosen & Katz and Expedia receives an opinion from Shearman & Sterling LLP, in each case dated the closing date and to the effect that the merger will constitute a reorganization for U.S. federal income tax purposes.

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        A holder who receives cash instead of a fractional share of IAC common stock will generally be treated as having received such fractional share and then as having received such cash in redemption of the fractional share. Gain or loss generally will be recognized based on the difference between the amount of cash received instead of the fractional share and the portion of the holder's aggregate adjusted tax basis of the shares of Expedia common stock surrendered which is allocable to the fractional share. Such gain or loss generally will be long-term capital gain or loss if the holding period for such shares of Expedia common stock is more than one year at the effective time of the merger.

        A holder of shares of Expedia common stock who receives cash for all of its shares of Expedia common stock pursuant to the exercise of dissenters' rights in connection with the merger generally will recognize gain or loss equal to the difference between the tax basis of the shares of Expedia common stock surrendered and the amount of cash received, except that any cash received that is or is deemed to be interest for federal income tax purposes will be taxed as ordinary income. Gain or loss that is not treated as ordinary income will be capital gain or loss and any such capital gain or loss will be long term if, as of such time, the holder has held such holder's shares of Expedia common stock for more than one year. A holder of shares of Expedia common stock receiving cash pursuant to the exercise of dissenters' rights may be required to recognize gain or loss in the year the merger closes, irrespective of whether the holder actually receives payment for its shares of Expedia common stock in that year.

        Payments of cash in lieu of fractional shares made in connection with the merger may be subject to "backup withholding" at a rate of 28%. Backup withholding generally applies if a holder (1) fails to furnish such holder's Taxpayer Identification Number, or TIN, (2) furnishes an incorrect TIN, (3) fails properly to include a reportable interest or dividend payment on its United States federal income tax return or (4) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that the holder is not subject to backup withholding. Backup withholding does not constitute an additional tax, but merely an advance payment of tax, which may be refunded to the extent it results in an overpayment of tax, provided that the required information is supplied to the IRS.

        Certain persons are generally exempt from backup withholding, including corporations, financial institutions and certain foreign shareholders if such foreign shareholders submit a statement, signed under penalty of perjury, attesting to their exempt status. Certain penalties apply for failure to furnish correct information and for failure to include reportable payments in income. Each holder of Expedia common stock should consult with its own tax advisor as to its qualification for exemption from backup withholding and the procedure for obtaining such exemption. All holders who are U.S. persons exchanging shares of Expedia common stock pursuant to the merger should complete and sign the main signature form and the Substitute Form W-9 included as part of the letter of transmittal, when provided following the merger, to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to IAC and the exchange agent). Non-corporate foreign shareholders should complete and sign IRS Form W-8BEN, in order to avoid backup withholding.

        Tax matters are very complicated, and the tax consequences of the merger to each holder of Expedia common stock will depend on the facts of that holder's particular situation. The U.S. federal income tax discussion set forth above does not address all U.S. federal income tax consequences that may be relevant to a particular holder and may not be applicable to holders in special situations. Holders of Expedia common stock are urged to consult their own tax advisors regarding the specific tax consequences of the merger.

        Conversion of Expedia Warrants (other than Expedia Employee Warrants) into IAC Warrants. Assuming the merger qualifies as a reorganization for U.S. federal income tax purposes, a holder of Expedia warrants (other than holders of Expedia employee warrants, which we discuss below) will not

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recognize any gain or loss on the conversion of Expedia warrants into IAC warrants in connection with the merger. The holder's basis in the IAC warrants (other than the IAC employee warrants) will equal such holder's basis in the Expedia warrants converted, and the holder's holding period in those IAC warrants will include the holder's holding period in the converted Expedia warrants.

        Conversion of Expedia Employee Warrants into IAC Employee Warrants. Under current law, the tax treatment to holders upon the conversion of Expedia employee warrants into IAC employee warrants is unclear.

        Expedia treated the original issuance of the Expedia employee warrants as non-taxable. However, a subsequent sale or arm's-length disposition of Expedia employee warrants would result in compensation income to the employee, taxable at ordinary income rates, equal to the amount of money or the value of the other property received.

        If the conversion of Expedia employee warrants into IAC employee warrants were treated as an arm's-length disposition of the Expedia employee warrants, or if the issuance of the IAC employee warrants were treated as a grant of new options, the tax treatment would vary depending on whether the Expedia employee warrants are vested at the effective time of the merger.

        Vested Expedia Employee Warrants. If the conversion of Expedia employee warrants into IAC employee warrants were treated as an arm's-length disposition of the Expedia employee warrants, or if the issuance of the IAC employee warrants were treated as a grant of new options, the conversion of vested Expedia employee warrants into vested IAC employee warrants would result in compensation income in an amount equal to the fair market value of the IAC employee warrants at the time of the merger. The employee's basis in the IAC employee warrants would be the amount of compensation included in income, and the holder would begin a new holding period in the IAC employee warrants on the day following the effective time of the merger. A holder would recognize gain or loss on a subsequent sale or other taxable disposition equal to the difference between the amount of money or fair market value of other property received and such holder's basis in the IAC employee warrants. Assuming that the IAC employee warrants are held as capital assets at the time of such subsequent sale or other taxable disposition, any such gain or loss will be long-term capital gain or loss if the employee's holding period is more than one year on the date of such sale or other taxable disposition. A subsequent exercise of the IAC employee warrants would not result in any income, gain or loss to the employee.

        Non-Vested Expedia Employee Warrants. If the conversion of Expedia employee warrants into IAC employee warrants were treated as an arm's-length disposition of the Expedia employee warrants, or if the issuance of the IAC employee warrants were treated as a grant of new options, the employee would recognize compensation income at the time that the IAC employee warrants vest, measured by the then fair market value of the IAC employee warrants, unless the employee makes an election under Section 83(b) of the Code within 30 days after the effective time of the merger to recognize compensation income at the effective time of the merger equal to the then fair market value of the unvested IAC employee warrants. The employee's basis in the IAC employee warrants would be the amount of compensation included in income, and the holder would begin a new holding period in the IAC employee warrants on the day following vesting (or the day following the effective time of the merger, if the employee makes an election under Section 83(b) of the Code). A holder would recognize gain or loss on a sale or other taxable disposition after vesting equal to the difference between the amount of money or fair market value of other property received and such holder's basis in the IAC employee warrants. Assuming that the IAC employee warrants are held as capital assets at the time of such sale or other taxable disposition, any such gain or loss will be long-term capital gain or loss if the employee's holding period is more than one year on the date of such sale or other taxable disposition. The ability to deduct capital losses is subject to limitations. An exercise of the IAC employee warrants after vesting would not result in any income, gain or loss to the employee.

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        If the conversion of Expedia employee warrants into IAC employee warrants were not treated as an arm's-length disposition of the Expedia employee warrants, and the issuance of the IAC employee warrants were not treated as a grant of new options, the employee would recognize no income, gain or loss on the conversion (or on a subsequent vesting). However, a subsequent sale or arm's-length disposition of the IAC employee warrants would result in compensation income to the employee, taxable at ordinary income rates, equal to the amount of money or the value of the other property received, and a subsequent exercise of the IAC employee warrants would result in compensation income to the employee equal to the excess of the fair market value of the shares of IAC common stock received upon exercise over the exercise price of the IAC employee warrants.

        IAC and Expedia have filed a ruling request with the IRS requesting a private letter ruling to the effect that the conversion of Expedia employee warrants into IAC employee warrants will not be treated as an arm's-length disposition of the Expedia employee warrants and the issuance of the IAC employee warrants will not be treated as a grant of new options. There can be no assurance that this private letter ruling will be received, and if it is received, it is not expected to be received prior to the effective time of the merger and the conversion of the Expedia employee warrants. Because of this, and because of the substantial penalties that could apply to IAC and Expedia if they fail to withhold on the conversion of Expedia employee warrants into IAC employee warrants, IAC and Expedia plan to treat the conversion as a taxable compensation event and to subject the conversion of vested Expedia employee warrants, as well as any election made under Section 83(b) of the Code with respect to unvested IAC employee warrants, to withholding. In addition, unless and until a favorable private letter ruling is received, IAC and Expedia will treat each subsequent vesting as a taxable compensation event and subject the vesting to withholding, unless a valid and timely election has been made under Section 83(b) of the Code with respect to the IAC employee warrants. An employee's actual tax liability resulting from the conversion, vesting or election may exceed the amounts that are withheld by IAC and Expedia. A holder of Expedia employee warrants who satisfies his or her withholding obligations by delivering shares of Expedia common stock will recognize gain or loss equal to the difference between the amount of the withholding obligation and the tax basis of the shares of Expedia common stock delivered. A holder of Expedia employee warrants who satisfies his or her withholding obligations by delivering vested Expedia employee warrants will recognize compensation income equal to the amount of the withholding obligation satisfied, even if the conversion of Expedia employee warrants into IAC employee warrants is not itself a taxable compensation event.


Dissenters' Rights

        The following is a brief summary of the rights of holders of Expedia common stock to dissent from the merger and receive cash equal to the fair value of their Expedia common stock instead of receiving shares of IAC common stock in the merger. This summary is not exhaustive, and you should read the applicable sections of Chapter 23B.13 of the Washington Business Corporation Act (WBCA), which is attached to this proxy and information statement/prospectus as Appendix C.

        IAC stockholders do not have appraisal rights in connection with the transactions contemplated by the merger agreement.

        If you are an Expedia shareholder and wish to dissent from the merger, you should carefully review the text of Appendix C, particularly the procedural steps required to perfect dissenters' rights, which are complex. You should also consult your legal counsel. If you do not fully and precisely satisfy the procedural requirements of Washington law, you will lose your dissenters' rights.

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        Under Washington law, Expedia shareholders have the right to dissent from the merger and to receive payment in cash for the fair value of their shares of Expedia common stock. To preserve your right if you wish to exercise your statutory dissenters' rights, you must:

        Merely voting against the merger agreement and the merger will not preserve your dissenters' rights. Chapter 23B.13 of the WBCA is reprinted in its entirety and attached to this proxy and information statement/prospectus as Appendix C. Failure to precisely comply with all procedures required by Washington law will result in the loss of your dissenters' rights. If you do not satisfy each of the statutory requirements, you cannot exercise dissenters' rights and you will be bound by the terms of the merger agreement.

        Submitting a proxy card that does not direct how the Expedia common stock represented by that proxy is to be voted will constitute a vote in favor of each of the proposals being presented to Expedia shareholders at the special meeting and a waiver of your statutory dissenters' rights. In addition, voting against the proposal to approve the merger agreement will not satisfy the notice requirement referred to above. You must deliver notice of the intent to exercise dissenters' rights to Expedia prior to the vote being taken at the special meeting at: Expedia, Inc., 13810 SE Eastgate Way, Suite 400, Bellevue, WA 98005, Attn: Corporate Secretary.

        Within ten days after the effective date of the proposed merger, Expedia will deliver a notice to all shareholders who have properly given notice under the dissenters' rights provisions and have not voted in favor of the merger agreement as described above. The notice will contain:

        If you wish to assert dissenters' rights, you must demand payment and deposit your Expedia certificates within 30 days after the notice is given. If you fail to make demand for payment and deposit your Expedia certificates within the 30-day period, you will lose the right to receive fair value for your shares under the dissenters' rights provisions, even if you delivered a timely notice of intent to demand payment.

        Except as provided below, within 30 days of the later of the effective date of the merger or Expedia's receipt of a valid demand for payment, Expedia will remit to each dissenting shareholder

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who complied with the requirements of Washington law the amount Expedia estimates to be the fair value of the shareholder's Expedia common stock, plus accrued interest.

        Expedia will include the following information with the payment:

        For a dissenting shareholder who was not the beneficial owner of the shares of Expedia common stock before March 19, 2003, under Chapter 23B.13.270 of the WBCA, Expedia may withhold payment and instead send a statement setting forth its estimate of the fair value of the shares and offering to pay such amount, with interest, as a final settlement of the dissenting shareholder's demand for payment. Expedia will also send an explanation of how it estimated the fair value of the shares and calculated the interest, and a statement of the dissenter's right to payment under Chapter 23B.13.280 of the Washington Business Corporation Act.

        If you are dissatisfied with your payment or offer, you may, within 30 days of the payment or offer for payment, notify Expedia of and demand payment of your estimate of the fair value of your shares and the amount of interest due. If any dissenting shareholder's demand for payment is not settled within 60 days after receipt by Expedia of the payment demand, Section 23B.13.300 of the Washington Business Corporation Act requires that Expedia commence a proceeding in King County Superior Court and petition the court to determine the fair value of the shares and accrued interest, naming all the dissenting shareholders whose demands remain unsettled as parties to the proceeding.

        The court may appoint one or more appraisers to receive evidence and make recommendations to the court as to the amount of the fair value of the shares. The fair value of the shares as determined by the court is binding on all dissenting shareholders and may be less than, equal to or greater than the market price of the IAC common stock to be issued to nondissenting shareholders for their Expedia common stock. The dissenters have the same discovery rights as parties in other civil proceedings. If the court determines that the fair value of the shares is in excess of any amount remitted by Expedia, then the court will enter a judgment for cash in favor of the dissenting shareholders in an amount by which the value determined by the court, plus interest, exceeds the amount previously remitted.

        The court will determine the costs and expenses of the court proceeding and assess them against Expedia, except that the court may assess part or all of the costs against any dissenting shareholders whose actions in demanding supplemental payments are found by the court to be arbitrary, vexatious or not in good faith. If the court finds that Expedia did not substantially comply with the relevant provisions of Sections 23B.13.200 through 23B.13.280 of the WBCA, the court may also assess against Expedia any fees and expenses of attorneys or experts that the court deems equitable. The court may also assess those fees and expenses against any party if the court finds that the party has acted arbitrarily, vexatiously or not in good faith in bringing the proceedings. The court may award, in its discretion, fees and expenses of an attorney for the dissenting shareholders out of the amount awarded to the shareholders, if it finds the services of the attorney were of substantial benefit to the other dissenting shareholders and that those fees should not be assessed against Expedia.

        A shareholder of record may assert dissenters' rights as to fewer than all of the shares registered in the shareholder's name only if he or she dissents with respect to all shares beneficially owned by any

44


one person and notifies Expedia in writing of the name and address of each person on whose behalf he or she asserts dissenters' rights. The rights of the partial dissenting shareholder are determined as if the shares as to which he or she dissents and his or her other shares were registered in the names of different shareholders. Beneficial owners of Expedia common stock who desire to exercise dissenters' rights themselves must obtain and submit the registered owner's consent at or before the time they deliver the notice of intent to demand fair value.

        For purposes of Washington law, "fair value" means the value of Expedia common stock immediately before the effective time of the merger, excluding any appreciation or depreciation in anticipation of the merger, unless that exclusion would be inequitable. Under Section 23B.13.020 of the WBCA, an Expedia shareholder has no right, at law or in equity, to set aside the approval and adoption of the merger or the consummation of the merger except if the approval, adoption or consummation fails to comply with the procedural requirements of Chapter 23B.13 of the WBCA, Expedia's articles of incorporation or Expedia's by-laws, or was fraudulent with respect to that shareholder or Expedia.


Regulatory Approvals Required for the Merger

        We are not aware of any material regulatory filings or approvals required prior to completing the merger. We intend to make all required filings under the Securities Act and the Exchange Act in connection with the merger.


Shareholder Litigation

        Following IAC's announcement on June 3, 2002 that it intended to commence exchange offers to acquire up to 100% of the outstanding shares of Ticketmaster, Expedia, and Hotels.com that it did not already own, a number of putative class action complaints against IAC, its publicly held subsidiaries (including Expedia) and the boards of directors of its publicly held subsidiaries (including Expedia) were filed by individual shareholders of IAC's publicly held subsidiaries in the Court of Chancery, County of New Castle, State of Delaware with respect to Ticketmaster and Hotels.com, in the U.S. District Court for the Central District of California with respect to Ticketmaster, and in King County Superior Court in the State of Washington with respect to Expedia. The complaints generally alleged that consummation of the exchange offers would be a breach of fiduciary duty and that the indicated exchange ratios were unfair to the minority shareholders of IAC's publicly held subsidiaries. Each of the complaints sought, among other things, injunctive relief against consummation of the exchange offer, damages in an unspecified amount and rescission in the event the exchange offer occurred.

        In July 2002, the actions with respect to each of the three subsidiaries filed in the states of Delaware and Washington were consolidated, and orders were entered in those actions providing that the defendants need not respond to the complaint until after the announcement of a transaction contemplating the purchase by IAC of the stock of the relevant subsidiary held by its public minority shareholders. The California complaint was dismissed without prejudice on August 6, 2002. The Washington consolidated action with respect to Expedia was also dismissed without prejudice on November 22, 2002. On December 16, 2002, the plaintiffs in the Delaware consolidated action with respect to Ticketmaster agreed that the defendants have an indefinite amount of time in which to respond to the complaint, pending a determination by the plaintiffs whether they will proceed with the lawsuit. On January 17, 2003, IAC completed its acquisition of all the stock of Ticketmaster.

        On March 20, 2003, one day after the public announcement that IAC and Expedia had entered into a definitive merger agreement, the plaintiffs in the Washington consolidated action with respect to Expedia filed a purported notice of reinstatement of their claims. On March 20, 2003, three additional purported class actions on behalf of Expedia shareholders were filed in King County Superior Court against Expedia, IAC, and members of the board of directors of Expedia. Additional purported class action complaints were filed on March 24, 2003 and April 2, 2003. These recent complaints allege, in

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essence, that the defendants breached their fiduciary duties to Expedia's public shareholders by entering into and/or approving the merger agreement, which allegedly does not reflect the true value of Expedia. The complaints seek to enjoin consummation of the transaction or, in the alternative, to rescind the transaction, as well as damages in an unspecified amount. On April 22, 2003, the Washington court entered an Order reinstating the consolidated action. On May 5, 2003, the Washington court entered an Order consolidating the five new actions into the reinstated consolidated action.

        On April 10, 2003, the day of the public announcement that IAC and Hotels.com had entered into a definitive merger agreement, a purported class action on behalf of Hotels.com shareholders was filed in the Court of Chancery, County of New Castle, State of Delaware, against Hotels.com, IAC, and members of the board of directors of Hotels.com. Also on April 10, 2003, the plaintiff in a purported derivative action on behalf of Hotels.com against various officers and directors of Hotels.com, pending in the District Court of Dallas, Texas, 160th Judicial District, filed an amended complaint to include class allegations regarding the merger. This action had been filed prior to the announcement of the merger and originally asserted derivative claims relating to Hotels.com's pre-merger earnings guidance. The Texas action was removed to the United States District Court for the Northern District of Texas on April 18, 2003. On April 17, 2003, plaintiffs in the Delaware consolidated action regarding Hotels.com filed a consolidated and amended class action complaint. The complaints in the Delaware actions, and the class allegations in the Texas action, allege, in essence, that the defendants breached their fiduciary duties to Hotels.com's public shareholders by entering into and/or approving the merger agreement, which allegedly does not reflect the true value of Hotels.com. The complaints seek to enjoin consummation of the transaction or, in the alternative, to rescind the transaction, as well as damages in an unspecified amount. On June 23, 2003, IAC completed its acquisition of all of the remaining common stock of Hotels.com.

        While IAC believes that the allegations in the cases are without merit, and Expedia believes that the allegations in the cases naming Expedia and its directors as defendants are without merit, no assurances can be given as to the outcome of any of these lawsuits. Furthermore, one of the conditions to the closing of the transactions contemplated by the merger agreement between IAC and Expedia is that no injunction issued by any court preventing the consummation of the transactions be in effect. No assurances can be given that these lawsuits will not result in such an injunction being issued, which could prevent or delay the closing of the transactions contemplated by the merger agreement.


Certain Effects of the Merger

        Following the merger, we intend to cause the delisting of shares of Expedia common stock and of the Expedia warrants from the Nasdaq National Market, following which shares of Expedia common stock and the Expedia warrants will not be publicly traded. An application has been made to list the IAC warrants on the Nasdaq National Market under the symbol "IACIZ." IAC common stock is currently listed on the Nasdaq National Market under the symbol "IACI."

        Shares of Expedia common stock and the Expedia warrants are currently registered under the Exchange Act. Following the merger, we will file a Form 15 with the SEC requesting the suspension and termination of registration of shares of Expedia common stock and of the Expedia warrants under the Exchange Act.


Accounting Treatment for the Merger

        The merger will be accounted for by IAC under the purchase method of accounting in accordance with accounting principles generally accepted in the United States. Accordingly, the cost to acquire

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shares of Expedia common stock and outstanding stock options in excess of approximately 42% of the carrying value of Expedia's assets and liabilities will be allocated on a pro rata basis to Expedia's assets and liabilities based on their fair values, with any excess being allocated to goodwill and any identified intangible assets. The determination of asset lives and required purchase accounting adjustments reflected in this proxy and information statement/prospectus, including the allocation of the purchase price to the assets and liabilities of Expedia based on their respective fair values, is preliminary. See the notes accompanying the Unaudited Pro Forma Combined Condensed Financial Statements of IAC contained in this proxy and information statement/prospectus.


Resale of IAC Common Stock and IAC Warrants

        Shares of IAC common stock and IAC warrants issued in the merger will not be subject to any restrictions on transfer arising under the Securities Act, except for shares of IAC common stock and IAC warrants issued to any Expedia shareholder or warrantholders that is, or is expected to be, an "affiliate" of IAC or Expedia for purposes of Rule 145 under the Securities Act. Persons that may be deemed to be "affiliates" of IAC or Expedia for such purposes generally include individuals or entities that control, are controlled by, or are under common control with, IAC or Expedia, respectively, and will include the directors of IAC and Expedia, respectively. The merger agreement requires Expedia to use its reasonable efforts to cause each of its affiliates to execute a written agreement with IAC to the effect that such affiliate will not transfer any shares of IAC common stock received as a result of the merger, except pursuant to an effective registration statement under the Securities Act or in a transaction not required to be registered under the Securities Act.

        This proxy and information statement/prospectus does not cover resales of shares of IAC common stock or IAC warrants received by any person in connection with the merger, and no person is authorized to make any use of this proxy and information statement/prospectus in connection with any resale of shares of IAC common stock or IAC warrants.

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EXPEDIA 2003 FINANCIAL INFORMATION

Operating Budget

        Each of IAC's and Expedia's management annually prepares and publicly announces operating budgets regarding their anticipated operating results. On February 6, 2003, Expedia furnished to the SEC pursuant to Regulation FD its 2003 operating budget. On February 7, 2003, IAC filed with the SEC its final budget for the year ending December 31, 2003, and certain limited preliminary growth rates for the year ending December 31, 2004. The budget information furnished on February 6, 2003 and the budget information and growth rates filed on February 7, 2003 superseded entirely any similar information previously filed or furnished by IAC and Expedia and is incorporated by reference into this proxy and information statement/prospectus. See "Where You Can Find More Information." Prior to the printing of this proxy and information statement/prospectus, neither IAC nor Expedia has provided an update to the foregoing information since its public dissemination, except as disclosed in IAC's earnings release for the first quarter of 2003, which release was filed with the SEC on May 2, 2003. The budget and growth information were made on and as of the dates noted, and the reference to the budget and growth information in this proxy and information statement/prospectus should not be viewed as an update or a confirmation of that information as of the date of this proxy and information statement/prospectus. Except to the extent required under applicable securities laws, neither IAC nor Expedia intends to make publicly available any update or other revisions to any of the budget or growth information to reflect circumstances existing after the date of public announcement of such information.


Actual Results and Forecast

        As the controlling shareholder of Expedia, IAC receives periodically financial information and actual results for Expedia in the ordinary course. The financial information and actual results set forth below are included in this proxy and information statement/prospectus only because this information was obtained by IAC prior to the announcement of the merger in connection with IAC's existing shareholdings in Expedia, and were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. In addition to preparing an annual budget, Expedia prepared a forecast for 2003, which is prepared solely for internal use and represents more aggressive financial targets for Expedia during the coming year. While the budget remains fixed through the year, the forecast is updated based on business trends and historical results. Note also that Expedia's management's cash bonus compensation is based on the achievement of actual results against their budget as opposed to a forecast. Neither the forecast nor the actual results presented below purport to present Expedia's operations or financial condition in accordance with accounting principles generally accepted in the United States, and Expedia's independent auditors have not examined or compiled the information presented below and accordingly assume no responsibility for them. In addition, the forecast reflects numerous assumptions made by Expedia's management with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict, many of which are beyond Expedia's control, and none of which are subject to approval by IAC. Accordingly, there can be no assurance that the assumptions made in preparing the forecast will prove accurate. It is expected that there will be differences between actual results, budgeted results and forecast, and actual results may be materially greater or less than those contained in the budgets and/or the forecast. Neither the inclusion of the forecast nor the actual results in this proxy and information statement/prospectus should be regarded as an indication that any of IAC or Expedia or their respective affiliates or representatives considered or consider them to be a reliable prediction of future events, and the information should not be relied upon as such.

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        None of IAC, Expedia or any of their affiliates or representatives has made or makes any representation to any person regarding the ultimate performance of Expedia or IAC compared to the information contained below.

        Expedia's budget information for January and February 2003, Expedia's actual results for January and February 2003, and Expedia's forecast for 2003 were provided to IAC by Expedia prior to the entering into of the merger agreement. This information is summarized in the table below, none of which reflects the proposed merger.


