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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE SAUER-DANFOSS INC., ) CONSOLIDATED SHAREHOLDERS LITIGATION ) C.A. No. 5162

DEFENDANTS’ JOINT ANSWERING BRIEF IN OPPOSITION TO PLAINTIFFS’

APPLICATION FOR ATTORNEYS’ FEES

DRINKER BIDDLE & REATH LLP RICHARDS, LAYTON & FINGER, P.A. Joseph C. Schoell (I.D. No. 3133) Raymond J. DiCamillo (I.D. No. 3188) Todd C. Schiltz (I.D. No. 3253) Kevin M. Gallagher (I.D. No. 5337) Wilmington Trust Center One Rodney Square 1100 North Market St., Suite 1000 920 North King Street Wilmington, Delaware 19801 Wilmington, Delaware 19801 (302) 467-4200 (302) 651-7700 Attorneys for Defendants Sauer-Danfoss, Inc., Attorneys for Defendants Danfoss A/S, Sven Ruder and Sven Murmann Danfoss Acquisition, Inc., Jorgen M. Clausen, Niels B. Christiansen, Kim Fausing, William E. Hoover, Jr. and Per Have POTTER ANDERSON & CORROON LLP Brian C. Ralston (I.D. No. 3770) Matthew D. Stachel (I.D. No. 5419) Hercules Plaza, 6th Floor 1313 North Market Street P.O. Box 951 Wilmington, Delaware 19899 (302) 984-6000 Attorneys for Defendants Steven H. Wood, F. Joseph Loughrey and Dr. Johannes F. Kirchhoff

Dated: September 20, 2010

EFiled: Sep 20 2010 8:39PM EDT Transaction ID 33342723 Case No. 5162-VCL

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TABLE OF CONTENTS

PRELIMINARY STATEMENT .......................................................................................................1

STATEMENT OF FACTS ................................................................................................................2

ARGUMENT: PLAINTIFFS’ REQUEST FOR AN AWARD OF $790,000 IN ATTORNEYS’ FEES AND EXPENSES SHOULD BE DENIED ...........................................12

I. PLAINTIFFS’ SUITS WERE NOT MERITORIOUS WHEN FILED...................13

II. PLAINTIFFS’ SUITS DID NOT PRODUCE ANY BENEFITS SUFFICIENT TO JUSITFY THE FEES THEY SEEK..................................................................15

A. The Additional Disclosures Achieved By Plaintiffs Do Not Warrant The Fees They Seek. .........................................................20

B. The Time Expended By Plaintiffs’ Counsel Does Not Support Their Fee Request....................................................................27

C. The Remaining Factors Do Not Support Plaintiffs’ Fee Request. .................................................................................................29

CONLUSION ..................................................................................................................................30

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TABLE OF AUTHORITIES

CASES

Augenbaum v. Forman, 2006 WL 1716916 (Del. Ch. June 21, 2006).....................................................................22

Baron v. Allied Artists Pictures Corp.,

395 A.2d 375 (Del. Ch. 2010)............................................................................................29 Brinckherhoff v. Texas E. Prods. Pipeline Co. LLC,

986 A.2d 370 (Del. Ch. 2010)............................................................................................26 Chrysler Corp. v. Dann,

223 A.2d 384 (Del. 1966) ............................................................................................12, 14 CM & M Group, Inc. v. Carroll,

453 A.2d 788 (Del. 1982) ..................................................................................................12

Gottlieb v. Heyden Chem. Corp., 105 A.2d 461 (Del. 1954) ..................................................................................................12

Greenfield v. Frank B. Hall & Co., Inc.,

1992 WL 301348 (Del. Ch. Oct. 19, 1992) .......................................................................30 In re Am. Real Estate P’rs Litig.,

1997 WL 770718 (Del. Ch. Dec. 3, 1997).........................................................................12 In re Coleman Co. S’holders Litig.,

750 A.2d 1202 (Del. Ch. 1999)..........................................................................................12 In re Cox Comms., Inc. S’holders Litig.,

879 A.2d 604 (Del. Ch. 2005)...................................................................................... 14-15

In re Cox Radio, Inc. S’holder Litig., 2010 WL 1806616 (Del. Ch. May 6, 2010).......................................................................30

In re Diamond Shamrock Corp.,

1988 WL 94752 (Del. Ch. Sept. 14, 1988) ..................................................................17, 28 In re Dollar Thrifty S’holder Litig.,

2010 WL 350347 (Del. Ch. Sept. 8, 2010) ........................................................................16

In re Dunkin’ Donuts S’holders Litig., 1990 WL 189120 (Del. Ch. Nov. 27, 1990) ......................................................................12

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In re Golden State Bancorp, Inc., 2000 WL 62964 (Del. Ch. Jan. 7, 2000)............................................................................16

In re James River Group Inc. S’holders Litig., 2008 WL 160926 (Del. Ch. Jan. 8, 2008)..........................................................................22

In re Katy Industries, Inc., 1994 WL 444765 (Del. Ch. Aug. 11, 1994) ......................................................................16

In re Lear Corp. S’holder Litig., 926 A.2d 94 (Del. Ch. 2007)..............................................................................................26

In re Nat’l City S’holders Litig., C.A. No. 4123-CC (Del. Ch. July 31, 2009)................................................................ 24-25

In re Triarc Cos. S’holders Litig., 2006 WL 903338 (Del. Ch. Mar. 29, 2006).......................................................................29

Louisiana State Employees’ Retirement Sys. v. Citrix Sys., Inc., 2001 WL 1131364 (Del. Ch. Sept. 19, 2001) ....................................................................22

Off v. Ross,

2009 WL 4725978 (Del. Ch., Dec. 10, 2009)....................................................................29 Saks v. Gamble,

154 A.2d 767 (Del. Ch. 1958)............................................................................................29

Seinfeld v. Coker, 847 A.2d 330 (Del. Ch. 2000) ...........................................................................................12

Stroud v. Milliken, 1989 WL 120353 (Del. Ch. Oct. 6, 1989) .........................................................................29

Sugarland Indus. v. Thomas, 420 A.2d 142 (Del. 1980) ..................................................................................................17

Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162 (Del. 1989) ................................................................................................12

United Vanguard Fund, Inc. v. Takecare, Inc., 693 A.2d 1076 (Del. 1997) .......................................................................................... 12-13

TRANSCRIPT RULINGS

Globis Capital Partners, LP v. SafeNet, Inc., Transcript of Settlement Hearing, C.A. No. 2772-VCS (Dec. 20, 2007)....................................................................................... 25-26

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Kwait v. Berman, Excerpts of Transcript of Settlement Hearing, C.A. No. 5306-CC (Del. Ch. Aug. 16, 2010) ................................................................................25

IBEW Local Union 98 v. Noven Pharm. Inc., Excerpts of Transcript of Settlement Hearing and Rulings of the Court, C.A. No. 4732-CC (Del. Ch. Dec. 8, 2009) ...............20, 22, 27

In re Lear Corp. S’holder Litig., Excerpts of Transcript of Settlement Hearing and Rulings of the Court, C.A. No. 2728-VCS (Del. Ch. June 3, 2008) .............................................26

In re Wyeth S’holders Litig., Excerpts of Transcript of Settlement Hearing, C.A. No. 4329-VCN (Del. Ch. June 29, 2010) ................................................................................................................24

In re Zenith Nat. Ins. Corp. S’holders Litig., Transcript of Rulings of the Court from Hearing on Plaintiffs’ Counsel’s Application for Attorneys’ Fees and Expenses, C.A. No. 5296-VCL (Del. Ch. July 26, 2010) ...........................................20, 23, 27

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PRELIMINARY STATEMENT

Plaintiffs’ demand for a $790,000 fee is unwarranted and out of step with awards in

similar cases. There is nothing remarkable about this case to justify such an exceptional award.

On the contrary, this is a case where the tender offer process worked as it should have. The

Special Committee of the target fought hard for the minority shareholders in response to the

majority shareholder’s tender offer. The Special Committee negotiated two increases in the offer

price and ultimately recommended that shareholders not tender their shares when the target’s

financial results and prospects showed unexpected improvement and the majority shareholder

was unwilling to sweeten its offer any further. The shareholders were fully informed of all

material information and allowed a free choice of whether to tender their shares or not.

