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Case 1:05-cv-00956-CCM

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS
DAVID S. LITMAN and MALIA A. LITMAN
) ) )
) )

Plaintiffs-Counterdefendants,
V.

) No.05-956T
)

THE UNITED STATES

Defendant-Counterplaintiff.
ROBERT B. DIENER and MICHELLE S. DIENER,

) ) ) )
) ) )

Plaintiffs-Counterdefendants,
V.

) )

) No.05-971T
) (Judge Christine O.c. Miler) )

THE UNITED STATES

Defendant-Counterplaintiff.

) )

PLAINTIFFS DAVID S. AND MALIA A. LITMAN'S RESPONSES TO DEFENDANT'S FIRST SET OF INTERROGATORIES

TO: The United States, by and through its Attorney of Record, Cory A. Johnson, Tax
Division, United States Deparment of Justice, 555 4th Street N.W., Judiciary Center
Building, Washington, DC 20530.

David S. and Malia A. Litman, Plaintiffs-Counterdefendants (the "Plaintiffs")
respond to Defendant The United States' First Set of Interrogatories pursuant to Rule 33 of the
Rules of the Court of

Federal Claims, as follows:

OBJECTIONS TO ALL INTERROGATORIES
(1) Plaintiffs object to each interrogatory to the extent it seeks information

regarding communications with its attorneys and tax practitioners after April 6, 2004 (the date
the audit began) as such information is privileged under the attorney-client privilege, the
attorney-work product privilege, and the tax-practitioner's privilege.

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(2) Plaintiffs object to each interrogatory to the extent it requires plaintiffs to

provide information which is beyond the scope Rule 26 and Rule 33 of the Rules of the Court of
Federal Claims ("RCFC").
Subject to, without waiving these objections, Plaintiffs respond as follows:

INTERROGATORY NO.1:
With regard to the HRN restricted stock, state the following:
(a) the date originally issued by HRN;

RESPONSE:
February 24, 2000.

(b) the total number of shares issued, the number of "Section 7.15

Shares" issued, the number of "Section 7.11.3 Shares" issued

and the restrictions applicable to the respective shares;
RESPONSE:

5.1 milion shares were issued under Section 7.15 of the 2000 Amendment.
4,899,900 shares were issued under Section 7.1 1.3 of the 2000 Amendment. The shares issued

under Section 7.15 and 7.11.3 shall be referred to in these interrogatory responses as the
"Restricted Shares."
The Restricted Shares were subject to (1) contractual holding periods ranging

from one to four years (most of the stock was four year restricted), (2) S.E.C. Rule 144 volume
restrictions on the number of Restricted Shares that could be sold after holding periods expired,
(3) the requirement that approval of HRN's parent company be obtained before any stock could
be sold, (4) the practical market restriction on sale due to the fact that the TMF Liquidating Trust

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was owned by the CEO and President of HRN (any sale might be considered to be a lack of
confidence in the company), and (5) blockage restrictions due to the size of the block of stock
compared to the number of freely traded shares. All of the Section 7.15 Restricted Shares were
subject to a four year contractual holding period. Forty percent of the Section 7.11.3 Restricted
Shares were subject to a one year contractual holding period, ten percent of the Section 7.1 1.3

Restricted Shares were subject to a two year contractual holding period, ten percent of the
Section 7.1 1.3 Restricted Shares were subject to a three year contractual holding period, and
forty percent of the Section 7.11.3 Restricted Shares were subject to a four year contractual

holding period. The total number of Restricted Shares received, and the length of the contractual

holding periods, are set forth in the following char:

Contractual Holding Period One year Two years Three years
F our years

Total

Number of Restricted Shares 1,959,960 489,990 489,990 7.059.960 9,999,900

Plaintiffs incorporate by reference the terms of the 2000 Amended and Restated Asset Purchase

Agreement dated February 2, 2000 (the "2000 Amendment") and S.E.C. Rule 144 as permitted

by RCFC 33(d). Plaintiffs also incorporate by reference a memorandum attached as Exhibit 1
(Bates-labeled LD003647 - LD003659), which summarizes the contractual and Rule 144
restrictions as those restrictions were explained to Plaintiffs.

