IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

Transcription

1 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE GEORGE P. ASSAD, JR., on behalf of : himself and all others similarly : situated, : : Plaintiff, : : v WORLD ENERGY SOLUTIONS, INC., : PETER A. LONDA, PHILIP V. ADAMS, : JOHN C. FOX, EDWARD T. LIBBEY, : RALPH S. SHERIDAN, SEAN S. SWEENEY, : THAD A. WOLFE, ENERNOC, INC., and : WOLF MERGER SUB CORPORATION, : : Defendants. : : Civil Action : No. -CB Chancery Courtroom No. A New Castle County Courthouse 00 North King Street Wilmington, Delaware Thursday, August, :0 a.m BEFORE: HON. ANDRE G. BOUCHARD, Chancellor SETTLEMENT HEARING and RULINGS OF THE COURT New Castle County Courthouse 00 North King Street - Suite 00 Wilmington, Delaware (0) -0

2 APPEARANCES: SETH D. RIGRODSKY, ESQ. Rigrodsky & Long, P.A. for Plaintiff THAD J. BRACEGIRDLE, ESQ. Wilks, Lukoff & Bracegirdle LLC for Defendants World Energy Solutions, Inc., Philip V. Adams, Edward T. Libbey, Ralph S. Sheridan, Sean S. Sweeney, and Thad A. Wolfe PHILIP TRAINER, JR., ESQ. TONI-ANN PLATIA, ESQ. Ashby & Geddes, P.A. -and- EUGENE R. LICKER, ESQ. of the New York Bar Loeb & Loeb LLP for Defendants Peter A. Londa and John C. Fox KENNETH J. NACHBAR, ESQ. Morris, Nichols, Arsht & Tunnell LLP for Defendants EnerNOC, Inc. and Wolf Merger Sub Corporation - - -

3 MR. RIGRODSKY: Good morning, Your Honor. THE COURT: Good morning, Mr. Rigrodsky. How are you? MR. RIGRODSKY: Very good, Your Honor. This is the time the Court has set down for its consideration of the proposed settlement in the case captioned Assad versus World Energy Solutions, Inc., Civil Action No. -CB, the settlement of a class action challenging the acquisition of World Energy by EnerNOC in a tender offer merger at the price of.0 a share. The tender offer expired on January nd,. The Court entered a modified scheduling order on June th,, scheduling the hearing for today at o'clock. On or about July st, pursuant to the Court's order, notice was mailed to the class. The notice informed shareholders of the proposed settlement and the request for fees and expenses in the aggregate amount of $00,000. The notice informed shareholders of the right to appear today and object. The objections were due business days before today's hearing which I calculated to be August th. As of today, this

4 morning, I'm not aware of any objections to the settlement or the requested fee. I've polled the gallery in the court today. No one is here to object. We've submitted the requisite papers, affidavits in connection with the settlement. We believe the settlement is fair. Your Honor, I'm going to necessarily do what I promise to do but usually don't do, which is try to be very brief -- THE COURT: I think it's worth going through things. I mean, too often in these disclosure settlements people don't really make a real effort to sort of walk through why the disclosures actually conferred any benefit. MR. RIGRODSKY: Okay. Sure, Your Honor. THE COURT: So I think it is worth taking the time to do that. MR. RIGRODSKY: Okay. Okay, Your Honor. First, by way of background, disclosures here were only made after hard-fought litigation. Plaintiff represented by my firm won a contested motion for expedited discovery. Within a

5 -day period reviewed over, between,000 pages of documents. We took three adversarial depositions, quite adversarial, I should say. I deposed the chairman of the company, Mr. Londa. My partner, Brian Long, deposed Canaccord banker Mr. Coyne, and a representative of the Maniskas firm deposed Duff & Phelps, Mr. Gregory. Also what distinguishes this case from some of the others that are often presented to the Court is that we actually took this to the mat. We filed a comprehensive preliminary injunction brief. The defendants didn't immediately roll over. They filed an opposition brief. The case settled really on Christmas Eve as our reply papers were due. We had requested a preliminary injunction hearing, and the Court had allowed us to go forward on preliminary injunction. So this case was going to be argued and litigated to judgment, and it was only until the answering briefs were filed in the PI that we reached an agreement. The disclosures -- I'll focus specifically on those at the Court's direction which were the focus of discovery -- were the exact type the Court has found to be material, namely, projections,

6 free cash flows, and information regarding certain market benchmarking that was done by Duff & Phelps. And we obviously, my firm and others in my firm, are aware of some concerns expressed by the Court of Chancery in recent opinions regarding disclosure-only settlements. But I believe, actually believe, that if there ever was a disclosure-of-therapeutic-benefit settlement that was deserving of approval, it's this one because of the vigor in which it was prosecuted and because of the benefits we achieved. Again, on the contested motion for expedited discovery, we presented the Court with very specific buckets of disclosures that we wanted to take discovery on, namely, the lack of free cash flow disclosures, the lack of certain projections for basically a three-year tail period that was not included in the original proxy but which the investment advisor, Duff & Phelps, created and presented to the special committee which the special committee relied on. THE COURT: So talk to me about the free cash flow numbers. MR. RIGRODSKY: Okay.

