1

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE ART TECHNOLOGY GROUP, INC. : Consolidated SHAREHOLDERS LITIGATION : Civil Action : No. 5955-VCL - - -

Chancery Courtroom No. 12C New Castle County Courthouse 500 North King Street Wilmington, Delaware Monday, December 20, 2010 2:30 p.m.

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BEFORE: HON. J. TRAVIS LASTER, Vice Chancellor.

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RULINGS OF THE COURT FROM ORAL ARGUMENT ON PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION

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------CHANCERY COURT REPORTERS New Castle County Courthouse 500 North King Street - Suite 11400 Wilmington, Delaware 19801 (302) 255-0524 2

1 APPEARANCES:

2 CARMELLA P. KEENER, ESQ. Rosenthal, Monhait & Goddess, P.A. 3 -and- GINA M. SERRA, ESQ. 4 Rigrodsky & Long, P.A. -and- 5 KIRA GERMAN, ESQ. of the New Jersey Bar 6 Gardy & Notis, LLP -and- 7 JOSEPH RUSELLO, ESQ. MARK S. REICH, ESQ. 8 of the New York Bar Robbins Geller Rudman & Dowd LLP 9 -and- LOREN R. UNGAR, ESQ. 10 of the Pennsylvania Bar The Weiser Law Firm, P.C. 11 for Plaintiffs

12 ROBERT S. SAUNDERS, ESQ. STEPHEN D. DARGITZ, ESQ. 13 ELISA M. CANNIZZARO, ESQ. Skadden, Arps, Slate, Meagher & Flom LLP 14 for Defendants Art Technology Group, Inc., Daniel C. Regis, Robert D. Burke, Michael A. 15 Brochu, David B. Elsbree, John Robert Held, Gregory W. Hughes, Mary Makela, Phyllis S. 16 Swersky, and Ilene H. Lang

17 KENNETH J. NACHBAR, ESQ. JOHN P. DiTOMO, ESQ. 18 S. MICHAEL SIRKIN, ESQ. Morris, Nichols, Arsht & Tunnell LLP 19 for Defendants Oracle Corporation and Amsterdam Acquisition Sub Corporation 20 - - - 21

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CHANCERY COURT REPORTERS 3

1 oOo

2 THE COURT: Well, all right. I

3 thought about this during the recess and where I am on

4 it. I'm going to give you something in writing, but

5 because of the timing, I'm going to go ahead and tell

6 you.

7 I just can't get comfortable with the

8 Morgan Stanley issue, I really can't. I understand

9 the arguments that Mr. Saunders and Mr. Nachbar have

10 raised. They were very well argued, but I do think

11 that given the nature of the disclosure already in the

12 proxy statement, given the magnitude of the fees on

13 the Oracle side, there needs to be supplemental

14 disclosure of that. And I have thought about the

15 injunction risk and the balancing of the equities and

16 have taken into account those issues as well. But

17 because I do think that the Morgan Stanley issue is

18 material, I will be enjoining the vote on the

19 transaction.

20 Now, what I don't have any problem

21 with people doing is convening and adjourning to the

22 extent that is helpful to people who are holding

23 proxies and record dates. I, frankly, didn't think

24 through where you guys are in terms of the 60 days

CHANCERY COURT REPORTERS 4

1 or -- or in terms of the proxy. So to the extent you

2 all want to convene and adjourn in light of that, that

3 is fine with me.

4 I am going to give you something in

5 writing that gives you my thoughts in a more -- I

6 don't know if "eloquent" is the right answer, but at

7 least more detailed fashion on this issue. And I will

8 do that -- I'll try to do it as fast as I can. I

9 can't promise you that it will be tomorrow. It might

10 be later in the week. It will certainly be this week.

11 And in that I will address the amount of time that I

12 think is necessary for the curative disclosure to be

13 out there.

14 In terms of a bond, I am really

15 troubled by this. I think what a lot of Mr. Saunders

16 says makes a lot of sense to me. And I really think

17 there is a lot of reason to wonder whether

18 entrepreneurial plaintiffs really should have a free

19 option to enjoin deals, you know. And I don't know if

20 Guzzetta is supposed to get Chancery judges thinking

21 about that. It does seem to me to be a very

22 distinguishable set of facts and circumstances and

23 really a -- a, you know, radically different order of

24 magnitude in terms of what's going on.

CHANCERY COURT REPORTERS 5

1 I also think that there are

2 differential considerations in play in the deal

3 context, because although Oracle certainly could close

4 immediately -- and I have no reason to disbelieve Mr.

5 Nachbar that's their intent. I'm sure it is their

6 intent. (Continuing) -- you know, that intent could

7 change. The drop-dead date isn't for some time yet.

8 And, you know, part of what stockholders agree to

9 when, in the proxy that was solicited and necessarily

10 the board the board has the power to under Delaware

11 law, is adjourn. So it's not clear to me what

12 expectancy stockholders necessarily have in getting

13 money immediately, such that there should be a large

14 bond on the time-value-of-money basis.

15 So as of today, I'm not prepared to

16 revisit or change this Court's historical practice of

17 not requiring bond in the circumstances, but I'm not

18 intending to announce a rule for all-time. I

19 definitely think it's something that I am thinking

20 about, particularly in the context of the -- of the

21 free option against enjoining deals; but for those

22 reasons, I am not going to condition the injunction on

23 a bond.

24 Now, for Mr. Saunders and Mr. Nachbar,

CHANCERY COURT REPORTERS 6

1 is that sufficient for your purposes, or do you need a

2 one-page order from me saying that the vote on the

3 merger is enjoined and essentially saying that I'm

4 going to provide you with further detail this week?

5 MR. NACHBAR: I think in terms of what

6 Your Honor said -- I'll let Mr. Saunders speak, but I

7 think that's sufficient, provided we can get a copy of

8 the transcript. I'm sure we can at least get the

9 ruling very promptly.

10 The question that I have that's

11 unclear is whether the company, assuming it sends out

12 corrected disclosure and assuming it gives people the

13 full right to revoke, may vote the proxies that it

14 already has, because two-thirds of the stockholders

15 have spoken. And I -- I honestly don't think this is

16 material, so I don't think it's going to change very

17 many people's minds; but, you know, we might be proved

18 wrong. But I think it would be better not to have to

19 start over at Square 1.

20 THE COURT: No. And that's my

21 intention, and that was part of my intention in

22 letting you all convene and adjourn. I think if

23 people have the right to revoke, that's sufficient.

24 Look, it very well could be for a lot of reasons that

CHANCERY COURT REPORTERS 7

1 the vote pretty much stays as it is. But as I say,

2 I -- the Morgan Stanley number, at bottom, seems to me

3 something that could be material, is material to

4 stockholder voting decisions. Some stockholders may

5 look at it and say "We don't care." But it's

6 information that I think, given in this context, they

7 should have.

8 MR. NACHBAR: We understand.

9 THE COURT: Mr. Saunders?

10 MR. SAUNDERS: Yeah. I guess the

11 right to revoke was my first issue. We've nailed that

12 down.

13 My second issue was, I don't know for

14 sure, but I think we'll need to know tomorrow when we

15 have the meeting and adjourn, you know, until when

16 we're going to adjourn.

17 And I -- so I don't know -- I guess I

18 had hypothesized a week. I don't know how quickly we

19 could find out from Your Honor how much time you think

20 the supplemental disclosures need to get out there.

21 THE COURT: Right. Well, look, I

22 mean, I can tell you the range. I think because of

23 the drafting of 251, the notice requirement there,

24 under no circumstances would it be more than 20 days,

CHANCERY COURT REPORTERS 8

1 because given that the statute allows a notice of

2 merger ex ante to be given on 20 days' notice, it

3 doesn't make any sense to me that it would be outside

4 of 20 days.

5 I haven't -- I mean, when I researched

6 this issue before, it seemed to me that there was one

7 tight case -- it might have been Gintel v XTRA --

8 where five days was allowed. That always struck me as

9 a little short. So my expectation would be that I

10 would probably be in the 10 to 15 days' range, and I'm

11 probably going to fall off closer to 10; and if I had

12 to bet, I would bet on 10. And it'll be, you know --

13 part of what I know you have to wait for is

14 clarification from me on exactly how much I'm going to

15 require you all to disclose about the Morgan Stanley

16 fees. But I think 10 days in the market is probably

17 what I'm going to require.

18 MR. SAUNDERS: And then I guess that

19 was my third question, was do we know what we're going

20 to have to disclose, or is that coming in Your Honor's

21 opinion?

22 THE COURT: I think it's going to come

23 in My Honor's -- my opinion. My Honor's. How's that

24 for self-congratulatory?

CHANCERY COURT REPORTERS 9

1 I have to think about that. And there

2 again, to give you some insight into where I'm going,

3 reserving the right to change my mind, I am influenced

4 by the fact that the proxy chose to go back to 2007 in

5 terms of reciting historical facts and that that's

6 when the original Morgan Stanley agreement was entered

7 into. And so were I ruling orally, that would be the

8 amount -- the time period that I'm focused on, and

9 that's what I expect to focus on in my written

10 opinion.

11 MR. SAUNDERS: Would it be helpful,

12 Your Honor -- I mean -- and -- would it be helpful for

13 Your Honor for us to try to reach agreement on it? I

14 mean, obviously the sooner we can get out the

15 supplemental disclosure, the sooner --

16 THE COURT: Mr. Saunders, that would

17 be wonderful. And -- but my -- the fact that I plan

18 to write on this, you know, if you all want to moot

19 that, you know, feel free. What I felt like I needed

20 to do was give you all some explanation for where I'm

21 coming from more eloquently than I thought I could do

22 off-the-cuff here today. And while I don't find any

23 of the other plaintiffs' claims to be material, I also

24 thought that I should go through them and explain why.

CHANCERY COURT REPORTERS 10

1 But if the parties were to reach

2 agreement on a supplemental disclosure that were to

3 cover that period and to let me know about that, that

4 would be fine with me and it would, you know, save

5 what's going to be, you know, some hard work this week

6 for my clerks and me.

7 MR. NACHBAR: Your Honor, I'm pretty

8 confident that we'll be able to reach agreement, with

9 the guidance that Your Honor has given and some of the

10 statements that the plaintiffs have made as to the

11 type of disclosure they're looking for.

12 Again, we don't regard any of this as

13 sensitive or earth-moving. We may be proved wrong,

14 but it's -- it's, at least from our standpoint -- it's

15 obviously the company's disclosure -- but it's --

16 we're not afraid to put facts out there. So my guess

17 is we'll be able to agree on the best way to do that.

18 THE COURT: Well, let's do this, then:

19 We'll -- we've been working. We'll keep working. We

20 won't burn the midnight oil tonight. But, you know,

21 we'll probably have a late dinner, gentlemen. But

22 then if -- if you all can let us know. I mean, my

23 team and I will be working on this tomorrow and the

24 next day. And certainly if you call us up, call

CHANCERY COURT REPORTERS 11

1 chambers up and talk to Kristie and say where you all

2 are, that's fine.

3 Again, in terms of where my head is,

4 I'm thinking about, you know, 10 days in the market.

5 I'm thinking about the same time period covered by the

6 background of the merger section. And those are

7 really -- the Morgan Stanley issue is the only one

8 that bothered me, and I felt like the rest of it were

9 things that were adequately explained.

10 And I should say on the termination

11 fee, I do think that ultimately I don't think the

12 record, as developed, provides a basis for me to

13 provide any more targeted relief along the lines that

14 I was asking Mr. Nachbar and Mr. Saunders about

15 whether there might be some room for.

16 So that's -- that's essentially a

17 preview of what you will get sometime later this week.

18 Yes, sir.

19 MR. RUSELLO: Your Honor, the first

20 thing I wanted to note is that, of course, we will

21 make every effort to work out adequate disclosure; but

22 to the extent the Court has any additional guidance,

23 it would certainly be worthwhile for us.

24 The second is that the 10 days that

CHANCERY COURT REPORTERS 12

1 the Court has in mind presumably would be influenced

2 by the manner in which the disclosures are

3 disseminated to shareholders. In other words, if

4 they're mailed --

5 THE COURT: I'm not going to require

6 mailing. This is going to be a --

7 MR. RUSELLO: Form 8-K, Your Honor?

8 THE COURT: -- a Form 8-K or

9 supplement. The securities jocks can figure out what

10 has to be required there, but I'm not going to require

11 another mailing.

12 MR. RUSELLO: Understood. Thank you,

13 Your Honor.

14 MR. SAUNDERS: Is the -- I apologize,

15 Your Honor. Can I ask another question?

16 THE COURT: Yeah. Look, I -- I

17 actually think it's good to get this stuff hashed out,

18 because I could -- I could give you all a decision,

19 let's say, Wednesday night or the first thing Thursday

20 morning and you all could have all these questions.

21 So, please, Mr. Saunders, you're not disturbing me at

22 all.

23 MR. SAUNDERS: Can we reach agreement

24 on the amount of time as well or --

CHANCERY COURT REPORTERS 13

1 THE COURT: I think 10 days is where

2 I'm headed. And I think it would be difficult to get

3 me less than that. But I think 10 days is the right

4 amount for something like this. You know, something

5 that might be bigger, like if there really had been

6 some price-oriented stuff in the proxy statement about

7 the projections or that type of thing, I might have

8 erred on the side of 15; but for something like this,

9 I think 10 days is where I'm leaning.

10 MR. SAUNDERS: Thank you, Your Honor.

11 THE COURT: All right. And the last

12 thing that I wanted to say to everybody is really just

13 to compliment you on what I thought was a

14 well-presented case and particularly for those of you

15 who aren't in front of me often. You may be wondering

16 well, does he say that to everybody. And I don't.

17 We -- you know, we have a culture where everybody gets

18 a trophy, but I don't believe in everybody gets a

19 trophy. I believe that when you do something good,

20 you ought to be told you do something good. And when

21 you do something less good, you ought to be told you

22 do something less good so that you can do better next

23 time.

24 And there are three things that I

CHANCERY COURT REPORTERS 14

1 really thought were well-done in this case. First of

2 all, as I said before at the scheduling conference, I

3 very much appreciated the responsible approach

4 Mr. Saunders and Mr. Nachbar took to scheduling. I

5 had concern that we were going to be jammed. And so I

6 was very glad to know that they had already undertaken

7 to start the process of making sure this case was

8 presented responsibly.

9 The second thing that I thought was

10 well-done were depositions. I read the depositions

11 and I didn't see any type of, you know, obstructionist

12 objections. The objections were minimal. I think,

13 you know, the only, frankly, eyebrow-raising moment I

14 had was the pound sand answer; but people seemed to

15 drive on over that. Maybe if you called me, I would

16 have said "Look, you know, I get to decide and you can

17 caveat it however you want." But, you know, in terms

18 of fights among counsel, there weren't any. And I

19 think that's a very important part of Delaware

20 practice, that people handle themselves appropriately

21 at deposition. And it was clearly done in this case.

22 And so I appreciate that.

23 And then, finally, I did think that in

24 terms of the briefing, while I empathize with

CHANCERY COURT REPORTERS 15

1 Mr. Saunders and I agree that, you know, you shouldn't

2 be intimating intentional misconduct, I generally

3 thought the briefing was -- was very well-targeted. I

4 thought that the plaintiffs picked their spots. So

5 many times you guys come in and have the laundry list

6 of disclosure issues. And I thought you did a good

7 job here of focusing in on what you really cared about

8 and allowed the defendants to address it.

9 So, as I say, I thought it was a

10 well-presented case. And I don't say that every time.

11 And so I appreciated your all's professionalism and

12 hearing the arguments today.

13 So I will get to work on an opinion.

14 If you guys can alleviate our burden in that regard,

15 certainly just give my chambers a call.

16 Thank you, everyone.

17 We stand in recess.

18 (Court adjourned at 4:53 p.m.)

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CHANCERY COURT REPORTERS 16

1 CERTIFICATE

2

3 I, NEITH D. ECKER, Official Court

4 Reporter for the Court of Chancery of the State of

5 Delaware, do hereby certify that the foregoing pages

6 numbered 3 through 15 contain a true and correct

7 transcription of the rulings as stenographically

8 reported by me at the hearing in the above cause

9 before the Vice Chancellor of the State of Delaware,

10 on the date therein indicated.

11 IN WITNESS WHEREOF I have hereunto set

12 my hand at Wilmington, this 20th day of December 2010.

13

14

15

16 /s/ Neith D. Ecker

17 ------Official Court Reporter 18 of the Chancery Court State of Delaware 19

20

21 Certificate Number: 113-PS Expiration: Permanent 22

23

24

CHANCERY COURT REPORTERS IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MICHAEL STEINHARDT, HERBERT : CHEN, DEREK SHEELER, : STEINHARDT OVERSEAS : MANAGEMENT, L.P. and ILEX : PARTNERS, L.L.C., individually : and on behalf of all others : similarly situated, : : Plaintiffs, : : vs. : Civil Action : No. 5878-VCL ROBERT HOWARD-ANDERSON, : STEVEN KRAUSZ, ROBERT ABBOTT, : ROBERT BYLIN, THOMAS PARDUN, : BRIAN STROM, ALBERT MOYER and : OCCAM NETWORKS, INC., : : Defendants. :

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Chancery Courtroom 12B New Castle County Courthouse Wilmington, Delaware Monday, January 24, 2011 10:00 a.m.

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BEFORE: HON. J. TRAVIS LASTER, VICE CHANCELLOR.

- - - RULING OF THE COURT PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION

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CHANCERY COURT REPORTERS 500 North King Street - Suite 11400 Wilmington, Delaware 19801-3759 (302) 255-0525 2

1 APPEARANCES:

2 ROBERT J. KATZENSTEIN, ESQ. 3 DAVID A. JENKINS, ESQ. STEPHANIE S. HABELOW, ESQ. 4 Smith, Katzenstein & Jenkins LLP -and- 5 MICHAEL H. ROSNER, ESQ. of the New York bar 6 Levi & Korsinsky, LLP for Plaintiffs 7

8 PETER J. WALSH, JR., ESQ. 9 RYAN W. BROWNING, ESQ. Potter, Anderson & Corroon 10 -and- JEROME F. BIRN, JR., ESQ. 11 IGNACIO E. SALCEDA, ESQ. CLAY BASSER-WALL, ESQ. 12 of the California bar Wilson Sonsini Goodrich & Rosati, P.C. 13 for Defendants

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CHANCERY COURT REPORTERS 3

1 ***

2 (At this time a recess was taken until

3 12:00 noon)

4 THE COURT: Thank you all for giving

5 me a chance to collect my thoughts. I have thought

6 about writing on this; in particular the enhanced

7 scrutiny trigger, as something that I think somebody,

8 at some point, probably several of us at some point,

9 are going to have to do more work on.

10 But in honor of the name of the target

11 company, I thought the simplest thing to do was to

12 give you an answer right away. So here is what I am

13 going to do.

14 There are two theories on which the

15 injunctions have been sought: Process and disclosure.

16 I am going to deny the injunction based on process. I

17 am going to grant a limited injunction based on

18 disclosure.

19 First, on process. There was a lot of

20 debate in the briefing over whether this was an

21 enhanced scrutiny transaction or business judgment

22 rule analysis. This is a deal where the consideration

23 was approximately 50 percent cash floating based on

24 the market price. It was priced as up to 19.9 percent

CHANCERY COURT REPORTERS 4

1 of the acquirer's share plus enough cash to make the

2 total value number.

3 But the problem is it actually doesn't

4 receive the 19.9 because of their employee options and

5 awards that are rolling, and so the public will end up

6 holding approximately 15 percent of the post-

7 transaction entity after the fact.

8 We tend to focus, in our juris

9 prudence, on change of control and the change of

10 control test. So there was a lot of debate over

11 whether this, in fact, was sufficient cash to merit a

12 change of control. I think what people need to

13 remember is that the change of control test is

14 ultimately a derivative test.

15 The point is that when enhanced

16 scrutiny applies is when you have a final stage

17 transaction. The reason enhanced scrutiny applies to

18 a change of control is because it's a constructive

19 final stage transaction. You're giving up control to

20 a person who could then cash you out because he's the

21 new controller.

22 This is a situation where the target

23 stockholders are in the end stage in terms of their

24 interest in Occam. This is the only chance they have

CHANCERY COURT REPORTERS 5

1 to have their fiduciaries bargain for a premium for

2 their shares as the holders of equity interests in

3 that entity.

4 It's easy to see here in two ways.

5 First, it's easy to see in terms of the amount of

6 cash. If you want more cash for your shares, this is

7 the only time you have to get it. But it's also easy

8 to see in terms of the amount of interest you're going

9 to have in the post-transaction entity.

10 We often talk about, oh, well, but the

11 stockholders can get a future control premium. That's

12 all well and good for the future entity, but what

13 you're bargaining over now is how much of that future

14 premium you're going to get.

15 So let's say that Calix is some day

16 sold, and let's all hope that it does very well and

17 becomes an attractive acquisition target, and that one

18 of the big boys picks it up at some point for a

19 healthy premium.

20 The target stockholders today are

21 bargaining for what their share of that premium will

22 be. They're going to only get 15 percent, and

23 obviously there could be more acquisitions that dilute

24 everybody, et cetera. I get that.

CHANCERY COURT REPORTERS 6

1 But as between the Calix stockholders

2 and the Occam stockholders, now is the time; when the

3 target fiduciaries are bargaining for how much of that

4 future control premium their folks will get. This is

5 it. This is the end. This is the only opportunity

6 where you can depend upon your fiduciaries to maximize

7 your share of that value.

8 I think back in 1989, it made sense

9 for people to be worried over the line between Revlon

10 and non-Revlon. It was three years after that

11 landmark case. That case was a Cunian paradigm shift

12 if there ever was one. We had language in there like

13 "auction duty, radically altered state," really

14 seemingly heavy duty stuff.

15 We now know it's a reasonableness

16 standard. There's no single blueprint. A target

17 board doesn't have to take the facially higher cash

18 price. It can consider the strength of the currency.

19 It can take a stock deal if it believes that the stock

20 offers better long-term appreciation and more

21 potential synergies.

22 That's why I said at the outset in

23 this case it's just not worth having the dance on the

24 head of a pin as to whether it's 49 percent cash or

CHANCERY COURT REPORTERS 7

1 51 percent cash or where the line is. This is the

2 only chance that Occam stockholders have to extract a

3 premium, both in the sense of maximizing cash now, and

4 in the sense of maximizing their relative share of the

5 future entity's control premium. This is it.

6 So I think it makes complete sense

7 that you would apply a reasonableness review, enhanced

8 scrutiny to this type of transaction.