Expedia Selected 2003 Financial Results and Forecast

(In millions)

 
   Budget
Jan-Feb, 2003
   Actual
Jan-Feb, 2003
   Forecast
Full Year 2003
  
Gross Bookings   $ 1,166.7   $ 1,228.1   $ 8,033.2  
Revenue     110.5     120.5     895.0  
EBITA     15.6     28.7     244.8  
Operating Income     8.6     22.7 (a)   210.6 (a)
GAAP Net Income     6.8     14.8 (a)   144.6 (a)
(a)
Excludes non-cash stock compensation expense related to SFAS 123 implementation for 2003. Expedia had not finalized their methodology for calculating the expense and, as a result, had not recorded any expense in January and February 2003 and had not included the expense in the forecast.

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RELATIONSHIPS WITH EXPEDIA

Relationships Between Expedia and IAC

        You should be aware of various existing agreements and ongoing and prior arrangements and transactions between IAC and its affiliates, on the one hand, and Expedia and its affiliates, on the other hand, as described below or incorporated by reference into this proxy and information statement/prospectus. Because Expedia is a controlled subsidiary of IAC, each of IAC's other controlled subsidiaries (including Hotels.com and Ticketmaster), which are affiliates of IAC, may also be deemed to be affiliates of Expedia.

        Provided below is a description of the material arrangements between Expedia and its subsidiaries, on the one hand, and IAC and its subsidiaries (other than Expedia), on the other hand. Other arrangements involving affiliates of both IAC and Expedia, including arrangements between IAC, on the one hand, and IAC's other subsidiaries, on the other hand, or arrangements between other subsidiaries of IAC are described under the heading "Certain Relationships or Related Party Transactions" (or similar captions) in the Annual Reports on Form 10-K for the year ended December 31, 2002 of IAC, Hotels.com and Expedia, or under the "Related Party Transactions" and "Business Acquisitions" (or similar captions) notes to the audited financial statements of such companies included in such Annual Reports, all of which sections are incorporated by reference into this proxy and information statement/prospectus. For information on how to obtain copies of these materials, please see "Where You Can Find More Information."

        You should also review "Interests of Certain Persons in the Merger" for a description of the interests that directors and executive officers of Expedia (some of whom are also executive officers and/or directors of IAC) may have in the merger that may be different from, or in addition to, the interests of IAC stockholders and Expedia shareholders generally.

        On February 4, 2002, IAC completed its acquisition of a controlling interest in Expedia through a merger transaction. Immediately following the IAC acquisition of control, IAC owned all of the outstanding shares of Expedia Class B common stock, representing approximately 64.2% of Expedia's outstanding shares, and 94.9% of the voting interest in Expedia. On February 20, 2002, IAC acquired an additional 1,873,630 shares (adjusted for the two-for-one stock split effective on March 10, 2003) of Expedia common stock, increasing IAC's ownership to approximately 65% of Expedia's outstanding shares, with IAC's voting percentage remaining at 94.9%.

        Pursuant to the terms of the IAC acquisition of control, Microsoft, which beneficially owned approximately 66% of the Expedia common stock prior to the IAC acquisition of control, exchanged all of its Expedia common stock for IAC securities. Those Expedia shareholders who elected not to receive IAC securities in the transaction retained their Expedia common stock and received 0.1920 of an Expedia shareholder warrant for each share of Expedia common stock held. In addition to the warrants distributed to shareholders, Expedia also distributed Expedia compensatory warrants to certain holders of Expedia stock options at the same 0.1920 ratio. The Expedia shareholder warrants and the Expedia compensatory warrants are traded on the Nasdaq National Market under the symbol "EXPEW."

        IAC has designated a majority of Expedia's directors (seven of the 13 directors), including Mr. Diller who is chairman of the Expedia board of directors. In addition, pursuant to the IAC acquisition of control, Expedia agreed with IAC that the parties' relationship would be governed by the following principles, none of which can be amended or waived without the approval of a majority of Expedia's independent directors:

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        As part of the IAC acquisition of control, Expedia adopted amended and restated articles of incorporation which include the following provisions governing the relationship between IAC and its affiliates, on the one hand, and Expedia and its subsidiaries, on the other hand:

        In connection with the IAC acquisition of control, Expedia received the right to advertising, marketing and promotion time, valued at $15 million for each of the five years after the consummation of the IAC acquisition of control on the various media outlets related to IAC. The total amount due under this arrangement was recorded as "contribution receivable from parent" within Expedia's statement of changes in shareholders' equity and comprehensive income for the 2002 fiscal year. During the year ended December 31, 2002, Expedia recorded $13.1 million under this arrangement as sales and marketing expense.

        In August 2002, IAC made a cash capital contribution of $20.0 million to Expedia in lieu of offering Expedia a two-year option to acquire from IAC all of the outstanding equity of National Leisure Group, Inc. Expedia recorded the transaction as a capital contribution from IAC.

        During 2002, IAC reimbursed Expedia for certain professional fees related to the delay in the IAC acquisition of control in the amount of $0.3 million. Expedia recorded this amount as a capital contribution from IAC.


Other Relationships

        Expedia entered into an agreement with Ticketmaster on March 19, 2002, to create a new gateway channel on Citysearch.com's website. This is a content area that provides site visitors with Citysearch's local content and enables them to plan and book trips using an Expedia.com booking tool with the

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availability of some Ticketmaster event tickets within Expedia's customer-built trips. Revenues generated through the gateway channel are shared by Ticketmaster and Expedia based on an agreed-upon transaction fee paid by Expedia to Ticketmaster. The transaction fees paid in connection with this agreement during the year ended December 31, 2002 were $0.3 million.

        Expedia and Hotels.com, with IAC being the controlling stockholder of both companies, are actively exploring areas where they might work together in a way that would benefit all their customers and stockholders. Although there continue to be many areas of their businesses where the companies can best achieve their goals through separate strategies and practices, there have been instances where, fully consistent with their existing contractual agreements, they have worked cooperatively, and Expedia and IAC anticipate that they will continue to explore such possibilities in the future.

        In June 2003, IAC and Expedia determined that Expedia would oversee the management of TV Travel Shop (TVTS) and Interval International, both wholly owned subsidiaries of IAC. The new arrangements are currently being implemented.

        Expedia's financial statements prior to October 1, 1999 reflect certain allocated corporate support costs from Microsoft. Such allocations and charges are based on a percentage of total corporate costs for the services provided, based on factors such as headcount, revenue, gross asset value, or the specific level of activity directly related to such costs. Expedia's management believes that the allocation methods used were reasonable and reflective of Expedia's proportionate share of such expenses.

        Subsequent to October 1, 1999, Expedia had entered into a number of agreements with Microsoft to facilitate Expedia's operations. On February 4, 2002, Microsoft ceased being a related party of Expedia when a controlling interest in Expedia was acquired by IAC.

        On August 25, 2000, Expedia issued 6,022,586 shares of Expedia common stock and warrants to purchase an additional 1,204,518 shares of Expedia common stock to TCV IV, L.P. and TCV IV Strategic Partners, L.P. (collectively, TCV) in exchange for approximately $50.0 million in cash. As a result of the investment, the founding general partner of Technology Crossover Ventures and managing member of Technology Crossover Management IV, L.L.C. (which is the general partner of TCV) became a director of Expedia. On that same date, Expedia issued 1,204,516 shares of Expedia common stock and warrants to purchase an additional 240,904 shares of Expedia common stock to Microsoft in exchange for approximately $10.0 million in cash. In September 2001 and February 2002, TCV and Microsoft net exercised their 1,204,518 and 240,904 shares of Expedia common stock warrants in non-cash transactions, respectively, and received 669,040 shares and 168,064 shares of common stock, respectively, representing the number of shares purchased based on the in-the-money value of the warrants.

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INTERESTS OF CERTAIN PERSONS IN THE MERGER

        You should be aware that, as described below, some of the officers and directors of Expedia, including those who are also officers and/or directors of IAC, and other officers and directors of IAC, have interests in the merger that may be different from, or in addition to, your interests as an Expedia shareholder or IAC stockholder. The Expedia board of directors and its special committee, and the IAC board of directors, were aware of these interests, to the extent they existed at the time, and considered them, among other matters, in approving the merger, the merger agreement and the transactions contemplated by the merger agreement.


Composition of the Expedia Board of Directors

        Seven out of the 13 directors of Expedia—Michael Adler, Anne Busquet, Barry Diller, Victor Kaufman, Dara Khosrowshahi, David Ellen and Daniel Marriott—are current directors and/or officers of IAC. Two other directors of Expedia, Erik Blachford and Gregory Stanger, are current executive officers of Expedia. In addition, at the time that the IAC and Expedia boards of directors approved the merger, Richard Barton, Expedia's then chief executive officer, was a member of both the IAC and Expedia boards of directors. Mr. Barton abstained from the votes relating to the merger. Mr. Barton resigned from his position as Chief Executive Officer and director of Expedia effective March 31, 2003. Immediately upon completion of the merger, it is expected that the board of directors of Expedia will consist solely of Dara Khosrowshahi and David Ellen, both current directors of Expedia who are also officers of IAC.


Expedia Stock Options and Other Equity-Based Awards

        At the close of business on June 15, 2003, executive officers and directors of Expedia, excluding directors who are also officers and/or directors of IAC, beneficially owned approximately 17% of the outstanding shares of Expedia common stock, collectively representing 1% of the total outstanding voting power of Expedia on that date. At the close of business on June 15, 2003, officers and directors of IAC, including directors of Expedia who are also officers and/or directors of IAC, beneficially owned less than 3% of the outstanding shares of Expedia common stock (excluding the shares of Expedia common stock and Expedia Class B common stock held by IAC). As IAC has agreed to vote all Expedia shares beneficially owned by it at the special meeting in favor of approval of the merger, the vote of the directors and executive officers of Expedia and IAC in their capacities as shareholders of Expedia is not required at the special meeting to approve the merger.

        Pursuant to the merger agreement and the terms of Expedia's various stock plans, each Expedia optionee, including executive officers and directors of Expedia, will be entitled to receive options to purchase 1.93875 shares of IAC for each Expedia option held by the optionee on substantially the same terms and conditions as were applicable to the Expedia stock option. In addition, each holder of shares of Expedia restricted stock, Expedia compensatory warrants and other Expedia equity-based awards will be entitled to receive an equivalent IAC equity-based award on substantially the same terms and conditions as were applicable to the Expedia award with 1.93875 IAC shares being subject to such award for every Expedia share that was previously subject to the award. Based on Expedia options, compensatory warrants, restricted stock and restricted stock units held as of June 15, 2003:

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No director of Expedia who is also an officer or director of IAC holds any other equity interests in Expedia (excluding the shares of Expedia common stock and Class B common stock held by IAC). The non-employee disinterested members of the Expedia board of directors as a group would receive options to purchase 1,557,130 IAC shares, compensatory warrants to acquire 3,432,146 IAC shares and 31,020 IAC restricted stock units.


IAC Equity, Stock Options and Other Equity-Based Awards

        Certain executive officers and directors of Expedia beneficially own equity in IAC, whether in the form of common equity, stock options and/or other equity-based awards. Options to acquire shares of IAC common stock and other equity-based awards of IAC will not be affected by the merger, and will remain outstanding following completion of the merger. As of the close of business on June 15, 2003:

As of the close of business on June 15, 2003, the directors of Expedia who are also officers and/or directors of IAC held the following equity interests in IAC:


Compensation of Members of the Special Committee

        Each of the members of the special committee has been compensated for serving as a member of the special committee. This compensation was authorized by the Expedia board of directors in order to compensate the members of the special committee for the significant additional time commitment that was required of them in connection with fulfilling their duties and responsibilities as members of the special committee and was paid without regard to whether the special committee recommended a transaction with IAC or whether a transaction with IAC is completed. Each of Messrs. Breitling, Hoag, Hundt, and Maffei received $10,000 per month of active service on the special committee, or a total of $50,000 each in the aggregate, during the year ended December 31, 2002. As compensation for serving as a member of the special committee in 2003, each member will receive $1,500 for each special

54


committee meeting attended and Mr. Hoag, as the chairman of the special committee, will receive an additional fee of $5,000 paid in equal quarterly installments of $1,250. In addition, it is contemplated that each option to acquire Expedia common stock held by a member of the special committee will accelerate and fully vest as of the completion of the merger.


Employment Agreements

        Under the merger agreement, IAC has agreed to cause Expedia, from and after the merger, to fulfill all written employment, severance, termination, consulting and retirement agreements to which Expedia or any of its subsidiaries is a party, pursuant to the terms of those agreements and applicable law.

        Employment Agreements with Expedia Named Executive Officers    

        Employment Agreement with Erik C. Blachford.    Effective as of April 1, 2003, Expedia entered into an amended and restated employment agreement with Mr. Blachford setting forth the material terms of his employment. Pursuant to the agreement, Mr. Blachford serves as president and chief executive officer of Expedia and serves as a member of the Expedia Board of Directors for the three-year term of the agreement. Mr. Blachford has a right to serve as a member of the Expedia board of directors so long as he is employed as chief executive officer of Expedia and Expedia remains a publicly-traded company.

        Compensation.    Mr. Blachford's agreement provides for an annual base salary of $275,000 and eligibility to receive an annual bonus with a target of 100% of his salary. Mr. Blachford's annual bonus will not be less than $137,500 and for the portion of the term from January 1, 2006 until March 31, 2006, Mr. Blachford's annual bonus will not be less than $34,375. On March 17, 2003, Mr. Blachford received a grant of options to purchase 253,000 shares of Expedia common stock at an exercise price of $39.38. On the first anniversary of the grant date, one-fourth of the option will vest, and 1/48 of the option will vest on each monthly anniversary of the grant date thereafter, subject to Mr. Blachford's continued employment with Expedia. The option has a ten-year term. On the effective date of the agreement, Mr. Blachford received an initial grant of 102,000 restricted stock units of Expedia common stock which will vest subject to certain performance conditions and Mr. Blachford's continued employment with Expedia. If such performance conditions are met, restrictions on the restricted stock units will lapse in four equal installments on each of the first four anniversaries of March 31, 2003, subject to Mr. Blachford's continued employment with Expedia. In addition, Mr. Blachford will receive a grant of 50,000 restricted stock units of IAC common stock on the earlier of (a) the date the audit committee of the Expedia board of directors approves the grant and (b) the date Expedia is no longer publicly traded. The IAC restricted stock units will be subject to the performance conditions set out by the compensation committee of IAC. If such performance conditions are met, restrictions on the restricted stock units will lapse on March 31, 2006, subject to Mr. Blachford's continued employment with Expedia. Mr. Blachford will be evaluated for future option grants in a manner consistent with similarly situated executives of IAC and its subsidiaries.

        Mr. Blachford is eligible to participate in welfare, health and life insurance and pension benefit and incentive programs adopted by Expedia on the same basis as similarly situated executives of Expedia, IAC and their respective subsidiaries.

        Severance.    Upon a termination of Mr. Blachford's employment by Expedia without "cause" (and other than by reason of his death or "disability") or by Mr. Blachford for "good reason" (as each term is defined in the agreement), subject to Mr. Blachford's execution and non-revocation of a release, Expedia will continue to pay Mr. Blachford his salary for the remainder of the term. Expedia will also pay Mr. Blachford his target annual bonus for each remaining year of the term commencing at the end of the fiscal year of the termination, and pro rated for the fiscal year commencing January 1, 2006. In addition, until the end of the term or such earlier date that Mr. Blachford becomes reemployed with

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another employer, Expedia will continue to provide Mr. Blachford with the welfare benefits that Mr. Blachford would have received had he remained employed for the remainder of the term. Further, the IAC restricted stock units granted under the agreement and Mr. Blachford's Expedia equity awards will vest and any Expedia options held by Mr. Blachford will remain exercisable for the shorter of one year or the remainder of their scheduled term.

        Change in Control.    The agreement provides that upon a change in control of Expedia (as defined in the agreement, which definition does not include the merger), all of Mr. Blachford's Expedia options (and the IAC options granted on the effective date) and other Expedia equity compensation will vest immediately, and such options will remain exercisable for one year from the date of the change in control, but in no event beyond the expiration of their term.

        Restrictive Covenants.    Pursuant to the agreement, Mr. Blachford is bound by a covenant not to compete with Expedia's businesses (or the businesses of its subsidiaries or affiliates) and a covenant not to solicit Expedia's employees or customers (or the employees or customers of its subsidiaries or affiliates) during the term of his employment and for two years after termination of employment for any reason. In addition, Mr. Blachford agreed not to divulge or disclose any confidential information of Expedia or its affiliates.

        Employment Agreement with Gregory Stanger.    Effective as of February 4, 2002, Expedia entered into an employment agreement with Mr. Stanger setting forth the material terms of his employment, which was amended as described below. Under the agreement, Mr. Stanger serves as Expedia's senior vice president and chief financial officer. The agreement has a three-year term.

        Compensation.    Mr. Stanger presently receives an annual base salary of $192,000 and will be eligible to receive an annual bonus of 100% of his salary, payable 50% in cash and 50% in Expedia stock options, based on achieving agreed-upon Expedia budget goals.

        On the effective date of the agreement, Mr. Stanger received an initial grant of options to purchase 100,000 shares of Expedia common stock at an exercise price of $27.26.

        Such options have a ten-year term and vest in four equal annual installments commencing on the first anniversary of the effective date of the agreement contingent upon Mr. Stanger's continued employment with Expedia. Mr. Stanger also received a grant of 20,000 restricted shares of Expedia common stock, vesting contingent upon Mr. Stanger's continued employment with Expedia through the third anniversary of the effective date.

        Mr. Stanger participates in welfare, health and life insurance and pension benefit and incentive programs adopted by Expedia on the same basis as similarly situated executives of Expedia, IAC and their respective subsidiaries.

        Severance.    Upon a termination of Mr. Stanger's employment by Expedia without "cause," death or "disability" or by Mr. Stanger for "good reason" (as each term is defined in the agreement), subject to Mr. Stanger's execution and non-revocation of a release, Expedia will continue to pay Mr. Stanger his salary for the remainder of the term, as well as pay his earned but unpaid base salary. In addition, Mr. Stanger will automatically and immediately vest in all of his then outstanding equity-based compensation awards granted on or prior to August 2, 2001, and such options will remain exercisable for 12 months following his date of termination of employment. Effective upon consummation of the merger, Mr. Stanger was granted certain additional rights with respect to his equity compensation awards that arise upon certain terminations of employment that are more fully described below. Mr. Stanger is obligated to use reasonable best efforts to mitigate any severance payable to him.

        Change in Control.    The agreement generally provides that upon a change in control of Expedia (as defined in the agreement, which definition does not include the merger), all of Mr. Stanger's Expedia options granted prior to August 2, 2001 and other Expedia equity compensation will vest

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immediately, and such options will remain exercisable for 12 months from the date of the change in control, notwithstanding any termination of employment.

        Restrictive Covenants.    Pursuant to the agreement, Mr. Stanger is bound by a covenant not to compete with Expedia's businesses (or the businesses of its subsidiaries or affiliates) and a covenant not to solicit Expedia's employees or customers (or the employees or customers of its subsidiaries or affiliates) during the term of his employment and for two years after termination of employment for any reason. In addition, Mr. Stanger agreed not to divulge or disclose any confidential information of Expedia or its affiliates.

        In June 2003, Mr. Stanger's employment agreement was amended, effective on the consummation of the merger. In July 2003, IAC, Expedia and Mr. Stanger reached an understanding to amend Mr. Stanger's employment agreement further. The amendment would provide that upon Mr. Stanger's termination of employment for any reason after the 30th day following the consummation of the merger or if Mr. Stanger resigns for "good reason" or is terminated by the Company without "cause" on or prior to that day, any employee warrants, restricted stock or stock options granted to Mr. Stanger on or before March 19, 2003 by IAC or Expedia would continue to vest for 18 months from the date of termination and generally be exercisable for an additional 90 days after that period. The amendment would also provide that IAC and Mr. Stanger will discuss Mr. Stanger's ongoing role at IAC. Any amendment as it relates to any equity-based awards granted by IAC would be subject to approval by IAC's compensation committee.

        Employment Agreement with Simon J. Breakwell.    Expedia also entered into an employment agreement with Mr. Simon Breakwell, effective as of February 7, 2002. This agreement has a term of three years.

        Compensation.    The base salary provided to Mr. Breakwell pursuant to the employment agreement is £124,800. Unless otherwise agreed by Expedia and IAC, the base salary is subject to further review and may be increased at the discretion of Expedia's chief executive officer, any such increases to be approved by Expedia's compensation committee. Mr. Breakwell is also eligible to receive discretionary annual bonuses.

        Mr. Breakwell is entitled to participate in Expedia stock option grants after August 2, 2001 (except that such options will not accelerate and vest upon termination without "cause" or resignation with "good reason" (as each term is defined in the agreement)).

        Mr. Breakwell participates in welfare, health, and life insurance and pension benefits and incentive programs adopted by Expedia on the same basis as similarly situated executives of Expedia.

        Severance.    Under the agreement, upon a termination of Mr. Breakwell's employment by Expedia without "cause" or a resignation by Mr. Breakwell with "good reason" (as each term is defined in the agreement), Mr. Breakwell will be entitled to: (i) the acceleration and immediate vesting of all unvested Expedia options granted to him on or prior to August 2, 2001, and any attendant warrants granted in connection with the IAC acquisition of control of Expedia; and (ii) receive the salary, target bonus and welfare benefits (and any other damages to which he would be entitled) for the remainder of the term, less an offset equal to any amounts earned during the term from other employment, with no obligation to mitigate.

        Restrictive Covenants.    As a condition to entering into the agreement, Mr. Breakwell agreed to a covenant not to compete for a period of one year from the date of termination for any reason. The covenant not to compete applies to general online travel providers. Mr. Breakwell also agreed to a one-year non-solicitation covenant and a standard confidentiality covenant.

        Employment Agreement with Ronald Letterman.    Effective as of January 2002, Expedia entered into an employment agreement with Mr. Letterman setting forth the material terms of his employment. The agreement has a two-year term.

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        Compensation.    Mr. Letterman will receive an annual base salary of $225,000 and will be paid a guaranteed bonus of $150,000 for each of the calendar years 2002 and 2003. In addition, Mr. Letterman will be eligible to receive an annual bonus based on the achievement of certain performance criteria, at a target amount of 40% of Mr. Letterman's base salary (the amount actually awarded to range from 0% to 200% of the target amount).

        Mr. Letterman was awarded options to purchase 20,000 shares of Expedia common stock pursuant to the agreement. In addition, Expedia agreed to reimburse Mr. Letterman for reasonable out-of-pocket expenses actually incurred by Mr. Letterman in performing his duties, a car allowance of $1,500 per month and, for calendar year 2002, an aggregate amount of up to $20,000 in face value of airline tickets or rental car credits.

        Mr. Letterman participates in welfare, health and life insurance and pension benefit and incentive programs adopted by Expedia on the same basis as similarly situated executives of Expedia.

        Severance.    Upon a termination of Mr. Letterman's employment by Expedia without "cause" or by Mr. Letterman for "good reason" (as each term is defined in the agreement), Mr. Letterman will be entitled to receive: his base salary through the second anniversary of the effective date of the agreement or a 12-month period following his termination, whichever is longer, each guaranteed bonus, to the extent not already paid, and benefits during the 12-month period following the termination to the extent that he does not receive any such benefits from a subsequent employer during that period.

        Restrictive Covenants.    Pursuant to the agreement, Mr. Letterman is bound by a covenant not to compete with Expedia's businesses (or the businesses of its subsidiaries or affiliates) and not to solicit Expedia's employees or customers (or the employees or customers of its subsidiaries or affiliates) during the term of his employment and for one year after termination of employment for any reason. In addition, Mr. Letterman agreed not to divulge or disclose any confidential information of Expedia or its affiliates.

        Resignation Agreement with Richard Barton.    On February 5, 2003, Expedia entered into a Resignation Agreement with Mr. Barton pursuant to which Mr. Barton agreed to resign from Expedia in all positions effective March 31, 2003. This agreement provides that Mr. Barton will be paid promptly after March 31, 2003 any accrued but unpaid base salary and any compensation previously earned but deferred by Mr. Barton that has not yet been paid. It also provides that, in consideration for a general release of claims by Mr. Barton, Mr. Barton's Expedia stock options and other Expedia equity awards that would have vested pursuant to their normal vesting schedule during 2003 had Mr. Barton remained employed by Expedia through the end of 2003 will vest on March 31, 2003 and, in the case of vested Expedia stock options, will remain exercisable until March 31, 2004. Mr. Barton's vested Expedia warrants will remain exercisable through their scheduled expiration dates.

        Employment Agreement with Richard Barton.    Effective as of February 4, 2002, Expedia entered into an employment agreement with Mr. Barton setting forth the material terms of his employment. Pursuant to the agreement, Mr. Barton served as chief executive officer of Expedia and served as a member of the Expedia board of directors. This employment agreement was superseded by the resignation agreement described above, other than the restrictive covenants described below.

