IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE North King Street Wilmington, Delaware Wednesday, September 16, :05 a.m.

Transcription

1 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN RE TRULIA, INC. STOCKHOLDER LITIGATION : Civil Action : No. 0-CB Chancery Courtroom No. A New Castle County Courthouse 00 North King Street Wilmington, Delaware Wednesday, September, :0 a.m BEFORE: HON. ANDRE G. BOUCHARD, Chancellor SETTLEMENT HEARING New Castle County Courthouse 00 North King Street - Suite 00 Wilmington, Delaware 0 (0) -0

2 APPEARANCES: BRIAN D. LONG, ESQ. Rigrodsky & Long, P.A. for Plaintiffs RUDOLF KOCH, ESQ. Richards, Layton & Finger, P.A. -and- MICHAEL T. JONES, ESQ. of the California Bar Goodwin Procter LLP for Defendants Trulia, Inc., Pete Flint, Robert Moles, Theresia Gouw, Greg Waldorf, Sami Inkinen, Erik Bardman, and Steve Hafner KEVIN M. COEN, ESQ. Morris, Nichols, Arsht & Tunnell LLP for Defendants Zillow, Inc. and Zebra Holdco, Inc

3 MR. KOCH: Good morning, Your Honor. THE COURT: Good morning, Mr. Koch. MR. KOCH: I just rise to make one brief introduction. I have with me today my co-counsel, Mr. Michael Jones from Goodwin Procter. MR. JONES: Good morning, Your Honor. MR. KOCH: And we represent the Trulia defendants. THE COURT: Good morning. Mr. Long. MR. LONG: Good morning, Your Honor. May it please the Court, Brian Long from Rigrodsky & Long on behalf of plaintiffs. This is the time that the Court has set down for the consideration of the proposed settlement of Civil Action No. 0, In re Trulia Stockholder Litigation. Notice of the proposed settlement was disseminated pursuant to the Court's June,, scheduling order. Beginning on or around July,, almost,000 copies of the notice were mailed. Mailing of the notice was attested to by an affidavit submitted on August,, by Markham Sherwood of Kurtzman Carson Consultants. To date, plaintiffs' counsel are unaware of any objections to the settlement, class

4 certification, or to the requested award for the attorneys' fees and expenses. I'd also note for the record that I canvassed the well before the hearing, as well as the courtroom, and that no one here today is to object. In fact, my colleagues from Andrews & Springer actually represent one of the plaintiffs in the case. THE COURT: I'm sorry. Could you repeat the last part of what you said? MR. LONG: Sure. THE COURT: About Mr. Andrews. I'm not sure what -- MR. LONG: Yeah. My colleagues, they represent one of the plaintiffs in one of the later consolidated actions. THE COURT: All right. MR. LONG: So turning to the challenged transaction, this was a deal that was announced on July,. It's a stock deal through which, eventually, Zillow would acquire Trulia pursuant to the merger agreement. The exchange ratio was. shares of the holding company common stock. It equated to approximately percent equity for the holders of Trulia, and the remaining percent would

5 go to the stockholders of Zillow. We've been in front of Your Honor several times over the past few weeks: Open Table, TW Telecom, World Energy. Before I go through sort of the background of the litigation, I guess I would harken this one much closer to World Energy than to the others. I know Your Honor's expressed some concerns about what you called self-expediting matters. This, candidly, there was no hearing on a motion for expedited discovery. THE COURT: Well, in fact, wasn't the stipulated schedule entered the same day as the motion for expedition was filed? MR. LONG: No. The stipulated schedule was entered the same day that the consolidation order was filed. THE COURT: Okay. MR. LONG: I think we filed the motion for expedited discovery back -- I think it was September th. THE COURT: Okay. MR. LONG: And it actually was the subject of a lot of negotiation. THE COURT: All right.

6 MR. LONG: And so we didn't submit the scheduling order until a couple of things had gotten worked out, consolidation being one of them. And then, once we were able to lock down everything and go through all the negotiations with respect to the documents, the search terms, the s, everything that we had to do in that part, then, you know, we had an agreement and we went forward. THE COURT: What was the date, again, of the MOU? MR. LONG: The date of the MOU was -- I want to say November th. THE COURT: Why did it take so long for us to get to this point? This deal happened over a year ago. MR. LONG: Sure. Well, a couple of reasons. The transaction closed -- didn't close -- let me just get that right. So the MOU was November. The stockholder vote actually wasn't until several weeks later, in December. And so in that regard, normally -- it's unusual, at least in my experience, to wrap up the confirmatory discovery before the deal closes. Here, it was a large transaction,