Ultimately, an insufficient number of shares were tendered to satisfy the “majority of the

minority” condition of the offer, and the tender offer failed. While the results were not what the

majority shareholder wanted, the process showed corporate democracy functioning as intended,

in accordance with Delaware law.

The shareholder suits at issue were the tail that most definitely did not wag the dog. The

suits were the product of an unseemly rush to the courthouse; the complaints were filed before a

tender offer had even commenced, based on nothing more than the issuance of a press release.

The premise of the lawsuits—that the majority shareholder so dominated the target and its Board

that the Special Committee would lay down rather than defend the minority shareholders—was

unfounded and proved utterly incorrect. Apart from filing premature, meritless complaints,

plaintiffs did very little. They requested a preliminary injunction in the complaints but never

filed a motion seeking to obtain one. They propounded discovery requests but never obtained

any discovery (apart from the disclosure of certain documents in settlement negotiations that

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failed). They lost the only issue actually litigated to a judicial decision when an Iowa judge

correctly rejected their attempt to impose the costs and burdens of duplicative litigation; the Iowa

court stayed litigation pending there in deference to these Delaware proceedings. Despite this,

the lawyers in that Iowa case seek an award of fees from this Court. Ultimately, at most, the

plaintiffs may be able to establish that they participated in settlement negotiations that produced

certain additional public disclosures that defendants voluntarily made after the settlement

negotiations failed. Under the precedents of this Court, those additional disclosures do not

justify the fees requested here. At most, plaintiffs may be due a nominal award. They certainly

are not entitled, however, to windfall fees which are double the value of the time they claim to

have invested in the entire litigation (in Iowa as well as Delaware), far in excess of the value of

the time they invested in the disclosure claims, and vastly in excess of any value the litigation

produced for the shareholders.

Defendants respectfully request that the fee application be denied. Alternatively, should

the Court award any fees to plaintiffs, it should award a significantly lower amount in keeping

with this Court’s well-established jurisprudence.

STATEMENT OF FACTS

The race to the courthouse. This litigation began when a press release regarding a

proposed transaction sparked a premature rush to the courthouse. On December 22, 2009,

Danfoss A/S (“Danfoss”) announced its intention to launch a tender offer during the first week of

January 2010 to acquire all of the outstanding shares of Sauer-Danfoss Inc. (“Sauer-Danfoss” or

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the “Company”) that it did not already own at a price of $10.10 per share in cash.1 At that time,

Danfoss and its subsidiaries owned approximately 75.7% of the outstanding shares of Sauer-

Danfoss. The intended offer price was to be $10.10 per share, a premium of 19.7% over the

$8.44 closing price of the Company’s stock on December 18, 2009, the last full trading day

before Danfoss notified the Company’s Board of its intention to commence a tender offer. See

Danfoss Schedule TO, dated December 22, 2009 (Appendix, Tab A).2

In response to the Danfoss announcement, Sauer-Danfoss issued a statement confirming

that it had received notice from Danfoss of Danfoss’s intent to launch a tender offer. In its

statement, Sauer-Danfoss announced that although no tender offer had yet been commenced, the

Board of Directors had empowered a Special Committee of non-management, independent

directors to consider any tender offer that might be made and to take a position on any such offer

in accordance with applicable legal requirements. The Special Committee consisted of three

directors who were neither employees of Sauer-Danfoss nor current or former employees of

Danfoss. Sauer-Danfoss also announced that the Special Committee had retained Kirkland &

Ellis LLP as its independent legal counsel. See Sauer-Danfoss Form 8-K, dated December 23,

2009 (Appendix, Tab B).

The plaintiffs did not wait for a tender offer to be commenced, much less for the Special

Committee to consider and evaluate any such offer. The day after the press release was issued,

three law suits were filed within a two-hour period. The first suit was filed by Kenneth R. 1 Danfoss is one of the largest industrial companies in Denmark. Sauer-Danfoss, a Delaware corporation, is a worldwide leader in the design, manufacture and sale of engineered hydraulic, electric and electronic systems and components for use primarily in applications of mobile equipment.

2 Material cited herein that was not previously filed, including relevant SEC filings and records of proceedings in the related Iowa case, are included in an Appendix filed with this brief. Unpublished legal authorities cited herein are included in a separate compendium.

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Loiselle in this Court. C.A. No. 5162-VCL, Dkt. No. 1. A half hour later, a suit was filed by

Michelle Freise and John Freise in the Iowa District Court for Story County (the “Iowa suit”).

See Complaint in Freise v. Sauer-Danfoss, Inc., et al., No. LACV 45714 (Iowa Dist. Ct., Story

Cty., Dec. 23, 2009) (Appendix, Tab C). An hour and a half after that filing, Laurie Forrest filed

suit in this Court.3 C.A. No. 5164-VCL, Dkt. No. 1. Thus, by December 23, 2009, although no

tender offer had been commenced, three lawsuits were already on file.4

Each of the complaints, brought as purported shareholder class actions, alleged that the

price Danfoss proposed to offer to acquire the minority interest in the Company was too low and

that the defendants, including the members of the Special Committee and the other directors of

the Company, had somehow already breached their fiduciary duties to the minority

shareholders—notwithstanding that no transaction had even been commenced, much less

completed. The complaints requested an injunction against the consummation of the proposed

tender offer as well as damages. Although there were some minor differences in the individual

defendants named in the suits, each of the suits named as defendants Sauer-Danfoss, its Board of

Directors (including the members of the Special Committee), Danfoss and Danfoss’s wholly-

owned subsidiary, Danfoss Acquisition, Inc. (“Danfoss Acquisition”), which would be the

vehicle to acquire the shares should a tender offer go forward.

Because no tender offer had been commenced, the plaintiffs based their lawsuits on

predictions. Plaintiffs alleged that Danfoss completely dominated and controlled Sauer-Danfoss

3 On January 19, 2010, this Court entered an order consolidating the Loiselle and Forrest suits for all purposes.

4 A fourth law suit was filed on February 10, 2010. That suit, brought by Scott Crouthamel in the Iowa District Court for Story County, was never prosecuted and was dismissed on June 3, 2010. Mr. Crouthamel is the sole plaintiff who has not filed an application for attorneys’ fees.

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and speculated that the Special Committee would merely “rubber-stamp” the tender offer and do

nothing to protect the interests of the public shareholders. See, e.g., Forrest Compl. ¶ 28;

Loiselle Compl. ¶¶ 28, 31, 32; Freise Compl. ¶¶ 4, 58. The reality turned out quite differently.

As described further below, the Special Committee negotiated two increases in the tender offer

price and ultimately recommended that shareholders not tender their shares when the financial

results and prospects of the Company showed unexpected improvement.

The Iowa court stays the Iowa suit in its infancy. Because plaintiffs sought to pursue

duplicative litigation in both Delaware and Iowa, defendants moved to stay the Iowa suit.

Despite the clear efficiencies of a single litigation in Delaware, the Iowa plaintiffs vigorously

opposed the stay motion, propounding discovery requests seeking to identify possible bases for

personal jurisdiction over various defendants in Iowa and forcing the parties to engage in

briefing and to conduct a hearing. At that hearing, the Iowa plaintiffs argued that Iowa was the

preferable forum for deciding the shareholders’ claims because the Delaware courts are biased in

favor of corporate defendants. See Iowa suit, Hearing tr. at 46, March 8, 2010 (Appendix, Tab

D) (plaintiffs’ counsel arguing that defendants expect “they will get a better shake from the

Delaware chancellor who traditionally protect[s] the interests of business. That’s their industry.

You know, I think the statistic is like ten percent of the income of Delaware comes just from

corporate filings. So it’s a legitimate concern, I believe, on defendants’ part that they’ll be better

treated there.”).

The Iowa court disagreed, rejecting plaintiffs’ argument “that Iowa courts would be more

sensitive to the minority shareholders’ interests in these types of cases than would be Delaware’s

forums.” Iowa suit, Order Granting Defs.’ Motion for Stay, at 2 (March 11, 2010) (Appendix,

Tab E). Ruling that “Delaware’s dispute resolution process is structured in a fashion that will

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allow it to address and adjust these parties rights with far more celerity and with far less expense

than can the Iowa District Court at present,” id. at 3, Judge Pattinson, on March 11, 2010,

entered an order staying the Iowa suit in the interests of comity in favor of the now-consolidated

Delaware litigation.