        Restrictive Covenants.    Mr. Barton is bound by a covenant not to compete with Expedia's business (or the businesses of any of its subsidiaries or affiliates) during the term of his employment and for two years after termination of employment for any reason; but if the non-compete period extends beyond the severance period (under circumstances in which Mr. Barton had been entitled to severance pay), Expedia will pay Mr. Barton $100,000 per year (pro rated on a monthly basis) to the extent Expedia determines to continue the non-compete period beyond the period in which Mr. Barton is eligible to receive severance. In addition, Mr. Barton will be bound by a two-year covenant not to solicit Expedia's employees or customers (or the employees or customers of any of its subsidiaries or affiliates) and a confidentiality covenant.

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        Expedia has entered into employment agreements with the following other executive officers: Mark S. Britton, Senior Vice President, General Counsel and Secretary; Michael Day, Senior Vice President, Operations; and Kathleen K. Dellplain, Senior Vice President, Human Resources. The agreements became effective on February 4, 2002 and have three-year terms.

        Compensation.    Under these agreements, each executive is entitled to a base salary and discretionary annual bonus and is entitled to participate in welfare, health, life insurance, pension benefit and incentive programs maintained by Expedia on the same basis as similarly situated executives of Expedia. In addition, each executive is eligible for stock option grants.

        Severance.    Upon a termination of the executive's employment by Expedia other than for "cause," death or "disability" or a resignation by the executive for "good reason" (as each term is defined in the agreement), Expedia will continue to pay the executive his or her base salary and target bonus for the remainder of the three-year term, and Expedia will continue to provide benefits to the executive for the remainder of the term that the executive would have received had he or she remained employed with Expedia for the remainder of the term. Although the executives are not obligated to mitigate, their severance will be reduced by any compensation they earn in the event that they become employed during the remainder of the term.

        In addition, any equity awards granted to Mr. Day and Ms. Dellplain on or prior to August 2, 2001, and any attendant warrants granted to them in connection with the merger transaction between IAC, Microsoft and Expedia will immediately vest upon their termination of employment by Expedia other than for "cause," death or "disability" or a resignation by the executive for "good reason." Pursuant to a separate arrangement, all equity-based compensation awards held by Mr. Britton will automatically be accelerated upon the consummation of the merger.

        Certain directors of Expedia who are also officers of IAC have employment agreements or other arrangements with IAC, which agreements and arrangements are either described below or in IAC's definitive proxy statement, dated April 30, 2003, which is incorporated herein by reference. For information on how to obtain copies of these materials, please see "Where You Can Find More Information."

        IAC's Employment Agreement with Anne Busquet.    On January 13, 2003, IAC and Ms. Busquet, then President of IAC's Travel Services and a member of the Expedia board of directors, entered into an employment agreement for a term continuing until January 12, 2006 and providing for an annual base salary of $600,000 per year. Ms. Busquet is also eligible to receive an annual discretionary bonus.

        Ms. Busquet's employment agreement provides for a grant of 75,000 restricted shares of IAC common stock. On March 13, 2003, 25,000 shares vested. The remaining 50,000 restricted shares are subject to a performance condition determined by IAC's Compensation Committee, and will vest on the third anniversary of the effective date of the agreement. If Ms. Busquet's employment is terminated by IAC without cause or if she resigns for good reason, the remaining 50,000 restricted shares will immediately vest as of the date of her termination of employment and IAC will pay Ms. Busquet her base salary through the remaining term of the employment agreement. If Ms. Busquet's employment is terminated prior to the vesting date due to death or disability, a pro-rata portion of the restricted shares will immediately vest.

        Effective June 2003, Ms. Busquet's position was changed to Senior Advisor to IAC. IAC and Ms. Busquet have agreed that any resignation of Ms. Busquet during the term of her employment agreement will be treated as a resignation for good reason under the agreement.

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        IAC's Employment Agreement with David Ellen.    On July 16, 2001, IAC and Mr. Ellen, IAC's Vice President, Acting General Counsel and Secretary and a member of the Expedia board of directors, entered into an employment agreement, which was subsequently amended on October 1, 2002. As amended, Mr. Ellen's agreement has a term continuing until July 15, 2004 and provides for an annual base salary of $300,000 per year. Mr. Ellen is also eligible to receive an annual discretionary bonus.

        Mr. Ellen's employment agreement provides for a grant of options to purchase 40,000 shares of IAC common stock. Mr. Ellen's options become exercisable in four equal installments, with 25% vesting on July 16, 2002 and an additional 25% vesting on each of the next three anniversaries of that date. Upon a change of control of IAC, 100% of Mr. Ellen's options become vested and exercisable. Other than acceleration of the options following a change in control, the options do not otherwise vest or become exercisable as a result of termination or non-renewal of his employment agreement.

        IAC's Employment Agreement with Michael B. Adler.    On April 11, 2003, IAC and Mr. Adler, IAC's Vice President, Financial Analysis and Operational Reporting, entered into an employment agreement for a term continuing until April 10, 2005 and providing for an annual base salary of $250,000 per year. Mr. Adler is also eligible to receive an annual discretionary bonus.


Indemnification and Insurance

        The merger agreement includes provisions relating to indemnification and insurance for directors, officers and employees of Expedia. See "The Merger Agreement—Covenants—Indemnification; Insurance."

        It is currently contemplated that Expedia will enter into separate indemnification agreements with the senior officers of Expedia and those of its directors who are not employees or officers of Expedia and/or directors or officers of IAC. As currently contemplated, these agreements would require Expedia, among other things, to indemnify those officers and directors against certain liabilities that arise by reason of their status or service as officers or directors in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was an officer or director of Expedia, subject to certain limitations consistent with Washington law. The indemnification agreements would also set forth certain procedures that would apply in the event of a claim for indemnification.

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THE MERGER AGREEMENT

        This section of the proxy and information statement/prospectus describes certain aspects of the merger agreement and the proposed merger. The following description does not purport to be complete and is qualified in its entirety by reference to the merger agreement, which is attached as Appendix A to this proxy and information statement/prospectus and is incorporated herein by reference. We urge Expedia shareholders to read the merger agreement carefully and in its entirety.


General Terms of the Merger Agreement

        On March 18, 2003, USA Interactive, now InterActiveCorp, Expedia and Equinox Merger Corp. entered into an Agreement and Plan of Merger, or the merger agreement. The merger provided for by the merger agreement will become effective upon the filing of properly executed articles of merger with the Secretary of State of the State of Washington in accordance with the WBCA. We refer to the time that the merger becomes effective in this proxy and information statement/prospectus as the effective time.

        At the effective time, Equinox Merger Corp. will be merged with and into Expedia, with Expedia surviving as a wholly owned subsidiary of IAC, and the separate existence of Equinox Merger Corp. will cease. We sometimes refer to Expedia following the completion of the merger as the surviving corporation. At the effective time, the articles of incorporation of the surviving corporation will be amended and restated in their entirety in accordance with a form agreed to between IAC and Expedia, and the bylaws of Equinox Merger Corp. will become the bylaws of Expedia. Also at the effective time, the directors of Equinox Merger Corp. will become the initial directors of the surviving corporation and the officers of Expedia will continue as the officers of the surviving corporation.


Treatment of Securities in the Merger

        At the effective time, each share of Expedia common stock and Expedia Class B common stock issued and outstanding immediately prior to the effective time (other than shares of Expedia common stock and Expedia Class B common stock held by Expedia shareholders who properly demand dissenters' rights in accordance with the WBCA), will, subject to anti-dilution adjustment of the exchange ratio, be automatically converted into the right to receive 1.93875 fully paid and nonassessable shares of IAC common stock, referred to as the merger consideration. At the effective time, shares of Expedia common stock and Expedia Class B common stock will no longer be outstanding, and will automatically be cancelled and retired and will cease to exist, and each certificate previously representing any such shares will thereafter represent only the right to receive the shares of IAC common stock to be issued as consideration upon the surrender of those certificates, without interest. No fractional shares of IAC common stock will be issued; instead, a cash payment will be made to the holders of shares of Expedia common stock and Expedia Class B common stock who would otherwise be entitled to receive a fractional share of IAC common stock. See "—Exchange of Certificates—Cash Instead of Fractional Shares." However, any holder of shares of Expedia common stock or Expedia Class B common stock that would otherwise be entitled to receive the merger consideration may elect to waive the issuance of the merger consideration with regard to such holder's shares of Expedia common stock and Expedia Class B common stock. In that case, the holder's shares of Expedia common stock and Expedia Class B common stock will be cancelled and retired and cease to exist as of the effective time and no shares of IAC common stock will be issued in respect thereof. IAC has already waived issuance of the merger consideration in respect of all of the outstanding shares of Expedia common stock and Expedia Class B common stock held by IAC immediately prior to the effective time.

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        If, between the date of the merger agreement and the effective time, the outstanding shares of IAC common stock, Expedia common stock or Expedia Class B common stock are changed into a different number of shares or a different class by reason of any reclassification, recapitalization, reorganization, split-up, stock dividend (including any dividend or distribution of securities convertible into, or exercisable or exchangeable for, IAC common stock, Expedia common stock or Expedia Class B common stock), stock combination, exchange of shares, readjustment or otherwise, as the case may be, then the exchange ratio will be correspondingly adjusted.

        At the effective time, each outstanding share of common stock, par value $0.01 per share, of Equinox Merger Corp., or Equinox Merger Corp. common stock, will be automatically converted into one share of common stock of the surviving corporation, or surviving corporation common stock. Because IAC is the sole holder of all shares of Equinox Merger Corp. common stock, IAC will be the sole holder of all outstanding shares of surviving corporation common stock.

        At the effective time, each outstanding option to purchase shares of Expedia common stock granted under Expedia's employee and director stock plans, whether vested or unvested, will be automatically converted at the effective time into an option to purchase shares of IAC common stock, in a number determined by multiplying the number of Expedia shares that could have been purchased under the Expedia option immediately prior to the effective time by 1.93875, the exchange ratio, rounded to the nearest whole number of shares of IAC common stock. The exercise price per share of these options will equal the per-share exercise price of the corresponding Expedia option divided by the exchange ratio. These converted IAC options will be subject to the same terms and conditions as the corresponding Expedia options. However, in the case of any Expedia stock option to which Section 421 of the Code applies immediately prior to the effective time by reason of its qualification under Section 422 of the Code, 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. At the effective time, each outstanding right to receive shares of Expedia common stock or benefits measured by the value of a number of shares of Expedia common stock, whether contingent or accrued, and each award consisting of shares of Expedia common stock granted under the Expedia stock plans (including restricted stock, restricted stock units, deferred stock units and dividend equivalents), other than Expedia stock options, whether vested or unvested, will be converted into a right or award with respect to IAC common stock. These IAC stock-based awards will continue to have, and be subject to, the same terms and conditions that were applicable to the corresponding Expedia stock-based award. The number of shares of IAC common stock subject to each such IAC stock-based award will be equal to the number of Expedia shares subject to the Expedia stock-based award immediately prior to the effective time multiplied by the exchange ratio, rounded to the nearest whole number of shares of IAC common stock. All dividend equivalents credited to the account of each holder of an Expedia stock-based award as of the effective time will remain credited to such holder's account immediately following the effective time, subject to adjustment in accordance with the foregoing. IAC has agreed to deliver notice to the holders of Expedia stock options and stock-based awards, as soon as practicable after the effective time, stating that Expedia's stock options and stock-based awards and agreements have been assumed by IAC.

        IAC will reserve for issuance a number of shares of IAC common stock at least equal to the number of shares of IAC common stock that will be subject to IAC stock options and stock-based awards as a result of these actions. IAC has agreed to file a registration statement on Form S-8 or another appropriate registration statement covering the shares of IAC common stock underlying the assumed options and assumed stock-based awards as soon as practicable after the effective time and to keep that registration statement current and effective for so long as the assumed options and restricted stock awards remain outstanding.

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        As described below, at the effective time of the merger, all outstanding Expedia warrants to purchase Expedia common stock will either remain outstanding as Expedia warrants and become exercisable solely for shares of IAC common stock or be converted into warrants of IAC to acquire shares of IAC common stock. The following description of the treatment of the Expedia warrants supplements the description of the treatment of the Expedia warrants contained in the merger agreement.

        Expedia Shareholder Warrants.    In connection with the IAC acquisition of control, 0.1920 of an Expedia shareholder warrant was issued for each share of Expedia common stock outstanding immediately prior to the closing of the IAC acquisition of control. At the effective time of the merger, each Expedia shareholder warrant will be converted into an IAC stockholder warrant. Each IAC stockholder warrant will entitle its holder to purchase 1.93875 shares, subject to adjustment, of IAC common stock at any time on or prior to February 4, 2009 upon payment of the exercise price of $26.00, which is equal to an exercise price of $13.41 per share. Otherwise, each IAC stockholder warrant will have substantially equivalent rights to the converted Expedia shareholder warrant.

        Expedia Employee Warrants.    Shortly prior to the IAC acquisition of control, 0.1920 of an Expedia employee warrant was issued in respect of certain vested and unvested options to acquire shares of Expedia common stock held by Expedia employees. At the effective time of the merger, each Expedia employee warrant, whether vested or unvested, will be converted into an IAC employee warrant which, except with respect to vesting (including transferability prior to vesting) and withholding taxes, will be identical in all material respects to the IAC stockholder warrants issued upon conversion of Expedia shareholder warrants. Otherwise, each listed IAC warrant will have substantially equivalent rights to the converted Expedia employee warrant.

        All Other Expedia Warrants.    All other outstanding Expedia warrants to purchase shares of Expedia common stock will, pursuant to the terms of the underlying warrant agreement, either remain outstanding as Expedia warrants and become exercisable solely for shares of IAC common stock, or be converted into warrants of IAC to acquire shares of IAC common stock, which will have, and be subject to, substantially the same terms and conditions that were applicable to the converted Expedia warrant, except that in each case (a) the number of shares of IAC common stock subject to each such warrant will be equal to the product of the number of shares of Expedia common stock subject to such Expedia warrant immediately prior to the effective time multiplied by the exchange ratio of 1.93875, rounded, if necessary, to the nearest whole number of shares of IAC common stock, and (b) the exercise price per share (rounded to the nearest cent) will be equal to the per share exercise price applicable to such Expedia warrant divided by the exchange ratio.

        As of the date of the merger agreement, Expedia had taken all necessary actions to provide that only those of its employees and its subsidiaries' employees who enrolled for the current offering period, which commenced on January 1, 2003, under Expedia's 1999 Amended and Restated Employee Stock Purchase Plan, known as the ESPP, prior to the date of the merger agreement will be eligible to participate in the current offering period. Expedia had also taken all necessary actions to provide that the ESPP will be terminated on the last day of the current offering period.

        In the event the effective time occurs prior to July 1, 2003, the following will occur. Each outstanding option to purchase shares of Expedia common stock under the ESPP for the current offering will, at the effective time, be converted into a right to purchase shares of IAC common stock, on the same terms and conditions as before. Also, the purchase price per share under the ESPP shall be the lesser of (A) 85% of the "fair market value" (as defined in the ESPP) of Expedia common stock on the "offering date" (as defined in the ESPP) divided by the exchange ratio (rounded up to the

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nearest whole cent) or (B) 85% of the fair market value of IAC common stock on the last business day of the offering. However, the purchase price and the terms and conditions of such option shall be determined in a manner consistent with the requirements of Section 424(a) of the Internal Revenue Code. Finally, the maximum number of shares issuable under the ESPP will be adjusted by multiplying such amount by the exchange ratio, rounded down to the nearest whole share.


Exchange of Certificates

        IAC has appointed The Bank of New York to be the exchange agent under the merger agreement. The exchange agent for the Expedia shares will accept certificates for shares of Expedia common stock and/or Expedia Class B common stock, each an Expedia certificate, and exchange them for certificates representing shares of IAC common stock and cash instead of fractional shares of IAC common stock.

        IAC has also appointed Mellon Investor Services LLC to be the exchange agent for the Expedia listed warrants. The exchange agent for the warrants will accept certificates representing Expedia listed warrants and exchange them for certificates representing IAC listed warrants.

        The following description of the treatment of the Expedia warrants supplements the description of the treatment of the Expedia warrants contained in the merger agreement.

        Expedia Common Stock.    Prior to the effective time, IAC will deposit with The Bank of New York, the exchange agent for the Expedia shares, for the benefit of the holders of shares of Expedia common stock and Expedia Class B common stock, certificates representing the shares of IAC common stock issuable in the merger.

        As soon as practicable after the effective time, the exchange agent will mail to each holder of record of an Expedia certificate, a letter of transmittal and instructions for exchanging their Expedia certificates for the merger consideration. After receipt of the transmittal forms, each holder of an Expedia certificate will be able to surrender his or her Expedia certificate to the exchange agent, and the holder of an Expedia certificate will receive in exchange certificates representing that number of whole shares of IAC common stock to which the holder of the Expedia certificate is entitled, together with any cash which may be payable instead of fractional shares of IAC common stock and any dividends or other distributions with respect to IAC common stock having a record date and paid after the effective time. In the event of a transfer of ownership of shares of Expedia common stock or Expedia Class B common stock which is not registered on the transfer records of Expedia, a certificate representing the proper number of shares of IAC common stock, any cash instead of fractional shares of IAC common stock and applicable dividends and distributions may be issued and paid to a transferee if the Expedia certificate representing the applicable Expedia shares is presented to the exchange agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. The consideration to be issued in the merger will be delivered by the exchange agent as promptly as practicable following surrender of an Expedia certificate and any other required documents. No interest will be payable on the merger consideration, regardless of any delay in making payments.

        Expedia Listed Warrants.    At or prior to the effective time, IAC will deposit with Mellon Investor Services, the exchange and warrant agent for the Expedia warrants, for the benefit of holders of Expedia listed warrants, the IAC listed warrants issuable in respect of the Expedia listed warrants.

        Expedia Shareholder Warrants.    As soon as practicable after the effective time, the exchange and warrant agent will mail to each holder of record of an Expedia shareholder warrant a letter of transmittal and instructions for exchanging their Expedia shareholder warrants for IAC stockholder

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warrants. After receipt of the transmittal forms, each holder of Expedia shareholder warrants will be able to surrender his or her Expedia shareholder warrants to the exchange and warrant agent, and the holder of Expedia shareholder warrants will receive in exchange that number of IAC stockholder warrants to which the holder of the Expedia shareholder warrants is entitled. In the event of a transfer of ownership of Expedia shareholder warrants which is not registered on the transfer records of Expedia, the proper number of IAC stockholder warrants may be issued to a transferee if the Expedia shareholder warrants are presented to the exchange and warrant agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable transfer taxes have been paid. The IAC stockholder warrants will be delivered by the exchange and warrant agent as promptly as practicable following surrender of Expedia shareholder warrants and any other required documents. No interest will be payable on the IAC stockholder warrants, regardless of any delay in delivery or otherwise.

        Expedia Employee Warrants. Because Expedia employee warrants are uncertificated, Expedia employee warrants will, without any action on the part of the holder, be converted into IAC employee warrants, subject to applicable withholding taxes. Prior to the Expedia shareholder meeting, we will send to holders of Expedia employee warrants that are held either by the original holder or a person that acquired the warrants other than in an arm's-length transfer a form of election relating to the method of payment for satisfying such holders' withholding tax obligations with respect to the conversion of Expedia employee warrants into IAC employee warrants. See "Material United States Federal Income Tax Consequences—Holders of Expedia Warrants—Conversion of Expedia Employee Warrants into IAC Employee Warrants" for more information on the tax consequences relating to the Expedia employee warrants. Under the Expedia optionholder warrant agreement pursuant to which the Expedia employee warrants were issued, any transfer of the Expedia employee warrants is subject to the receipt by Expedia of all applicable withholding taxes, which withholding taxes may be paid in cash or shares of Expedia common stock owned by the warrantholder. As an alternative to satisfying the withholding taxes in cash or shares of Expedia common stock, Expedia will give holders of the Expedia employee warrants an election to satisfy the applicable withholding taxes due upon completion of the merger by delivery to Expedia of vested Expedia employee warrants sufficient in value to cover the withholding taxes. For purposes of calculating the withholding tax liability, the vested Expedia employee warrants will be valued based on the sales price of the Expedia employee warrants on or about the date we complete the merger, with the exact valuation methodology to be specified in the form of election. For an election to be effective, a holder of an Expedia employee warrant must make the election prior to the election deadline specified in the form of election. Expedia expects to send the form of election to holders of Expedia employee warrants shortly following the mailing of this proxy and information statement/prospectus. In the event that a holder of Expedia employee warrants fails to make a proper election at or prior to the election deadline, Expedia will withhold IAC employee warrants sufficient in value to cover the withholding taxes.

        Holders of shares of Expedia common stock and Expedia Class B common stock will not be entitled to receive any dividends or distributions payable by IAC in respect of IAC common stock until they exchange their Expedia certificates for shares of IAC common stock. After they deliver their Expedia certificates to the exchange agent, those shareholders will receive, subject to applicable law, the amount of dividends or other distributions on IAC common stock having a record date after the effective time previously paid and, at the appropriate payment date, the amount of dividends or other distributions on IAC common stock with a record date after the effective time and a payment date after the surrender of such Expedia certificates, without interest.

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        No fractional shares of IAC common stock will be issued upon the surrender of Expedia certificates. No dividend or distribution will relate to any fractional share of IAC common stock that would otherwise be issuable in the merger, and those fractional shares of IAC common stock will not entitle the owner thereof to any voting rights of an IAC stockholder.

        Holders of shares of Expedia common stock and Expedia Class B common stock otherwise entitled to fractional shares of IAC common stock, if any, will receive a cash payment instead of the fractional shares of IAC common stock they would otherwise be entitled to upon surrender of all of their Expedia certificates. Following completion of the merger, the exchange agent will determine the excess of the number of whole shares of IAC common stock delivered to the exchange agent by IAC for distribution to Expedia shareholders over the aggregate number of whole shares of IAC common stock to be distributed to Expedia shareholders. The exchange agent will then, on behalf of the former Expedia shareholders, sell the excess shares of IAC common stock at the then-prevailing prices on the over the counter market, in the manner provided for in the merger agreement, and make the proceeds available for distribution to the former holders of shares of Expedia common stock and Expedia Class B common stock otherwise entitled to fractional shares of IAC common stock upon surrender of their Expedia certificates.

        Shares of Expedia common stock and Expedia Class B common stock which are outstanding immediately prior to the effective time and are held by shareholders who have demanded appraisal rights with respect to their shares of Expedia common stock and Expedia Class B common stock in accordance with the WBCA will not be converted into the right to receive shares of IAC common stock in the merger, except that any shares of Expedia common stock or Expedia Class B common stock held by an Expedia shareholder seeking appraisal rights who thereafter withdraws his or her demand for appraisal of their shares or loses the right to appraisal as provided under Washington law will be deemed to have been converted into the merger consideration at the effective time, without interest. All payments to holders of shares of Expedia common stock and Expedia Class B common stock validly exercising appraisal rights will be paid by Expedia out of Expedia's own funds, and no funds will be supplied directly or indirectly by IAC for that purpose.

        Any consideration held by the exchange agent on behalf of the former holders of shares of Expedia common stock and Expedia Class B common stock that remains undistributed to the former Expedia shareholders for 12 months after the effective time will be delivered to IAC, upon demand. Following such delivery, former Expedia shareholders that have not validly exchanged Expedia certificates for the merger consideration will be required to look only to IAC for payment of the merger consideration.

        None of the exchange agent, IAC, Equinox Merger Corp. or Expedia will be liable to any holder of shares of Expedia common stock or Expedia Class B common stock or shares of IAC common stock, as the case may be, for any amount delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

        If an Expedia certificate has been lost, stolen or destroyed, the exchange agent will issue the IAC common stock, cash instead of fractional shares of IAC common stock and unpaid dividends and distributions on shares of IAC common stock payable under the merger agreement upon receipt of an affidavit with respect to that loss, theft or destruction and a reasonable indemnity.

        Any consideration held by the warrant agent on behalf of the holders of Expedia warrants that remains undistributed to the holders of the Expedia warrants for 12 months after the merger is

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completed will be delivered to IAC, upon demand. Following such delivery, holders of Expedia warrants that have not validly exchanged Expedia warrants for IAC warrants will be required to look only to IAC for IAC warrants.

        None of the warrant agent, IAC, Equinox Merger Corp. or Expedia will be liable to any holder of Expedia warrants for any amount delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If an Expedia warrant has been lost, stolen or destroyed, the warrant agent will issue the IAC warrants payable under the merger agreement upon receipt of an affidavit with respect to that loss, theft or destruction and a reasonable indemnity.


Representations and Warranties

        In the merger agreement, Expedia and IAC make representations and warranties to each other about their respective companies related to, among other things:

        Expedia also made additional representations and warranties to IAC related to, among other things:

        IAC also made additional representations and warranties to Expedia related to, among other things:

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        The representations and warranties given by Expedia and IAC do not survive completion of the merger.


Covenants

        The merger agreement contains customary covenants as well as specific covenants relating to the conduct of the respective parties' businesses pending completion of the merger.