7 THE COURT: In the mortgage proxy materials here, were they included or not included? MR. RIGRODSKY: They were not included. THE COURT: Now, is it your view that, as a per se matter, if the financial advisor does a DCF and the free cash flow numbers aren't included in the proxy materials, that that's a material omission? MR. RIGRODSKY: Your Honor, it's difficult for me to argue for a black-letter rule on that. My review of precedents, the courts basically suggest that it is required, I will say that. And the flip side of this is if a DCF is done and it's a cash-out merger, courts -- this court has identified situations where it's critical to have that free cash flow number because that can aid either a shareholder or counsel for plaintiffs do their own DCF and come up with their own results. And let me explain that in some detail here because it is relevant. The Court -- well -- if the Court recalls, the company was reviewed by Duff & Phelps in two sort of segments. THE COURT: Right. MR. RIGRODSKY: There was its core

8 business, and then there was something called the enhanced broker portal initiative. It was a base case, and then there was a base plus overlay case. Duff & Phelps looked at all those, and free cash flows were presented for all those different segments. What was unusual, what we thought was unusual about the valuation on the DCF with regard to the broker portal initiative was that Duff & Phelps applied a 0 percent discount rate to the period leading up to the terminal period, then apparently applied a percent discount rate to the terminal period. Duff & Phelps had its reasons for doing that. We didn't think that was appropriate, but with the free cash flows disclosed, we were able to run our own DCF. And what we did was we took the percent number and said we're just going to run the percent discount rate throughout the entire period. We're going to shuck the 0 percent. And the results that we achieved here were fairly interesting. But we saw a -- when you run the. percent discount rate, uniform discount rate, you wind up with -- you increase the value of the company from. million to. million; and with regard to the enhanced broker

9 portal initiative base in overlay, we see the value increasing from. million to approximately --. million. So -- THE COURT: I'm not sure how to understand those figures. When you say the value of the company increasing by that amount, relevant to what? I mean, this deal was roughly $ million. MR. RIGRODSKY: $ million, something like that. $ million deal. So what we're saying, you know, is that -- we're -- the values that Duff & Phelps came up with we believe were depressed for the broker portal initiative business because of the application of the 0 percent discount rate and with the disclosure of the free cash flows, we're able to come up with numbers that we thought more accurately, we think, reflected the inherent value of the company. But that's -- you know, that's -- and that is sort of the core of what a disclosure, you know -- a disclosure injunction, a disclosure free cash flows go to. Anyone in the market -- I mean, I had to use an expert to do it. I can't do one on my own, but there are sophisticated people out there in

10 hedge funds and others out there who have their in-house desk. Once the numbers are revealed, they can play with the numbers, come up with their own values, and they make the decision whether it's a good deal or not. So we thought that in this particular circumstance it's not just the disclosure of the free cash flows that in and of itself is important. It's what you can do with the free cash flows that's important. It's what you can do with those numbers. And we did run an analysis, and we did come up with, we thought, very remarkable results. THE COURT: What was in the Duff & Phelps -- as I understand it, your primary disclosure here, at least as I'm viewing it at the moment, is getting an additional three years of the projections that formed the DCF model for Duff & Phelps in getting the cash flow estimates for the entire discrete period. MR. RIGRODSKY: Yes. THE COURT: In essence. All right. What was the discrete period that Duff & Phelps ran their model on; do you know? MR. RIGRODSKY: Yes, I do. It's the

11 period -- well -- THE COURT: Did they run for, like, all years, like -- MR. RIGRODSKY: It's THE COURT: Yeah. MR. RIGRODSKY: The tail period that Duff & Phelps ran its own projection, developed its own projection information and ran the DCF on was for the core business through. THE COURT: Okay. MR. RIGRODSKY: And then in connection with the enhanced broker portal initiative, it's through -- I'm sorry. It's the same -- it's 00 to ; but the new disclosures involve the period through. THE COURT: All right. So even though their model was going through to -- MR. RIGRODSKY: Correct. THE COURT: -- they didn't have the last three years of data. MR. RIGRODSKY: That's right. THE COURT: All right. MR. RIGRODSKY: That's correct. And, you know, it's important for a