7 $. billion. It was a strategic transaction. And so there was a very -- as I understand, a rigorous antitrust clearance process. So we didn't get the -- you know, the MOU was before Thanksgiving. We didn't really pick up until after the beginning of the new year, in terms of scheduling confirmatory discovery. Scheduled confirmatory discovery. I think the confirmatory deposition, Mr. Waldorf, was sometime in the mid-february range. And I think it wasn't until after that that they got the necessary clearance from the FTC to close the deal. So it took three or four months, I think, from that point to negotiate the terms of the stipulation and settlement. Again, nothing was easy in this one. The negotiations over the fee dragged things out, to be candid. And then I think this one -- you know, we submitted it, I want to say, in July. And it was -- we're 0 days. I think part of this also has to do with Your Honor's schedule, making sure that we had the requisite amount of time for notice. We are mindful of trying to keep things moving forward. Sometimes things are out of our control. Sometimes things slip through, candidly. So we were able to negotiate the scope

8 of expedited discovery. As I said, it wasn't a huge production of documents, a little more than a bankers' box, but it was core documents, core presentations, bankers' books, s from several custodians, you know, and a wrangle back and forth over search terms. And we took two adversarial depositions. We didn't make a settlement demand until after we had completed the depositions. We made the demand. We had discussions with the defendants about the scope of our demand. You know, we asked for several things. It became clear after a while the only thing we were going to be able to do, in terms of settlement, was going to be the disclosures. Doesn't mean we didn't ask for more. We weren't -- we didn't think we were heading towards a settlement that we wanted, and so we had to file our opening PI brief. And I think we filed that -- I think we filed that on or around November. THE COURT: So remind me what you put at issue in your opening PI brief. MR. LONG: Sure. THE COURT: Other than disclosures. MR. LONG: Well, I mean, obviously, there was a detailed recitation of the facts we

9 expressed -- THE COURT: I meant like a legal theory for relief. MR. LONG: The sole focus of the PI brief was three discrete disclosure issues -- THE COURT: The same ones that were the basis of settlement, or different ones? MR. LONG: The same ones, and then there was an additional one I'd like to talk about as well. THE COURT: Okay. MR. LONG: So we basically got everything we asked for in the PI brief plus one other one that I think is also material, in light of the circumstances. So, you know, against that backdrop, we'd also served subpoenas, deposition notices. Sort of came at this as we were going to have to litigate this aggressively. We were able to work things out. Now, I'm not going to speak for my colleagues. I'd like to think that when they read the brief in support of the motion for expedited discovery, they perceived some risk, at least as to the relief we were requesting in that motion. I'd also like to think that when they read the PI brief we

10 filed, they were concerned about some level of risk about the disclosure-based injunctive relief. So that takes us, then, through to the stipulation of settlement. It did take a little bit longer than we'd like to get that done, but we were able to do that, submit papers, and then we're here today for consideration of the proposed settlement. With respect to class certification, our arguments are in our papers. There were approximately, I'm going to say,. million shares of Trulia common stock outstanding. I think all of the prerequisites of Rule (a) and (b) are met here. I'd also respectfully submit that the settlement that we're proposing to Your Honor today is fair, reasonable, and adequate. We did go to some length in our papers to try to set forth the give versus the get here. Again, this is a disclosure-only settlement. I mean, there were risks that we faced. They're detailed in the brief. This was a stock-for-stock transaction. There would have been a strong argument by the defendants that Revlon didn't apply. We had arguments, we had our theories. It was a single-bidder process. THE COURT: What was your theory that

11 Revlon would apply in this deal? MR. LONG: Well, I mean, in the end, I don't have a theory that Revlon would apply. I mean, we've taken a look at everything. It was a single-bidder process. There was no presigning market check. The board tried to include -- the transaction included the board trying to include a go-shop in the merger agreement. Eventually, after consideration, consultation with their advisors, and including their lawyers, they decided to take the bird in the hand. THE COURT: Right. What was the percent of the deal that was in the breakup fee? MR. LONG:. percent. There was a $ million breakup fee. THE COURT: How is it -- what's the denominator in that calculation? MR. LONG: I think it's the. million shares. THE COURT: No. I mean, I know what the fee was, but what was, basically, the implied market value that was applied to Trulia to determine the percentage of the breakup fee? If you know. MR. LONG: Yeah. I don't want to