        Expedia has agreed (as to itself and its subsidiaries) that, prior to the completion of the merger or termination of the merger agreement, except as contemplated by the merger agreement or with respect to matters approved by the Expedia board of directors (unless the Expedia directors who are also executive officers of IAC either voted against or abstained from voting with respect to such conduct), Expedia and its subsidiaries will conduct their respective businesses in the ordinary and usual course consistent with past practice, including, without limitation, consulting with, advising and obtaining the approval of IAC, in each case consistent with past practice. In addition, among other things and subject to certain exceptions, Expedia has agreed (as to itself and its subsidiaries) that, without IAC's prior consent, it will not take any of the following actions prior to the completion of the merger or the termination of the merger agreement:

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        IAC has agreed (as to itself and its subsidiaries) that, prior to the completion of the merger or the termination of the merger agreement, except as contemplated by the merger agreement or the agreements described in IAC's definitive proxy statement, dated March 25, 2002 (which is incorporated by reference into this proxy and information statement/prospectus) or any report, schedule, registration statement or definitive proxy statement filed by IAC with the SEC on or after January 1, 2002 and prior to the date of the merger agreement, without the prior written consent of Expedia, IAC will not take any action that would reasonably be expected to result in any of the conditions to completion of the merger contained in the merger agreement not being satisfied.

        Expedia has agreed to hold a meeting of its shareholders on or before August 1, 2003, referred to as the shareholders' meeting, for the purpose of obtaining approval of the merger agreement by the holders of a majority of the voting power of the outstanding Expedia common stock and Expedia Class B common stock, voting together as a single class. The Expedia board of directors has also agreed to recommend adoption of the plan of merger by the Expedia shareholders and not to withdraw, modify or qualify the recommendation in any manner adverse to IAC or take any action or make any statement inconsistent with the recommendation; provided that the Expedia board of directors will not recommend the approval of the merger agreement and the transactions contemplated thereby without the approval of the special committee.

        IAC has agreed to appear in person or by proxy at the shareholders' meeting so that all shares of Expedia owned by IAC are counted for the purpose of obtaining a quorum, and to vote to adopt the merger with respect to all such shares. IAC has also agreed that, if the merger agreement is amended and such amendment is approved by the boards of directors of both IAC and Expedia or if a subsequent consent is deemed necessary to consummate the merger and the other transactions contemplated by the merger agreement, then IAC will, at a meeting of Expedia's shareholders at which any proposal to adopt the amended merger agreement is proposed, cause all Expedia shares owned by it to appear at such meeting so that all such Expedia shares are counted for purposes of obtaining a quorum and to vote such Expedia shares to adopt the amended merger agreement. In addition, IAC has agreed to vote against any proposal that is contrary to the adoption of the merger agreement and the transactions contemplated by the merger agreement.

        IAC has agreed to use its reasonable best efforts to cause the shares of IAC common stock issuable in the merger (including the shares of IAC common stock reserved for issuance with respect to Expedia stock options, Expedia stock-based awards and Expedia warrants) and the IAC listed warrants to be eligible for quotation on the Nasdaq National Market (or other national market or exchange on which IAC common stock is then traded or quoted) prior to the effective time.

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        IAC has agreed to cause the surviving corporation to maintain in effect, for the benefit of individuals who at or prior to the effective time were directors or officers of Expedia, the provisions regarding indemnification and exculpation of officers and directors (including with respect to advancement of expenses) contained in Expedia's articles of incorporation and bylaws as of March 18, 2003, and has agreed not to amend, modify or otherwise repeal those provisions for a period of six years from the effective time in any manner that would adversely affect the rights of those individuals under the relevant provisions (unless a modification is required by applicable law and then only to the minimum extent required or except to make changes permitted by applicable law that would enlarge the exculpation or rights of indemnification thereunder). If claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) in respect of such claims shall continue, without diminution, until disposition of all such claims.

        Under the merger agreement, the surviving corporation is required to, and IAC has agreed to cause the surviving corporation to, to the maximum extent permitted under applicable law, provide to Expedia's directors and officers as of March 18, 2003, the maximum indemnification protection (including with respect to advancement of expenses, including advancing expenses as incurred) permitted under the WBCA for a period of six years after the effective time. If claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) in respect of such claims shall continue, without diminution, until disposition of all such claims.

        Under the merger agreement, the surviving corporation is also required to, and IAC has agreed to cause the surviving corporation to, assume, honor and fulfill the obligations of Expedia under any indemnification agreements, including those contained in employment agreements with Expedia's directors, officers and other employees (if any) existing at the effective time. In addition, IAC has agreed to provide, or to cause the surviving corporation to provide, for a period of not less than six years after the effective time, Expedia's current and former directors and officers who were covered by Expedia's insurance and indemnification policy on March 18, 2003 with an insurance and indemnification policy (including, without limitation, by arranging for run-off coverage, if necessary) that provides coverage for events occurring at or prior to the effective time that is no less favorable than Expedia's policy in existence on March 18, 2003, or, if substantially equivalent insurance coverage is unavailable, the most advantageous directors and officers insurance policy obtainable for an annual premium equal to 200% of the annual premium being paid by Expedia for such insurance as of March 18, 2003, calculated on the basis of a fair allocation of the portion of the premium if IAC arranges for coverage on a group basis.

        In the event that IAC, the surviving corporation or any of their successors or assigns consolidates with or merges into another person and is not the continuing or surviving entity, or transfers or conveys all or substantially all of its properties and assets to another person, proper provision will be made so that the successors and assigns of such party will assume the obligations regarding indemnification and insurance described above.

        From and after the effective time, IAC has agreed to cause the surviving corporation to fulfill all written employment, severance, termination, consulting and retirement agreements and severance plans, as in effect on March 18, 2003, to which Expedia or any of its subsidiaries is a party, pursuant to the terms of those agreements and applicable law.

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        Expedia and IAC have agreed to other customary covenants in the merger agreement, including, among other things, with respect to:


Conditions to the Merger

        The respective obligations of IAC and Expedia to effect the merger are subject to the satisfaction or waiver of a number of customary conditions before completion of the merger, including:

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        As used in the merger agreement, "material adverse effect" with respect to any party means any change, event or effect that is materially adverse to the business, financial condition or results of operations of such party and its subsidiaries taken as a whole.

        The definition of "material adverse effect" excludes:

        With respect to Expedia, the definition of "material adverse effect" also excludes:


Termination of the Merger Agreement

        The merger agreement may be terminated at any time prior to the effective time, whether or not Expedia shareholders and IAC stockholders have approved the merger, by:

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Amendment; Waiver

        The merger agreement may be amended by IAC and Expedia prior to the effective time by an instrument in writing signed by IAC and Expedia. In addition, after approval of the merger agreement by Expedia's and IAC's shareholders, no amendment may be made which requires further approval of Expedia's and IAC's shareholders without such further approval.

        At any time prior to the effective time, IAC and Expedia may, in writing, (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement and (c) waive compliance with any of the agreements or conditions contained in the merger agreement. Any extension or waiver on behalf of Expedia will be taken only upon the approval of the special committee.


Fees and Expenses

        All fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those fees and expenses, whether or not the merger is completed. Expedia is permitted to and will pay the fees and expenses of their financial, legal and other advisors on the day the merger is completed.


Special Committee Approval

        Prior to the effective time, any determination to be made or action to be taken by Expedia under the merger agreement will be made and taken only upon the approval of the special committee of the board of directors of Expedia.

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 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF IAC

        In the tables below, we provide you with unaudited pro forma combined condensed financial information for IAC giving effect to the following transactions:

        The results of the USA Entertainment Group are presented as discontinued operations in the historical financial statements of IAC, and therefore have been excluded from the unaudited pro forma combined condensed financial statements of IAC.

        The unaudited pro forma combined condensed financial statements of IAC reflect some assumptions regarding the transactions and are based on the historical financial statements of IAC. The unaudited pro forma combined condensed financial statements of IAC, including the notes accompanying them, are qualified in their entirety by reference to, and should be read in conjunction with, IAC's audited financial statements, including the notes accompanying them, which have been filed with the SEC.

        The unaudited pro forma combined condensed balance sheet as of March 31, 2003 gives effect to the Expedia merger and the Hotels.com merger as if they occurred on March 31, 2003. All other transactions described above have been reflected in the historical balance sheet as of March 31, 2003.

        The unaudited pro forma combined condensed statement of operations for the three months ended March 31, 2003 reflects IAC's unaudited statement of operations for the three months ended March 31, 2003, adjusted for the pro forma effects of the Ticketmaster merger, the Expedia merger and the Hotels.com merger as if those transactions had occurred on January 1, 2003. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2002 reflects IAC's audited statement of operations for the year ended December 31, 2002, adjusted for the pro forma effects of the IAC acquisition of control, the VUE transaction, the Holdco exchange, the Ticketmaster merger, the Expedia merger and the Hotels.com merger as if those transactions had occurred on January 1, 2002.

        IAC is in the process of evaluating the fair value of the assets and liabilities of Ticketmaster acquired in the Ticketmaster merger and the assets and liabilities of Expedia and Hotels.com to be acquired in the proposed Expedia merger and acquired in the Hotels.com merger, respectively, including the allocation of merger consideration to intangibles other than goodwill. Accordingly, this purchase accounting information is preliminary and has been made solely for the purpose of developing the unaudited pro forma combined condensed financial information contained in the following pages.

        The unaudited pro forma combined condensed balance sheet and statement of operations are neither necessarily indicative of the results of operations or financial position that would have been reported had these transactions occurred on January 1, 2002 nor are they necessarily indicative of IAC's future financial results of operations.

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 INTERACTIVECORP
Unaudited Pro Forma Combined Condensed Balance Sheet
March 31, 2003
(In thousands)

 
   IAC
Historical
   Expedia
Merger(1)
   Hotels.com
Merger(2)
   Pro Forma
Combined
ASSETS                        
Current Assets:                        
Cash and cash equivalents   $ 2,593,280   $ —   $ —   $ 2,593,280
Restricted cash     43,087     —     —     43,087
Marketable securities     1,229,303     —     —     1,229,303
Accounts and notes receivable, net     383,014     —     —     383,014
Inventories, net     192,169     —     —     192,169
Other     184,243     —     —     184,243
   
 
 
 
Total current assets     4,625,096     —     —     4,625,096

Property, plant and equipment, net
 
 
430,381
 
 
—
 
 
—
 
 
430,381
Intangible assets including goodwill, net     8,069,957     3,298,667     861,475     12,230,099
Cable distributions fees, net     158,417     —     —     158,417
Long-term investments     1,347,762     —     —     1,347,762
Preferred interest exchangeable for common stock     1,428,530     —     —     1,428,530
Deferred charges and other     159,900     —     —     159,900
   
 
 
 
  Total assets   $ 16,220,043   $ 3,298,667   $ 861,475   $ 20,380,185
   
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY                        
Current Liabilities:                        
Current maturities of long-term debt   $ 16,875   $ —   $ —   $ 16,875
Accounts payable, accrued and other current liabilities     389,283     —     —     389,283
Accounts payable, client accounts     207,328     —     —     207,328
Cable distribution fees payable     36,797     —     —     36,797
Deferred revenue     423,346     —     —     423,346
Other accrued liabilities     738,788     —     —     738,788
   
 
 
 
Total current liabilities     1,812,417     —     —     1,812,417

Long-term obligations, net of current maturities
 
 
1,189,155
 
 
—
 
 
—
 
 
1,189,155
Other long-term liabilities     108,438     —     —     108,438
Deferred income taxes     2,335,528     138,099     —     2,473,627
Minority interest     610,350     (229,211 )   (319,199 )   61,940
Common stock exchangeable for preferred interest     1,428,530     —     —     1,428,530
Shareholders' equity     8,735,625     3,389,779     1,180,674     13,306,078
   
 
 
 
  Total liabilities and shareholders' equity   $ 16,220,043   $ 3,298,667   $ 861,475   $ 20,380,185
   
 
 
 

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements of IAC.

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INTERACTIVECORP
Unaudited Pro Forma Combined Condensed Statement of Operations
Three Months Ended March 31, 2003
(In thousands, except per share data)

 
   IAC
Historical
   Ticketmaster
Merger
   Expedia
Merger
   Hotels.com
Merger
   Pro Forma
Combined
  
NET REVENUES:                                
HSN-US   $ 414,973   $ —   $ —   $ —   $ 414,973  
Ticketing     195,086     —     —     —     195,086  
Match.com     40,895     —     —     —     40,895  
Hotels.com     277,427     —     —     —     277,427  
Expedia     198,760     —     —     —     198,760  
Interval     55,991     —     —     —     55,991  
PRC     71,406     —     —     —     71,406  
Local Services     8,386     —     —     —     8,386  
HSN International     115,243     —     —     —     115,243  
USA Electronic Commerce
    Solutions LLC/Styleclick		     4,705     —     —     —     4,705  
TV Travel Shop     12,927     —     —     —     12,927  
Intersegment elimination     (3,733 )   —     —     —     (3,733 )
   
 
 
 
 
 
  Total net revenues     1,392,066     —     —     —     1,392,066  
   
 
 
 
 
 

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales     793,606     —     —     —     793,606  
Other costs     373,356     —     —     —     373,356  
Amortization of cable distribution
    fees		     13,952     —     —     —     13,952  
Amortization of non-cash
    compensation		     10,369     461 (14)   53,761 (14)   12,124 (14)   76,715  
Non-cash distribution and
    marketing expense		     10,489     —     —     —     10,489  
Depreciation and amortization     94,709     1,237 (6)   3,744 (7)   —     99,690  
Exchange offer costs     2,096     —     —     —     2,096  
   
 
 
 
 
 
Total operating costs and expenses     1,298,577     1,698     57,505     12,124     1,369,904  
   
 
 
 
 
 
  Operating income (loss)     93,489     (1,698 )   (57,505 )   (12,124 )   22,162  
Interest and other, net     (229,778 )   —     —     —     (229,778 )
   
 
 
 
 
 
Earnings (loss) before income taxes
    and minority interest		     (136,289 )   (1,698 )   (57,505 )   (12,124 )   (207,616 )
Income tax expense     54,877     666 (16)   22,556 (16)   4,756 (16)   82,855  
Minority interest     (25,384 )   817 (15)   12,102 (15)   5,898 (15)   (6,567 )
   
 
 
 
 
 
EARNINGS (LOSS) FROM
    CONTINUING OPERATIONS BEFORE PREFERRED DIVIDEND		   $ (106,796 ) $ (215 ) $ (22,847 ) $ (1,470 ) $ (131,328 )
   
 
 
 
 
 
Earnings/(loss) per common share
    from continuing operations		                                
  Basic   $ (0.22 )                   $ (0.21 )
   
                   
 
  Diluted   $ (0.22 )                   $ (0.21 )
   
                   
 
Weighted average shares
    outstanding		     487,244                       640,096  
   
                   
 
Weighted average diluted shares
    outstanding		     487,244                       640,096  
   
                   
 

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements of IAC.

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INTERACTIVECORP
Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 2002
(In thousands, except per share data)

 
   IAC
Historical
   Expedia
Historical(3)
   Expedia
Pro Forma
Adjustments
   VUE
Pro Forma
Adjustments
   Holdco
Exchange
   Ticketmaster
Merger
   Expedia
Merger
   Hotels.com
Merger
   Pro Forma
Combined
  
NET REVENUES:                                                        
HSN-US   $ 1,611,184   $ —   $ —   $ —   $ —   $ —   $ —   $ —   $ 1,611,184  
Ticketing     655,249     —     —     —     —     —     —     —     655,249  
Match.com     125,239     —     —     —     —     —     —     —     125,239  
Hotels.com     945,373     —     —     —     —     —     —     —     945,373  
Expedia     553,702     35,487     —     —     —     —     —     —     589,189  
Interval     38,730     —     —     —     —     —     —     —     38,730  
PRC     295,239     —     —     —     —     —     —     —     295,239  
Citysearch and related     30,768     —     —     —     —     —     —     —     30,768  
International TV Shopping & other     337,128     —     —     —     —     —     —     —     337,128  
USA Electronic Commerce
    Solutions LLC/Styleclick		     39,199     —     —     —     —     —     —     —     39,199  
Intersegment elimination     (10,587 )   —     —     —     —     —     —     —     (10,587 )
   
 
 
 
 
 
 
 
 
 
  Total net revenues     4,621,224     35,487     —     —     —     —     —     —     4,656,711  
   
 
 
 
 
 
 
 
 
 

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales     2,818,443     10,586     —     —     —     —     —     —     2,829,029  
Other costs     1,263,456     15,723     —     —     —     —     —     —     1,279,179  
Amortization of cable distribution
    fees		     53,680     —     —     —     —     —     —     —     53,680  
Amortization of non-cash
    compensation		     15,899     930     —     —     —     7,106 (14)   206,530 (14)   42,697 (14)   273,162  
Non-cash distribution and
    marketing expense		     37,344     —     —     4,059 (9)   —     —     —     —     41,403  
Depreciation and amortization     323,402     5,238     (791 )(4)   16,670 (5)   —     29,660 (6)   12,957 (7)   —     387,136  
Goodwill impairment     22,247     —     —     —     —     —     —     —     22,247  
   
 
 
 
 
 
 
 
 
 
Total operating costs and expenses     4,534,471     32,477     (791 )   20,729     —     36,766     219,487     42,697     4,885,836  
   
 
 
 
 
 
 
 
 
 
  Operating income (loss)     86,753     3,010     791     (20,729 )   —     (36,766 )   (219,487 )   (42,697 )   (229,125 )
Interest and other, net     (39,725 )   324     —     34,335   (10)   —     —     —     —     (5,066 )
   
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
    and minority interest		     47,028     3,334     791     13,606     —     (36,766 )   (219,487 )   (42,697 )   (234,191 )
Income tax expense     (5,572 )   (1,424 )   (310 )(16)   (7,661 )(11)   —     14,421   (16)   86,093   (16)   16,748 (16)   102,295  
Minority interest     (34,078 )   —     (692 )(8)   (12,855 )(12)   (8,249 )(13)   5,911   (15)   27,313   (15)   23,503 (15)   853  
   
 
 
 
 
 
 
 
 
 
EARNINGS (LOSS) FROM
    CONTINUING OPERATIONS BEFORE PREFERRED DIVIDEND		   $ 7,378   $ 1,910   $ (211 ) $ (6,910 ) $ (8,249 ) $ (16,434 ) $ (106,081 ) $ (2,446 ) $ (131,043 )
   
 
 
 
 
 
 
 
 
 
Earnings/(loss) per common share
    from continuing operations		                                                        
  Basic   $ 0.02                                             $ (0.21 )
   
                                           
 
  Diluted   $ 0.00                                             $ (0.21 )
   
                                           
 
Weighted average shares
    outstanding		     426,317                                               636,688  
   
                                           
 
Weighted average diluted shares
    outstanding		     450,745                                               636,688  
   
                                           
 

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements of IAC.

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Notes to Unaudited Pro Forma Combined Condensed Financial Statements of IAC

        

1.
Represents the issuance of 99.9 million shares of IAC common stock to Expedia security holders in the Expedia merger based on an exchange ratio of 1.93875 shares of IAC common stock for each share of Expedia common stock. Also includes options to acquire 38.7 million shares of IAC common stock and warrants to acquire 24.2 million shares of IAC common stock, in each case based on an exchange ratio of 1.93875. The price used to value the securities is $26.47, which is the average of the closing prices of IAC common stock on the two trading days prior to, the day of, and the two trading days following, the announcement of the Expedia merger. The amount recorded as deferred compensation in shareholders equity is the estimated impact of unvested stock options and warrants as of the merger date, at their fair value. The acquisition costs and resulting goodwill are as follows:

 
   (In thousands)
  
IAC common stock   $ 2,645,637  
Fair value of options to acquire IAC common stock     806,474  
Fair value of warrants to acquire IAC common stock     417,603  
Less: Fair value of unvested options and warrants to acquire IAC common stock
    recorded as deferred compensation		     (479,935 )
   
 
      3,389,779  

Add: Deferred income taxes
 
 
138,099
 
Less: Minority interest acquired     (229,211 )
   
 
Excess of merger consideration over minority interest acquired, deferred
    income taxes, and deferred compensation		   $ 3,298,667  
   
 
2.
Represents the issuance of 44.3 million shares of IAC common stock to Hotels.com security holders in the Hotels.com merger based on an exchange ratio of 2.4 shares of IAC common stock for each share of Hotels.com common stock. Also includes options to acquire 6.4 million shares of IAC common stock, warrants to acquire 5.1 million shares of IAC common stock and restricted stock units to acquire 0.3 million shares of IAC common stock, in each case based on an exchange

78

 
   (In thousands)
  
IAC common stock   $ 1,159,910  
Fair value of options to acquire IAC common stock     101,492  
Fair value of warrants to acquire IAC common stock     3,915  
Fair value of restricted stock units     11,091  
Less: Fair value of unvested options to acquire IAC common stock
    and restricted stock units recorded as deferred compensation		     (95,734 )
   
 
      1,180,674  

Less: Minority interest acquired
 
 
(319,199
)
   
 
Excess of merger consideration over minority interest acquired and deferred
    compensation preliminarily allocated to goodwill		   $ 861,475  
   
 
3.
Represents the results of operations for Expedia based on historical information of Expedia. The historical results of operations for IAC include Expedia's results for the period from February 4, 2002 to December 31, 2002.

4.
Represents difference in amortization of intangibles recorded in the historical results and the pro forma amount amortization of intangibles identified in the IAC acquisition of control completed on February 4, 2002. IAC's aggregate purchase price was $1.5 billion, of which $350 million was allocated to intangible assets other than goodwill based upon the results of an independent valuation of the assets and liabilities acquired.

5.
Represents incremental amortization of intangibles identified in IAC's acquisition of additional interest in HSN's assets and liabilities as a result of the VUE transaction that was completed on May 7, 2002. The aggregate fair value of the interest acquired was $2.2 billion, of which $488 million was allocated to intangible assets other than goodwill based upon the results of an independent valuation of the assets and liabilities acquired.

6.
Represents incremental amortization of intangibles preliminarily identified in IAC's acquisition of the portion of Ticketmaster that they did not already own in the Ticketmaster merger that was

79

7.
Represents incremental amortization of intangibles preliminarily identified in IAC's acquisition of the portion of Expedia that they do not already own in the Expedia merger. IAC's aggregate purchase price is $3.9 billion, of which $195 million is preliminarily allocated to intangible assets other than goodwill based upon the results of an independent valuation of the assets and liabilities acquired.

8.
Represents the minority interest in the historical results of operations of Expedia, based upon a 64.2% equity ownership by IAC of Expedia.

9.
Represents adjustment for non-cash marketing related to advertising provided to Ticketmaster and its subsidiaries by USA Cable, which was contributed to VUE on May 7, 2002. As these transactions were among consolidated entities, the amount was eliminated in the consolidated historical results of IAC.

10.
Reflects the cash dividends of $22 million payable quarterly with respect to IAC's Class B preferred interest in VUE and the payable-in-kind dividends of $12 million due in cash at maturity (20 years following the consummation of the VUE transaction) with respect to IAC's Class A preferred interest in VUE.

11.
Represents tax impact of pro forma adjustments described under notes 9 and 10 above.

12.
Represents the adjustment to minority interest related to the cancellation of approximately 320.9 million shares of USANi LLC, a subsidiary of IAC, comprising all of the USANi LLC shares not then owned by IAC and its subsidiaries. The cancellation of USANi LLC shares occurred on May 7, 2002 in conjunction with the VUE transaction. Prior to the VUE transaction, Vivendi owned approximately 47% and Liberty owned approximately 8% of USANi LLC.

13.
Represents the adjustment to minority interest related to Liberty's exchange of its shares of Home Shopping Network, Inc., or Holdco, not owned by IAC. The Holdco shares were exchanged for approximately 31.6 million shares of IAC common stock and approximately 1.6 million shares of IAC Class B common stock. The Holdco exchange occurred on June 27, 2002. Prior to the Holdco exchange, Liberty owned 19.9% of Holdco.

14.
Represents estimated amortization of non-cash compensation related to the Ticketmaster, Expedia and Hotels.com mergers. The expense is based upon the estimated fair value of unvested stock options and warrants, amortized over their estimated remaining vesting period.

15.
Represents the adjustment to historical minority interest benefit/expense related to Ticketmaster, Expedia and Hotels.com.

16.
Represents the tax benefit/expense related to the incremental amortization of non-cash compensation and definite-lived intangible assets.

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 DESCRIPTION OF IAC CAPITAL STOCK

        Set forth below is a description of IAC's capital stock. The following statements are brief summaries of, and are subject to the provisions of, IAC's certificate of incorporation and by-laws, the IAC preferred stock certificate of designations, the IAC warrant agreements and the relevant provisions of the Delaware General Corporation Law, or the DGCL.

        As of the date of this proxy and information statement/prospectus, the authorized capital stock of IAC consists of 1,600,000,000 shares of IAC common stock, par value $.01 per share, 400,000,000 shares of IAC Class B common stock, par value $.01 per share, and 100,000,000 shares of preferred stock, par value $.01 per share, of which 13,125,000 shares have been designated Series A Cumulative Convertible Redeemable Preferred Stock (which we refer to in this proxy and information statement/prospectus as IAC preferred stock).


IAC Common Stock and IAC Class B Common Stock

        As of June 15, 2003, there were 493,288,067 shares of IAC common stock outstanding and 64,629,996 shares of IAC Class B common stock outstanding. Upon consummation of the merger, based on the number of shares of IAC common stock and Expedia common stock outstanding as of June 15, 2003, and after giving effect to IAC's merger with Hotels.com, which was completed on June 23, 2003, there would be outstanding approximately 637,551,926 shares of IAC common stock and 64,629,996 shares of IAC Class B common stock.

