The Facebook, Inc. v. Connectu, Inc et al

Filing 474

Transcript of Proceedings held on 06/23/08, before Judge Ware. Court Reporter/Transcriber Irene L. Rodriguez, Telephone number [phone]. Per General Order No. 59 and Judicial Conference policy, this transcript may be viewed only at the Clerks Office public terminal or may be purchased through the Court Reporter/Transcriber until the deadline for the Release of Transcript Restriction.After that date it may be obtained through PACER. Any Notice of Intent to Request Redaction, if required, is due no later than 5 business days from date of this filing. Redaction Request due 7/21/2008. Redacted Transcript Deadline set for 7/30/2008. Release of Transcript Restriction set for 9/29/2008. (Rodriguez, Irene) (Filed on 7/2/2008)

The Facebook, Inc. v. Connectu, LLC et al

Doc. 474

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I N THE UNITED STATES DISTRICT COURT FOR T H E N O R T H E R N D I S T R I C T O F CALIFORNIA SAN JOSE DIVISION

THE FACEBOOK , I N C. , PLAINTIFF, V. CONNECTU, L L C, ET AL. , DEFENDANTS . ___ ___ ___ ___ ___ ___ ___ __

) ) ) ) ) ) ) ) ) )

C -07 -01389 -JW JUNE 23 , 2008 UNSEALED AND REDACTED BY SEALED THE COURT P A G E S 1 -79

THE PROCEEDINGS WERE HELD BEFORE THE HONORABLE U N I T E D STATES DISTRICT JUDGE JAMES WARE A P P E A R A N C E S: FOR THE PLAINTIFF : ORRICK , HERRINGTON & SUTCLIFFE BY: I . NEEL CHATTERJEE M O N T E M .F. COOPER SUSAN D . RESLEY 1000 MARSH ROAD MENLO PARK, CALIFORNIA 9 4 0 2 5

F O R T H E DEFENDANTS: BOIES, SCHILLER & FLEXNER BY: D A V I D A . BARRETT EVAN ANDREW PARKE STEVEN C. HOLTZMAN 575 LEXINGTON A V E N U E 7TH FLOOR NEW YORK, N E W YORK 10022 (APPEARANCES CONTINUED O N T H E NEXT PAGE .) OFFICIAL COURT REPORTER : I R E N E RODRIGUEZ, C S R, CRR CERTIFICATE NUMBER 8074 1

U.S. COURT REPORTERS
Dockets.Justia.com

1 A P P E A R A N C E S: (CONT' D) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 CNET NEWS B Y: DECLAN MCCULLAGH 1935 CALVERT STREET , N W # 1 WASHINGTON , D C 20009 THE RECORDER B Y: ZUSHA ELINSON 1 0 UNITED NATIONS PLAZA SUITE 300 SAN FRANCISCO , CALIFORNIA 94102 THE MERCURY NEWS B Y: CHRIS O' BRIEN SCOTT DUKE HARRIS 750 RIDDER PARK DRIVE S A N JOSE, CALIFORNIA 9 4 1 9 0 ALSO PRESENT: BLOOMBERG NEWS B Y: JOEL ROSENBLATT PIER 3 SUITE 101 SAN FRANCISCO , CALIFORNIA 94111 FOR THE DEFENDANTS: FINNEGAN, HENDERSON , FARABOW , GARRETT & DUNNER B Y: SCOTT R. MOSKO JOHN F. HORNICK STANFORD RESEARCH PARK 3300 HILLVIEW AVENUE PALO ALTO, CALIFORNIA 94304 FENWICK & WEST B Y: KALAMA L U I- KWAN 555 CALIFORNIA STREET 1 2TH FLOOR SAN FRANCISCO , CALIFORNIA 94104

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SAN JOSE , CALIFORNIA PROCEEDINGS

JUNE 23 , 2 008

( WHEREUPON , C O U R T C O N V E N E D A N D THE FOLLOWING PROCEEDINGS WERE HELD: ) T H E CLERK: CALLING CASE NUMBER 07 -13 89,

T H E F A C E B O O K, INC ., VERSUS CONNECTU , L LC. T H E COURT: T H E CLERK: (INDICATING ). L I Z. T H E CLERK: T H E COURT: Y E S. TESTING O N E, TWO . D O YOU KNOW THE PARTIES? THEY 'RE SITTING OVER HERE

STATE YOUR APPEARANCES . GOOD MORNING, YOUR

M R. CHATTERJEE: HONOR .

NEEL CHATTERJEE REPRESENTING FACEBOOK, MARK

ZUCKERBERG, A NUMBER OF OTHER INDIVIDUAL PARTIES T O THE MASSACHUSETTS ACTIONS EXCEPT EDUARDO SAVERIN. WITH ME TODAY A R E M Y COLLEAGUES SUSAN R E S L E Y A N D MONTE COOPER W H O WILL BE ASSISTING M E I N THE HEARING TODAY . T H E COURT: M R. MOSKO: VERY WELL. GOOD MORNING. S C O T T M O S K O.

L E T M E - - T H E R E'S GOING TO BE A BIT OF AN INTRODUCTION HERE . FOR T H E P U R P O S E S O F T H E MOTION

THAT FACEBOOK HAS FILED , I AM N O T REPRESENTING 3

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CONNECTU ; HOWEVER , I DO REPRESENT C O N N E C T U I N T H E UNDERLYING CASE. T H E COURT: M R. MOSKO: DEFENDANTS. WITH ME THIS MORNING I S D A V I D BARRETT , S T E V E N H O L T Z M A N, AND EVAN PARKE WHO A R E REPRESENTING C O N N E C T U O N T H E MOTION CONCERNING THE SETTLEMENT ISSUES . ALSO MY PARTNER JOHN HORNICK . T H E COURT: THIRD PARTY ? M R. CHATTERJEE: YOUR HONOR, THERE IS O N E M R. HORNICK. DO I HAVE A A H. A N D I D O REPRESENT THE OTHER

THIRD PARTY HERE WHICH IS ROBERT HAWK, W H O I S FROM T H E H E L L E R EHRMAN FIRM AND HE REPRESENTS EDUARDO SAVERIN IN THE MASSACHUSETTS ACTION . A N D I WANT TO MAKE SURE THAT I UNDERSTOOD CORRECTLY, MR. HORNICK IS NOT ADMITTED IN THIS CASE B U T I N T H E MASSACHUSETTS CASE , A N D I WANT TO UNDERSTAND IF HE' S REPRESENTING CONNECTU OR CONNECTU A N D T H E THREE INDIVIDUALS WHO A R E PLAINTIFFS IN THAT CASE . T H E COURT: L U I-KWAN . M R. LUI -KWAN: Y E S, YOUR HONOR. 4 A L L RIGHT. AND I HAVE KALAMA

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SORRY .

T H E COURT:

W H O DO YOU REPRESENT? FENWICK & WEST A N D --

M R. LUI -KWAN:

K A L A M L U I- KWAN FROM FENWICK & WEST .

