ServiceMagic 2010 Annual Report Download - page 94

Table of Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11—SHAREHOLDERS' EQUITY (Continued)
On December 1, 2010, Mr. Diller, Chairman of the Board and Senior Executive of the Company, entered into an agreement with Liberty,
pursuant to which Liberty exchanged with Mr. Diller an aggregate of 4.3 million shares of Class B common stock for the same number of shares
of common stock held by Mr. Diller. In consideration of Mr. Diller waiving certain pre-existing rights under the Stockholders Agreement with
respect to Liberty's transfer to IAC of shares of common stock and Class B common stock, the Company agreed to permit Mr. Diller to exchange
with IAC, on a one-for-one basis, from time to time until September 1, 2011 up to 1.5 million shares of common stock for shares of Class B
common stock.
Further, on December 1, 2010, the Company entered into a stock exchange agreement with Liberty. Under the agreement, Liberty agreed to
exchange with IAC an aggregate of 4.3 million shares of common stock described above and an aggregate of 8.5 million shares of Class B
common stock for the outstanding shares of Celebrate Interactive, Inc., a wholly owned subsidiary of IAC, which owns all of the equity interests
of Evite, Inc., Giftco, Inc. and IAC Advertising, LLC and $217.9 million in cash.
The shares of common stock and Class B common stock exchanged by Liberty represented substantially all of the shares of common stock
and all of the shares of Class B common stock owned beneficially and/or of record by Liberty.
Following consummation of the above transaction, Mr. Diller, through his own holdings, has 4.3 million shares of IAC's outstanding
Class B common stock representing 33.8% of the outstanding total voting power of the Company.
Prior to December 1, 2010, in the event that IAC issued or proposed to issue any shares of IAC common stock or Class B common stock
(with certain limited exceptions), including shares issued upon vesting of restricted stock units ("RSUs") and performance stock units ("PSUs"),
or the exercise, conversion or exchange of options, warrants and convertible securities, Liberty had preemptive rights that entitled it to purchase,
subject to a cap, a number of IAC common shares so that Liberty maintained the identical ownership interest in IAC that Liberty had
immediately prior to such issuance or proposed issuance. Any purchase by Liberty was allocated between IAC common stock and Class B
common stock in the same proportion as the issuance or issuances giving rise to the preemptive right, except to the extent that Liberty opted to
acquire shares of IAC common stock in lieu of shares of IAC Class B common stock. Liberty did not exercise its preemptive right in the third
quarter of 2010 and was not entitled to exercise its preemptive right in 2009 as its ownership, at the time of notice, had exceeded the established
cap.
Description of Preferred Stock
IAC's Board of Directors has the authority to designate, by resolution, the powers, preferences, rights and qualifications, limitations and
restrictions of preferred stock issued by IAC without any further vote or action by the shareholders. Any shares of preferred stock so issued
would have priority over shares of IAC common stock and shares of IAC Class B common stock with respect to dividend or liquidation rights or
both. At December 31, 2010 and 2009 there was no preferred stock issued and outstanding.
Reserved Common Shares
In connection with equity compensation plans, warrants, and other matters, 52.7 million shares of IAC common stock were reserved as of
December 31, 2010.
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