        With respect to matters that may be submitted to a vote or for the consent of IAC stockholders, including the election of directors, each holder of IAC Class B common stock is entitled to ten votes for each share of IAC Class B common stock held and will vote together with the holders of IAC common stock and IAC preferred stock as a single class, except as otherwise required by the DGCL. Each holder of IAC preferred stock is entitled to two votes for each share of IAC preferred stock held and each holder of IAC common stock is entitled to one vote for each share of IAC common stock held. Notwithstanding the foregoing, the holders of IAC common stock, acting as a single class, are entitled to elect 25% of the total number of directors on the IAC board of directors, and, in the event that 25% of the total number of directors results in a fraction of a director, then the holders of IAC common stock, acting as a single class, are entitled to elect the next higher whole number of directors on the IAC board of directors.

        Shares of IAC Class B common stock are convertible into shares of IAC common stock at the option of the holder of the shares at any time on a share-for-share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of IAC by means of a stock dividend on, or a stock split or combination of, outstanding IAC common stock or IAC Class B common stock, or in the event of any merger, consolidation or other reorganization of IAC with another corporation. Upon the conversion of IAC Class B common stock into shares of IAC common stock, those shares of IAC Class B common stock will be retired and will not be subject to reissue. Shares of IAC common stock are not convertible into shares of IAC Class B common stock.

        In all other respects, the IAC common stock and the IAC Class B common stock are identical. The holders of IAC common stock and the holders of IAC Class B common stock are entitled to receive, share-for-share, such dividends as may be declared by the IAC board of directors out of funds legally available therefor. In the event of a liquidation, dissolution, distribution of assets or winding-up of IAC, the holders of IAC common stock and the holders of IAC Class B common stock are entitled to share ratably in all the assets of IAC available for distribution to its stockholders, after the rights of the holders of the IAC preferred stock, if any, have been satisfied.

        In connection with the VUE transaction, USA InterActive, now InterActiveCorp, Vivendi, Universal, Liberty and Barry Diller entered into an amended and restated governance agreement,

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which, among other things, retained Liberty's preemptive right to maintain its percentage equity ownership in IAC. This preemptive right generally provides that following issuances of IAC common shares exceeding 1% of the total outstanding IAC common shares, Liberty may elect to purchase a number of IAC common shares so that its percentage equity interest in IAC after such issuances will be the same as before such issuances. In connection with the merger, Liberty has the right to, and on May 13, 2003, exercised its right to, maintain its percentage equity interest in IAC following the merger. On May 13, 2003, Liberty also exercised its preemptive right with respect to IAC's proposed acquisition of the publicly-held shares of Hotels.com. As a result of such exercises, IAC issued to Liberty 33,813,169 shares of IAC common stock at purchase prices that were based on the prices of IAC common stock around the time of signing of the merger agreement and the Hotels.com merger agreement.

        The IAC certificate of incorporation provides that there can be no stock dividends or stock splits or combinations of stock declared or made on IAC common stock or IAC Class B common stock unless the shares of IAC common stock and IAC Class B common stock then outstanding are treated equally and identically.

        The shares of IAC common stock to be issued in connection with the merger will be validly issued, fully paid and non-assessable.

        IAC has paid no cash dividends on its common stock to date and does not anticipate paying cash dividends on its common stock in the immediate future.


IAC Preferred Stock

        IAC may issue shares of preferred stock from time to time in one or more series. The IAC board of directors has authority, by resolution, to designate the powers, preferences, rights and qualifications and restrictions of preferred stock of IAC.

        General.    In connection with the IAC acquisition of control on February 4, 2002, IAC issued 13,118,369 shares of IAC preferred stock, each having a $50.00 face value and a term of 20 years, of which 13,118,182 are currently outstanding.

        Voting Rights.    Holders of IAC preferred stock are entitled to two votes for each share of IAC preferred stock held on all matters presented to such stockholders. Except as otherwise required by Delaware law, or any special voting rights of IAC preferred stock as described in this proxy and information statement/prospectus, the holders of IAC common stock, IAC Class B common stock and IAC preferred stock entitled to vote with the common stockholders will vote together as one class. No separate class vote of IAC preferred stock will be required for the approval of any matter except as required by Delaware law.

        Dividends.    Each share of IAC preferred stock is entitled to receive dividends equal to the sum of (1) 1.99% of the face value per year, payable quarterly in cash or IAC common stock, at IAC's option, plus (2) the excess, if any, of the aggregate value of any dividends paid on the IAC common stock underlying the IAC preferred stock over the amount described in (1). If IAC elects to pay the dividends in IAC common stock, the price will be based on the 10-day trailing average price of IAC common stock prior to the payment date. No other preferred stock of IAC will rank senior to IAC preferred stock with respect to payment of dividends.

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        Conversion Rights.    Each share of IAC preferred stock is convertible, at the option of the holder, into that number of shares of IAC common stock equal to the quotient obtained by dividing $50.00 by the conversion price per share of IAC common stock. The initial conversion price is equal to $33.75 per share of IAC common stock. The conversion price will be adjusted downward if the share price of IAC common stock exceeds $35.10 at the time of conversion pursuant to the following formula:

$50 X (IAC)


(IAC X 1.4815) + (0.4792 X (IAC - 35.10))

where IAC = 10-day average price of IAC common stock for the 10 days prior to the payment date;

        The certificate of designations for shares of IAC preferred stock also includes an anti-dilution adjustment provision so that the number of shares of IAC common stock to be received upon conversion of a share of IAC preferred stock is adjusted from time to time in the event of any stock split, stock consolidation, combination or subdivision, stock dividend or other distribution and any repurchase, reclassification, recapitalization or reorganization of IAC.

        Redemption by IAC.    Commencing on February 4, 2012, the tenth anniversary of the effective time of the IAC acquisition of control, IAC will have the right from time to time to redeem at least 25% of the original aggregate face value and up to 100% of the original aggregate face value of the outstanding IAC preferred stock at a redemption price per share of IAC preferred stock equal to face value plus any accrued and unpaid dividends. Any payment by IAC pursuant to a redemption by IAC may be made in cash or IAC common stock, at the option of IAC.

        Redemption by the Holder of IAC Preferred Stock.    During the 20 business day period preceding each of the fifth, seventh, tenth and fifteenth anniversaries of February 4, 2002, a holder of IAC preferred stock will have the right to require IAC to purchase all or a portion of the shares of IAC preferred stock held by such holder for face value plus any accrued and unpaid dividends. Any payment by IAC pursuant to a redemption by the holder of IAC preferred stock may be made in cash or IAC common stock, at the option of IAC.

        Liquidation Rights.    In the event of a voluntary or involuntary liquidation, dissolution or winding up of IAC, holders of IAC preferred stock will be entitled to receive in preference to any holder of IAC common shares an amount per share equal to all accrued and unpaid dividends plus the greater of (a) face value, or (b) the liquidating distribution that would be received had such holder converted the IAC preferred stock into IAC common stock immediately prior to the liquidation, dissolution or winding up of IAC. No other preferred stock of IAC will rank senior to IAC preferred stock with respect to payment upon liquidation.

        Reservation of Shares of IAC Common Stock.    IAC will keep in reserve at all times during the term of the IAC preferred stock sufficient authorized but unissued shares of IAC common stock for issuance in the event of exercises by the holders of IAC preferred stock.

        Registration of Shares under the Securities Act.    The IAC preferred stock and any IAC common stock issued upon conversion of the IAC preferred stock have been registered under the Securities Act.

        Public Market.    Shares of IAC preferred stock are traded in the over the counter market under the ticker symbol "IACIP.OB."


Anti-Takeover Provisions in IAC's By-laws

        IAC's bylaws contain provisions that could delay or make more difficult the acquisition of IAC by means of a hostile tender offer, open market purchases, a proxy contest or otherwise. We also refer you to "Risk Factors" for information on other factors which could impact a change of control. In addition, IAC's bylaws provide that, subject to the rights of holders of preferred stock, only IAC's chairman of

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the board of directors or a majority of IAC's board of directors may call a special meeting of stockholders.


Effect of Delaware Anti-Takeover Statute

        IAC is subject to Section 203 of the DGCL, which regulates corporate acquisitions. Section 203 generally prevents corporations from engaging in a business combination with any interested stockholder for three years following the date that the stockholder became an interested stockholder, unless that business combination has been approved in one of a number of specific ways. For purposes of Section 203, a "business combination" includes, among other things, a merger or consolidation involving IAC and the interested stockholder and a sale of more than 10% of IAC's assets. In general, the anti-takeover law defines an "interested stockholder" as any entity or person beneficially owning 15% or more of a company's outstanding voting stock and any entity or person affiliated with or controlling or controlled by that entity or person. A Delaware corporation may "opt out" of Section 203 with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or by-laws resulting from amendments approved by holders of at least a majority of a corporation's outstanding voting shares. IAC has not "opted out" of the provisions of Section 203.


Action by Written Consent

        Under the DGCL, unless a company's certificate of incorporation expressly prohibits action by the written consent of stockholders, any action required or permitted to be taken by its stockholders at a duly called annual or special meeting may be taken by a consent in writing executed by stockholders possessing the requisite votes for the action to be taken. IAC's certificate of incorporation does not expressly prohibit action by the written consent of stockholders. As a result, Mr. Diller, who as of the date of this proxy and information statement/prospectus controlled (through companies owned by Liberty and Mr. Diller, his own holdings and pursuant to the stockholders Agreement) a majority of the outstanding total voting power of IAC, will be able to take any action to be taken by stockholders (other than with respect to the election by the holders of shares of IAC common stock of 25% of the members of IAC's board of directors and certain matters as to which a separate class vote of the holders of shares of IAC common stock, IAC Class B common stock or IAC preferred stock is required) without the necessity of holding a stockholders meeting.


Transfer Agent

        The transfer agent for the shares of IAC common stock is The Bank of New York.

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 DESCRIPTION OF IAC LISTED WARRANTS

Existing IAC Warrants

        IAC currently has outstanding listed warrants to acquire IAC common stock that were issued to former shareholders of Expedia that elected to receive IAC securities in the IAC acquisition of control in February 2002, We refer in this proxy and information statement to these currently outstanding IAC warrants as the existing IAC warrants. Similar to the IAC listed warrants, the existing IAC warrants are exercisable up to and including February 4, 2009. The existing IAC warrants are quoted on the Nasdaq National Market under the symbol "IACIW" and differ from, and should not be confused with, the IAC listed warrants offered hereby. As a result, following the completion of the merger, IAC will have two types of warrants quoted on the Nasdaq National Market—the existing IAC warrants, which are quoted on the Nasdaq National Market under the symbol "IACIW," and the IAC listed warrants offered hereby, which are expected to be quoted on the Nasdaq National Market under the symbol "IACIZ"—with differing terms, including vesting schedules with respect to the IAC employee warrants, differing exercise prices and differing shares of IAC common stock issuable in respect of each such warrant.


IAC Stockholder Warrants

        IAC stockholder warrants will be issued under a stockholder equity warrant agreement between IAC and Mellon Investor Services LLC, the warrant agent, a form of which will be filed as an exhibit to the registration statement of which this proxy and information statement/prospectus is a part. As of the date of this proxy and information statement/prospectus, there were no outstanding IAC stockholder warrants.

        Each IAC stockholder warrant entitles its holder to purchase 1.93875 shares of IAC common stock. The exercise price per IAC stockholder warrant is $26.00, which must be paid in cash. Each IAC stockholder warrant may be exercised on any business day up to and including February 4, 2009. Any IAC stockholder warrant not exercised before that date will become void, and all rights of the holder of the IAC stockholder warrant will cease. Holders of IAC stockholder warrants will not be entitled, by virtue of being such holders, to have any rights of holders of IAC common stock until they exercise their warrants. The IAC stockholder warrants are not subject to redemption.

        The number of shares of IAC common stock issuable upon exercise of the IAC stockholder warrants will be subject to adjustment from time to time upon the occurrence of any of the following events: any stock split; any stock consolidation, combination or subdivision; any stock dividend or other distribution; and any repurchase, reclassification, recapitalization or reorganization; and certain distributions of rights, warrants or evidences of indebtedness or assets.

        IAC will not issue fractional shares of IAC common stock upon exercise of an IAC stockholder warrant. Instead of issuing a fractional share of IAC common stock which would otherwise be deliverable upon the exercise of an IAC stockholder warrant, IAC will pay the holder of such IAC stockholder warrant an amount in cash based on the closing price of IAC common stock as of the exercise date of the IAC stockholder warrant.

        IAC will not issue physical paper certificates representing the IAC stockholder warrants described in this proxy and information statement/prospectus unless requested in writing by the holder of the IAC stockholder warrant. Instead, the warrant agent will issue the certificates in electronic book entry form and will monitor the issuance and trading of such warrants through its electronic book entry system, provided that IAC may instruct the warrant agent to issue physical certificates if a holder's IAC stockholder warrants are below a de minimis amount.

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        IAC will keep in reserve at all times before the expiration date of the IAC stockholder warrants sufficient authorized but unissued shares of IAC common stock for issuance in the event of exercises by the holders of IAC stockholder warrants.


IAC Employee Warrants

        The IAC employee warrants will be issued under an optionholder equity warrant agreement between IAC and Mellon Investor Services LLC, the warrant agent, a form of which will be filed as an exhibit to the registration statement of which this proxy and information statement/prospectus is a part. As of the date of this proxy and information statement/prospectus, there were no outstanding IAC employee warrants. Except with respect to vesting (including transferability prior to vesting), as described below, and applicable withholding taxes, the IAC employee warrants are identical in all material respects to the IAC stockholder warrants described above.

        The IAC employee warrants will be subject to the same vesting schedule as the Expedia options in respect of which such Expedia employee warrants were issued, which Expedia options will be converted into IAC options at the completion of the merger. The IAC employee warrants will be forfeited and will never become exercisable or transferable if an IAC option issued in exchange for the Expedia option related to the former Expedia employee warrant never vests. The IAC employee warrants to be issued in respect of Expedia employee warrants will not be subject to redemption.

        IAC will not issue physical paper certificates representing the IAC employee warrants described in this proxy and information statement/prospectus. Instead, the warrant agent will issue the certificates in electronic book entry form and will monitor the issuance, vesting and trading of such warrants through its electronic book entry system, provided that IAC may instruct the warrant agent to issue physical certificates if a holder's vested IAC employee warrants are below a de minimis amount.

        IAC will keep in reserve at all times before the expiration date of the IAC employee warrants sufficient authorized but unissued shares of IAC common stock for issuance in the event of exercises by the holders of vested IAC employee warrants.


Warrant Agent

        The warrant agent for the IAC stockholder warrants and the IAC employee warrants is Mellon Investor Services LLC.

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COMPARISON OF SHAREHOLDER RIGHTS

        Expedia is incorporated under the laws of the State of Washington, while IAC is incorporated under the laws of the State of Delaware. If the merger is completed, Expedia shareholders, whose rights are currently governed by the WBCA, the amended and restated articles of incorporation of Expedia, and the amended and restated bylaws of Expedia, will become stockholders of IAC, and their rights as such will be governed by the DGCL, the restated certificate of incorporation of IAC, and the amended and restated by-laws of IAC. The material differences between the rights of holders of Expedia common stock and the rights of holders of IAC common stock, resulting from the differences in their governing documents and governing laws, are summarized below.

        The following summary does not purport to be a complete statement of the rights of holders of IAC common stock under applicable Delaware law, the restated certificate of incorporation of IAC, as amended, and the by-laws of IAC or the rights of the holders of Expedia common stock under applicable Washington law, the amended and restated articles of incorporation of Expedia and the amended and restated bylaws of Expedia, or a complete description of the specific provisions referred to herein. This summary contains a list of the material differences, but is not meant to be relied upon as an exhaustive list or a detailed description of the provisions discussed and is qualified in its entirety by reference to the DGCL, the WBCA and the governing corporate instruments of IAC and Expedia. The description of the provisions of the WBCA and the DGCL in this summary describe such provisions as in effect as of the date of this proxy and information statement/prospectus. We urge you to read those documents carefully in their entirety. Copies of the applicable governing corporate instruments of IAC (as well as the Stockholders Agreement and the Governance Agreement) and Expedia are available, without charge, to any person, including any beneficial owner to whom this proxy and information statement/prospectus is delivered, by following the instructions listed under "Where You Can Find More Information."


Summary of Material Differences Between the Rights of
Expedia Shareholders and IAC Stockholders

 
   Expedia Shareholder Rights
   IAC Stockholder Rights
Authorized Capital Stock:   770,000,000 shares of capital stock, consisting of (1) 600,000,000 shares of Expedia common stock, par value $0.01 per share, (2) 150,000,000 shares of Expedia Class B common stock, par value $0.01 per share, and (3) 20,000,000 shares of Expedia preferred stock, par value $0.01 per share.   2,100,000,000 shares of capital stock, consisting of (1) 1,600,000,000 shares of IAC common stock, par value $0.01 per share, (2) 400,000,000 shares of IAC Class B common stock, par value $0.01 per share, and (3) 100,000,000 shares of IAC preferred stock, par value $0.01 per share.
    As of June 15, 2003, there were issued and outstanding 53,426,689 shares of Expedia common stock, 69,002,382 shares of Expedia Class B common stock and no shares of Expedia preferred stock.   As of June 15, 2003, there were issued and outstanding 493,288,067 shares of IAC common stock, 64,629,996 shares of IAC Class B common stock and 13,118,182 shares of IAC preferred stock.
                 

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Voting Power of Common Stock:
 
Each share of Expedia common stock is entitled to one vote per share. Each share of Expedia Class B common stock is entitled to 15 votes, generally voting together with the Expedia common stock on all matters submitted for the vote or consent of Expedia shareholders, except in cases where the WBCA provides for a separate class vote, provided, however, that, under Expedia's articles, no Expedia shareholder can generally hold more than 94.9% of the total outstanding voting power of Expedia. The WBCA generally provides for a separate class vote on any proposal that would adversely impact one class of shareholders. Based on the number of shares of Expedia Class B common stock outstanding as of the date of this proxy and information statement/prospectus, the holders of Expedia Class B common stock control the vote of any matter submitted to Expedia shareholders voting together as a single class.
 
Each share of common stock is entitled to one vote per share. Each share of IAC Class B common stock is entitled to ten votes per share and each share of IAC preferred stock is entitled to two votes per share, in each case, generally voting together with the IAC common stock on all matters submitted for the vote or consent of IAC stockholders, except in cases where the DGCL provides for a separate class vote and except for the election of 25% of the IAC board of directors, which is elected by the holders of IAC common stock. See "—Board of Directors." Based on the number of shares of IAC Class B common stock outstanding as of the date of this proxy and information statement/prospectus, the holders of IAC Class B common stock control the vote of any matter submitted to IAC stockholders voting together as a single class.

Board of Directors:
 
The Expedia bylaws provide that the number of directors shall be fixed from time to time pursuant to a resolution adopted by the board of directors, or by the shareholders or by amendment to the articles.
 
The IAC by-laws provide that the IAC board of directors shall determine the number of directors by resolution. Currently, the number of directors is 11. The IAC charter provides that the holders of IAC common stock, acting as a single class, elect 25% of the total number of directors, with the remaining directors elected by the holders of IAC common stock, IAC Class B common stock and IAC preferred stock, voting together as a single class.

Removal of Directors:
 
Under the WBCA, shareholders may remove one or more directors with or without cause, unless the articles provide otherwise. Under the Expedia bylaws, shareholders may remove one or more directors with or without cause.
 
Under the DGCL, the affirmative vote of a majority of the shares entitled to vote for the election of directors is required to remove directors, with or without cause, subject to exceptions that do not apply to IAC. The IAC by-laws provide that any director may be removed by the vote of a majority of the voting power of the shares of stock issued and outstanding of the class that elected the director.
                 

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Filling Vacancies of the Board of Directors:
 
Under the WBCA, unless the articles of incorporation provide otherwise, a vacancy may be filled by the shareholders or by the affirmative vote of a majority of the directors then in office, even though less than a quorum. The Expedia bylaws provide that vacancies shall be filled in accordance with the articles and the WBCA.
 
The DGCL provides that, unless the charter or by-laws provide otherwise, vacancies and newly created directorships may be filled by the affirmative vote of a majority of the directors then in office or a sole remaining director, even though less than a quorum. IAC's by-laws also permit holders of a majority of IAC's voting power to fill vacancies.

Interested Directors:
 
The WBCA permits transactions in which one or more directors have a conflicting interest if:
 
Under the DGCL, specified contracts or transactions in which one or more of a corporation's directors has an
    •   a majority, although no fewer than two, of the qualified directors on the board of directors, or on the committee considering the transaction, approves the transaction;   interest are not void or voidable solely because of such interest if such contract or transaction (1) is ratified by the corporation's stockholders or a majority of disinterested members of the board of directors or a committee
    •   an affirmative vote of a majority of all qualified shares approves the transaction; or   thereof if the material facts of the contract or transaction are disclosed or known or (2) was fair to the
    •   at the time of commitment, the transaction was fair to the corporation.   corporation at the time it was approved.

 
 
Such vote must occur after the directors have received disclosure of the conflicting interest, with certain limited exceptions, or the vote will be invalid.
 
 
 
 

 
 
Further, a committee vote is valid only if all members of the committee are qualified directors and, either:
 
 
 
 
    •   are all the qualified directors on the board of directors; or        
    •   were appointed by the affirmative vote of a majority of the board of directors' qualified directors.        

 
 
A director is a qualified director if he or she has neither:
 
 
 
 
    •   a conflicting interest regarding the transaction; nor        
    •   any familial, financial, professional or employment relationship with a second director who does have a conflicting interest, if the relationship would reasonably be expected to exert influence on the first director's judgment in voting on the transaction.        
                 

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Qualified shares are defined generally as shares other than those beneficially owned, or the voting of which is controlled, by a director who has a conflicting interest regarding the transaction.
 
 
 
 

Action by Written Consent:
 
Under the WBCA, shareholder action with respect to a public company may be taken without a meeting only if written consents setting forth such action are signed by all shareholders entitled to vote on the action.
 
Under the DGCL, unless the charter provides otherwise, actions may be taken by the stockholders by written consent, provided that the written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote on the matter were present and voted.

Amendment of Certificate of Incorporation and Articles of Incorporation:
 
The WBCA generally requires that articles amendments be approved by each voting group entitled to vote on the amendment by a majority of all the votes entitled to be cast by that voting group unless another percentage is specified (1) in the articles, (2) by the board of directors as a condition to its recommendation or (3) by the provisions of the WBCA. The Expedia articles provide that Expedia's shareholders may amend the articles by the affirmative vote of a simple majority of the voting power of the shareholders entitled to vote on such amendment, except for the provisions of Article VIII of the articles regarding the relationship between Expedia and IAC, which, so long as IAC owns at least 20% of the total voting power, will require the affirmative vote of more than 80% of the total voting power of the shareholders of all classes of outstanding capital stock to amend or repeal that article.
 
The DGCL generally provides that the charter amendments require the affirmative vote of a majority of the outstanding shares entitled to vote, and in certain circumstances, a separate class vote. It also provides that a charter may provide for a greater or lesser vote than would otherwise be required by the DGCL. The IAC charter includes a supermajority (80%) vote of each of the board of directors and the voting power of the stockholders voting as a single class to amend or repeal the requirement that the Chief Executive Officer may only be removed without cause by the affirmative vote of at least 80% of the entire board of directors.
                 

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Special Meetings:
 
The WBCA provides that special meetings of the shareholders of a corporation may be called by the board of directors or the person or persons authorized to do so in the articles or bylaws. Special meetings of the shareholders of a corporation may be called to vote on a particular issue by holders of at least 10% of the votes entitled to be cast on that issue. This right may, however, be limited or denied by the articles of incorporation. The Expedia bylaws state that only the chairman of the board of directors or a majority of directors then serving on the board of directors may call a special meeting. The Expedia articles, however, are silent on this matter.
 
The DGCL provision provided that special meetings of the stockholder may be called by the board of directors or by such person or persons authorized to do so by the charter or the bylaws. The IAC by-laws provide for the same individuals as the bylaws of Expedia following the transactions to be able to call a special meeting.

Indemnification of Directors and Officers:
 
The WBCA generally permits indemnification of a person who acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that the conduct was unlawful. Indemnification is permissive under Washington law, except that a corporation must indemnify a present or former officer or director who is successful on the merits or otherwise in the defense of certain specified actions, suits or proceedings for expenses, including attorney's fees, actually and reasonably incurred in connection therewith.
 
The DGCL generally permits indemnification of a person who acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interests of the corporation or in the case of a criminal action, had no reason to believe that his or her conduct was unlawful. The IAC by-laws do not depart from this standard.
                 

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Expedia's articles provide that any officer or director who is, was, or is threatened to be made a party to or is otherwise involved in any threatened, pending, or completed action, suit or other proceeding, by reason of the fact that he or she is or was an officer or director of the corporation or was serving in another specific capacity at the request of the corporation, shall be indemnified and held harmless by Expedia to the fullest extent permitted by law. However, Expedia may not indemnify any officer or director from or on account of:
 
 
 
 

 
 
•
 
any act or omission of the officer or director finally adjudged to be intentional misconduct or a knowing violation of law;
 
 
 
 

 
 
•
 
any conduct of the officer or director finally adjudged to be in violation of Section 23B.08.310 of the WBCA (pertaining to unlawful distributions); or
 
 
 
 

 
 
•
 
any transaction with respect to which it is finally adjudged that the officer or director personally received a benefit in money, property or services, to which the officer or director was not legally entitled.
 
