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DECLARATION OF LAY OPINION TESTIMONY DAMAGES DUE CLASS UNDER RULE 701
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Brad Greenspan, Pro Se
264 South La Cienega
Suite 1016
Beverly Hills, CA 90211
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
JIM BROWN, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff
V.
BRETT C. BREWER, et atl.,
Defendants
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CASE NO: 2:06-cv-03731-GHK-Sh
CLASS ACTION
RULE 701 DECLARATION OF LAY
WITNESS & DAMAGES
VALUATION
DATE: TBD
TIME: TBD
COURTROOM: The Hon. George H.
King CTRM 650
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I INTRODUCTION pg. 4
OVERVIEW OF ASSIGNMENT pg. 6
SUMMARY: $3.75 - $32.453 Billion in damages suffered by Class Members
II TRANSACTION BACKGROUND pg. 6
III COMPANY BACKGROUND pg. 6
IV INDUSTRY ENVIRONMENT IN 2005 pg. 7
V PROBLEMS WITH THE MANAGEMENT FORECAST AND pg. 7
DR. WILLIAM KENNEDYS DAMAGES REPORT
VI TRANSACTION BACKGROUND AND ASSUMPTIONS pg. 11
VII DAMAGES ANALYSIS pg. 13
VIII THE IMPORTANCE OF CONSIDERATION OF pg. 19
POSITIONING IN THE MARKET
IX- THE GOOGLE $1 BILLION INVESTMENT IN AOL IN 2005 pg. 21
X THE VALUATION OF MYSPACE SHOULD BE BASED pg. 22
ON OCTOBER 2005 DATA AND VALUATION METRICS USED IN
DECEMBER 2005 GOOGLE/AOL TRANSACTION
XI USING COMPARISON OF MONTHLY SEARCH AUDIENCE pg. 23
XII - Lost opportunity of getting benefit of JP Morgan pg. 272006 valuation report from Zakkour ($1.367 billion for
MySpace)
XIII ADDING BACK OMITTED VALUE OF SEARCH ENGINE pg. 28
PARTNERSHIP REVENUE
XIV- VALUATION BASED ON GOOGLE SEARCH PARTNERSHIP pg. 31
XV- CONCLUSION: pg 32
EXHIBIT 1 - BACKGROUND / WORK EXPERIENCE pg. 33
EXHIBIT 2Chart - Monthly unique visitors MySpace pg. 35
EXHIBIT 3- DOCUMENTS REVIEWED (BATES #): pg. 36
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CASES CITED
Lightning Lube, Inc. v, Witco Corp. 4F.3d 11433d Cir. 1993 pg. 4
United States v. Figueroa-Lopez, 125 F.3d 1241, 1246 (9th Cir. 1997) pg. 5
Asplundh Mfg. Div. v. Benton Harbor Eng'g, 57 F.3d 1190, 1196 (3d Cir. 1995) pg. 6
Benton Harbor Eng'g, 57 F.3d 1190, 1196 (3d Cir. 1995). Pg. 6
In Doft & Co. V. Travelocity
Marcel v. See, Inc pg. 10
Henry v. Hess Oil Virgin Islands Corp pg. 10
Rowe v. State Farm Mut. Auto. Ins. Co., pg. 11
United States v. Bighead, 128 F.3d 1329, 1335 (9th Cir. 1997) pg. 11
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DECLARATION OF LAY OPINION UNDER RULE 701 BY BRAD D.
GREENSPAN: CEO, DIRECTOR, FOUNDER PAID SEARCH
DIVISION, HEAD OF M&A THRU OCTOBER 30, 2003. ONLY
EXECUTIVE TO HAVE COMPLETED A GOOGLE VS. YAHOO
SEARCH AUCTION
I INTRODUCTION
I , Brad Greenspan, declare:
1. I submit this declaration in support of the Plaintiff Class Members.The following is based on upon my personal knowledge and if called as a
Witness I could and would testify competently thereto.
2. This declaration is made under Rule 701 based on my experience.3. Rule 701 allows lay witness declarations limited to those opinions
or inferences, which are (a) rationally based on the perception of the witness,
and (b) helpful to a clear understanding of the witness testimony or the
determination of a fact in issue, and not based on scientific, technical, or
other specialized knowledge within the scope of Rule 701.
4. I am also in a unique position to provide a valuation amount UnderRule 701. Most courts have permitted the owner or officer of a business to
testify to the value or projected profits of the business, without the necessity of
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qualifying the witness as an accountant, appraiser, or similar expert. See, e.g.,
Lightning Lube, Inc. v, Witco Corp. 4F.3d 11433d Cir. 1993) (no abuse of
discretion in permitting the plaintiff's owner to give lay opinion testimony as to
damages, as it was based on his knowledge and participation in the day-to-day
affairs of the business). Such opinion testimony is admitted not because of
experience, training or specialized knowledge within the realm of an expert, but
because of the particularized knowledge that the witness has by virtue of his or
her position in the business.
5. The amendment does not distinguish between expert and lay witnesses,but rather between expert and lay testimony. Certainly it is possible for the same
witness to provide both lay and expert testimony in a single case. See, e.g., United
States v. Figueroa-Lopez, 125 F.3d 1241, 1246 (9th Cir. 1997) (law enforcement
agents could testify that the defendant was acting suspiciously, without being qualified
as experts; however, the rules on experts were applicable where the agents testified on
the basis of extensive experience that the defendant was using code words to
refer to drug quantities and prices). The amendment makes clear that any part of a
witness' testimony that is based upon scientific, technical, or other specialized
knowledge within the scope of Rule 702 is governed by the standards of Rule 702 and
the corresponding disclosure requirements of the Civil and Criminal Rules.