I

REPRESENT FENWICK & WEST A N D MR. GREGORY ROUSSEL WHO ARE THIRD PARTIES I N THIS ACTION. M R. CHATTERJEE: D O N'T MEAN TO INTERRUPT . T H E COURT: Y E S. B U T B E F O R E WE BEGIN THE YOUR HONOR, I' M S O R R Y, I

M R. CHATTERJEE:

PROCEEDINGS , W E H A D HAD A DISCUSSION B E F O R E ABOUT SEALING THE COURTROOM. T H E COURT: ABOUT TO RAISE . A R E THERE INDIVIDUALS HERE W H O ARE N O T PARTIES OR ATTORNEYS F O R PARTIES INVOLVED IN THIS CASE? M R. O'B R I E N: Y E S, YOUR H O N O R. Y E S, YOUR H O N O R. THAT WAS THE ISSUE I WAS

M R. ROSENBLATT: T H E COURT:

THE PARTIES HAVE REQUESTED,

SINCE T H E N A T U R E OF THIS M O T I O N CONCERNS A CONFIDENTIAL SETTLEMENT , T O HAVE THE PROCEEDINGS CONDUCTED I N A SEALED PROCEEDING , A T LEAST INITIALLY S O THAT I CAN UNDERSTAND THE N A T U R E O F T H E M O T I O N AND D E C I D E O N A C O U R S E O F A C T I O N. 5

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ORDINARILY MATTERS PENDING BEFORE THIS COURT A R E CONDUCTED IN PUBLIC , A N D IT IS RARE THAT WE CLOSE O U R COURTROOM. THERE ARE CIRCUMSTANCES UNDER WHICH W E D O IN CRIMINAL CASES , A S A M A T T E R O F C O U R S E. I T'S

RARE THAT W E D O S O I N C I V I L C A S E S, ALTHOUGH GIVEN T H E N A T U R E OF SOME O F T H E TECHNOLOGY W E G E T INVOLVED WITH IN THIS C O U R T T H E R E A R E OCCASIONS WHEN WE CLOSE OUR COURTROOM I N C I V I L C A S E S A S WELL . I THINK THAT I W O U L D B E ABLE TO B E T T E R HAVE A F R A N K DISCUSSION ABOUT T H E N A T U R E OF THIS M O T I O N I F I DO SO IN A CLOSED COURTROOM. AND SO I

DO I N T E N D T O C L O S E T H E COURTROOM TO SEAL THE R E C O R D OF THESE PROCEEDINGS . B E F O R E I D O, LET ME S E E I F I HAVE ANY OBJECTIONS. M R. O'B R I E N: MERCURY NEWS." I' M C H R I S O 'BRIEN WITH "T H E

JUST TO CLARIFY WHAT Y O U' RE ASKING ,

A R E Y O U PLANNING TO BRIEFLY C L O S E T H E COURTROOM A N D THEN READMIT U S O R A R E YOU PLANNING TO CLOSE T H E COURTROOM F O R THE WHOLE HEARING THAT Y O U' RE PLANNING TO HAVE? T H E COURT: TO THAT YET . I DO I N T E N D T O E X C U S E YOU OR A N Y P E R S O N 6 WELL , I D O N'T KNOW THE A N S W E R

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W H O I S N O T A L A W Y E R FOR O N E O F T H E PARTIES O R O N E OF T H E PARTIES F O R P U R P O S E S O F HEARING T H E M O T I O N. A N D IF DURING T H E C O U R S E OF THE M O T I O N I DETERMINE THAT THERE A R E MATTERS THAT SHOULD BE ON THE PUBLIC RECORD , THEN I WOULD OPEN THE COURTROOM FOR THAT PURPOSE. M R. O'B R I E N: WELL, IN THAT CASE W E W O U L D

REQUEST THAT Y O U ALLOW US TO CONTEST THAT A N D HAVE AN ATTORNEY PRESENT TO ARGUE OUR CASE ABOUT WHAT T H E C O U R T S H O U L D DO. T H E COURT: D O YOU HAVE SOMEONE HERE

TODAY WHO I S PREPARED T O ARGUE THAT ? M R. O'B R I E N: WE D O N'T . WE HAVE H E A R D

F O R T H E FIRST TIME THAT Y O U A R E PLANNING TO CLOSE IT . T H E COURT: Y E S. ANY OTHER OBJECTION ? YOUR H O N O R, DECLAN

M R. MCCULLAGH :

MCCULLAGH F O R CNET, A SUBSIDIARY OF CB S NEWS . W E HAVE T H E SAME CONCERNS , A N D WE WOULD ALSO REQUEST A CONTINUANCE AND UNTIL W E CAN RETAIN COUNSEL, BRING OUR OUTSIDE COUNSEL DOWN T O SUPPORT O U R F I R S T AMENDMENT RIGHT TO OPEN C O U R T PROCEEDINGS . T H E COURT: Y E S. A N D JOEL ROSENBLATT FOR 7

M R. ROSENBLATT:

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BLOOMBERG N E WS .

THE SAME OBJECTION .

I UNDERSTAND

THAT A F R A N K DISCUSSION WOULD H A P P E N WITHOUT US AROUND. SOMETIMES - - YOU HAVE ALWAYS BEEN VERY

SENSITIVE T O THIS ISSUE , A N D I APPRECIATE THAT BUT THERE SEEMS TO BE SOMETIMES A -- I DON 'T UNDERSTAND. I HAVE LOOKED AT T H E D O C K E T. W H Y --

WHAT IS THE ARGUMENT ? T H E PRESS HASN'T BEEN SHOWN FOR T H E ARGUMENT W H Y I T S H O U L D BE CLOSED . I UNDERSTAND

IT 'S A PREFERENCE , B U T WHEN I S I T A NEED VERSUS A PREFERENCE AND THAT' S O U R CONCERN. AND WE WOULD

ALSO LIKE T O HAVE AN ATTORNEY PRESENT IF YOU 'RE GOING TO CLOSE IT . T H E COURT: I , O F COURSE, I WANT T O GIVE

T H E PARTIES AN OPPORTUNITY TO EXPLAIN TO ME THE CIRCUMSTANCES THAT B R I N G THEM BEFORE T H E COURT. THIS IS A CASE W H E R E THEY REACHED A SETTLEMENT WHICH THEY WOULD NOT OTHERWISE PUT I N T H E P U B L I C DOMAIN E X C E P T F O R SOME PART OF IT . A N D SO IT IS ALWAYS OF CONCERN TO THE COURT TO CLOSE I T S P R O C E E D I N G S T O MEMBERS OF T H E PUBLIC. I F I R M L Y BELIEVE THAT IF PARTIES B R I N G A LAWSUIT TO A P U B L I C FORUM SUCH A S T H E COURTS , THOSE -- THEY CHOOSE TO CONDUCT THEIR BUSINESS IN 8

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PUBLIC. HOWEVER , EVEN IN A PUBLIC TRIAL , PARTIES COME TO A P O I N T I N T H E I R CASE WHERE THEY WANT T O CONDUCT PROCEEDINGS IN CHAMBERS BEFORE T H E J U D G E, OR COME TO A DISCLOSURE BETWEEN THE T W O O F THEM THAT ARE PRIVILEGED AND THAT THEY WANT TO KEEP CONFIDENTIAL FROM THE PUBLIC WITH THE IDEA THAT SOME PARTS OF IT WOULD BE PUT ON T H E P U B L I C RECORD . I 'VE MADE A J U D G M E N T THAT IT WOULD BE BENEFICIAL TO THE COURT TO AT LEAST HEAR THE N A T U R E OF THIS DISPUTE THAT COMES O U T O F A CONFIDENTIAL PART OF THEIR PROCESS I N A C L O S E D COURTROOM AND THEN TO MAKE A JUDGMENT ABOUT WHAT, IF A N Y, PART O F THAT SHOULD BE CONDUCTED I N P U B L I C PROCEEDINGS. BOTH OF THESE A R E L A W S U I T S THAT WERE PENDING, AS I UNDERSTAND I T, IN PUBLIC P L A C E S A N D DEPENDING O N WHAT HAPPENS HERE, IT MAY R E T U R N T O THAT FORUM, B U T I DO WANT TO HAVE T H E BENEFIT O F A T LEAST H A V I N G A CONVERSATION WITH T H E PARTIES IN A CLOSED COURTROOM. AND NOTWITHSTANDING THE

OBJECTIONS AND A REQUEST F O R A D E L A Y, I'M GOING TO A S K T H E CLERK OF COURT TO CLOSE THE COURTROOM. I 'LL A S K T H E ASSISTANCE O F T H E PARTIES T O IDENTIFY THEIR CLIENTS OR OTHER MEMBERS O F T H E I R FIRM, A N D I WILL SET UP A TIME T O GIVE THOSE W H O 9

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ARE EXCLUDED A N OPPORTUNITY T O MAKE ANY OBJECTIONS . A N D I WILL DO MY BEST T O A D V I S E YOU AT SOME POINT D U R I N G T H E COURSE OF THESE PROCEEDINGS IF I DECIDE TO OPEN IT SO THAT Y O U CAN TAKE ADVANTAGE OF C O M I N G BACK INTO THE COURTROOM . B U T AT THIS P O I N T I I N T E N D T O C L O S E T H E COURTROOM. SO -( PAUSE IN PROCEEDINGS. ) T H E COURT: I PRESUME IT WON 'T BE

NECESSARY T O CALL THE MARSHALS. W O U L D Y O U ASSIST IN JUST IDENTIFYING YOUR CLIENTS AND THOSE INDIVIDUALS . M R. CHATTERJEE: Y E S, YOUR H O N O R. ON T H E

FACEBOOK SIDE IT' S T H E FIRST TWO ROWS ON YOUR RIGHT -HAND SIDE. T H E COURT: A L L RIGHT.