(c) the calculations made and figures used to determine the

number of "Section 7.15 Shares" and "Section 7.11.3 Shares"
issued;

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RESPONSE:
Plaintiffs object to this interrogatory as vague. Subject to and without waiving

this objection, the Section 7.15 Shares were determined pursuant to the formula set forth in

Section 7.15.1(a) of the 2000 Amendment, which is incorporated by reference pursuant to
RCFC 33(d). The mathematical computation was 81.6 milion divided by 16, which equals 5.1
milion. The formula for the Section 7.15 Shares was based upon the initial public offering price
of the HRN stock, which was determined by USA Networks. Thus, USA Networks could

control the number of shares issued under Section 7.15 by its determined IPO price -- the higher

the IPO price, the fewer shares HRN was required to issue under Section 7.15. The 7.11.3

Shares were determined pursuant to the formula set forth in Section 7.11.3 of the 2000
Amendment, which is incorporated by reference pursuant to RCFC 33(d). The mathematical
computation was 48,999,000 x 10% = 4,899,900.

(d) the record or registered owner(s) of the shares, and beneficial

owners, if different, and the dates of such ownership;
RESPONSE:
Plaintiffs object to this interrogatory to the extent it purorts to require Plaintiffs
to state at varying dates from February 24, 2000 to the present date all legal and beneficial
owners of the restricted shares as this request is overbroad, unduly burdensome, irrelevant and
not reasonably calculated to lead to the discovery of admissible evidence in this case. Subject to
and without waiving these objections, as of

February 24,2000, HRN issued the following shares

pursuant to the terms of the 2000 Amendment and TMF Liquidating Trust's instructions:

(1) TMF Liquidating Trust: (a) 5.1 milion shares of the Section 7.15 Shares represented by
certificate number HRN0007, and (b) 4,645,905 shares of Section 7.1 1.3 Shares represented by
4

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certificate number HRN0006; and (2) Andy Pells: 244,995 shares of one year restricted stock

represented by certificate number HRN0008.
The beneficial interests in the Restricted Shares are set forth in the Form 13D

fied by TMF Liquidating Trust with the S.E.C. on March 3,2000, which is available as a matter

of public record from the S.E.C. and at "hoovers.com." Plaintiffs incorporate the Form 13D by
reference under RCFC 33(d). Plaintiffs also incorporate by reference those documents fied with

the S.E.C. by TMF Liquidating Trust, David Litman, and Robert Diener with respect to the
ownership and sale of the Restricted Shares. Those documents, which include Form 4,

Form 4/A, Schedule 13D, and Schedule 13 D/A, are public records and as easily accessible by
Defendant as they are by Plaintiffs. The S.E.C. Forms incorporated by reference include the

following:

(1) Form 13D fied by TMF Liquidating Trust on March 3, 2000;
(2) Form 13D/A filed by TMF Liquidating Trust on August 9,2001; 15, 2002;
(3) Form 13D/A filed by TMF Liquidating Trust on April

(4) Form 4 fied by David Litman on October 23, 2002;
(5) Form 4 filed by Robert Diener on October 29,2002;

(6) Form 4 fied by David Litman on October 29,2002;

(7) Form 4 fied by David Litman on November 8, 2002;
(8) Schedule 13D/ A, fied by TMF Liquidating Trust on November 22, 2002;

(9) Form 4 filed by Robert Diener on November 25,2002;

(10) Form 4 fied by David Litman on November 25,2002;
(11) Form 4 fied by Robert Diener on December 4,2002;

(12) Forms 4 fied by David Litman on December 4, 2002, December 11, 2002,

December 18, 2002, December 30, 2002;

(13) Schedule 13D/A fied by TMF Liquidating Trust on January 6, 2003;

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(14) Forms 4 filed by Robert Diener, David Litman and TMF Liquidating Trust on

March 3, 2003;
(15) Forms 5 fied by Robert Diener and David Litman on March 14,2003;

2, 2003;
(16) Forms 4/A fied by Robert Diener and David Litman on April

2, 2003;
(17) Schedule 13D fied by TMF Liquidating Trust on April

(18) Forms 4 filed by Robert Diener, David Litman, and TMF Liquidating Trust on

June 23, 2003, and
(19) Form 4 fied by David Litman on June 24, 2003.

Copies of these documents are attached as Exhibit 2 (Bates-labeled LD005652 LD005800) and incorporated by reference pursuant to RCFC 33 (d).

(e) the dates shares were sold, exchanged or otherwise disposed of,

the number of shares sold, exchanged or disposed of on those
dates, and the restrictions that were applicable to those shares;
RESPONSE:

Plaintiffs object to this interrogatory as it is overbroad, unduly burdensome,
irrelevant and not reasonably calculated to lead to the discovery of admissible evidence. Subject

to and without waiving these objections, Plaintiffs have attempted to compile all of the sales of

Restricted Shares that have occurred. That compilation is attached as Exhibit 3 (Bates-labeled
LD005844 _ LD005855), and is incorporated by reference. In addition, the Forms 4, 4/A and 5,

and Schedules 13D and 13 D/ A fied with the S.E.C., referred to above in response to
interrogatory l(e), which are incorporated by reference pursuant to RCFC 33(d). During 2001
and 2002, the only Restricted Shares sold were those subject to a one year contractual holding

period (in addition to the other restrictions listed above in response to interrogatory l(c)).
During 2003, Restricted Shares subject to one, two, three and four year contractual holding

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periods (in addition to the other restrictions listed above in response to interrogatory l(c)) were
sold.

com" during
On June 23, 2003, Hotels.com (HRN's name was changed to "Hotels.