9 Now, there are some decisions during

10 the process where one could debate reasonableness;

11 particularly how Adtran was handled and how the July

12 limited market check was conducted.

13 If Adtran, Juniper or a topping bidder

14 were here, you could well think about an injunction,

15 assuming they came in with a materially higher bid and

16 there was a proven reason to show why, or sufficient

17 reason to show why they hadn't shown up earlier or had

18 been shut out of the process.

19 I think it's debatable. I'm not

20 saying that there is a clear reasonableness problem

21 here. The point was made that Adtran is subject to a

22 standstill, but I don't think that's absolute. I

23 think they could have asked to come in. They could

24 now be sent a copy of this ruling, or if they are

CHANCERY COURT REPORTERS 8

1 sufficiently interested in this target to be

2 monitoring things, they will have heard my statement.

3 Frankly, my impression is that they

4 were a cautious acquirer, that they couldn't commit,

5 that they went looking elsewhere, and if I was forced

6 to make a decision today as to that aspect of the

7 process, I think this board acted reasonably and was

8 within the range of reasonableness in preferring to

9 pursue Calix rather than Adtran, both because of

10 Adtran's historic coquettishness in the process, and

11 because this board reasonably could look at Calix and

12 say, "This is the best fit for us, and if we can get a

13 deal that is stock or largely stock, that is a

14 superior currency to cash. We have the two largest

15 players in this market, yes, that creates anti-trust

16 risks we have to bargain over, but this is a

17 transaction that creates a company that then can be a

18 really good player and an attractive acquisition

19 target for one of the big boys on down the road."

20 Frankly, I think that's what the VCs

21 were thinking. I don't know for sure, but I wouldn't

22 be surprised if that was what was on their mind.

23 The only reason that I could think of

24 and that has been argued for why the VCs might have

CHANCERY COURT REPORTERS 9

1 some issue that would not align their interests with

2 those of the stockholders as a whole is if there was

3 some timing problem that they faced; in other words,

4 they had a unique and personal interest that required

5 them to sell now when stockholders, as a whole, in

6 Occam, would have preferred a year later or two years

7 later after some things came to fruition, perhaps

8 after Mercury was in the works, perhaps after the

9 performance of the federal spending was better known.

10 It's really not borne out by the

11 record. You can speculate based on some decisions

12 that were made that maybe there was some personal

13 interest going on here, but it isn't there to a degree

14 that an injunction could be based on, and I think

15 Mr. Jenkins was quite responsible in candidly

16 admitting that fact.

17 Given where we are, therefore, under

18 the present circumstances, with no topping bidder, I

19 think it's up to the stockholders to decide whether

20 this is the price and the mix of consideration that

21 they want for their shares. But they have to be able

22 to do that on a fully informed basis, and that brings

23 me to the disclosure issues.

24 A number of them have been raised. I

CHANCERY COURT REPORTERS 10

1 am going to deal with the ones that I think are most

2 pertinent and in several cases warrant relief. The

3 first is the discussion of the road show and Jefferies

4 analyst's involvement on that. There isn't any

5 evidence of banker conflict at this stage of the

6 proceeding. There isn't any evidence that the wall

7 between the analyst's side and the investment house

8 side was breached at this stage of the proceeding.

9 So I don't think disclosure is

10 required based on a perception or a concern about

11 banker conflict.

12 I also don't think disclosure is

13 required because of any problem at the Occam director

14 level. They appeared to have acted quite responsibly.

15 They were presented with an unforeseen situation. It

16 was certainly something that they didn't like. The

17 VCs had just as much economic interest not to like it

18 as anyone else. And they tried to deal with it. But

19 Calix said no.

20 The only problem I see here is that

21 the impact of the road show did change the mix of the

22 consideration. I do think that right now the proxy

23 has a partial disclosure issue, because while it

24 explains the events, it doesn't explain the impact

CHANCERY COURT REPORTERS 11

1 which the record seems to suggest was a reduction in

2 the cash value of approximately 25 million.

3 Some stockholders might be cash

4 players, and it would be material to them that that

5 happened, and they are now getting less cash than they

6 otherwise would have been.

7 So because there has been partial

8 disclosure of the road show and the road show issue, I

9 will also require the defendants to disclose how it

10 changed the price mix.

11 Now, you don't have to be exact in

12 that. You just have to say what the board knew and

13 describe it in the same manner that it's described in

14 the board presentations. Nobody is expecting you to

15 reach a level of scientific exactitude about the

16 precise impact that this had, but it was presented to

17 the board, it was comprehended at the board level.

18 The order of magnitude I've already mentioned, or at

19 least that's what the record seems to indicate, and so

20 I will require that.

21 The second issue that wasn't discussed

22 this morning, but I think it's another pretty clean

23 partial disclosure, is the accretion/dilution

24 analysis. It's an analysis that was in the final

CHANCERY COURT REPORTERS 12

1 book. It's summarized incompletely and partially in

2 the proxy.

3 You need to give the range. You gave

4 the ranges for all the others, but for some reason, on

5 accretion/dilution, you just said accretive or not

6 accretive. So that's an incomplete summary.

7 Stockholders are entitled to a fair summary.

8 The accretion/dilution analysis was

9 one of the analyses that Jefferies performed in its

10 final book. You need to summarize it accurately and

11 give the same type of range that you have

12 appropriately given in terms of your other analyses.

13 Third, Mr. Pardun. The record

14 reflects that there is an agreement in principle that

15 he will be the director on the surviving company

16 board. I understand that there hasn't been yet any

17 vote to make him that director and that the deal

18 hasn't closed. But what was established in discovery

19 is that he's going to be the guy.

20 It is, therefore, incorrect for the

21 proxy to say that nobody has any clue who the guy is

22 going to be. So the defendants need to disclose that

23 it is currently anticipated, or there is an agreement

24 in principle, or whatever the apt view of it is, and

CHANCERY COURT REPORTERS 13

1 is consistent with the deposition testimony that

2 Pardun will be the director. That could be material

3 to the stockholders' view of his interest in

4 supporting the merger.

5 It doesn't make him interested in an

6 entire fairness context, and that's in an entire

7 fairness sense, and that's what our cases have

8 repeatedly said. But it does potentially weigh in on

9 the reasonableness analysis, and it's something that I

10 think is material to stockholders.

11 Fourth, the July 2nd contacts. I

12 think these are misleadingly described. The

13 information was clearly material in terms of how much

14 of a shopping process was done and how the calls were

15 made. It was relied on by both ISS and Glass-Lewis.

16 It's mentioned repeatedly in the proxy.

17 Based on my review of the record, I

18 think the proposed disclosure that the plaintiffs have

19 offered on pages 27 through 28 of their reply brief is

20 accurate. That needs to be disclosed.

21 You also need to fix the references to

22 the July 2nd contacts that appear elsewhere in the

23 proxy that are framed off what I think is a misleading

24 description that currently exists in there. I may not

CHANCERY COURT REPORTERS 14

1 have found them all, but pages 86, 88 and 91 all cross

2 reference this concept of there being no interest on

3 July 2nd.

4 As I say, I think the plaintiffs have

5 correctly pointed out there was interest. There was

6 an interest on the immediate time frame that was

7 discussed, and as I say, I think the plaintiffs have

8 framed an accurate disclosure that correctly describes

9 that issue.

10 This brings me to the last disclosure

11 claim that I plan to dwell on this morning, and that's

12 the disagreements over the fairness opinion. I think

13 most of these -- I don't know whether they're quibbles

14 or not. They actually seem to me to be serious

15 debates.

16 But nevertheless, I think most of

17 Mr. Chen's and counsel's disagreements with the

18 Jefferies' fairness opinion are great arguments to put

19 in front of stockholders to convince them that this

20 deal really isn't the right deal, or in front of ISS

21 or Glass-Lewis to tell them to recommend against.

22 If Jefferies did the analysis that is

23 accurately disclosed in the proxy, that's what they

24 did, and I have compared the Jefferies book, the final

CHANCERY COURT REPORTERS 15

1 book, with the proxy summary, and I think it is

2 accurate. There is the one issue of the

3 accretion/dilution issue that I've already discussed.

4 So I am not concerned, and I won't

5 require any disclosure as to those issues.

6 Now, I am concerned about what appear

7 to be longitudinal changes from previous Jefferies'

8 books that resulted in the final book making the deal

9 look better than it would have had the same metrics

10 been used that were used in prior books.

11 This is an issue that comes up with

12 some regularity. You often have a pitch book or a

13 third party negotiating book that goes over the

14 transom to the other side. But then you have the real

15 internal books.

16 Our courts have understandably said we

17 understand that when you're negotiating, you're going

18 to push for a higher value, so we're not going to

19 require some type of longitudinal disclosure to

20 contrast your negotiation book with your real internal

21 book. These are all internal books.

22 And this links to the discovery

23 problems with the Jefferies Rule 30(b)6 witness where

24 a witness was not presented who was knowledgeable,

CHANCERY COURT REPORTERS 16

1 sufficiently knowledgeable about what Jefferies did in

2 this deal.

3 I don't know, and I don't have to

4 decide whether I would hold up a deal because of this

5 independently. But because I am already granting a

6 limited disclosure-based injunction, this provides

7 time for a remedial deposition.

8 Therefore, I am ruling as follows.

9 This transaction is enjoined until ten business days

10 following, first, curative disclosures on the issues I

11 have listed, and second, the lodging with the Court of

12 a deposition of Mr. Jackman or Mr. Berkowitz.

13 Now, that deposition can happen before

14 the curative disclosures go out. That's not a

15 sequencing thing, but this is an "and." Both of these

16 things have to happen for the injunction to lift.

17 The defense of that deposition has to

18 be handled by someone other than the lawyer who

19 defended Mr. Snyder's deposition. Delaware counsel

20 from both sides will be present to provide adult

21 supervision.

22 With the deposition transcript, the

23 plaintiffs can submit a three-page letter to me as to

24 any additional disclosure relief that is truly

CHANCERY COURT REPORTERS 17

1 warranted based on the deposition.

2 I want you all to be responsible about

3 this. If you take this deposition, and there are good

4 explanations as to why the longitudinal changes were

5 made, I will not criticize you at all. I will praise

6 you if you write me a letter saying, "Vice Chancellor

7 Laster, we took this deposition and it didn't play

8 out. We're satisfied that there are no additional

9 disclosures that are required." I'm going to read it

10 regardless. But I will be happy if you tell me that.

11 If you tell me that actually it has

12 turned out that they lowered the ranges because of X,

13 Y or Z, then perhaps some additional relief will be

14 warranted.

15 The defendants can respond 24 hours

16 later with a three-page letter of their own. I will

17 let you know promptly whether, having reviewed the

18 deposition, I intend to grant any more relief.

19 I do think, in an ideal world, that

20 will happen very quickly, and that between that and

21 the other, between the short time frames, that that

22 should be able to be accomplished in, and the time I

23 have allowed for the disclosures to be made and hit

24 the market, I think there is ample time to get all

CHANCERY COURT REPORTERS 18

1 this done.

2 Frankly, if it turns out it is

3 prolonging the length of the injunction, blame your

4 bankers. The managing directors who quarterbacked the

5 process need to do so with the expectation that when

6 there is expedited litigation challenging the deal,

7 that they will respond and be available for a

8 deposition and testimony if warranted about what

9 happened in the deal.

10 It is not acceptable to send a fifth

11 year junior banker who has only done six fairness

12 opinions, and who came into the process late in the

13 game with only three months left, as your 30(b)(6)

14 witness.

15 This Court has to decide these things

16 on an expedited basis. I have said a lot of times

17 that that requires cooperation from the parties.

18 That's why we don't expect parties to fight about

19 things like, oh, we insist on a formal commission

20 process to get the banker. They're your banker. You

21 hired them for the deal. You may not control them in

22 the literal sense, but you have substantial influence

23 over them.

24 That's why we, as a Court, have long

CHANCERY COURT REPORTERS 19

1 expected people to make their bankers available and to

2 facilitate document production from their bankers.

3 It would not allow these cases to be

4 adjudicated responsibly if managing directors could

5 decide that they are simply too busy to play a role in

6 terms of the actual adjudication of the deals for

7 which their investment banks are making seven-figure

8 fees, and that they instead have better things to do,

9 and therefore, they will send one of their junior

10 members instead to answer non-responsively the

11 questions that are put to them in deposition, and to

12 have a defense lawyer be obstructionist and, indeed,

13 to insult the questioner on, I think I counted three

14 occasions.

15 If this is a problem for the deal,

16 blame your bankers.

17 I will not require any bond to be

18 posted.

19 The plaintiffs have sued in a

20 fiduciary capacity. It's a disclosure-based

21 injunction. While there is certainly some risk of

22 some negative impact that might occur to the deal

23 because of the delay that I have imposed, that is more

24 than counter-balanced by the benefit to the

CHANCERY COURT REPORTERS 20

1 stockholders of this additional information, and I

2 don't think, regardless, that it would be priced off

3 the total deal value or premium. I think it would be,

4 in any event, priced off some type of time value of

5 money concept which here, as I say, I think would be

6 relatively minimal, and because the plaintiffs have

7 sued in a fiduciary capacity, I don't impose a bond on

8 them.

9 Any questions from anyone?

10 MR. JENKINS: None from plaintiffs,

11 Your Honor.

12 THE COURT: Defendants, any questions?

13 MR. BIRN: No, Your Honor.

14 I think just thinking logistically it

15 probably will make sense that we do one disclosure

16 following the deposition rather than seriatim, but

17 we'll think about that.

18 THE COURT: That makes a lot of sense

19 to me too, but I leave that up to you all. And you

20 obviously have securities gurus at your firm who will

21 know, certainly from Delaware's standpoint, and I

22 think that makes a lot of sense.

23 I will not speak to, and I would defer

24 to the securities laws jocks as to what, if anything,

CHANCERY COURT REPORTERS 21

1 is required of the federal law matter.

2 Thank you, everyone, for your time

3 today.

4 We stand in recess.

5

6 (The Court adjourned at 12:30 p.m.)

7

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CHANCERY COURT REPORTERS 22

CERTIFICATE

I, MAUREEN M. McCAFFERY, Official Court

Reporter of the Chancery Court, State of Delaware, do hereby certify that the foregoing pages numbered

3 through 21 contain a true and correct transcription of the proceedings as stenographically reported by me at the hearing in the above cause before the Vice

Chancellor of the State of Delaware, on the date therein indicated.

IN WITNESS WHEREOF, I have hereunto set my hand at Dover, this 25th day of

January, 2011.

/s/Maureen M. McCaffery ------Maureen M. McCaffery Official Court Reporter of the Chancery Court State of Delaware

Certification Number: 201-RPR Expiration: 1/31/11

CHANCERY COURT REPORTERS Page 1

IN RE DEL MONTE FOODS COMPANY SHAREHOLDERS LITIGATION

Consol. C.A. No. 6027-VCL

COURT OF CHANCERY OF DELAWARE, NEW CASTLE

25 A.3d 813; 2011 Del. Ch. LEXIS 30

February 11, 2011, Submitted February 14, 2011, Decided February 14, 2011, Filed

SUBSEQUENT HISTORY: Costs and fees proceeding MORRIS NICHOLS ARSHT & TUNNELL LLP, at In re Del Monte Foods Co. S'holders Litig., 2011 Del. Wilmington, Delaware; Peter E. Kazanoff, Paul C. Ch. LEXIS 94 (Del. Ch., June 27, 2011) Gluckow, SIMPSON THACHER & BARTLETT LLP, New York, New York; Attorney for Defendants Blue PRIOR HISTORY: In re Del Monte Foods Co. Acquisition Group, Inc., Blue Merger Sub Inc., S'holders Litig., 2010 Del. Ch. LEXIS 255 (Del. Ch., Centerview Partners, Kohlberg Kravis Roberts & Dec. 31, 2010) Company [**2] LP, and Vestar Capital Partners.

JUDGES: LASTER, Vice Chancellor. COUNSEL: [**1] Stuart M. Grant, Michael J. Barry, Diane Zilka, Christine M. Mackintosh, GRANT & OPINION BY: LASTER EISENHOFER P.A., Wilmington, Delaware; Hung G. Ta, Brenda F. Szydlo, Michele S. Carino, GRANT & OPINION EISENHOFER P.A., New York, New York; Randall J. Baron, A. Rick Atwood, Jr., David T. Wissbroecker, [*817] LASTER, Vice Chancellor. Edward M. Gergosian, David A. Knotts, ROBBINS GELLER RUDMAN & DOWD LLP, San Diego, On November 24, 2010, Del Monte Foods Company California; Plaintiffs' Co-Lead Counsel. ("Del Monte" or the "Company") entered into an agreement and plan of merger with Blue Acquisition Raymond J. DiCamillo, Rudolf Koch, Susan M. Group, Inc. and its wholly owned acquisition subsidiary, Hannigan, RICHARDS, LAYTON & FINGER P.A., Blue Merger Sub Inc. (the "Merger Agreement" or Wilmington, Delaware; Mark A. Kirsch, Diana M. "MA"). Blue Acquisition Group is owned by three Feinstein, GIBSON, DUNN & CRUTCHER LLP, New private equity firms: Kohlberg, Kravis, Roberts & Co. York, New York; Paul J. Collins, Joseph W. Guzzetta, ("KKR"), Centerview Partners ("Centerview"), and GIBSON, DUNN & CRUTCHER LLP, Palo Alto, Vestar Capital Partners ("Vestar"). Because KKR is the California; Attorneys for Defendants Samuel H. lead firm, I generally refer to the sponsor group as Armacost, Timothy G. Bruer, Mary R. Henderson, Victor "KKR." The Merger Agreement contemplates a $5.3 L. Lund, Terence D. Martin, Sharon L. McCollam, Joe L. billion leveraged buyout of Del Monte (the "Merger"). If Morgan, David R. Williams, and Richard G. Wolford. approved by stockholders, each share of Del Monte common stock will be converted into the right to receive Kenneth J. Nachbar, John P. DiTomo, S. Michael Sirkin, $19 in cash. The consideration represents a premium of Page 2 25 A.3d 813, *817; 2011 Del. Ch. LEXIS 30, **2

approximately 40% over the average closing price of Del Late in the process, at a time when Barclays was Monte's common stock for the three-month period ended ostensibly negotiating the deal price with KKR, Barclays on November 8, 2010. The $19 price is higher than Del asked KKR [*818] for a third of the buy-side financing. Monte's common stock has ever traded. Once KKR agreed, Barclays sought and obtained Del Monte's permission. Having Barclays as a co-lead bank The stockholders of Del Monte are scheduled to vote was not necessary [**5] to secure sufficient financing for on the Merger on February 15, 2011. The plaintiffs seek a the Merger, nor did it generate a higher price for the preliminary injunction postponing [**3] the vote. They Company. It simply gave Barclays the additional fees it originally asserted that the individual defendants, who wanted from the outset. In fact, Barclays can expect to comprise the Del Monte board of directors (the "Board"), earn slightly more from providing buy-side financing to breached their fiduciary duties in two separate ways: first KKR than it will from serving as Del Monte's sell-side by failing to act reasonably to pursue the best transaction advisor. Barclays' gain cost Del Monte an additional $3 reasonably available, and second by disseminating false million because Barclays told Del Monte that it now had and misleading information and omitting material facts in to obtain a last-minute fairness opinion from a second connection with the stockholder vote. The defendants bank. mooted the disclosure claims through an extensive proxy supplement released during the afternoon of February 4, On the preliminary record presented in connection 2011 (the "Proxy Supplement"). with the injunction application, the plaintiffs have established a reasonable probability of success on the This case is difficult because the Board merits of a claim for breach of fiduciary duty against the predominantly made decisions that ordinarily would be individual defendants, aided and abetted by KKR. By regarded as falling within the range of reasonableness for failing to provide the serious oversight that would have purposes of enhanced scrutiny. Until discovery disturbed checked Barclays' misconduct, the directors breached the patina of normalcy surrounding the transaction, there their fiduciary duties in a manner reminiscent of Mills were only two Board decisions that invited serious Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261 (Del. challenge: first, allowing KKR to team up with Vestar, 1989). In that decision, the Delaware Supreme Court the high bidder in a previous solicitation of interest, and enjoined a transaction--ironically a leveraged buyout second, authorizing Barclays Capital, the financial sponsored by KKR--when self-interested management advisor to Del Monte, to provide buy-side financing to and their financial advisor concealed information from KKR. the board. Like [**6] management's deal-specific, buy-side conflict in Mills, Barclays' deal-specific, Discovery revealed a deeper problem. Barclays buy-side conflict tainted the advice it gave and the secretly and selfishly manipulated the sale process [**4] actions it took. to engineer a transaction that would permit Barclays to obtain lucrative buy-side financing fees. On multiple To hold that the Del Monte directors breached their occasions, Barclays protected its own interests by fiduciary duties for purposes of granting injunctive relief withholding information from the Board that could have does not suggest, much less pre-ordain, that the directors led Del Monte to retain a different bank, pursue a face a meaningful threat of monetary liability. On this different alternative, or deny Barclays a buy-side role. preliminary record, it appears that the Board sought in Barclays did not disclose the behind-the-scenes efforts of good faith to fulfill its fiduciary duties, but failed because its Del Monte coverage officer to put Del Monte into it was misled by Barclays. Unless further discovery play. Barclays did not disclose its explicit goal, harbored reveals different facts, the one-two punch of exculpation from the outset, of providing buy-side financing to the under Section 102(b)(7) and full protection under Section acquirer. Barclays did not disclose that in September 141(e) makes the chances of a judgment for money 2010, without Del Monte's authorization or approval, damages vanishingly small. The same cannot be said for Barclays steered Vestar into a club bid with KKR, the the self-interested aiders and abetters. But while the potential bidder with whom Barclays had the strongest directors may face little threat of liability, they cannot relationship, in violation of confidentiality agreements escape the ramifications of Barclays' misconduct. For that prohibited Vestar and KKR from discussing a joint purposes of equitable relief, the Board is responsible. bid without written permission from Del Monte. Page 3 25 A.3d 813, *818; 2011 Del. Ch. LEXIS 30, **6