The amendment is not intended to affect the ''prototypical example(s) of the type of
evidence contemplated by the adoption of Rule 701 relat(ing) to the appearance of
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persons or things, identity, the manner of conduct, competency of a person, degrees of
light or darkness, sound, size, weight, distance, and an endless number of items that
cannot be described factually in words apart from inferences.'' Asplundh Mfg. Div. v.
Benton Harbor Eng'g, 57 F.3d 1190, 1196 (3d Cir. 1995).
I OVERVIEW OF ASSIGNMENT
-Updated/revised damages assessment for benefit of Plaintiff Class Members.
SUMMARY: $3.75 - $32.453 Billion in damages suffered by Class Members
II TRANSACTION BACKGROUND
i) $12.00 cash out merger with two investment banks providing fairness valuationreports created
ii)after the $12.00 price was chosen by CEO and accepted by Board of Issuer.III COMPANY BACKGROUND
Company was online entertainment and social networking website creator and also for
purposes of report owned 100% of MySpace, Inc. At the time of its sale in 2005 for
approximately $649 million dollars, the purchase of the public shareholders equity
was reported to be $580 million and there existed a $69 million dollar obligation to
pay the minority shareholders of MySpace, Inc. according to agreements signed in
February 2005 by and between Redpoint, Inc. and Intermix, Inc, and MSV LLC.
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IV INDUSTRY ENVIRONMENT IN 2005
i) Unique in that the pace of online advertising was growing much faster thenother industries in the United States.
ii)Google had just successfully raised $4.4 billion dollars and announced thesale in August 2005.
iii) According to company documents and testimony of former head of onlinesearch
and CEO and founder of MySpace.com and Issuer, Issuer had opportunity to run a
search auction as of at least August 2005 between at least Google, Yahoo, Microsoft,
AskJeeves, and AOL.
iv)Google and AOL set market price for value of search assets on or around the 3 rdand 4th quarters of calander 2005, closing a new Search Partnership in December
2005.
v) In this transaction, Google invests $1 Billion into AOL, valuing AOL to beworth $20 billion by virtue of the 5% stake Google takes for its investment.
V PROBLEMS WITH THE MANAGEMENT FORECAST AND DR.
WILLIAM KENNEDYS DAMAGES REPORT
i) The damage report by Anders Minkler & Diehl LLP is helpful toconfirm the problem areas with management forecasts and the banker fairness
opinions. The expert also cites certain evidence that is useful in triangulating the
valuations we calculate and conclude in this report are more accurate and sound.
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ii) Because of both unreliable forecasting historically proven by managementfor MySpace, Inc. and because MySpace was an early stage company experiencing
significantly greater then average growth rates, Kennedy should not have opted to
follow bankers fairness opinion method to use the 2009/20010 DCF method for a
company like Intermix and merely hoped to gain accurate methods for an accurate
valuation of MySpace merely by adjusting the underlying financials.
iii) In Doft & Co. V. Travelocity, the Delaware Court made severalprecedential determinations when faced with the task of weighing using management f
forecasts for a new fast growing company in a fast changing market environment,
stating:
a) The court may consider proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court.
b) Both parties used a DCF approach and a comparable company approach
to value the shares.
c) A DCF analysis is a useful tool for valuing shares and is frequently relied
on by this court in appraisal actions.
d) The utility of a DCF analysis, however, depends on the validity and
reasonableness of the data relied upon. As this court has recognized,
methods of valuation, including a discounted cash flow analysis, are onlyas good as the inputs to the model.
e) The problem in this case is that the most fundamental input used by the
expertsthe projections of future revenues, expenses and cash flowswere
not shown to be reasonably reliable.
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f) Delaware law clearly prefers valuations based on contemporaneously
prepared management projections because management ordinarily has the
best first-hand knowledge of a companys operations.
g) Here, management prepared the 5-year projections for the period 2002-
2005 and gave them to Sabre for use in its routine planning processes.
h) Often, projections of this sort are shown to be reasonably reliable and are
useful in later performing a DCF analysis. In this case, however, the court
is persuaded from a review of all the evidence that the Travelocity 5-year
plan does not provide a reliable basis for forecasting future cash flows.
i) Travelocitys management held the strong view that these projections
should not be relied upon because the industry was so new and volatile thatreliable projections were impossible.
j) Punwani further testified that because of the limited financial history of
Travelocity, together with a rapidly evolving marketplace, it was difficult to
forecast the next quarter, let alone five years out.
k) Id. We were really not in a position to be able to put any credence on the
numbers, both on the revenue and on the cost side. And the only way to get
credibility in our numbers would have been to take those models and put
them through reasonability checks [that] were never done because, when
we built these frameworks, Ill call them, in the year 2000, we were in a
period of explosive growth. We were growing at 150 percent per year . No
one really knew what the right number was. Id. at 381-82.
l) Id. at 383. It was bad enough before when we did the data, and we had
this new variable that got thrown into our lap, which totally destroyed our
ability to have any confidence in projections beyond one quarter out. Id.
m) Although it was aware of the 5-year forecasts, Salomon did not conduct aDCF analysis of Travelocity as part of its work in connection with the
merger. The testimony of Anwar Zakkour, Salomons managing director, is
especially relevant on this issue:
n) Q. Did Salomon Smith Barney prepare a discounted cash flow analysis of
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Travelocity in connection with this transaction? A. Absolutely not.
o) Q. Why was no discounted cash flow analysis prepared in connection with
this transaction?
A. Because this was an industry that was in flux. And the management team
itself, which should have been the team that was most able to put together a set
of projections, would have told you it was virtually impossible to predict the
performance of this company into any sort of reasonable future term. And they
in fact had very little confidence with even their 2002 forecast numbers because
of that.
p) Q. Is a discounted cash flow methodology a methodology that is
commonly used by Salomon Smith Barney in valuing companies?