At the time it was stayed, no substantive litigation had taken place in the Iowa suit.

Defendants had not answered the complaint. No discovery had been exchanged. Beyond the

threshold battle over the motion for a stay, nothing at all had happened—or was to happen

thereafter—in the Iowa suit.

The tender offer commences. On March 10, 2010, Danfoss, through Danfoss Acquisition,

commenced a tender offer for all of the outstanding shares of stock of the Company that Danfoss

did not already own, but at the price of $13.25 (rather than $10.10) per share. As Danfoss

explained in Schedule TO filed with the SEC, Danfoss had initially contemplated offering

$10.10 per share but agreed to increase the price after discussions with representatives of the

Special Committee, which had determined, in consultation with its independent financial advisor,

Lazard Frères & Co. (“Lazard”), to recommend to the shareholders of the Company that they

accept the offer and tender their shares only at the higher price. The tender offer was

conditioned on, among other things, (i) the tender of the majority of the minority shares (that is,

shares not owned by Danfoss, its affiliates, or the directors and officers of Danfoss, its affiliates

and Sauer-Danfoss) (the “majority of the minority” condition), and (ii) there being validly

tendered, and not withdrawn prior to the expiration of the offer, a number of shares that, when

added to the number of shares already owned by Danfoss and its subsidiaries, represented at least

90% of the Company’s outstanding shares (the “90% condition”). The majority of the minority

condition was not waivable. Danfoss Schedule TO, dated March 10, 2010 (Appendix, Tab F).

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The Delaware plaintiffs file an amended complaint. On April 1, 2010, the Delaware

plaintiffs filed an amended, consolidated complaint. Dkt. No. 16. Because the tender offer was

priced at $13.25 per share, rather than the $10.10 anticipated, the Delaware plaintiffs dropped

their claim that the tender offer price was inadequate. Instead, they argued that the tender offer

was coercive because Danfoss could waive the 90% condition; plaintiffs posited a hypothetical

scenario in which the 90% condition might not be met and Danfoss might be unable to

consummate a short-form merger, and might instead recapitalize the Sauer-Danfoss debt it held

by converting the debt to equity, diluting the non-tendered shares. See Amended Consolidated

Compl. ¶¶ 7, 57-62. Plaintiffs also alleged that Danfoss’s and the Company’s SEC filings

contained material misstatements of fact and material omissions (see id. ¶¶ 55-56), and attacked

the independence of the Special Committee (see id. ¶ 54). Although plaintiffs requested in the

amended complaint (as in their initial complaints) that the Court enjoin the tender offer, at no

time before or after filing the amended complaint did the Delaware plaintiffs seek expedited

discovery or file a motion for any type of injunction. Defendants answered the amended

complaint on April 5, 2010. Dkt. Nos. 17, 18, 19.

The parties engage in settlement negotiations. In late March and early April, the parties

engaged in discussions to explore whether the litigation could be resolved. During that process,

the parties entered into a confidentiality agreement and defendants produced to plaintiffs’

counsel some 2,000 pages of confidential documents, which included minutes of the Special

Committee’s meetings; presentations and other materials provided to the Special Committee by

Lazard; and communications between the Special Committee and Danfoss. These confidential

disclosures were the only “discovery” that took place in the litigation. During the settlement

discussions, the plaintiffs recommended that certain additional disclosures be made by Danfoss

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and Sauer-Danfoss in amended filings with the SEC and the parties exchanged drafts of the

proposed disclosures. Ultimately, the settlement discussions broke down on April 3, 2010.

Defendants Make Additional Disclosures. Two days after the settlement negotiations

failed, Danfoss and Sauer-Danfoss elected to make certain additional disclosures that had been

discussed with plaintiffs in those negotiations. Although they did not believe their prior

disclosures were materially false, misleading or incomplete, defendants opted to make certain

additional disclosures discussed with the plaintiffs because they had been prepared to provide

those disclosures in a settlement of the litigation; they were comfortable that the disclosures were

accurate; and they believed that the disclosures would moot many of the claims in the amended

complaint. On April 5 and 6, 2010, Danfoss and Sauer-Danfoss filed amendments to the TO

Schedule and TO Recommendation containing the additional disclosures. Amendment No. 3 to

Danfoss Schedule TO, dated April 5, 2010 (Appendix, Tab H); Amendment No. 3 to Sauer-

Danfoss Schedule 14D-9, dated April 6, 2010 (Appendix, Tab I). These additional disclosures

were the only disclosures made by defendants in response to the litigation.

Danfoss increases the tender offer price. On April 9, 2010, Danfoss announced that it

was increasing the tender offer price to $14.00 per share and extending the offer period to April

29, 2010. The $14.00 per share offer price represented a premium of 5.7% over the previous

offer price and 3.7% over the closing price on the day before the announcement of the price

increase. Danfoss stated that $14.00 was its “best and final offer price.” Amendment No. 5 to

Danfoss Schedule TO, dated April 9, 2010 (Appendix, Tab K). Danfoss explained that it had

decided to increase the offering price after discussions with representatives of the Special

Committee and Mason Capital Management LLC (“Mason”), a major shareholder holding 1.94

million shares, or 17% of the outstanding shares not owned by Danfoss or its subsidiaries or

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affiliates. Mason had issued a press release on April 1, 2010 (four days before the additional

disclosures were filed), stating that it did not intend to tender its shares because it believed the

offer undervalued the Company. See Mason Capital press release, dated April 1, 2010

(Appendix, Tab G). Mason had subsequently indicated to representatives of the Special

Committee that it might tender its shares if there were a meaningful increase in the offer price.

Sauer-Danfoss Experiences Improved Financial Results and The Special Committee

Changes Its Recommendation. On April 15, 2010, management of the Company informed the

Special Committee that preliminary first quarter financial results were stronger than expected.

Management also informed the Committee that it had preliminarily increased its sales forecast

for the year and was evaluating increases to its EBITDA and EBIT forecasts for the year. The

Committee immediately advised shareholders not to act on its previous recommendation that

they accept Danfoss’s offer, while the Committee considered the impact the preliminary results

might have on its previous recommendation. Amendment No. 6 to Sauer-Danfoss Schedule

14D-9, dated April 15, 2010 (Appendix, Tab L). The next day, Sauer-Danfoss announced that

the Special Committee had asked the Company’s management to prepare an updated set of

projections covering 2010 through 2012 for the Committee and its financial advisor, Lazard, to

analyze. Amendment No. 7 to Sauer-Danfoss Schedule 14D-9, dated April 16, 2010 (Appendix,

Tab M). After considering those updated projections reflecting the “stronger-than-expected

preliminary first quarter financial results,” the Special Committee announced on April 23, 2010

that it was withdrawing its recommendation that shareholders accept Danfoss’s previous offer of

$13.25 per share and was instead recommending that the shareholders reject the increased offer

of $14.00 per share. Amendment No. 8 to Sauer-Danfoss Schedule 14D-9, dated April 23, 2010

(Appendix, Tab N).

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The Plaintiffs File A Second Amended Complaint. On April 22, 2010, plaintiffs moved

to file a second amended complaint. After being granted leave to file, plaintiffs filed their

Second Amended Complaint on May 3, 2010. Dkt. No. 23. Conceding that defendants’ recent

amendments had mooted many of their disclosure claims, plaintiffs (like the Special Committee)

now challenged the adequacy of the $14.00 tender offer price. See Dkt. No. 23, ¶ 94.

Danfoss Elects Not to Increase the Offer. On April 25, 2010, representatives of the

Special Committee informed representatives of Danfoss that they had consulted with Mason and

conferred with the Special Committee and determined that $21.50 per share was an offer price

that the Special Committee could recommend to shareholders, that Lazard expected that it could

approve as fair to the minority shareholders, and that Mason would be willing to support. The

next day, after considering the preliminary first quarter financial results, the newly updated

management projections, and its own experience with the Company and in the industry, Danfoss

informed the Special Committee that it would not increase the offer price beyond $14.00 per

share. Danfoss then issued a press release reiterating that $14.00 per share was its “best and final

offer price.” Amendment No. 9 to Sauer-Danfoss Schedule 14D-9, dated April 27, 2010

(Appendix, Tab O).