2002) was merged with Hermitage Merger Corporation. Owners of shares of Hotels.com
received 2.4 shares of stock of Interactive Corp. stock in exchange for each share of Hotels.com
stock in the merger.
For sales of Restricted Shares before June 23, 2003, the contractual holding

period to which each group of Restricted Shares was subject can be determined by reference to

the cost bàsis per share reflected on Exhibit 3 (as determined under the BVS Appraisal). The
cost basis for Restricted Shares sold before June 23, 2003 was as follows:
Contractual Restriction Period

Cost Basis in HRN
(Hotels.com) Shares

Based on BVS A raisal
8.08 6.16 5.84 3.36

One ear Two ears Three ears Four ears

As noted, after the merger, each of the Restricted Shares was exchanged for 2.4
shares of similarly restricted IAC stock. To determine the basis for each IAC share received, we

divided the original cost basis by 2.4. For example, the basis for a share of one year
contractually restricted stock in IAC would be 3.37 (8.08 -: 2.4). Thus, for Restricted Shares
sold after June 23, 2003, the contractual restrictions applying and the cost basis was as follows:
Contractual Restriction Period
One year

Two years Three years Four years

Post-Merger Cost Basis in IAC Shares 3.37 2.57
2.43
1.4

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(t) whether the shares were ever registered under the Securities

Act of 1933 and, if so, when;

RESPONSE:
To Plaintiffs' knowledge, the Restricted Shares were not registered.

(g) the consideration received for the shares, including the per

share price at which shares were sold or the specific property

received in exchange;

RESPONSE:
See attached Exhibit 3, which is incorporated by reference. When sold, cash was

received in exchange for the Restricted Shares. The sales price referenced on Exhibit 3 is net of
sales commissions.

(h) the persons to whom the shares were sold or transferred; and

RESPONSE:
Plaintiffs do not know the persons to whom the Restricted Shares were sold.

(i) the per share basis used to calculate gain or loss on each sale or
transfer of shares, and the total capital gain or loss realized on

each sale or transfer.
RESPONSE:
See Exhibit 3, which is incorporated by reference.

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INTERROGATORY NO.2:

Identify all persons who you believe have information or knowledge, or claim

to have information or knowledge, about the value of, or marketabilty discount applicable

to, the HRN restricted stock. Describe in detail the nature of that knowledge or
information.
RESPONSE:
Plaintiffs object to this request as vague and overbroad. Plaintiffs also object to
this request to the extent it purorts to compel disclosure of experts used solely for consulting

puroses as such information is beyond the scope of permissible discovery. Subject to and

without waiving these objections, Plaintiffs believe that the following persons may have specific

knowledge of facts that may be relevant to the issues involving the value of or the lack of
marketability discount applicable to the Restricted Shares:
(1) Mark L. Mitchell, CFA, ASA

Clothier & Head, P.S. Inc. 1301 Fifth Avenue, Suite 28000 Seattle, W A 98101 (206) 344-7530 (Formerly of Business Valuation Services, Inc.)

Mr. Mitchell prepared a valuation report dated February 24,2000 determining the
lack of marketabilty discount applicable to the Restricted Shares.
(2) David J. Bohlman

3529 St. Gaudens Road Miami, FL 33133 (305) 569-9339

Mr. Bohlman prepared a valuation report dated July 21, 2000 determining the
fair market value and lack of marketability discount applicable to the Restricted Shares.

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(3) Brian M. Lidji

Lidji & Dorey 500 North Akard, Suite 3500 Dallas, TX 75201-6657 (214) 774-1220

Mr. Lidji was aware of the specific transfer restrictions applicable to the
Restricted Shares.

(4) James M. Mincey Jr.