12 speculate. I think it was, you know, the value at the time of closing, in terms of the market price of Zillow stock. But I'll be candid. Standing here today, I just can't remember, for the life of me. THE COURT: I'd be surprised if it's closing value. Usually those are calibrated at the time the deal is done, but all right. MR. LONG: All right. So we turn to the disclosures. There are just a few discrete disclosures that we got here. THE COURT: Start with your best one. MR. LONG: Sure. I have two best ones. The one that I like the best is the disclosure of the additional synergy numbers. So -- THE COURT: All right. MR. LONG: So originally, in the S- originally, there was a disclosure to the effect that, you know, they were looking at $0 million in synergies. All right? Through discovery, we discerned that, in fact, the board of Trulia thought that $ million in synergies was achievable. Now, this is significant, for a couple of reasons. First and foremost, you take the. million shares, that's another $. a share in synergies. Now, I'm

13 not suggesting -- I'm not suggesting that that's another $ a share that could, you know, have gone to the shareholders of Trulia, but this is information that wasn't disclosed. I mean, there was another $. in value, potentially, to the buyer. And perhaps there was something more that the board could have pushed for in terms of additional consideration. THE COURT: Well, okay. You're going to have to explain that a little bit more for me. But on page of the Definitive, there is a little chart, even though it's only two lines, that says "Trulia Management Estimated Synergies." And there are numbers from estimated to estimated, including million in. Now, if I understand the disclosures that were made correctly, that was in the Definitive long before you came along; is that right? MR. LONG: That might be. I'm embarrassed, I might just be mistaken. My recollection was that this wasn't disclosed. But there's another reason why it's material. THE COURT: All right. Well, tell me the other reason.

14 MR. LONG: Sure. JPMorgan used the $ million synergy in one of its analyses, all right? They did a value-creation analysis. THE COURT: Right. MR. LONG: And there was no disclosure originally about, you know, the level of synergies that were used in the two respective analyses. THE COURT: Well, but they did, for example -- let me find that part. So if I look at page 0 of the Definitive, which is the value-creation analysis that was done based on an intrinsic-value approach -- MR. LONG: Right. The intrinsic-value approach. THE COURT: Now, I get your point that when you get to subpart of what I guess is the second sentence, it doesn't say some specific synergy value for any particular year. But it does say that when they did this analysis, that they present-valued Trulia's management-expected after-tax synergies; right? Minus certain costs. And those synergies are the table I just referred to on page ; right? So that's in there. MR. LONG: Well, the fact of the

15 matter is, in the market-based approach they used -- THE COURT: We'll get to the market-based approach. But isn't it telling you where the synergies are coming from in the intrinsic-value approach? MR. LONG: One could conclude that, yes. THE COURT: Now, let's go to the market approach for a second. Would you agree with me that even JPMorgan, in the disclosures concerning JPMorgan's analysis, put less emphasis or less importance on the market approach? And I say that because it all appears under the heading "Other Information." My reading of it -- and if you disagree with me, you can tell me -- is that the "other information" is things that were less significant to JPMorgan than the things that came before that part. MR. LONG: I think that's a fair reading as well. THE COURT: All right. MR. LONG: I think what's obfuscated is the fact that if you look at them side by side -- if you have them side by side, if they'd have used the $0 million synergy number, the value-creation -- it

16 would have only been percent under -- THE COURT: I'm sorry. Could you just repeat that? I didn't hear it. MR. LONG: Yeah. No, no. I'm going to go through my calculation. I don't know that it matters. You know, using the $0 million synergies number, you would be looking at value creation in the realm of percent. THE COURT: All right. Could you just explain to me the percent you're referring to again. MR. LONG: Sure. You look at -- looking on page 0, there's a reference at the bottom of the paragraph to the effect that the implied pro forma accretion in economic equity value to the holders of Trulia common stock is percent. THE COURT: Right. Okay. That's the bottom line. Right. MR. LONG: Sure. That's the bottom line. That's using the $ million synergy number. THE COURT: Right. MR. LONG: So they don't -- you know, it's not clear -- it wasn't clear to me, at least, wasn't clear to our expert, at least -- that they were

17 using the $ million synergy number. It wasn't clear that JPMorgan had used the $ million synergy number here. So if they had, you'd only be looking at value creation on the level of percent. THE COURT: And I'm just not following how you've got to percent. MR. LONG: Well, first, I mean, it's reflected in the board book on page, I think. THE COURT: That, I don't have. Can you just explain to me the math? MR. LONG: Sure. THE COURT: I just didn't understand it. MR. LONG: No, no. I think I can. We're looking at -- this is how I did it. It's very simple. THE COURT: Okay. MR. LONG: You have $0 million of synergies, versus. THE COURT: Right. That's for a particular year. MR. LONG: Sure. Sure. These are the assumptions -- THE COURT: And some multiple is