( PAUSE IN PROCEEDINGS. ) T H E COURT: S O THE PARTIES ARE SATISFIED

THAT IN THE COURTROOM, AT LEAST IN THAT PART , I 'LL CONTROL THIS PART UP HERE, A R E I N D I V I D U A L S W H O YOU WOULD R E G A R D A S COVERED BY A N Y O F T H E PRIVILEGES A N D CONFIDENTIALITIES APPLICABLE TO YOUR SETTLEMENT PROCESS? M R. CHATTERJEE: Y E S, YOUR H O N O R. 10

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MOTION?

M R. MOSKO: Y E S, YOUR H O N O R. T H E COURT:

O N B E H A L F OF THE DEFENDANTS,

S O I 'LL R E G A R D T H E RECORD AT

THIS POINT AS A S E A L E D RECORD TO BE O P E N E D O N FURTHER ORDER OF THE COURT OR STIPULATION OF T H E PARTIES. THIS IS A MOTION BY CONNECTU ? M R. CHATTERJEE: NO , YOUR HONOR , I T'S A

MOTION B Y FACEBOOK T O ENFORCE THE SETTLEMENT . T H E COURT: A L L RIGHT. WHAT 'S YOUR

M R. CHATTERJEE:

YOUR HONOR, T H E MOTION

PRESENTED B Y F A C E B O O K A N D THE RELATED INDIVIDUAL DEFENDANTS IS TO ENFORCE A SETTLEMENT AGREEMENT THAT WAS ENTERED INTO BETWEEN FACEBOOK A N D I T S RELATED PARTIES A N D CONNECTU AND THEIR RELATED PARTIES SUBSEQUENT T O A MEDIATION O R A T THE CONCLUSION OF A MEDIATION BEFORE JUDGE P I A Z Z A O N JANUARY 22N D A N D INTO T H E WEE HOURS OF JANUARY 23 RD. T H E COURT: AND WHAT I S I T - - WHEN YOU

S A Y T O ENFORCE IT , WHAT IS IT THAT YOU WISH THE COURT TO DO ? M R. CHATTERJEE: YOUR HONOR, WHAT WE HAVE

ASKED T H E C O U R T T O D O, AND THIS HAS B E C O M E A L I T T L E 11

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MORE COMPLICATED AND I' LL EXPLAIN W H Y IT' S A L I T T L E MORE COMPLICATED IN A M O M E N T, WHAT WE' RE ASKING T H E COURT TO DO IS TO RECOGNIZE THAT T H E TERM SHEET A N D SETTLEMENT AGREEMENT THAT WE PROVIDED TO YOUR HONOR , T H E TWO -PAGE HANDWRITTEN DOCUMENT, IS AN ENFORCEABLE AGREEMENT A N D TO ORDER CONNECTU TO OR ORDER T H E PRINCIPALS OF CONNECTU TO GIVE US THEIR S H A R E S I N T H E COMPANY I N E X C H A N G E F O R THE MONEY A N D T H E S H A R E S THAT W E WERE GOING TO GIVE THEM. W E S T A N D R E A D Y T O PERFORM O U R E N D OF THE DEAL. THEY DO N O T. N O W, THERE IS A DISPUTE OVER A PHRASE AT THE VERY END O F THE AGREEMENT THAT SAYS FACEBOOK WILL TERM THE FORM AND DOCUMENTATION O F THE TRANSACTION CONSISTENT WITH T H E CASH A N D STOCK FOR STOCK ACQUISITION . I T'S O U R VIEW THAT THE COURT C A N P R O P E R L Y RELY UPON T H E DOCUMENTS THAT WE PROVIDED THE COURT IN ORDER ING THEM TO SIGN T H O S E DOCUMENTS AND C O M P L Y WITH THEM. THEY HAVE RAISED AN ISSUE AS TO THAT. WE

D I SAGREE WITH THAT I S S U E A N D FUNDAMENTALLY, IF YOUR HONOR WERE TO ENTER A J U D G M E N T TELLING T H E PARTIES TO C O M P L Y WITH T H E TERM SHEET A N D SETTLEMENT AGREEMENT, AND ESSENTIALLY S T A P L E I T O N T O T H E 12

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JUDGMENT THAT THIS I S WHAT T H E AGREEMENT IS AND P E O P L E HAVE TO LIVE WITH I T, THAT W O U L D B E ACCEPTABLE TO FACEBOOK. THE REASON WHY THE ISSUES HAVE BECOME MORE COMPLEX, YOUR H O N O R, WE DIDN'T UNDERSTAND WHY , W H Y C O N N E C T U W A S NOT WILLING TO HONOR THE AGREEMENT THAT IT SIGNED . A F T E R W E F I L E D T H E MOTION TO ENFORCE, WE LEARNED THE R E A S O N W H Y. A N D THE R E A S O N W H Y THERE' S A DISPUTE AS TO THIS AGREEMENT IS N O T BECAUSE OF T H E BINDING N A T U R E O F T H E TERM S H E E T A N D THE SETTLEMENT AGREEMENT. AFTER W E FILED THE MOTION , THE QUINN EMANUEL FIRM, WHO IS NO L O N G E R COUNSEL OF R E C O R D F O R C O N N E C T U, FILED A N O T I C E OF LIEN AGAINST A N Y PROCEEDS OR A N Y J U D G M E N T AGAINST THIS COURT OR IN T H E BOSTON COURT ASSOCIATED WITH THIS CASE. I T'S O U R VIEW , YOUR HONOR , THAT T H E REASON THAT CONNECTU WANTS OUT O F THIS TERM SHEET A N D SETTLEMENT AGREEMENT I S N O T BECAUSE I T'S A BINDING AGREEMENT . IT IS.

T H E REASON THEY WANT O U T OF THE DEAL IS BECAUSE THEY HAVE SOME SORT O F FINANCIAL ARRANGEMENT WITH THE QUINN EMANUEL FIRM THAT IS 13

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AFFECTING T H E ECONOMICS IN SOME WAY THEY DON 'T LIKE. T H E ISSUE FOR US IS PRESUMING YOUR HONOR FINDS THIS AGREEMENT AN ENFORCEABLE SETTLEMENT AGREEMENT, WE DON 'T KNOW W H O TO PAY RIGHT N O W BECAUSE THERE' S A N O T I C E O F LIEN THAT HAS BEEN FILED WITH THE COURT A N D W E NEED T H E C O U R T'S GUIDANCE ON H O W T O DEAL WITH THAT. W E'R E H A P P Y T O P U T THE PROCEEDS THAT ARE REQUIRED UNDER T H E AGREEMENT AND INTO SOME SORT OF CONSTRUCTIVE T R U S T O R SOMETHING LIKE THAT THAT THE COURT C A N ADMINISTER , SUBJECT TO CONNECTU A N D I T S F O R M E R LAWYERS WORKING OUT WHATEVER IT IS THAT THEY NEED TO WORK O U T ASSOCIATED WITH T H E P R O C E E D S O F THIS CASE. B U T WHERE WE DON 'T WANT T O B E I S W E D O N' T WANT TO BE ORDERED T O GIVE CONNECTU T H E M O N E Y ONLY TO HAVE QUINN EMANUEL K N O C K I N G O N O U R DOOR S A Y I N G WE O W E THEM SOMETHING A N D WE DON 'T KNOW WHAT IT IS A N D WHAT T H E T E R M S O F T H E ARRANGEMENT ARE . A N D SO THAT'S O N E T H I N G THAT MAKES T H I N G S A LITTLE MORE COMPLEX THAN WHEN WE ORIGINALLY ANTICIPATED WHEN WE FILED THE M O T I O N BECAUSE OF THIS NOTICE OF LIEN. T H E COURT: VERY WELL. L E T ME HEAR FROM 14