12 couple of reasons. I -- and also -- and one more nuance to this, which is that the numbers that were reflected in the original proxy were not really -- in terms of the projections, weren't the actual numbers that were presented to the committee. They actually published those, updated projections as part of the settlement. In all candor to the Court, the numbers don't really change very much. It doesn't really change the analysis very much. They don't really move the needle. But, again, it was a correction of a prior, you know... I don't want to say a misstatement, but a prior inaccuracy in the proxy statement. THE COURT: So the terminal value in the DCF model was calculated based off of what years' numbers? MR. RIGRODSKY:. THE COURT: Okay. Was it done on a Gordon growth multiple or projected growth rate or was it done through a multiple, if you know? MR. RIGRODSKY: It was a perpetuity -- I think it's a perpetuity growth rate. I think they used percent. THE COURT: Okay. Was that previously

13 disclosed? MR. RIGRODSKY: That was. THE COURT: Okay. I see it. All right. MR. RIGRODSKY: And that's not all. You know, one of the things that I dug into a little bit in preparing for today's argument is the additional disclosures regarding the comparable companies analysis. And, again, in all candor to the Court, sometimes the Court hears things like, oh, they showed the multiple of this company and that company and, you know, it shows things are a little better or a little worse. I mean, that's not the case here. When you look at the original D-, you look at the settlement D-, there are huge differences. The original D- just showed you -- gave you the mean, the median for energy management brokers and showed aggregates. There's actually no breaking down of any of the individual components, what companies were looked at, what the actual numbers were. THE COURT: I've expressed skepticism in a number of other hearings about the real value of that. And let me frame it, and then you can tell me

14 why you think -- MR. RIGRODSKY: Well, I would say why I think it's worth -- THE COURT: Give me a second to frame it a little more -- MR. RIGRODSKY: Oh, yeah. I think -- THE COURT: -- which is this: I mean, obviously the overall umbrella frame of reference is materiality in terms of information, and then when it comes to the financial advisor's work, it's just a fair summary of that work. The key would seem to me, when you do a comparable companies analysis or precedent transaction analysis, are these mean and medians and then, most importantly, the judgment of the financial advisor about the relevant metric to apply in that context. The individual companies just seemed like frosting. So now tell me why I'm wrong, because that's my orientation. MR. RIGRODSKY: Always reluctant to tell the Court that it's wrong, but I think in this case it's important because -- yeah, it's true. A fair summary is a fair summary. But when you see mean and median numbers, you never -- and you're not told

15 what companies were looked at, what comparables were looked at, you know, you have no idea whether that number was baked in any way by the banker, you know, was it skewed by looking at companies that were not necessarily, you know, comparable, did they look at five companies, did they look at ten companies. I mean, what did they look at. What were the actual results -- THE COURT: You typically know -- you knew here -- the names of each of the companies and, therefore -- MR. RIGRODSKY: No, Your Honor. THE COURT: You did not know the names? MR. RIGRODSKY: Did not. THE COURT: All right. MR. RIGRODSKY: And, see, and that's the difference. THE COURT: Well, maybe I'm mistaken on that. MR. RIGRODSKY: Yeah, that's the difference. If you compare Exhibit of our presentation to page of the proxy. THE COURT: Page. Give me one

16 second. MR. RIGRODSKY: That would be the (Inaudible) proxy, D. THE COURT: I have two of these today. So I could be blending them together. MR. RIGRODSKY: It's really Exhibit -- it's Exhibit, page versus Exhibit, which is the, what I'll call again the settlement D-. THE COURT: What page of -- I got the page of the other one. What's the page in Exhibit? MR. RIGRODSKY: Of course -- THE COURT: I think I found it. MR. RIGRODSKY: You see "Selected Public Company Analysis." Does the Court see that on Exhibit? Unfortunately, I don't have the page number. THE COURT: Isn't, like, page of Exhibit showing all the specific companies? It says ESCO, EnerNOC, Itron. MR. RIGRODSKY: Oh, yes, Your Honor. I apologize, you're right. It does show the companies. My apologies. THE COURT: All right. MR. RIGRODSKY: It does, Your Honor.

17 It does. That was my mistake. It does show the companies, but it doesn't actually show you the revenue growth, EBITDA growth, EBITDA margins for each of these companies. THE COURT: I understand that's the -- MR. RIGRODSKY: And that's important because you can list the companies, and I suppose somebody can -- and, again, you're talking about fair summary; but how does one -- how is an investor expected to go back into all the SEC disclosures, to the extent these were public companies, and find the information necessary to make a judgment as to whether these are truly comparables and to see whether any of these companies skewed the results in any way? And I think in this particular case, when you look at the Exhibit -- and, by the way, I should add that they also added for revenue gross the three years, the CAGR. They also added information for that, for EBITDA growth, as well as EBITDA margin. So that was all added in the settlement proxy. But when you look at the settlement proxy and look at some of the numbers, they're fairly dramatic. For example, if you look at EnerNOC

18 and you look at the EBITDA growth, you see a negative.. When you look at RE/MAX, one of the brokerages, again, EBITDA growth, you see. percent. So there is -- we feel like there may have been some skewing of the results here. If you look at PowerSecure International, you see revenue growth of.. So there are some highs and some real lows and some real highs included in this. With this information disclosed, an investor or, frankly, plaintiff's lawyer could look at this and say hmm, is this analysis really worth the paper it's written on; I mean, how material is this. I think a reasonable investor, somebody out there who is looking at the disclosures in Exhibit and sees the mean and median, sees the list of companies, just figures, I don't know, I guess the bankers did a good job and they picked comparables that made sense and, therefore, this makes sense. THE COURT: Is the company specific multiples that were added, putting aside whether it's difficult to do or not, is it publicly available from other sources? MR. RIGRODSKY: The actual multiples?