18 applied and all that. Right. MR. LONG: So 0 over is /ths. THE COURT: Right. MR. LONG: times /ths is. THE COURT: Okay. MR. LONG: So, I mean, in that regard, again, is it misleading? Is it obfuscatory? Is it a fair summary? I think the additional information makes the summary far more fair. THE COURT: Okay. MR. LONG: So the second disclosure -- THE COURT: The second best one? MR. LONG: Yeah. Yes, sir. THE COURT: Giving new meaning to the use of the superlative. It's okay, Mr. Long. MR. LONG: The second disclosure we would like to highlight as beneficial is the one that relates to the selected precedent transaction analysis. THE COURT: Okay. MR. LONG: Now, I know that in the past, Your Honor has not necessarily espoused a predilection for the value of the benefit of the disclosure of multiples. I think -- and I'm going to

19 hope to persuade you -- that this situation is slightly different, for a couple of reasons. In the initial disclosure, there was a list of transactions. THE COURT: Right. MR. LONG: All right? And it began based upon publicly available information. So with respect to the additional disclosure that we got, we got disclosure of all the multiples. All right? So when you saw the multiples for these -- you know, this robust body of precedent transactions they looked at, all of a sudden you realize you saw that of of these transactions didn't have any information that they were able to use. Wasn't available. All right? And perhaps even more important is the fact that one of the transactions was a public transaction for which they had information. And this was the first time that you learned, A, that the implied EBITDA multiple for that transaction -- the implied multiple for that transaction was over 0 and that, B, they determined to discard it, not use it, as not meaningful. THE COURT: Which one was that? MR. LONG: It was the ExactTarget,

20 Inc. acquisition by Salesforce.com. THE COURT: Am I correct about the following -- hint: I think I am, so you're going to have to tell me I'm wrong, if I'm wrong -- that each of these individual multiples you're talking about were derived based on publicly available information? MR. LONG: Except for the ones when there was no publicly available information. THE COURT: Okay. Fine. But the point is, if somebody wanted to figure out, if somebody really cared about what the multiple was of any particular one of these potential comparable transactions -- or arguably comparable transactions, because there's lots of disclosures about all the judgment that goes into determining whether something has any true comparability -- they can go out and figure that out; right? MR. LONG: I suppose if they're so inclined they can. THE COURT: Yeah. I mean, the proxy statement even says explicitly that these multiples were derived from publicly available estimates; right? MR. LONG: I think there can be an argument with respect to that statement, though, that

21 that doesn't paint the whole picture. Because, you know, of them, there was no publicly available information. THE COURT: Here's the issue that's on my mind whenever I'm confronted with this argument: It must be like Financial Advisor Malpractice, under the plaintiffs bar theory, because almost every one of these settlements, somebody walks in and says, "Oh, we got the individual multiples." So that must tell me you basically think every financial advisor in America is committing malpractice -- or the lawyers -- when they disclose these summaries. Because they're never there. And the reason, I surmise, is because what matters is the judgment of the financial advisor, and that is what's here. So riddle me that. Tell me why I'm wrong. MR. LONG: Well, as you mentioned, it took a while to get from the time the disclosures were made until we're here today. THE COURT: Right. MR. LONG: All right? And so, candidly, at the time we got the disclosures -- you know, and there are cases we cite, I believe it's

22 Celera and Turberg v. ArcSight. We were operating under the notion that these are material. You know, and there was some case law to support that. I understand Your Honor drilling down. I understand the notion of these being publicly available. But here, some of the information wasn't publicly available. Here -- I mean, at the time, you know, consulting with our financial advisor, he's telling us this is material. And we're looking at the case law as we knew it then, and this was material. I mean, if it's not material, it's not material now, but we thought it was. We thought it created a benefit. We thought it was, you know, very helpful, very positive, in terms of providing a fair summary of the bankers' analysis. You know, we've taken discovery. We've consulted with our expert. We did a balance. And so balancing what we're getting -- which we thought was material at the time and think is material now -- versus what we were giving up, which we really didn't determine to be a whole lot when it really came down to it, we thought it was fair. We thought it was beneficial. We thought it would be sufficient, under the Court's precedents, to support

23 settlement. And so that was the rubric we were working under. And that same argument applies, I guess, for better or for worse, with respect to the comparable companies. Now, I don't -- you know, I like the fact that of the precedent transactions -- THE COURT: Right. MR. LONG: I like that. I think that's better. You know, we have arguments in our brief, and I don't have to belabor them, about why a disclosure of the comparable companies was material for a couple of reasons and, B, why those comps were elucidating in terms of, you know, looking at the multiples, the implied exit multiples that they disclosed with respect to the discounted cash flow analysis and allowing the shareholders to see that perhaps those exit multiples that they used might be skewed downwards slightly, or to some extent, based upon the comps. THE COURT: Why don't you discuss with me your fourth disclosure. MR. LONG: I'm sorry?