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YOUR OPPONENT. M R. BARRETT: MUCH. YOUR HONOR, THANK Y O U VERY

D A V I D BARRETT FROM BOIES, SCHILLER & FLEXNER

REPRESENTING CONNECTU, WHICH I SHOULD NOTE I S THE ONLY PARTY THAT - - O N T H E DEFENDANT 'S SIDE W H I C H I S PROPERLY BEFORE THIS COURT , ALTHOUGH THE PLAINTIFFS A R E A S K I N G THE COURT TO ENTER AN ORDER THAT WOULD C O M P E L T H E INDIVIDUAL PRINCIPALS OF CONNECTU TO SIGN CERTAIN DOCUMENTS, T H E FACT IS THAT THEY HAVEN 'T EVEN SERVED THOSE PEOPLE WITH PROCESS THAT WOULD BRING THEM PROPERLY BEFORE THIS COURT. S O THAT 'S THE R E A S O N THAT I ONLY A P P E A R TODAY IN THIS COURT ON BEHALF OF CONNECTU . SECOND, YOUR HONOR, WITH RESPECT T O MR . CHATTERJEE 'S REQUEST, WE DON 'T REALLY LITERALLY DO N O T UNDERSTAND WHAT IT IS THAT T H E PLAINTIFFS A R E ASKING THIS C O U R T T O D O. THE PROPOSED ORDER THAT WAS FILED WITH MR . CHATTERJEE 'S MOTION BACK IN APRIL IS AN ORDER THAT DOESN' T EVEN MENTION THE TERM SHEET AND WHICH IS T H E D O C U M E N T THAT HE SAID YOU COULD , Y O U COULD JUST STAPLE TO YOUR ORDER. T H E PROPOSED ORDER, WHAT THEY WERE ORIGINALLY ASKING F O R, DOESN' T EVEN MENTION THAT TERM SHEET. 15

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 TOTAL .

WHAT IT DOES SAY IS THAT THE COURT WOULD ORDER CONNECTU TO TRANSFER I T S OWNERSHIP TO FACEBOOK BY EXECUTING A DOCUMENT C A L L E D A STOCK PURCHASE AGREEMENT. A N D THAT C O N N E C T U A N D THREE OF ITS FOUR PRINCIPALS, I SHOULD S A Y N O T ALL FOUR OF ITS PRINCIPALS BUT THREE OF T H E FOUR , T O EXECUTE SOMETHING THAT THEY CALL A CONNECTU STOCKHOLDER 'S AGREEMENT. THOSE TWO DOCUMENTS AND THE ASSOCIATED SCHEDULES A N D OTHER PARTS OF THEM A R E, YOUR HONOR, A VERY COMPLICATED CORPORATE, CORPORATE TRANSACTION AL DOCUMENT. THEY 'RE OVER A HUNDRED PAGES LONG IN A LAWYER, A CORPORATE LAWYER W H O, W H O

W O R K E D, WAS RETAINED BY CONNECTU BY T H E NAME OF GREGORY ROUSSEL, HE' S A N ASSOCIATE AT THE FENWICK FIRM, S I G N E D A N AFFIDAVIT WHICH WAS SUBMITTED T O THIS COURT IN SUPPORT O F T H E MOTION TO ENFORCE THE SO -C A L L E D " SETTLEMENT." A N D, A N D I N THAT -- I' M S O R R Y. DECLARATION , YOUR HONOR , N O T AN AFFIDAVIT . I N THAT DECLARATION MR . ROUSSEL SAID ATTACHED HERET O A S EXHIBIT A IS A C O N N E C T U'S -- IS A CONNECTU STOCKHOLDER AGREEMENT . 16 IT 'S A

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THIS AGREEMENT SPECIFIES THE R I G H T S A N D RESPONSIBILITIES THAT, THAT O U R SIDE WILL HAVE WITH RESPECT TO THE OWNER SHIP O F F A C E B O O K S T O C K. A N D ATTACHED AS EXHIBIT B TO MR . ROUSSEL 'S DECLARATION IS SOMETHING THAT HE CALLS A STOCK PURCHASE AGREEMENT , THE SECOND DOCUMENT THAT IS REFERRED TO IN THEIR PROPOSED ORDER WHEN THEY FILED THIS MOTION. A N D HE SAYS, MR. ROUSSEL SAYS, UNDER OATH, QUOTE , " THIS AGREEMENT GOVERNS FACEBOOK, I N C.' S, PURCHASE OF CONNECTU' S S T O C K A S S E T FORTH IN T H E SETTLEMENT AGREEMENT." A N D IT REFERS TO

THAT PROVISION ABOUT CONNECTU BEING -- OR FACEBOOK BEING ABLE TO DETERMINE FORM AND SUBSTANCE. A N D MR. ROUSSEL ALSO SAYS THAT CONNECTU, QUOTE , " HAS REFUSED TO EXECUTE T H E FORMAL DOCUMENTS REQUIRED TO EFFECTUATE THE STOCK PURCHASE AGREEMENT A N D STOCKHOLDER'S AGREEMENT." A N D HE ALSO A T T A C H E S A S EXHIBIT C THE FORM OF SEVERAL O T H E R DOCUMENTS THAT H E SAID A R E, QUOTE , " REQUIRED TO FINALIZE THE TRANSACTION ." N O W, THAT' S WHAT THEY SAID I N T H E I R MOTION, YOUR H O N O R. WE RESPONDED T O THAT M O T I O N

A N D W E OPPOSED IT ON T H E B A S I S THAT T H E O N E AND A HALF PAGE HANDWRITTEN TERM SHEET WITH CROSS- OUTS 17

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A N D S O F O R T H, NUMBER O N E, IS NOT ENFORCEABLE ON I T S FACE BECAUSE I T I S NOT A COMPLETE ENFORCEABLE CONTRACT . A N D, N U M B E R T W O, TO T H E E X T E N T THAT - A N D I T'S S E T O U T RIGHT HERE I N T H E I R P R O P O S E D ORDER , THEY WERE ASKING N O T F O R WHAT M R. CHATTERJEE SAID HERE T O D A Y, BUT F O R A N O R D E R AGAINST BOTH A PARTY A N D N O NPARTIES TO EXECUTE THESE VERY COMPLICATED COMPLEX CORPORATE DOCUMENTS, THAT, THAT T H E T E R M S O F T H O S E HUNDRED PLUS PAGE DOCUMENTS ARE SO V A R I E D FROM ANYTHING THAT YOU C A N REASONABLY G E T OUT O F THIS ONE AND A HALF PAGE HANDWRITTEN TERM SHEET THAT, THAT THAT I S A FURTHER REASON THAT, THAT BASICALLY WHAT THE PARTIES HAD IN THAT TERM SHEET , YOUR HONOR , W A S AN AGREEMENT TO AGREE , A N UNENFORCEABLE STATEMENT OF T H E G O A L S O F A TRANSACTION THAT IF IT WERE W O R K E D OUT TO T H E SATISFACTION O F BOTH PARTIES, MIGHT HAVE RESULTED IN A CLOSING O F A SETTLEMENT. HAPPENED . WHAT D I D H A P P E N WAS IN T H E F I R S T P L A C E THE VERY , THE VERY NEXT DAY AFTER THAT ONE AND A HALF PAGE HANDWRITTEN DOCUMENT W A S, W A S SIGNED, THEIR COUNSEL, FACEBOOK 'S COUNSEL, MR. C O O P E R, IN FACT, W H O I S R I G H T HERE IN T H E COURTROOM, JUST 18 BUT THAT NEVER