To remedy (at least partially) the taint from Barclays' assertions through cross-examination. Except on routine activities, the plaintiffs ask that the vote on the Merger be or undisputed matters, I have discounted these enjoined for a meaningful period (30 to 45 days) and that "non-adversarial proffers"1 and relied on the deposition the parties to the Merger Agreement [**7] be enjoined testimony and contemporaneous documents. [**9] What from enforcing the deal protections during that time. follows are the facts as they are likely to be found after They have not sought (nor would I grant) a decree trial, based on the current record. enjoining the Merger pending a post-trial adjudication. The plaintiffs argue that this limited injunctive relief will 1 In re W. Nat. Corp. S'holders Litig., 2000 Del. restore (albeit incompletely) the stockholders' unique Ch. LEXIS 82, 2000 WL 710192, at *19 (Del. opportunity to receive a topping bid free of fiduciary Ch. May 22, 2000) (describing witness affidavits misconduct. Such an injunction would deprive KKR and explaining that the Court of Chancery will temporarily of the advantages it obtained by securing a "ordinarily attach little if any weight to such deal through collusion with Barclays, while at the same inherently self-serving and non-adversarial time preserving the stockholders' ability to determine for proffers"); see Cont'l Ins. Co. v. Rutledge & Co., themselves whether to accept the $19 per share Merger 750 A.2d 1219, 1232 (Del. Ch. 2000) ("To the price. The plaintiffs analogize this limited relief to an extent the affidavits contradict the depositions, injunction conditioned on the making of corrective this Court will exclude the offending affidavit disclosures, which similarly imposes a temporary testimony."); see also Chesapeake Corp. v. Shore, transactional delay and then allows stockholders to 771 A.2d 293, 302 & n.7 (Del. Ch. 2000) decide for themselves whether to accept a deal. (expressing disappointment with the proffering of less-knowledgeable board members rather than For the reasons that follow, I grant the relief the chairman or top managers and stating "'[t]he plaintiffs seek, although for a shorter time period that production of weak evidence when strong is, or takes into account the transaction's exposure to the should have been, available can lead only to the market. The defendants are enjoined preliminarily from conclusion that the strong would have been proceeding with the vote on the Merger [*819] for a adverse.'" (quoting Kahn v. Lynch Comm. Sys., period of 20 days. Pending the vote on the Merger, the Inc., 638 A.2d 1110, 1119 n.7 (Del. 1994))). parties to the [**8] Merger Agreement are enjoined from enforcing the no-solicitation and match-right provisions A. Moses Works Behind The Scenes To Put Del in Section 6.5(b), (c) and (h), and the termination fee Monte In Play. provisions relating to topping bids and changes of recommendation in Section 8.5(b). The injunction is Investment banks generate large fees from doing conditioned on the plaintiffs posting a bond in the amount deals. To facilitate transactional activity, investment of $1.2 million. bankers routinely pitch deals [**10] to parties they hope might be interested. Coverage officers for investment I. FACTUAL BACKGROUND banks regularly visit past, present, and potential clients to suggest mergers, acquisitions, and other strategic The facts are drawn from the record developed in alternatives. Barclays is no exception. connection with the plaintiffs' application for a preliminary injunction. The parties have submitted Barclays has a strong presence in the consumer food numerous documentary exhibits and the deposition and pet product sectors where Del Monte operates. Peter testimony of seven fact witnesses. With their answering J. Moses is the Barclays managing director with coverage briefs, the defendants lobbed in four affidavits from responsibility for Del Monte. Barclays and Del Monte witnesses who were deposed. Each of these have enjoyed a close relationship. In 2009, Barclays acted lawyer-drafted submissions sought to replace the as joint book-runner on Del Monte's $450 million witnesses' sworn deposition testimony with a revised and issuance of 7.5% senior subordinated notes and as joint frequently contradictory version. Had the differing dealer-manager and solicitation agent on Del Monte's 5/8 averments been elicited by defense counsel during tender offer and consent solicitation for its 8 % senior deposition, as they readily could have been, then subordinated notes. During late 2009, Barclays advised plaintiffs' counsel could have tested the witnesses' Del Monte on and arranged financing for its unsuccessful acquisition of Waggin' Train LLC. In January 2010, Page 4 25 A.3d 813, *819; 2011 Del. Ch. LEXIS 30, **10

Barclays acted as co-lead arranger for Del Monte's $1.2 process for the Company. billion senior secured credit facility. Barclays understood that it was one of Del Monte's principal investment Moses told Del Monte that Barclays was banks. well-positioned to advise Del Monte because Barclays "knew many of the entities that might be an interested Del Monte's stable businesses throw off large buyer." Ben. Tr. 59. Moses did not mention that he amounts of cash, a critical attribute for debt-fueled LBOs. personally had been pitching Apollo, KKR, and other In fiscal 2010, for [*820] example, Del Monte [**11] private equity firms on acquiring Del Monte. The Board generated $3.7 billion in net sales and $250 million in did not learn of Moses' efforts to stir up the initial LBO cash flow. According to the bankers deposed in this case, bid until discovery in this litigation. the debt markets in late 2009 were again receptive to leveraged acquisitions, having shaken off the cobwebs Moses also did not mention that Barclays [**13] from the concussive impact of Lehman Brothers' planned from the outset to seek a role in providing bankruptcy. Mergers and acquisitions activity in the buy-side financing. Barclays' internal "Project Hunt [Del canned food and pet products sectors had picked up. Monte] Screening Committee Memo" dated January 25, Investment bankers were busy pitching Del Monte on 2010, stated bluntly that "Barclays will look to participate potential acquisitions and pitching potential acquirers on in the acquisition financing once the Company has Del Monte. reached a definitive agreement with a buyer." PX 54. A March 2010 version of the memo reiterated Barclays' Like many large banks, Barclays has strong intent. The Board did not learn that Barclays intended relationships with various LBO shops. KKR is one of from the outset to have a buy-side role until discovery in Barclays' more important clients. Tarone Tr. 95. Over the this litigation. past two years, KKR has paid Barclays over $66 million in fees. Barclays has worked with KKR on half a dozen Barclays immediately began advising Del Monte on projects in the consumer and retail space, including a responding to Apollo's expression of interest and large transaction where Barclays acted as both sell-side exploring strategic alternatives. Moses recommended that advisor and provided buy-side financing for KKR. the Board pursue a targeted, non-public process that Tarone Tr. 93-94. tracked precisely what Moses had previewed with KKR and the other private equity firms. There are sound and On December 17, 2009, Moses and other Barclays reasonable justifications for such an approach, including bankers met with KKR to present various opportunities, a desire to avoid market leaks that could disrupt company including an acquisition of Del Monte. In early January operations and spook employees. But a narrow, targeted 2010, Moses met with KKR again. KKR said it was ready process involving a few large private equity firms also "to take the next step" with Del Monte and planned to furthered Barclays' goal of providing buy-side financing. [**12] partner with Centerview on a bid. PX 16. Moses Private equity buyers are generally more [*821] likely responded by outlining with prophetic clarity the process than strategic buyers to require financing, [**14] and Del Monte would follow: a narrow, private solicitation of Barclays was one of a limited group of institutions with interest from a small group of approximately five sufficient resources to handle a transaction as large as the sponsors with no strategic bidders. Moses made similar Del Monte LBO. pitches during the same time period to other private equity firms, including Apollo Management. Barclays then identified the five LBO shops that would be invited to submit expressions of interest: KKR, B. Apollo's Expression Of Interest And Del Monte's Apollo, The Carlyle Group, CVC Partners, and the Process Blackstone Group. The Board adopted Barclays' recommendation. Before KKR could "take the next step," Apollo sent Del Monte a written expression of interest in an Despite efforts to keep the process quiet and private, acquisition at $14 to $15 per share. After receiving the word leaked out. Vestar and Campbell's Soup contacted letter, Del Monte reached out to Barclays. Moses Barclays and asked to be included, which they were. believed Del Monte was also reaching out to other banks, Blackstone dropped out, and Del Monte entered into including Goldman Sachs, a firm that ran an earlier confidentiality agreements with the six participants. Each Page 5 25 A.3d 813, *821; 2011 Del. Ch. LEXIS 30, **14

of the participants agreed not to discuss the confidential signatories could not discuss potential financing with any information they obtained from Del Monte or their bids source other than Barclays. Id. at 2. As with the decision with anyone, including each other. A critical provision to engage in a targeted, non-public canvass of private stated: equity buyers, there are sound and reasonable justifications for such a provision. At the same time, the In addition, you agree that, without the limitation served Barclays' interests in obtaining a piece prior written consent of the Company, you of the buy-side financing. Because of the provision, and your Representatives will not disclose Barclays would have the first crack at discussing to any other person (other than your financing with each bidder, its credit group would be Representatives) the fact that you are familiar with the deal, and its bankers could more considering a possible transaction with the persuasively pitch for a piece of the action. See Tarone Company, that this Agreement exists, that Tr. 129-31. The lead banker on Barclays' financing team the Confidential Information has been acknowledged that Barclays would express interest in made available to you, that discussions or providing financing when discussing capital structures negotiations are taking place concerning with bidders and that this put Barclays in the catbird seat [**15] a possible transaction involving the for the business. See Id. at 89-93. Company or any of the terms, conditions, or other facts with respect thereto After executing a confidentiality agreement, each (including the status thereof) . . . . Without potential bidder was provided [*822] with access to limiting the generality of the foregoing, non-public information and received presentations from you further agree that you will not, Del Monte senior management. All potential bidders directly or indirectly, share the were directed to submit non-binding [**17] indications Confidential Information with or enter into of interest by March 11, 2010. Five did; Campbell's Soup any agreement, arrangement or did not. Carlyle proposed a transaction in a range of understanding, or any discussions which $15.50 to $17.00 per share and asked for permission to would reasonably be expected to lead to explore debt financing with Bank of America, JPMorgan, such an agreement, arrangement or Deutsche Bank, and Credit Suisse. Apollo proposed a understanding with any other person, transaction in a range of $15.50 to $17.00 per share and including other potential bidders and asked for permission to explore financing with Bank of equity or debt financing sources (other America, JPMorgan, Morgan Stanley, Deutsche Bank, than your Representatives as permitted Credit Suisse, UBS, and BMO Capital Markets. CVC above) regarding a possible transaction proposed a transaction at $15.00 to $16.50 per share, involving the Company without the prior expressed interest in taking on an equity partner, and written consent of the Company and only proposed to raise financing through its internal debt upon such person executing a financing team. KKR expressed interest in a transaction confidentiality agreement in favor of the at $17 per share. KKR did not ask for permission to talk Company with terms and conditions to any banks and stated only that their bid contemplated consistent with this Agreement. "newly raised debt in line with the guidance provided by Barclays." PX 20 at 3. To a Barclays' banker seeking a buy-side role, KKR's letter would have been the most PX 18 at 2 (the "No Teaming Provision"). By reassuring, particularly because KKR had worked with securing this language, the Board ensured that Del Monte Barclays in a dual role before. would have the contractual right to control the competitive dynamics of the process and determine Vestar's bid raised tactical issues. Vestar expressed whether any bidders would be allowed to work together interest in a transaction in a range of $17.00 to $17.50 per on a joint bid. The confidentiality agreement also share, [**18] making it the high bidder. Everyone contained a two-year standstill. [**16] Id. at 4. understood that Vestar would need to pair up with at least one other sponsor. Vestar had made clear from the outset, The confidentiality agreements provided a collateral and confirmed in its expression of interest, that "[it] benefit to Barclays. Absent Company consent, the would expect to commit to half of the required equity in Page 6 25 A.3d 813, *822; 2011 Del. Ch. LEXIS 30, **18

this transaction and would look to partner with another In September 2010, Moses sensed that the timing private equity firm to fill out the remaining portion." PX was right to put the Del Monte LBO back together. 50 at 2. Vestar thus was not going to bid alone. Its Moses had lunch with Brian Ratzan of Vestar. Moses advantage was expertise in the food business and its suggested that it might be "an interesting time to make strength as an operator. James Ben, who led the Barclays another approach to [Del Monte]" and that, if Vestar were M&A team, regarded Vestar as a valuable participant in interested, "the ideal partner would be KKR." Ratzan Tr. the sale process and expected that the firm would be a 35. Moses said that it was an "opportune time" for value-promoting partner for another bidder, though more approaching Del Monte because "[t]he company had for its operational expertise than as a source of capital. missed its numbers for a couple of quarters [and] [t]he Ben Tr. 93-94. Moses suggested that Vestar consider stock price was down." Id. at 36. On September 14, pairing up with Carlyle. Ben considered pairing Vestar Moses discussed the idea with KKR. After meeting with with Apollo. CVC had expressed interest in a second KKR, Moses called Ratzan. Moses then emailed his sponsor and was another logical option. Internal KKR colleagues that Vestar "is going to partner with KKR on documents reflect concern about Vestar working with [Del Monte]. So team wi[ll] be kkr, vestar and hooper another firm. (centerview). Obviously this is confidential." PX 60.

During its regularly scheduled meeting on March 18, At the time, both Vestar and KKR were bound by 2010, the Board considered the five indications of their confidentiality agreements with Del Monte. The No interest. The Board decided that the Company's Teaming Provision prohibited Vestar and KKR from stand-alone [**19] growth prospects were sufficiently entering into any "agreement, arrangement or strong that it was not in the stockholders' best interests to understanding, [**21] or any discussions which would proceed further with the process. The directors also reasonably be expected to lead to such an agreement, concluded that Barclays had pushed too far, too fast, and arrangement or understanding with any other person, that Barclays had not been hired to actually sell the including other potential bidders and equity or debt company. See Martin Tr. 23-24. Moses blamed Richard financing sources (other than your Representatives as Wolford, Del Monte's Chairman, President, and CEO. He permitted above) regarding a possible transaction believed Wolford turned against the LBO at the last involving the Company without the prior written consent minute, spoke privately with the directors, and allowed of the Company . . . ." Vestar and KKR did not have Moses to walk into a hostile meeting unaware. KKR "prior written consent" from Del Monte. Nor did thought that "Barclays didn't do such a good job here Barclays. In fact, Barclays was not authorized at that time w/Wolford and the board." PX 23. When Barclays later to do anything on behalf of Del Monte. The Board had kicked off the LBO process again, Moses would do a instructed Barclays "to shut [the] process down and let better job setting the table. buyers know the company is not for sale." PX 57.

C. KKR Continues To Pursue Del Monte. By pairing Vestar with KKR, Barclays put together the two highest bidders from March 2010, thereby The Board specifically instructed Barclays "to shut reducing the prospect of real competition in any renewed [the] process down and let buyers know the company is process. There were other logical pairings that would not for sale." PX 57. Over the ensuing months, KKR have promoted competition. Teaming up Vestar and KKR reached out to Del Monte on at least two occasions. In served Barclays' interest in furthering a deal with an April 2010, KKR representatives met with Wolford and important client (KKR) that previously had used Barclays David Meyers, Del Monte's CFO. KKR said it wanted for buy-side financing. After Moses paired Vestar with [*823] to keep the lines of communication open about KKR, Vestar never considered working with a different future opportunities. In May 2010, KKR approached Del sponsor. Monte about jointly pursuing acquisitions. [**20] Del Monte declined, both because KKR's capital was too E. KKR Makes Its Bid. expensive and because Del Monte had all the capital it needed. KKR also continued to meet with Barclays. On October 11, 2010, [**22] representatives of KKR asked to meet with Wolford. During the meeting, D. Barclays Pairs Up Vestar With KKR. KKR delivered a written indication of interest from KKR and Centerview to acquire Del Monte for $17.50 in cash. Page 7 25 A.3d 813, *823; 2011 Del. Ch. LEXIS 30, **22

The price represented a 28.7% premium over the closing Board considered whether to conduct a pre-signing price of Del Monte's common stock on the previous market check. The Board concluded that none was trading day. While nominally higher than the $17 offered needed. First, KKR's indication of interest at $17.50 per in March, it was a step back given intervening market share was at the high end of the indications of interest developments. Del Monte and Barclays calculated that an that the Company had received in March 2010, although equivalent bid would have been $18.32. See PX 72 ("I lower on a relative basis after adjusting for intervening landed on $18.32/share as the equivalent offer relative to market trends. Second, the Board felt that no other the $17 previously"). potential bidders were lurking in the wings, because only Campbell's Soup came forward when word of the private The KKR letter did not mention Vestar, and Vestar process leaked in early 2010. Third, no one other than representatives did not attend the meeting. In preparing KKR had communicated with Del Monte in the eight for the meeting, KKR and Vestar agreed not to disclose months since the Board instructed Barclays to tell bidders Vestar's participation because "it's just another thing Rick that Del Monte was not for sale. Fourth, the Board was will have to go back to his board and explain. Will be concerned that a renewed process could have detrimental [*824] easier to bring in Vestar once we have traction effects on employees, customers, and the stock price, with the Company." PX 24. particularly if the process did not result in a completed transaction. Finally, the Board considered that the After the October 11, 2010, meeting, Barclays previous high bid of $17.50 had been submitted by worked with KKR to conceal Vestar's participation. For Vestar, a firm that needed to partner with a larger sponsor example, on October 31, Brown of KKR emailed his to make a bid. At the time, [**25] the Board did not colleagues that Vestar would not attend a meeting with know that Barclays had teamed Vestar with KKR. Del Monte because of the complications it would create. [**23] PX 26 ("delicate time for Board, don't want to The Board ultimately decided to adopt a upset matters potentially w[ith] a group change at a single-bidder strategy of negotiating only with KKR. critical juncture. Vestar ultimately ok w[ith] this"). Moses During the meeting, the Board formally authorized the agreed that it was best to keep Vestar's involvement Company to "re-engage" Barclays as its financial advisor. hidden. See PX 62 (e-mail from Moses to Brown, dated After the meeting, the Chairman of the Strategic Oct. 31, 2010, "agree at this point that we keep meeting Committee, Terence Martin, met with Moses and Ben to to K[KR] and Centerview from your side."). negotiate Barclays' new engagement letter. Martin "personally directed that Barclays was not to speak or act F. The Board Adopts A Single-Bidder Strategy. on Del Monte's behalf until the terms of the engagement On October 13, 2010, the Board met to consider letter had been finalized." Martin Aff. ¶ 22. The Barclays KKR's indication of interest. The Board met again on representatives did not tell Martin that Moses had been October 25. Management discussed the Company's long communicating with Vestar and KKR, put the two firms range plan and the challenges and risks associated with together, and helped spur the KKR bid. Barclays [*825] its execution. Management suggested that a transaction then began advising Del Monte on the bid Moses with KKR potentially represented a "risk-free alternative" engineered. to the long range plan. On the question of whether to sell, G. The Initial Negotiations With KKR. management faced conflicts of its own. Wolford planned to retire in 2012 and was being pressed by the Board for a Between October 26 and November 9, 2010, succession plan. Wolford was resisting and had said he Barclays interacted with KKR. Barclays reported would rather sell the Company than remake his team. frequently to Del Monte management and the Strategic From an economic standpoint, Wolford would receive an Committee, but Barclays was the principal point of additional $24 million if Del Monte was sold before his contact for KKR. retirement. Del Monte CFO Meyers also planned to retire in 2012 and would receive [**24] an additional $5 On October 27, 2010, the Board asked Barclays to million if the Company was sold before then. See Proxy tell KKR that the $17.50 per share offer was insufficient, Supp. at 6-11. but that the Company was prepared to [**26] give KKR access to due diligence information to allow them to After deciding to pursue discussions with KKR, the submit a higher offer. On November 4, KKR attended a Page 8 25 A.3d 813, *825; 2011 Del. Ch. LEXIS 30, **26

meeting with Del Monte management. Barclays and KKR request, enforcing the confidentiality agreement, and agreed that Vestar would not attend and to keep Vestar's inviting Vestar to participate with a different sponsor to involvement secret from the Company generate competition. The Board did not seek to trade permission for Vestar to pair with KKR for a price On November 8, 2010, news of a potential Del increase or other concession. Monte LBO leaked when the London Evening Standard reported that KKR had offered to acquire the Company The second unsavory request was when Barclays for $18.50 per share. Later in the day, KKR contacted the finally asked Del Monte if it could provide buy-side Board and raised its offer to $18.50 with a request for financing, as Barclays had been planning to do since at exclusivity. Vestar's participation still went unmentioned. least January 2010. Barclays had long [*826] been signaling KKR about its desire to participate. On On November 9, 2010, the Board met to discuss November 8, Moses asked KKR to give Barclays one KKR's proposal. The Board declined to grant formal third of the debt. KKR agreed. The next day Brown exclusivity, but did not reach out to any other bidders. reported by email to the KKR investment committee that The Board also declined to approve a transaction at Barclays had "asked us to use JPM, BofA and Barclays $18.50 per share. At the same time, the Board signaled its themselves as the financing banks; we find that receptivity by authorizing KKR to begin discussing acceptable and will ask to add one more." PX 29. Also on financing commitments with lenders. According to an November 9, Barclays asked Del Monte management for internal KKR email, "Barclays guidance was we should permission to provide buy-side financing to KKR. They read real significance into their authorizing full access agreed. See PX 40. On November 12, Brown reported to with instructions to get us to a point of being firm/done his KKR colleagues that "Barclays has been cleared to be based on the price we raised to." PX 29. a financing bank." JX 30.