The tender offer fails. The tender offer expired at midnight on April 29, 2010. Some

2,320,531 shares were tendered and not withdrawn, representing approximately 20% of the

outstanding shares not held by Danfoss or its subsidiaries or affiliates. Accordingly, the offer

failed to achieve the nonwaivable majority of the minority condition, and Danfoss was unable to

consummate the tender offer. See Amendment No. 8 to Danfoss Schedule TO, dated April 30,

2010 (Appendix, Tab P).

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Sauer-Danfoss Reports Strong Quarterly Financial Results. On May 5, 2010, the

Company announced its first quarter financial results. Net sales were up 11% over the first

quarter of the previous year. Net income was $20.7 million, or 43¢ per share, compared to a net

loss of $78.4 million, or $1.62 per share for the first quarter of the previous year. Commenting

on the Company’s return to “bottom-line profitability,” the Company’s President and Chief

Executive Officer, Sven Ruder, stated that “[o]ur first quarter sales exceeded our expectations”

and represented “the first increase we have reported since the third quarter of 2008.” See Sauer-

Danfoss Form 8-K, dated May 5, 2010 (Appendix, Tab Q).

The Court dismisses the law suit. The tender offer having failed, the Court on May 13,

2010, dismissed the case as moot but retained jurisdiction to consider any application that

plaintiffs might file for an award of fees and expenses. The Court also allowed plaintiffs in the

Iowa suit, if they desired, to file such an application with this Court. Dkt. No. 27. On May 26,

2010, the plaintiffs in the Freise case in Iowa also dismissed their suit. On June 11, 2010,

plaintiffs in the consolidated Delaware litigation and in the Freise suit filed a joint application

for attorneys’ fees and expenses. Dkt. No. 29.

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ARGUMENT

PLAINTIFFS’ REQUEST FOR AN AWARD OF $790,000 IN ATTORNEYS’ FEES AND EXPENSES

SHOULD BE DENIED

Delaware courts follow the “American Rule” that parties to litigation are responsible for

the payment of their own fees, unless a statute or contract provides otherwise. Tandycrafts, Inc.

v. Initio Partners, 562 A.2d 1162, 1164 (Del. 1989); see also Chrysler Corp. v. Dann, 223 A.2d

384, 386 (Del. 1966). “Delaware courts have been very cautious in granting exceptions to [this]

rule[,]” and have construed such exceptions narrowly. CM & M Group, Inc. v. Carroll, 453

A.2d 788, 795 (Del. 1982); In re Dunkin’ Donuts S’holders Litig., 1990 WL 189120, at *10 (Del.

Ch. Nov. 27, 1990). Simply put, a losing litigant must generally pay its own fees. See Gottlieb

v. Heyden Chem. Corp., 105 A.2d 461, 462 (Del. 1954).

The “common corporate benefit” doctrine provides a narrow exception to the general

rule, under certain circumstances. This doctrine may be invoked where litigation confers a

substantial, but non-monetary, common benefit on an ascertainable class of stockholders,

provided that (i) the suit was meritorious when filed; (ii) the action producing the benefit was

taken by defendants prior to a judicial resolution of the claims; and (iii) the resulting benefit was

causally related to the suit. E.g., Tandycrafts, 562 A.2d at 1165; United Vanguard Fund, Inc. v.

Takecare, Inc., 693 A.2d 1076, 1079 (Del. 1997).

A plaintiff bears the burden of proving that the fee it requests is reasonable. See, e.g., In

re Am. Real Estate P’rs Litig. 1997 WL 770718, at *6 (Del. Ch. Dec. 3, 1997). Fee awards are

subject to “rigorous scrutiny,” and the Court must “make an independent determination of

reasonableness . . . before making . . . [the] award.” In re Coleman Co. S’holders Litig., 750

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A.2d 1202, 1212 (Del. Ch. 1999); Seinfeld v. Coker, 847 A.2d 330, 335 (Del. Ch. 2000) (citation

omitted).

As we show below, the plaintiffs’ fee application should be denied under these long-

standing principles. First, plaintiffs are not entitled to fees under the corporate benefit doctrine

because their suits were not meritorious when filed and did not produce a substantial benefit for

the Company or its shareholders. Second, the fees plaintiffs request are far from reasonable. On

the contrary, plaintiffs seek fees far in excess of any modest benefit (if there was one) caused by

the litigation, far beyond the value of the time they spent on the case, and far higher than the fees

Delaware courts have awarded in comparable cases. Plaintiffs’ request for such a windfall

should be rejected.

I. PLAINTIFFS’ SUITS WERE NOT MERITORIOUS WHEN FILED.

In order to be entitled to an award of fees under the corporate benefit doctrine, plaintiffs

must show, “as a preliminary matter,” that “the suit was meritorious when filed.” United

Vanguard, 693 A.2d at 1079. Plaintiffs’ application flounders on that preliminary test. Plaintiffs

rushed into court with conclusory and unfounded boilerplate allegations accusing the Company’s

Board and Special Committee of breaches of fiduciary duty before any tender offer had even

been commenced. Without any factual basis, plaintiffs alleged that the Special Committee was

dominated and controlled by Danfoss—before the Special Committee had an opportunity to

evaluate a tender offer, negotiate price increases, and ultimately recommend that the Company’s

shareholders reject the offer when the Company’s financial results and prospects showed

unexpected improvement.

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For a suit to be “meritorious when filed,” plaintiffs must “possess[] knowledge of

provable facts which hold out some reasonable likelihood of ultimate success.” Chrysler Corp.

v. Dann, 223 A.2d 384, 386-87 (Del. 1966). As the Supreme Court explained:

To justify an allowance of fees, the action in which they are sought must have had merit at the time it was filed. It may not be a series of unjustified and unprovable charges of wrongdoing to the disadvantage of the corporation.

Id. at 387. Any other rule “would encourage the filing of many . . . actions wholly lacking in

merit for the sole purpose of obtaining counsel fees.” Id.

As Vice Chancellor Strine observed in Cox Communications, a suit is not “meritorious

when filed” when the plaintiffs sue based on a mere press release regarding an intention to

propose a transaction, before there is any transaction to attack, and then “free-rid[e] on a special

committee’s work.” In re Cox Communications, Inc. S’holders Litig., 879 A.2d 604, 607 (Del.

Ch. 2005).

Put simply, when the plaintiffs filed their complaint they were not attacking any completed fiduciary decision. They were attacking a target that, by its very nature, was moving. The only purpose of their complaints was to act as a placeholder for a possible later attack on an actual fiduciary judgment of the Cox board to enter into a formal merger agreement . . . . The complaints therefore were unripe and without merit.

Id. at 636-37. See also id. at 608 (“the complaint’s strained accusations of wrongdoing reflected

. . . the reality that the Family’s Proposal was just that, a proposal, subject to the expected

evaluation of a Special Committee of independent directors, which would soon be formed and

have the chance to hire advisors.”). By suing prematurely, the plaintiffs in Cox Communications

lacked “‛knowledge of provable facts which held out some reasonable likelihood of ultimate

success.’” Id. at 637 (quoting Dann, 223 A.2d at 387).

There is no doubt that the plaintiffs’ lawyers possessed knowledge that their lawsuits might be successful in the sense that the Family would raise its

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negotiable bid and they would be able to settle the case and obtain an award of fees. But that is different from having any knowledge of facts that suggested that the negotiations between the Family and the Special Committee would be tainted by wrongdoing of any kind, be it because of bad faith (i.e., disloyal) or slothful (i.e., careless) behavior. The plaintiffs possessed no such facts. And, as it turned out, the Special Committee hired well-known financial and legal advisors and bargained the Family into paying a price that the plaintiffs found to be favorable.

Id. Although there are differences between the transaction at issue in Cox Communications and

the transaction here,5 the salient similarity is that in both cases the plaintiffs sued without a

factual basis, and then proceeded to stand back and allow the Special Committee to do its work

on behalf of the minority shareholders, reappearing at the end of that process to demand fees.