24 THE COURT: The fourth disclosure. I think it was the implied multiples on the terminal values. MR. LONG: Sure. So the banker, JPMorgan, performed a discounted cash flow analysis, and they used the perpetuity growth model. THE COURT: Right. MR. LONG: So perpetuity growth rates, discount rates, were all disclosed. And in the book, page -- or Bates page -- they also did a cross-check with the implied exit multiples. THE COURT: Right. MR. LONG: So a couple of things. There's an argument that we make in our papers that, given the relative growth rates of Trulia and Zillow, that, A, it was unusual for very similar implied exit multiples to be applied to those two companies. THE COURT: And why is that? MR. LONG: Well, based on the I/B/E/S estimates, Trulia's projected growth was about percent. THE COURT: And this is as of when? MR. LONG: Well, this is as of -- this is as of in the bankers' book. May --

25 THE COURT: Well, no. I'm sure the bankers' book has some temporal context for that assertion. Growth rate as of the time of the deal? As of when, for what period of time? MR. LONG: I think that was July,. THE COURT: Okay. So percent over what period of time? MR. LONG: I'd have to look. I think it's over the five-year period, but I have to confirm that. THE COURT: So the Definitive disclosed that when they did this model, they DCF'd Trulia and Zillow separately; right? MR. LONG: They did, yes. THE COURT: And they used a perpetual growth rate model in doing their DCF? MR. LONG: With a -- THE COURT: Right. And they disclosed that the range of growth rates they used for both models was / to / percent; right? MR. LONG: Uh-huh. THE COURT: Why would I be surprised that the implied multiples to EBITDA would be similar?

26 MR. LONG: I don't know that you would. I don't know that you would. THE COURT: Okay. So what's the point of this information, the additional information, having any social utility? MR. LONG: Sure. The other point in that regard would be that based on the disclosure of the EBITDA multiples that were observed for the comparable companies, those ranges seemed low to us. THE COURT: They were what? MR. LONG: Those ranges, the ranges that they used for Trulia and Zillow, seemed low, based upon the comps. And obviously, if they used a higher range of implied exit multiples, the implied range of value with DCF would be higher. THE COURT: What was the discrete period in the model? Do you know? MR. LONG: It was through, I want to say,. THE COURT: Oh. I thought it was even longer than that. The projections go to like or something, don't they? MR. LONG: I'll take your word for it. THE COURT: Well, I don't know this

27 for a fact, because I haven't cross-referenced the bankers' book. But the projections, I think, that are disclosed in here, if we look at page, and I think it's on, the Trulia projections, one's a June, the other is a July projection, run through. And the projection for Zillow runs through as well. Now, I don't know what they did in the bankers' book, so I'm speculating here a little bit. And that's why I asked the question, like, what was the discrete period versus -- you know, from what point in time was the terminal value calculated. You don't know offhand? MR. LONG: I don't. I apologize. THE COURT: Well, it's pointless for me to ask then. Okay. MR. LONG: Sorry. THE COURT: So let me ask you a different question, which is one that has been on my mind for some time. What is the standard I am supposed to apply to these disclosures, in this sense: You're familiar, I'm sure, with Chrysler vs. Dann. I'm sure you're familiar with the Cox Communication discussion by Vice Chancellor Strine. And the

28 question on my mind is, for this all to make sense and to be fair, there has to be a benefit conferred. And what I want to know is, in deciding when there's a benefit, can there only be a benefit, for example, when something you, as a result of the settlement you're bringing forward, added to the mix of information is material, in the traditional sense of materiality under the securities laws? Or is it something different than that? And if so, what is it? MR. LONG: Well, it's a difficult question that you pose. I'm going to try to answer it. My sort of gut reaction, the first thing that popped into my head, is the fact that the Court's got several tasks it has to do today: certify the class, consider the reasonableness of the settlement, and other things. And the settlement has to -- the test is whether the settlement is fair, reasonable, and adequate. I mean, so I think, you know, the disclosures need to provide a benefit. THE COURT: Right. Let's assume I'm on the same page with you up to that point. So now I have to, in terms of determining what's a benefit -- MR. LONG: Sure. I think it's a lot