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HOURS LATER REFERRED IN AN E- MAIL T O, QUOTE, "T H E TENTATIVE SETTLEMENT REACHED LAST N I G H T," IN A MESSAGE THAT M R. COOPER PROPOSED TO SEND TO THIS COURT , A N D I BELIEVE THAT SOME FORM OF IT W A S ULTIMATELY COMMUNICATED TO T H E C O U R T. H E SAID , Q U O T E, "T H E PARTIES A R E I N T H E PROCESS OF PREPARING A FINAL AGREEMENT ," AND I REQUESTED THAT T H E C O U R T, QUOTE, "STAY A L L DEADLINES A N D PROCEEDINGS WHILE THE PARTIES, " QUOTE , " COMPLETE THE SETTLEMENT. " A N D IN THE MASSACHUSETTS ACTION , W H I C H W A S T H E HOPE W O U L D B E SETTLED AS PART OF THIS PROCESS, ANOTHER LAWYER FROM THE OTHER FIRM, FROM THE PROSKAUER ROSE FIRM WHICH WAS REPRESENTING FACEBOOK IN T H E MASSACHUSETTS COURT , A N D HE' S A L A W Y E R, BY THE W A Y, YOUR H O N O R, WHO WASN' T I N V O L V E D IN THESE NEGOTIATIONS O U T HERE A T A L L. S O H E WAS CLEARLY TELLING SOMETHING T O T H E MASSACHUSETTS COURT THAT HE HAD BEEN TOLD B Y SOMEONE ON THEIR SIDE BECAUSE HE W O U L D N'T HAVE ANY OTHER W A Y T O KNOW IT . A N D HE SAID I N A N E -MAIL TO THE MASSACHUSETTS COURT, "T H E PART - -" QUOTE, "T H E PARTIES ARE STILL ATTEMPTING TO FINALIZE A SETTLEMENT, A N D I T M A Y BE A F E W WEEKS, " 19

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QUOTE -UNQUOTE. S O THEY RECOGNIZED IMMEDIATELY AFTER THE SETTLEMENT IN DOCUMENTS THAT THEIR OWN L A W Y E R SENT THAT THIS W A S AN AGREEMENT TO AGREE . A S T H E CALIFORNIA S T A T E C A S E S P U T IT, IT W A S A N AGREEMENT ON THE GOALS OF T H E SETTLEMENT B U T N O T O N T H E MEANS BY WHICH THAT SETTLEMENT W A S G O I N G TO BE AFFECTED . A N D I T H I N K Y O U CAN FIND THAT, AND I THINK Y O U C A N FIND THAT IN CASES THAT ARE PARTICULARLY PERTINENT TO THAT, YOUR H O N O R. A N D THEY'R E C I T E D A T L E A S T I N T H E SURREPLY BRIEF A N D I BELIEVE IN THE OPPOSITION BRIEF THAT WE SUBMITTED C A L L E D T E R R Y V . C O N L A N AND WEDDINGT O N PRODUCTS AGAINST F L I C K. T H O S E A R E STATE COURT OF APPEAL CASES . AND I THINK THE PARTIES ARE I N AGREEMENT THAT CALIFORNIA CONTRACT LAW CONTROLS T H E I S S U E O F WHETHER THIS O N E AND A HALF PAGE DOCUMENT IS AN ENFORCEABLE CONTRACT OR IS N O T. A N D THERE IS ALSO A NINTH CIRCUIT DECISION WHICH ESSENTIALLY ADOPTS T H E, T H E POSITION OF T H E S T A T E C O U R T S. AGAINST EB A Y. A N D, YOUR HONOR, IN TERMS OF T H E 20 I T'S C A L L E D PERFUME BAY .C O M

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IMMEDIATE ENFORCEABILITY O F T H E CONTRACT, OF T H E O N E A N D A HALF PAGE HANDWRITTEN TERM S H E E T, THERE A R E A N U M B E R O F P R O B L E M S WITH IT , B U T I T H I N K T H E CLEAREST O N E I S THAT NOTHING, NOTHING IN THAT DOCUMENT DEFINES THE MEANS BY WHICH THIS GOAL O F SETTLING T H E CASE IS GOING TO BE AFFECTED . T H E MOST IMPORTANT WAY THAT IT FAILS TO DO THAT IS THAT I T F A I L S T O SPECIFY WHETHER THE TRANSACTION , W H I C H I S DESCRIBED IN THE DOCUMENT AS , AS ESSENTIALLY T H E, THE -- IN FACT, L E T M E JUST G E T IT EXACTLY IN FRONT OF ME. " THE ACQUISITION OF CONNECTU 'S SHARES CONSISTENT WITH A STOCK AND CASH FOR STOCK ACQUISITION ." THE PROBLEM WITH THAT LANGUAGE, YOUR HONOR , I S A S OUR EXPERT WITNESS, WHO I S A PROFESSOR AT COLUMBIA BUSINESS S C H O O L W H O HAS PARTICIPATED IN , I N H U N D R E D S O F MERGERS A N D ACQUISITIONS TRANSACTIONS A S A N INVESTMENT BANKER AND TEACHES I N T H E F I E L D, AS SHE H A S TESTIFIED, YOUR HONOR, T H E WORD "ACQUISITION " I S I TSELF AMBIGUOUS . BROAD TERM. I T I N C L U D E S BOTH T H E CONCEPT OF A MERGER A N D, AND IT ALSO INCLUDES THE CONCEPT OF A S H A R E PURCHASE AGREEMENT, A STRAIGHT PURCHASE O F STOCK 21 IT IS A

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FROM THE HOLDERS OF THAT S T O C K. N O W, WHAT WAS GOING ON BETWEEN FEBRUARY 22 ND AND M I D-A P R I L W H E R E T H E -- WHEN T H E NEGOTIATIONS B R O K E DOWN HERE, YOUR HONOR, IS THAT THE PARTIES HERE WERE ACTUALLY NEGOTIATING THE TERMS OF WHAT WAS BASICALLY A M E R G E R T R A N S A C T I O N. A N D, AGAIN , I F T H E AGREEMENT W A S S O CLEAR , A S M R. CHATTERJEE S U G G E S T S, THAT F A C E B O O K'S RIGHT TO DETERMINE FORM A N D DOCUMENTATION ENTITLED THEM TO IN EFFECT DICTATE WHAT T H E SUBSTANCE OF T H E PARTY 'S TRANSACTION WAS GOING TO BE , N O T JUST FORM AND DOCUMENTATION BUT SUBSTANCE, WHY I N THE WORLD WOULD THEY SPEND TWO M O N T H S N E G O T I A T I N G A M E R G E R AGREEMENT I F WHAT THEY REALLY WANTED I S THE AGREEMENT THAT THEY HAVE P U T IN FRONT OF YOUR H O N O R AND SAID THAT THEY WANT YOU T O ORDER U S T O SIGN , WHICH IS A STOCK PURCHASE AGREEMENT . THEY 'RE T W O VERY DIFFERENT K I N D S O F TRANSACTIONS. THEY HAVE A LOT O F SIGNIFICANT - -

SUBSTANTIVE DIFFERENCES , SOME OF THEM HAVING TO DO WITH THE LIABILITIES OF T H E B U S I N E S S THAT IS BEING REQUIRED , SOME OF THEM HAVING TO DO W I TH THE T A X CONSEQUENCES O N BOTH SIDES OF T H E T R A N S A C T I O N W H I C H T A X C O N S E Q U E N C E S, [ REDACTED G H T E X P E C T IN A $ 65 AS Y O U M I ] MILLION TRANSACTION COULD BE VERY S I G N I F I C A N T F O R 22

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THE PARTIES . S O, YOUR H O N O R, FOR S I X W E E K S O R T W O M O N T H S, THEY W O R K E D ON A M E R G E R TRANSACTION. WERE HAVING SOME PROBLEMS. THEY , THEY -- THEY THEY