Mincey-Carer, P.C. Three Forest Plaza 12221 Merit Drive, Suite 200 Dallas, TX 75251 (469) 916-1980
Mr. Mincey discussed the fair market value and lack of marketability discount

applicable to the Restricted Shares with Mr. Mitchell, with David Litman and with Robert
Diener.
(5) David S. Litman

Wildflower Investments 3010 LBJ Freeway, Suite 712 Dallas, TX 75234 (214) 239-2666

David Litman was aware of the specific restrictions applicable to the Restricted
Shares, and reviewed the appraisals of Mark Mitchell and David Bohlmann.
(6) Malia A. Litman

Wildflower Investments 3010 LBJ Freeway, Suite 712 Dallas, TX 75234 (2l4) 239-2666

Malia Litman was aware of the restrictions applicable to the Restricted Shares,
and reviewed the appraisals of Mark Mitchell and David Bohlmann.
(7)

Robert B. Diener 8 Indian Creek Island Road Indian Creek Vilage, FL 33154 (305) 865-9300

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Robert Diener was aware of the specific restrictions applicable to the Restricted
Shares, and reviewed the appraisals of Mark Mitchell and David Bohlmann.
(8) Michelle S. Diener

8 Indian Creek Island Road Indian Creek Vilage, FL 33154 (305) 865-9300

Michelle Diener was aware of the restrictions applicable to the Restricted Shares,

and reviewed the appraisals of Mark Mitchell and David Bohlman.
(9) Jim Horan, Parner

KPMG, L.L.P. One Biscayne Tower 2 South Biscayne Boulevard, Suite 2800
Miami FL 33131

(305) 358 2300

KPMG Valuation Group Suite 2000 303 Peachtree Street, NE Atlanta GA 30308-3210 (404) 222 3000

Mr. Horan advised Robert and Michelle Diener that the KPMG Valuation Group

in Atlanta reviewed the BVS Appraisal for reasonableness and concurred that the lack of
marketability the discounts applied and the valuation methods used were reasonable.
(10) Ruth Haney - Internal Revenue Service

Address Unkown

Plaintiffs believe Ms. Haney, an employee of the Internal Revenue Service,

prepared several valuation analyses for the IRS, Plaintiffs do not have any knowledge of
Ms. Haney's credentials. To the best of

Plaintiffs' knowledge, Ms. Haney's analysis was prepaid

after the notice of Deficiency was issued, and considered information related to conditions after
the initial public offering of the Restricted Shares. To the best of Plaintiffs' knowledge,

Ms. Haney was asked by the IRS to address the lack of marketability discount applicable to the

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Restricted Shares. Plaintiffs attorney was informed that Ms. Haney originally determined that an

average lack of marketability discount of approximately 50% should be applied when
determining the fair market value of the Restricted Shares (which is 50% lower than the $16 per

share value asserted by the Internal Revenue Service's position in the Notice of Deficiency).
Ms. Haney subsequently changed her position and provided a memorandum to Susan Weiss at

the Internal Revenue Service, dated April 28, 2005, applying an average lack of marketability
discount of approximately 37%
(11) Deloitte & Touche LLP

Two Hilcrest Green 12720 Hilcrest Road, Suite 500 Dallas, TX 75230 (214) 840-7000

It was reported to Plaintiffs that Deloitte & Touche prepared an appraisal of the

Restricted Shares for IAC. The IRS apparently had that report available when it issued the
Notice of Deficiency, as Susan Weiss provided a copy of that report to Plaintiffs on May 18,
2005. The Deloitte & Touche analysis presented by IAC to the IRS shows a substantially lower

value for the Restricted Shares than the $16 per share reflected in the IRS's Notice of
Deficiency.

There are numerous individuals who have knowledge of the volatility of the stock

market in general, and the volatility of the NASDAQ and dot.com companies in specific during
the relative time frame. Further, there are individuals at IAC who have specific knowledge of
the applicable restrictions placed upon the Restricted Shares. Those persons might include,
among others, Bary Diler, Victor Kaufman, and Dara Khosrowshahi.

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INTERROGATORY NO.3:

Identify all persons who were involved in or assisted in:
(a) setting the offering price for HRN stock in the Initial Public

Offering ("IPO") in February 2000;
RESPONSE:

The offering price for HRN stock in the IPO was set by USA Networks.
Specifically, Plaintiffs believe that the following persons at USA Networks had the final
approval in determining the IPO price:

(1) Bar Diler Chairman Interactive Corp. 152 W. 57th Street, 42nd Floor New York, N.Y. 10019 (212) 314-7344
(2) Victor Kaufman

Vice Chairman Interactive Corp. 152 W. 57th Street, 42nd Floor New York, N.Y. 10019 (212) 314-7344
(3) Dara Khosrowshahi

President Interactive Corp. 152 W. 57th Street, 42nd Floor New York, N.Y. 10019 (212) 314-7440

Plaintiffs believe that USA Networks was assisted by the following persons at
Donaldson Lufkin & Jenrette ("DLJ"):
(1 )

Christopher Morris Managing Director Donaldson, Lufkin & Jenrette
277 Park Avenue

New York, N.Y. 10172 (212) 892-3675

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(2) Andy Sriubas

Vice President Donaldson, Lufkin & Jenrette
277 Park Avenue

New York, N.Y. 10172 (212) 892-3675
(3) John Kennedy

Managing Director Donaldson, Lufkin & Jenrette
277 Park Avenue

Donaldson, Lufkin & Jenrette (212) 892-4530
Plaintiffs do not know the curent location of

the DLJ employees.