Here, as in Cox Communications, “[a]t most, the plaintiffs were a stand-by monitor of a Special

Committee negotiation process that could have gone wrong, but apparently never did.” Id. at

640-41. The lack of merit to the plaintiffs’ claims should preclude a fee award. See id. at 638-39

(“[O]ur courts recognize that the representative litigation process can only operate with integrity

if it is difficult to reap windfall profits by filing frivolous or premature suits . . .”).6

II. PLAINTIFFS’ SUITS DID NOT PRODUCE ANY BENEFITS SUFFICIENT TO JUSTIFY THE FEES THEY SEEK.

In order to justify an award of fees under the common corporate benefit doctrine, a

lawsuit must have “specifically and substantially benefited” the corporation or its shareholders.

Dann, 223 A.2d at 386. When the benefits are “meager or speculative,” the court may refuse to

5 In Cox Communications, the Cox family proposed to enter into a merger to buy the public shares of Cox Communications; the proposal was conditioned upon agreement to final merger terms with the Special Committee. Id. at 605.

6 Although in Cox Communications, Vice Chancellor Strine ultimately awarded fees to the plaintiffs (albeit at a greatly reduced amount) despite the Court’s ruling that plaintiffs’ complaints “were not meritorious when filed” (id. at 636), the Court did so because the party bearing the fees agreed to pay pursuant to a class action settlement and there was no injury to the class or the objectors from the fee award. Id. at 605, 637-40. Here, of course, there is no settlement, and an award of fees would injure Sauer-Danfoss and its shareholders.

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award any fees or may “discount[] the fees accordingly.” In re Golden State Bancorp, Inc., 2000

WL 62964, at *3 (Del. Ch. Jan. 7, 2000).

Plaintiffs claim that their lawsuits produced two benefits for the shareholders: an

increased tender offer price and certain additional disclosures. The first claim is legally

irrelevant (as well as factually unfounded).7 This claim is legally irrelevant because Danfoss’s

increase in the offer price did not create a “specific and substantial” benefit—or, indeed, any

benefit—for the shareholders since the tender offer was not consummated and no shareholder

received the offer price. See In re Dollar Thrifty S’holder Litig., 2010 WL 3503471, at *4 (Del.

Ch. Sept. 8, 2010) (“Value is not value if it is not ultimately paid.”).

In an analogous case, an objector to a proposed settlement of shareholder suits

challenging a cash-out merger argued that the notice to shareholders misstated their appraisal

rights. The error was corrected, but the proponents of the cash-out merger later withdrew their

offer. In denying the objector’s application for attorneys’ fees, Chancellor Allen said that “I

cannot conclude that the time counsel invested in this matter yielded any substantial benefit to

the members of the class. The time spent discovering the appraisal problem in the notice to

shareholder[s] and presenting that matter to the court was rendered moot along with every other

aspect of the proposed merger when the Carroll family abandoned its offer.” In re Katy

Industries, Inc., 1994 WL 444765 at * 4 (Del. Ch. Aug. 11, 1994) (emphasis added). Here, as

well, even if plaintiffs could claim to be somehow responsible for the increases in the tender

7 There is no factual basis for plaintiffs to take credit for increases in the tender offer price that arose out of negotiations between Danfoss and the Special Committee and that reflected Sauer-Danfoss’s improving financial results and prospects. Indeed, at the time Danfoss increased the tender offer price from $13.25 to $14.00 per share, the operative pleading (the amended and consolidated complaint) did not challenge the adequacy of the offer price. In any event, because the price increases are legally irrelevant given the failure of the tender offer to be consummated, the Court need not resolve the factual issue.

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offer price (a facially implausible claim), such an effort yielded no benefit to the shareholders

because the shareholders never received the offer price.

Plaintiffs’ only other argument is that they should be given some credit for the additional

disclosures that Danfoss and Sauer-Danfoss provided on April 5 and 6, 2010. This argument too

must fail since those disclosures (Appendix, Tabs H & I) provided no substantial benefit to either

the Company or its shareholders and cannot warrant the exorbitant fees that plaintiffs seek.

Delaware courts consider a number of factors (known as the Sugarland factors) in

evaluating fee requests. See Sugarland Indus. v. Thomas, 420 A.2d 142, 150 (Del. 1980). In the

context of a “disclosure only” benefit, the two most important factors are the significance of the

disclosures and the time and effort expended by plaintiffs’ counsel. Id. at 152. See also In re:

Diamond Shamrock Corp., 1988 WL 94752 at *5 (Del. Ch. Sept. 14, 1988) (attorney time and

rates “may assume greater significance” where the alleged benefit is not quantifiable). Here,

neither of those factors supports plaintiffs’ request for an award of $790,000 in fees and

expenses.

The additional disclosures for which plaintiffs claim credit provided some additional

peripheral details but did not alter, in any significant way, information that had already been

disclosed to the shareholders. For example, Danfoss had previously disclosed in the TO

Schedule that it had retained its financial advisor to undertake a premiums analysis of

comparable transactions, rather than a full valuation of Sauer-Danfoss. In the Amended TO

Schedule, Danfoss explained that it did not feel it needed a full valuation of Sauer-Danfoss

because Danfoss already had “extensive experience and understanding of the business of the

Company and the industry in which the Company operates” and “its own views on the value of

the Company and what it was willing to pay for the Shares.” As another example, the plaintiffs

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had complained that the TO Recommendation failed to disclose whether the Sauer-Danfoss

“Management Projections” were adjusted to remove expenses related to Sauer-Danfoss

maintaining its status as a public company; the Amended TO Recommendation explained that

such an adjustment was not made because “[m]anagement considered the amount of such

expenses on an annual basis to be immaterial to the Company’s overall projected performance.”

As yet another example, the TO Schedule and TO Recommendation had previously disclosed

that Danfoss and its financial advisor considered the Sauer-Danfoss “Management Projections”

to be overly optimistic. The Amended TO Schedule and Amended TO Recommendation further

explained that Danfoss believed the projected increases in total sales and profit margins, the

reduction in capital expenditures, and the improvements in working capital were overly

optimistic “due to the Company’s failure to meet its past projections and the significant increase

in projected performance of the Company from the projections that management prepared just a

few weeks before, in early January, to the more recent projections.” In sum, the additional

disclosures added some information on the margins regarding topics that had already been

disclosed, but did not materially change the information available to shareholders.

There is also no evidence that the additional disclosures affected any shareholder’s

decision whether to tender his or her shares. Certainly, plaintiffs provide no such evidence.

Plaintiffs trumpet the fact that Mason issued a press release on April 7, 2010, stating its view that

the additional disclosures “‛strengthened its view that the current offer of $13.25 materially

undervalues [Sauer-Danfoss].’” See Pl. Br. at 14 (quoting Mason April 7, 2010, press release,

Appendix, Tab J). What Mason’s press release showed is that the additional disclosures did not

alter Mason’s opposition to the tender offer. On April 1, 2010, prior to the additional

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disclosures, Mason had declared that it did not intend to tender its shares (see Appendix, Tab G),

and after the disclosures, Mason’s position remained the same: it would not tender.

Having failed to justify the fee they seek by pointing to the benefits of the additional

disclosures, plaintiffs fare no better by pointing to the attorney and staff hours they purportedly

invested in the case. In their fee petition, plaintiffs claimed to have collectively expended 691.45

hours of attorney and paralegal time in the entire litigation, but they failed to differentiate those

hours by the tasks performed, or list the timekeepers performing those tasks, or disclose those

timekeepers’ standard hourly rates. In response to defendants’ request, plaintiffs provided

defendants with certain charts providing some of that information. Those charts (see Appendix,

Tab R) show that plaintiffs’ lawyers now claim to have devoted 755.30 hours to the entire

litigation. Even crediting all of those hours at face value, and without challenging plaintiffs’

counsels’ claimed standard hourly billing rates, plaintiffs’ lodestar fee would amount to

$395,120.75. Adding all of the expenses they claim to have incurred ($36,701.06), plaintiffs

would bill a paying client $431,821.81, a far cry from the $790,000 that they ask this Court to

award.