19 THE COURT: Yeah. Or the data from which you can derive them. MR. RIGRODSKY: I suppose. I suppose it is. I mean, I suppose it is. I guess you could dig it out yourself and do the calculations yourself, I suppose. But, again -- you know, I'm not an M&A lawyer. I don't draft these things, you know. And I guess maybe it's not fair to say what's the harm in disclosing this detailed information and what's the difficulty. Somebody made a decision not to disclose it. Maybe someone said it was immaterial and "I'm not going to disclose it, I'm not going to send things out into the market that may confuse people or cause me to be sued" or there could be, you know, a more, I don't say nefarious reason, but a reason why we don't want people looking at these numbers because it may look -- our deal look unfair. We looked at these disclosures, and there were some exemplars that made us think maybe these results were skewed somewhat. But more importantly, you know, in going back to -- let's go back to the multiples in the disclosures here, when you look at the actual results here, you know, you come up with a -- and we said this in our briefs --

20 the multiples that were applied by Duff & Phelps were, you know, sort of midrange of what is disclosed here. And when you have the addition of the information, we now have an additional year's information to make an assessment as to where this company is going. So you have ', ', and '. And given ' shows basically, I think we calculated about percent EBITDA growth, growth rate, we think that it caused us some doubt as to whether the multiples that were applied by Duff & Phelps were too low, that we think multiples may have been higher. So, again, materiality is the addition of an additional year, the information, as disclosed in some of the proxy, gives us, gives the shareholder to say "We actually think this potentially, higher growth, more value and that the multiples are questionable." So, again, that goes to the ultimate issue of materiality in a deal cash-out case, which is the fairness of the consideration. And I apologize to the Court. I mean, our brief -- you know, preparing for the argument, our brief does lay this argument out, but I don't want the Court to think that we're just taking the position

21 that we got free cash flow or we got these multiples; therefore, it's material and we win. It was a lot more thoughtful than that. Last but not least, I suppose, there was some mooted disclosures regarding the potential conflicts of Canaccord. This is one of the issues that the Court granted expedited discovery on. And, you know, between me and Mr. Long, we spent about, hours deposing two witnesses going back and forth, up and down on the conflict issue. And I guess, unfortunately, for our case, while we took a litigation position in our PI brief, we didn't necessarily see there was a conflict. I mean, that was really the Revlon claim, that was Canaccord somehow doing some work for EnerNOC and, therefore, beholden to EnerNOC and, therefore, not actually acting in the fairest ways. The testimony turns out was that I guess the counsel for the special committee and the board decided that given these indications of interest and discussions between EnerNOC and Canaccord, it would make sense to bring in Duff & Phelps to do an independent evaluation and fairness opinion. And Canaccord was allowed to run the go-shop, which was

22 robust. It lasted 0 -- it was days. I think they contacted 0 -- I think they contacted The go-shop, I think they contacted 0 parties. 0 declined to engage in discussions. requested nondisclosure agreements. One executed an agreement, and there were no indications of interest. And the witnesses were asked that at the depositions. As far as the process claims go, we satisfied ourselves on the conflict issue. But there were these disclosures regarding the fees that Canaccord received in connection with EnerNOC's initial public offering as well as secondary tertiary offerings. And the Court did say on page of the motion to expedite transcript -- Exhibit -- that additional information was provided with regard to these disclosures. We take credit for that. THE COURT: If I recall correctly in that, though -- again, I got two of these today. So I could be mixing things up -- but the amounts that were paid to Canaccord had previously been disclosed in other filings; right? But -- MR. RIGRODSKY: They had been, that's right, Your Honor. But, again -- THE COURT: Right.