(b) offering, promoting or marketing HRN stock for the initial
public offering in February 2000;
RESPONSE:
The persons identified in Response to Interrogatory No. 3(a) above were involved

in offering, promoting and marketing HRN stock for the initial public offering. In addition,
David Litman, Robert Diener, and the following individuals were also involved in the HRN
"road show":
(1) John R. Bozalis, Jr.

ORIX Capital Markets, L.L.C. 1717 Main Street, Suite 900 Dallas, Texas 75201 (214) 237-2183

Mr. Bozalis was a Vice President ofDLJ.
(2) Jack Rubin 6602 Forestshire Dr.

Dallas, Texas 75230 (214) 265-9990

Mr. Rubin was the Chief Financial Officer and Strategic Offcer of Hotel
Reservations Network.

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Attached as Exhibit 4 (Bates-labeled LD005830 - LD005843) and incorporated
by reference in these responses in the "Working Group List," which contains the names of

those

individuals involved in the initial public offering for HRN.

(c) receiving offers to purchase or indications of interest in

purchasing HRN stock in the initial public offering in
February 2000; and
RESPONSE:
Donaldson, Lufkin & Jenrette was responsible for receiving offers to purchase or

indications of interest in purchasing HRN stock in the IPO. Plaintiffs believe that the
Donaldson, Lufkin & Jenrette individuals identified in response to (3)(a) above were the persons
primarily responsible.

(d) allocating shares or determining the successful purchasers of

HRN stock in the initial public offering in February 2000.
RESPONSE:
Plaintiffs believe that Donaldson, Lufkin & Jenrette was responsible for allocating

shares and determining the successful purchasers ofHRN stock in the IPO.

INTERROGATORY NO.4:

Identify all persons who purchased or were allocated shares, and all persons

who indicated an interest in purchasing shares but whose request for shares was either

denied in whole or part, in the HRN initial public offering in February 2000. State the
number of shares purchased, requested to be purchased and price.

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RESPONSE:

Plaintiffs object to this request as it is overly broad, unduly burdensome, and
irrelevant to the issues in this case and not reasonably calculated to lead to the discovery of
admissible evidence. Plaintiffs also object to this interrogatory to the extent it purorts to require
Plaintiffs to provide the addresses and phone numbers of each person identified, as such request

is unduly burdensome. Over a thousand persons and other investors acquired stock in the IPO,

and requiring Plaintiffs to provide the names and addresses of each of these persons is unduly
burdensome. Subject to and without waiving these objections, (1) a list of persons who indicated
an interest and were allocated shares in the IPO is attached as Exhibit 5 (Bates-labeled

LD005244 - LD005255), and (2) a list of the persons who were contacted in the HRN
"Roadshow" is attached as Exhibit 6 (Bates-labeled LD004126 - LD004138). Both of these
documents are incorporated by reference under RCFC 33(d). At this time, which is almost six

years after the HRN initial public offering, Plaintiffs are unable to determine through the
exercise of reasonable diligence all persons who purchased shares in the initial public offering or

the number of shares purchased. Plaintiffs are aware that the following individuals did purchase
shares in the IPO, but do not know the number of shares purchased:
(1 )

Rich Barton
Erik Blachford
Simon Breakwell
Lary Burnett

(2) (3) (4) (5) (6)
(7) (8)

Nelda Campeau
Brian Connery
Fran Connery

Patricia Connery

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(9)

Phil Connery
Scott Connery

(10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25)

Steve Connery

Brian Crummy
Robert Danial

Robert Deutschman
Ashley Diener

Brenda Diener

Esther Diener
Michael Eisner
Mike Hoefeld

James Horan
Barbara Fox

Lois Fuhr
Denise Gold
Kendal Hanft

Charles Kessler Leah Beth Kolni
Brian M. Lidji Richard Linevsky

(26)
(27) (28) (29) (30) (31) (32)
(33)

Benjamin Litman
Gloria Litman

Jack Litman

John Litman
Jonathan Litman Trust

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(34) (35) (36) (37) (38) (39) (40) (41) (42) (43) (44) (45) (46) (47) (48) (49) (50) (51) (52)

Sacha Litman

Rick Long

Eric Matheson

Nicole Matheson
James M. Mincey Jr.

