Shareholder Agreement - Expedia Inc. and Microsoft Corp.

 
                                 Expedia, Inc.

                             Shareholder Agreement



                                     Dated
                                     as of

                                October 1, 1999

                                      -i-

                                        

 
                                 Expedia, Inc.

                             Shareholder Agreement


     THIS SHAREHOLDER AGREEMENT (this "Agreement") is entered into as of
October 1, 1999, between Expedia, Inc., a Washington corporation (the
"Company"), and Microsoft Corporation, a Washington corporation ("Microsoft").

                                    RECITALS

     A. The Company is proposing to issue and sell to Microsoft, pursuant to a
Contribution Agreement of equal date herewith, 33,000,000 newly authorized
shares of its common stock, $0.01 par value (the "Common Stock").

     B.  Microsoft may wish to sell the Common Stock in an offering registered
under the Securities Act of 1933, as amended.

     C.  The Company and Microsoft believe that it is in their best interests
(i) not to solicit each others employees, or (ii) for Microsoft not to compete
with the Company for a period following the Company's initial public offering.

     D.  The Company and Microsoft desire to enter into this Shareholder
Agreement to clarify their relationship following the Company's initial public
offering with respect to Common Stock transfers, registration rights, non-
solicitation and non-competition.

                                   AGREEMENT

A.   Definitions

     For purposes of this Agreement, the following terms have the following
meanings:

     1.  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     2.  "Securities Act" means the Securities Act of 1933, as amended.

     3.  "Form S-3" means such form under the Securities Act as in effect on the
date hereof or any registration form under the Securities Act subsequently
adopted by the SEC that similarly permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC;

     4.  "Holder" means any person owning or having the right to acquire the
Common Stock who is a party to this Agreement as of the date hereof or who is
added as a

 
party pursuant to the terms of this Agreement, and any assignee thereof.
Microsoft and any subsequent Holder under this Agreement shall be set forth on
Schedule A to this Agreement;

     5.   "Losses" have the meaning assigned to that term in Section C(8)(a).

     6.   "register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or order of
effectiveness of such registration statement or document;

     7.   "Registrable Securities" means the Common Stock, and any common stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Common Stock, in each case owned by a Holder and excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
its rights under this Agreement are not assigned and any common stock which the
Holder is entitled to sell into the public market, together with all other
Registrable Securities of the Company beneficially owned by such Holder (and all
Registrable Securities as to which such Holder shares beneficial ownership) that
is at the time of registration, transferable by the Holder in a single brokerage
transaction under the provisions and within the volume limitations of Rule 144
promulgated under the Securities Act or any successor to such Rule;

     8.   "SEC" means the Securities and Exchange Commission.

     9.   "Violation" has the meaning assigned to that term in Section C(8)(a).

B.   Restrictions on Transfer of Common Stock

     1.   Microsoft's Lock-Up Period

          (a) Microsoft may not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of the Common Stock to a proposed Holder
other than the Company for a period of 12 months immediately following the
effective date of the Company's initial public offering (the "Lock-Up Period").
Microsoft may, however, submit at any time a written request to the Company to
be relieved from the Lock-Up Period prior to its expiration.  Upon the receipt
of such written request, the Company may waive the Lock-Up Period upon the
written consent of a majority of its directors who are not, or who have not
previously been or are not proposed to be, employees of Microsoft or the Company
("Outside Directors").  The Outside Directors may grant or refuse a waiver of
the Lock-Up Period in their sole discretion and their decision shall be binding
under this Agreement.

          (b) For purposes of clarity, nothing set forth in this Section B(1)
shall prevent Microsoft from exercising its registration rights pursuant to
Section C(2) of this Agreement.

                                      -2-

 
     2.   Restriction on Transfer of Common Stock

          In the event that Microsoft or any subsequent Holder of the Common
Stock wishes to offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of such stock to a proposed Holder who is not the Company or a
wholly-owned subsidiary of the Holder, it shall be a condition to such offer,
sale or contract that the proposed Holder offer in writing to each holder of the
Company's common stock the same per share consideration that the Holder of the
Common Stock would be entitled to receive in exchange for the Common Stock.  The
proposed Holder's offer shall remain open for a minimum of 20 business days and
shall comply with all applicable federal and state securities laws.