WERE, Y O U KNOW , M A K I N G SOME P R O G R E S S B U T THERE WAS NO AGREEMENT O N T H E FINAL TERMS OF THAT M E R G E R TRANSACTION . AND THEN - T H E COURT: WHAT I'M TO DO ? M R. BARRETT: WELL, YOUR HONOR, I THINK COUNSEL , WHAT DO Y O U MAKE OF

T H E S I M P L E S T T H I N G T O D O A N D WHAT W E W O U L D A S K YOU TO DO IS TO DENY THE M O T I O N T O ENFORCE BECAUSE THEY HAVE FAILED TO SHOW YOU THAT THERE' S A N E N F O R C E A B L E CONTRACT BETWEEN THE PARTIES REPRESENTED BY THIS ONE AND A HALF PAGE TERM SHEET AND THEY HAVE CERTAINLY F A I L E D, THEY HAVE CERTAINLY FAILED TO SHOW THAT, THAT T H E R E I S A N Y, A N Y L E G A L B A S I S I N CONTRACT LAW T O ORDER THE CONNECTU, AND PERSONAL JURISDICTION F O R THAT M A T T E R, TO ORDER T H E C O N N E C T U PARTIES TO EXECUTE T H E HUNDRED PLUS PAGES OF COMPLEX CORPORATE DOCUMENTS W H I C H THEY , B Y T H E WAY , S H O W E D U S F O R THE VERY FIRST TIME WITH T H E M O T I O N THAT THEY FILED HERE . THOSE WERE NOT THE DOCUMENTS THAT WERE 23

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UNDER NEGOTIATION BETWEEN THE PARTIES. COMPLETELY NEW DOCUMENTS.

THOSE ARE

THEY ARE S K E W E D F O R ALL

KINDS OF ECONOMIC A N D L E G A L REASONS A N D I N FACEBOOK 'S FAVOR. THEY 'RE N O T WHAT Y O U W O U L D

E X P E C T A NEGOTIATED TRANSACTION OF THIS TYPE TO LOOK LIKE. S O T H E FIRST REQUEST W E W O U L D MAKE TO YOUR HONOR IS THAT Y O U NOT ENFORCE THAT AGREEMENT. N O W, IN ADDITION TO T H E C O N T R A C T L A W PROBLEMS WITH THE DOCUMENT THAT THEY'R E T R Y I N G TO ENFORCE, A N D I 'D BE HAPPY TO EXPAND ON THOSE FURTHER. [ REDACTED ] T H E O T H E R P R O B L E M W I T H IT , W H I C H W E O N L Y B E C A M E A W A R E O F I N LATE MARCH , I S THAT IT APPEARS THAT, THAT FACEBOOK COMMITTED SECURITIES FRAUD IN CONNECTION WITH T H E NEGOTIATION OF THIS TERM SHEET . A N D, YOUR HONOR -T H E COURT: M R. BARRETT: T H E COURT: L E T ME NOW TURN TO THAT. SURE. BECAUSE IT S O U N D S LIKE I NEED

TO G E T C L E A R O N WHAT IT IS T H E T W O SIDES WANT M E T O DO N O W. M R. BARRETT: T H E COURT: UH -H U H. AND I A M A LITTLE CURIOUS

ABOUT WHAT THE PARTIES AGREED TO IN THIS DOCUMENT. 24

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NOTHING?

I S I T YOUR CONTENTION THAT THEY AGREED T O

M R. BARRETT:

WHAT THEY A G R E E D TO, YOUR I T'S AN

HONOR , I S THAT -- IT 'S VERY S I M P L E. AGREEMENT T O A G R E E.

THEY HAD T H E - - THEY HAVE THE

FORM OR THE GOALS OF A SETTLEMENT. T H E COURT: WELL , B U T, DO Y O U, DO YOU --

WHAT IS YOUR P O S I T I O N WITH RESPECT TO THE EXCHANGE OF CASH AND STOCK ? PARTIES AGREED TO ? M R. BARRETT: THAT WAS PART OF THE B U T BY IS THAT SOMETHING THAT T H E

FRAMEWORK O F T H E TRANSACTION, YOUR HONOR.

IT 'S VERY N A T U R E, THIS KIND O F COMPLEX CORPORATE TRANSACTION , WHETHER IT 'S A M E R G E R OR A S H A R E PURCHASE AGREEMENT, AND O U R E X P E R T, PROFESSOR HITSCHERICH , R E A L L Y SPEAKS TO THIS. YOU SIMPLY ,

Y O U S I M P L Y CAN 'T SAY -- IT 'S NOT LIKE MY, MY B U Y I N G A CAR FROM YOU , YOUR HONOR . Y O U HAVE A 20 05 PRIUS AND I SAY , G R E A T, I' LL BUY IT F O R $ 10, 000 , A N D THAT'S PROBABLY AN ENFORCEABLE TRANSACTION . IT' S P R E T T Y CLEAR WHAT

THE TERMS O F THAT AND THE MISSING TERMS CAN PERHAPS BE IMPLIED BY THE COURT BY WHAT IN TERMS OF WHAT I S REASONABLE. T H E S E K I N D S - - [ REDACTED I O N OR, IN F A C T, A 65 MILL ] 25

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[ REDACTED ] A B O U T A 30 M I L L I O N B E C A U S E O F T H E F R A U D, IT 'S ONLY WE C A N G E T TO THAT L A T E R, A $ 30 OR $65 MILLION CORPORATE T R A N S A C T I O N INVOLVING THE ACQUISITION OF T H E S T O C K O F O N E CORPORATION AND T H E EXTINGUISHMENT OF I T S EXISTENCE IS NOT T H E KIND OF TRANSACTION THAT YOU A N D I C A N JUST S A Y T O EACH OTHER Y O U'L L B U Y M Y C O M P A N Y [ REDACTED I L L I O N. F O R $ 65 M ] I F W E SAID THAT, THAT WOULD BE GREAT AND T H E NEXT THING THAT WE WOULD DO IN THE REAL WORLD, YOUR HONOR, IS THAT WE WOULD GET TEAMS OF LAWYERS A N D INVESTMENT BANKERS TO GO OUT A N D T O D O D U E DILIGENCE A N D SEE , A , WHAT T H E L E G A L FORM OF THAT TRANSACTION WOULD BE ; A N D, B, IS THERE A N Y INFORMATION THAT, THAT I, AS THE B U YER , MUST NEED TO KNOW ABOUT THE BUSINESS THAT YOU 'RE SELLING ME AS A SELLER ? T H E COURT: B U T ISN 'T THAT, ISN 'T THAT - -

C A N'T THAT BE THE SUBJECT OF AN AGREEMENT ? I N O T H E R W O R D S, I UNDERSTAND T H E W O R L D THAT YOU 'RE , THAT Y O U'R E DESCRIBING TO ME B U T, BUT I WOULD PUT T H E WORD "S H O U L D" IN THAT SENTENCE RATHER THAN "MUST ." I N O T H E R W O R D S, IS THERE A R E Q U I R E M E N T UNDER T H E L A W -M R. BARRETT: UH -H U H. 26

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T H E COURT:

- - THAT A GROUP OF LAWYERS

G E T T O G E T H E R A N D DO THIS O R C O U L D T H E PARTIES S A Y WE 'LL S E T T L E O U R D I S P U T E B Y P A Y I N G YOU C A S H AND IN STOCK AND YOU RELEASE THE CLAIMS ? I S THERE ANYTHING ABOUT THAT SETTLEMENT THAT IS ILLEGAL? M R. BARRETT: UM , WELL , YOUR HONOR , T H E