Scott Mubarik

Paul Nelson

Hary Pacht
Tom Parsons

Cindy Rolen
Ethan Rolen
Scott Rosuck

Aaron Sainer
Joel Sainer

Madeline Sater

John Schwarz
Gabrielle von Simson
Rob Weiss

Jeff Werbalowsky

INTERROGATORY NO.5:

State whether you or any of your immediate family members have owned, or

had a beneficial or other interest in, any HRN stock other than the HRN restricted stock,

including any options or warrants related to such stock. If so, describe in detail the
acquisition of the stock or other interest and its disposition, if any.

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RESPONSE:
Plaintiffs object to the term "immediate family" as vague. Subject to and without

waiving this objection, Plaintiffs assume by the use of the term "immediate family" you mean

Plaintiffs or their children. Based on this definition, the answer is yes. David Litman received
the following options to purchase shares: (l) February 25,2000 - 200,000 shares; (2) April 25,

2002 - 50,000 shares; and (3) February 22, 2003 - 75,000 shares of stock. The sale ofthe shares
acquired pursuant to the options is reflected in Exhibit 3, which is incorporated by reference.

INTERROGATORY NO.6:

Identify all persons with whom you, or your attorneys, accountants or other
agents, communicated concerning:
(a) the value of the HRN restricted stock;

RESPONSE:

Plaintiffs object to this interrogatory as it is overbroad and seeks information
which is subject to both the attorney client privilege and the attorney work product privilege.

Subject to and without waiving these objections, Plaintiffs assume that your request is limited to

those persons consulted concerning the value of the Restricted Shares prior to filing Plaintiffs'
2000 Form 1040. Those persons are as follows:
(1) (2) (3) (4) (5) (6)

Mark L. Mitchell

David J. Bohlman
Brian Lidji

James M. Mincey Jr.

James Horan
Robert Diener

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(7) Plaintiffs discussed it with eàch other

(b) the filing or possible fiing of an IRS Form 8594 in connection

with the purchase and sale of the assets of TMF, Inc. and HRN
Marketing Corp;

RESPONSE:

Plaintiffs object to this request as it assumes that Plaintiffs had an obligation to
fie a Form 8594 with their Form 1040 in connection with the purchase and sale of

the assets of

TMF, Inc. and HRN Marketing Corp. as no such obligation existed. Any such obligation, if it

existed, was an obligation of TMF, Inc. or TMF Liquidating Trust. TMF, Inc. did file a Form
8594 with its 1999 Form 1120S, which reflected its sale of assets to Hotel Reservations Network,

Inc. Neither TMF, Inc. nor TMF Liquidating Trust is a pary to this proceeding. Subject to and

without waiving this obligation, Plaintiffs did not have any discussions with any person
concerning whether they had the obligation to fie a Form 8594 with their individual income tax

returs.

(c) the removal of restrictions on the sale or transfer of HRN
restricted stock;

RESPONSE:
(1)
(2)

Brian M. Lidji

Victor Kaufman
Janet M. Clements Smith Barey 13455 Noel Road Suite 1800 Dallas, Texas
Robert Diener

(3)

(4)

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(5) Plaintiffs discussed it with each other

(d) obtaining permission from HRN or USA to sell or transfer
HRN restricted stock.
RESPONSE:
(1) Brian M. Lidji

(2) Thomas 1. Kuhn, Esq.

Senior Vice President and General Counsel Interactive Corp. 152 West 57th Street, 42nd Floor New York, NY 10019
(3) Julius Genachowski

General Counsel

Interactive Corp. 152 West 57th Street, 42nd Floor New York, NY 10019
(4) Robert Diener
(5) Plaintiffs discussed it with each other

Current addresses for Messrs. Kuhn and Genachowski are unkown.

INTERROGATORY

NO. 7:

State the date on which you first became aware of the issuance of the Notice

of Deficiency, dated October 8, 2004, and addressed to "David S. and Malia A. Litman,
which is attached to your Complaint.
10710 Strain Lane, Dallas, TX 75229-5426," a copy of

Describe the circumstances of your becoming aware of the Notice of Deficiency, including
the date on which you, or your attorney, accountant or other agent, obtained possession of

a copy. If you cannot specify the exact date, please state the general time period, with
starting and ending dates.

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RESPONSE:

Plaintiffs object to this request as it seeks information which is privileged from

discovery under the attorney work product and the attorney-client privilege. Subject to and
without waiving this objection, Plaintiffs leared of the existence of the notice of deficiency on
October 12, 2004. Our attorney, John W. Porter, received a copy of the notices on October 12,
2004.