23 MR. RIGRODSKY: -- you know, it's why not put it in the proxy, you know, where people can read it? You know, I guess, again, is the standard shareholders have to go out and pick through -- you know, these offerings occurred in 0, 0. I mean, the deal happened in. Do you have to go back seven years and dig through proxies? I don't think that's -- or S-s. I don't think that's what the law requires. So in conclusion, Your Honor, this was a, I think, frankly, call it what you will, a model for how one of these cases should go. We identified very discrete issues, disclosure issues. Defendants said, "No way. We're going to fight you." We fought them very hard. We took real depositions. We did real discovery. We had a lovely pre-christmastime between, you know, Thanksgiving and Christmas, but hey, that's on us. And, at the end of the day, we achieved the very result that we set out. And we do believe that if we had gone to a preliminary injunction hearing, I think we would have had a very strong chance of winning an injunction. So, at the end of the day, we got what we wanted. With the Court's permission, I'd like

24 to just briefly touch on the fee. THE COURT: Sure. MR. RIGRODSKY: Basically, Your Honor -- the Court's obviously aware of the precedents of the Court -- $00,000, which is inclusive of about $,000 in expenses, most of which are copying and experts -- THE COURT: How much was on your expert? MR. RIGRODSKY: Excuse me? THE COURT: How much did you pay for the expert? MR. RIGRODSKY: I don't have that information in front of me, Your Honor. THE COURT: All right. MR. RIGRODSKY: But I can get that to you. Out of hours expended, were pre-mou and, by our calculations, that works out to about $0 an hour. And, you know, commentary on today's state of the law, I think that's a fairly modest hourly rate, especially for contingent litigation. So if Sauer-Danfoss is the law or is

25 not the law or guidepost or something, we think that $00,000, inclusive of the $,000 in expenses, is inherently reasonable, given the vigor in which we prosecuted the case and the results that we achieved for the class. THE COURT: Should it be relevant to me or not that, like, a $00,000 fee request equates to essentially 0 basis points of the whole deal, four-tenths of a percent of a, $ million deal? Should that matter to me? MR. RIGRODSKY: You know, I don't think it should because I think that, you know... You know, I learned from -- I was at the Cox hearing. You know, I was there that fateful day with Arthur Abbey. And, you know, his first argument was "Well, you know, it's a $ million fee that we're asking for, but, you know, it's a whatever billion-dollar deal. So, you know, who cares." The thing is the scale goes back and forth. You know, with a -- I think the Court shouldn't necessarily look at the size of the deal. I think it should look at the benefit, the value of the benefit that's achieved. I mean, I understand the Court's reasoning in the prior decisions about, you

26 know, nondisclosure agreements and things of this sort because they were highly material disclosures that I think are of substantial value to shareholders. And I think what the Court can look at is not necessarily the fee versus deal price, but maybe the real test -- and I still think the real test is real world, like what are -- what are the attorneys getting paid for prosecuting these claims? I mean, it's not -- I think in the Cox case, I think it was the math worked out to, like, $,000 an hour or something like that, I mean, some incredible number, which was then cut down substantially. I mean, 0 an hour on a contingent case that was litigated hard, I think that merits the relief here. Again, the size of the deal is something that I think the defendants really have to consider and have to negotiate. This is their negotiating point. You know, they have their deal. They know what the precedents are. They could have said to us -- don't forget -- again, this is -- these folks over here gave us a tough time. So if these defendants thought that the fee was too rich, they could have said "Go apply for your fee," and we would have applied for a fee.

27 So they made the business decision that the $00,000 was reasonable not only in light of the other precedents of the Court but also, you know, reasonable in terms of the deal price. So I think -- and I know the Court has moved away very much from the notion of respecting the bargain of the parties in terms of deference; but this is a situation where the fee is so modest, the negotiations were so arm's length, the litigation was so acrimonious, the defendants' willingness to pay the 00,000, in addition to an hourly rate that worked out, makes this a fair and reasonable request for a fee. THE COURT: Just one last question. What was, if you know, the percentage of shareholders that approved the deal? MR. RIGRODSKY: I do. percent tendered. And, you know, Your Honor, I just -- maybe I'm getting myself -- THE COURT: Remind me. Was this tender followed by a merger? MR. RIGRODSKY: Yes. Yeah. THE COURT: All right. MR. RIGRODSKY: And they worked out

28 the extra one percent and got the deal done. I believe percent was -- or / percent -- I think that's the right number -- were a part of voting agreements by members of management, but they -- there's no employment agreements that were entered into post deal. I just want to maybe address this and maybe this is my opportunity to do this. You know, obviously as a member of the plaintiffs' bar, very much aware of some of the transcripts and the recent Riverbed situation and the position of the objectors in that case. The materiality standard is an objective standard. And I think if the Court starts going into, you know -- first of all, I don't -- and I can spend an hour going into the merits of trying to prove that the disclosure didn't change the way people voted. I mean, that's law and economics, which I don't think has any place in a court of equity. And I'm not sure I agree with the methodology trying to apply a so-called, you know, empirical scientific method to something that's inherently not scientific or empirical. But, at the end of the day, the standard is materiality, which is an objective