 
 
 

 
 
The Expedia bylaws have certain additional provisions related to the indemnification of directors and officers, including procedures for claiming indemnification.
 
 
 
 

Limitation of Director Liability:
 
Under the WBCA, a director's personal liability to the corporation or its shareholders for monetary damages for conduct as a director may be eliminated or limited in the corporation's articles, except that the articles may not limit the liability of a director:
 
Under the DGCL, a director's personal liability to the corporation or its shareholders for monetary damages for conduct as a director may be eliminated or limited in the corporation's articles, except that the articles may not limit the liability of a director.

 
 
•
 
for acts or omissions by a director that involve intentional misconduct or a knowing violation of the law;
 
•
 
for any breach of the director's duty of loyalty to the corporation or its stockholders;

 
 
•
 
for conduct violating Section 23B.08.310 of the WBCA (pertaining to unlawful distributions); or
 
•
 
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
                 

92


 
 
•
 
for any transaction from which the director will personally receive a benefit in money, property or
 
•
 
for conduct violating Section 174 of the DGCL (pertaining to unlawful distributions); or

 
 
 
 
services to which the director is not legally entitled.
 
•
 
for any transaction from which the director derived an improper personal benefit.

 
 
Expedia's articles provide that a director's liability will be limited consistent with this standard, and further provide that if the WBCA is amended to eliminate or limit the liability of directors further, then the liability of Expedia's directors shall be limited to the fullest extent permitted by the WBCA, as so amended.
 
IAC's certificate of incorporation provides that a director's liability will be limited consistent with this standard, and further provides that if the DGCL is amended to eliminate or limit the liability of directors further, then the liability of IAC's directors shall be limited to the fullest extent permitted by the DGCL, as so amended.

Vote on Certain Fundamental Issues:
 
Under the WBCA, a merger or share exchange must be approved by the affirmative vote of a majority of directors when a quorum is present and by two-thirds of all votes entitled to be cast by each voting group entitled to vote as a separate group, unless another percentage is specified in the articles (which percentage may not be below a majority of all votes entitled to be cast by such voting group). The sale of all or substantially all of a corporation's assets other than in the regular course of business or a vote to dissolve the corporation must be approved by the affirmative vote of a majority of directors when a quorum is present and by two-thirds of all votes entitled to be cast on the proposal unless another percentage is specified in the articles (which percentage may not be below a majority of all votes entitled to be cast by such voting group).
 
The DGCL generally provides that, unless otherwise specified in a corporation's charter or unless the provisions of the DGCL relating to business combinations indicated herein are applicable, a sale or other disposition of all or substantially all of the corporation's assets, a merger or consolidation of the corporation with another corporation or a dissolution of the corporation requires the affirmative vote of a majority of the outstanding stock entitled to vote on the matter. However, under the DGCL, unless required by its charter, no vote of the stockholders of a constituent corporation surviving a merger is necessary to authorize such merger if certain requirements are met.
Neither the IAC charter nor the IAC by-laws alter the stockholder approval requirement described above.

 
 
Under the WBCA, a merger may also become effective without the approval of the surviving corporation's shareholders if certain requirements are met.
 
 
 
 
                 

93


 
 
The Expedia articles provide that, except as otherwise set forth in the articles, to the maximum extent permitted under the WBCA, any corporate action that would otherwise require the affirmative vote of more than a simple majority of the voting power of the shareholders of the Corporation entitled to vote on such action, including amending its articles, approving a merger or share exchange, or the sale of assets, other than in the regular course of business, may be approved by the affirmative vote of a simple majority of the voting power of the shareholders of the corporation entitled to vote on such action.
 
 
 
 

Business Combination Restrictions:
 
Chapter 23B.19 of the WBCA, which applies to Washington corporations that have a class of voting stock registered with the SEC under section 12 or 15 of the Exchange Act, prohibits a target corporation, with certain exceptions, from engaging in certain significant business transactions with a person or group of persons who or which beneficially owns 10% or more of the voting shares of the target corporation for a period of five years after such share
 
Section 203 of the DGCL limits specified business combinations of Delaware corporations with interested stockholders. Under the DGCL, an interested stockholder (a stockholder whose beneficial ownership in the corporation is at least 15% of the outstanding voting securities) cannot enter specified business combinations with the corporation for a period of three years following the time that the stockholder became an interested stockholder unless:
    acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the board of directors of the target corporation prior to the time of the initial acquisition by the acquiring person. These prohibited transactions include,  
•		  
prior to that time, the corporation's board of directors approved either the business combination or the transaction in which the stockholder became an interested stockholder;
    among other things:   •   upon consummation of the transaction in which any person
    •   a merger, share exchange or consolidation with, dispositions of a certain amount of assets to, or issuance or redemption of shares to or from, the acquiror or its affiliates or associates;       becomes an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by
   
•		  
termination of 5% or more of the employees of the target corporation or its subsidiaries who are employed in Washington State		       specified employee stock ownership plans and persons who are both directors and officers of the corporation; or
        following the acquiror's acquisition of 10% or more of the shares; or  
•		  
at or subsequent to such time, the business combination is both approved by the board of directors
                 

94


 
 
•
 
allowing the acquiror to receive any disproportionate benefit as a shareholder.
 
 
 
and authorized at an annual or special meeting of stockholders, not by written consent, by the affirmative vote of at least two-

 
 
After the five-year period, a significant business transaction may take place if its complies with certain fair price provisions of the statute or if it is approved by disinterested shareholders. Expedia's board of directors has expressly approved the merger for purposes of Chapter 23B.19 of the WBCA such that the provisions of Section 23B.19.040 of the WBCA will not apply to the merger or to any future transactions between Expedia and IAC and its affiliates.
 
 
 
thirds of the outstanding voting stock not owned by the interested stockholders.

Dissenters' or Appraisal Rights:
 
Under Chapter 23B.13 of the WBCA, a shareholder is entitled to dissent from, and obtain the fair value of his or her shares in connection with, certain corporate actions, including certain mergers, share exchanges and sales of all or substantially all of the corporation's property other than in the usual and regular course of business, which require shareholder approval. To the extent that the articles, bylaws or resolutions of the board of directors provide for dissenters' rights, shareholders also may exercise these rights in connection with any corporate action taken by shareholder vote. Shareholders generally will not have such dissenters' rights if shareholder approval is not required to effect the corporate action. In order to exercise dissenters' rights, an Expedia shareholder must comply with the procedures set forth in Chapter 23.13 of the WBCA, which is described elsewhere in this proxy and information statement/prospectus under "The Merger—Dissenters' Rights."
 
Under the DGCL, a stockholder does not have appraisal rights if the shares of the corporation are listed on a national securities exchange or designated as a national market system security by the National Association of Securities Dealers, Inc. or held of by record by more than 2,000 holders, or if the corporation will be the surviving corporation of a merger and the merger does not require the vote of the corporation's stockholders. Stockholders will, however, have the right to demand and receive payment in cash for the fair value of their stock in an appraisal proceeding in lieu of the consideration stockholders would otherwise receive in a merger or consolidation if in the merger the stockholder will receive anything other than shares of stock in the corporation surviving or resulting from the merger or consolidation, shares of any other corporation that at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security by the National Association of Securities Dealers, Inc., or held of record by more than 2,000 holders, cash in lieu of fractional shares, or any combination thereof.
                 

95


 
 
 
 
 
 
A Delaware corporation's charter may also provide that appraisal rights shall be available in the event of the sale of all or substantially all of a corporation's assets or the adoption of an amendment to its charter. The IAC charter does not provide for such rights.

Conduct of Certain Affairs of Expedia:
 
Expedia's articles contain provisions governing the relationship between Expedia and IAC regarding, among other things, the ability of IAC and its affiliates to engage in competing activities and the ability of IAC and its affiliates to take advantage of certain business opportunities without concern for claims of interest or expectancy by Expedia.
 
IAC has no comparable provision.

96

WHERE YOU CAN FIND MORE INFORMATION

General

        IAC and Expedia file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that IAC and Expedia file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the public reference room.

        IAC and Expedia's SEC filings are also available to the public from commercial retrieval services and at the website maintained by the SEC at www.sec.gov. Information contained on IAC's and Expedia's website is not part of this proxy and information statement/prospectus.

        IAC filed a registration statement on Form S-4 to register with the SEC the IAC common stock and IAC warrants that IAC will issue in the merger. This proxy and information statement/prospectus is a part of that registration statement. This proxy and information statement/prospectus also constitutes a prospectus of IAC, as well as being a proxy statement of Expedia for its special meeting and an information statement of IAC. The SEC allows us to "incorporate by reference" information into this proxy and information statement/prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy and information statement/prospectus, except for any information superseded by information contained directly in this proxy and information statement/prospectus or in a later filed document incorporated by reference in this proxy and information statement/prospectus. This proxy and information statement/prospectus incorporates by reference the documents set forth below that IAC, Expedia and Hotels.com have previously filed with the SEC. These documents contain important information about IAC and Expedia, as well as other information required to be disclosed or incorporated by reference into this proxy and information statement/prospectus. You may obtain copies of the Form S-4 (and any amendments to the Form S-4), as well as the documents incorporated by reference into this proxy and information statement/prospectus, in the manner described above.

97

IAC SEC Filings
   Period

Annual Report on Form 10-K
 
Year ended December 31, 2002, filed on March 31, 2003.

Quarterly Report on Form 10-Q
 
Quarter ended March 31, 2003, filed on May 15, 2003.

Definitive Proxy Statements
 
Filed on March 25, 2002 and April 30, 2003.

Current Reports on Form 8-K
 
Filed on January 21, 2003, February 7, 2003 (other than information furnished under Regulation FD), two on February 12, 2003, two on February 26, 2003, March 19, 2003, March 25, 2003, March 26, 2003, April 9, 2003, April 10, 2003, April 15, 2003, May 2, 2003, May 5, 2003, June 4, 2003, June 19, 2003 and June 23, 2003 (other than information furnished under Regulation FD), respectively.

Expedia SEC Filings
 
Period
Annual Report on Form 10-K   Year ended December 31, 2002, filed on March 31, 2003 and on Form 10-K/A on April 30, 2003.

Quarterly Report on Form 10-Q
 
Quarter ended March 31, 2003, filed on May 15, 2003.

Current Reports on Form 8-K
 
Filed on February 6, 2003, March 7, 2003, March 19, 2003, April 30, 2003 and May 1, 2003, respectively (other than information furnished under Regulation FD).
Hotels.com SEC Filings
   Period
Section entitled "Certain Relationships and Related Party Transactions" contained in Annual Report on Form 10-K   Year ended December 31, 2002, filed on March 27, 2003 and on Form 10-K/A on April 30, 2003.

        All documents filed by IAC and Expedia pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act with the SEC from the date of this proxy and information statement/prospectus through the completion of the merger (or, if earlier, the date on which the merger agreement is terminated) are also deemed to be incorporated by reference into this proxy and information statement/prospectus. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy and information statements.

        IAC has supplied all information contained or incorporated by reference into this proxy and information statement/prospectus relating to IAC and Equinox Merger Corp., and Expedia has supplied all information contained in or incorporated by reference into this proxy and information statement/prospectus relating to Expedia.

98

        If you are an Expedia shareholder or a IAC stockholder, documents incorporated by reference into this proxy and information statement/prospectus are available from IAC and Expedia without charge upon written or oral request as set forth below. Exhibits to documents incorporated by reference into this proxy and information statement/prospectus will only be furnished if they are specifically incorporated by reference into this proxy and information statement/prospectus. If you request any incorporated documents from IAC or from Expedia, they will be mailed to you by first class mail, or another equally prompt means, within one business day after the date your request is received. You may obtain documents incorporated by reference into this proxy and information statement/prospectus by requesting them in writing or by telephone from the proxy solicitor or the appropriate company at the following addresses and phone numbers:

InterActiveCorp
152 West 57th Street
New York, New York 10019
(212) 314-7300
Attention: Corporate Secretary		   Expedia, Inc.
13810 SE Eastgate Way, Suite 400
Bellevue, Washington 98005
(425) 564-7200
Attention: Corporate Secretary

or

LOGO

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (collect)
(800) 322-2885 (toll-free)


Reconciliations of Non-GAAP Financial Measures

        In light of the recent answers provided by the SEC to frequently asked questions regarding the use of non-GAAP financial measures, IAC is providing the following additional information to further reconcile presentations of certain non-GAAP financial measures that had been contained in the prior SEC filings referenced below, which we refer to in this proxy and information statement/prospectus as the prior filings. The reconciliations below are provided as of the dates of the prior filings, and any reference to the reconciliations in this proxy and information statement/prospectus should not be viewed as an update or a confirmation of any such information as of the date of this proxy and information statement/prospectus. The forecasted information provided below reflects numerous assumptions made by IAC's management with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict, and many of which are beyond IAC's control. Accordingly, there can be no assurance that the assumptions made in preparing the forecasts will prove accurate. It is expected that there will be differences between actual results and the forecast, and actual results may be materially greater or less than those contained in the forecast. Except to the extent required under applicable securities laws, IAC does not intend to make publicly available any update or other revisions to any of the information herein to reflect circumstances existing after the date of the initial applicable prior filing.

99


        With respect to Exhibit 99.2 attached to IAC's Current Report on Form 8-K filed on March 19, 2003, set forth below is additional information relating to EBITA and Adjusted Earnings for Expedia:

Expedia Presentation, page 3
Reconciliation Schedule
($ in thousands)

 
   Expedia
Operating
Results
  
 
   Year Actuals Ended
December 31,
   Forecast
Full Year
    
  
 
   Three Months
Ended
March 31,
2003
  
 
   2001
   2002
   2003
  
Revenues   $ 296,936   $ 590,598   $ 844,960   $ 198,760  
Cost of revenues     93,415     189,267     250,990     55,714  
   
 
 
 
 
Gross profit     203,521     401,331     593,970     143,046  
   
 
 
 
 
Product development     27,202     36,532     51,500     10,964  
Sales and marketing     99,740     159,696     252,386     59,461  
General and administrative     26,764     46,603     69,317     15,499  
   
 
 
 
 
Adjusted EBITA     49,815     158,500     220,767     57,122  
   
 
 
 
 
Amortization of intangibles     50,771     22,017     15,997     4,552  
Recognition of stock based compensation     13,785     2,884     20,710     7,681  
Amortization of non-cash marketing     —     13,062     15,000     3,004  
   
 
 
 
 
Operating profit (loss)     (14,741 )   120,537     169,060     41,885  
Net interest income and other     4,325     11,276     18,643     2,562  
Share of joint venture net loss     (769 )   (711 )   214     (242 )
USA merger related expense     (7,691 )   (11,566 )   —     (2,002 )
   
 
 
 
 
Pretax income     (18,876 )   119,536     187,917     42,203  
Provision for income taxes     —     (49,543 )   (69,789 )   (15,337 )
   
 
 
 
 
Net income   $ (18,876 ) $ 69,993   $ 118,128   $ 26,866  
   
 
 
 
 
Reconciliation from GAAP net income to Adjusted Earnings                          
Net income   $ (18,876 ) $ 69,993   $ 118,128   $ 26,866  
Amortization of non-cash marketing     —     13,062     15,000     3,004  
Amortization of intangibles     50,771     22,017     15,997     4,552  
Recognition of stock based compensation     13,785     2,884     20,710     7,681  
USA merger related expense     7,691     11,566     —     2,002  
Tax effect of adjustments     —     (11,161 )   (15,272 )   (4,610 )
   
 
 
 
 
Adjusted Earnings   $ 53,371   $ 108,361   $ 154,563   $ 39,495  
Diluted Shares                       132,028  
                     
 
Adjusted EPS                     $ 0.30  
                     
 

100

        With respect to Exhibit 99.1 attached to IAC's Current Report on Form 8-K filed on March 26, 2003, set forth below is additional information relating to a forecasted amount of EBITA to be contributed during 2003 by a newly acquired company:

InterActiveCorp
Reconciliations—EPI press release, page 1

2003 BUDGET
($ in millions, rounding differences may exist)

 
   2003
 
   EBITA
   Amortization
of non-cash
items
   Operating
Income
EPI   $ 41   $ (10 ) $ 31

101

LEGAL MATTERS

        The validity of the IAC common stock and IAC warrants being offered by this proxy and information statement/prospectus will be passed upon for IAC by Wachtell, Lipton, Rosen & Katz of New York, New York. It is a condition to the consummation of the merger that IAC receive an opinion from Wachtell, Lipton, Rosen & Katz, special counsel to IAC, and that Expedia receive an opinion from Shearman & Sterling LLP, special counsel to the special committee, each to the effect that, among other things, the merger will constitute a "reorganization" within the meaning of Section 368(a) of the Code. See "The Merger Agreement—Conditions to the Merger" and "The Merger—Material United States Federal Income Tax Consequences."

EXPERTS

        The consolidated financial statements and the related financial statement schedule of InterActiveCorp (formerly USA Interactive) at December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, incorporated into this proxy and information statement/prospectus by reference to IAC's Annual Report on Form 10-K for the year ended December 31, 2002, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report, which is incorporated herein by reference, and has been incorporated in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

        The consolidated financial statements and the related financial statement schedule of Expedia, Inc. at December 31, 2002, and for the year then ended, incorporated into this proxy and information statement/prospectus by reference to Expedia's Annual Report, as amended, on Form 10-K/A for the year ended December 31, 2002, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon, which is incorporated herein by reference. Such consolidated financial statements and schedule have been incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

        The consolidated financial statements and the related financial statement schedule as of December 31, 2001 and for the six-month period ended December 31, 2001, and each of the two years in the period ended June 30, 2001 incorporated in this proxy and information statement/prospectus by reference from Amendment No. 1 to Expedia's Annual Report on Form 10-K/A for the year ended December 31, 2002, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

MISCELLANEOUS

        No person has been authorized to give any information or make any representation on behalf of IAC or Expedia not contained in this proxy and information statement/prospectus, and if given or made, such information or representation must not be relied upon as having been authorized. The information contained in this proxy and information statement/prospectus is accurate only as of the date of this proxy and information statement/prospectus and, with respect to material incorporated into this proxy and information statement/prospectus by reference, the dates of such referenced material.

        If you live in a jurisdiction where it is unlawful to offer to exchange or sell, or to ask for offers to exchange or buy, the securities offered by this proxy and information statement/prospectus, or if you are a person to whom it is unlawful to direct these activities, then the offer presented by this proxy and information statement/prospectus does not extend to you.

102


Appendix A

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

USA INTERACTIVE,

EQUINOX MERGER CORP.

AND

EXPEDIA, INC.

DATED AS OF MARCH 18, 2003

A-1



TABLE OF CONTENTS

 
    
   Page
ARTICLE I   CERTAIN DEFINITIONS   A-4

ARTICLE II
 
THE MERGER
 
A-7
 
2.1.
 
The Merger
 
A-7
  2.2.   Effective Time of the Merger   A-7
  2.3.   Effects of the Merger   A-7
  2.4.   Closing   A-7
  2.5.   Articles of Incorporation   A-8
  2.6.   By-Laws   A-8
  2.7.   Directors and Officers   A-8

ARTICLE III
 
CONVERSION OF SECURITIES
 
A-8
 
3.1.
 
Effect of Merger on Capital Stock
 
A-8
  3.2.   Exchange of Certificates   A-9
  3.3.   Company Stock Options and Other Equity-Based Awards   A-12
  3.4.   Company Warrants   A-13
  3.5.   Termination of Company ESPP   A-13
  3.6.   Further Assurances   A-14

ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES
 
A-14
 
4.1.
 
Representations and Warranties of the Company
 
A-14
  4.2.   Representations and Warranties of Parent   A-19

ARTICLE V
 
COVENANTS RELATING TO CONDUCT OF BUSINESS
 
A-23
 
5.1.
 
Information and Access
 
A-23
  5.2.   Conduct of Business of the Company   A-24
  5.3.   Conduct of Business of Parent   A-25
  5.4.   Preparation of Form S-4, Proxy and Information Statement/Prospectus; Other Filings   A-25
  5.5.   Company Stockholder Approval   A-26
  5.6.   Agreements to Take Reasonable Action   A-27
  5.7.   Consents   A-28
  5.8.   Nasdaq Quotation   A-28
  5.9.   Affiliates   A-28
  5.10.   Indemnification   A-28
  5.11.   Notification of Certain Matters   A-29
  5.12.   Employee Arrangements   A-29
  5.13.   Reorganization   A-29
  5.14.   Public Announcements   A-29
  5.15.   Stockholder Litigation   A-29
  5.16.   Section 16b-3   A-30

ARTICLE VI
 
CONDITIONS PRECEDENT
 
A-30
 
6.1.
 
Conditions to Each Party's Obligation to Effect the Merger
 
A-30
  6.2.   Conditions of Obligations of Parent and Merger Sub   A-30
  6.3.   Conditions of Obligations of the Company   A-31
         

A-2


ARTICLE VII
 
TERMINATION
 
A-32
 
7.1.
 
Termination
 
A-32
  7.2.   Effect of Termination   A-32
  7.3.   Fees and Expenses   A-32

ARTICLE VIII
 
GENERAL PROVISIONS
 
A-32
 
8.1.
 
Amendment
 
A-32
  8.2.   Extension; Waiver   A-32
  8.3.   Nonsurvival of Representations, Warranties and Agreements   A-33
  8.4.   Entire Agreement   A-33
  8.5.   Severability   A-33
  8.6.   Notices   A-33
  8.7.   Headings; Interpretation   A-34
  8.8.   Counterparts   A-34
  8.9.   Benefits; Assignment   A-34
  8.10.   Governing Law   A-34
  8.11.   Special Committee   A-34

A-3

        AGREEMENT AND PLAN OF MERGER, dated as of March 18, 2003 (this "Agreement"), by and among USA INTERACTIVE, a Delaware corporation ("Parent"), EQUINOX MERGER CORP., a Washington corporation and direct wholly owned subsidiary of Parent ("Merger Sub"), and EXPEDIA, INC., a Washington corporation (the "Company").


W I T N E S S E T H:

        WHEREAS, the Boards of Directors of Parent, Merger Sub, and the Company deem it advisable and in the best interests of their respective corporations and stockholders that Parent and the Company enter into a business combination pursuant to which Parent would acquire the issued and outstanding shares of the Company that it does not already own;

        WHEREAS, to effect such business combination, upon the terms and subject to the conditions set forth herein, Merger Sub will merge with and into the Company with the Company continuing as the surviving corporation (the "Merger");

        WHEREAS, upon consummation of the Merger, the Company will become a wholly owned subsidiary of Parent; and

        WHEREAS, for U.S. federal income tax purposes, it is intended that the Merger and the transactions contemplated thereby shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")

        NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows:


ARTICLE I

CERTAIN DEFINITIONS

        As used in this Agreement, the following terms shall have the respective meanings set forth below:

        "affiliate" of a specified person means a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person; provided that, for purposes of this Agreement, the Company and its subsidiaries shall not be deemed to be affiliates of Parent and its subsidiaries, and Parent and its subsidiaries shall not be deemed to be affiliates of the Company and its subsidiaries.

        "Agreement" shall have the meaning set forth in the preamble.

        "Approved Matter" shall have the meaning set forth in Section 4.1(a).

        "Articles of Merger" shall have the meaning set forth in Section 2.2.

        "Business Day" means any day on which banks are not required or authorized to close in the City of New York or Seattle, Washington.

        "Certificate" shall have the meaning set forth in Section 3.2(b).

        "Change in the Company Recommendation" shall have the meaning set forth in Section 5.5(a).

        "Closing" shall have the meaning set forth in Section 2.4.

        "Closing Date" shall have the meaning set forth in Section 2.4.

        "Code" shall have the meaning set forth in the recitals.

        "Common Shares Trust" shall have the meaning set forth in Section 3.2(e)(iii).

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        "Company" shall have the meaning set forth in the preamble.

        "Company Banker" shall have the meaning set forth in Section 4.1(h).

        "Company Benefit Plan" shall have the meaning set forth in Section 4.1(j)(i).

        "Company Capital Stock" means Company Common Stock, Company Class B Common Stock and Company Preferred Stock.

        "Company Class B Common Stock" means Class B common stock, par value $0.01 per share, of the Company.

        "Company Common Stock" means common stock, par value $0.01 per share, of the Company.

        "Company Compensatory Warrant" shall have the meaning set forth in Section 3.4(a).

        "Company Disclosure Letter" shall have the meaning set forth in Section 4.1(b).

        "Company Material Adverse Effect" shall have the meaning set forth in Section 4.1(a).

        "Company Optionholder Warrant Agreement" means the Optionholder Equity Warrant Agreement, dated as of January 25, 2002, between the Company and Mellon Investor Services LLC, as Equity Warrant Agent.

        "Company Preferred Stock" means preferred stock, par value $0.01 per share, of the Company.

        "Company Recommendation" shall have the meaning set forth in Section 5.5(a).

        "Company SEC Reports" shall have the meaning set forth in Section 4.1(f)(i).

        "Company Stock" shall mean the Company Common Stock and the Company Class B Common Stock.

        "Company Stock-Based Award" shall have the meaning set forth in Section 3.3(b).