INTERROGATORY NO.8:

Identify all persons with whom you consulted or on whom you relied in
completing your income tax return for the year ending December 31, 2000. Describe in

detail each person's role.
RESPONSE:
(1) David Vink - Mr. Vink prepared Plaintiffs' Form 1040 for the year ending

December 31, 2000 (the "2000 Form 1040").
(2) Lisa Florentino - Ms. Florentino worked with Mr. Vink and assisted in
connection with the preparation of

Plaintiffs' 2000 Form 1040.

(3) Mark L. Mitchell - Mr. Mitchell prepared a valuation report determining
the fair market value of

the Restricted Shares. Mr. Mitchell's report formed the basis on

which Plaintiffs reported the gain on receipt of the Restricted Shares.

(4) David J. Bohlman - Mr. Bohlman prepared a valuation report
determining the fair market value of the Restricted Shares.

(5) James M. Mincey Jr. - Plaintiffs consulted with Mr. Mincey with respect
to the value of the Restricted Shares.

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(6) Robert B. Diener - Plaintiffs consulted with Mr. Diener regarding the
value of the Restricted Shares.

(7) KPMG - KPMG's Valuation Group in Atlanta reviewed the BVS report
for reasonableness and concured that the lack of marketability the discounts applied and
the valuation methods used were reasonable

INTERROGATORY NO.9:

Identify all persons who were authorized to act on your behalf or receive

communications and notices from the IRS on your behalf in connection with the
examination by the IRS of

your income tax return for the year ending December 31, 2000.

RESPONSE:
Plaintiffs object to this interrogatory to the extent it seeks to characterize the

authority of the persons identified in the power of attorney, Form 2848 on fie with the Internal
Revenue Service. A copy of our Form 2848, which specifies the authority of the individuals

named therein, is attached as Exhibit 7 (Bates-labeled LD005500 - LD005503) and is

incorporated by reference. The representatives named in the Form 2848 are John W. Porter,
David Vink, and Lisa Florentino.

INTERROGATORY NO. 10:

State whether BVS and/or Mark L. Mitchell gave you or anyone else any oral
opinions or written opinions, other than the report dated February 24, 2000, concerning

the marketabilty discount applicable to or valuation of HRN restricted stock. If so,
describe those opinions in detail, including when and to whom they were given.

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RESPONSE:
After finalizing his analysis and the preparation of his report dated February 29,
2000, with respect to the lack of marketability discount to be applied in determining the fair

market value of the Restricted Shares, Plaintiffs understand that Mr. Mitchell orally reported to

James Mincey his conclusions of value. The conclusions of value were those as stated in the
report. Neither BVS nor Mark Mitchell gave Plaintiffs any other oral or written opinions with
respect to the fair market value or marketability discount applicable to the Restricted Shares at

the time it was received. Plaintiffs are aware that BVS prepared an analysis with respect to the
fair market value of the Restricted Shares as of October 2000. A copy of

the draft opinion is has

been produced in response to Defendant's request for production and is incorporated by

reference pursuant to RCFC 33(d). After the exercise of reasonable diligence, Plaintiffs are
unaware of whether BVS or Mark Mitchell gave anyone else oral opinions or written opinions,
other than those contained in their report dated February 24, 2000, concerning the fair market

value or the marketability discount applicable to the Restricted Shares.

INTERROGATORY NO. 11:
State whether David J. Bohlmann gave you or anyone else any oral opinions
or written opinions, other than the report dated July 21, 2000, concerning the

marketabilty discount applicable to or valuation of HRN restricted stock. If so, describe
those opinions in detail, including when and to whom they were given.
RESPONSE:

To the best of Plaintiffs' knowledge David 1. Bohlman did not give Plaintiffs
any other oral or written opinions concerning the fair market value or the lack of marketability

discount applicable to the Restricted Shares other than those stated in his report dated July 21,

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2000. Plaintiffs incorporate by reference the documents produced in response to Defendant's

request for production numbers 15 and 17 by reference pursuant to RCFC 33(d). After the
exercise of reasonable diligence, Plaintiffs are unaware if Mr. Bohlman gave anyone else any
oral opinions or written opinions, other than the report dated July 21, 2000, concerning the fair
market value or the lack of marketabilty discount applicable to the HRN Restricted Shares.

INTERROGATORY NO. 12:

Identify all persons who you believe have or had knowledge of (i) the alleged

agreement with Andrew Pells that resulted in the cash payment of $2,924,215.50 and
transfer of 244,995 shares of HRN restricted stock to him in 2000; and (ii) the
determination or calculation of the amounts and number of shares Mr. Pells purportedly
was given pursuant to this agreement. Describe in detail each person's knowledge and

involvement.