A. Valuing mature companies, yes.
q) The court reluctantly concludes that it cannot properly rely on either partys
DCF valuation. The goal of the DCF method of valuation is to value future cash
flows. Here, the record clearly shows that, in the absence of reasonably reliable
contemporaneous projections, the degree of speculation and uncertainty
characterizing the future prospects of Travelocity and the industry in which it
operates make a DCF analysis of marginal utility as a valuation technique in this
case. If no other method of analysis were available, the court would, reluctantly,
undertake a DCF analysis and subject the outcome to an appropriately high level
of skepticism. The court, however, now turns to the other method of valuation
offered by the parties.
iv)The application of theDaubertstandard rests on the level of generality ofthe expert's study. The more removed the expert's data is from the facts of the
particular case the more unreliable and speculative his testimony becomes. For
example, in both Marcel v. See, Inc.,(116)
andHenry v. Hess Oil Virgin Islands
Corp.,(117)
the court excluded the expert's testimony because the projections of future
earnings were based on general industry studies that failed to take into consideration
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the specific circumstances of the plaintiff. InRowe v. State Farm Mut. Auto. Ins. Co.,
by contrast, the court allowed the projections because they were based on the past
billing history of the plaintiff, who as a result of his injuries could not longer practice
Law.(118)
v) Rule 702's analysis is ordinarily prospective. Expert testimony is helpfulif it "willassist the trier of fact." Fed.R.Evid. 702 (emphasis added). Thus a
District court may not exclude expert testimony simply because the court can,
at the time of summary judgment, determine that the testimony does not result
in a triable issue of fact. Rather the court must determine whether there is "a
link between the expert's testimony and the matter to be proved." United
States v. Bighead, 128 F.3d 1329, 1335 (9th Cir. 1997)
VI TRANSACTION BACKGROUND AND ASSUMPTIONS
i) Based on the evidence reviewed, the Intermix Board avoidedusing the experienced valuation M&A technology banker, JP Morgans Zakkour.
News Corp received the benefit of keeping this banker from representing Issuer.
Namely that News Corp did not have to overcome or pay the up to $1.3+ Billion that
Zakkour estimated MySpace was worth prior to the July 18, 2005 merger agreement
being signed.
a) Zakkour leads Citibanks valuation/fairness report and is engaged by Ask
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Jeeves Board of Directors along with Allen & Co. in February 2005 and values
AskJeeves worth at least $1.85 million at the time it signs a merger agreement with
IAC Corp. in March 2005.
b) AskJeeves lead director David Carlick engaged Zakkour and Allen & co. towork for and represent Ask Jeeves in February 2005, while he was at the same time
Director and Chairman of Intermix. In addition Andrew Sheehan, his partner in his
venture capital fund VantagePoint, a control shareholder in Intermix was a director of
both Intermix and MySpace, Inc. Geoff Yang a long time director of AskJeeves was
also a director of MySpace, Inc.
c) The AskJeeves/IAC a stock for stock merger does not close until July 19,2005.
d) In April 2005, Zakkour joins JPMorgan. JPMorgan served as the investmentbank for IAC in the March 2005 announced merger with Ask Jeeves.
e) One Board member of IAC Corp during this period is also the Chairman ofInvestment bank Allen & Co. IAC also discloses it retains and works with Allen & Co.
as their banker in ongoing basis.
f) News Corp Director Stan Schuman in 2005 was and is one of most seniorbankers at Allen & Co. of senior bankers at Allen & Co.
g) As of July 13, 2005 or earlier, Zakkour and JPMorgan have been retained tovalue Intermix, Inc. and on July 16, 2005, Zakkours team leading the efforts for JP
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Morgan and News Corp, provides a valuation for MySpace, Inc. of $1,040 - $1,367.
Zakkour according to Kennedy, uses 2006 EBITDA Multiples
h) Defendants further determined they would not allow Deutsche Bank to writea fairness opinion or be one of the two bankers it ultimately retained.
i) On or around July 13, 2005, Issuer retained both Thomas Weisel andMontgomery. Both banks had not completed the valuation work or provided a full
valuation report prior to being retained. Unlike Montgomery and Thomas Weisel,
Deutsche Bank had already created and provided to at least Rosenblatt and Sheehan, a
Valuation report as of May 2005.
VII DAMAGES ANALYSIS
THRU 3 METHODOLOGIES (IN ORDER OF MOST ACCURATE ANDPRUDENT)
1) Financial Projections for MySpace, Inc. using actual 2005 results known:
a) The most accurate way to ascertain the valuation for MySpace, Inc. is tobuild a new set of financial projections more reliable then the management forecast
and then combine this data with the most unconflicted comparable valuation report
that existed at the time.
b) We take the last actual quarter to quarter financial results for MySpace, Inc.and use these as the base information which we know is accurate and build a multi
year forecast, initially we continue the actual growth rate and over time reduce such
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growth rate to be conservative.
c) Last Actual results for MySpace, Inc.: $3.74 million in revenue for the March2005 ending quarter which grew to $6.15 million in revenue for June 2005 quarter
64% growth quarter to quarter.
d) Last actual results for MySpace, Inc: $463,000 in EBITDA for the March2005 quarter which grew to $1.58 million in EBITDA for the June 2005 quarter.
e) Using these growth rates, we then use Kennedys 55% EBITDA margin andbeing conservative we reduce this to 45% for 2006. In 2007, we reduce growth rate
from 64% to 32%. In 2008, we reduce the quarterly growth rate to 22%. Exhibit (XX)
shows the quarterly forecast and annual revenue and EBITDA for our MySpace, Inc.
forecast. Below we summarize the annual forecast.
f) (CY2006) Our MySpace, Inc. forecast using most recent actual resultsshows $264.21 million in annual revenue for 2006 and EBITDA of $118.89 million
g) (CY2007) Our MySpace Inc. forecast shows $999 million in revenueand EBITDA of $449.55 million.
h) (CY2008) Our MySpace, Inc. forecast shows $2.43 billion & EBITDAof $1.09 billion.