29 standard. If the Court starts looking at how people voted, which I think implicates the subjective views of the shareholders, a subjective test, did you rely on the disclosure, did you vote in favor of the deal, then you're getting away from what materiality is. Materiality is an objective standard. It's something that courts in this state have dealt with for 0, 0 years. They know what materiality is. They know what materiality is. Whether a disclosure moves the needle one way or the other I think is, frankly, totally irrelevant to this kind of situation. THE COURT: Well, let me ask you about that. I mean, some kinds of disclosures are you could categorize them as, like, negative information. MR. RIGRODSKY: Uh-huh. THE COURT: Negative in the sense of if forced to disclose X, Y, and Z fact -- MR. RIGRODSKY: Uh-huh. THE COURT: -- one would think that wow, shareholders wouldn't be so high on a deal. MR. RIGRODSKY: Uh-huh. THE COURT: And yet notwithstanding -- I'm not saying that applies to this case but in the abstract.

30 0 MR. RIGRODSKY: Uh-huh. THE COURT: Notwithstanding the fact that X, Y, and Z negative facts are disclosed, percent of the shareholders accept the deal. MR. RIGRODSKY: Right. THE COURT: That does seem to negate the X, Y, and Z facts were all that important in the first place, doesn't it? MR. RIGRODSKY: I don't think it does because there are so many other factors that shareholders rely on in making decisions whether to tender their shares or not. I mean, how many -- I mean, you go and poll everybody and say "Did you" -- you could say to somebody "Okay, I read those disclosures and I feel like the price was light, but I need the money" or "I don't think a better deal is going to come along at some point" or "I'm a hedge fund and I'm just basically in it for a quick buck." I mean, there's so many other reasons why someone might vote or tender in favor of a deal other than the disclosures. So I think it's wrong to just take one look at the disclosure and say "Aha, you know, people didn't change their minds, so that's what it is. It's

31 all about the disclosure." I mean, I'm not sure I'd buy that as a proper analysis and way of looking at these cases. THE COURT: I did have one other question for you, which is -- and, again, this is maybe a bit abstract, but I have growing concerns about the scope of releases -- MR. RIGRODSKY: Uh-huh. THE COURT: -- that are provided in these cases, all the unknown claims. This release, does it include regulatory claims? MR. RIGRODSKY: It does. Let me address that, Your Honor. I'm prepared to speak about that. I think the breadth of the release in this particular case is a bit of a red herring. First of all, the releases, they are broad. I'm not going to dispute that they're broad. But they release claims members of the class -- these are holders of, I think, let's see, November th,, through January th,, in their capacity as a World Energy stockholder. There's nothing special about this release that's different from releases the Court's approved in the past.

32 But when we negotiated with defendants and we looked at the scope of the release, you know, from our perspective -- defendants have their perspective, obviously. You're an M&A attorney and you've got litigation and you want as much as you possibly can. You want to dot your Is and cross your Ts. Even a first-year, you know, M&A or litigation associate at one of these firms would have serious problems if they agreed to a very narrow set of release. They want as broad as possible. THE COURT: Oh, I'm quite sure they do. MR. RIGRODSKY: The question is what do we do about it, what are we willing to give up. And, frankly, we feel that, given the scope of the release in this case, we didn't up anything. The Court has already said in the motion to expedite you didn't see any Revlon claims here except for the conflict issue. So there's no Revlon claim. Also, let me back up. It's a cash-out merger. There's no continuing fiduciary duties, okay. We're not really seeing claims of the buyers, stockholders of any of them in their capacity as

33 shareholders of that company. There's no possible derivative case because the derivative claims, any derivative claims would be extinguished. There's no securities fraud claims here. We found no evidence of fraud on the record. There's no stock drop. There's no -- THE COURT: Here, let me stop you there. See, it's the unknown stuff, right. So let's assume these projections that, you know, you yourself think are pretty important here, you got additional years added and you got the cash flow numbers. But let's assume they were just bait. MR. RIGRODSKY: Uh-huh. THE COURT: Say they're just false. MR. RIGRODSKY: Uh-huh. THE COURT: Is somebody -- and the cash flows are double. MR. RIGRODSKY: Uh-huh. THE COURT: Is somebody knocked out from bringing that claim down the road? MR. RIGRODSKY: No. THE COURT: It's an unknown claim. MR. RIGRODSKY: Well, you know, you're -- so here's -- so what we're talking here,

34 we're talking about a hypothetical claim based upon hypothetical undisclosed facts that somehow were hidden to us after we reviewed the bankers' books, deposed the bankers -- THE COURT: Uh-huh. MR. RIGRODSKY: -- deposed the chairman of the committee; somehow it was kept secret from us; you know, it was in a locker somewhere, they didn't produce documents, and things like that. So the question is a hypothetical unknown claim that's been brought by another hypothetical plaintiff sometime in the future within the statute of limitations. Let me just add, in this case obviously there are no other securities -- no other cases pending. THE COURT: Right. MR. RIGRODSKY: No cases have been filed in the interim. There's no securities fraud cases. There's nothing out there. So I think that there's some hurdles that have to be overcome. First, the complaint would be fashioned on these newly discovered facts, to the extent they ever were disclosed. Okay, let's say a whistleblower came out and they were disclosed. So