RESPONSE:
Plaintiffs object to this interrogatory as it is vague as it does not specifically state
a timeframe. Subject to and without waiving this objection, Plaintiffs state that prior to 1999,

David Litman, Malia Litman, Robert Diener, Michelle Diener, Brian Lidji and Andrew Pells
were aware of the agreement. David Litman and Robert Diener (on behalf of TMF, Inc.), and

Andrew Pells were the parties who entered into the agreement. David Litman and Robert Diener

discussed the existence of the agreement with Malia Litman and Michelle Diener. Brian Lidji

was aware of the agreement as a result of his role as counsel for the Litmans, the Dieners and

TMF, Inc. and TMF Liquidating Trust. Mr. Lidji also drafted the documents that reduced to
writing the oral agreement with Mr. Pells.

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Both HRN and Donaldson, Lufkin & Jenrette were made aware of

the agreement.

Hotel Reservations Network Inc. and Chase Mellon Shareholder Services were also aware of the

agreement. Numerous other individuals at HRN were aware that an agreement existed with Mr.
Pells, although they may not have known the details. Reference to the agreement with Mr. Pells
is reflected in numerous public fiings with the S.E.C., including the Schedule 13D filed by TMF

Liquidating on March 3,2003, the Amendment No.2 to the Form S-l filed by HRN on February

3,2000, Amendment No.3 to the Form S-L ofHRN filed on February 7,2000, and Amendment

No.5 to the Form S-l fied by HRN on February 17,2000.

INTERROGATORY NO. 13:

Describe in detail the total consideration paid or given by, or on behalf of,
HRN under the Asset Purchase Agreement, dated April

13, 1999, and Amended and

Restated Asset Purchase Agreement, dated February 2, 2000. Describe the date and form

of the consideration, the recipient and the specific paragraph of the agreements under
which the consideration was paid or given.

RESPONSE:
Pursuant to RCFC 33(d), Plaintiffs incorporate by reference the Form S-1 and the

amendments thereto fied by HRN with the S.E.C., the Asset Purchase Agreement dated April

13, 1999, 2000 Amendment, the BVS appraisal reported dated February 24, 2000 and the

schedule attached as Exhibit 8 (Bates-labeled LD005863), which describe in detail the
consideration received by TMF, Inc. and TMF Liquidating Trust.

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Respectfully submitted,
BAKER BOTTS L.L.P.
Dated: January 9 , 2006

By: E' í2
A ey of Record
BAKER BOTTS, L.L.P. 3000 One Shell Plaza
910 Louisiana

hn W. Porter

Houston, Texas 77002 (713) 229-1597 (713) 229-1522 (FAX)

J. Graham Kenney (Of

Stephanie Loomis-Price (Of Counsel) Counsel)

ATTORNEYS FOR PLAINTIFFSCOUNTERDEFENDANTS DAVID S. LITMAN AND MALIA A. LITMAN

CERTIFICATE OF SERVICE
I certify that a true and correct copy of the foregoing document was sent by email
(without exhibits attached) and by federal express (with exhibits attached) on this 9th day of

Januar, 2006, to Cory A. Johnson, Tax Division, United States Deparment of Justice, 555 4th

Street N.W., Judiciary Center Building, Washington, DC 20530.

John . P rter

~.~

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VERIFICATION
.

STATE OF TEXAS
COUNTY OF DALLAS

§ § §

undersigned authority, on this day personally appeared

David S. Litman known to me t be the peon whose nae is subscribed hereto, who, after
beng duly sworn by me, on oath red that the answer to the foregoing Interrogatories are tre
and correct.

DA vin S. LITMAN

SUBSCRIED

SWORN TO t1s~ day of January, 2006.

MY ~ISSION EX
0t l. 20

OAL DOMU

Nota Pulic
State of

~. .~~
Texas

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VnuCAlION
STATB OF T6
I i

t. .

j . COUNTY OF DALLA
BEFOR ME,
Maia A. Ucman ldawn Co me
be duly &wom by me. on oatb

da pcly ap
the: pe wh nam is susçbc hc. wh del
tb the -i to the. fimgclng Inieøoores are tr

an t'rrL

4lAU . . LIN .
suSCRlBED
. .J i I i I

SWORN TO th.~ ofrlU. 200.

. .i..~.....:.. MY' CO~'ON EXRE

Not Puli

~~ . tJ~
State ofTtx

. ii
I

lloe5.2æ e CADOMUS

.i
! ..

I" i i I i I ¡ i

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