2) ITS APPROPRIATE TO CONSIDER AND USE A COMPARABLECOMPANY VALUATION ON A STAND-ALONE BASIS
a) We then determine that the May 2005 Deutsche Bank valuation report which
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uses comparable company EBITDA valuations is reasonable and the prudent work of
unconflicted investment bankers trying to demonstrate their good faith and knowledge
of the internet sector to Intermix in their efforts to be retained by Intermix to contact
potential buyers.
b) Our decision is further confirmed thru review of the recent Delaware casein Doft & Co. V. Travelocity where the court states as part of its decision to reject
managements forecast and a valuation using DCF in favor of singularly using
comparable company valuation method.
c) A comparable company analysis is often used in connection with a DCFanalysis. The court, however, may use a comparable company valuation on
a stand-alone basis in an appraisal action when it is the only reliable method
of valuation offered by the parties. In Borruso v. Communications
Telesystems Intl, the court relied on a comparable company analysis
because neither expert was comfortable using a DCF analysis to value the
companys shares due to the limited financial data of the company available
as of the merger date. 753 A.2d 451, 455 n.5 (Del. Ch. 1999).
d) We use the Deutsche report 2008 multiple for MySpace, Inc. of 22.5X whichis the top end of the Estimated multiple range as we believe this is appropriate since
based on the Kennedy report, Google stood out as the most similar growth and
profitability rates to MySpace, Inc.
e) Next we plug in the MySpaces new forecast EBITDA for 2008 which ismultiplied by the 22.5X comparable company EBITDA, resulting in a Valuation of
$24.52 Billion for 100% of MySpace, Inc.
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f) We agree with Kennedys takeover premium analysis and the need to adjustvaluation based on this analysis. In addition, we again take heed of the recent
Delaware court decision in Doft & Co. V. Travelocity where the court affirms this
analysis and recommends adding a premium to the buyout value as final step, stating,
Delaware law recognizes that there is an inherent minority
trading discount in a comparable company analysis because the
[valuation] method depends on comparisons to market multiples
derived from trading information for minority blocks of the comparable
companies. The equity valuation produced in a comparable company
analysis does not accurately reflect the intrinsic worth of a corporationon a going concern basis. Therefore, the court, in appraising the fair
value of the equity, must correct this minority trading discount by
adding back a premium designed to correct it.
g) Therefore, we use Kennedys 35% takeover premium and summarize:
control Controlling value Option Value premium Indication Exercise MySpace
2008 EBITDA MULTIPLE 35% $33.102B ($69M) $33.033 Billion
Indication $24.52B
Based on the alternative guideline public company analysis provided above,
MySpace was undervalued by $32.453 billion ($33.033B - $580M).
h) This growth rate in fact is the core known variable by public issuer
management that has become available as a triangulating confirmation of our
methodology being appropriate.
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3) VALUATION BASED ON EISENMANN HARVARD BUSINESS
STUDY THAT ESTABLISHED VALUATION FOR SEARCH AUDIENCE VIA
GOOGLE/AOL TRANSACTIONS IN 2005.
a) Intermix shareholders also lost out on the opportunity and failed toreceive consideration in 2005 for two different Paid Search assets 100% owned and
controlled by Intermix.
b) The value of the online audiences of the top paid search companies suchas Google, Yahoo, and AskJeeves/IAC have since at least 2004 have been increasingly
followed by analysts and the public. Focus often is on monthly 3rd party audited
audience or share of U.S. search market tracking services such as Comscore and
Nielsen Netratings.
c) One of the most read and reviewed analysis of the online search marketand the relative values of such market and its players in 2005 was an HBS study titled,
Google Inc released in late 2006 by Professor Eisenmann.
d) Eisenmanns analysis was combined with author and researcher Amy
Shuens research and additional studies in her 2008 publication, "Web 2.0 A Strategy
Guide by O'Reilly" (Amy Shuen, 2008 Oreilly Media). The authorconcluded that,
"AOL helped tip the paid search market to make Google's
average U.S. search revenue per query more than triple that of itscompetitors. Positive network effects explain why the value of
AOL's 7-9% market share points were worth as much as $4 billion
to Google, although analysts argued at the time that $1 billion was
too much to protect Googles traffic from falling into Microsoft's
hands."
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e) Below are additional highlights from the book that details the impetusand validates the valuation/transaction economics behind Googles $1 billion dollar
investment for 5% of AOL that closed in December 2005, a $20 billion valuation,
"U.S. advertising expenditures were about $100 billion in 2007, nearly half of the
global total. "
"Google is the big winner in online advertising, dominating in the U.S. and
internationally. It not only generated the most global online revenue in 2006, but it
also grew at nearly two times the rate of its peers."
"Google's amazing success makes it easy to forget that it faced at least two critical
make-or-break junctures in its race to dominate the "winner-takes-most" paid searchmarketplace"
"A back-of-the-envelope calculation shows why 7% to 9% market share in a tippy
market with strong positive effects can be worth $4.45 billion, not just $100 million"
"By protecting its 7% to 9% of AOL's share of traffic, Google protected all of its 50%
of paid search traffic from a precipitous decline in RPS (revenue per search).