        "Company Stock Option" shall have the meaning set forth in Section 3.3(a).

        "Company Stock Plans" shall have the meaning set forth in Section 3.3(a).

        "Company Stockholder Approval" shall have the meaning set forth in Section 4.1(c)(i).

        "Company Stockholders Meeting" shall have the meaning set forth in Section 5.5(a).

        "Company Warrant" shall have the meaning set forth in Section 3.4(b).

        "Company Warrant Agreement" means the Equity Warrant Agreement, dated as of February 4, 2002, between the Company and Mellon Investor Services LLC, as Equity Warrant Agent.

        "Covered Persons" shall have the meaning set forth in Section 5.10(c).

        "Current Offering Period" shall have the meaning set forth in Section 3.5(b).

        "D&O Insurance" shall have the meaning set forth in Section 5.10(c).

        "Dissenting Shares" shall have the meaning set forth in Section 3.2(f).

        "Effective Time" shall have the meaning set forth in Section 2.2.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

        "ESPP" shall mean the Company's 1999 Amended and Restated Employee Stock Purchase Plan.

        "ESPP Option" shall have the meaning set forth in Section 3.5(b).

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        "Excess Shares" shall have the meaning set forth in Section 3.2(e)(ii).

        "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

        "Exchange Agent" shall have the meaning set forth in Section 3.2(a).

        "Exchange Fund" shall have the meaning set forth in Section 3.2(a).

        "Exchange Ratio" shall mean 1.93875.

        "Form S-4" shall have the meaning set forth in Section 4.1(g).

        "GAAP" means U.S. generally accepted accounting principles.

        "Governmental Entity" means any supranational, national, state, municipal or local government, foreign or domestic, any instrumentality, subdivision, court, administrative agency or commission or other authority thereof, or any quasi-governmental body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.

        "knowledge" or "known" means, with respect to the Company, the knowledge of Richard Barton, Erik Blachford, Gregory S. Stanger and Mark S. Britton, and, with respect to Parent, the knowledge of Barry Diller, Victor A. Kaufman, Julius Genachowski and Dara Khosrowshahi, in each case, after reasonable inquiry.

        "Merger Consideration" shall have the meaning set forth in Section 3.1(c).

        "Merger Sub" shall have the meaning set forth in the preamble.

        "Merger Sub Common Stock" means the common stock, par value $0.01 per share, of Merger Sub.

        "Merger" shall have the meaning set forth in the recitals.

        "Multiemployer Plan" shall have the meaning set forth in Section 4.1(j)(i).

        "NASD" shall have the meaning set forth in Section 3.2(e)(iii).

        "Nasdaq" means The Nasdaq National Market.

        "Other Filings" shall have the meaning set forth in Section 5.4.

        "other party" means, with respect to Parent or Merger Sub, the Company, and with respect to the Company, Parent and Merger Sub.

        "Parent" shall have the meaning set forth in the preamble.

        "Parent Banker" shall have the meaning set forth in Section 4.2(h).

        "Parent Class B Common Stock" mean Class B common stock, par value $0.01 per share, of Parent.

        "Parent Common Stock" means common stock, par value $0.01 per share, of Parent.

        "Parent Compensatory Warrant" shall have the meaning set forth in Section 3.4(a).

        "Parent Disclosure Letter" shall have the meaning set forth in Section 4.2(b).

        "Parent ESPP Option" shall have the meaning set forth in Section 3.5(b).

        "Parent Material Adverse Effect" shall have the meaning set forth in Section 4.2(a).

        "Parent Preferred Stock" means the preferred stock, par value $0.01 per share, of Parent.

        "Parent Proxy Statement" shall have the meaning set forth in Section 4.2(b).

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        "Parent SEC Reports" shall have the meaning set forth in Section 4.2(f).

        "Parent Stock-Based Award" shall have the meaning set forth in Section 3.3(b).

        "Parent Stock Option" shall have the meaning set forth in Section 3.3(a).

        "Parent Warrant" shall have the meaning set forth in Section 3.4(b).

        "person" means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in the Exchange Act).

        "Proxy and Information Statement/Prospectus" shall have the meaning set forth in Section 5.4.

        "SEC" means the U.S. Securities and Exchange Commission.

        "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

        "Significant Subsidiaries" shall have the meaning set forth in Section 4.1(a).

        "Special Committee" means the Special Committee of the Board of Directors of the Company.

        "Surviving Corporation" shall have the meaning set forth in Section 2.1.

        "Transactions" shall have the meaning set forth in Section 4.1(c)(i).

        "Washington Secretary" shall mean the Secretary of State of the State of Washington.

        "WBCA" means the Washington Business Corporation Act.


ARTICLE II

THE MERGER

        2.1    The Merger.    Upon the terms and subject to the conditions hereof, in accordance with the WBCA, at the Effective Time, Merger Sub shall merge with and into the Company, with the Company continuing as the surviving corporation in the Merger (the "Surviving Corporation") and the separate corporate existence of Merger Sub shall cease. As a result of the Merger, the Company will become a wholly owned subsidiary of Parent.

        2.2    Effective Time of the Merger.    As soon as practicable on the Closing Date, the Company shall file with the Washington Secretary articles of merger with respect to the Merger (the "Articles of Merger"), which Articles of Merger shall be in such form as is required by, and executed and acknowledged in accordance with, the WBCA. The Merger shall become effective upon such filing or at such later date and time as Parent and the Company shall agree and shall be specified in the Articles of Merger. As used in this Agreement, the term "Effective Time" shall mean the date and time when the Merger becomes effective and shall occur on the Closing Date.

        2.3    Effects of the Merger.    The Merger shall have the effects set forth in the applicable provisions of the WBCA.

        2.4    Closing.    Upon the terms and subject to the conditions set forth in Article VI and the termination rights set forth in Article VII, the closing of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York, 10019 at 10:00 a.m. on the second Business Day following the satisfaction or waiver (subject to applicable law) of the conditions (excluding conditions that, by their nature, cannot be satisfied until the Closing Date) set forth in Article VI, unless this Agreement has been theretofore terminated pursuant to its terms or unless another place, time or date is agreed to in writing by Parent and the Company (the date of the Closing, the "Closing Date").

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        2.5    Articles of Incorporation.    At the Effective Time, the articles of incorporation of the Surviving Corporation shall be amended in its entirety to read as set forth in Exhibit A, until thereafter changed or amended as provided therein or by applicable law.

        2.6    By-Laws.    Subject to Section 5.10(a), at the Effective Time, the by-laws of Merger Sub shall be the by-laws of the Surviving Corporation.

        2.7    Directors and Officers.    The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation and the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, in each case, until their respective successors are duly elected and qualified.


ARTICLE III

CONVERSION OF SECURITIES

        3.1    Effect of Merger on Capital Stock.    At the Effective Time, subject and pursuant to the terms of this Agreement, by virtue of the Merger and without any action on the part of the Company, Merger Sub or the holders of any shares of capital stock of the Company or Merger Sub:

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        3.2    Exchange of Certificates.    

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        3.3    Company Stock Options and Other Equity-Based Awards.    (a) Each option to purchase shares of Company Common Stock (a "Company Stock Option") granted under the employee and director stock plans of the Company (the "Company Stock Plans"), whether vested or unvested, that is outstanding immediately prior to the Effective Time shall, at the Effective Time, cease to represent a right to acquire shares of Company Common Stock and shall be converted, at the Effective Time, into an option to purchase shares of Parent Common Stock (a "Parent Stock Option") on the same terms and conditions as were applicable under such Company Stock Option. The number of shares of Parent Common Stock subject to each such Parent Stock Option shall be the number of shares of Company Common Stock subject to each such Company Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded, if necessary, to the nearest whole share of Parent Common Stock, and such Parent Stock Option shall have an exercise price per share (rounded to the nearest cent) equal to the per share exercise price specified in such Company Stock Option divided by the Exchange Ratio; provided, however, that, in the case of any Company Stock Option to which Section 421 of the Code applies immediately prior to the Effective Time by reason of its qualification under Section 422 of the Code, the exercise price, the number of shares of Parent 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)   At the Effective Time, each right of any kind, contingent or accrued, to receive shares of Company Common Stock or benefits measured by the value of a number of shares of Company Common Stock, and each award of any kind consisting of shares of Company Common Stock, granted under the Company Stock Plans (including restricted stock, restricted stock units, deferred stock units and dividend equivalents), other than Company Stock Options (each, a "Company Stock-Based Award"), whether vested or unvested, which is outstanding immediately prior to the Effective Time shall cease to represent a right or award with respect to shares of Company Common Stock and shall be converted, at the Effective Time, into a right or award with respect to Parent Common Stock (a "Parent Stock-Based Award"), on the same terms and conditions as were applicable under the Company Stock-Based Awards. The number of shares of Parent Common Stock subject to each such Parent Stock-Based Award shall be equal to the number of shares of Company Common Stock subject to the Company Stock-Based Award, multiplied by the Exchange Ratio, rounded, if necessary, to the nearest whole share of Parent Common Stock. All dividend equivalents credited to the account of each holder of a Company Stock-Based Award as of the Effective Time shall remain credited to such holder's account immediately following the Effective Time, subject to adjustment in accordance with the foregoing.

        (c)   As soon as practicable after the Effective Time, Parent shall deliver to the holders of Company Stock Options and Company Stock-Based Awards appropriate notices setting forth such holders' rights pursuant to the respective Company Stock Plans and agreements evidencing the grants of such Company Stock Options and the Company Stock-Based Awards, and stating that such Company Stock Options and Company Stock-Based Awards and agreements have been assumed by Parent and shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 3.3 after giving effect to the Merger and the terms of the Company Stock Plans).

        (d)   Prior to the Effective Time, the Company shall take all necessary action for the adjustment of the Company Stock Options and the Company Stock-Based Awards under this Section 3.3. Parent shall reserve for issuance a number of shares of Parent Common Stock at least equal to the number of shares of Parent Common Stock that will be subject to Parent Stock Options and Parent Stock-Based Awards as a result of the actions contemplated by this Section 3.3. As soon as practicable following the Effective Time (and in any event not later than two Business Days following the Effective Time), Parent shall file a registration statement on Form S-8 (or any successor form, or if Form S-8 is not available, other appropriate forms) with respect to the shares of Parent Common Stock subject to such

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Parent Stock Options and Parent Stock-Based Awards and shall maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such Parent Stock Options or Parent Stock-Based Awards remain outstanding.

        3.4    Company Warrants.    (a) Each warrant to purchase shares of Company Common Stock (a "Company Compensatory Warrant") granted under the Company Stock Plans and the Company Optionholder Warrant Agreement, whether vested or unvested, that is outstanding and held by an employee or officer of the Company immediately prior to the Effective Time shall, at the Effective Time, cease to represent a right to purchase shares of Company Common Stock and shall, be converted, at the Effective Time, into a warrant to purchase shares of Parent Common Stock (a "Parent Compensatory Warrant") on substantially the same terms and conditions as were applicable under such Company Compensatory Warrant. The number of shares of Parent Common Stock subject to each such Parent Compensatory Warrant shall be the number of shares of Company Common Stock subject to each such Company Compensatory Warrant immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded, if necessary, to the nearest whole share of Parent Common Stock, and such Parent Compensatory Warrant shall have an exercise price per share (rounded to the nearest cent) equal to the per share exercise price specified in such Company Compensatory Warrant divided by the Exchange Ratio.

        (b)   Each warrant to purchase shares of Company Common Stock (a "Company Warrant") granted under the Company Warrant Agreement or any other warrant agreement of the Company that is outstanding immediately prior to the Effective Time shall, at the Effective Time, cease to represent a right to purchase shares of Company Common Stock and shall be converted, at the Effective Time, into a warrant to purchase shares of Parent Common Stock (a "Parent Warrant") on substantially the same terms and conditions as were applicable under such Company Warrant. The number of shares of Parent Common Stock subject to each such Parent Warrant shall be the number of shares of Company Common Stock subject to each such Company Warrant immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded, if necessary, to the nearest whole share of Parent Common Stock, and such Parent Warrant shall have an exercise price per share (rounded to the nearest cent) equal to the per share exercise price specified in such Company Warrant divided by the Exchange Ratio.

        3.5    Termination of Company ESPP.    (a) As of the date hereof, the Company shall have taken such action as is necessary to provide that (i) only those employees of the Company and its subsidiaries who have completed Enrollment Agreements (as defined in the ESPP) for the Current Offering Period (as defined below) prior to the date hereof (and in all cases prior to any earlier date as required by the ESPP) shall be eligible to participate in the Current Offering Period and (ii) after the end of the Current Offering Period, no further offerings shall commence under the ESPP and the ESPP shall be terminated effective on the last day of the Current Offering Period. Prior to the execution hereof, the Company shall provide Parent with all documentation reasonably necessary to evidence the foregoing actions.

        (b)   In the event the Effective Time occurs prior to July 1, 2003: (i) each option to purchase shares of Company Common Stock under the ESPP for the "offering" (as used in the ESPP) that commenced as of January 1, 2003 (the "Current Offering Period") that is outstanding immediately prior to the Effective Time (an "ESPP Option") shall, at the Effective Time, cease to represent a right to acquire shares of Company Common Stock and shall be converted, at the Effective Time, into a right to purchase shares of Parent Common Stock (a "Parent ESPP Option") on the same terms and conditions as were applicable under such ESPP Option; (ii) the purchase price per share under the ESPP shall be the lesser of (A) 85% of the "fair market value" (as defined in the ESPP) of Company Common Stock on the "offering date" (as defined in the ESPP) divided by the Exchange Ratio (rounded up to the nearest whole cent) or (B) 85% of the fair market value of Parent Common Stock

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on the last Business Day of the offering, provided, however, that, the purchase price and the terms and conditions of such option shall be determined in a manner consistent with the requirements of Section 424(a) of the Code; and (iii) the maximum number of shares issuable under the ESPP shall be adjusted by multiplying such amount by the Exchange Ratio (rounded down to the nearest whole share).

        3.6    Further Assurances.    If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement, or to vest, perfect or confirm of record or otherwise establish in the Surviving Corporation full right, title and interest in, to or under any of the assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Surviving Corporation are fully authorized in the name and on behalf of each of the Company and Merger Sub or otherwise to take all such lawful and reasonably necessary or desirable action.


ARTICLE IV

REPRESENTATIONS AND WARRANTIES

        4.1    Representations and Warranties of the Company.    The Company represents and warrants to Parent as follows:

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        4.2    Representations and Warranties of Parent.    Parent hereby represents and warrants to the Company as follows:

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ARTICLE V

COVENANTS RELATING TO CONDUCT OF BUSINESS

        5.1    Information and Access.    (a) From the date of this Agreement and continuing until the Effective Time, Parent, as to itself, and Merger Sub, on the one hand, and the Company, as to itself and its subsidiaries, on the other hand, each agrees that it shall afford and, with respect to clause (b) below, shall cause its independent auditors to afford, (a) to the officers, independent auditors, counsel and other representatives of the other reasonable access, upon reasonable advance notice, to its (and in the case of Parent, Merger Sub's, and in the case of the Company, its subsidiaries') properties, books, records (including tax returns filed and those in preparation) and executives and personnel in order that the other may have a full opportunity to make such investigation as it reasonably desires to make of the other consistent with their rights under this Agreement, and (b) to the independent auditors of the other, reasonable access to the audit work papers and other records of its independent auditors. No investigation pursuant to this Section 5.1 shall affect or otherwise obviate or diminish any representations and warranties of any party or conditions to the obligations of any party. No party shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of its customers, jeopardize the attorney-client privilege or the institution in possession or control of such information or contravene any law, rule, regulations, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The

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parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.

        (b)   Each of the parties hereto shall hold all information furnished by or on behalf of any other party or its representatives pursuant to Section 5.1(a) in confidence in accordance with the provisions of the non-disclosure agreement, dated June 1, 2001, as amended, between Parent and the Company.

        5.2    Conduct of Business of the Company.    Except as contemplated by this Agreement (including Section 5.2 of the Company Disclosure Letter) or with respect to Approved Matters, during the period from the date of this Agreement and continuing until the Effective Time or until the termination of this Agreement pursuant to Section 7.1, (a) the Company and its subsidiaries shall conduct their respective businesses in the ordinary and usual course consistent with past practice, including, without limitation, consulting with, advising and obtaining the approval of Parent, in each case consistent with past practice, and (b) without limiting the provisions of clause (a) in this paragraph, neither the Company nor any of its subsidiaries shall without the prior written consent of Parent (or, to the extent consistent with past practice with regard to the matter at issue, the prior oral consent of Parent):

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        5.3    Conduct of Business of Parent.    Except as contemplated by this Agreement (including the Parent Disclosure Letter), and agreements described in the Parent Proxy Statement or any Parent SEC Report, during the period from the date of this Agreement and continuing until the Effective Time or until the termination of this Agreement pursuant to Section 7.1, Parent shall not, without the prior written consent of the Company, take any action that would reasonably be expected to result in any of the conditions to the Transactions set forth in Article VI not being satisfied.

        5.4    Preparation of Form S-4, Proxy and Information Statement/Prospectus; Other Filings.    In order to satisfy the timing considerations with respect to the Company stockholders Meeting set forth in Section 5.5, Parent and the Company shall cooperate in preparing and cause to be filed with the SEC a proxy statement relating to the Company stockholders Meeting and an information statement relating to the actions taken by written consent by Parent's stockholders to approve this Agreement and the Transactions (as amended or supplemented from time to time, the "Proxy and Information Statement/Prospectus"), and Parent and the Company shall cooperate in preparing and Parent shall cause to be filed with the SEC the Form S-4. The Proxy and Information Statement/Prospectus will be included in the S-4 as a prospectus in and will constitute a part of the Form S-4. Each of Parent and the Company shall use its reasonable best efforts to respond to any comments of the SEC, to have the Form S-4

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declared effective under the Securities Act as promptly as practicable after such filing and to cause the Proxy and Information Statement/Prospectus in definitive form to be mailed to the Parent's and Company's respective stockholders sufficiently in advance of the Company Stockholders Meeting. At the option of Parent, Parent may include as part of the Proxy and Information Statement/Prospectus notice of action taken by the written consent of stockholders relating to an amendment to the Parent's Certificate of Incorporation as described in Section 5.4 of the Parent Disclosure Letter. As promptly as practicable after the date of this Agreement, Parent and the Company shall prepare and file any other filings required under the Exchange Act, the Securities Act or any other federal laws relating to the Transactions (the "Other Filings"). Each of the Company and Parent will notify the other party promptly of the receipt of any comments, whether oral or written, from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Form S-4 or the Proxy and Information Statement/Prospectus or any Other Filing or for additional information, and will supply the other party with copies of all correspondence between it or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Form S-4, the Proxy and Information Statement/Prospectus or the Merger. No amendment or supplement to the Form S-4 or Proxy and Information Statement/Prospectus will be made by the Company or Parent without the prior approval of the other party, except as required by applicable laws and then only to the extent necessary, or without providing the other party the opportunity to review and comment thereon. Parent shall advise the Company promptly after it receives notice thereof, of the time when the Form S-4 has been declared effective, the issuance of any stop order, or the suspension of the qualification of Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction. If, at any time prior to the Effective Time, any information relating to the Company or Parent, or any of their respective affiliates, officers or directors should be discovered by the Company or Parent which should be set forth in an amendment or supplement to the Form S-4, the Proxy and Information Statement/Prospectus or any Other Filing so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or an event occurs which is required to be set forth in an amendment or supplement to the Form S-4, the Proxy and Information Statement/Prospectus or any Other Filing, the party that discovers such information shall promptly notify the other party and an amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the Company's stockholders and/or Parent's stockholders, as applicable. The Proxy and Information Statement/Prospectus shall include, subject to applicable fiduciary duties (based on advice of outside counsel to the Special Committee), the recommendations of the Board of Directors of the Company in favor of approval of this Agreement and the Transactions; provided that the Board of Directors of the Company will not recommend approval of this Agreement and the Transactions without the approval of the Special Committee. The Company and Parent each shall promptly provide the other (or its counsel) copies of all filings made by it with any Governmental Entity in connection with this Agreement and the Transactions.

        5.5    Company Stockholder Approval.    

        (a)   The Company shall duly take all lawful action to call, give notice of, convene and hold a meeting of the Company's stockholders (the "Company stockholders Meeting") on August 1, 2003 or such earlier date as is agreed to by the parties, for the purpose of obtaining the Company Stockholder Approval and shall take all lawful action to solicit the Company Stockholder Approval. Subject to the second to last sentence in Section 5.4, the Board of Directors of the Company shall recommend the adoption of the plan of merger contained in this Agreement by the Company stockholders to the effect as set forth in Section 4.1(c)(ii) (the "Company Recommendation"), and, subject to the second to last sentence in Section 5.4, shall not (i) withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any manner adverse to Parent the Company Recommendation or (ii) take any action or make any statement in connection with the Company stockholders Meeting inconsistent with the

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Company Recommendation (collectively, a "Change in the Company Recommendation"). Notwithstanding anything to the contrary herein, this Agreement shall be submitted to the Company stockholders at the Company Stockholders Meeting for the purpose of obtaining the Company Stockholder Approval, and nothing contained herein shall be deemed to relieve the Company of such obligation.

        (b)   Parent agrees that at the Company Stockholders Meeting, Parent shall (i) appear, in person or by proxy, so that all shares of the Company owned directly or indirectly by it are counted for the purpose of obtaining a quorum at the Company Stockholders Meeting, and at any adjournment or adjournments thereof, and (ii) vote, in person or by proxy, with respect to all such shares of the Company owned directly or indirectly by it to adopt the Agreement as approved by the Board of Directors of the Company. If this Agreement is subsequently amended and such amendment is approved by the Board of Directors of Parent and the Company or if a subsequent consent is deemed necessary to consummate the Transactions contemplated by this Agreement, then Parent shall as soon thereafter as practicable either at a meeting of the Company's stockholders at which any proposal to adopt this Agreement, as amended, is proposed, cause all shares of Company Stock owned directly or indirectly by it on the date hereof (i) to appear, in person or by proxy, so that all such shares are counted for the purpose of obtaining a quorum at any such meeting of stockholders of the Company, and at any adjournment or adjournments thereof, and (ii) to vote, in person or by proxy, with respect to such shares to adopt this Agreement, as amended. Parent shall cause all shares of Company Stock owned directly or indirectly by it on the date hereof to vote against any proposal that is contrary to the adoption of this Agreement and the Transactions contemplated hereby.

        5.6    Agreements to Take Reasonable Action.    

        (a)   The parties shall take, and shall cause their respective subsidiaries to take, all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the Merger and shall take all reasonable actions necessary to cooperate promptly with and furnish information to the other parties in connection with any such requirements imposed upon them or any of their subsidiaries in connection with the Merger. Each party shall take, and shall cause its subsidiaries to take, all reasonable actions necessary (i) to obtain (and will take all reasonable actions necessary to promptly cooperate with the other parties in obtaining) any clearance, consent, authorization, order or approval of, or any exemption by, any Governmental Entity, or other third party, required to be obtained or made by it (or by the other parties or any of their respective subsidiaries) in connection with the Transactions or the taking of any action contemplated by this Agreement; (ii) to lift, rescind or mitigate the effect of any injunction or restraining order or other order adversely affecting its ability to consummate the Transactions; (iii) to fulfill all conditions applicable to the parties pursuant to this Agreement; (iv) to prevent, with respect to a threatened or pending temporary, preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order, the entry, enactment or promulgation thereof, as the case may be; (v) to defend any lawsuit or other legal proceeding, whether judicial or administrative, challenging the Agreement, the consummation of the Transactions or the terms thereof; and (vi) to execute and deliver any additional agreements or instruments necessary to consummate the Transactions and fully carry out the purposes of the Agreement provided, however, that with respect to clauses (i) through (vi) above, the parties will take only such curative measures (such as licensing and divestiture) as the parties determine to be reasonable.

        (b)   Subject to the terms and conditions of this Agreement, each of the parties shall use all reasonable efforts to 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 and make effective as promptly as practicable the Merger and the Transactions, subject to the appropriate approval of the stockholders of the Company.

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        5.7    Consents.    Parent and the Company shall each use all reasonable efforts to obtain the consent and approval of, or effect the notification of or filing with, each person or authority whose consent or approval is required in order to permit the consummation of the Merger and the Transactions and to enable Parent and the Surviving Corporation to conduct and operate the business of Parent and the Company and their respective subsidiaries, substantially as presently conducted and as contemplated to be conducted.

        5.8    Nasdaq Quotation.    Parent shall use its reasonable best efforts to cause the shares of Parent Common Stock issuable to the stockholders of the Company in the Merger (including the shares of Parent Common Stock reserved for issuance with respect to Company Stock Options and Company Stock-Based Awards) to be eligible for quotation on Nasdaq (or other national market or exchange on which Parent Common Stock is then traded or quoted) prior to the Effective Time.

        5.9    Affiliates.    At least ten Business Days prior to the anticipated Closing Date, the Company shall deliver to Parent a list of names and addresses of those persons who, in the judgment of the Company, may be deemed at the time this Agreement is submitted for Company Stockholder Approval, "affiliates" of the Company within the meaning of Rule 145 under the Securities Act and applicable rules and regulations. The Company shall use its reasonable best efforts to deliver or cause to be delivered to Parent, prior to the Effective Time, from each of the affiliates of the Company identified in the foregoing list, agreements substantially in the form attached to this Agreement as Exhibit B.