Indeed, as shown below, plaintiffs seek a fee that is approximately twice the average fee

award in other cases in which the benefit derived solely from additional disclosures. Plaintiffs

also request fees that are nearly twice what they claim their lawyers would have received had

they billed all of their hours at their claimed standard billing rates (without any discount for the

hours spent on issues that provided no benefit for the Company or its shareholders like the

meritless breach of fiduciary duty claims or the ill-fated effort to resist a stay in Iowa). Given

the at best modest benefit resulting from the incremental disclosures, and the little actual

litigation that took place, there is simply no justification for awarding even average fees or the

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full amount of plaintiffs’ lawyers’ time charges, much less the exorbitant premium requested by

plaintiffs in their petition.

A. The Additional Disclosures Achieved By Plaintiffs Do Not Warrant The Fees They Seek. In a recent hearing in another case, this Court commended defense counsel in that case

for compiling a chart representing a survey of Court of Chancery decisions within the past five

years involving contested fee awards in “disclosure only” cases. See In re Zenith Nat. Ins. Corp.

S’holders Litig., C.A. No. 5296-VCL, tr. at 7 (Del. Ch. July 26, 2010) (“I did get helpful briefing

in terms of the comparable cases. . . . [S]omebody ought to get a pat on the back.”).8 That

survey is reprinted below:

CONTESTED FEE AWARDS IN “DISCLOSURE ONLY” CASES

Case Fees Awarded Fees Requested Principal Disclosures/Benefit

IBEW Local Union 98 v. Noven Pharmaceuticals Inc., 4732-CC (Dec. 8, 2009) (Laster, V.C.)

$450,000 inclusive of expenses

$975,000 inclusive of expenses

• Details about negotiation process • Disclosing financial inputs,

comparable companies/discount rates • Disclosing final projections underlying

bankers’ fairness opinion

In re Nat. City Corp. S’holders Litig., 2009 WL 2425389, at *6 (Del. Ch. July 31, 2009) (Chandler, C.) [negotiated fee, with third party objector]

$400,000 inclusive of expenses

$1.2 million inclusive of expenses

• Details in “Background to Merger” • Additional discussion of company’s

participation in troubled assets • Details on fee paid to banker

In re BEA Systems, Inc. S’holders Litig., 2009 WL 1931641 (Del. Ch. June

$81,297 inclusive of expenses

$350,000 plus $88,019.33 in expenses

• Disclosures correcting a typographical error and the sequence of events as to the timing of a press release.

8 This Court has commented on the importance of such evidence in other cases as well. See, e.g., IBEW Local Union 98 v. Noven Pharmaceuticals Inc., C.A. No. 4732-CC, tr. at 57 (Del. Ch. Dec. 8, 2009) (“[W]hat the Court needs to be presented with is something that maps the specific disclosures that were obtained to the most comparable cases so that from that, as I say, across cases, it is more appropriate to generate a consistent set of awards.”).

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24, 2009) (Lamb, V.C.)

Jeffrey Benison IRA v. Critical Therapeutics, Inc., C.A. No. 4039-VCL (Feb. 26, 2009) (Lamb, V.C.)

$175,000 inclusive of expenses

$450,000 inclusive of expenses

• Details on merger consideration • Disclosing financial inputs underlying

projections

In re Lear Corp. S’holder Litig., C.A. No. 2728-VCS (June 3 2008)

$800,000 inclusive of expenses

$2.95 million inclusive of expenses

• Preliminary Injunction issued • Disclosures about CEO’s interest and

role in negotiating transaction

New Jersey Building Laborers Pension and Annuity Funds v. Applebee’s Int’l, Inc., C.A. No. 3124-CC (Feb. 27, 2008)

$337,500 plus $20,685.63 in expenses

$500,000 plus $20,685.63 in expenses

• Disclosing projections relating to an alternative to merger

• Additional details on engagement of advisors on potential conflict

In re James River Group, Inc. S’holders Litig., 2008 WL 160926 (Del. Ch. Jan. 8, 2008) (Lamb, V.C.)

$400,000, inclusive of expenses

$450,000 plus $20,000 in expenses

• Disclosing certain projections • Details concerning the activity during

the ‘go shop’ period

Globis Capital Partners, LP v. SafeNet, Inc., C.A. No. 2772-VCS (Dec. 20, 2007)

$1.2 million, inclusive of expenses

$1.2 million plus $60,239.69 in expenses

• Details on the financial analyses underlying bankers’ fairness opinions

• In total, disclosed more than 100 pages of additional information, including bankers’ books

Augenbaum v. Forman, 2006 WL 1716916 (Del. Ch. June 21, 2006) (Lamb, V.C.)

$225,000 inclusive of expenses

$450,000 inclusive of expenses

• Details about negotiation process • Details about previous pricing terms

that gave stockholders “materially different perspective” of final terms

In re Cardiac Science Shareholders Litig., C.A. No. 1138-N (Jan. 4, 2005) (Strine, V.C.)

$300,000 inclusive of expenses

$520,000 plus $80,000 in expenses

• Details in “Background to Merger” on value of certain warrants, outstanding patent litigation, board deliberations

• Details on CEO’s interest in merger • Disclosing financial inputs, criteria for

comparable companies/rationale for EBITDA and multiples used

Zenith, Defendants’ Brief In Opposition to Plaintiffs’ Interim Fee Application, June 18, 2010, at

14-15. Contrary to the fifteen and twenty year old cases on which plaintiffs rely (see Pl. Br. at

24), the survey shows that, in the past five years, “with two notable exceptions, Delaware Courts

have routinely awarded fees ranging from $250,000 to $450,000 where the only claimed benefit

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was additional disclosures.” Id. at 15; see also Louisiana State Employees’ Retirement System v.

Citrix Systems, Inc., 2001 WL 1131364, at *10 n.57 (Del. Ch. Sept. 19, 2001) (“A survey of fee

awards in therapeutic benefit cases over the last three years reveals an average award of

$273,586.”). Moreover, the two outliers, Globis Capital Partners, LP v. SafeNet, Inc., C.A. No.

2772-VCS (Del. Ch. Dec. 20, 2007) and In re Lear Corp. S’holder Litig., C.A. No. 2728-VCS

(Del. Ch. June 3, 2008), are readily distinguishable from this case, as discussed below.

For example, in Augenbaum v. Forman, 2006 WL 1716916 (Del. Ch. June 21, 2006), the

Court reduced plaintiffs’ fee request from $450,000 to $225,000 even though Vice Chancellor

Lamb recognized that the additional disclosures that plaintiffs obtained provided “useful

information about the negotiation process” and earlier pricing terms that gave shareholders “a

materially different perspective” on the final deal terms. Id. at * 2. Here, nothing in the

additional disclosures gave shareholders “a materially different perspective” yet plaintiffs seek

an award that is more than triple the fees awarded in Augenbaum.

Other cases tell a similar story. See, e.g., In re James River Group Inc. S’holders Litig.,

2008 WL 160926, at * 1 (Del. Ch. Jan. 8, 2008) (Vice Chancellor Lamb awarded $400,000

where the additional and revised disclosures in the definitive proxy statement included the

projections underlying the investment banker’s fairness analysis); IBEW Local Union 98 v.

Noven Pharmaceuticals Inc., C.A. No. 4732-CC, tr. at 57, 60 (Del. Ch. Dec. 8, 2009) (this Court

reduced the fee award from $975,000 to $450,000 where the plaintiffs’ litigation efforts “got [the

Vice Chancellor] full results” in the disclosure of the final projections underlying the bankers’

fairness opinion as well as additional disclosures concerning the background of the negotiations

and the data used in the bankers’ analysis). Here, the Company’s projections had already been

fully disclosed; the additional disclosures for which plaintiffs claim credit merely provided a few

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additional details regarding the analysis of the Special Committee’s financial advisor and other

matters. Nevertheless, plaintiffs here seek fees that are nearly twice the fees awarded in the

James River and Noven Pharmaceuticals cases.