35 that's No.. No., a plaintiff would then have to bring that claim. No. defendants would then have to try to use the release in this case offensively on res judicata/estoppel grounds. And, then, fourth, you would have to persuade a court that that release is there. I think given the work that was done in this case and given the scope of the discovery that we took -- you know, we nibbled around the edges, and the Court gave us very narrow discovery, but we nibbled, or maybe we gulped, I don't know -- I would say that I would think that the Court, if the case was brought in this court, the Court would say to defendants, you know, "I'm not convinced that collateral estoppel or res judicata applies because you committed a fraud. You deceived the shareholders. You deceived the Court. You did not act in good faith and, therefore, the release is not a bar to a subsequent lawsuit." THE COURT: Well, why can't the release be drafted to known claims to prevent that? MR. RIGRODSKY: I mean, I think

36 hypothetically, yeah, I think a release could be drafted to do that. I think that's possible. I think the difference here -- and that's possible. In the abstract, yes, I think that's possible. But here, from our perspective, we didn't give anything up. There's nothing. We didn't give anything up in the release. There's nothing. Defendants say we wanted it for belts and suspenders. We say "Okay, in return for the disclosures that we're going to get for the settlement, we'll give it to you because for us, it's nothing." We investigated the facts. There are no claims. I mean, again, if there's an unknown claim that comes up and arises out of these facts brought by somebody in their capacity as a shareholder of this company, then the only way that's possible is if they committed fraud and if they did commit fraud and withheld -- I mean, not just fraud in general to the market but fraud to the Court and fraud in the sense of not complying with their good faith obligations to produce relevant documents and information to us, then this court would never, in my opinion, ever enforce a release or settlement offensively in a case like that. So in this particular case, where

37 there has been very, very contentious discovery and investigation of the facts in an adversarial setting, I can say with utmost confidence that when I gave that release, I gave up absolutely nothing. THE COURT: All right. Thank you, Mr. Rigrodsky. MR. RIGRODSKY: Thank you, Your Honor. THE COURT: And, please, defendants, those were abstract questions at the end. No one is casting aspersions on what happened. Mr. Nachbar or anybody on the defense side, do you have anything you want to add? MR. NACHBAR: I don't think so, Your Honor. I think Mr. Rigrodsky summarized it very well. I think his brief does as well. THE COURT: All right. Thanks. It's a more well-attended settlement hearing than usual. I suspect there's some interest outside of this case. Before I go into this case a little bit, let me just say, I mean, it should be pretty clear from some of the questions I'm asking and some of the recent hearings that have been occurring that there is a lot of concern in this court about nonmonetary settlements. I mean, the facts are

38 obvious. Every deal basically is the subject of litigation. Litigants are often self-expediting cases without even going through a motion and conveniently reaching disclosure settlements on a repeated pattern, like shortly before a PI would occur. It just can't be that there are meaningful disclosure violations in every single M&A case that's being filed in this court. And I think there's a lot of concern that a lot of the stuff that has been occurring historically is very fluffy. And so everybody would be well-advised to make sure you have got something real before you package one of these up and bring it in to the Court. But I'm going to turn to today's case at hand. There are three things I need to do, which are: one, decide about class certification; two, decide whether the settlement should be approved; and, three, consider an application for attorneys' fees. Class certification is simple in this case for me. I have to go through the (a) factors and the (b) factors. I'll do so quickly. On the issue of numerosity, there are approximately. million shares of common stock

39 outstanding, as I understand it, in terms of the universe. It's certainly reasonable to infer from that there are hundreds -- if potentially not thousands, maybe more in the hundreds -- of actual individual shareholders underlying all of that. It would be impracticable for that number of people to separately litigate these claims. On the issue of commonality, the fundamental underlying issues here are breach of fiduciary duty, primarily dealing with the sales process and/or the disclosures associated with the sales process. And that certainly is the kind of conduct that would have the same kind of potential for injury to all the stockholders equivalently. On typicality, there's been no conflict or uniqueness identified with respect to the plaintiff in this case, the representative plaintiff or plaintiffs. I guess we have one, Mr. Assad. And, therefore, I have no basis to think he wouldn't be similarly situated to all the other members of the proposed class. And on the adequacy of representation issue, again, there's been nothing identified about this particular plaintiff that would cause concern,