        5.10    Indemnification.    (a) Parent shall maintain in effect for the benefit of individuals who at or prior to the Effective Time were directors or officers of the Company the current provisions regarding indemnification and exculpation of officers and directors (including with respect to advancement of expenses) contained in the Articles of Incorporation and Bylaws of the Company on the date hereof, which provisions shall not be amended, modified or otherwise repealed for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder as of the Effective Time of such individuals, unless such modification is required after the Effective Time by applicable law and then only to the minimum extent required by such applicable law or except to make changes permitted by applicable law that would enlarge the exculpation or rights of indemnification thereunder; provided, however, that if any claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) hereunder in respect of such claims shall continue, without diminution, until disposition of all such claims.

        (b)   The Surviving Corporation shall (and Parent shall cause the Surviving Corporation to), to the maximum extent permitted under applicable law, provide to the current directors and officers of the Company the maximum indemnification protection (including with respect to advancement of expenses, including advancing expenses as incurred) permitted under the WBCA, for a period of six (6) years after the Effective Time; provided, however, that if any claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) hereunder in respect of such claims shall continue, without diminution, until disposition of all such claims.

        (c)   The Surviving Corporation shall (and Parent shall cause the Surviving Corporation to) assume, honor and fulfill in all respects the obligations of the Company pursuant to any indemnification agreements, including those contained in employment agreements (the employee parties under such agreements being referred to as the "Covered Persons") with the Company's directors, officers and other employees (if any) existing at the Effective Time. In addition, Parent shall provide, or cause the Surviving Corporation to provide, for a period of not less than six (6) years after the Effective Time, the Company's current and former directors and officers who are currently covered by the Company's existing insurance and indemnification policy with an insurance and indemnification policy (including, without limitation, by arranging for run-off coverage, if necessary) that provides coverage for events occurring at or prior to the Effective Time (the "D&O Insurance") that is no less favorable than the existing policy (it being acknowledged and understood that the Company currently indemnifies its

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officers and directors for claims to the extent permitted under the WBCA and pays its obligations thereunder out of its assets and maintains D&O Insurance solely for claims not so indemnifiable or for which the Company's assets are insufficient to cover), or, if substantially equivalent insurance coverage is unavailable, the most advantageous D&O Insurance obtainable for an annual premium equal to 200% of the annual premium currently in place for the Company for such insurance; provided, however, that Parent and the Surviving Corporation shall not be required to pay an annual premium for the D&O Insurance in excess of 200% of the annual premium currently in place for the Company for such insurance, calculated on the basis of a fair allocation of the portion of such premium if Parent arranges such coverage on a group basis.

        (d)   This Section 5.10 shall survive the Effective Time, is intended to benefit the Surviving Corporation and the Covered Persons and shall be enforceable by the Covered Persons, their heirs, assigns and representatives and are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise. In the event Parent, the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successors and assigns of such party, shall assume the obligations set forth in this Section 5.10.

        5.11    Notification of Certain Matters.    Each of the Company and Parent shall give prompt notice to the other such party of the occurrence, or failure to occur, of any event, which occurrence or failure to occur would be likely to cause (a) any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Effective Time, or (b) any material failure of the Company or Parent, as the case may be, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the foregoing, the delivery of any notice pursuant to this Section 5.11 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

        5.12    Employee Arrangements.    From and after the Effective Time, Parent shall cause the Surviving Corporation to fulfill all written employment, severance, termination, consulting and retirement agreements and severance plans, as in effect on the date hereof, to which the Company or any of its subsidiaries is a party, pursuant to the terms thereof and applicable law.

        5.13    Reorganization.    From and after the date hereof, each of Parent and the Company and each of their respective subsidiaries shall not, and shall use reasonable efforts to cause their affiliates not to, take any action, or fail to take any action, which action or failure to act would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code or enter into any contract, agreement, commitment or arrangement that would have such effect. Each of Parent and the Company and each of their respective subsidiaries shall use reasonable efforts to obtain the opinions of counsel referred to in Sections 6.2(c) and 6.3(c), including the execution of the officers' certificates referred to therein.

        5.14    Public Announcements.    The initial press release relating to the Transactions shall be a joint press release, to be agreed upon by the Parent and the Company. Thereafter, Parent and the Company shall use their reasonable best efforts to consult with each other before issuing any press release with respect to this Agreement or the Transactions.

        5.15    Stockholder Litigation.    Each of the Company and the Parent shall give the other the reasonable opportunity to participate in the defense of any stockholder litigation against the Company or the Parent and their respective directors and officers, as applicable, relating to the Transactions or this Agreement.

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        5.16    Section 16b-3.    Parent and the Company shall take all reasonable steps to cause the transactions contemplated by Article III and any other disposition of equity securities of the Company or Parent (including derivative securities) or acquisitions of equity securities of Parent by each individual who (a) is a director or officer of the Company or Parent, or (b) at the Effective Time will become a director or officer of Parent, to be exempt under Rule 16b-3 promulgated under the Exchange Act.

ARTICLE VI
CONDITIONS PRECEDENT

        6.1    Conditions to Each Party's Obligation to Effect the Merger.    The respective obligations of each party to effect the Merger are subject to the satisfaction prior to the Closing Date of the following conditions:

        6.2    Conditions of Obligations of Parent and Merger Sub.    The obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction of the following additional conditions, unless waived in writing by Parent:

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        6.3    Conditions of Obligations of the Company.    The obligation of the Company to effect the Merger is subject to the satisfaction of the following conditions, unless waived in writing by the Company:

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ARTICLE VII

TERMINATION

        7.1    Termination.    This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Merger by the stockholders of the Company and Parent:

        7.2    Effect of Termination.    In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall be of no further force or effect, except (a) as set forth in Section 5.1(b), 5.14 (solely with respect to any press release announcing the termination of this Agreement), this Section 7.2, Section 7.3, and Article VIII, each of which shall survive the termination of this Agreement, and (b) nothing herein shall relieve any party from liability for any breach of this Agreement.

        7.3    Fees and Expenses.    All fees and expenses incurred in connection with this Agreement and the Merger shall be paid by the party incurring such expenses, whether or not the Merger is consummated. The Company is permitted to and shall pay the fees and expenses of their financial, legal and other advisors on the Closing Date.


ARTICLE VIII

GENERAL PROVISIONS

        8.1    Amendment.    This Agreement (including the Exhibits and Disclosure Letters hereto) may be amended prior to the Effective Time by Parent and the Company at any time before or after approval of the Merger by the stockholders of the Company and Parent, provided, however, that after any such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.

        8.2    Extension; Waiver.    At any time prior to the Effective Time (whether before or after approval of the stockholders of the Company and Parent), Parent and the Company may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies

A-32

in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement and (c) waive compliance with any of the agreements or conditions contained in this Agreement. Any extension or waiver on behalf of the Company shall be taken only upon the approval of the Special Committee. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

        8.3    Nonsurvival of Representations, Warranties and Agreements.    All representations, warranties and agreements in this Agreement or in any instrument or certificate delivered pursuant to this Agreement shall not survive the Merger, except for the agreements contained in Article III (Conversion of Securities), Section 5.10 (Indemnification), 5.12 (Employee Arrangements) and 5.13 (Reorganization), each of which shall survive the Merger.

        8.4    Entire Agreement.    This Agreement (including the Exhibits and Disclosure Letters hereto) contains the entire agreement among all of the parties with respect to the subject matter hereof and supersedes all prior arrangements and understandings, both written and oral, with respect thereto, but shall not supersede any agreements among any group of the parties hereto entered into on or after the date hereof.

        8.5    Severability.    It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

        8.6    Notices.    All notices and other communications pursuant to this Agreement shall be in writing and shall be deemed to be sufficient if contained in a written instrument and shall be deemed given if delivered personally, telecopied, sent by nationally recognized, overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

        (a)   if to Parent or Merger Sub, to:

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        (b)   if to the Company, to:

All such notices and other communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of a telecopy, when the party receiving such telecopy shall have confirmed receipt of the communication, (c) in the case of delivery by nationally recognized overnight courier, on the Business Day following dispatch and (d) in the case of mailing, on the third Business Day following such mailing.

        8.7    Headings; Interpretation.    The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. As used in this Agreement, "subsidiary" with respect to any person shall mean any affiliate controlled by such person, directly or indirectly through one or more intermediaries, provided that under no circumstances shall the Company and its subsidiaries be deemed to be subsidiaries of Parent.

        8.8    Counterparts.    This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

        8.9    Benefits; Assignment.    This Agreement is not intended to confer upon any person other than the parties any rights or remedies hereunder and shall not be assigned by operation of law or otherwise; provided, however, that (a) the officers and directors of the Company are intended beneficiaries of the covenants and agreements contained in Section 5.10, and (b) the Special Committee is the intended beneficiary of the agreement contained in Section 8.11.

        8.10    Governing Law.    This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed therein, without giving effect to laws that might otherwise govern under applicable principles of conflicts of law.

        8.11    Special Committee.    Prior to the Effective Time, any determination to be made, or action to be taken, by the Company under this Agreement shall be made or taken only upon the approval of the Special Committee.

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        IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.

    USA INTERACTIVE

 
 
By:
/s/  JULIUS GENACHOWSKI      
      Name: Julius Genachowski
      Title: Executive Vice President, General Counsel and Secretary

 
 
EXPEDIA, INC.

 
 
By:
/s/  GREGORY S. STANGER      
      Name: Gregory S. Stanger
      Title: Senior Vice President and Chief Financial Officer

 
 
EQUINOX MERGER CORP.

 
 
By:
/s/  JULIUS GENACHOWSKI      
      Name: Julius Genachowski
      Title: Vice President

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GRAPHIC


APPENDIX B

Special Committee of the Board of Directors
Expedia, Inc.
13810 SE Eastgate Way, Suite 400
Bellevue, Washington 98005

Members of the Special Committee of the Board:

        We understand that Expedia, Inc. ("Expedia" or the "Company"), USA Interactive, Inc. ("USAI"), and a direct wholly owned subsidiary of USAI ("Merger Sub"), propose to enter into an Agreement and Plan of Merger, substantially in the form of the draft dated March 18, 2003 (the "Merger Agreement"), which provides, among other things, for the merger (the "Merger") of the Company and Merger Sub. Pursuant to the Merger, the Company will become a wholly owned subsidiary of USAI, and each outstanding share of common stock, par value $0.01 per share (the "Company Common Stock"), of Expedia and each outstanding share of Class B common stock, par value $0.01 per share (the "Company Class B Common Stock"), of Expedia, other than shares held in treasury or as to which dissenters' rights have been perfected, will be converted into the right to receive 1.93875 shares (the "Exchange Ratio") of common stock, par value $0.01 per share (the "USAI Common Stock") of USAI. We understand that USAI presently owns approximately 59.8% (approximately 51.1% on a fully diluted basis) of the outstanding Company Common Stock and all of the outstanding Class B Common Stock. We also understand that USAI has agreed to waive issuance of the consideration in exchange for the shares of Company Common Stock and Company Class B Common Stock held by it. The terms of the Merger are more fully set forth in the Merger Agreement.

        You have asked for our opinion as to whether the Exchange Ratio pursuant to the Merger Agreement is fair to the holders of shares of the Company Common Stock (other than USAI and its affiliates).

        For purposes of the opinion set forth herein, we have:

B-1

        We have assumed and relied upon, without independent verification, the accuracy and completeness of the information reviewed by us for the purposes of this opinion. With respect to the internal financial statements, other financial and operating data, and financial forecasts, including certain strategic, financial and operational benefits anticipated from the combination of the Company and USAI, we have assumed that they have been reasonably prepared on bases reflecting the management's best currently available estimates and judgments of the future financial performance of the Company and USAI, respectively. We have not made any independent valuation or appraisal of the assets or liabilities or technology of the Company or USAI, nor have we been furnished with any such appraisals. In arriving at our opinion, we have relied primarily on publicly available information on USAI provided by USAI or equity research analysts who cover USAI and certain internal financial statements provided by USAI. In addition, we have assumed that the Merger will be consummated in accordance with the terms set forth in the Merger Agreement without material modification or waiver, including among other things, that the Merger will be treated as a tax-free reorganization pursuant to the Internal Revenue Code of 1986, as amended. Our opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof.

        In arriving at our opinion, we were not authorized to solicit, and did not solicit interest from any party with respect to the acquisition, business combination or other extraordinary transaction involving the Company or its assets.

        We have acted as financial advisor to the Special Committee of the Board of Directors of the Company in connection with the merger and will receive a fee for our services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have provided financial advisory and financing services for the Company and have received fees for the rendering of those services.

        It is understood that this letter is for the information of the Special Committee of the Board of Directors of the Company appointed to evaluate and review the Merger and may not be used for any other purpose without our prior written consent, except that a copy of our opinion may be included in its entirety in any documents required to be filed by the Company with the Securities and Exchange Commission with respect to the Merger. This opinion is not intended to be and shall not constitute a recommendation to any holder of Company Common Stock regarding their vote on the Merger. In addition, this opinion does not in any manner address the prices at which the USAI Common Stock or the Company Common Stock will actually trade at any time.

B-2


        Based upon and subject to the foregoing, we are of the opinion on the date hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a financial point of view to the holders of shares of the Company Common Stock (other than USAI and its affiliates).


 
 
Very truly yours,
 MORGAN STANLEY & CO. INCORPORATED

 
 
By:
/s/  CHARLES R. CORY      
Charles R. Cory
Managing Director

B-3


APPENDIX C


WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13
DISSENTERS' RIGHTS

SECTIONS

23B.13.010   Definitions.
23B.13.020   Right to dissent.
23B.13.030   Dissent by nominees and beneficial owners.
23B.13.200   Notice of dissenters' rights.
23B.13.210   Notice of intent to demand payment.
23B.13.220   Dissenters' rights—Notice.
23B.13.230   Duty to demand payment.
23B.13.240   Share restrictions.
23B.13.250   Payment.
23B.13.260   Failure to take action.
23B.13.270   After-acquired shares.
23B.13.280   Procedure if shareholder dissatisfied with payment or offer.
23B.13.300   Court action.
23B.13.310   Court costs and counsel fees.


23B.13.010 Definitions.

        As used in this chapter:

C-1


23B.13.020. Right to dissent.

*
Effective as of July 27, 2003, subparagraph (d) shall be amended in its entirety to read as follows: "(d) An amendment of the articles of incorporation, whether or not the shareholder was entitled to vote on the amendment, if the amendment effects a redemption or cancellation of all of the shareholder's shares in exchange for cash or other consideration other than shares of the corporation; or"


23B.13.030. Dissent by nominees and beneficial owners.

C-2


23B.13.200. Notice of dissenters' rights.


23B.13.210. Notice of intent to demand payment.


23B.13.220. Dissenters' rights—Notice.

C-3


23B.13.230. Duty to demand payment.


23B.13.240. Share restrictions.


23B.13.250. Payment.

C-4


23B.13.260. Failure to take action.


23B.13.270. After-acquired shares.


23B.13.280. Procedure if shareholder dissatisfied with payment or offer.


23B.13.300. Court action.

C-5


23B.13.310. Court costs and counsel fees.

C-6


PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

        The Registrant's Restated Certificate of Incorporation, as amended, limits, to the maximum extent permitted by Delaware law, the personal liability of directors for monetary damages for breach of their fiduciary duties as a director. The Registrant's Amended and Restated By-Laws provide that the directors and officers (and legal representatives of such directors and officers) will be indemnified to the fullest extent authorized by the Delaware General Corporation Law with respect to third-party actions, suits, investigations or proceedings provided that any such person has met the applicable standard of conduct set forth in the Delaware General Corporation Law described below. The Registrant's Amended and Restated By-Laws further provide that directors and officers (and legal representatives of such directors and officers) will be indemnified with respect to actions or suits initiated by such person only if such action was first approved by the board of directors. The Registrant's Amended and Restated By-Laws allow the Registrant to pay all expenses incurred by a director or officer (or legal representatives of such directors or officers) in defending any proceeding in which the scope of the indemnification provisions as such expenses are incurred in advance of its final disposition, upon an undertaking by such party to repay such expenses, if it is ultimately determined that such party was not entitled to indemnity by the Registrant. From time to time, officers and directors may be provided with indemnification agreements that are consistent with the foregoing provisions and, to the extent such officers and directors serve as officers or directors of subsidiaries of the Registrant, consistent with the indemnification provisions of the charter documents of such subsidiaries. The Registrant has policies of directors' and officers' liability insurance which insure directors and officers against the costs of defense, settlement and/or payment of judgment under certain circumstances. The Registrant believes that these agreements and arrangements are necessary to attract and retain qualified persons as directors and officers.

        Section 145 of the General Delaware General Corporation Law provides that a corporation may indemnify a director, officer, employee or agent who was or is a party, or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he was a director, officer, employee or agent of the corporation or was serving at the request of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.


Item 21. Exhibits and Financial Statement Schedules.

(a)
Exhibits.

Exhibit
Number
   Description

2.1
 
Agreement and Plan of Merger, dated as of March 18, 2003, by and between InterActiveCorp (formerly USA Interactive, "IAC"), Expedia, Inc. and Equinox Merger Corp. (included as Appendix A to the proxy and information statement/prospectus included in this Registration Statement).

3.1
 
Restated Certificate of Incorporation of IAC (incorporated by reference to Exhibit 3.1 to IAC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

3.2
 
Amendment to the Restated Certificate of Incorporation of IAC (incorporated by reference to Exhibit A of IAC's Definitive Information Statement filed on November 19, 2001).
     

II-1


3.3
 
Certificate of Ownership and Merger Merging Taiwan Travel, Inc. into USA Networks, Inc. (incorporated by reference to Exhibit 3.3 to IAC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).

3.4
 
Certificate of Ownership and Merger Merging WLS Holdings, Inc. into USA Interactive and Amendment Thereto (incorporated by reference to Exhibit 4.4 to IAC's Post-Effective Amendment No. 1 on Form S-8 to Form S-4 (file no. 333-105014) filed on July 2, 2003).

3.5
 
Amended and Restated By-Laws of IAC (incorporated by reference to Exhibit 99.1 of IAC's Current Report on Form 8-K, filed on September 20, 2002).

4.1
 
Form of IAC Stockholder Equity Warrant (included in Exhibit 4.2)**

4.2
 
Form of IAC Stockholder Equity Warrant Agreement**

4.3
 
Form of IAC Optionholder Equity Warrant (included in Exhibit 4.4)**

4.4
 
Form of IAC Optionholder Equity Warrant Agreement**

5.1
 
Opinion of Wachtell, Lipton, Rosen & Katz as to the validity of the shares and warrants being issued.

8.1
 
Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax matters.

8.2
 
Opinion of Shearman & Sterling LLP as to certain tax matters.

23.1
 
Consent of Ernst & Young LLP.

23.2
 
Consent of Ernst & Young LLP.

23.3
 
Consent of Deloitte & Touche LLP.

23.4
 
Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibits 5.1 and 8.1 hereto).

23.5
 
Consent of Shearman & Sterling LLP (included in Exhibit 8.2 hereto).

24.1
 
Powers of Attorney.*

99.1
 
Consent of Stockholders of IAC in lieu of Stockholders' Meeting, dated as of March 18, 2003.*

99.2
 
Consent of Morgan Stanley & Co. Incorporated.*

99.3
 
Form of Expedia, Inc. Proxy Card
*
Previously filed.

**
To be filed by post-effective amendment.


Item 22. Undertakings.

        The undersigned Registrant hereby undertakes:

II-2

        Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-3


SIGNATURES

        Pursuant to the requirements of the Securities Act, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on July 9, 2003.

    INTERACTIVECORP

 
 
By:
/s/  DARA KHOSROWSHAHI      
Dara Khosrowshahi
 Executive Vice President and Chief Financial Officer

         Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities indicated as of July 9, 2003.

Signature
   Title

 
 
 
/s/  BARRY DILLER*      
Barry Diller		   Chairman of the Board, Chief Executive Officer and Director

/s/  VICTOR A. KAUFMAN*      
Victor A. Kaufman
 
Vice Chairman and Director

/s/  WILLIAM J. SEVERANCE*      
William J. Severance
 
Vice President and Controller (Chief Accounting Officer)

/s/  DARA KHOSROWSHAHI      
Dara Khosrowshahi
 
Executive Vice President and Chief Financial Officer

/s/  RICHARD N. BARTON*      
Richard N. Barton
 
Director

/s/  ROBERT R. BENNETT*      
Robert R. Bennett
 
Director

/s/  EDGAR BRONFMAN, JR.*      
Edgar Bronfman, Jr.
 
Director
     

II-4


/s/  DONALD R. KEOUGH*      
Donald R. Keough
 
Director

/s/  MARIE-JOSÉE KRAVIS*      
Marie-Josée Kravis
 
Director

/s/  JOHN C. MALONE*      
John C. Malone
 
Director

/s/  GEN. H. NORMAN SCHWARZKOPF*      
Gen. H. Norman Schwarzkopf
 
Director

/s/  ALAN SPOON*      
Alan Spoon
 
Director

/s/  DIANE VON FURSTENBERG*      
Diane Von Furstenberg
 
Director

*By:
 
/s/  DARA KHOSROWSHAHI      
Dara Khosrowshahi
 Attorney-In-Fact
 
 
 
 

II-5


EXHIBIT INDEX

Exhibit
Number
   Description

2.1
 
Agreement and Plan of Merger, dated as of March 18, 2003, by and between (formerly USA Interactive, "IAC"), Expedia, Inc. and Equinox Merger Corp. (included as Appendix A to the proxy and information statement/prospectus included in this Registration Statement).

3.1
 
Restated Certificate of Incorporation of IAC (incorporated by reference to Exhibit 3.1 to IAC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

3.2
 
Amendment to the Restated Certificate of Incorporation of IAC (incorporated by reference to Exhibit A of IAC's Definitive Information Statement filed on November 19, 2001).

3.3
 
Certificate of Ownership and Merger Merging Taiwan Travel, Inc. into USA Networks, Inc. (incorporated by reference to Exhibit 3.3 to IAC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).

3.4
 
Certificate of Ownership and Merger Merging WLS Holdings, Inc. into USA Interactive and Amendment Thereto (incorporated by reference to Exhibit 4.4 to IAC's Post-Effective Amendment No. 1 on Form S-8 to Form S-4 (file no. 333-105014) filed on July 2, 2003).

3.5
 
Amended and Restated By-Laws of IAC (incorporated by reference to Exhibit 99.1 of IAC's Current Report on Form 8-K, filed on September 20, 2002).

4.1
 
Form of IAC Stockholder Equity Warrant (included in Exhibit 4.2)**

4.2
 
Form of IAC Stockholder Equity Warrant Agreement**

4.3
 
Form of IAC Optionholder Equity Warrant (included in Exhibit 4.4)**

4.4
 
Form of IAC Optionholder Equity Warrant Agreement**

5.1
 
Opinion of Wachtell, Lipton, Rosen & Katz as to the validity of the shares and warrants being issued.

8.1
 
Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax matters.

8.2
 
Opinion of Shearman & Sterling LLP as to certain tax matters.

23.1
 
Consent of Ernst & Young LLP.

23.2
 
Consent of Ernst & Young LLP.

23.3
 
Consent of Deloitte & Touche LLP.

23.4
 
Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibits 5.1 and 8.1 hereto).

23.5
 
Consent of Shearman & Sterling LLP (included in Exhibit 8.2 hereto).

24.1
 
Powers of Attorney.*

99.1
 
Consent of Stockholders of IAC in lieu of Stockholders' Meeting, dated as of March 18, 2003.*

99.2
 
Consent of Morgan Stanley & Co. Incorporated.*

99.3
 
Form of Expedia, Inc. Proxy Card.
*
Previously filed.

**
To be filed by post-effective amendment.

II-6



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IMPORTANT
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
RISK FACTORS
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
THE EXPEDIA SPECIAL MEETING
ACTION BY WRITTEN CONSENT OF IAC STOCKHOLDERS
THE MERGER
EXPEDIA 2003 FINANCIAL INFORMATION
Expedia Selected 2003 Financial Results and Forecast (In millions)
RELATIONSHIPS WITH EXPEDIA
INTERESTS OF CERTAIN PERSONS IN THE MERGER
THE MERGER AGREEMENT
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF IAC
INTERACTIVECORP Unaudited Pro Forma Combined Condensed Balance Sheet March 31, 2003 (In thousands)
DESCRIPTION OF IAC CAPITAL STOCK
DESCRIPTION OF IAC LISTED WARRANTS
COMPARISON OF SHAREHOLDER RIGHTS
Summary of Material Differences Between the Rights of Expedia Shareholders and IAC Stockholders
Appendix A: Agreement and Plan of Merger
TABLE OF CONTENTS
W I T N E S S E T H
ARTICLE I CERTAIN DEFINITIONS
ARTICLE II THE MERGER
ARTICLE III CONVERSION OF SECURITIES
ARTICLE IV REPRESENTATIONS AND WARRANTIES
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS
ARTICLE VII TERMINATION
ARTICLE VIII GENERAL PROVISIONS
WASHINGTON BUSINESS CORPORATION ACT CHAPTER 23B.13 DISSENTERS' RIGHTS
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
EXHIBIT INDEX