According to equity analysts, the RPS gap between Google and its followers, including
Yahoo! was very large. RBC Capital Markets estimated that Google's RPS exceeded
Yahoo's by at least 40%.'
"Looking at simplified numbers may make this easier to see. If the entire industry made
$12 billion in total online ad revenue and there were 400 billion inquiries, the
industry-wide RPS for 2005 would be .3 cents. Google's ad revenue was $8 billion, and
its queries totaled 200 billion. This would imply an RPS of .4 cents for Google and 2
cents for all others. So if Google's share is around 50% at the end of 2005, losing
AOL would mean a decline of overall paid search share to 43%. This would have
caused the advertiser base to contract in response, as well as the average RPS. If
Google fell to a
2 cent RPS as a result of negative network effects and falling out of its dominant
leadership position, it would not only lose 28 billion queries at .04 (7% share), but
also 172 billion queries at .02 in revenue.""An extra $100 million for AOL's traffic is a tiny price to pay for avoiding a possible
loss of $4.56 billion in a tippy market in which the leader is just at the 50% point"
Explains Network Effect described in Harvard Google Study
The AOL/Google Story
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"The tippy market example involving Google, AOL, and Microsoft in 2005 is drawn
from the HBS case Google Inc. by HBS Professor Thomas Eisenmann. There are
definite parallels to be drawn to the 2008 Google, Yahoo!, and Microsoft takeover
struggle. (The HBS explanatory notes on these specific topics are also authored by
Professor Eisenmann.) The case provides the contextual details and quantitative
information on why the analysts at the time believed that Google had
paid about $100 million too much in the AOL deal."
"Tippy market"
"The Google case data together with Christa Sober Quarles' Investment Analyst
Report on Internet Services-reporting market shares of search engine players in 2005--
gave me a significantly different perspective of the AOL deal as illustrative of a tippy
market. The search market shares in 2005 reveal that Google was in a fairly
vulnerable position because it was clearly in the battle zone for a tippy market, with
AOL playing the swing vote."
"Christa Sober Quarle's report and its detailed models of revenue per search fordifferent competitors in the search market supported my hypothesis that the clearly
dominant 50+ market share leader in a tippy and highly networked two-sided market,
like the search market, could receive more than 2 times the average revenue per
search query compared to search engines such as MSN or AskJeeves"
"Markets with strong network effects also tend to be "winner-take-all" or "winner-
take-most." Even leading companies can be vulnerable to a swing vote of six or seven
market-share points. It may seem like the tail wagging the dog, but AOL played a
decisive role in the early race between Google and Overture, as well as in the tippy
race between Google, Yahoo!, and Microsoft. "
VIII THE IMPORTANCE OF CONSIDERATION OF POSITIONING IN THEMARKET
a) We cite as guidance the recent Delaware appraisal case which cites asdesirable if available, analysis that can contribute accurate or proper positioning in the
market as Delaware court described having as part of the input into the best way to
value corporate assets. According to the court,
Zakkour testified in his deposition about Salomons
approach to the valuation and
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discusses the metrics of the valuation that were emphasized and why.
The court adopts Salomons valuation as a framework, and isolates the
valuation metrics that should be of greater or lesser importance in
determining the appropriate value for Travelocitys shares. Notably,
Zakkours extensive and detailed testimony in his deposition about
Travelocitys lost momentum to Expedia evidences Salomons
awareness of Travelocitys positioning in the market vis--vis Expedia.
See id. at 51-54.
b) Therefore, it would have been appropriate for Intermix or its bankers tohave had enough awareness in the marketplace of MySpaces positioning and value
in the online paid search industry at the time of the sale to have factored this value into
the management forecast. Therefore the omission of absence of MySpace Search
revenue or value being mentioned or disclosed both in the Proxy and prior to the Proxy
period proves that the management forecasts are defective for their lack of inclusion of
factors in the forecasts that evidence awareness of MySpaces positioning in the
market vis--vis Google
c) There is also evidence cited that the Intermix CEO as early as July 18 th,2005 knew AOL was claiming or seeking a $20 billion dollar valuation for its search
audience, that by August 8, 2005, Intermixs President had opted to skip a company
business development meeting to attend a search engine show, and increasingly in
August and September that there was massive demand by Google, Yahoo, and
Microsoft to lock up or strike partnerships with companies that owned or controlled
large blocks of search audience.
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d) Yet no action is taken by Intermix to consummate a search auctionpartnership
before September 30, 2005. In fact, Intermixs CEO seems to lose momentum with a
clearly partnership seeking Yahoo between June and August 2005. Intermix CEO
revises at least Yahoos powerpoint according to email evidence to make it seem News
Corp already owns MySpace to mislead potential bidders.
IX - THE GOOGLE $1 BILLION INVESTMENT IN AOL IN 2005,
-GIVES US A REASONABLE COMPARABLE TO YIELD METRICS TO
ESTIMATE THE VALUE FOR TWO ISSUER SEARCH ENGINE ASSETS:MYSPACE SEARCH & INTERMIX SEARCH
a) MYSPACE SEARCH ASSET New Evidence shows Issuers MySpaceSearch had the opportunity to effect and close a Search Engine Auction prior to the
September 30, 2005 shareholder vote but failed to do so.
b) Both Yahoo and Google were in discussions with Issuer prior to the
Shareholder vote.
c) Intermixs prior 2 year termed exclusive search agreement with Yahoo
had expired on or about July 15, 2005, opening the way for new search agreement and
partnership to be consummated and economic upside recognized before the September
30, 2005 shareholder vote.