29 more art than science. THE COURT: Okay. MR. LONG: And, you know, material -- I mean, an example, with respect -- and I'm going to try to do my best to recollect. I was looking through the Turberg v. ArcSight transcript yesterday. You know, what's required under the law, Delaware law, I think is a fair summary. So on one hand, one could argue, you know, by not including some of this information -- and again, we were working, at the time we negotiated this, you know, we were working under the understanding that these multiples were something that needed to be disclosed. You know, we argue it's not a fair summary. It's not a fair summary. I think that's a violation of law. I think that's arguably something you can win a discrete, limited-in-time disclosure injunction on. THE COURT: And see, that's the thing. I mean, this is the question that's going to linger on my mind a bit, which is if I were at the PI stage, you would agree with me, wouldn't you, that you wouldn't get a PI to stop a deal -- a very serious thing -- unless material information was not disclosed or there

30 0 was a misleading disclosure that you corrected; right? MR. LONG: I think -- yeah. That's fair. THE COURT: Right. It would have to be material. I mean, it would have to really matter. Now we're at the end stage. Is it the same standard, or is it a different one? MR. LONG: Well, I don't want to be glib, but obviously it would be a lot better if we could say they're material. I mean, you know, some disclosures are better than others, to be sure. You're the final arbiter of what's material and what's not material. Again, we think that if -- I guess I could answer Your Honor one way and say if there's not a fair summary, something material, arguably, is missing. THE COURT: Okay. Let me ask you a different question that relates to the other side of the ledger. You went through your brief, efforts to try to show how tailored the release was. I looked at the release. It's still very broad, and very broad in one very material respect. MR. LONG: The unknown claims. THE COURT: It includes unknown

31 claims. Why should those be in there? MR. LONG: Well, I don't want to -- why should those be in there? I mean, there's a couple of answers, I guess. I mean, again, at the time we negotiated the release -- and I don't want you to think I'm copping out here. I truly don't. But, I mean, we entered into a contract. At the time, that release, you know, was not necessarily anything of great controversy, based on what had been approved time and again. And so did we look carefully at the release language? Of course we did. THE COURT: Yeah. MR. LONG: Did we have changes to the release language? Of course we did. But this Section of the California Code, this "unknown claims," I mean, that's been around longer than I've been doing this. THE COURT: Yeah, I know. It's easy to go back to "it's standard," and I'm not faulting you for that. I would be hard-pressed to disagree that it's in almost every one of these I see, if not every one. But then again, when I started practicing, very few people sued on every deal, and we never dealt

32 with the kind of volume of this stuff that we see nowadays. And it just can't be that this is socially useful. MR. LONG: With respect to the unknown claims, I mean, candidly, you know, since all of this has been happening, since some of the closer scrutiny, we have been in discussions -- I don't want to say constant, but it's pretty frequent discussions -- THE COURT: Right. MR. LONG: -- with counsel from all over; defendants counsel from Delaware, plaintiffs counsel from Delaware, counsel from out of state. And there is some movement, but there's a real hesitancy, a real reluctance on the part of defendants' counsel, to give this up just on their own volition. I mean, you know, I get the sense -- and I could be wrong -- but until a member of the Court of Chancery says, "You can't do this anymore. I'm not going to approve your settlement because you have unknown claims," or you take some extraordinary step and say, "I'm going to approve your settlement but I'm going to modify the release this way. I'm going to take out this. I'm going to" -- THE COURT: I don't have the power to

33 modify the release. I have a binary decision. I approve or disprove the settlement. MR. LONG: Right. And I would argue, if I were them, that if you try to change the release, they have the right to walk away from the settlement. So that would be that, in and of itself. THE COURT: All right. MR. LONG: So, I mean, would I love to get more narrow releases all the time? Sure. Am I trying to do it? I am. Am I successful every time? No. But, you know, as the body of jurisprudence continues to evolve, it's organic. It's constantly changing. It's constantly growing. You know, we're mindful of everything. We're mindful of trying to do the best job that we can. I mean, like I said, when we did what we did, we thought that was very standard. And so we were very comfortable in doing that. THE COURT: All right. MR. LONG: And I'm sorry that it's -- that's my best answer, I think. THE COURT: Okay. MR. LONG: So settlement, you know, we still submit, respectfully, that it's fair,

34 reasonable, and adequate. Obviously, Your Honor has some trouble with it. I apologize that I wasn't able to do a better job explaining some of those things today. I think I actually overprepared, just for this scenario. You know, we'd ask you to approve the settlement. We have made a request for an award of attorneys' fees, and I'm not going to belabor it. Your Honor is familiar with the -- THE COURT: I've read the papers on it. MR. LONG: Yeah. I think, again, it was arm's length. I mean, again, at the time, we thought it was below market. The metrics are in the brief. So thank you very much. THE COURT: All right. Thank you, Mr. Long. Defense counsel, do you have anything you want to add? I do have a couple of questions for you, so -- MR. KOCH: Sure, Your Honor. I'm happy to take the Court's questions, but also I'm happy to add a few things in response to the questions that the Court had for Mr. Long.