H. Del Monte Finally Learns About Vestar's [**27] At the time Barclays asked for and obtained Del Involvement And Barclays' Buy-Side Desires. Monte's permission to provide buy-side [**29] financing, Del Monte and KKR had not yet agreed on With momentum building towards a deal, the time price. Barclays' buy-side participation was not used to had come for the repeat M&A players to hit up the Board extract a higher price. Nor was it necessary to finance the with two unsavory requests. First, during the week of deal. No one thought that KKR needed Barclays, and November 8, 2010, KKR "formally approached Barclays other banks were already clamoring for their shares. Capital to request that the Company allow Barclays simply wanted to double-dip. Through its KKR/Centerview to include Vestar in the deal as an buy-side role, Barclays will earn $21 to $24 million, as additional member of the sponsor group." Proxy Supp. at much and possibly more than the $23.5 million it will 3. Note the artful phrasing. Barclays had paired Vestar earn as the sell-side advisor. with KKR in September, and they had been de facto partners since at least October. Yet Barclays had never On November 23, 2010, Del Monte executed a letter been "formally approached," and technically Vestar had agreement that formally authorized Barclays to provide never been "included in the deal as an additional member financing to KKR. In contrast to the Barclays witnesses, of the sponsor group." who reluctantly admitted when pressed that providing buy-side financing might create the appearance of a No one suggested that adding Vestar was necessary potential conflict, the November 23 letter acknowledged for KKR to proceed with its bid. There is no evidence that Barclays' relationship became adverse to Del Monte that including Vestar firmed up a wavering deal. The and that if push came to shove, Barclays would look out Board was not told that Vestar in fact had been partnered for itself. In the language of the letter, "[i]n the event that with KKR since September, when Barclays put them Barclays Capital is asked to provide acquisition financing together. The contemporaneous record does not reflect to a buyer of the Company, the Company should expect any consideration given to the ramifications of permitting Barclays Capital to seek to protect its interests as a KKR to team up with the firm who previously submitted lender, which may be contrary to the interests of the the high bid and who could readily have teamed with Company." PX 35 at [**30] 1. Because of the conflict of Carlyle, Apollo, CVC, [**28] or another large buyout interest, Barclays insisted in the letter agreement that Del shop. The Board did not consider rejecting KKR's Page 9 25 A.3d 813, *826; 2011 Del. Ch. LEXIS 30, **30

Monte obtain a second fairness opinion. Id. ("Barclays persons other than Parent or one of its Capital believes that it is essential, in addressing such subsidiaries for, in one transaction or a conflicts of interest, for the Company to receive series of related transactions, (A) a independent financial advice, including an additional merger, reorganization, consolidation, fairness opinion, from an independent third party firm share exchange, business combination, who is not involved in the acquisition financing . . . ."). recapitalization, liquidation, dissolution or Not only did Del Monte fail to secure any benefits for similar transaction involving an itself or its stockholders as the price of Barclays' buy-side acquisition of the Company (or any participation, but Del Monte actually incurred an subsidiary or subsidiaries of the Company additional $3 million for a second financial advisor. Del whose business constitutes 15% or more Monte hired Perella Weinberg Partners LP to fulfill this of the net revenues, net income or assets role. Perella Weinberg's fee is not contingent on closing. of the Company and its subsidiaries, taken On the plus side, this helps make its work independent. as a whole) or (B) the acquisition in any On the minus side, Del Monte incurred a $3 million manner, directly or indirectly, of over 15% expense to help Barclays make another $24 million, and of the equity securities or consolidated Del Monte will have to bear this expense even if the deal total assets of the Company and its does not close. subsidiaries, in each case other than the Merger. I. Barclays Continues To Negotiate With KKR.

Between November 19 and 22, 2010, at the same MA § 6.5(d)(i). Once the go-shop period ended, Del time it was working with KKR to provide financing for Monte was bound by a customary no-solicitation clause the deal, Barclays ostensibly negotiated with KKR over that prohibited Del Monte, among other things, from the [**31] price. On November 22, Barclays reported "initiat[ing], solicit[ing], or knowingly encourage[ing] that KKR was willing to consider paying $18.75 per any inquiries or the making of any proposal or offer that share. Internally, Barclays already had evaluated a $19 constitutes or reasonably could be expected to lead to an price for KKR, and KKR had secured authority from its Acquisition Proposal." Id. § 6.5(b). The no-solicitation Investment Committee to bid up to $19 per share. The clause permits Del Monte to respond to a Superior Board declined the $18.75 figure and instructed Barclays Proposal, defined generally as an Acquisition Proposal to go back to KKR. (but with [**33] the references to 15% changed to 50%) that the Board determines is "more favorable to the On November 24, 2010, Barclays reported that KKR Company's stockholders from a financial point of view" had made its best and final offer of $19 per share. Later than the Merger and "is reasonably likely to be in the day, the Board met to consider the offer. Barclays consummated." Id. § 6.5(d)(iii). [*827] and Perella Weinberg delivered their fairness opinions. The Board reviewed the provisions of the During the go-shop period, Del Monte was proposed Merger Agreement that had been negotiated authorized to, among other things, waive or release any between outside counsel to the Company and KKR. After party from any pre-existing standstill agreements with the discussion and an executive session, the Board Company, and Del Monte could do so "at its sole unanimously approved the Merger Agreement. discretion." Id. § 6.5(a). This is a salutary provision that eliminates any argument from the acquirer that it has an J. The Terms Of The Merger Agreement explicit or implicit contractual veto over the decision to Section 6.5(a) of Merger Agreement provided for a grant a waiver or release. Exercising this authority, Del 45-day post-signing go-shop period during which Del Monte released Carlyle, CVC, Apollo, and Campbell's Monte had the right to "initiate, solicit and encourage any Soup from the standstill provisions in the confidentiality inquiry or the making of any proposal or offers that could agreements they executed in February 2010. constitute an Acquisition Proposal." The Merger Section 8.3(a) of the Merger Agreement permits Del Agreement defines "Acquisition Proposal" broadly as Monte to terminate its deal with KKR to accept a any bona fide inquiry, proposal or offer Superior Proposal prior to the stockholder vote on the from any person or [**32] group of Page 10 25 A.3d 813, *827; 2011 Del. Ch. LEXIS 30, **33

merger if a second banker) and would earn another $21 million if (i) the Company Board authorizes the the deal closed. For its role in the buy-side financing for Company, subject to complying with the KKR, Barclays stood to earn another $21 to $24 million. terms of this Agreement, to enter into one As Ben acknowledged, Barclays would earn substantially or more Alternative Acquisition more for executing the LBO with KKR than it would for Agreements with respect to a Superior any other strategic alternative. If another bidder emerged Proposal; (ii) immediately prior [**34] to that did not need financing or who chose not to use or substantially concurrently with the Barclays, then Barclays would lose its buy-side financing termination of this Agreement the fees. Martin testified that it "never occurred to us that Company enters into one or more [Barclays] wouldn't do a good job." [**36] Martin Tr. Alternative Acquisition Agreements with 64. respect to a Superior Proposal; and (iii) the Company immediately prior to or Other advisors were available. Perella Weinberg had substantially concurrently with such rendered the second fairness opinion necessitated by termination pays to Parent or its designees Barclays' conflict and could have handled the process. in immediately [*828] available funds Goldman Sachs had a prior relationship with Del Monte any fees required to be paid pursuant to and independently approached Del Monte about Section 8.5. managing the go-shop. Upon learning of Goldman's interest, Barclays told KKR that Goldman was trying to "scare up competition." PX 32 ("Goldman has been Id. § 8.3(a). Prior to exercising the termination right, pushing the company to help run their go-shop and scare Del Monte must have given KKR written notice up competition against us (!) . . . ."). Brown of KKR told describing the material terms and conditions of the Barclays that he would "manage it" directly with Superior Proposal and negotiated with KKR in good faith Goldman. Id. He solved the problem by letting Goldman for three business days to enable KKR to match the participate in 5% of the syndication rights for the Superior Proposal. Id. § 6.5(h). The match right must be acquisition financing, which "squared things away there." complied with for each change in the financial terms of or PX 33. After that, Goldman dropped its efforts to conduct other material amendment to the Superior Proposal, the go shop. except that after the first match the three business day period becomes two business days. Id. During the go-shop period, Barclays contacted fifty-three parties, including thirty strategic buyers. Three If Del Monte terminates the Merger Agreement to requested and were provided with confidentiality enter into a transaction with an Excluded Party--defined agreements. Two parties from the early 2010 process generally as a person or group who made an Acquisition re-engaged. No one expressed interest. Proposal during the go-shop period--then Del Monte owes KKR a termination fee in the amount of $60 K. The Proxy Supplement million, representing 1.13% of [**35] total deal value and 1.5% of equity value, or approximately $0.312 per On January 12, 2011, Del Monte issued its definitive share. Id. § 8.5(b). If Del Monte terminates the Merger proxy statement on Schedule 14A. Many of the Agreement to enter into a transaction with a party other disclosures [**37] about the background of the than an Excluded Party, then the termination fee transaction were false and misleading, in part because increases to $120 million, representing 2.26% of total Barclays hid its behind-the-scenes activities from the deal value, 3.0% of the total equity value, and Board. On February 4, after the completion of discovery approximately $0.624 per share. Id. in connection with the preliminary injunction application, Del [*829] Monte issued the Proxy Supplement to moot The Board decided to let Barclays run the go-shop. the plaintiffs' disclosure claims. The Proxy Supplement In carrying out this assignment, Barclays had a direct disclosed that the Company learned significant facts financial conflict. In its role as sell-side financial advisor, about Barclays' role and interactions with KKR only as a Barclays had earned $2.5 million for its fairness opinion result of this litigation. (despite the conflict of interest giving rise to the need for Among other things, the Proxy Supplement disclosed Page 11 25 A.3d 813, *829; 2011 Del. Ch. LEXIS 30, **37

the following: acquisition partner at a later point in time in the event negotiations progressed with the Company." Id. at 3. o "Since the filing of the Definitive Proxy Statement, the Company has learned that as early as January 2010, The defendants released this information on the representatives of Barclays Capital had indicated their afternoon of Friday, February 4, 2011, apparently intent to seek to participate as a financing source in expecting that stockholders could digest it, determine connection with any future transaction pursued by the how to vote, and either submit proxies or revocations or Company subject to the internal approval of Barclays appear and vote at the special meeting on Tuesday, Capital and subject to the approval of the Company if February 15. In light of the relief granted, I need not Barclays Capital were also acting as financial advisor to separately consider whether the timing and manner of the Company." Proxy Supp. at 2. dissemination were adequate under the circumstances.

o "Since the filing of the Definitive Proxy Statement II. LEGAL ANALYSIS by the Company, the Company has learned that financing sources other than Barclays Capital could have provided To obtain a preliminary injunction, the plaintiffs sufficient [**38] financing for the transaction at $19.00 must demonstrate (i) a reasonable probability of success per share without the participation of Barclays Capital." on the merits; [*830] (ii) that they will suffer irreparable Id. at 4. injury [**40] if an injunction is not granted; and (iii) that the balance of the equities favors the issuance of an o "Since the filing of the Definitive Proxy Statement, injunction. Revlon, Inc. v. MacAndrews & Forbes Hldgs., the Company has learned that beginning in August 2010 Co., 506 A.2d 173, 179 (Del. 1986). The plaintiffs have and September 2010, after Barclays Capital's engagement met the first and second elements. After due with the Company had formally concluded, Barclays consideration of the third element, I find that the Capital had routine business development discussions circumstances call for a limited injunction along the lines with, among others, KKR and Vestar, concerning the plaintiffs have requested. potential strategic opportunities, including a potential acquisition of the Company. In the course of the A. The Probability of Success on the Merits discussions between Barclays Capital and Vestar, Barclays Capital and Vestar discussed that The first element of the familiar injunction test KKR/Centerview would be a good partner with Vestar requires that the plaintiffs establish a reasonable and a good strategic match with Vestar if the potential for probability of success on the merits. This showing "falls a transaction involving the Company arose. At the time of well short of that which would be required to secure final these discussions, Barclays Capital believed that Vestar relief following trial, since it explicitly requires only that and KKR/Centerview had had prior discussions about the record establish a reasonable probability that this potential opportunities in the consumer sector, including greater showing will ultimately be made." Cantor the possibility of an acquisition of the Company if the Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 579 (Del. Ch. opportunity reemerged. The Company also has learned 1998) (internal quotation marks omitted). Because the since the filing of the Definitive Proxy Statement that, disclosure claims have been mooted, the pertinent claims subsequent to the routine business development are (i) breach of fiduciary duty against the director discussions in August and September [**39] 2010 defendants and (ii) aiding and abetting by KKR. discussed above, KKR/Centerview and Vestar had 1. The Breach of Fiduciary Duty Claim discussions about working together on an indication of interest regarding a transaction with the Company." Id. at "Delaware has three tiers of review for evaluating 2-3. director decision-making: [**41] the business judgment rule, enhanced scrutiny, and entire fairness." Reis v. o "Since the filing of the Definitive Proxy Statement, Hazelett Strip-Casting Corp., 2011 Del. Ch. LEXIS 11, the Company has learned that during the period between 2011 WL 303207, at *8 (Del. Ch. Jan. 21, 2011). October 11, 2010 and the week of November 8, 2010 Delaware applies enhanced scrutiny when directors face there were discussions among the sponsors concerning potentially subtle structural or situational conflicts that do the conversations between KKR/Centerview and the not rise to a level sufficient to trigger entire fairness Company and about potentially adding Vestar as an Page 12 25 A.3d 813, *830; 2011 Del. Ch. LEXIS 30, **41

review, but also do not comfortably permit expansive though it might have decided otherwise or judicial deference. 2011 Del. Ch. LEXIS 11, [WL] at subsequent events may have cast doubt on *8-10; see Paramount Commc'ns Inc. v. QVC Network the board's determination. Thus, courts Inc., 637 A.2d 34, 42 (Del. 1994) [hereinafter, "QVC"] will not substitute their business judgment ("[T]here are rare situations which mandate that a court for that of the directors, but will determine take a more direct and active role in overseeing the if the directors' decision was, on balance, decisions made and actions taken by directors. In these within a range of reasonableness. situations, a court subjects the directors' conduct to enhanced scrutiny to ensure that it is reasonable."). QVC, 637 A.2d at 45 (emphasis in original). Put Enhanced scrutiny has both subjective and objective differently, enhanced scrutiny "is not a license for components. Initially, the directors "bear the burden of law-trained courts to second-guess reasonable, but persuasion to show that their motivations were proper and debatable, tactical choices that directors have made in not selfish." Mercier v. Inter-Tel (Del.), Inc., 929 A.2d good faith." In re Toys "R" Us, Inc. S'holder Litig., 877 786, 810 (Del. Ch. 2007). Adapted to the M&A context, A.2d 975, 1000 (Del. Ch. 2005); accord Dollar Thrifty, the directors must show that they sought "to secure the 2010 Del. Ch. LEXIS 192, 2010 WL 3503471, at *17 transaction offering the best value reasonably available ("[A]t bottom Revlon is a test of reasonableness; directors for the stockholders." [**42] QVC, 637 A.2d at 44. The are generally free to select the path to value key verb is "sought." Time-bound mortals cannot foresee maximization, so long as they choose a reasonable route the future. The test therefore cannot be whether, with to get there."). What typically drives a finding of hindsight, the directors actually achieved the best price. unreasonableness [**44] is evidence of self-interest, "Rather, the duty can only be to try in good faith, in such undue favoritism or disdain towards a particular bidder, a setting, to get the best available transaction for the or a similar non-stockholder-motivated influence that shareholders. Directors are not insurers." Citron v. calls into question the integrity of the process. See Dollar Fairchild Camera and Instrument Corp., 1988 Del. Ch. Thrifty, 2010 Del. Ch. LEXIS 192, 2010 WL 3503471, at LEXIS 67, 1988 WL 53322, at *16 n.17 (Del. Ch. May *18-19; Toys "R" Us, 877 A.2d at 1000-01. 19, 1988) (Allen, C.); accord In re Dollar Thrifty S'holder Litig., 14 A.3d 573, 2010 Del. Ch. LEXIS 192, 2 See, e.g., Hubbard v. Hollywood Park Realty 2010 WL 3503471, at *32 (Del. Ch. Sept. 8, 2010). Enters., Inc., 1991 Del. Ch. LEXIS 9, 1991 WL 3151, at *10 (Del. Ch. Jan. 14, 1991) Having made the necessary subjective showing, the ("[O]ccasions do arise where board inaction, even directors next must demonstrate that "their actions were where not inequitable in purpose or design, may reasonable in relation to their legitimate objective." nonetheless operate inequitably."); 1991 Del. Ch. Mercier, 929 A.2d at 810. The directors bear the burden LEXIS 9, [WL] at *7 n.9 ("To be 'inequitable', of proving that they (i) followed a reasonable such conduct does not necessarily require a decision-making process and based their decisions on a dishonest, selfish, or evil motive."); Stahl v. Apple reasonable body of information, and (ii) acted reasonably Bancorp, Inc., 579 A.2d 1115, 1121 (Del. Ch. in light of the circumstances then existing. QVC, 637 1990) (Allen, C.) ("Fiduciaries who are A.2d at 45. The reasonableness standard permits a subjectively operating selflessly might be reviewing court to address inequitable action even when pursuing a purpose that a court will rule is directors may have subjectively [*831] believed that inequitable."); Blasius Indus., Inc. v. Atlas Corp., they were acting properly.2 That said, the objective 564 A.2d 651, 663 (Del. Ch. 1988) (Allen, C.) standard [**43] does not permit a reviewing court to (holding that, where board acted with purpose of freely substitute its own judgment for the directors'. interfering with shareholder vote, "even finding [A] court applying enhanced judicial the action taken was taken in good faith, it scrutiny should be deciding whether the constituted an unintended violation of the duty of directors made a reasonable decision, not loyalty that the board owed to the shareholders" a perfect decision. If a board selected one and noting "parenthetically that the concept of several reasonable alternatives, a court [**45] of an unintended breach of the duty of should not second-guess that choice even loyalty is unusual but not novel"). Each of these Page 13 25 A.3d 813, *831; 2011 Del. Ch. LEXIS 30, **45

cases involved the question of injunctive relief; Rollover IRA v. Margolis, 2008 Del. Ch. LEXIS none addressed the separate issue of whether 78, 2008 WL 5048692, at *8 (Del. Ch. June 27, defendant directors could be held liable for 2008) ("[I]t is imperative for the stockholders to monetary damages. be able to understand what factors might influence the financial advisor's analytical efforts. In evaluating the adequacy of the directors' . . . For that reason, the . . . benefits [**47] of the decision-making and the information they had available, Merger to [the investment bankers,] beyond its a reviewing court necessarily will consider the extent to expected fee, must also be disclosed to . . . which a board has relied on expert advisors. When stockholders."); see also In re Lear Corp. S'holder responding to a takeover bid or considering a final-stage Litig., 926 A.2d 94, 114 (Del. Ch. 2007) transaction, the directors' advisors play a pivotal role. (requiring disclosure of CEO conflict of interest Frequently, the outside directors who where CEO acted as negotiator; "Put simply, a find themselves in control of a corporate reasonable stockholder would want to know an sale process have had little or no important economic motivation of the negotiator experience in the sale of a public singularly employed by a board to obtain the best company. They are in terra incognito price for the stockholders, when that motivation [sic]. Naturally, they turn for guidance to could rationally lead that negotiator to favor a their specialist advisors who will typically deal at a less than optimal price, because the have had a great deal of relevant procession of a deal was more important to him, experience. given his overall economic interest, than only doing a deal at the right price."). 4 See Ortsman v. Green, 2007 Del. Ch. LEXIS William T. Allen, Independent Directors In MBO 29, 2007 WL 702475, at *1 (Del. Ch. Feb. 28, Transactions: Are They Fact or Fantasy?, 45 Bus. Law. 2007) (ordering expedited discovery where 2055, 2061 (1990). "It is obvious that no role is more target's financial advisor participated in the critical with respect to protection of shareholder interests buy-side financing even though company retained in these matters than that of the expert lawyers [and here a separate financial advisor to render a fairness I add financial advisors] who guide [**46] sometimes opinion); Khanna v. McMinn, 2006 Del. Ch. inexperienced directors through the process." In re Fort LEXIS 86, 2006 WL 1388744, at *25 (Del. Ch. Howard Corp. S'holders Litig., 1988 Del. Ch. LEXIS May 9, 2006) (finding plaintiffs had raised facts 110, [*832] 1988 WL 83147, at *12 (Del. Ch. Aug. 8, sufficient to "create a reasonable doubt that the 1988) (Allen, C.). transaction was the product of a valid exercise of Because of the central role played by investment business judgment" where investment [**48] banks in the evaluation, exploration, selection, and bank provided a bridge loan to the target and thus implementation of strategic alternatives, this Court has had an interest in ensuring the closing of the required full disclosure of investment banker transaction); In re Prime Hospitality, Inc. compensation and potential conflicts.3 This Court has not S'holders Litig., 2005 Del. Ch. LEXIS 61, 2005 stopped at disclosure, but rather has examined banker WL 1138738, at *12 (Del. Ch. May 4, 2005) conflicts closely to determine whether they tainted the (rejecting settlement of Revlon claim and directors' process.4 questioning "how can the Court attribute weight to the notion that Bear Stearns [the allegedly 3 See In re John Q. Hammons Hotels Inc. conflicted banker] was retained by Prime to shop S'holder Litig., 2009 Del. Ch. LEXIS 174, 2009 the company?"). WL 3165613, at *16 (Del. Ch. Oct. 2, 2009) (emphasizing importance of disclosure of In Toys "R" Us, Vice Chancellor Strine considered potential banker conflict of interest and explaining whether an investment banker's role in providing stapled that "[t]here is no rule . . . that conflicts of interest financing created a conflict of interest that merited must be disclosed only where there is evidence injunctive relief. At the outset of the sale process that the financial advisor's opinion was actually challenged in that case, the sell-side investment banker, affected by the conflict"); David P. Simonetti First Boston, asked about possibly providing buy-side Page 14 25 A.3d 813, *832; 2011 Del. Ch. LEXIS 30, **48

financing for purchasers of a subsidiary. "The board After the early 2010 process terminated, Barclays promptly nixed that idea." 877 A.2d at 1005. Then, became more aggressive. In September, Barclays paired following a lengthy process during which the form of the up Vestar and KKR in violation of their confidentiality transaction shifted from a sale of the subsidiary to a sale agreements with Del Monte. Barclays then assisted of the whole company, and two months after the process Vestar and KKR in preparing an indication of interest. culminated in an executed merger agreement, First [**51] After being re-engaged by Del Monte, Barclays Boston again asked to be permitted to provide a portion again did not disclose its interactions with the banks or its of the buy-side financing. This time the board agreed. plan to secure a buy-side role, and it actively concealed Vice Chancellor Strine described [**49] that decision as the fact that Vestar and KKR were working together. "unfortunate, in that it tends to raise eyebrows by creating When KKR "formally requested" permission to make a the appearance of impropriety, playing into already joint bid with Vestar, Barclays did not come clean, and heightened suspicions about the ethics of investment Del Monte agreed without seeking to extract any banking firms." Id. at 1006. He suggested it would have pro-stockholder concession or other advantage. Before been "[f]ar better, from the standpoint of instilling the Merger Agreement was signed and with price confidence, if First Boston had never asked for negotiations still on-going, Barclays sought and obtained permission, and had taken the position that its credibility a buy-side role and worked with KKR to develop as a sell-side advisor was too important in this case, and financing. As a result, at the same time Barclays in general, for it to simultaneously play on the buy-side in ostensibly was negotiating to get KKR to pay more, a deal when it was the seller's financial advisor." Id. He Barclays had an incentive as a well-compensated lender likewise noted that "it might have been better, in view of to ensure that a deal was reached and that KKR did not First Boston's refusal to refrain, for the board of the overpay. Company [*833] to have declined the request, even though the request came on May 12, 2005, almost two But for Barclays' manipulations, the Del Monte months after the board had signed the merger agreement." process would have played out differently. If the directors Id. Nevertheless, after reviewing in detail the public, had known at the outset of Barclays' intentions and year-long, multi-phase process that the board and its activities, the Board likely would have hired a different banker conducted, Vice Chancellor Strine concluded banker. Del Monte had good relationships with Goldman "upon close scrutiny" that First Boston's appearance of Sachs and Bank of America/Merrill Lynch, and the Board conflict did not have "a causal influence" on the board's easily could have tapped either firm. Even if the directors process. Id. He cautioned that "[i]n general, however, it is decided to proceed [**52] with Barclays, the Board and advisable that investment [**50] banks representing its experienced counsel doubtless would have taken steps sellers not create the appearance that they desire buy-side to protect the integrity of the process. As soon as work, especially when it might be that they are more Barclays disclosed its buy-side aspirations, the Board likely to be selected by some buyers for that lucrative role likely would have followed Toys "R" Us and "nixed that than by others." Id. at 1006 n.46. idea." The Board and its counsel likely also would have limited the role of Barclays lending group, chaperoned its Applying these principles to the current case shows discussions with bidders, or used another bank to provide that Barclays' activities went far beyond what took place confidential feedback to the potential sponsors about in Toys "R" Us. Barclays set out to provide acquisition leverage parameters and market expectations. financing, as established by the internal screening memos from January and March 2010. Barclays' Del Monte Although Barclays' activities and non-disclosures in coverage officer pitched a Del Monte LBO to KKR, early 2010 are troubling, what indisputably crossed the Apollo, and other private equity firms that would be line was the surreptitious and unauthorized pairing of likely to use Barclays for acquisition financing. Once it Vestar with KKR. In doing so, Barclays materially secured the sell-side role, Barclays structured a small, reduced the prospect of price [*834] competition for Del private process that maximized the likelihood that it Monte. Vestar had been the high bidder in the early 2010 could provide acquisition financing. Barclays never process, and although Vestar needed a partner, a disclosed to the Board its interactions with the private non-conflicted financial advisor could have teamed equity shops or its desire to provide acquisition financing. Vestar with a different sponsor. It was to address precisely this risk of competition-limiting behavior that Page 15 25 A.3d 813, *834; 2011 Del. Ch. LEXIS 30, **52