d) Issuer never discloses MySpace Search exists until October 2005
Comscore Search results show MySpace Searchs U.S. audience had already reached
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20% of the size of AOL Search monthly U.S. audience
X THE VALUATION OF MYSPACE SHOULD BE BASED ON OCTOBER2005 DATA AND DECEMBER 2005 GOOGLE/AOL TRANSACTION
a) In October 2005, Comscore reported that AOL search had 36.0 millionunique visitors as compared to MySpace Search having 8.0 million unique visitors.
b) Therefore MySpace Search already by October 2005 had at least 22% of theSearch Audience that AOL controlled
c) If we assume Class claims that AOL had benefitted from or factored in itsOctober 2005 Comscore. Then AOLs audience will be found smaller by 8.0 million
users for October 2005, and MySpaces audience will be found to have already
reached 28.5% of AOLs size (as in this scenario, AOL really only had 28 million
unique Search users for month of October 2005).
d) Therefore, MySpaces Valuation based on a competitive searchmarketplace existing before the shareholder vote would have cancelled the September
30, 2005 shareholder meeting based on the size of MySpace Search existing in August
and September 2005, and could rely on the fact that the October 2005 metrics would
have been public before another acquisition or revised offer could have been
completed. Therefore, its reasonable to use the October 2005 Comscore search
rankings in our calculations for the scenario the Issuer took action to take advantage of
the upside value in MySpace Search that Shareholders contend defendants became
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aware of before the September 30, 2005 shareholder vote.
XI USING COMPARISON OF MONTHLY SEARCH AUDIENCETRANSLATES TO 100% OF MYSPACE WORTH:
Value Between $4.4 Billion -$5.71 Billion (multiplying AOLs $20 billion valuation
by either .22 or .285 because MySpace Search was between 22% to 28.5% of AOL
Search in October 2005). Less $580 million, and based on the perhaps more reliable
bona fide size of asset in an efficient and competitive marketplace, Issuer shareholders
lost between $3.75 Billion (4.4 less $650 million received in total consideration
already) - $5.06 Billion (5.71 less $650 million received in total consideration already)
a) HITWISE INC, A 3RD PARTY ONLINE SEARCH TRACKINGCOMPANY, In August 2005 according to Hitwise, 3.62% of Googles search came
from MySpace.
b) This can be calculated by comparing unique users for months of Augustvs. February 2006 and following calculations:
The Unique visitors for February 2006 as reported by Comscore are 37.34 million
unique visitors for MySpace.com. Hitwise reports for February 2006, there were
approximately 6.2% of Googles traffic coming from MySpace, Inc. (according to
Hitwise data published in May 2006, Bill Tancer published story)
c) Therefore, if we look at unique visitors for MySpace in August 2005 of
21.81 million unique visitors, thats 58.4% of the unique visitors of February 2006
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when 6.2% of Googles audience was coming from Myspace.com. Therefore, we can
estimate that in August 2005, MySpace was generating 3.62% of Googles search
audience. (This is calculated by taking 58.4% of the February hitwise data showing
6.2% of Googles audience was coming from MySpace.com).
October 2005 vs February 2006
A)The Unique visitors for February 2006 as reported by Comscore are 37.34million unique visitors for MySpace.com. Hitwise reports for February 2006, there
were approximately 6.2% of Googles traffic coming from MySpace, Inc.
B) Therefore, unique visitors in October 2005 of 24.25 million unique
visitors, thats 64.9% of the unique visitors of February 2006 when 6.2% of Googles
audience was coming from MySpace.com
c) Therefore, we can estimate that in October 2005, MySpace wasgenerating Approximately 4.2% of Googles search audience. (This is calculated by
taking 64.9% of the February Hitwise data showing 6.2% of Googles audience was
coming from MySpace.com).
d) Hitwise provides corroborating source in addition to Comscore that theMySpace Search audience was at least 22%-28.5% of AOLs search audience in
October 2005.
e) The Eisenmann HBS study claimed 5-7% of the U.S. Search audience
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was what Google was valuing thru its partnership announced in December 2005 with
AOL. Then the Hitwise data confirming that MySpace was providing 6.2% of
Googles total search audience by February 2006 allows us to estimate and conclude
that Comscores October 2005 data on unique search users
(the only month Comscore ever released this data) showing MySpace already had 22-
28.5% the search audience that AOL had was reasonably accurate.
FACTORING IN LOST INTERMIX SEARCH ASSET
A)We are also aware that Intermix had a second search asset focused arounddownload search products and toolbar.
B) Intermix Search was tracked by Comscore for internal data provided to
Issuer prior to the September 30, 2005 shareholder vote.
C) We assume for this permutation that the Jury will find (or on summary
judgment defendants will be found) guilty of corporate waste or fraudulent
conveyance by their decision to voluntarily shut down Intermix Search on or around
April 2005.
f) Because Intermix competed directly with AskJeevess ISH division in theSearch download toolbar sector, by management shutting down Intermix Search,
AskJeeves benefitted while shareholders received no value for the Intermix Search
assets.
g) When Intermix stop operating its active online user base that had installed
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Intermix downloadable toolbars or other search products, AskJeeves immediately
could capitalize on this because their already dominant distribution of their download
search products allowed AskJeeves to instantly become the dominant toolbar or
redirect on any users computers that may have been using
Intermixs download search toolbar or search redirect products previously.
h) Intermix Search division lost approximately 72% of its audience betweenMarch 2005 and June 2005.
i) 72% of the total Search Audience lost according to Comscore isapproximately 8.3 million unique Intermix search users that simply disappear and
their value not factored into the Kennedy Damages Report.
j) We determine to take the lost U.S. search audience which we can moreaccurately measure the value of. Such lost U.S. search audience can be calculated by
reviewing Comscore historical metrics provided as part of discovery. In March 2005,
Intermix Search received 3.154 million unique users compared to July 2005 when
Intermix Search had decreased to 1.13 million unique users, a decline or loss of 2.02
million U.S unique users.
