Diller

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE)ConsolidatedIN RE IAC/INTERACTIVECORP.)C.A. No. 3486-VCL)

MEMORANDUM OPINION AND ORDER

Submitted: March 22, 2008Decided: March 28, 2008

Kevin G. Abrams, Esquire, A. Thompson Bayliss, Esquire, T. Brad Davey,Esquire, Nathan A. Cook, Esquire, ABRAMS & LASTER, Wilmington, Delaware;Richard B. Harper, Esquire, BAKER BOTTS, LLP, New York, New York,

Attorneys for the Liberty Parties.

Kenneth J. Nachbar, Esquire, Theodore A. Kittila, Esquire, Jeremy D. Eicher,Esquire, MORRIS NICHOLS ARSHT & TUNNELL LLP, Wilmington, Delaware;Theodore A. Mirvis, Esquire, Paul K. Rowe, Esquire, Marc Wolinsky, Esquire, IanBoczko, Esquire, Garrett B. Moritz, Esquire, Andrew Houston, Esquire, Lauren M.Kofke, Esquire, WACHTELL, LIPTON, ROSEN & KATZ, New York, New York,

Attorneys for the IAC Parties.

LAMB, Vice Chancellor.

1

The situation is made even more complex by two other circumstances. First, Diller’s proxywill not cover the shares of the spincos. Thus, if the spin-off happens, Diller will give up hisultimate voting control in those corporations. At the same time, Liberty, will gain the power tovote its shares in the spincos. If the spin-off happens on the basis of a two-tiered votingstructure, Liberty will gain majority voting control. If the spin-off occurs on a single-tier basis,Liberty will have approximately 30% of the voting power in each of the spincos, while retaining

1At the core of the dispute before the court is a proposal by IAC/InterActiveCorp. to spin-off four of its subsidiaries as independent public companies(“spincos”), while remaining a public company itself. The immediate issue iswhether, absent the consent of the owner of IAC’s high-vote stock having amajority of the voting power, the capital structure of the spincos may be set up onthe basis of a single class of common stock all having the same voting rights.To fully grasp the unusual character of this dispute requires anunderstanding of two basic facts that rule the governance of IAC. IAC has a dualclass voting structure in which Liberty Media Corp. owns all of the high-vote ClassB common stock constituting a majority of the voting power of IAC. But, Libertyhas granted an irrevocable proxy to Barry Diller, IAC’s Chairman and CEO, tovote all of the IAC shares beneficially owned by Liberty or its affiliates. Thatproxy dates back to the formation of IAC’s predecessor in the early 1990s and willonly terminate on Diller’s death, disability, or relinquishment of the role of CEO atIAC. Thus, in a sense, both Diller and Liberty possess attributes of being IAC’smajority stockholder, although Diller has the present ability to exercise themajority voting power.

1

The relationship between and among Diller, Liberty, and

its high-vote stock in IAC. Second, if, as has been proposed in the past, Liberty and IAC reachagreement on a plan to swap IAC assets for Liberty’s IAC shares, Diller will have the right toexchange any low-vote IAC shares he holds for Liberty’s high-vote shares. In that event, it ispossible that Diller would end up owning a majority of IAC’s voting power in his own right.

2IAC is further defined and circumscribed by a stockholders agreement and agovernance agreement, which were last amended in 2005. The properinterpretation of those agreements is at issue in this case.In recent years, Liberty has publicly expressed dissatisfaction with IAC’sperformance and has searched for ways to divorce itself from IAC and Diller. Inearly 2007, IAC and Liberty held negotiations on a proposal to swap IAC assets forLiberty’s IAC shares that would have resulted in a separation of the twobusinesses, but they were unable to reach agreement on economic terms. Somemonths later, IAC’s management began to consider the spin-off and, in November2007, the IAC board of directors preliminarily approved and publicly announcedthe general terms of such a proposal. The IAC board has yet to consider manyaspects of the proposed transaction including, most importantly, the capital andvoting structures of the spincos.A dispute has arisen, however, between IAC’s management (includingDiller), on the one hand, and Liberty (including its Chairman, John Malone), on theother, over the question of whether or not to replicate the IAC two-tiered votingstructure in the spincos. Liberty takes the position that various provisions of the