Del Monte secured the No Teaming Provision. Barclays' about it? efforts caused Vestar and KKR to violate the No Teaming Provision. Most egregiously, Barclays actively A. I don't remember. [**53] concealed the pairing from the Del Monte Board. It was not until the week of November 8 that KKR Q. Do you recall the Board ever "formally requested" to be allowed to partner with authorizing KKR in writing at any time Vestar. Barclays continued to hide its involvement and prior to the week of November 8, 2010 to recommended that the pairing be permitted. communicate with Vestar about teaming up to buy Del Monte? The record does not reflect meaningful Board consideration or informed decisionmaking with respect to A. I do not recall anything of that the Vestar pairing. There are no minutes that suggest hard nature. thinking about how acceding to KKR's request might Q. Was there any discussion at the affect Del Monte. Martin testified about the issue as Board level of whether it was advisable to follows: allow a company that previously had been Q. The next paragraph [of the proxy] bidding against KKR in the January, early starts off, it says, "Later during the week January process, to now instead team up of November 8, 2010, KKR and with KKR in the late 2010 process? Centerview approached Barclays Capital about the possibility of including Vestar in [DEFENSE COUNSEL]: Objection. the deal as an additional member of the sponsor group. Representatives of KKR A. I don't remember any indicated that Vestar's prior experience in conversations about that. the food industry would make them an ideal partner for KKR/Centerview in connection with a potential investment in Martin Tr. 49-51. It was not reasonable for the Board the Company. After discussions between to accede to KKR's request and give up its best prospect KKR, Centerview and the Company, the for price competition without making any effort to obtain Company permitted KKR and Centerview a benefit for Del Monte and its stockholders. to approach Vestar to become an additional member of the sponsor group." Barclays similarly crossed the line with its late-stage Do you see that? request for permission to be one of KKR's lead banks. There was no deal-related reason for the request, just A. I do. Barclays' desire for more [**55] fees. Del Monte did not benefit. The immediate consequence was to force Del Q. Did that happen at a Board Monte to spend $3 [*835] million to hire a second bank. meeting? The more serious consequence was to taint the final negotiations. At the time Barclays made its request, the A. [**54] I don't recall. Merger Agreement was not yet signed, and Barclays and KKR were still negotiating over price. Barclays' internal Q. Do you recall the Board approving documents from January and March 2010 had stated that the concept of KKR contacting Vestar and "Barclays will look to participate in the acquisition getting them involved as part of the KKR financing once the Company has reached a definitive group? agreement with a buyer." But Barclays could not wait.

A. I don't recall that. In considering Barclays' request, the Board again Q. Do you recall how it happened? failed to act reasonably. The Board did not ask whether KKR could fund the deal without Barclays' involvement, A. I do not. and Del Monte did not learn until this litigation that Barclays was not needed on the buy-side. If the Board Q. When is the first time you heard had refused Barclays' request, then Del Monte could have Page 16 25 A.3d 813, *835; 2011 Del. Ch. LEXIS 30, **55

had a non-conflicted (or at least not directly conflicted) Although the blame for what took place appears at negotiator bargain with KKR. Without some justification this preliminary stage to lie with Barclays, the buck stops reasonably related to advancing stockholder interests, it with the Board. Delaware law requires that a board take was unreasonable for the Board to permit Barclays to an "active and direct role in the sale process." Citron v. take on a direct conflict when still negotiating price. It is Fairchild Camera & Instrument Corp., 569 A.2d 53, 66 impossible to know how the [**56] negotiations would (Del. 1989). "[T]he role of outside, independent directors have turned out if handled by a representative that did not becomes particularly important because of the magnitude have a direct conflict. The burden of that uncertainty of a sale of control transaction and the [**58] possibility, must rest with the fiduciaries who created it. in [*836] certain cases, that management [and here I add other contingently compensated professionals like Finally, Barclays' conflict tainted the go-shop investment banks] may not necessarily be impartial." process. What Barclays did looks good on the surface, QVC, 637 A.2d at 44. but the "who" is as important as the "what." As Vice Chancellor Strine explained in Netsmart, "body This is a case like Mills Acquisition Co. v. language" can be critical. In re Netsmart Techs., Inc. Macmillan, Inc., 559 A.2d 1261 (Del. 1989), in which the S'holders Litig., 924 A.2d 171, 188 (Del. Ch. 2007). Delaware Supreme Court held that injunctive relief was There, a special committee permitted the company's CEO required when a board's lack of involvement in a sale to drive a sale process involving private equity bidders process enabled management and their financial advisor who likely would retain management. to steer the deal to KKR, their preferred bidder. In Mills, In easily imagined circumstances, this management's conflict arose out of their buy-side interest approach . . . could be highly problematic. in a leveraged buyout sponsored by KKR. Id. at 1272. If management had an incentive to favor a Management tainted the sale process by communicating particular bidder (or type of bidder), it with KKR without board approval and clandestinely could use the . . . process to its advantage, passing information to KKR about the bidding process. by using different body language and Id. at 1275. Despite their independence, the directors verbal emphasis with different bidders. failed adequately to oversee the process and permitted the "She's fine" can mean different things conflicted management team and their financial advisor depending on how it is said. to exploit the opportunities it presented. Id. at 1280-81, 1284 n.32.

Id. at 194. I recognize that the level of interaction in In enjoining the proposed transaction, the Delaware the due diligence meetings discussed in Netsmart differs Supreme Court spoke directly to the implications of a from what takes place in a go-shop, particularly in the board being misled by conflicted individuals: early outreach phase, but an analogous [**57] principle [W]hen corporate directors rely [**59] applies. in good faith upon opinions or reports of officers and other experts "selected with The Strategic Committee delegated the task of reasonable care," they necessarily do so on running the go-shop to Barclays and had no direct insight the presumption that the information into how Barclays interacted with the parties it contacted. provided is both accurate and complete. Barclays had a strong interest in ensuring that a particular Normally, decisions of a board based upon kind of buyer (private equity) acquired Del Monte and a such data will not be disturbed when made keen desire to see the deal close with KKR. In the last in the proper exercise of business two years, Barclays has earned $66 million from KKR. If judgment. However, when a board is another bidder declined or did not need Barclays' deceived by those who will gain from such financing, the bank would lose half of the approximately misconduct, the protections girding the $44.5 to $47.5 million that Barclays stands to earn from decision itself vanish. Decisions made on its dual role. To recoup the lost financing fees, Barclays such a basis are voidable at the behest of would have had to find a bidder willing to pay between innocent parties to whom a fiduciary duty $24.25 and $26 per share, or an additional $1.2 and $1.4 was owed and breached, and whose billion. Not likely. interests were thereby materially and Page 17 25 A.3d 813, *836; 2011 Del. Ch. LEXIS 30, **59

adversely affected. market for corporate control by facilitating the bargaining that is central to the American model of capitalism." Morgan v. Cash, 2010 Del. Ch. LEXIS 148, 2010 WL Id. at 1283-84. The Delaware Supreme Court also 2803746, at *8 (Del. Ch. July 16, 2010) (internal addressed the role of management's financial advisor, footnotes omitted). See also Tomczak v. Morton Thiokol, finding that the board's reliance on his advice "share[d] Inc.,1990 Del. Ch. LEXIS 47, 1990 WL 42607, at *16 the same defects" as the board's reliance on conflicted (Del. Ch. Apr. 5, 1990) (granting summary judgment in management. Id. at 1284 n.33. favor of defendant Dow on claim of aiding and abetting breach of fiduciary duty because "what Dow essentially Here, the taint of self-interest came from a conflicted did [in the transaction] was to simply pursue arm's-length financial advisor rather than from management. Like the negotiations with Morton Thiokol through their directors in Mills, the Del Monte Board was deceived. At respective investment bankers in an effort to obtain . . . a minimum, Barclays withheld information about its the best price that [**62] it could."). buy-side intentions, its involvement with KKR, and its pairing of KKR and Vestar. [**60] As in Mills, "there Despite the general rule, "a bidder may be liable to can be no dispute but that such silence was misleading the target's stockholders if the bidder attempts to create or and deceptive. In short, it was a fraud upon the board." exploit conflicts of interest in the board. Similarly, a Id. at 1283. I therefore conclude that the plaintiffs have bidder may be liable to a target's stockholders for aiding established a reasonable likelihood of success on the and abetting a fiduciary breach by the target's board merits of their claim that the director defendants failed to where the bidder and the board conspire in or agree to the act reasonably in connection with the sale process. This fiduciary breach." Malpiede, 780 A.2d at 1097-98 does not mean that any director necessarily will face (internal footnotes omitted). An acquirer is free to seek money damages. The question currently before the Court the lowest possible price through arms' length is whether there is a sufficient likelihood of success on negotiations with the target board, but "it may not the merits to support injunctive relief, and that is all I knowingly participate in the target board's breach of address. See id. at 1284 n.32. fiduciary duty by extracting terms which require the opposite party to prefer its interests at the expense of its 2. The Aiding and Abetting Claim shareholders." Gilbert v. El Paso Co., 490 A.2d 1050, The plaintiffs claim that KKR aided and abetted the 1058 (Del. Ch. 1984), aff'd 575 A.2d 1131 (Del. 1990). directors' breaches of fiduciary duty. "[T]he four Creating or exploiting a fiduciary breach is not part of elements of an aiding and abetting claim [are] (1) the legitimate arm's-length bargaining; it is an impermissible existence of a fiduciary relationship, (2) a breach of the intrusion into the relationship between the fiduciary and fiduciary's duty . . . (3) knowing participation in that beneficiary. breach by the defendants, and (4) damages proximately KKR knowingly participated in Barclays' caused by the breach." Malpiede v. Townson, 780 A.2d self-interested activities. When Barclays secretly paired 1075, 1096 (Del. 2001) (internal quotation omitted). The Vestar with KKR in September 2010, KKR knew it was critical element is "knowing participation." bound by the No Teaming Provision [**63] and was [*837] A third-party bidder who negotiates at arms' barred from discussing a Del Monte bid with anyone length rarely faces a [**61] viable claim for aiding and absent prior written permission from Del Monte. KKR abetting. "Knowing participation in a board's fiduciary nevertheless worked with Barclays and Vestar on a joint breach requires that the third party act with the bid and agreed to keep Vestar's involvement hidden from knowledge that the conduct advocated or assisted the Board. KKR also knowingly participated in the constitutes such a breach. Under this standard, a bidder's creation of Barclays' buy-side conflict. Before the Board attempts to reduce the sale price through arm's-length had cleared Barclays to provide financing to KKR, negotiations cannot give rise to liability for aiding and Barclays and KKR had agreed that Barclays would be abetting." Id. at 1097. The "long-standing rule that one of the lead banks. KKR necessarily knew that arm's-length bargaining is privileged and does not, absent Barclays would not push as hard in the price negotiations actual collusion and facilitation of fiduciary wrongdoing, when it stood to earn substantial fees from both sides of a constitute aiding and abetting helps to safeguard the successful deal. KKR later ensured that a conflicted Page 18 25 A.3d 813, *837; 2011 Del. Ch. LEXIS 30, **63

Barclays would run the go-shop when KKR "squared involve[s] reasoned guesswork." Netsmart, 924 A.2d at things away" with Goldman for 5% of the syndication, 207. ending Goldman's interest in running the go-shop process. On this record, the plaintiffs have established a Defenses to monetary damages further weigh in reasonable likelihood of success on the merits of their favor of pre-vote relief. Exculpation under Section claim that KKR aided and abetted the breaches of 102(b)(7) can render empty the promise of post-closing fiduciary duty that resulted from Barclays' misconduct. damages. See 8 Del. C. § 102(b)(7); Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 244 (Del. 2009). For directors B. Irreparable Harm who have relied on qualified advisors chosen with reasonable care, Section 141(e) provides another The second requirement for a preliminary injunction powerful defense. See 8 Del. C. § 141(e); In re Walt is a showing of irreparable [*838] injury if the Disney Co. Deriv. Litig., 906 A.2d 27, 59-60 (Del. 2006). injunction is not granted. Revlon, 506 A.2d at 179. Harm [**66] In such cases, "the shareholders' only realistic is irreparable [**64] unless "alternative legal redress [is] remedy for certain breaches of fiduciary duty in clearly available and [is] as practical and efficient to the connection with a sale of control transaction may be ends of justice and its prompt administration as the injunctive relief." Police & Fire Ret. Sys. of the City of remedy in equity." T. Rowe Price Recovery Fund, L.P. v. Detroit v. Bernal, 2009 Del. Ch. LEXIS 111, 2009 WL Rubin, 770 A.2d 536, 557 (Del. Ch. 2000) (internal 1873144, at *3 (Del. Ch. June 26, 2009). In this action, quotations and citations omitted). unless post-closing discovery reveals additional facts, the plaintiffs face a long and steep uphill climb before they Absent an injunction, the Del Monte stockholders could recover money damages from the independent, will be deprived forever of the opportunity to receive a outside directors on the Board. Admittedly other pre-vote topping bid in a process free of taint from prospects for recovery are not so remote. By their terms, Barclays' improper activities. The threatened foreclosure Sections 102(b)(7) and 141(e) do not protect aiders and of this unique opportunity constitutes irreparable injury. abetters, and disgorgement of transaction-related profits See Hollinger Intern., Inc. v. Black, 844 A.2d 1022, 1090 may be available as an alternative remedy. That said, the (Del. Ch. 2004) ("[T]here is no doubt International faces skilled lawyers who represent KKR and Barclays irreparable injury. Without an injunction, it will be doubtless will have many arguments against liability. practically impossible to rescind the Barclays Transaction, the Strategic Process will be undermined, The unique nature of a sale opportunity and the and International will lose the unique opportunities the difficulty of crafting an accurate post-closing damages Process may develop."). award counsel heavily in favor of equitable relief. The plaintiffs have shown the necessary threat of irreparable Absent an injunction, Del Monte's stockholders still harm. could seek monetary damages. That inquiry, however, would "have to involve imprecise estimates," such as [*839] C. Balancing of Hardships deriving the price Del Monte's stockholders might have received in an untainted process and comparing that to The final element of the injunction standard is the what they [**65] actually received. Id. Because of the balancing of hardships: obvious difficulties presented by this inquiry, [A] court must be cautious that its stockholders "face a threat of irreparable harm when a [**67] injunctive order does not threaten seller's board breaches its Revlon duties by failing to more harm than good. That is, a court in adequately shop the company in advance of exercising its discretion to issue or deny recommending that stockholders tender their shares to a such a . . . remedy must consider all of the chosen bidder." In re Cogent, Inc. S'holder Litig., 7 A.3d foreseeable consequences of its order and 487, 515 (Del. Ch. 2010). "No doubt there is the chance balance them. It cannot, in equity, risk to formulate a rational remedy down the line, but that greater harm to defendants, the public or chance involves great cost, time, and, unavoidably, a other identified interests, in granting the large degree of imprecision and speculation. injunction, than it seeks to prevent. After-the-fact inquiries into what might have been had directors tested the market adequately . . . necessarily Page 19 25 A.3d 813, *839; 2011 Del. Ch. LEXIS 30, **67

Lennane v. ASK Computer Sys., Inc., 1990 Del. Ch. remove the taint of Barclays' involvement, they ask that LEXIS 164, 1990 WL 154150, at *6 (Del. Ch. Oct. 11, the parties be enjoined from enforcing the deal 1990) (Allen, C.). This element is by far the most protections in the Merger Agreement during that period. difficult. At this stage, it is not possible to remedy fully the On the one hand, without an injunction, Del Monte's effects of Barclays' maneuvers without blocking the deal stockholders will lose forever the chance for a and sending the parties back to the drawing board. I competitive process that could lead to a higher sale price cannot, for example, split up the Vestar/KKR team and for their company. On the other hand, granting an induce a topping bid from Vestar and a different partner. injunction jeopardizes the stockholders' ability to receive An injunction along the lines requested by the plaintiffs a premium for their shares. No one disputes, and the does not perfectly remedy the harm Barclays caused, but evidence establishes, that $19 is an attractive price. Any it does go part of the way. The core injury inflicted on the delay subjects the Merger to market risk. All else equal, a stockholders was Barclays' steering the deal to KKR. longer delay means greater risk. There is also the difficult Barclays won by doubling up on fees. KKR won by question of the parties' contract rights, which Delaware getting Del Monte, free of meaningful competition, and courts strive to respect. securing [*840] a leg-up on potential competing bidders through the defensive measures in the Merger When there is no competing proposal, this Court Agreement. The injunction sought by the plaintiffs rarely will enjoin a premium transaction pending trial. partially cures this injury by limiting [**70] KKR's See, [**68] e.g., Kohls v. Duthie, 765 A.2d 1274, 1289 leg-up and providing a final window during which a (Del. Ch. 2000); In re Wheelabrator Techs., Inc. topping bid could emerge. S'holders Litig., 1990 Del. Ch. LEXIS 145, 1990 WL 131351, at *9 (Del. Ch. Sept. 6, 1990). To issue such an I do not believe that a 30 to 45 day delay is injunction requires both "a special conviction about the warranted. A postponement of this length might be strength of the legal claim asserted" and "a strong sense appropriate if Del Monte never had been exposed to the that the risks in granting the preliminary relief of a[n] market. The reality is that although a conflicted banker untoward financial result from the stockholders' point of conducted the go-shop process, the Del Monte transaction view [are] small." Solash v. Telex Corp., 1988 Del. Ch. was shopped actively for 45 days. Since the go-shop LEXIS 7, 1988 WL 3587, at *13 (Del. Ch. Jan. 19, 1988) process ended on January 10, 2011, the Company has (Allen, C.). been subject to an additional passive market check. A further delay of 30 to 45 days ignores the fact that many At the same time, this Court has issued preliminary potential bidders have already evaluated this opportunity. injunctions designed to cure pre-vote harm. Preliminary I will therefore enjoin the merger vote for a period of injunctions against merger votes pending the issuance of only 20 days, which should provide ample time for a curative disclosures offer the prime example. Injunctions serious and motivated bidder to emerge. The resulting of that sort subject transactions to incremental market delay is comparable to the disclosure injunction in risk. See Simonetti, 2008 Del. Ch. LEXIS 78, 2008 WL Crawford. 5048692, at *14. They likewise interfere, albeit to a minor degree, with the parties' standard contract right to I agree with the plaintiffs that during the pre-vote have the merger vote as soon as reasonably practicable. period, the parties to the Merger Agreement should be See, e.g., MA § 6.2. Nevertheless, this Court has been enjoined from enforcing the deal protection measures. willing to issue disclosure-based injunctions that delay These measures are not being enjoined because they transactions for as much as twenty days. See La. Mun. coerce stockholders, preclude any alternative to the Police Empls.' Ret. Sys. v. Crawford, 918 A.2d 1172, board's chosen transaction, or otherwise fall outside the 1192 (Del. Ch. 2007). range of reasonableness. The go-shop [**71] lasted 45 days, during which the termination fee was $60 million, The [**69] plaintiffs ask me to enjoin the vote on or 1.13% of transaction value ($4 billion of equity plus the Merger for a meaningful period during which a $1.3 billion of debt). After the go-shop, the termination competing bidder may come forward. The plaintiffs have fee increases to $120 million, or 2.26% of total deal proposed a delay of 30 to 45 days, derived from the value. If included in an arms' length deal untainted by 45-day length of the earlier go-shop period. To further Page 20 25 A.3d 813, *840; 2011 Del. Ch. LEXIS 30, **71