C.   Registration Rights

     1.   Request for Registration

     (a) If the Company shall receive, at any time following the expiration of
the Lock-Up Period, a written request from the Holders of 30% of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company file a
registration statement under the Securities Act covering the registration of the
Registrable Securities at an aggregate proposed offering price to the public
(before deduction of underwriting discounts and commissions) of at least
$50,000,000, then the Company shall, within 20 days after the receipt of such
request, give written notice of such request to all Holders and shall, subject
to the limitations set forth below, use commercially reasonable efforts to
effect as soon as practicable the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered in a written
request to be given within 30 days of the mailing of such notice by the Company.

     (b) The Company is obligated to effect only one registration pursuant to
this Section C(1) in any 12-month period.

     (c) Notwithstanding the foregoing, if the Company furnishes to the
Initiating Holders requesting a registration pursuant to this Section C(1)
within 30 days of receiving such request:  (i) a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company has
the right to defer such filing for up to two periods of not more than 90 days
each after receipt of the request of the Initiating Holders; provided, however,
that the Company may not use this right more than once (for a total of up to 180
days) in any 12-month period or (ii) a certificate signed by the President of
the Company stating that the Company intends within 90 days of the date of such
certificate to file a registration statement for the public offering of
securities of the Company to the general public, the Company shall not be
obligated to effect the registration requested pursuant to this Section C(1);
provided, however, that the Company shall promptly notify the Initiating Holders
requesting a registration pursuant to this Section C(1) of any decision by the
Company to abandon or indefinitely delay such public offering.

                                      -3-

 
     2.   Company Registration

     If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its common stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan, a registration relating to a corporate merger,
reorganization or other transaction under Rule 145 of the Securities Act or a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities), the Company shall, at each such
time, promptly give each Holder of Registrable Securities written notice of such
registration.  Upon the written request of each such Holder given within 20 days
after the mailing of such notice by the Company, the Company shall use
commercially reasonable efforts to cause to be registered under the Securities
Act all of the Registrable Securities that each such Holder has requested to be
registered.  In the event that the Company decides for any reason not to
complete the registration of shares of its common stock other than Registrable
Securities, the Company shall have no obligation under this Section C(2) to
continue with the registration of Registrable Securities.  Any request pursuant
to this Section C(2) to register Registrable Securities as part of an
underwritten public offering of common stock shall specify that such Registrable
Securities are to be included in the underwriting on the same terms and
conditions as the shares of common stock otherwise being sold through
underwriters under such registration.

     3.   Obligations of the Company

     Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:

          (a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 90 days.

          (b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.

          (c) Furnish to the Holders such copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request to facilitate the
disposition of all securities covered by such registration statement.

                                      -4-

 
          (d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.

          (e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering.  Each Holder
participating in such registration shall also enter into and perform its
obligations under such an agreement.

          (f) Notify each Holder of Registrable Securities covered by such
registration statement, during the time when a prospectus is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.

          (g) At the request of any Holder selling Registrable Securities in
such registration, furnish on the date that such Registrable Securities are
delivered to the underwriters for sale in connection such registration (i) an
opinion, dated such date, of legal counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given by
Company counsel to underwriters in an underwritten public offering, addressed to
the underwriters and (ii) a letter, dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters.

          (h) List the Registrable Securities being registered on any national
securities exchange or quotation system on which a class of the Company's equity
securities is listed.

          (i) Provide a transfer agent and registrar for the securities being
registered and a CUSIP number, not later than the effective date of the
registration statement.

     4.   Furnish Information

     It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement that the selling Holders shall furnish to
the Company such information regarding themselves, the Registrable Securities
held by them and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of their Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.

                                      -5-

 
     5.   Expenses of Registration

          (a) In connection with any registration pursuant to Section C(1), the
Holder(s) shall be responsible for the payment of all expenses of the
registration, including (i) underwriting discounts and commissions, which shall
be paid by the Holders and any other selling holders of the Company's securities
in proportion to the aggregate value of the securities offered for sale by each
of them.

          (b) In connection with any registration pursuant to Section C(2), the
Company shall be responsible for the payment of all reasonable expenses of the
registration, with the exception of (i) underwriting discounts and commissions,
which shall be paid by the Company, the Holders and any other selling holders of
the Company's securities in proportion to the aggregate value of the securities
offered for sale by each of them, and (ii) the fees and expenses of more than
one law firm acting as counsel to the selling Holders selected by a majority in
interest of the selling Holders, which additional counsel, if any, shall be paid
by the Holder or Holders that engage such counsel.  The expenses to be paid by
the Company shall include, without limitation, all registration, filing and
qualification fees, printing and accounting fees, the fees and disbursements of
counsel for the Company.