35 THE COURT: Sure. Go ahead. MR. KOCH: So the first question the Court asked is it tasks us to consider whether the settlement is fair, reasonable, and adequate, and if that's something different from a materiality standard that would be sufficient to get a preliminary injunction, for example. And I do think, Your Honor, that it is a difference standard. Whether something is material as it alters the total mix would be asking a question of whether this is something that justifies extraordinary relief of a preliminary injunction, where you're actually going to, you know, take the step of enjoining the deal. And I think the standard of whether something is fair, reasonable, and adequate is more akin to a traditional standard on, you know, is the class getting something in return for what they're giving? In this case a release. And if so, are they getting something that's fair or are they just sort of laying down? And you have to look at that, I think, in the context not just of the disclosures themselves, but of the actual case and how it's been litigated. And if you were to go back to some of the things that Mr. Long said here, you know, this is

36 a situation where, I can tell you, there was almost three weeks between where he first pitched -- you know, asked for expedition and when we actually did agree to expedition. It was actually a very hard-fought negotiation, Your Honor. And I understand in some cases they're not, but in this case it was. He did insist on taking three depositions, which he ultimately got. One, admittedly, was confirmatory. But these were, you know, three serious depositions he took. We did give him s. We did give him core documents as well. If you look at the complaint -- I looked at this while Mr. Long was at the podium -- the amended complaint, pages through do get into the process. And the process was a focus, as well, in some of these depositions, Your Honor. This is a situation where Mr. Long also filed a preliminary injunction brief. So in the context of that, where it turns out there really are not good, supported process claims, but where Mr. Long did kick the tires and where we did have a true arm's-length, hard-fought negotiation, in that context, and given the types of disclosures we've got in this case, I think it's very fair to say that, even

37 if the Court were inclined to find that they weren't material to meet the total-mix standard, that they're still fair, adequate, and reasonable. That said, you know, it's a little awkward for defense counsel to be taking this position, but I do say that they are material, for the reasons that Mr. Long stated. THE COURT: So you would agree that if he had pressed his preliminary injunction, I should have enjoined the deal? MR. KOCH: I think there is -- there was a risk, Your Honor. And that risk is one of the reasons that we decided to settle, certainly. I would have argued, obviously, in the preliminary injunction setting that you should not have enjoined the deal, and that's why I said it's awkward to be in the position of defense counsel -- THE COURT: Right. MR. KOCH: -- supporting the materiality of the disclosures. THE COURT: Right. MR. KOCH: So in all fairness, I suspect that -- THE COURT: Let me sort of recalibrate

38 what you've been discussing. So to be fair, there has to be a benefit. It can't be a big zero on the plaintiffs' side. MR. KOCH: Right. THE COURT: There's got to be something. There's got to be a benefit. MR. KOCH: Correct. THE COURT: So then the question, to me, is, packed into finding what a benefit is, what is the operative standard? Is it materiality or is it something less? You don't have to take a position on the spot, because I'll just preview I'm going to want more briefing from you on this issue before I decide this motion. That's where I'm at right now, because -- MR. KOCH: Sure. THE COURT: -- I just don't have confidence in what the answer to that question is. So anyway, I'll spare you, because that is something I do want more briefing on. MR. KOCH: No, I appreciate that. THE COURT: I'll just say that. MR. KOCH: I appreciate that, Your Honor. We're happy to provide supplemental briefing.

39 I think that is an important question and, obviously, it's better to have thorough, well-thought-out briefing than for me to pontificate. THE COURT: Yeah. MR. KOCH: One other thing, just for Your Honor, on the unknown claims. In this situation they are tethered pretty tightly to the deal itself. So it's not just whether there's any unknown claims whatsoever, you know, relating to anything. It's unknown claims relating to the issues that were in the litigation where Mr. Long was able to take discovery. So that would give me some comfort. But obviously, if that's something Your Honor wanted supplemental briefing on, we can do that as well. THE COURT: I had two issues with that, and that's the other one. I'm sorry. I didn't mean to speak over you. And it's difficult for me. Because, look, I understand. I used to write these things and negotiate these things from both sides. And anybody on that side of the courtroom wants the broadest release in the universe possible, and that includes anything unknown. MR. KOCH: Sure. THE COURT: I'm just trying to