self-interest, the defensive measures would be quite be respected. Abry P'rs V, L.P. v. F & W Acq. LLC, 891 reasonable. See Dollar Thrifty, 2010 Del. Ch. LEXIS A.2d 1032, 1061 (Del. Ch. 2006). In the deal context, 192, 2010 WL 3503471, at *23-32 (discussing alleged "[p]arties bargain for provisions in acquisition preclusiveness of termination fee); Toys "R" Us, 877 agreements because those provisions mean something." A.2d at 1015-22 (providing guidance on parameters for NACCO, 997 A.2d at 19. It is "critical to our law that termination fees).5 those bargained-for rights be enforced, both through equitable remedies such as injunctive relief and specific 5 That said, KKR's last two bid increases were performance, and, in the appropriate case, through 25 cents each. The Board has trumpeted its monetary remedies including awards of damages." Id. insistence on those increases as evidence of its (and implicitly Barclays') good faith. The go-shop When a party aids and abets a breach of fiduciary period termination fee would require a competing duty, however, the contract rights that the aider and bidder to top by more than a 25 cent increment. abetter secures as a result of the interaction must give The post go-shop fee would require a bidder to way to the superior equitable rights and interests of the top by over 50 cents. A strategic bidder that could beneficiaries. See QVC, 637 A.2d at 50-51; ACE Ltd. v. generate incremental value from synergies might Capital Re Corp., 747 A.2d 95 (Del. Ch. 1999); see also not be deterred. A private equity firm that uses the Restatement (Second) of Contracts § 193 (1981) ("A same models and strategies as KKR might view promise by a fiduciary to violate his fiduciary duty or a the fee differently. This in turn suggests (i) the promise that tends to induce such a violation is importance of the pre-signing phase to developing unenforceable on grounds of public policy."). In QVC, price competition among [**72] private equity the Delaware Supreme Court rejected the argument that bidders, and (ii) the value of actual or de facto vested contract [**74] rights took precedence over a exclusivity to a private equity buyer. See Guhan fiduciary breach. 637 A.2d at 51. The Supreme Court Subramanian, Go-Shops vs. No-Shops in Private held that because the buyer knew it was participating in a Equity Deals: Evidence and Implications, 63 Bus. breach of fiduciary duty when it negotiated the Law. 729, 759 (2008) (arguing that exclusivity is underlying deal, the buyer could not "be now heard to a valuable benefit "and therefore should be paid argue that it obtained vested contract rights by for"). When an independent and active board has negotiating and obtaining contractual provisions from a been assisted by non-conflicted advisors, a board acting in violation of its fiduciary duties." Id. The Delaware court rarely will have cause to second Supreme Court therefore preliminarily enjoined the guess this type of tactical decision. See Toys "R" no-shop provision and the termination fee and affirmed Us, 877 A.2d at 1000. the Court of Chancery's preliminary injunction against enforcement of a stock-option lockup. Id. at 36-37, 50-51. Rather, the provisions are being enjoined because they are the product of a fiduciary breach that cannot In ACE, Vice Chancellor Strine discussed the tension readily be remedied post-closing after a full trial. KKR between contract rights and the fiduciary duties owed to secured the deal protection measures as part of a stockholders. In considering a buyer's attempt to enforce negotiation that was tainted by Barclays' conflict. KKR a no-shop clause, Vice Chancellor Strine noted that "there should not benefit from the misconduct in which it are many circumstances in which the high priority our participated. society places on the enforcement of contracts between private parties gives way to even more important The traditional deference given to agreements freely concerns." 747 A.2d at 104. He cited four factors that negotiated between sophisticated parties is limited by bear on the analysis: fiduciary principles. "Delaware upholds the freedom of (1) whether the acquiror knew, or should contract and enforces as a matter of fundamental public have known, of the target board's breach policy the voluntary agreements of sophisticated parties." of fiduciary duty; (2) whether [**75] the . NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 35 . . transaction remains pending or is [*841] (Del. Ch. 2009). Sophisticated [**73] businesses already consummated at the time judicial can "make their own judgments about the risk they intervention is sought; (3) whether the should bear," and those contractual expectations should board's violation of fiduciary duty relates Page 21 25 A.3d 813, *841; 2011 Del. Ch. LEXIS 30, **75

to policy concerns that are especially to policy concerns that are especially significant." Id. at significant; and (4) whether the acquiror's 106. "[F]iduciary responsibilities are of special reliance interest under the challenged importance in situations where a board is entering into a agreement merits protection in the event transaction as significant as a merger affecting the court were to declare the agreement stockholder ownership rights." Id. at 109. Delaware has a enforceable. strong interest in policing the behavior of fiduciaries who agree to final-stage transactions. See McMullin v. Beran, 765 A.2d 910, 918 (Del. 2000). This is particularly so Id. at 105-06 (citing Paul L. Regan, Great when the illicit behavior is secretive and subversive, yet Expectations? A Contract Law Analysis for Preclusive appears to elicit yawns from Wall Street players who Corporate Lock-ups, 21 Cardozo L. Rev. 1, 116 (1999)). regard it as par for the course. After Vice Chancellor After balancing the factors, Vice Chancellor Strine held Strine's comments about buy-side participation in Toys that the contract provision could not be enforced as the "R" Us, investment banks were on notice. Delaware's buyer advocated because the stockholders' interests strong interest in policing the behavior of fiduciaries and would take precedence. Id. at 106-10. their advisors is the "(sometimes unspoken) reason [that] our law has subordinated the contract rights of third party Applying the ACE factors to this case indicates that suitors to stockholders' interests in not being improperly KKR's "bargained-for rights" should give way. First, as subjected to a fundamental corporate transaction as a discussed above in the analysis of the aiding and abetting result of a fiduciary breach by their board." ACE, 747 claim, KKR knew of and knowingly participated in the A.2d at 109. breach of duty. KKR knew that making Barclays one of its lead banks on the deal would give Barclays a direct The fourth factor is "whether [**78] the acquiror's conflict of interest at a time when KKR and Barclays reliance interest under the challenged agreement merits were still [*842] negotiating over price. KKR knew that protection in the event the court were to declare the Barclays paired it with Vestar [**76] in violation of both agreement unenforceable." Id. at 106. It is intended to firms' confidentiality agreements with Del Monte. KKR account for the reliance interests of a "wholly innocent" knew that the No Teaming Provision only be could acquiror who "was without knowledge or constructive waived by Del Monte in writing, that consent had not notice" of the breach. Regan, supra, at 107-08. KKR is been given, and that the purpose of the provision was to not such a party. prevent anticompetitive bidding alliances. KKR knew that Barclays subsequently concealed Vestar's Lastly, in balancing the equities, I have considered involvement from Del Monte and agreed with Moses to whether a preliminary injunction of this nature would keep Vestar out of meetings with Del Monte where give KKR the right to terminate the Merger Agreement. Vestar's involvement would be discovered. KKR knew If the Merger Agreement is not consummated by May 22, that the Vestar pairing served KKR's best interests. 2011, then both parties can walk. MA § 8.2(a). Prior to During the early 2010 process, Brown of KKR worried the drop-dead date, each party is obligated to use its about Vestar partnering with another firm and wrote that reasonable best efforts to consummate the Merger. Id. § KKR needed to be careful about this possibility. 6.8(a). The injunction will lift in twenty days, over two months before the drop-dead date. Second, the Merger is still pending. The stockholder vote is currently scheduled for February 15, 2011, and the The preliminary injunction will not cause the deal to drop-dead date is May 22, 2011. As in ACE, "[t]he fail because a closing condition cannot be met by the merger has not closed, the eggs have not been drop-dead date. Section 7.1(c) provides as a condition to 'scrambled,' and the court would not be in the position of closing that "[n]o court or other Government Entity of unscrambling them. Put another way, the transaction has competent jurisdiction shall have enacted, issued, not gotten to the point where [KKR's] investment and promulgated, enforced or entered any law (whether settled expectations in the deal are so substantial that it is temporary, [*843] preliminary or permanent) that unfair for [its] contract rights to give way to the interests [**79] is in effect and restrains, enjoins or otherwise of [Del [**77] Monte's] shareholders." 747 A.2d at 109. prohibits consummation of the Merger." Id. § 7.1(c). Twenty days from now, the preliminary injunction will Third, "the board's violation of fiduciary duty relates Page 22 25 A.3d 813, *843; 2011 Del. Ch. LEXIS 30, **79

lift and there will be no injunction then "in effect" that and damages that may be incurred or suffered by them. would restrain, enjoin, or otherwise prohibit consummation of the Merger. The parties have not presented evidence on this issue. Pointing to the magnitude of the deal premium The preliminary injunction will not, itself, give either over the pre-announcement market price, the defendants party the right to terminate. Section 8.2 provides that seek a bond in the amount of $1,076,612,698.80. There is either party may terminate the Merger Agreement if "any some irony in the magnitude of the request, because the Order permanently restraining, enjoining or otherwise parties agreed in the Merger Agreement that "[a]ny party prohibiting consummation of the Merger shall become seeking an injunction or injunctions to prevent breaches final and non-appealable." Id. § 8.2 (emphasis added). I of this Agreement and to enforce specifically the terms have not permanently enjoined the Merger. and provisions of this Agreement shall not be required to provide any bond or other security in connection with any The defendants have suggested that a preliminary such order or injunction." MA § 9.10. Admittedly that injunction limiting the deal protection provisions might provision addressed a different species of claim, but it invalidate the entire agreement because of the following suggests how seriously the parties took the need for a non-severability language in Section 9.4: "[T]he parties billion-dollar bond. intend that the remedies and limitations thereon contained in Section 8.5(d) [**80] be construed as an integral The premium over market price might well be one provision of this Agreement and that such remedies and measure of damages to the [**82] stockholder class if limitations shall not be severable in any manner that the deal were lost, but that is a different question than the increases a party's liability or obligations hereunder or harm an improvidently granted injunction could inflict on under the Financing Commitments or the Guarantees." the defendants. KKR necessarily [*844] believes that The short answer is that I am not enjoining Section Del Monte is or could be made to be worth more than $19 8.5(d), which is a sole and exclusive remedy provision, per share, otherwise KKR would not have entered into but rather Section 8.5(b). A longer answer would need to the transaction. If the deal were lost, KKR would be address the question of whether a proven aider and deprived of that additional value. Although I have abetter (and we are currently at a preliminary stage) could evidence of the healthy internal rates of return that KKR rely on such a provision. thinks it can achieve, KKR has not quantified its anticipated profits for purposes of a bond. The individual If KKR attempts to terminate the Merger Agreement, defendants stand to receive some transaction-related then Del Monte has remedies. Under certain benefits, but they have not argued for a bond based on circumstances, KKR will owe Del Monte a reverse those amounts. termination fee of $249 million. See id. § 8.4(c). Del Monte can also seek specific performance of KKR's Importantly, and consistent with Solash and its obligations. See id. § 9.10. progeny, I am not enjoining the transaction from closing pending the outcome of a trial. Rather, I am imposing a D. The Injunction Bond delay akin to a disclosure-based injunction. When those injunctions issue, this Court has required at most a Under Court of Chancery Rule 65(c), "[n]o nominal bond. See Simonetti, 2008 Del. Ch. LEXIS 78, restraining order or preliminary injunction shall issue 2008 WL 5048692, at *14 n.68 (noting that a large bond except upon the giving of security by the applicant, in for a disclosure injunction would be "unprecedented"). such sum as the Court deems proper, for the payment of Even when transactions have been enjoined on such costs and damages as may be incurred or suffered by substantive grounds, bonds traditionally have been small. any party who is found to have been wrongfully enjoined [**83] See, e.g., Levco Alternative Fund, Ltd. v. Reader's or restrained." As the Delaware Supreme [**81] Court Digest Ass'n, 803 A.2d 428, 2002 WL 31835461, at *1 recently explained, "[a] party that is wrongfully enjoined (Del. Ch. 2002) (conditioning injunction against may recover damages resulting from the injunction, but recapitalization on bond of $5,000); Solar Cells, Inc. v. that recovery is limited to the amount of the bond." True N. P'rs, LLC, 2002 Del. Ch. LEXIS 38, 2002 WL Guzzetta v. Serv. Corp. of Westover Hills, 7 A.3d 467, 749163, at *8 (Del. Ch. Apr. 25, 2002) (conditioning 469 (Del. Ch. 2010). Because I am enjoining the injunction against merger on bond of $2,500). In one defendants, Rule 65(c) requires that I focus on the costs Page 23 25 A.3d 813, *844; 2011 Del. Ch. LEXIS 30, **83

case, this Court conditioned a deal-blocking injunction on competing policy considerations in a rough and imperfect a $500,000 bond. See Emerald P'rs v. Berlin, 726 A.2d way, I set bond at $1.2 million, representing 1% of the 1215, 1218 & n.1 (Del. 1999) (describing bond). The enjoined termination fee. outlier is Gimbel v. Signal Co., 316 A.2d 599 (Del. Ch. 1974), aff'd, 316 A.2d 619 (Del. 1974). The Gimbel Court 6 See Subramanian, Go-Shops vs. No-Shops, required a $25 million bond as a condition to a supra, 63 Bus. Law. at 747 (finding deal-jump preliminary injunction blocking a $480 million rate in private equity deals of 8% where deal lacks transaction where the transactional premium was $75 a go-shop, 5% where deal involved private million. Id. at 618. pre-signing market canvass plus go-shop, and 17% where single-bidder deal was followed by Although I have not enjoined the deal, I have go-shop); John C. Coates IV & Guhan enjoined the $120 million termination fee that KKR Subramanian, A Buy-Side Model of M&A otherwise would receive in the event of a topping bid. Lockups: Theory and Evidence, 53 Stan. L. Rev. That figure strikes me as the best starting point for 307, 371 (2000) (finding deal-jump rate of 3-7%). pricing the risk of a wrongful injunction. The likelihood of a topping bid, however, is low.6 With KKR as the III. [**85] CONCLUSION buyer and a market check (albeit a tainted one) already completed, a topping bid seems all the less [**84] likely. The defendants are enjoined from proceeding with I will not be surprised if no one emerges. The amount of the stockholder vote on the Merger for a period of twenty the bond should take into account the low probability of days. To the extent the defendants wish to convene the actual harm. There is likewise the need to balance the risk meeting of stockholders on February 15, 2011, and of chilling the socially-beneficial and wealth-enhancing adjourn it to a later date [*845] without holding the efforts of responsible plaintiffs' counsel to remedy and vote, they may freely do so. Pending the vote on the deter breaches of fiduciary duty against the problem of Merger, the defendants are enjoined from enforcing over-incentivizing deal litigation by giving Section 6.5(b), (c) and (h), and Section 8.5(b) of the entrepreneurial law firms a free option to enjoin Merger Agreement. The injunction is conditioned on transactions. Lacking guidance from the parties as to an plaintiffs posting bond in the amount of $1.2 million. IT alternative figure that reflects the threatened harm to the IS SO ORDERED. defendants, and having attempted to balance the Page 1

IN RE ATHEROS COMMUNICATIONS, INC. SHAREHOLDER LITIGATION

CONSOLIDATED C.A. No. 6124-VCN

COURT OF CHANCERY OF DELAWARE, KENT

2011 Del. Ch. LEXIS 36

March 1, 2011, Submitted March 4, 2011, Decided

NOTICE: and Matthew D. Stachel, Esquire of Potter Anderson & Corroon LLP, Wilmington, [*2] Delaware; and Robert THIS OPINION HAS NOT BEEN RELEASED H. Baron, Esquire and Jesse M. Weiss, Esquire of FOR PUBLICATION. UNTIL RELEASED, IT IS Cravath, Swaine & Moore LLP, New York, New York, SUBJECT TO REVISION OR WITHDRAWAL. Attorneys for Defendants Qualcomm Incorporated and T. Merger Sub, Inc.

COUNSEL: [*1] Carmella P. Keener, Esquire and P. JUDGES: NOBLE, Vice Chancellor. Bradford deLeeuw, Esquire of Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware; Joseph F. Rice, OPINION BY: NOBLE Esquire, William S. Norton, Esquire, Joshua C. Littlejohn, Esquire, and J. Brandon Walker, Esquire of OPINION Motley Rice LLC, Mr. Pleasant, South Carolina; Robert M. Roseman, Esquire, Andrew Abramowitz, Esquire, Daniel Mirarchi, Esquire of Spector Roseman Kodroff & MEMORANDUM OPINION Willis, P.C., Philadelphia, Pennsylvania; and Robert M. Kornreich, Esquire, Patricia I. Avery, Esquire, Chet B. NOBLE, Vice Chancellor Waldman, Esquire, and Matthew Insley-Pruitt, Esquire of I. INTRODUCTION Wolf Popper LLP, New York, New York, Attorneys for Plaintiffs. This action arises out of the proposed merger of Atheros Communications, Inc. ("Atheros" or the David J. Teklits, Esquire, Kevin M. Coen, Esquire, and "Company") with T. Merger Sub, Inc. (the "Acquisition Bradley D. Sorrells, Esquire of Morris, Nichols, Arsht & Vehicle"), a wholly owned subsidiary of Qualcomm Tunnell LLP, Wilmington, Delaware; and David M. Incorporated ("Qualcomm"). Inter-Local Pension Fund of Furbush, Esquire of Pillsbury Winthrop Shaw Pittman the Graphic Communications Conference of the LLP, Palo Alto, California, Attorneys for Defendants International Brotherhood of Teamsters, City of Pontiac Atheros Communications, Inc., Teresa H. Meng, Willy C. Police and Fire Retirement System, Société Générale Shih, Craig H. Barratt, Andrew S. Rappaport, Dan A. Securities Services Deutschl and Kapitalanlagegesllschaft Artusi, Charles E. Harris, Marshall L. Mohr, and mbH, and the Luc Dewulf Revocable Trust (collectively, Christine King. the "Plaintiffs") brought their purported class actions on Richard L. Horwitz, Esquire, Peter J. Walsh, Jr., Esquire, behalf of themselves and all other public shareholders of Page 2 2011 Del. Ch. LEXIS 36, *2

Atheros. Following consolidation of the several actions, two later met in May 2010, they scheduled a meeting the Plaintiffs moved for a preliminary injunction to "among a small group of executives from each of the two enjoin the proposed sale of Atheros to Qualcomm (the companies to discuss the possibility of a transaction." 2 "Transaction"). Under the agreement and plan of merger As a result, a management group from Atheros--including governing the Transaction (the "Merger Agreement"), 1 Barratt and Jack R. Lazar ("Lazar"), chief financial Qualcomm proposes to [*3] acquire Atheros for $45 per officer and senior vice president of corporate share in a $3.1 billion all-cash transaction. A vote of the development--gathered in July 2010 with representatives Atheros stockholders is scheduled for March 7, 2011. of Qualcomm. At that time, Atheros made a presentation to Qualcomm, 3 and "the parties discussed the market for 1 Transmittal Aff. of P. Bradford deLeeuw, Esq. [Atheros's] products, [its] strategy and the strategic ("deLeeuw Aff. 1"), Ex. 5 (Merger Agreement). rationale [*5] of a potential combination with Qualcomm." 4 II. BACKGROUND 2 Decl. of Willy C. Shih, Ex. 1 ("Proxy A. The Parties Statement") at 16. The Plaintiffs have been at all relevant times 3 deLeeuw Aff. 1, Ex. 6 (Presentation for beneficial owners of Atheros common stock. Qualcomm, dated July 26, 2010). 4 Proxy Statement at 16. Atheros is a publicly traded Delaware corporation in the business of designing communications solutions for At a regularly scheduled meeting on August 17, wireless and wired communications products using 2010, the Board first learned of the ongoing discussions metal-oxide semiconductor processes. The individual between the respective management teams of Atheros defendants, Craig H. Barratt ("Barratt"), Teresa H. Meng, and Qualcomm. The Board approved of these discussions Willy C. Shih ("Shih"), Andrew S. Rappaport, Dan A. and authorized Atheros's management to provide 5 Artusi ("Artusi"), Charles E. Harris, Marshall L. Mohr Qualcomm with more information. ("Mohr"), and Christine King, comprise the Company's 5 deLeeuw Aff. 1, Ex. 4 ("Artusi Dep.") at board of directors (the "Board"). Barratt also serves as 13-16. chief executive officer and president. C. Efforts' to Retain a Financial Advisor Qualcomm, a publicly traded Delaware corporation, is in the business of wireless telecommunications. It Around September 8, 2010, Atheros's management manufactures mobile phone chips and develops, makes, and the Board communicated about the need to engage a and markets digital wireless communications products financial advisor to assist with the Qualcomm acquisition and services. Qualcomm incorporated the Acquisition talks. Among the candidates proposed by Barratt was Vehicle in Delaware to effectuate the Transaction. That Qatalyst Partners LP ("Qatalyst"). 6 The Board supported entity will [*4] merge with Atheros upon completion of management-initiated contact with Qatalyst and later the Transaction and will thereafter cease to exist. instructed management to negotiate the terms of the engagement, subject to the Board's approval. In selecting B. Initial Contacts' between Atheros and Qualcomm Qatalyst, the Board had knowledge of its team from an Atheros and Qualcomm formed a strategic earlier transaction and recognized its expertise in the 7 partnership in 2005, which allowed Atheros to develop semiconductor industry. mobile solutions that were compatible with Qualcomm's 6 deLeeuw Aff. 1, Ex. 10 (Sept. 8, 2010 Email platforms. Since that time, there have been periodic from Mohr to Barratt, [*6] et al.). discussions about strengthening that relationship. 7 Artusi Dep. 31-32, 35; see also Transmittal The possibility of a business combination between Decl. of Kevin M. Coen, Esq. ("Coen Decl."), Ex. Atheros and Qualcomm was raised at an industry event in 1 ("Barratt Dep.") at 44. March 2010 during a conversation between Barratt and Barrett and Lazar, among others from management, Steven M. Mollenkopf ("Mollenkopf"), executive vice met with Qatalyst personnel on September 18, 2010, to president and group president at Qualcomm. When the Page 3 2011 Del. Ch. LEXIS 36, *6

discuss the ongoing exchanges between Atheros and combination in the fall of 2010, the Board received Qualcomm. Qatalyst later provided Atheros with a draft updates from management at its regularly [*8] scheduled engagement letter on November 18, 2010. 8 Thereafter, September and October meetings. At those meetings, the negotiations ensued over the terms of the engagement Board reiterated its decision in August to convene a letter with Lazar, at the direction of the Board, special meeting upon the delivery of an offer and representing Atheros. 9 Lazar gathered information on continued to authorize management's exchanges with fees in comparable transactions, including past Qualcomm. From those recurring exchanges came an transactions involving Qatalyst. 10 The Board at some offer from Mollenkopf--which was conveyed to point delegated authority to a committee "for the specific Barratt--on behalf of Qualcomm on November 8, 2010, to purpose of helping the negotiations on the engagement purchase Atheros. 16 That all cash offer was subject to the letter and the fee compensation for Qatalyst." 11 completion of due diligence by Qualcomm.