     6.   Underwriting Requirements

          (a) The Holders under Section C(1) must distribute the Registrable
Securities covered by their request by means of a public offering underwritten
by a reputable national underwriter.  The right of any Holder to include its
Registrable Securities in such registration under Section C(1) shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein.  All Holders proposing to distribute their Registrable
Securities through such underwriting shall (together with the Company as
provided in Section C(3)(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company.  Notwithstanding any other provision of Section C(1), if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise have been underwritten pursuant to Section C(1), and the number
of shares of Registrable Securities that may be included in the registration
shall be apportioned first pro rata among the selling Holders, including the
Initiating Holders, according to the total amount of Registrable Securities held
by such Holders at the time of registration, then to the Company and then pro
rata among any other selling shareholders according to the total amount of
securities otherwise entitled to be included therein owned by each such selling
shareholder, or in such other proportions as shall mutually be agreed to by such
selling shareholders.

          (b) The Company shall not be required under Section C(2) to include
any of the Holders' securities in an underwritten offering of the Company's
securities unless such Holders accept the terms of the underwriting as agreed
upon between the Company and the 

                                      -6-

 
underwriters selected by it. If the underwriters advise the Company that
marketing factors require a limitation on the number of shares, including
Registrable Securities, to be included in such offering, then the Company shall
so advise all Holders of Registrable Securities that would otherwise have been
underwritten pursuant to Section C(2), and the number of shares, including
Registrable Securities, that may be included in the registration shall be
apportioned first to the Company, then pro rata among the selling Holders
according to the total amount of Registrable Securities held by such Holders at
the time of registration, then pro rata among any other selling shareholders
according to the total amount of securities otherwise entitled to be included
therein owned by each such other selling shareholder, or in such other
proportions as shall mutually be agreed to by such selling shareholders;
provided that in no event shall the amount of securities of the selling Holders
included in the registration be reduced below 30% of the total amount of
securities included in such registration.

     7.   Delay of Registration

     No Holder shall have any right to obtain or seek an injunction restraining
or otherwise delaying any registration of the Company as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.

     8.   Indemnification

     In the event any Registrable Securities are included in a registration
statement under this Agreement:

          (a) To the fullest extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against all expenses (including legal fees and costs), losses, claims, damages
(including settlement amounts) or liabilities (joint or several) (collectively,
"Losses") to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such Losses arise out of
or are based upon any of the following statements, omissions or violations
(collectively, a "Violation"):  (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein, or any
amendments or supplements thereto, untrue in light of the circumstances under
which they were made, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law.  The Company will reimburse (as incurred) each such Holder,
underwriter or controlling person for any Losses reasonably incurred by them in
connection with investigating or defending any Violations; provided, however,
that the indemnity agreement contained in this Section C(8)(a) shall not apply
to amounts paid in settlement of any claims 

                                      -7-

 
for Violations if such settlement is made without the consent of the Company,
which consent shall not be unreasonably withheld, nor shall the Company be
liable in any such case for any Losses that arise out of or are based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by,
or on behalf of, any such Holder, underwriter or controlling person.

          (b) To the fullest extent permitted by law, each selling Holder will
indemnify and hold harmless the Company and its officers, directors, agents and
employees, each underwriter and each other Holder selling securities in such
registration statement, and any person who controls any of the foregoing within
the meaning of the Securities Act or the Exchange Act, against any Losses to
which the Company or such officer, director, agent, employee, or underwriter or
other selling Holder or controlling person may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
Losses arise out of or are based upon any Violation that occurs in reliance upon
and in conformity with written information furnished by, or on behalf of, such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse (as incurred) any Losses reasonably incurred by the
Company or its officers, directors, agents, employees, or underwriters or other
selling Holders or controlling persons in connection with investigating or
defending any Violations; provided, however, that (i) the indemnity agreement
contained in this Section C(8)(b) shall not apply to amounts paid in settlement
of any claims for Violations if such settlement is made without the consent of
the Holder, which consent shall not be unreasonably withheld and (ii) the
obligations of such Holders shall be limited to an amount equal to the gross
proceeds before expenses and commissions to each such Holder of Registrable
Securities sold as contemplated herein.