This Court’s decision in Zenith is equally instructive. In that case, plaintiffs challenged a

$1.4 billion merger. They actively litigated the case (unlike plaintiffs in this case), conducting

expedited discovery, pressing a claim for a preliminary injunction to a hearing (which they lost),

devoting more than 1,500 attorney and staff hours to the case, and ultimately obtaining additional

disclosures in the definitive proxy statement, including a summary of certain projections and

details of the merger negotiations. This Court concluded that the disclosure of the projections

was a “major disclosure benefit” and “a very good informational benefit.” Zenith, 5296-VCL, tr.

at 8 (Del. Ch. July 26, 2010). In addition, “the plaintiffs did fully litigate the proceeding.” Id. at

9. This Court observed that in a case involving “an informational benefit, like the disclosures

here, you approach it from a 400 to 500,000-ish band and then you depart upwards or

downwards.” Id. at 8. Finding no reason to depart from the standard range, this Court cut

plaintiffs’ fee request by more than half, awarding fees of $400,000. Id. at 11. Here, having

devoted half the hours invested by the plaintiffs’ lawyers in Zenith, having failed to obtain

expedited discovery outside of the settlement context or to request a preliminary injunction, and,

most significantly, having failed to obtain a “major disclosure benefit,” plaintiffs seek fees that

are nearly twice what this Court awarded in Zenith. There is no basis for such an award.

Vice Chancellor Noble’s recent decision in Wyeth similarly illustrates the outsized nature

of plaintiffs’ fee request here. In a case challenging the merger by which Pfizer acquired Wyeth,

where the price went down through the negotiation of the parties while Wyeth’s management

projections were being reduced, plaintiffs obtained, in a settlement, “numerous” additional

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disclosures in the proxy statement regarding the “projections and assumptions of both

management and the financial advisors,” as well as “the negotiation process, the history of a

contingent value right, and the likelihood of other potential bidders.” In re Wyeth S’holders

Litig., C.A. No. 4329-VCN, tr. at 29, 33 (Del. Ch. June 29, 2010). The Court recognized that

“[t]he additional disclosures obtained by the plaintiffs as a direct result of their efforts in this

litigation did confer a benefit upon the class,” but “[i]t does not appear that the plaintiffs had to

fight very hard to get the additional disclosures, and, frankly, providing those additional

disclosures came at very little cost to the defendants.” Id. at 32. Recognizing that fees sought

had been negotiated between the parties in an “arm’s length negotiation process,” and that

“plaintiffs’ counsel worked hard” and sought “no premium of substance” beyond the $457,000

lodestar amount (id. at 35, 37), the Court nevertheless reduced the fee award from the negotiated

amount of $495,000 to $425,000 in view of “the relatively limited nature of the benefits.” Id. at

37-38. Given that the plaintiffs’ in Wyeth were awarded less than their lodestar amount while

obtaining more significant disclosures than plaintiffs’ obtained here, there is no justification for

plaintiffs here to be awarded nearly twice their own lodestar amount and nearly twice what the

plaintiffs received in Wyeth.

Chancellor Chandler observed in the National City case that fee awards in disclosure

cases have typically ranged from $225,000 to $400,000. In re Nat’l City S’holders Litig., 2009

WL 2425389, at *66 (Del. Ch. July 31, 2009), aff’d, 2010 WL 1728931 (Del. Apr. 30, 2010),

aff’d en banc, (Del. Jun. 29, 2010). In that case, the parties agreed to a settlement providing for

supplemental disclosures. Finding that “the disclosures do not justify a substantial fee,” the

Court reduced the requested fee from $1.2 million to $400,000. Id. at *4-*6. In awarding only a

third of the amount plaintiffs requested, the Court noted that the “non-monetary, therapeutic and

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modest achievement” of supplemental disclosures does not merit a “princely sum.” Id. at *4.

The Supreme Court affirmed Chancellor Chandler’s award. There is nothing extraordinary about

this case that would exempt plaintiffs from the general rule and justify the award of a “princely

sum” here.

Last month, Chancellor Chandler reduced a requested fee award from $950,000 to

$200,000 in a case where the plaintiffs obtained in a settlement additional disclosures (much like

the additional disclosures here) of the details of the investment bankers’ analysis, such as the

multiples used. Kwait v. Berman, C.A. No. 5306-CC (Del. Ch. Aug. 16, 2010). The Court noted

that “the defendants readily agreed to make these additional disclosures and I have to assume,

and do assume, that shareholders would find those of interest to them.” Tr. at 41. Nevertheless,

since the benefit was relatively modest and not quantifiable, the Court elected “to award a fee in

a form that really just compensates you for your out-of-pocket expenses and for your reasonable

hourly rates.” Id. at 43. The Court concluded that plaintiffs had no entitlement to recover

premium fees for a “beneficial result” that “wasn’t a home run result” but “a single being hit.”

Id. at 44-45. Here, having hit (at best) a single, plaintiffs here have no justification to demand

premium, homerun compensation.

A comparison of this case to the two “disclosure benefit” cases in which the Court has

awarded fees much higher than the $400,000 band further confirms that plaintiffs are not entitled

to an upward departure here. In SafeNet, Vice Chancellor Strine noted that “the original 14D-9

actually didn’t even really purport to describe what the bankers did at all.” Globis Capital

Partners, LP v. SafeNet, Inc., C.A. No. 2772-VCS, tr. at 6 (Dec. 20, 2007). Plaintiffs took

expedited discovery, brought the case to a preliminary injunction hearing, and ultimately

obtained in settlement some 100 pages of additional disclosures regarding the methodologies,

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values and financial analyses underlying the bankers’ fairness opinions. Id. at 6-10, 18. In

awarding fees of $1.2 million, the Court expressly noted that an “average” fee award in a

“disclosure” settlement was $200,000 to $300,000, id. at 44-45, 50, but that “it’s very easy to

justify a fee award of four times that here, because the disclosures were far more than four times

more informative, on average, than the disclosures that supported the settlements in those cases.”

Id. at 50. Here, plaintiffs cannot boast of obtaining disclosures of extraordinary importance, and

they are not entitled to an extraordinary fee award. This case is not SafeNet.

This case is also not Lear. In that case, plaintiffs challenged a merger in which the

management allegedly had a conflict of interest in pushing the transaction. Plaintiffs alleged that

the CEO had an undisclosed vested interest in approving the going-private merger (in order to

cash in his retirement benefits) while acting as Lear’s principal negotiator in the transaction. The

Court agreed, issuing a preliminary injunction until additional disclosures were made. In re Lear

Corp. S’holders Litig., 926 A.2d 94, 98 (Del. Ch. 2007) (“Lear[’s] stockholders are entitled to

know that the CEO harbored material economic motivations that differed from their own. . . .”).

Plaintiffs in Lear thus obtained a critically important disclosure, while devoting nearly 2,500

hours to the case and incurring more than $225,000 in expenses. The Court nevertheless reduced

plaintiffs’ requested fee award from $2.95 million to $800,000, for fees and expenses (a nearly

75% reduction). In re Lear Corp. Shareholder Litig., C.A. No. 2728-VCS, tr. at 93, 95 (Del. Ch.

June 3, 2008). For far less significant and laborious work, plaintiffs here seek the same reward.

Far from being a SafeNet or Lear situation, plaintiffs’ claim here is closer to the claim of

the objectors in Brinckherhoff v. Texas Eastern Products Pipeline Co. LLC, 986 A.2d 370 (Del.

Ch. 2010). There, objectors to the settlement of a suit challenging a merger sought fees after

having themselves settled their objection in return for a two-page supplemental disclosure in a

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Form 8-K. Notwithstanding that the defendants had agreed not to oppose a fee award of up to

$500,000, this Court awarded fees of only $80,000 due to the “marginal benefit” conferred by

the disclosures (an 84% reduction). Id. at 397 (“The supplemental disclosures provided some

additional information and conferred a marginal benefit by helping to ensure that the vote on the

Merger was informed. . . . [U]nder our law, the supplemental disclosures merit a fee award of

some amount. I award $80,000.”).

Like the objectors in Texas Eastern, at most plaintiffs here might be credited with

causing, in part, some additional disclosures that “provided some additional information and

conferred a marginal benefit.” Under the precedents of this Court, they may be entitled to an

award of nominal fees and expenses if the Court finds that they “specifically and substantially”

benefitted the shareholders, but nothing remotely near the $790,000 they seek.