40 0 understand why that makes sense in this context. Especially when the ante is, like, down in the weeds here. I mean, it's not like you guys are agreeing to pay another $ per share -- it's not even a cash deal -- or to adjust the exchange ratio in a way that's fairer to Trulia stockholders, or anything like that. MR. KOCH: Right. THE COURT: We're talking about the underbelly of settlements. All right. I'll spare you, Mr. Koch, because I am going to want some briefing on this. MR. KOCH: And we appreciate the opportunity. THE COURT: All right. I don't think -- did you have anything else you wanted to add, Mr. Long? MR. LONG: I don't know if it would be helpful. THE COURT: All right. MR. LONG: The only other point I would make with respect to unknown claims is the fact that we did disseminate -- defense disseminated -- almost,000 copies of the notice, and not one

41 stockholder wrote a letter, called -- THE COURT: What rational stockholder would take the time to do anything here? MR. LONG: Well, no, no. And I think there's an answer to that question, and I think it's one that has claims that we didn't know about. And in the past, in my experience, we have had situations in other courts and other cases where perhaps there was a securities fraud case that may have, arguably, some tangential relation to the deal. THE COURT: Yeah. I mean, the one that's coming to mind to me -- and I could be wrong about this, because I was just trying to do this from memory in speaking about this with my clerks -- is the MCA Matsushita case. MR. LONG: Uh-huh. THE COURT: You know, I could have these facts wrong, full disclosure, but my vague recollection is that there was a settlement, probably not dissimilar to this one, that was approved by the Court with a very broad release. There was a very -- looked really good -- my firm had some involvement in it, so that's a disclosure, so maybe I'm biased on this -- a discriminatory tender offer claim to be

42 litigated that was ultimately barred by virtue of the release that was entered. And at the time, that wasn't even a glimmer in anybody's eye, but it ended up knocking out what potentially could have been a very valuable claim. Now, I could be wrong. Maybe it was known at the time and I could be wrong about that. But that did cross my mind. MR. LONG: I had a case in Philadelphia County involving an acquisition of Sovereign Bank by Santander, and there were related -- this is arguably -- THE COURT: Right. MR. LONG: And as sure as the day is long, they came in and argued. You know, and once they were to effect a concession from the defendants that the scope of the release, in fact, didn't cover those claims, that went away. THE COURT: Okay. MR. LONG: So it's -- it has happened. THE COURT: All right. So as I've already told everybody, I'm going to take this under advisement. I'm not comfortable yet with approving the settlement on the

43 spot or making a call on it, but I want additional briefing. And it's really on two issues that I think are important that I get your positions on in a thoughtful way before I rule. One issue -- and I'm going to do my best to articulate it to make this as precise as possible -- is in a disclosure-only settlement, which is what we have here, what standard do I have to apply in considering the supplemental disclosures? And what I mean by that is I understand all the law that settlements have to be fair, reasonable, adequate, and that evaluates the give and the get. And I understand all the law that says there has to be a benefit conferred. But in determining the benefit, is the standard that the supplemental disclosure must be deemed material in the traditional securities law sense of what materiality means, to alter the total mix of information, or is it something different? And if it's something different -- i.e., helpful information, or marginally useful information -- whatever that standard may be, what is the standard? That's one issue. The second issue on my mind, I'm going

44 to have a harder time articulating how to look at it. What's troubling me is the inclusion in the release, in particular in this circumstance, of unknown claims. And I expect I'll hear from you it's common, traditional, always happens. Okay, fine. I'll cede that territory. But does it make sense? And if so, why does it make sense that the Court would be endorsing releases with unknown claims included in them? Here, three depositions were taken, two in an adversarial posture, one in a post-mou posture. Okay. Maybe the tires were kicked on whether the sales process was any good or not. Additional things -- and you have a record, and people can say those are things that legitimately should be released -- but why go beyond where the tires have been kicked into this unknown realm, especially if the consideration on the other side -- assuming for the sake of argument it's not a zero -- is marginal? That's the other question on my mind. I'm not sure I can articulate it better than that. If you have questions, I'll be glad to try to answer them, but those are the two issues on my mind. This obviously wasn't presented to me

45 in any rush, so I'm not in any rush to get the submissions. If you can give me something from each side in 0 days, I'd appreciate it. And then I'm going to take it under advisement. All right? Thank you, Counsel. (Court adjourned at : a.m.) - - -

46 CERTIFICATE I, JULIANNE LaBADIA, Official Court Reporter for the Court of Chancery of the State of Delaware, Registered Diplomate Reporter, Certified Realtime Reporter, and Delaware Notary Public, do hereby certify the foregoing pages numbered through, contain a true and correct transcription of the proceedings as stenographically reported by me at the hearing before the Chancellor of the State of Delaware, on the date therein indicated. IN WITNESS WHEREOF, I have hereunto set my hand at Wilmington this th day of September,. /s/ Julianne LaBadia Julianne LaBadia Official Court Reporter Registered Diplomate Reporter Certified Realtime Reporter Delaware Notary Public