          (c) Promptly after receipt of notice of the commencement of any action
(including any governmental action), an indemnified party will, if a claim is to
be made against any indemnifying party under this Section C(8), deliver to the
indemnifying party a written notice of the commencement, and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the opinion of counsel for the indemnifying
party, representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in the proceeding.  The failure to deliver written notice to the
indemnifying party within a reasonable period of time after notice of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Section C(8) to the extent such
failure is prejudicial to its ability to defend such action, but the omission to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section C(8).

                                      -8-

 
          (d) If the indemnification provided for in this Section C(8) is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any Losses, then the indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the Violations
that resulted in such Losses as well as any other relevant equitable
considerations; provided, that, in no event shall any contribution by a Holder
under this Section C(8)(d) exceed the gross proceeds before expenses and
commissions to each such Holder, except in the case of willful fraud by such
Holder.  The relative fault of the indemnifying party and of the indemnified
party shall be determined by reference to, among other things, whether the
Violation resulting in such Losses relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
Violation.

          (e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.

          (f) The obligations of the Company and Holders under this Section C(8)
shall survive the completion of any offering of Registrable Securities and the
termination of Registration Rights pursuant to Section C(12).

     9.   Reports Under the Securities Act

     With a view to making available to the Holders the benefits of SEC Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration or pursuant to a registration on Form S-3, the
Company agrees to use commercially reasonable efforts to:

          (a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days from the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;

          (b) Take such action as is necessary to enable the Holders to utilize
Form S-3 for the sale of their Registrable Securities, such action to be taken
as soon as practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its securities
to the general public is declared effective;

          (c) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and

                                      -9-

 
          (d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, promptly upon request (i) a written statement by the Company that it
has complied with the reporting requirements of the Exchange Act (at any time
after 90 days from the date on which it becomes subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC that permits the selling of any such securities without registration or
pursuant to such Form S-3.

     10.  Assignment of Registration Rights

     The rights to cause the Company to register Registrable Securities pursuant
to this Agreement may be assigned by a Holder to a transferee or assignee of
such securities who shall, upon such transfer or assignment, be deemed a
"Holder" under this Agreement; provided that prior to such transfer the
transferee agrees to be bound by the terms and conditions of this Agreement and
that the Company is, within a reasonable period of time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned.

     11.  "Market Standoff" Agreement

     The Holders hereby agree that they shall not, to the extent requested by
the Company and an underwriter of common stock (or other securities) of the
Company, sell or otherwise transfer or dispose (other than to donees who agree
to be similarly bound) of any securities of the Company for such period of time
(not to exceed 180 days) from the effective date of a registration statement of
the Company filed under the Securities Act as may be requested by such
underwriter; provided, however, that all officers and directors of the Company
(whether or not pursuant to this Agreement) also agree to such restrictions
pursuant to an agreement with such underwriter.

     To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the securities of the Holders (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.

     12.  Termination of Registration Rights

     The registration rights granted under this Agreement shall terminate with
respect to a Holder at such time as all such Registrable Securities held by such
Holder may be sold within a three-month period pursuant to Rule 144 promulgated
under the Securities Act or any successor to such Rule.

                                     -10-

 
D.   Non-Solicitation and Non-Competition

     1.   Non-Solicitation

     For a period of one year from the date of the Company's initial public
offering, no employee of either the Company or Microsoft will solicit for the
purpose of hiring any employee of the other.  For the purposes of the preceding
sentence, the following does not constitute solicitation under this Agreement:
(i) use of an independent employment agency, so long as such agency is not
directed to contact a specific employee of the other party, and (ii) general
advertisements not targeted at a specific employee of the other party.  For
additional clarification, either party will have the right to engage in
discussions with employees of the other party regarding employment when
discussions are initiated by such employee, and will have the right to hire such
persons.

     2.   Non-Competition

          (a) For a period of three years following the Company's initial public
offering, Microsoft will not engage directly or indirectly in the Expedia
Business with (unless otherwise expressly agreed to by the parties), or form, or
enter into any agreement with any third party for an investment in, any entity 
listed on Schedule B hereto, as such schedule may be amended from time to time.