A N S W E R I S, YES , T H E R E C O U L D B E I F I T I N V O L V E S T H E EXCHANGE OF STOCK A N D T H E EXCHANGE OF STOCK UNLIKE T H E CASH TRANSACTION F O R T H E CAR . T H E EXCHANGE OF STOCK IS GOVERNED BY THE SECURITIES ACT OF -- T H E SECURITIES EXCHANGE A C T O F 19 34 AND THAT ACT IMPOSES, IMPOSES ON THE I S S U E R, IN THIS CASE F A C E B O O K, THE COMPANY THAT I S G I V I N G UP OR THAT IS PROVIDING I T S S T O C K T O M Y C L I E N T IN EXCHANGE FOR THEIR COMPANY AND THEIR CLAIMS AGAINST FACEBOOK . I T IMPOSES ON THEM IRRESPECTIVE OF A N Y QUESTIONS THAT CONNECTU M A Y A S K OR ANYTHING ELSE THAT CONNECTU MAY KNOW. RELIANCE . T H E KNOWLEDGE OF T H E SELLERS , I F Y O U WILL IN THIS CASE, MY CLIENTS, IS ACTUALLY IRRELEVANT UNDER SECTION 29 OF THE 19 34 SECURITIES A C T IN AN A C T I O N F O R RESCISSION O R, AS WE HAVE HERE , A 27 N O REQUIREMENT O F

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DEFENSE TO ENFORCEMENT OF A C O N T R A C T. I T'S IRRELEVANT IF THE BUYER , T H E CONNECTU PARTY , T H E FACEBOOK PARTY, FAILS TO DISCLOSE MATERIAL INFORMATION ABOUT , ABOUT THE COMPANY, THEIR COMPANY, WHOSE STOCK , M Y CLIENTS , ARE RECEIVING. A N D, YOUR HONOR, IN O U R, IN OUR SURREPLY BRIEF -T H E COURT: WELL , L E T ME -- IF I

UNDERSTAND YOUR P O S I T I O N, AND I' M N O T MEANING T O SIMPLIFY IT . M R. BARRETT: T H E COURT: UH -H U H. B U T IT SEEMS TO ME THAT A T

T H E H E A R T O F WHAT I HAVE B E F O R E ME IS AN EFFORT BY T H E PARTIES TO S E T T L E SEVERAL DISPUTES BY AGREEING ON T H E A M O U N T OF THE CONSIDERATION AND IN T H E LANGUAGE OF T H E D O C U M E N T, WHICH WAS DRAFTED AT THE CLOSE OF T H E CONFIDENTIAL MEDIATION , T H E TWO SIDES WANTED T O MAKE SURE THAT, THAT CERTAIN TERMS WERE COMMITTED I N WRITING A N D S I G N E D TO, A N D THEY LEFT THEMSELVES WITH T H E OPPORTUNITY TO DRAFT MORE F O R M A L DOCUMENTS, PERHAPS CONTEMPLATING THAT AS Y O U ACCURATELY POINT OUT , T H E S E A R E THE KINDS OF TRANSACTIONS W H I C H O F T E N A R E ACCOMPANIED BY OTHER DOCUMENTS WITH PROTECTIONS AND WARRANTIES AND ALL 28

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KINDS OF T H I N G S B U T WANTING T O MAKE SURE THAT T H O S E T H I N G S D I D NOT STAND IN T H E W A Y OF THEIR SETTLEMENT BECAUSE THEY W A N T E D TO MAKE SURE THAT NOTWITHSTANDING A L L OF THAT T H E SETTLEMENT DIDN 'T FALL APART. A N D WHAT I 'M TRYING TO A S K I S, IS THAT - IF THAT IS WHAT I FIND TO BE THE CASE, WHAT DO I MAKE OF THAT? I MEAN, WHAT D O I DO WITH THAT?

I N O T H E R W O R D S, I'M , I 'M FACED WITH LANGUAGE IN T H E SETTLEMENT AGREEMENT W H E R E T H E PARTIES CLEARLY C O M M U N I C A T E T O O N E ANOTHER THIS IS A SETTLEMENT AGREEMENT. T H E R E M A Y BE ASPECTS O F I T THAT A R E N O T WRITTEN DOWN, BUT THERE A R E ASPECTS THAT ARE THAT T H E PARTIES INTEND T O B E B O U N D T O. A N D ACTUALLY SET UP THIS COURT AS A P L A C E TO ENFORCE. T H E WORD " ENFORCE" MEANS WE' VE GOT

SOMETHING, AND WE NEED A P L A C E N O W TO GO MAKE SURE IT TAKES PLACE . THAT IS P R E T T Y S T R O N G LANGUAGE TO ENFORCE IT . AND SO IS IT YOUR ARGUMENT THAT, THAT THIS

COURT W A S N O T EMPOWERED BY T H E PARTIES TO ENFORCE THAT AGREEMENT ? M R. BARRETT: WELL, YOUR HONOR, I THINK

T H E C O U R T H A S JURISDICTION TO CONSIDER WHETHER TO 29

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ENFORCE IT. WITH RESPECT TO THE LANGUAGE THAT COUNSEL R E F E R S T O, THESE TERMS ARE BINDING AND THIS DOCUMENT MAY B E SUBMITTED INTO EVIDENCE T O ENFORCE THIS AGREEMENT . YOUR HONOR , THIS WOULD NOT B E THE FIRST CASE WHERE, WHERE T W O PARTIES H A D WHAT THEY THOUGHT W A S A DEAL, AN ENFORCEABLE CONTRACT , A N D THEY M A Y HAVE EXPRESSED THAT AS THEY D I D IN PARAGRAPH 5 OF THE TERM SHEET . A N D BY THE W A Y, YOUR H O N O R, IT' S C A L L E D TERM SHEET AND SETTLEMENT AGREEMENT . I WOULD CONTEND THAT THE VERY TITLE O F T H E D O C U M E N T I S I TSELF AMBIGUOUS . I T D O E S N'T S A Y I T'S A SETTLEMENT AGREEMENT. IT SAYS IT' S A TERM SHEET AND

SETTLEMENT AGREEMENT , A N D, IN FACT, T H E F I R S T W O R D S A R E TERM SHEET A N D A TERM SHEET, I THINK, IN GENERAL BUSINESS LANGUAGE IS PROBABLY NOT AN ENFORCEABLE DOCUMENT . B U T, B U T - - S O, AGAIN, T H E D O C U M E N T I S KIND OF A STRANGE MIXTURE, IF Y O U WILL , O F, YES , T H E FACT THAT THEY U S E THE WORD "BINDING" A N D T H E WORD "ENFORCE" IS SOME EVIDENCE THAT THAT IS WHAT THE PARTIES INTENDED . 30

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B U T, YOUR HONOR, T H E L A W IS EXTREMELY CLEAR THAT, THAT NOTWITHSTANDING THOSE KINDS OF STATEMENTS BY THE PARTIES, IF T H E D O C U M E N T DOES N O T CONTAIN SUFFICIENT TERMS AND SUFFICIENT CLARITY , A N D I F I T I S AMBIGUOUS TO THE POINT WHERE , W H E R E I T DOESN 'T MEET T H E REQUIREMENTS F O R A N ENFORCEABLE CONTRACT UNDER STATE L A W, THEN, THEN NOTWITHSTANDING WHAT THE PARTIES MAY HAVE THOUGHT OR M A Y HAVE HOPED WHEN THEY, WHEN THEY H A D THAT HANDSHAKE, WHEN THEY S I G N E D THAT PIECE OF PAPER , T H E C O U R T S T I L L C A N N O T ENFORCE I T BECAUSE IT IS N O T A CONTRACT AND CALLING IT A C O N T R A C T O R CALLING IT ENFORCEABLE DOESN 'T MAKE I T S O I F I T D O E S N'T HAVE T H E REQUIRED T E R M S. T H E COURT: Y O U SEE , YOUR STATEMENT JUST

MADE IS CLOSE TO MY UNDERSTANDING O F T H E LAW . M R. BARRETT: T H E COURT: I' M GLAD , YOUR HONOR . THAT I' M LIMITED IN MY

ABILITY TO ENFORCE I T I F T H E PARTIES HAVE N O T COME TO AN ENFORCEABLE AGREEMENT. M R. BARRETT: T H E COURT: RIGHT . A N D SO THAT'S W H Y I TURN OVER

HERE TO YOUR O P P O N E N T T O A S K DON 'T I NEED TO HAVE A PROCEEDING TO BE CONVINCED THAT THIS I S A N ENFORCEABLE AGREEMENT? A N D I D O N'T KNOW HOW I GET 31

