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Diller's E-Mail to IAC Employees

From: Barry Diller

Sent: Thursday, August 05, 2004 7:34 PM

To: All IAC

Subject: IAC

I think it's appropriate to review the last days....

We released our earnings with an attendant conference call with analysts and our stock is down severely as a result...that you all surely know. We said on the call that it was a good quarter, and it was. What wasn't good is that we, your management, raised expectations too high at our Investor Day last November and are now paying the price. Added to that, and I do believe inappropriately, I was far too defensive in replying to analysts' questions, showing my exasperation from pointed queries about the fundamentals of our businesses, particularly Travel. I could say the factors for my lame performance were that the call went on too long, that I felt it necessary with so much querulous pounding to strongly assert the health and prospects I so clearly believe in, and that I felt an overreaction brewing that required the most vigorous defense. All of these are true but the higher truth is we did disappoint the estimates for growth set by our own hands and by not lowering them earlier in the year as the strain became clear we mightily exacerbated the problem. That, and the extremely jittery markets of the last months did the rest, with the result that our shareholders and analysts were caught in the the responsibility for this, allowing the bar to be set unreasonably high, and then not having the proper patient focus on our conference call, is fully mine.

I am telling you this because I want to make a clear distinction between these events and your performance and that of the Company itself. This has been a tough operating year for all of us, with challenges in every area - understanding challenge is daily life in an arena as young and dynamic as interactivity is. While we've historically grown our enterprise through aggressive acquisitions, it will be to our own businesses and the ideas and initiatives that fuel them where we will increasingly look for growth in the future. We are making big investments across our spectrum and have such ambitious goals for advancing everywhere. We have positive signs all over the place that we are making progress and I don't for a minute believe the investment and energy we are putting down every day will not come strongly through. I believe that you all are doing outstanding work and I also think the effort is worth it. We are strengthening our leading positions where we have them, and we have great initiatives for establishing entirely new businesses. Our prospects for building a great and lasting enterprise have not diminished by an inch and it is no bromide to say that your efforts in this are far more important than any mandated glide route for is the step-by-step good work you are engaged in that creates real and enduring value - so keep it up and your management will try and keep up with you.

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