          (b) For a period of three years following the Company's initial public
offering, Microsoft will not engage directly or indirectly in the Expedia 
Business with (unless otherwise expressly agreed to by the parties), or form, or
enter into any agreement with any third party for an investment of greater than 
4.9% in, any entity other than Expedia which is primarily engaged in a business 
which competes directly with the Expedia Business (a "Competing Entity"). For 
purposes of clarification, an entity is a Competing Entity only to the extent 
that the consolidated revenues derived from the portion of the entity's business
that is within the scope of the Expedia Business is greater than 50% of the 
total consolidated revenues of such entity.

          (c) Notwithstanding the preceding paragraph, a "Competing Entity" 
shall not include an entity which (i) is headquartered in a country other than 
the United States, and (ii) is engaged in the Expedia Business in a country 
other than the United States where Expedia does not conduct the Expedia Business
or has notified Microsoft in writing that it has no intention to conduct the 
Expedia Business in such country. For purposes of clarification, there shall be
no limitation on the size of Microsoft's investment in these entities.

          (d) For purposes of this section: (i) the revenues of an entity shall 
be determined on the basis of financial information for the most recent period 
of twelve months for which financial information is available, and (ii) the 
"Expedia Business" shall mean any online service for reserving or purchasing 
travel services (e.g., airline tickets, hotel rooms, rental cars, cruises, and 
resort vacation packages) accessed with an interactive

                                     -11-

 
Competing Entity, or (ii) acquiring any entity (an "Acquired Entity") which
derives 50% or less of its consolidated revenues from activities within the
scope of the Expedia Business, provided that Microsoft shall use commercially
reasonable efforts to cause the Acquired Entity to utilize Expedia technology,
products and services to the extent practicable in substitution for travel-
related technology, products and services provided by such Acquired Entity or
third party provider prior to the acquisition.

E.   Miscellaneous

     1.   Notices

     Any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given (a) upon personal delivery to the
party to be notified, (b) upon confirmation of receipt by fax by the party to be
notified, (c) one business day after deposit with a reputable overnight courier,
prepaid for overnight delivery and addressed as set forth in (d), or (d) three
days after deposit with the United States Post Office, postage prepaid,
registered or certified with return receipt requested and addressed to the party
to be notified at the address indicated for such party on the signature page, or
at such other address as such party may designate by 10 days' advance written
notice to the other parties given in the foregoing manner.

     2.   Amendments and Waivers

     Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of a majority of the Common Stock.  Additional Holders may be added
to this Agreement without such consent by amending Schedule A and adding a
signature page executed by such additional Holder.

     3.   Governing Law; Jurisdiction; Venue

     This Agreement shall be governed by and construed under the laws of the
state of Washington without regard to principles of conflict of laws.  The
parties irrevocably consent to the exclusive jurisdiction and venue of the state
and federal courts located in King County, Washington in connection with any
action relating to this Agreement.

     4.   Successors and Assigns

     The terms and conditions of this Agreement shall inure to the benefit of
and be binding on the respective successors and assigns of the parties as
provided herein.

     5.   Severability

     If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this 

                                     -12-

 
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.

     6.   Entire Agreement; Counterparts

     This Agreement constitutes the entire agreement between the parties about
its subject and supersedes all prior agreements.  This Agreement may be executed
in two or more counterparts, which together shall constitute one instrument.

                                     -13-

 
     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                EXPEDIA, INC.


                                             /s/ Richard N. Barton
                                -----------------------------------------------
                                By:  Richard N. Barton
                                     Its: President and Chief Executive Officer
                                Address:  4200 150th Ave. NE
                                          Redmond, WA  98052
 
                                Fax:      425/936-7329  
                                Telephone: 425/705-5161

                                HOLDER:

                                MICROSOFT CORPORATION



                                             /s/ Gregory B. Maffei
                                -----------------------------------------------
                                By:  Gregory B. Maffei
                                     Its:   Chief Financial Officer
                                Address:  One Microsoft Way
                                          Redmond, WA  98005
                                Fax:      425/882-8080
                                Telephone: 425/936-7329

                                     -14-

 
                                   Schedule A
                            to Shareholder Agreement


Holder Name                                       Number of Shares
---------------------------------------------     ------------------
Microsoft Corporation                             33,000,000

                                     -15-

 
                                  Schedule B
                           to Shareholder Agreement

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