k) If management had not voluntarily turned off its Intermix Searchasset/division and instead attempted to keep these search users as an asset, and
transferred these users to aggregate all search thru its MySpace Search asset, then we
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can establish a valuation. This is calculated by adding the Intermix Search users
lost to the October 2005 MySpace Search audience. With 10 million MySpace Search
users in October 2005, MySpace would have been valued between $5.55 Billion
(27.7% of AOL audience) - $7.14 Billion (35.7% of AOL audience)
XII - Lost opportunity of getting benefit of JP Morgan 2006 valuation report
from Zakkour ($1.367 billion for MySpace)
a) Zakkour led Citibanks valuation investment banking group that Carlickbrought in to work with Allen & Co. and in March 2005 provided while at Citibank, a
$1.85 million valuation for AskJeeves.
b) If Issuer had got opportunity to receive investment banking services ofZakkour, then shareholders would have been able receive a bid of $1.367 billion for
MySpace. just from News Corp a single bidder. This opportunity was lost.
c) Carlick was the Director of Intermix who failed to disclose to the board or
Shareholders that he was conflicted by allowing Zakkour to be working for News Corp
and adverse against Carlick and issuer.
d) Therefore, the lost value for shareholders was $1.367Billion (the Zakkour
valuation report he provided for News Corp) less $650 million paid by Acquirer, or
$717 million dollars.
e) Kennedy notes the Zakkour valuation report contributed by JP Morganwas based on 2006 EBITDA.
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f) The $1.367 billion valuation report from Zakkour awards MySpace with a
32.6X managements 2006 EBITDA multiple.
XIII ADDING BACK OMITTED VALUE OF SEARCH ENGINE
PARTNERSHIP REVENUE
a) IF MANAGEMENT FORECASTS MUST BE USED, THE OMITTEDSEARCH REVENUE FOR 2006 MUST BE CALCULATED AND CONTRIBUTED
TO CREATE NEW SEARCH INCLUSIVE FORECASTS.
b) Microsoft Search Partnership. According to Jim Heckerman, the head ofFox Interactives Search group, Microsoft was offering $800 million in January 2006
for being MySpaces exclusive search partner.
c) Based on this new market information disclosed in a 2009 publishedbook, we can match MySpaces unique user audience value to what that audience is
worth to the Search Engine bidders at different points in time.
d) In the book, Heckerman is offering search bidders 3 year terms and citesdiscussions with Microsoft as early as January 2006 where they allegedly offer $800
million which works out to $266 million per year. Since traffic data comes out mid
month for the prior month, then we must assume Microsoft was most likely reviewing
December 2005 audience/user statistics of MySpace.com if Heckerman was
negotiating with them in January.
e) Thus we know as of January, looking back at December 2005 Search
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audience size of MySpace, which is what was the most recent data available at that
time, that Heckerman affirms Microsoft was willing to pay $22.1 million per month
going forward based on Decembers 32.2 million unique users.
f) This allows us to create a metric we can ascribe to proportion value forprevious months if we assume the market had been efficient and competitive and
Shareholders had been able to offer up or run a search auction in October 2005 or any
months the value that can be generated or received by Issuer if it had wanted to close a
transaction with a slightly smaller audience sooner then January 2006.
g) If December 2005s unique audience is worth $22.1 million fromMicrosoft, then August 2005 which has 21.81 million unique monthly users which is
67% of MySpaces unique audience compared to December 2005, would be worth
$14.807 million per month.
Using Ratio to forecast prior months value for 12 months of 2006
a) Therefore, if Microsoft had been in discussions with Issuer in September2005 and concluded a deal, they would instead of December 2005 data, be reviewing
August 2005 3rd party unique user data that became available mid month typically.
b) Microsoft would have valued the opportunity in September 2005 to lockup an exclusive search partnership with MySpace based on MySpaces August 2005
Unique user metrics.
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c) Since MySpace in August 2005 had 67% of the unique users compared toDecember 2005, Microsoft would have been willing to pay $14.807 million per month
(67% of Decembers 32.2 million unique users) to conclude an exclusive search
partnership with Issuer.
d) Therefore, assuming its proven a Search Engine Partnership couldhave been completed before the September 30, 2005 shareholder vote with Microsoft,
then management forecasts would have been revised to include the effects of closing
such a material transaction in 2006.
e) If Issuer closed such a transaction in September 2005, then 12 months of PaidSearch revenue would have been generated in calendar 2006. This would added
$177.68 million in revenue to the management 2006 forecasts for Myspace.
f) Therefore, adding Online Search into the revised 2006 managementforecasts put forth by Kennedy, cures the omission of online search revenue in the
2006 management forecasts and the deficiency of such forecasts that did not
previously include near term search revenue as a component.
g) Kennedys 2006 MySpace forecast of revenue was multiplied byComparable companies that averaged a 25X revenue valuation. Kennedy assumed
MySpace revenue was $63.052 and its EBITDA was $30.874.
h) Kennedy multiplied MySpace 2006 forecasted Ebitda by 14X a factor hegot from the comparable companies he determined fair.