8 Decl. of Jack R. Lazar ("Lazar Decl."), Ex. C 16 Barratt Dep. 135-36. (Proposed Engagement Letter). 9 Barratt Dep. 44; see also Coen Decl., Ex. 2 Upon receipt of Qualcomm's offer, Barratt ("Kim Dep.") at 24, 67, 78-79. communicated the offer to the Board and a special 10 See Lazar Decl., Ex. B (Historical Fee meeting was convened later that day. 17 At that meeting, Information). Barratt and Lazar further apprised the Board of 11 Artusi Dep. 121. management's discussions with Qualcomm. Thereafter, the Board considered whether to pursue a transaction On December 14, 2010, Atheros submitted a revised with Qualcomm and requested that version of the draft engagement letter to Qatalyst that Qatalyst--representatives of which had attended part of included its proposed changes. 12 Among those changes, the meeting--address the Board at its next meeting on Atheros [*7] sought to lower the total fee and to various topics including the Qualcomm proposal, the minimize the "tail provision" that would pay Qatalyst in Company's strategic alternatives, and a valuation the event Atheros closed a future deal with a company analysis. 18 Thus, at the conclusion of that meeting, other than Qualcomm. 13 Negotiations continued in the "[t]here was no decision related to providing a response following weeks, largely over the fee amount. 14 to Qualcomm." 19 Ultimately, the final version of the engagement letter was approved and signed on December 28, 2010. 15 That 17 Id. at 136. agreement provides that Qatalyst will be paid a flat fee, 18 Coen Decl., Ex. 7 (Meeting [*9] Minutes, of which approximately 98% is contingent upon the Nov. 8, 2010). closing of the Transaction. Notably, the final negotiated 19 Barratt Dep. 137. fee amount is substantially lower than that originally proposed by Qatalyst. To continue its earlier discussions regarding the Qualcomm offer, the Board convened another special 12 Lazar Decl., Ex. D (Draft Engagement meeting on November 15, 2010. In accordance with the Letter). Board's November 8 request, Qatalyst made a 13 Id.; see also Artusi Dep. 120-21. presentation "regarding [Qualcomm's] proposal and the 14 Kim Dep. 79. Company's strategic alternatives." 20 The Board also 15 Barratt Dep. 163; see also Supp. Transmittal discussed approaching other potential bidders that might Aff. of P. Bradford deLeeuw, Esq. ("deLeeuw have an interest in completing a transaction at a higher Aff. 2"), Ex. 25 (Dec. 30, 2010 Email from Lazar price than the opening Qualcomm offer. For that reason, to James Lederer) ("We obviously had extensive Qatalyst was directed to prepare information for the discussions with [the] Board prior to approving Board on issues relating to other possible acquirors. After and then signing the engagement letter."). it determined that Qualcomm's original offer price was not sufficient, 21 the Board authorized management to D. Qualcomm's Opening Offer to Atheros make a counteroffer within parameters specified by the Board and it "instructed . . . management to inform As Atheros and Qualcomm continued to swap [Qualcomm] that its proposed acquisition price was information and to discuss the possibility of a business inadequate." 22 Page 4 2011 Del. Ch. LEXIS 36, *9

20 Coen Decl., Ex. 8 ("Meeting Minutes, Nov. After contemplating the universe of potential 15, 2010"); see also deLeeuw Aff. 2, Ex. 21 acquirors and various factors relevant to any potential (Qatalyst Presentation, dated Nov. 15, 2010). transaction, the Board identified three companies "that it 21 Artusi Dep. 89. believed were most likely to pay the highest price for the 22 Meeting Minutes, Nov. 15, 2010. Company . . . ." 30 Among the three companies was Qualcomm with the other two referred to as "Company E. The Atheros Counterproposal A" and "Company B" in the Proxy Statement. The Board authorized management and Qatalyst to continue Based on the Board's directive, Barratt spoke with negotiations with Qualcomm and to initiate discussions Mollenkopf on November 17, [*10] 2010; he declined with the other two companies. In addition, the Board Qualcomm's original offer and conveyed the Company's sought information from Qatalyst regarding a fourth 23 counteroffer. In response, Mollenkopf informed company, referred to as "Company C." 31 Barratt that the Board's counteroffer "was well above any range that Qualcomm was considering." 24 30 Id. 31 Kim Dep. 52. The Court has been apprised of 23 Barratt Dep. 141. the identities of the alphabet companies. It 24 Id. at 142-43. suffices to note that all are well-known, operate in In subsequent weeks, Mollenkopf and Barratt kept the same environment as Atheros and Qualcomm, open a dialogue on the price issue. As they attempted to and could be expected to have the financial bridge the gap, both suggested alternate prices with the wherewithal to complete [*12] a transaction in caveat that those figures would require board approval excess of $3 billion. 25 before either side could commit to a firm offer. Barratt Qatalyst contacted Company A and Company B, on informed the Board of these developments in a November December 1 and December 2, respectively, in accordance 26 25, 2010 email and at a December 1, 2010 special with the Board's decision. 32 Company A stated that it 27 meeting. would consider a transaction with Atheros internally 33 25 See Barratt Dep. 144, 146, 148; Coen Decl., before answering. When, on December 6, Qatalyst Ex. 3 (Mollenkopf Dep.) at 74-75. again asked Company A if it was interested in discussing 26 Coen Decl., Ex. 4 (Nov. 26, 2010 Email from a transaction with Atheros, Company A replied that it had 34 Shih to Barratt, et al.). not yet made a determination. Company B responded 27 Barratt Dep. 149-50. the day after Qatalyst's original query that it had no interest in a merger with Atheros. 35 F. The Board's' Consideration of Other Potential Acquirors 32 Barratt Dep. 82, 100; Proxy Statement at 19. 33 Kim Dep. 77. In addition to learning of the then-current state of 34 Proxy Statement at 20; see also Kim Dep. 77, negotiations with Qualcomm from Barratt, the Board also 86-87. discussed the possibility of initiating contact with other 35 Artusi Dep. 112; Kim Dep. 104. potential acquirors at the December 1 special meeting. The Board, with the assistance of Qatalyst, analyzed a list The Board, after receiving additional information of eleven companies? [*11] including Qualcomm--that from Qatalyst, determined that Company C was unlikely may have had an interest in consummating a transaction to complete any kind of business combination with with Atheros. 28 In evaluating that list, the Board Atheros based on the historical lack of any large-scale 36 "considered a number of factors" and also deliberated on transactions involving that company. Thus, the Board whether a financial investor might consider acquiring the decided not to pursue acquisition discussions with Company. 29 Company C.

28 Kim Dep. 47. 36 Artusi Dep. 146; Kim Dep. 52-53. 29 Coen Decl., Ex. 9 (Meeting Minutes, Dec. 1, G. Continued Negotiations with Qualcomm 2010). Page 5 2011 Del. Ch. LEXIS 36, *12

While Qatalyst was contacting the other two 40 See Kim Dep. 77. companies to gauge their interest in a possible 41 Barratt Dep. 84-86. transaction, [*13] negotiations continued with 42 Id. at 88. Qualcomm. 37 As a result of those discussions, 43 Id. at 89. Qualcomm submitted to Barratt a written indication of interest on December 6, 2010. 38 That non-binding I. Exclusivity and the Merger Agreement proposal increased Qualcomm's offer price from its earlier bid. Qualcomm, however, conditioned the offer on At a special meeting on December 11, 2010, the the completion of due diligence and by requiring Atheros Board met to consider developments regarding to enter into an exclusivity agreement--a proposed form negotiations with Qualcomm and discussions with other of which was attached--before actions in furtherance of potential acquirors. Since the Board's last meeting, any transaction would continue. Atheros had been provided with a draft merger [*15] agreement; however, Qualcomm continued to demand 37 Barratt Dep. 151. exclusivity before it would further discuss the terms of 38 See deLeeuw Aff. 1, Ex. 19 (Qualcomm that agreement. Management updated the Board as to Acquisition Proposal). negotiations between Atheros and Qualcomm on the terms of exclusivity and confidentiality. Qatalyst then The Board held a special meeting the next day to reported to the Board on efforts to evaluate the interest of consider, among other things, the 'Qualcomm proposal. companies other than Qualcomm--in particular, Qatalyst After discussing the offer price and the proposed informed the Board that Company B "had indicated it exclusivity agreement, the Board determined that was not interested" and that Company A "had not made negotiations with Qualcomm should continue. an offer . . . or indicated on what timeline, if any, it might Specifically, the Board decided that it needed to review a make such an offer." 44 draft of the proposed merger agreement and to modify certain terms of the proposed exclusivity agreement 44 Coen Decl., Ex. 11 (Meeting Minutes, Dec. before moving forward with a transaction at Qualcomm's 11, 2010). At no time since that date has offer price. For that reason, the Board provided guidance Company A expressed further interest in to management regarding future negotiations, and, at that acquiring Atheros. point, withheld agreeing to exclusivity. 39 Barratt conveyed [*14] the Board's position to Mollenkopf later After determining that a significant risk existed that that day. Qualcomm might abandon any transaction with Atheros in the absence of exclusivity, the Board unanimously 39 Coen Decl., Ex. 10 (Meeting Minutes, Dec. 7, authorized the Company to enter into an agreement of 2010). that sort with Qualcomm; the exclusivity agreement was executed the next day. H. Meeting Request by Company A In the weeks following exclusivity, Qualcomm After repeated inquiries by Qatalyst into Company conducted due diligence and the parties negotiated A's interest in Atheros, Company A, on December 8, specific terms of the Transaction. The Board and its 2010, requested a meeting with the Company. 40 compensation committee convened numerous times to Although that meeting was scheduled for December 11, a [*16] evaluate the proposed transaction. senior executive of Company A was unable to attend on that date. As a result, Barratt met with that executive a On January 4, 2011, the Board met to consider the day earlier to discuss Company A's interest in acquiring Merger Agreement and Qatalyst's opinion that $45 per Atheros. 41 The next day, on December 11, share was a fair price to the Atheros shareholders. The representatives from Company A, a management team Board unanimously approved the Merger Agreement, and from Atheros, and personnel from Qatalyst met. At that that agreement was executed on the following day. meeting, Atheros provided Company A with a presentation largely the same as that given to Qualcomm III. CONTENTIONS 42 and informed its representatives that Atheros was The Plaintiffs contend that the Transaction should be imminently entering into an exclusivity agreement. 43 Page 6 2011 Del. Ch. LEXIS 36, *16

preliminarily enjoined because the Board breached its and its progeny teach that the Court must carefully fiduciary duties by implementing an inadequate sales evaluate the adequacy of the sales process employed by process and because Atheros seeks shareholder approval the Board here. 48 Specifically, the Court is called upon by means of a Proxy Statement containing material to "(1) make a determination as to whether the omissions. As described more fully below, they argue information relied upon in the decision-making process that interim injunctive relief will do no harm to the was adequate and (2) examine the reasonableness of the Company as it will simply require the Board to fulfill its directors' decision viewed from the point in time during fiduciary obligations in accordance with Delaware law. which the directors acted." 49 The Board need not follow The Plaintiffs request that the Court enjoin the one single path in reaching the ultimate goal of shareholder vote and require the Board to address the maximizing shareholder value. 50 Instead, "directors are deficiencies identified in this action. generally free to select the path to value maximization, so long as they choose a reasonable route to get there." 51 In response, Atheros and the Board argue that the Thus, Delaware courts recognize that, in assessing Plaintiffs have not demonstrated a reasonable probability directors' conduct, there is no single sale-process of success on the merits of any of their claims and have blueprint to follow, 52 and the question to be answered by failed to show that the Plaintiffs will suffer irreparable the Court "in a sales context is whether the directors harm. They further contend that the [*17] equities weigh made a reasonable decision, not a perfect decision." 53 It against issuance of interim injunctive relief because the is the Board's burden to prove it was sufficiently shareholders of Atheros will be deprived of the informed and acted reasonably. 54 opportunity to vote on the Transaction, which offers a significant premium and is the only offer currently 46 In re Dollar Thrifty S'holder Litig., 14 A.3d available. Should the Plaintiffs' request be granted, they 573, 2010 Del. Ch. LEXIS 192, 2010 WL suggest that Qualcomm may abandon the Transaction 5648895, at *17 (Del. Ch. Sept. 8, 2010). altogether. 47 Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986). IV. ANALYSIS 48 See [*19] In re Del Monte Foods Co. S'holders Litig., 2011 Del. Ch. LEXIS 30, 2011 A. Preliminary Injunction Standard WL 532014, at *15 (Del. Ch. Feb. 14, 2011) In order to obtain the "extraordinary remedy" of a (emphasizing both the subjective and objective preliminary injunction, the Plaintiffs must show: (i) a aspects of the Court's enhanced scrutiny analysis). reasonable probability that they will be successful on the 49 In re Cogent, Inc. S'holder Litig., 7 A.3d 487, merits of their claims at trial; (ii) that they will suffer 497 (Del. Ch. 2010). imminent, irreparable harm if an injunction is denied; and 50 Id. (iii) that the harm to the Plaintiffs, if their application is 51 Dollar Thrifty S'holder Litig., 2010 Del. Ch. denied, will outweigh the harm to the Defendants and the LEXIS 192, 2010 WL 5648895, at *17. class if an injunction is granted. 45 52 Simonetti, 2008 Del. Ch. LEXIS 78, 2008 WL 5048692, at *5. 45 David P. Simonetti Rollover IRA v. Margolis, 53 Dollar Thrifty S'holder Litig., 2010 Del. Ch. 2008 Del. Ch. LEXIS 78, 2008 WL 5048692, at LEXIS 192, 2010 WL 5648895, at *17 (internal *5 (Del. Ch. June 27, 2008). quotation omitted). 54 Cogent, Inc. S'holder Litig., 7 A.3d at 497. B. Probability of Success The Plaintiffs suggest that the $45 per share offered 1. Price and process claims by Qualcomm represents an unfair price resulting from an unreasonable process. They also contend that the When it decided to explore a sale of Atheros that purportedly unreasonable process caused excessive involved a change of control, the Board "was charged benefits to accrue to the Company's management as a with the obligation to secure the best value reasonably result of the Transaction. Because Qatalyst only attainable for its shareholders, and to direct its fiduciary contacted two other potential acquirors, the Plaintiffs also [*18] duties to that end." 46 For that reason, Revlon 47 argue that the Board limited its ability to garner a higher Page 7 2011 Del. Ch. LEXIS 36, *19

offer than that set in the Merger Agreement. Specifically, the Plaintiffs argue that Company A may have submitted a superior offer to Qualcomm had the In addressing the Plaintiffs' contentions, the question Board refrained from authorizing the exclusivity that the Court must answer is whether the approach agreement when it did. In support of that contention, the adopted by the Board represented a reasonable choice Plaintiffs point out that on December 12, 2010--the day under the circumstances it faced. As this Court has noted, after the Board authorized exclusivity but at a time before "[w]hat typically [*20] drives a finding of management had executed [*22] the unreasonableness is evidence of self-interest, undue agreement--Company A had requested information on favoritism or disdain towards a particular bidder, or a any long-term, significant contractual obligations of similar non-stockholder-motivated influence that calls Atheros 57 and had notified Qatalyst, which relayed the into question the integrity of the process." 55 message to management, that it would be reviewing the information it had received at its earlier meetings with 55 Del Monte Foods' Co. S'holders Litig., 2011 Atheros in the coming days. 58 The exclusivity agreement Del. Ch. LEXIS 30, 2011 WL 532014, at *15. with Qualcomm was executed sometime later that day. Here, the record indicates no basis to question the Although Barratt testified that the Board was Board's good-faith desire to maximize shareholder value. subsequently informed of these developments regarding Of the Board's eight directors, seven are disinterested and Company A, it was his belief that the information was not independent, and their motivation to act in the best communicated until the Board's next meeting, held some 59 interests of the Company and its shareholders is days after Atheros went exclusive. unchallenged. Although the Plaintiffs question 57 See deLeeuw Aff. 2, Ex. 23 (Dec. 12, 2010 management's part in negotiating the Transaction, the Email from Adam Tachner to Jason DiLullo, et Board took an active role at an early point in the lengthy al.). sales process. During that period, the Board met twelve 58 See id., Ex. 24 (Dec. 12, 2010 Email from times to discuss with management the state of ongoing Jason DiLullo to Lazar, et al.). discussions with Qualcomm. At those meetings, the 59 Barratt Dep. 94-95. Board provided guidance for management to follow in responding to Qualcomm's overtures. Moreover, at many As early in the process as December 1, 2010, the of those meetings, the Board had discussions with its Board, with the assistance of Qatalyst, had identified financial advisor, Qatalyst, and the Company's outside eleven potential acquirors. From that list, which included legal counsel. As a result, it deliberated on the Company's Qualcomm, the Board decided to pursue communications strategic alternatives throughout the process, [*21] with three companies and to gather information on a including the potential for other suitors to offer a higher fourth. The Board made a reasonable judgment that many price for Atheros, and it demonstrated its willingness to of those companies listed did not have the financial [*23] discuss a sale with other serious acquirors. Ultimately, ability to complete such a large transaction and that that robust process resulted in extensive negotiations with others were competitors that might improperly use any Qualcomm and netted a significantly higher offer for the information received from Atheros in the event it Atheros shareholders--Qualcomm originally proposed remained a stand-alone company. 60 $40 per share in November 2010, Atheros countered soon thereafter at $50 per share, and the parties eventually 60 Artusi Dep. 83, 145-46; Kim Dep. 47-48. agreed on $45 per share. 56 As for the specific circumstances surrounding the 56 The proposed $45 per share price represents exclusivity agreement with Qualcomm and the an approximate premium of 21% over Atheros's discussions with Company A, the Plaintiffs are unlikely closing price of $37.02 on January 3, 2011--which to prove that the Board acted unreasonably in preserving was the last full trading day before rumors of a the increased offer from Qualcomm--which was merely a transaction involving the Company were made non-binding proposal at that time and the only offer then public. See Proxy Statement at 72. available--that had resulted from a careful negotiation process. There is no suggestion in the record that the The Plaintiffs focus the Court's attention on the Board was biased against Company A or that it was Company's dealings with other potential acquirors. trying to short-circuit discussions with other potential Page 8 2011 Del. Ch. LEXIS 36, *23

bidders. Rather, Company A, despite its awareness that Company's industry and it employed a robust and Atheros was moving quickly with another acquiror and sophisticated process. As a result, the Court will not that it intended to go exclusive in the coming days, second-guess the Board's conduct, and the Plaintiffs have offered little indication that it anticipated making a failed to demonstrate any reasonable probability of serious offer. That, combined with its initial tepid success on the merits of their price and process claims. response to scheduling a meeting with Atheros, supports the Board's decision to ask Qatalyst to contact Company 2. Disclosure claims A one last time while also authorizing management to [*24] enter into an exclusivity agreement with When soliciting stockholder action, the directors of a Qualcomm. Thus, the Board made a reasonable judgment Delaware corporation are bound by their fiduciary duties to pursue Qualcomm's definite offer--which was of care and loyalty to: conditioned on exclusivity--instead of continuing discussions with Company A at the risk of Qualcomm "disclose fully and fairly all material abandoning any transaction altogether. Because Company information within the board's control . . . A, a highly sophisticated entity, was aware of Atheros's ." The [*26] burden of establishing compressed timeline and because of its sufficient materiality rests with the plaintiff, who capabilities to complete a deal of this magnitude, had it must demonstrate "a substantial likelihood wished to be heard, it could have expressed an interest, that the disclosure of the omitted fact before, or even after, Atheros entered into the exclusivity would have been viewed by the reasonable agreement; all indications are that the Board would have investor as having significantly altered the listened. 61 'total mix' of information made available." 62 61 Related to its assertion that the Board limited Company A's ability to submit a higher offer, the Non-material facts need not be disclosed, but once a Plaintiffs also suggest that the Board, by agreeing board voluntarily makes a partial disclosure, it has "an to burdensome deal protection terms in the obligation to provide the stockholders with an accurate, Merger Agreement, precluded other bids. Compl. full, and fair characterization" of the facts relating to that ¶¶ 2, 51. The terms complained of include: (1) a partial disclosure. 63 no solicitation clause (see Merger Agreement § 4.02(a); Proxy Statement at 57-58); (2) a 62 Gantler v. Stephens, 965 A.2d 695, 710 (Del. matching rights provision (see Merger Agreement 2009) (quoting Stroud v. Grace, 606 A.2d 75, 84 § 4.02(b); Proxy Statement at 58-59); and (3) a (Del. 1992)). termination fee of $103,700,000, which represents 63 Arnold v. Soc'y for Sav. Bancorp, Inc., 650 approximately 3.3% of the total [*25] value of A.2d 1270, 1280 (Del. 1994). the Transaction (see Merger Agreement § 5.05(b); (a) Compensation of the financial advisor Proxy Statement at 64). Delaware courts have repeatedly recognized "that provisions such as Qatalyst served as the financial advisor to the Board these are standard merger terms, are not per se and offered its opinion that the Transaction "is fair, from unreasonable, and do not alone constitute a financial point of view, to" Atheros's stockholders. 64 breaches of fiduciary duty." In re 3Com S'holders Litig., 2009 Del. Ch. LEXIS 215, 2009 WL 64 Proxy Statement, Annex B, at B-1. 5173804, at *7 (Del. Ch. Dec. 18, 2009). Here, the Plaintiffs offer no evidence that these Financial advisors, such as Qatalyst, serve a critical provisions would prevent another potential function by performing a valuation of the enterprise upon acquiror from submitting a competing offer and which its owners rely in determining whether to support a ignore that no other interested suitor has emerged. sale. Before shareholders can have confidence in a fairness opinion [*27] or rely upon it to an appropriate On the whole, there is nothing in the record to extent, the conflicts and arguably perverse incentives that indicate that the Board acted unreasonably. It was an may influence the financial advisor in the exercise of its independent board with deep knowledge of the judgment and discretion must be fully and fairly Page 9 2011 Del. Ch. LEXIS 36, *27

disclosed. should know that their financial advisor, upon whom they are being asked to rely, stands to reap a large reward only Because of the central role played by if the transaction closes and, as a practical matter, only if investment banks in the evaluation, the financial advisor renders a fairness opinion in favor of exploration, selection, and implementation [*29] the transaction. In essence, the contingent fee can of strategic alternatives, this Court has readily be seen as providing an extraordinary incentive required full disclosure of investment for Qatalyst to support the Transaction. Those facts banker compensation and potential which reasonably may be understood by the stockholders conflicts. 65 to raise doubts about the independence and objectivity of Qatalyst should be disclosed. The Court does not imply that Qatalyst has committed a wrong here because of the contingent fee arrangement; it simply observes that the 65 Del Monte Foods' Co. S'holders Litig., 2011 incentives are so great that the stockholders should be Del. Ch. LEXIS 30, 2011 WL 532014, at *16; see made aware of them and that this contingent fee structure also In re John Q. Hammons Hotels' Inc. S'holder is material to their decision to support or oppose the Litig., 2009 Del. Ch. LEXIS 174, 2009 WL Transaction. 3165613, at *16-*17 (Del. Ch. Oct. 2, 2009), appeal denied, 984 A.2d 124 (Del. 2009) 67 See Blake Rohrbacher & John Mark (TABLE); Braunschweiger v. Am. Homes Shield Zeberkiewicz, Fair Summary: Delaware's Corp., 1991 Del. Ch. LEXIS 7, 1991 WL 3920, at Framework for Disclosing Fairness Opinions, 63 *6 (Del. Ch. Jan. 7, 1991). Bus. Law. 881, 900 (2008) ("[I]t should be clear that proxy statements must disclose whether the The Proxy Statement informed Atheros's fee is contingent on the successful closing of the shareholders that Qatalyst would "be paid a customary transaction and, in some cases, how much of the fee, a portion of which is payable in connection with the fee is contingent. More important than the raw rendering of its opinion and a substantial portion of size of the fee paid to the financial advisor is the 66 which will be paid upon completion of the Merger." advisor's financial incentive to ensure the Not disclosed in the Proxy Statement is the amount of transaction's success. When judging the integrity compensation that Qatalyst will receive. Perhaps more of the advisor's analysis, stockholders are likely to importantly, also not disclosed in the Proxy Statement is be concerned [*30] with potential financial biases a quantification [*28] of the amount of the fee that is that may affect the fairness opinion.")(citing La. contingent: approximately ninety-eight percent. The Mun. Police Employees' Ret. Sys. v. Crawford, "portion" of the fee that will be paid regardless of 918 A.2d 1172, 1191 (Del. Ch. 2007)("It follows whether the Transaction closes is roughly only two then that where a significant portion of bankers' percent. Thus, the compensation that Qatalyst will fees rests upon initial approval of a particular receive if the Transaction closes is nearly fifty times the transaction, that condition must be specifically fee that it would receive if there is no closing. disclosed to the shareholder. Knowledge of such 66 Proxy Statement at 35. financial incentives on the part of the bankers is material to shareholder deliberations.") and Oral Although the Proxy Statement reports that a Arg. on Pls.' Mot. for Prelim. Inj., Tr. 96, In re "substantial portion" of the fee is contingent, the BEA Sys., Inc. S'holder Litig., Consol. C.A. No. percentage of the fee that is contingent exceeds both 3298-VCL (Del. Ch. Mar. 26, 2008) ("There is a common practice and common understanding of what claim about Goldman's fee, and the issue is that constitutes "substantial." Contingent fees are undoubtedly the proxy statement discloses the total fee and routine; they reduce the target's expense if a deal is not discloses that the fee is at least in part contingent completed; perhaps, they properly incentivize the but doesn't disclose which part of the fee was financial advisor to focus on the appropriate outcome. contingent and which part wasn't. This might be a Here, however, the differential between compensation good claim if some very large part of the fee was scenarios may fairly raise questions about the financial in fact contingent . . . .")). advisor's objectivity and self-interest. 67 Stockholders Page 10 2011 Del. Ch. LEXIS 36, *30

