1 IN THE COURT OF CHANCERY OF THE STATE OF...

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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 : Civil Action : No. 10324-CB 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. :

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Chancery Courtroom No. 12A New Castle County Courthouse 500 North King Street Wilmington, Delaware Thursday, August 20, 2015 10:09 a.m.

- - - BEFORE: HON. ANDRE G. BOUCHARD, Chancellor. - - -

SETTLEMENT HEARING and RULINGS OF THE COURT

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------------------------------------------------------ CHANCERY COURT REPORTERS

New Castle County Courthouse 500 North King Street - Suite 11400

Wilmington, Delaware 19801 (302) 255-0524

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CHANCERY COURT REPORTERS

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

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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.

10324-CB, the settlement of a class action challenging

the acquisition of World Energy by EnerNOC in a tender

offer merger at the price of 5.50 a share. The tender

offer expired on January 2nd, 2015.

The Court entered a modified

scheduling order on June 16th, 2015, scheduling the

hearing for today at 10 o'clock. On or about

July 1st, 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 $300,000.

The notice informed shareholders of

the right to appear today and object. The objections

were due 10 business days before today's hearing which

I calculated to be August 6th. As of today, this

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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

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10-day period reviewed over 10,000 -- between 12,000

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,

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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.

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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

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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 30 percent discount rate to the period

leading up to the terminal period, then apparently

applied a 14 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

14 percent number and said we're just going to run the

14 percent discount rate throughout the entire period.

We're going to shuck the 30 percent. And the results

that we achieved here were fairly interesting. But we

saw a -- when you run the 14.25 percent discount rate,

uniform discount rate, you wind up with -- you

increase the value of the company from 6.3 million to

17.1 million; and with regard to the enhanced broker

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portal initiative base in overlay, we see the value

increasing from 15.7 million to approximately 14 --

41.7 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 $73 million.

MR. RIGRODSKY: $72 million, something

like that. $72 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 30 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

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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

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period -- well --

THE COURT: Did they run for, like,

all 10 years, like --

MR. RIGRODSKY: It's 2000 --

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 2021 through 2023.

THE COURT: Okay.

MR. RIGRODSKY: And then in connection

with the enhanced broker portal initiative, it's 2019

through -- I'm sorry. It's the same -- it's 2000 to

2023; but the new disclosures involve the period 2019

through 2023.

THE COURT: All right. So even though

their model was going through to 2023 --

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

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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: 2023.

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 3 percent.

THE COURT: Okay. Was that previously

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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 14D-9, you look at the

settlement 14D-9, there are huge differences. The

original 14D-9 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

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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

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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.


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 1 of our

presentation to page 29 of the proxy.

THE COURT: Page 29. Give me one

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second.

MR. RIGRODSKY: That would be the

(Inaudible) proxy, D9.

THE COURT: I have two of these today.

So I could be blending them together.

MR. RIGRODSKY: It's really Exhibit --

it's Exhibit 1, page 29 versus Exhibit 7, which is

the, what I'll call again the settlement 14D-9.

THE COURT: What page of -- I got the

page of the other one. What's the page in Exhibit 7?

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 7? Unfortunately, I don't have the page

number.

THE COURT: Isn't, like, page 28 of

Exhibit 1 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.


MR. RIGRODSKY: It does, Your Honor.

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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 7 -- and, by the way, I

should add that they also added for revenue gross the

three years, the CAGR. They also added 2016

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

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and you look at the 2016 EBITDA growth, you see a

negative 23.2. When you look at RE/MAX, one of the

brokerages, again 2016, EBITDA growth, you see

8.1 percent. So there is -- we feel like there may

have been some skewing of the results here. If you

look at PowerSecure International 2016, you see

revenue growth of 73.3.

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 1 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?

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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 --

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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 2016

information, we now have an additional year's

information to make an assessment as to where this

company is going.

So you have '14, '15, and '16. And

given '16 shows basically, I think we calculated about

25 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 2016 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

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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 18,

19 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

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robust. It lasted 50 -- it was 55 days. I think they

contacted 50 -- I think they contacted 50 ... 55. The

go-shop, I think they contacted 90 parties. 80

declined to engage in discussions. 7 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 41 of the

motion to expedite transcript -- Exhibit 6 -- 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.

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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 2007, 2009. I mean,

the deal happened in 2014. Do you have to go back

seven years and dig through proxies? I don't think

that's -- or S-1s. 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

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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 -- $300,000, which is inclusive of about

$28,000 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.


MR. RIGRODSKY: But I can get that to

you.

Out of 646 hours expended, 527 were

pre-MOU and, by our calculations, that works out to

about $550 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

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not the law or guidepost or something, we think that

$300,000, inclusive of the $28,000 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 $300,000 fee request equates

to essentially 40 basis points of the whole deal,

four-tenths of a percent of a 72, $73 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 $5 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

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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, $2,000 an hour or

something like that, I mean, some incredible number,

which was then cut down substantially. I mean, 550 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.

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So they made the business decision

that the $300,000 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

300,000, 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. 89 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.


MR. RIGRODSKY: And they worked out

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the extra one percent and got the deal done. I

believe 4 percent was -- or 4 1/2 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

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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 40, 50

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 --


THE COURT: -- one would think that

wow, shareholders wouldn't be so high on a deal.


THE COURT: And yet notwithstanding --

I'm not saying that applies to this case but in the

abstract.

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THE COURT: Notwithstanding the fact

that X, Y, and Z negative facts are disclosed,

99 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

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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 --


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 4th,

2014, through January 5th, 2015, 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.

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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

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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.


THE COURT: Say they're just false.


THE COURT: Is somebody -- and the

cash flows are double.


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,

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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

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that's No. 1.

No. 2, a plaintiff would then have to

bring that claim.

No. 3 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

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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

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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

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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 23(a) factors

and the 23(b) factors. I'll do so quickly.

On the issue of numerosity, there are

approximately 12.7 million shares of common stock

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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,

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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 23(a) factors are met.

And in terms of the 23(b)(1) and

(b)(2) 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 23 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

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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

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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.

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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 300,000, 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

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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?

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MR. BRACEGIRDLE: June 16th, 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 10:58 a.m.)

- - -

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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 3

through 45 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 37 through

45, which were revised by the Chancellor.

IN WITNESS WHEREOF I have hereunto set

my hand at Wilmington, this 26th day of August 2015.

/s/ Neith D. Ecker --------------------------------- Chief Realtime Court Reporter Registered Diplomate Reporter Certified Realtime Reporter Delaware Notary Public

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1 IN THE COURT OF CHANCERY OF THE STATE OF...

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