B. The Time Expended By Plaintiffs’ Counsel Does Not Support Their Fee Request. This Court has explained that it considers the “time and effort” expended by counsel as a

“crosscheck” to make sure that the fees awarded do not constitute a “windfall.” Zenith, supra, tr.

at 10-11 (“[T]he primary way that I consider time and effort, is really whether this confers some

type of windfall on plaintiffs’ counsel.”); see also Noven Pharmaceuticals, supra, tr. at 59

(“Why do you consider the amount of work? It’s a secondary consideration to avoid windfall.

We know you don’t get a hit in every case, but if you put in only a little bit of time, it can get

disproportionate.”). Here, awarding the full fees sought by plaintiffs would grant exactly the

type of windfall that Delaware courts seek to avoid.

First, even accepting at face value every hour charged by every plaintiffs’ firm on every

activity, and without challenging those timekeepers’ claimed hourly rates, plaintiffs’ fees and

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expenses would amount to $431,821.81, far less than the $790,000 they seek. As shown above,

plaintiffs cannot point to the achievement of extraordinary benefits to justify a premium award.

Second, the 755.30 hours of attorney and staff time plaintiffs claim to have expended

includes fees for six law firms,9 and a total of 15 partners, 8 associates and 14 paralegals.

Plaintiffs do not meet their burden of showing what work was done by these professionals, and

why that work was necessary, particularly given that no discovery or contested motion practice

ever took place in Delaware, and the Iowa suit was basically stayed at its inception.

Third, by plaintiffs’ own count (without providing any substantiating materials), only

495.10 hours of the total time charged (or 65.5%) was devoted to “litigating plaintiffs’ disclosure

claims,” the only issue that may have produced even a modest benefit for the shareholders,

amounting to a total lodestar fee of $258,131.75. It is fair to surmise that much of the remaining

time was spent on unproductive activities from which neither the Company nor its shareholders

received any conceivable benefit, such as plaintiffs’ attempt to pursue duplicative litigation in

Iowa.10 Delaware courts routinely cut fee awards in non-monetary, therapeutic benefit cases to

exclude time spent on issues unrelated to the claimed benefit. In re Diamond Shamrock Corp.,

1988 WL 94752, at *4 (Del. Ch. Sept. 14, 1988) (“the Court [will] consider the work the

attorneys performed to achieve the benefit, and the amount and value of attorney time required

9 Indeed, after plaintiffs submitted their fee application, a new firm appeared to seek fees. Plaintiffs’ fee application and supporting affidavits sought fees on behalf of five law firms. When defendants asked plaintiffs for some details regarding their time charges, plaintiffs provided summary charts adding yet another firm (Johnson Bottini) seeking an additional $36,898.50 in fees.

10 Interestingly, although defendants’ motion to stay the Iowa litigation was the only matter litigated to a judicial resolution in all of these cases, and was the subject of several briefs and a hearing, plaintiffs claim to have devoted only 55.4 hours to the entire matter, for a lodestar charge of $23,720.50.

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for that purpose.”) (emphasis added). A plaintiff cannot recover fees for litigation efforts that

did not contribute in any meaningful way to the claimed corporate benefit. See, e.g., Baron v.

Allied Artists Pictures Corp., 395 A.2d 375, 383 (Del. Ch. 1978) (refusing to award fees for

related litigation efforts where “they were uniformly unsuccessful”). Instead, “the

reasonableness of counsel fees must be based on the time actually spent . . . on those claims

which were meritorious when filed.” See Stroud v. Milliken, 1989 WL 120353, at *4 (Del. Ch.

Oct. 6, 1989), aff’d, 583 A.2d 660 (1990); see also In re Triarc Cos. S’holders Litig., 2006 WL

903338, at *2 (Del. Ch. Mar. 29, 2006) (refusing to award fees for work on claims that are

abandoned); Off v. Ross, 2009 WL 4725978, at *7 (Del. Ch., Dec. 10, 2009) (apportioning fees

based on aspects of litigation that actually contribute to corporate benefit). Plaintiffs should not

be compensated for inefficient and duplicative efforts, nor for unfounded claims and litigation

strategies that produced absolutely no benefit for the Company or its shareholders. See Saks v.

Gamble, 154 A.2d 767, 770 (Del. Ch. 1958) (“Although plaintiff’s testimony tends to suggest

that very little . . . time was spent in connection with the admittedly meritless first cause of

action, I think it reasonable, in view of its complexity and the kinds of work done, to attribute a

substantial amount of time of plaintiff’s attorneys and accountants to that cause. This factor will

be considered as reducing the amount of the compensable services.”).

C. The Remaining Factors Do Not Support Plaintiffs’ Fee Request.

The remaining Sugarland factors do not justify granting plaintiffs’ outsized fee request.

Defendants do not dispute that plaintiffs’ counsel are experienced and took this case on a

contingency basis, but those factors cannot overcome the fact that plaintiffs engaged in very little

actual litigation, lost the only disputed motion to be decided by a court, and can claim to have

achieved nothing beyond the modest additional disclosures that defendants voluntarily made.

WM01/ 7848101.1 - 30 -

Nor was this lawsuit particularly difficult or complex by the standards of this Court. See In re

Cox Radio, Inc. S’holder Litig., 2010 WL 1806616, at *1 (Del. Ch. May 6, 2010) (“Controlling

shareholder tender offer cases are relatively straightforward”). Moreover, the real work to

protect the minority shareholders was done by the Special Committee, and not by plaintiffs’

counsel. See Greenfield v. Frank B. Hall & Co., Inc., 1992 WL 301348, at *3 (Del. Ch. Oct. 19,

1992) (“If the Court determines that the benefit was partly caused by the litigation and partly

caused by the actions of others—such as an independent committee appointed by the

corporation’s directors—the Court may award reduced attorneys’ fees.”).

CONCLUSION

Plaintiffs’ $790,000 fee request is simply exorbitant in view of the marginal results they

achieved, the modest work they performed, and the typical awards issued by this Court in similar

cases. Accordingly, defendants respectfully request that the Court deny plaintiffs’ application.

Alternatively, if the Court were to award any fees and expenses, such an award should not

exceed $150,000, or such lower amount as the Court finds to be appropriate.

OF COUNSEL: Bradley J. Andreozzi Justin O. Kay Elizabeth V. Lopez DRINKER BIDDLE & REATH LLP 191 North Wacker Drive Chicago, IL 60606-1698 (312) 569-1173

DRINKER BIDDLE & REATH LLP /s/ Joseph C. Schoell

Joseph C. Schoell (#3133) Todd C. Schiltz (#3253) 1100 North Market Street Suite 1000 Wilmington, Delaware 19801-1254 (302) 467-4200

Attorneys for Defendant Sauer-Danfoss, Inc., Sven Ruder and Sven Murmann

WM01/ 7848101.1 - 31 -

OF COUNSEL: Brian M. Rostocki (#4599) REED SMITH LLP 1201 N. Market Street, Suite 1500 Wilmington, DE 19801 (302) 778-7575 and Herbert F. Kozlov Lawrence J. Reina REED SMITH LLP 599 Lexington Avenue, 22nd Floor New York, NY 10022 (212) 521-5400

RICHARDS, LAYTON & FINGER, P.A. /s/ Raymond J. DiCamillo

Raymond J. DiCamillo (#3188) Kevin M. Gallagher (#5337) One Rodney Square 920 North King Street Wilmington, DE 19801 (302) 651-7700

Attorneys for Defendants Danfoss A/S, Danfoss Acquisition, Inc., Jorgen M. Clausen, Niels B. Christiansen, Kim Fausing, William E. Hoover, Jr. and Per Have

OF COUNSEL: Yosef J. Riemer Matthew Solum KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, NY 10022 (212) 446-4800

POTTER ANDERSON & CORROON LLP /s/ Matthew D. Stachel

Michael D. Goldman (#268) Stephen C. Norman (#2686) Brian C. Ralston (#3770) Matthew D. Stachel (#5419) Hercules Plaza, 6th Floor 1313 North Market Street P.O. Box 951 Wilmington, Delaware 19899 (302) 984-6000

Attorneys for Defendants Steven H. Wood, F. Joseph Loughrey and Dr. Johannes F. Kirchhoff

Dated: September 20, 2010