Defendants point out that contingent fees are potentially pernicious incentives warrant customary. As set forth above, they are. Defendants argue disclosure regardless of the time remaining and, that there is no magic contingent percentage that of course, the critical time is not how long until an mandates something more than a disclosure that a agreement is reached, but how long until the "substantial portion" of the fee is contingent. [*31] merger closes. Moreover, intervening events Defendants are correct in this assertion as well. The might require a renewed effort by the financial Court, however, need not, in its current effort, draw any advisor, and those efforts might reasonably [*33] bright line. That fixing such a line might be difficult, if be perceived as subject to influence by the perhaps impossible, does not necessitate a conclusion that incentive fee arrangement. disclosure of the contingency percentage is always immaterial and of no concern. Regardless of where that In sum, the Plaintiffs have demonstrated a reasonable "line" may fall, it is clear that an approximately 50:1 probability of success on their claim that the disclosure of contingency ratio requires disclosure to generate an the contingent fee arrangement by which Qatalyst will be informed judgment by the shareholders as they determine compensated is inadequate. whether to rely upon the fairness opinion in making their decision to vote for or against the Transaction. (b) Methodology employed by the financial advisor

The parties debate whether the amount of a financial The Plaintiffs next contend that the Proxy Statement advisor's fee needs to be disclosed or whether merely contains material omissions regarding the financial disclosing that the fee is customary (which it is in this projections performed by Qatalyst when it prepared its instance) suffices. 68 It is not necessary to resolve that fairness opinion and that the Proxy Statement general debate here. Given the late agreement between inaccurately states the discount rate Qatalyst used in its Atheros and Qatalyst as to financial advisor calculations. The Plaintiffs argue that these omissions and compensation, 69 coupled with the contingent fee inaccuracies are material because they affect concerns set forth above, the stockholders should be shareholders' ability to judge the reasonableness of the afforded an opportunity to understand fully the nature and offer price and to assess the wisdom of pursuing an 70 means by which Atheros will compensate Qatalyst. Thus, appraisal action. that would include the amount of the fee as well. 70 Pls.' Opening Br. in Supp. of their Mot. for 68 See [*32] id. at 899-900 ("[W]hile Prelim. Inj. at 28. 'customary' may be fairly informative in the According to the Plaintiffs, the disclosures regarding context of a $200 million merger, it may be the methodologies used by Qatalyst to value the insufficiently detailed for a multi-billion-dollar Company are inadequate. "[W]hen a banker's merger. Moreover, the identity of the financial endorsement of the fairness of a transaction is touted to advisor or unusual aspects of the transaction itself shareholders, the valuation method used to arrive at that may strip the term 'customary' of informative opinion as well as the key inputs and range of ultimate content so as to allow a disclosure claim to [*34] values generated by those analyses must also be succeed.") (citation omitted). fairly disclosed." 71 The Proxy Statement contains a 69 The Defendants note that, as set forth above, detailed summary of Qatalyst's fairness opinion. 72 The the fee agreement between Atheros and Qatalyst summary explains methodologies Qatalyst used to arrive was reached abnormally late in the transaction at "a range of values for Atheros' common stock of process--only a few days before the Merger approximately $39.86 to $51.82 per share." 73 It Agreement was executed. It follows, they argue, illustrates that Qatalyst reached this valuation in part by that the risk that the Transaction with Qualcomm comparing "Wall Street analyst research, certain publicly would not move forward to closing was very available financial statements and press releases" small and, thus, the percentage of the fee that is regarding Atheros (the "Street Projections") to similar contingent is not material. information regarding the companies involved in sixteen 74 If anything, the unusual timing supports the comparable merger transactions. fullest disclosure. More specifically, the 71 In re Netsmart Techs., Inc. S'holders Litig., Page 11 2011 Del. Ch. LEXIS 36, *34

924 A.2d 171, 203-04 (Del. Ch. 2007). was "far more attractive than what [the financial 72 Proxy Statement at 28-35. advisor's] valuation would have shown had it used the 73 Id. at 34. discount rate" it had actually calculated. 80 74 Id. at 33-34. 78 Proxy Statement at 31. The Plaintiffs argue that, in addition to using the 79 See deLeeuw Aff. 2, Ex. 27 ("Project Street Projections, Qatalyst should have also generated a Keystone: Materials for Discussion") at valuation based on Atheros's own internal projections. Qatalyst.Atheros_0162. They contend that using the internal projections would 80 11 A.3d 1175, 2010 Del. Ch. LEXIS 115, have produced a per share value of $64 and given 2010 WL 5648896, at *1-*2 (Del. Ch. May 13, shareholders a reason to evaluate the Transaction's deal 2010). price more critically. This argument, however, boils down to a complaint that Qatalyst should have conducted Here, in contrast, Qatalyst did calculate the range of [*35] its analysis differently. The Board provided discount rates that appears in the Proxy Statement. Just as Atheros's internal projections to Qatalyst; 75 Qatalyst the presentation slide the Plaintiffs cite shows that decided that, under the methodology it employed, the Qatalyst arrived at the 9.9% to 13% range using one internal projections were not useful because they would methodology, it also shows that a different methodology not allow for an "apples to apples" comparison with the produced a range of WACCs from 9.9% to 13.8%, which information available for comparable transactions. 76 [*37] when rounded, represents the range that Qatalyst Thus, it instead used only the Street Projections in its ultimately used in the rest of its presentation to the Board valuation analysis. The Plaintiffs may disagree with that and the range that appeared in the Proxy Statement. 81 decision, but, as the Court has observed, "[t]here are Unlike the range of discount rates reported in the proxy in limitless opportunities for disagreement on the Maric Capital, the range reported in Atheros's Proxy appropriate valuation methodologies to employ, as well Statement was actually calculated and used by Qatalyst; as the appropriate inputs to deploy within those Qatalyst's decision not to use a slightly narrower range of methodologies. Considering this reality, quibbles with a rates, calculated using a different methodology, does not financial advisor's work simply cannot be the basis of a form the basis of a disclosure claim. 82 disclosure claim." 77 81 Project Keystone: Materials for Discussion at 75 Id. at 35. Qatalyst.Atheros_0134 (using a "discount range 76 See Kim Dep. 121-22. of 10.0-14.0% . . . over the projection period"); id. 77 3Com S'holders Litig., 2009 Del. Ch. LEXIS at Qatalyst.Atheros_0162 (showing the various 215, 2009 WL 5173804, at *6. discount rates associated with various possible betas, respectively). See Kim Dep. 56-61. In his Next, the Plaintiffs contend that the Proxy Statement testimony, Kim explained that Qatalyst calculated inaccurately reports the discount rate used in Qatalyst's ranges of discount rates using two methods. The calculations. They find a discrepancy between the Proxy first used a blended beta that took into account Statement, which states that projections for future years' both Atheros's beta and the betas of comparable earnings were "discounted to present values using companies; this method produced the 9.9% to weighted average cost of capital ['WACC'] ranging from 13% range. The second method used only a range 10.0% to [*36] 14.0%," 78 and portions of a presentation of betas applying to Atheros alone, and this by Qatalyst to the Board indicating that Qatalyst had also analysis produced the 10% to 14% range of calculated the WACC in a range from 9.9% to 13%. 79 WACCs. The Plaintiffs analogize these facts to those of Maric 82 See 3Com S'holders Litig., 2009 Del. Ch. Capital Master Fund, Ltd. v. Plato Learning, Inc., in LEXIS 215, 2009 WL 5173804, at *3. which the Court enjoined a transaction in part because the proxy had reported that the target's financial advisor had (c) [*38] The terms of Barratt's compensation at used a WACC range of 23% to 27% in its analysis, when, Qualcomm in fact, the highest WACC the advisor had calculated was 22.7%; the higher range suggested that the merger price The Plaintiffs next argue that the Proxy inaccurately describes the negotiations over the compensation Barratt Page 12 2011 Del. Ch. LEXIS 36, *38

would receive when he joined Qualcomm after expectations regarding the treatment they could receive" consummation of the Transaction. Barratt's future with from the acquirer. 86 By contrast, the Defendants Qualcomm, Plaintiffs suggest, could have influenced maintain that the statement that "terms" of Barratt's him, in his role as Atheros's lead negotiator, to take a less potential employment with Qualcomm were not aggressive stance on behalf of its stockholders. They discussed before December 14, 2010, is literally true, and contend that the Proxy Statement contains a materially therefore, no additional disclosures are warranted. They misleading assertion that before December 14, 2010, "Dr. do not dispute that Barratt understood, sometime before Barratt had not had any discussions with Qualcomm December 14, 2010, that he would have a job with regarding the terms of his potential employment by Qualcomm after closing. They only contend that, before Qualcomm." 83 The Plaintiffs observe that the Proxy that date, management had not engaged in anything more Statement does not disclose that Barratt knew--at some detailed than general "initial exploratory discussions" point before that date--that he would be employed by regarding Qualcomm's treatment of the many Atheros Qualcomm after closing, 84 and they argue that emails employees it was considering retaining after the exchanged between Mollenkopf and Barratt in the middle Transaction closed. Specifically, they assert that no of November 2010 concerning the "treatment of discussions occurred regarding the particular terms of employee stock options and other related equity awards," Barratt's potential employment with Qualcomm before indicate that terms of Barratt's future position with December 14. 87 Qualcomm were discussed before December 14, 2010. 85 86 Maric Capital, 2010 Del. Ch. LEXIS 115, 83 Proxy Statement at 22. 2010 WL 5648896, at *2. 84 Barratt Dep. 17 ("Q. Prior to [December 14, 87 Defs.' Answering Br. in Opp'n to Pls.' Mot. 2010], did you have [*39] an understanding with for Prelim. Inj. at 34. anyone from Qualcomm that you would be employed by Qualcomm following the merger? The language of the Proxy Statement regarding the A. Yes."); Id. at 21 (testifying that, at an October date on which the terms of Barratt's potential 29, 2010 meeting between Atheros management employment with Qualcomm were first discussed [*41] and Qualcomm management, Mollenkopf is perhaps ambiguous enough to support Defendants' "indicated that my role potentially could be reading. Further, the Proxy Statement contains robust running the same business that Atheros has today disclosures regarding the terms of Barratt's post-closing as a new division inside of Qualcomm after the employment that dispel any notion that Barratt had no merger closed"). expectations when the Merger Agreement was finalized 85 deLeeuw Aff. 1, Ex. 18 (Nov. 12, 2010 Email regarding how he would be treated by Qualcomm. 88 from Barratt to George Boutros et. al., quoting Nonetheless, the record indicates that, as of a date earlier Nov. 12, 2010 Email from Mollenkopf to Barratt) than December 14, 2010, Barratt had overwhelming ("'I caught up with my team. They have given the reason to believe he would be employed by Qualcomm treatment of employee options/equity awards after the Transaction closed. 89 Because the Proxy some initial thought but given the early stage of Statement partially addresses the process by which our conversations additional work still needs to be Barratt negotiated his future employment with completed . . . . At the end of the day, we see the Qualcomm, the Board must provide a full and fair Tango team as being a critical part of our strategy characterization of that process. . . . . It is our intent to ensure that everybody is treated fairly and that we have the proper 88 See Proxy Statement at 36-44. In particular, incentives in place going forward.'"). the Proxy Statement includes a detailed description of Barratt's offer letter from Plaintiffs argue that the discrepancies between the Qualcomm. Id. at 37-38. Proxy Statement and what the record indicates represent a 89 Barratt Dep. 17, 21. breach of the duty of disclosure under Maric Capital, in which the Court required additional disclosures where the Knowledge that, even though specific terms were not proxy [*40] statement had created "the materially elicited until later in the process, Barratt was aware that misleading impression that management was given no he would receive an offer of employment from Qualcomm at the same time he was negotiating, for Page 13 2011 Del. Ch. LEXIS 36, *41

example, the Transaction's offer price, would be shareholder value. important to a reasonable shareholder's decision regarding [*42] the Transaction. Therefore, the date on 93 Globis P'rs, L.P. v. Plumtree Software, Inc., which Barratt learned from Qualcomm that it intended to 2007 Del. Ch. LEXIS 169, 2007 WL 4292024, at employ him after the Transaction closed should be *14 (Del. Ch. Nov. 30, 2007) (internal quotation disclosed. If that additional disclosure is made, the date [*44] omitted); see also Repairman's' Serv. Corp. on which particular terms of Barratt's employment were v. Nat'l Intergroup, Inc., 1985 Del. Ch. LEXIS first discussed will be rendered less important in light of 405, 1985 WL 11540, at *8 (Del. Ch. Mar. 15, the Proxy Statement's current disclosures that the terms 1985) ("The balance of plaintiff's claims . . . themselves had been formally negotiated beginning on involve the failure of [the defendant] to provide December 14, 2010, more than three weeks before the an account of proposals and counterproposals Merger Agreement was executed on January 5, 2011. 90 made by each side in the ebb and flow of negotiations . . . . But where arm's-length 90 Proxy Statement at 22, 25, 37. negotiation has resulted in an agreement which fully expresses the terms essential to an (d) Negotiations over the offer price understanding by shareholders of the impact of the merger, it is not necessary to describe all the Finally, the Plaintiffs contend that the Proxy bends and turns in the road which led to that Statement should have disclosed the specific prices that result."). Atheros and Qualcomm proposed as they negotiated the Transaction. The Proxy Statement describes Atheros's C. Irreparable Harm negotiations with Qualcomm in detail over ten pages; it describes each meeting of the Board, the Company's The shareholders, now asked to approve the sale of communications with Qualcomm, the involvement of Atheros, are entitled to full and complete disclosure of all Qatalyst, the Board's consideration of Company C, and material facts before they vote on the Transaction, and the interest (or lack thereof) of Companies A and B. 91 It "[a]lthough it is theoretically possible to fashion does not detail the exact prices each side offered at every monetary relief in some cases, a breach of the disclosure stage of negotiations, except to explain that Qualcomm duty actually results in irreparable harm to the was [*43] not willing to move above $45 per share. 92 stockholders that is better addressed through an The Plaintiffs argue that it is not possible for shareholders injunctive remedy." 94 to evaluate whether Atheros and the Board seriously negotiated the offer price unless Qualcomm's initial offer 94 Simonetti, 2008 Del. Ch. LEXIS 78, 2008 and all of Atheros's counterproposals are disclosed. WL 5048692, at *13 (citation omitted); see also In re Staples, Inc. S'holders Litig., 792 A.2d 934, 91 Id. at 16-25. 960 (Del. Ch. 2001) ("Delaware case law 92 Id. recognizes than an after-the-fact damages [*45] case is not a precise or efficient method by which Although shareholders are entitled to a "full and fair to remedy disclosure deficiencies . . . . Therefore, characterization" of the negotiations described in the our cases recognize that it is appropriate for the Proxy Statement, Delaware law does not require Atheros court to address material disclosure problems to "give its shareholders a play-by-play description of through the issuance of a preliminary injunction merger negotiations." 93 As the Defendants argue, the that persists until the problems are corrected."). rejected proposals of each side are not material to a shareholder's decision regarding the Transaction where As discussed above, financial advisors serve a there has been no competitive bidding process and there critical function by providing fairness opinions regarding is, therefore, nothing to compare the various offers and the valuation of an enterprise, and, here, Atheros asks its counteroffers against. The Proxy Statement describes the shareholders to rely upon the fairness opinion Qatalyst negotiation process in sufficient detail that shareholders has provided; the shareholders, therefore, have the right can decide for themselves whether the offer price of $45 to disclosure of material facts that might provide reason per share is the product of arms' length negotiations and to question the reliability of that opinion. The Proxy whether these negotiations succeeded in maximizing Statement currently fails to provide the required Page 14 2011 Del. Ch. LEXIS 36, *45

disclosures regarding the contingent fee arrangement by eventual completion of the Transaction would be which Qatalyst will be compensated, and this, if not threatened by a short delay of the shareholder vote, the remedied, would constitute irreparable harm to Atheros's equities favor enjoining the shareholder vote until the shareholders' right to an informed vote on the disclosures necessary to remedy the deficiencies in the Transaction. Proxy Statement can be made.

Similarly, shareholders have the right to disclosure On the other hand, any extended delay, as would be of all material facts surrounding Barratt's role in necessary if Atheros were to be required to restart the negotiating the Transaction. The omission of the fact that sales process, for example, could potentially put the Barratt knew, as of a date earlier than December 14, Transaction at some risk (e.g., that Qualcomm would 2010, that he would [*46] be employed by Qualcomm walk away from the deal, thus denying shareholders the after closing is material in light of the Proxy Statement's premium provided in the offer price) without providing disclosure of the date on which negotiation of the terms any assurance that another suitor would emerge to offer of employment began. A failure to remedy that omission shareholders a better deal than they will receive [*48] would also cause irreparable harm to the shareholders. under the Transaction. Accordingly, the equities do not weigh in favor of such an extended delay of the By contrast, the Plaintiffs have not demonstrated a shareholder vote. likelihood of success in proving that the Proxy Statement contains other material misstatements or omissions; E. Injunction Bond therefore, the Plaintiffs' other disclosure claims do not suggest that the failure to make remedial disclosures Finally, the Court must set the amount for the bond other than those the Court has described above would risk that is required to support a preliminary injunction. 96 irreparable harm to the shareholders. Because of the limited scope of the preliminary injunction to issue, the costs and damages that may result Finally, because the Plaintiffs have failed to will likely be limited. In addition, if the Defendants make demonstrate that they are likely to succeed on the merits the curative disclosures and obtain a lifting of the of their price and process claims, and because the injunction, the short duration of the injunction would also Transaction price represents a significant premium to likely mitigate the potential for costs and damages. 97 Atheros's unaffected share price, shareholders would not Under these circumstances, a bond in the amount of be irreparably harmed by denial of the Plaintiffs' motion $25,000 will suffice as adequate security for the costs and for a preliminary injunction on the grounds that the damages that might reasonably be expected to be Transaction is the product of an inadequate sales process. encountered by the Defendants. 98 With this conclusion, 95 it is not necessary to dilate upon the challenges confronting shareholders representing a large class who 95 Thus, the Court need not discuss here the might be asked to accept a surety risk for the benefit of question of whether stockholders' appraisal rights the class far in excess of their individual financial would provide them an adequate remedy at law. investment.

D. [*47] Balancing of the Equities 96 Ct. Ch. R. 65(c). See Guzzetta v. Serv. Corp. of Westover Hills, 7 A.3d 467, 469-70 (Del. In deciding whether to grant a preliminary 2010). injunction, the Court must balance the equities between 97 See Del Monte Foods' Co. S'holders Litig., (a) ordering the required disclosures in order to ensure 2011 Del. Ch. LEXIS 30, 2011 WL 532014, at that Atheros's shareholders have the opportunity to vote *27 ("Rule 65(c) [*49] requires that [the Court] in an informed manner and (b) the risks to the Defendants focus on the costs and damages that may be or the shareholders that delaying the shareholder vote incurred or suffered by [those about to be may present. enjoined]."). In light of the paramount importance of enabling the 98 See, e.g., Simonetti, 2008 Del. Ch. LEXIS 78, shareholders to make fully informed decisions regarding 2008 WL 5048692, at *14 n.68. the Transaction and the comparatively low risk that the V. CONCLUSION Page 15 2011 Del. Ch. LEXIS 36, *49

For the foregoing reasons, Atheros and the Board will be preliminary injunction will be conditioned upon the preliminarily enjoined, pending final judgment, from Plaintiffs' posting of a bond in the amount of $25,000. conducting a stockholder meeting or stockholder vote on Otherwise, Plaintiffs' motion for a preliminary injunction the Transaction. The injunction, upon application, may be will be denied. lifted following appropriate distribution of the curative disclosures set forth in Parts IV.B.2(a) & (c), above. The An implementing order will be entered.