40 0 that he can't be an appropriate plaintiff. And the counsel involved representing the class certainly is experienced in handling cases of this nature. So all the (a) factors are met. And in terms of the (b)() and (b)() factors, it is fairly routine at this point. This court will certify classes of this nature under those rules. And for all those reasons, I think the Rule requirements are met and the class will be certified. On the settlement, there is going to be more scrutiny on some of the give and the get of these things. You know, it is definitely of concern that we are being asked to approve very broad releases that I have no doubt people will argue have the very literal broad application they have down the road. I'm talking about defendants or anybody who's the beneficiary of such a release, if anybody tried to relitigate anything that, arguably, in any way fell within the parameters of the words of the release. And they are excruciatingly broad. I looked at this one, and the one this afternoon has a similar dynamic to it. Arguably, it would encompass regulatory claims. I guess to the

41 extent there were private right of actions, members of the class would have to bring them. Not clear to me. I would be willing to wager nobody in the depositions probed those issues about whether there are any such claims in this case. Private right of action of Hart-Scott-Rodino, the Sherman Act, the Clayton Act, would somebody argue down the road that maybe that's encompassed within these releases? These are all theoretical arguments that are out there that give concern. The unknown claims are great concerns as well. And I know that these releases have been approved routinely in the past, but that is a great concern, and it has to be balanced against the real consideration that's been received for the release. In this circumstance, I think there is sufficient consideration to support a settlement. I'm going to approve the settlement. The key benefit, in my view, is the first disclosure that I discussed with Mr. Rigrodsky, which is getting the three outlier years in what I understand to be the discrete period that was used in the DCF model, as well as getting the actual cash flows. I think that's a meaningful benefit. I'm not saying it's, per se, something that

42 must be disclosed. This is a case-by-case analysis, but I think that's meaningful information in this case. I, frankly, would not have approved the settlement without that disclosure being in this case. I wouldn't have approved it based on the additional disclosure concerning Mr. Sheridan. I didn't think that was particularly material. I wouldn't have approved it based on the individual comparable companies multiples in the comparable companies analysis, as well as in the precedent transaction analysis. That, in my view, would not have been sufficient to support a settlement. But I do think that the additional information concerning the projections is sufficient to support a settlement. And I will approve it on that basis as being fair and reasonable, saying I would much rather have preferred to have a more tailored release than the kind of release that exists here; but I think consistent with how we've dealt with this, so far, based on the kind of disclosures that were made, it's an appropriate settlement. On the fee application, the key issue is the benefit achieved under the Sugarland factors.

43 I've already referenced what I think the key benefit is. The award that's sought I think is reasonable under the circumstances, and I'm going to order the full amount sought. That's 00,000, as I understand it, inclusive of expenses. The lack of opposition is somewhat meaningful in this case. I know that there was pretty full-throated opposition to expedition of the case in the first place. I have no doubt it was a hard-fought battle in that regard, and my guess is it was probably hard fought in terms of what amount the defendants would agree to because it is a meaningful amount relative to the overall deal that's at play here. It's not a multibillion-dollar transaction. And so I'm not going to nickel-and-dime the fee award. I think it's fair under the circumstances and, really, because of the first disclosure, which really is the projections. And on the cross-check to the hours and the hourly rate that works out to, it falls in a reasonable range. So for all those reasons, the class is certified. The settlement's approved, and the fee application will be granted in the amount that's been

44 sought. I probably have this on File & Serve, I guess the order, or is somebody going to give me an order? THE COURT CLERK: I put it on the bench. THE COURT: It's up here? I don't know who handed this up. MR. RIGRODSKY: I did, Your Honor. THE COURT: But has this been viewed by everybody? MR. RIGRODSKY: It's the version I filed, but we could... MR. NACHBAR: If it's the version that's filed, we're fine with it. THE COURT: Well, I'm not going to audit it. MR. NACHBAR: No. I understand. We'll look at it. I'm sure there's not a problem. If there is, we'll let Your Honor know immediately. THE COURT: All right. So give me a second here. The second blank in here, can somebody tell me what the date of the scheduling order was?

45 MR. BRACEGIRDLE: June th, Your Honor. THE COURT: Thank you. All right. I've entered it. I'm going to hand it to the court clerk, and she will take care of having it filed on the LexisNexis system. And thank you, Mr. Rigrodsky, for answering some questions that may have been a little more off the beaten path, but it's an area of great interest to me. And I thank everybody for their attendance. MR. RIGRODSKY: Thank you, Your Honor. (Court adjourned at : a.m.) - - -

46 CERTIFICATE I, NEITH D. ECKER, Chief Realtime 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 that the foregoing pages numbered through contain a true and correct transcription of the proceedings as stenographically reported by me at the hearing in the above cause before the Chancellor of the State of Delaware, on the date therein indicated, except for the rulings at pages through, which were revised by the Chancellor. IN WITNESS WHEREOF I have hereunto set my hand at Wilmington, this th day of August. /s/ Neith D. Ecker Chief Realtime Court Reporter Registered Diplomate Reporter Certified Realtime Reporter Delaware Notary Public