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i) Finally Kennedy multiplied each valuation with a 35% premium, tocreate two valuations professed to be reasonable.
j) Adding a Microsoft search partnership back into the Kennedy 2006forecast for MySpace, increases 2006 revenue from $63.052M to $240.73M.
k) Using Kennedys 14X Revenue multiple against the recast 2006 MySpaceforecast with online search via the metrics received from evidence of Microsofts
January 2006 offer, MySpace is attributed a value of $3.37 billion.
l) With 35% premium for takeover added (as used by Kennedy), we receivefinal valuation for MySpace based on 2006 total revenue of $4,549,834,000
XIV- VALUATION BASED ON GOOGLE SEARCH PARTNERSHIP
Using Ratio to forecast prior months value for 12 months of 2006
a) Therefore, if Google had concluded a deal in September 2005, they wouldinstead of August 2006 data, be reviewing August 2005 3rd party unique user data that
became available mid month typically.
b) Google would have valued the opportunity in September 2005 to lock upan exclusive search partnership with MySpace based on MySpaces August 2005
Unique user metrics.
c) MySpace in August 2005 had only 32.84% of the unique users compared toJune 2006.
d) If MySpaces June 2006 unique audience of 52.34 million users is worth
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$25.0 million per month from Google, then August 2005 MySpace unique audience
which had 21.81 million unique monthly users would have been worth $10.4 million
per month (41.6% of $25.0 million).
e) MySpace could expect to receive at least $124 million in search revenue in2006 from Search Partnership with Google in September 2005 ($10.4 pr. month X 12).
f) Adding a Google search partnership back into the Kennedy 2006 forecast forMySpace, increases its 2006 revenue from $63.052 million to $187.052 per year.
g) Using Kennedys 14X Revenue multiple against the recast 2006 MySpaceforecast of $187.052 (via inclusion of search revenue generated from assumed Google
agreement having been closed prior to September 30, 2005), provides for a MySpace
Value of $2.618 billion.
h)With the 35% premium for takeover added, we receive a final valuationfor 100% of MySpace based on 2006 total revenue (with inclusion of a Google
search partnership) $3,534,300,000.
XV- CONCLUSION:
I declare on penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed this 20th day of October, 2011, in Los Angeles
Brad D. Greenspan
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EXHIBIT 1 - BACKGROUND / WORK EXPERIENCE
QUALIFICATIONS OF EXPERT
-I have approximately 12 years of industry experience.
-I was CEO and founder of eUniverse, Inc. from its inception in 1998 as my idea thruOctober 30, 2003.
-I was the founder of MySpace.com while Chairman and CEO of eUniverse in 2003.
PROFESSIONAL QUALIFICATIONS
-Educational & Professional Certification
i) Two years of Law Society Undergraduate at University of Santa Barbaraii)Bachelors of Political Science, 1996 University of Los AngelesPROFESSIONAL RECOGNITIONS AND AFFILIATIONS
i) Morgan Stanleys Internet analyst announced in November 2003 that IssuereUniverse as of October 2003s 6 month ending data, was the #1 fastestgrowing portal on the Internet eclipsing AOL and Yahoo.
ii)Founder of Myspace.com.iii)Founder of eUniversePRESENTATIONS AND PUBLICATIONS
i) Between 1999-October 2003 I co-created and presented Issuers financialforecasts and was sole decision maker on all internet strategy and determined
allocation of funds if any for any new project.
PROFESSIONAL EXPERIENCE
1996-19980 President of Palisades Capital a merchant investment bank where Iraised over $60 million dollars for 4 public companies.
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1999- October 30, 2003 Chairman and CEO of eUniverse, Inc.-I was initial and first head of Search for eUniverse, Inc., the issuer and signedfirst search partnership with Overture acquired and operated as Yahoo in 2003.
2004-2005- Palisades Technology I was partners with Yahoo and operated asearch toolbar division for game companies including leading casual games
company Big Fish Games and Browser companies like AvantFind.com
2006-president, President LiveUniverse, Inc. a network of entertainmentwebsites
2008-present, President of LiveVideo, Inc. a Los Angeles based network ofentertainment websites
2006-present, Chairman of BroadWebAsia, Inc., - operates HupoTV.CN aChinese video entertainment website
2006-2009, Co-Founder and Board Member, Michigan based DrathsCorporation, clean technology leader in renewable green chemistry.
Management led by Michigan State University professors and green chemistryaward winners Dr. Karen Draths and Dr. John Frost.
2006-present, Board Member, Borba Corporation
2010-present- Managing Director of Social Slingshot Pte Ltd, a Singapore basedincubator fund partnered with the Singapore Governments National ResearchFoundation (NRF). I was awarded this $5 million dollar fund to encourage me towork with Singapore entrepreneurs and their universities entrepreneur programs.
TESTIMONY IN TRIAL OR DEPOSITION
i) Greenspan V. eUniverse, 2004, Delaware Judge Strine. (See summary of trial where
I provided Delaware counsel evidence to uncover backdating fraud against defendants)
ii) Delagado V. Intermix. I was expert witness for LA City and provided factinformation and background for the city of Los Angeles prosecutors in their adwareconsumer case against Intermix that was settled after Intermixs listing expired.
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EXHIBIT 2- Monthly unique visitors as reported by Comscore for Myspace.comCompared to certain key months where Microsoft and Google offered MySpace or its
parent company certain economic offers which provide a value per month thesecompanies are willing to pay or value MySpace search at for the latest traffic/audiencestatistics that are available during the month a deal is offered up for MySpace.
July 2005 21.21M uniquesAugust 2005 21.81M uniques $14.807September 2005 21.6M uniquesOctober 2005 24.25M uniques
November 2005 24.68M uniques
December 2005 32.2M uniques $22.1 MillionValue
January 2006 35.5M uniques MSFT $800MOFFER
February 2006 37.34M uniquesMarch 2006 41.88M uniques
April 2006 48.03M uniquesMay 2006 51.44M uniquesJune 2006 52.34M uniquesJuly 2006 54.52M uniques $25.0 Million
ValueAugust 2006 55.78M GOOGLE $900
OFFERSeptember 2006
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DOCUMENTS REVIEWED (BATES #):
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