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THERE , B U T I D O NEED TO AT LEAST P U T M Y S E L F IN A POSITION ON THIS MOTION TO GO THROUGH THIS A N D IN SOME WAY TO G E T T O T H E POINT WHERE I UNDERSTAND WHAT IS IT THAT M A K E S THIS ENFORCEABLE A N D D O I HAVE ALL OF T H E I N G R E D I E N T S HERE ? M R. CHATTERJEE: QUESTION IS NO , YOUR HONOR . T H E MOTIONS F O R ENFORCEMENT AND T H E C A S E S CITED ARE GENERALLY DEALING WITH THE ISSUE O F I S THERE A MUTUAL A S S E N T, IN OTHER WORDS, THAT BOTH PARTIES ACTUALLY AGREED TO SOMETHING. TYPICALLY IN THOSE CASES THERE MIGHT BE E- MAIL EXCHANGES OR THINGS GOING BACK AND FORTH WHERE IT 'S NOT CLEAR THAT THE PARTIES HAVE A G R E E D TO SOMETHING. I N THIS CASE WE HAVE S P E C I F I C T E R M S. SAYS THE TERMS A R E BINDING . IT SAYS THAT YOUR IT T H E A N S W E R TO THAT

HONOR CAN CONSIDER THIS DOCUMENT FOR PURPOSES O F ENFORCEMENT . I T HAS SPECIFIC SHARES . DOLLARS. IT HAS SPECIFIC

UNUSUAL RESTRICTIONS O N WHAT C A N O R C A N' T

BE DONE WITH T H E SHARES . I T D O E S N'T S A Y F A C E B O O K A N D CONNECTU WILL MUTUALLY DETERMINE THE FORM AND DOCUMENTATION O F THE TRANSACTION. IT SAYS FACEBOOK DOES I T. 32

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THEY HAD SIX LAWYERS WITH THEM WHEN THEIR CLIENT CHOSE T O SIGN THIS DOCUMENT. SIX LAWYERS.

THEY HAD A WHARTON B U S I N E S S PROFESSOR, H O W A R D WINKLEVOSS, W H O I S CONSIDERED AN E X P E R T, WHO T A U G H T THERE F O R 1 2 Y E A R S W H O WAS AT T H E MEDIATION WHEN THEY CHOSE TO SIGN THIS DOCUMENT . T H E ISSUE OF THE EVIDENTIARY HEARING IS WHETHER THE PARTIES AGREED TO SOMETHING. THEY

A G R E E D T O THIS A N D T H E TERMS ARE CLEARLY LAID O U T HERE. T H E R E I S CONSIDERATION ON BOTH ENDS O F I T. EACH PARTY IS GETTING A BENEFIT OF A BARGAIN THAT THEY STRUCK AND THIS CASE SHOULD B E OVER. THERE I S N O EVIDENTIARY HEARING NECESSARY A S

TO WHETHER THEY A G R E E D TO ANYTHING. ANYTHING, YOUR H O N O R, THAT Y O U WOULD CONSIDER ABOUT WHAT THIS AGREEMENT MEANS IS GOING TO HAVE TWO I S S U E S WITH IT : THE FIRST O N E I S THAT

IT WOULD DEAL WITH SUBJECTIVE I N T E N T; THAT I S, WHAT W A S I N T H E MINDS OF THE PARTIES WHEN THEY S I G N E D I T R A T H E R THAN WHAT IS THE INTENTION O F T H E THEM THAT THEY EXPRESSED ON T H E D O C U M E N T. T H E SECOND ISSUE IS TO T H E E X T E N T THAT THERE WAS ANY DISCUSSION BETWEEN THE PARTIES , AND I D O N'T WANT TO GO INTO WHAT HAPPENED AT T H E MEDIATION A T THIS POINT . IT' S A L L PROTECTED BY T H E 33

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MEDIATION PRIVILEGE. S O THIS IS T H E D O C U M E N T W H E R E T H E PARTIES MANIFESTED THEIR MUTUAL INTENT, CONNECTU DIDN'T AGREE , DIDN 'T ASK TO PARTICIPATE IN T H E FORM A N D DOCUMENTATION OF THE TRANSACTION . I T SPECIFICALLY RECITED T H E PARTIES M A Y, THAT THEY M A Y ENGAGE IN INFORMAL DOCUMENTATION, THAT THE T H I N G S THAT MR . BARRETT TALKS ABOUT , B U T S H O U L D THEY N O T A N D THIS I S I T A N D ALL Y O U NEED TO DO , YOUR HONOR , I S ENFORCE T H E W O R D S THAT A R E WRITTEN ON THIS PAGE (INDICATING ). T H E COURT: WELL , D O YOU TAKE ISSUE WITH

T H E STATEMENT OF LAW THAT THIS MUST BE ENFORCEABLE ? M R. CHATTERJEE: TO ENFORCE IT? YOUR HONOR , THIS MUST, THIS MUST B E ENFORCEABLE F O R T H E COURTS TO ENFORCE IT AND THIS IS AN ENFORCEABLE AGREEMENT. T H E COURT: WELL , THAT 'S A CONCLUSION BUT WHAT MAKES A IN ORDER F O R T H E COURT

THAT YOU WANT ME TO REACH.

DOCUMENT ENFORCEABLE UNDER CALIFORNIA LAW DEPENDS UPON WHETHER O R N O T THE PARTIES HAVE A G R E E D TO WHAT, A L L O F T H E MATERIAL TERMS? H O W DO I - - WHAT IS T H E DEFINITION OF WHAT MAKES THIS ENFORCEABLE O R N O T. 34

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 T H E W A Y?

M R. CHATTERJEE:

T H E DEFINITION OF WHAT

MAKES THIS ENFORCEABLE IS IF THEY A G R E E D TO THE MATERIAL TERMS A N D I 'LL S U B M I T, YOUR H O N O R, YOU C A N'T HAVE THIRD PARTIES THAT WERE NOT INVOLVED IN T H E N E G O T I A T I O N C O M I N G IN AND REVISITING OF WHAT M A Y O R M A Y NOT BE CONSIDERED MATERIAL AFTER THE FACT. HERE A L L O F T H E PARTIES WERE ADVISED BY SOPHISTICATED COUNSEL. THEY PUT DOWN EVERYTHING THAT THEY FELT WAS MATERIAL. THEY NEGOTIATED I T, THEY W R O T E I T,

A N D THEY SIGNED I T. T H E COURT: W H O S E H A N D W R I T I N G I S THIS BY

M R. CHATTERJEE: HANDWRITING . T H E COURT:

THIS IS MR. HOWITSON 'S

W H O IS HE? HE 'S IN- HOUSE COUNSEL

M R. CHATTERJEE: FOR FACEBOOK.

THIS IS AN A R M'S L E N G T H T R A N S A C T I O N BETWEEN SOPHISTICATED PARTIES . PEOPLE WILL PUT

DOWN WHAT THE MATERIAL INFORMATION THAT THEY NEED IN THERE . THEY C A N' T COME IN THERE AFTER T H E FACT

A N D S A Y, OH , I WISH I W O U L D HAVE KNOWN THAT OR I WISH I W O U L D HAVE KNOWN SOME OTHER THING. 35

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THEY HAD AN OBLIGATION AND OPPORTUNITY TO NEGOTIATE F O R I T A N D PUT REPRESENTATIONS I N W H E R E THEY W A N T E D IT . T H E COURT: WHAT DO I MAKE O F A L L OF THE

POST- SHEET CONSIDERATIONS AND DOCUMENTS I N T E R M S O F T H E KIND OF PROVISIONS THAT WERE THERE WHICH DO N O T APPEAR I N THE SETTLEMENT AGREEMENT? M R. CHATTERJEE: YOUR HONOR, LIKE IT SAYS

IN T H E AGREEMENT, IT CONTEMPLATED THAT T H E PARTIES EXECUTE MORE FORMAL DOCUMENTS . THERE WERE DISCUSSIONS AFTERWARDS ABOUT H A V I N G SOME OTHER KIND OF AGREEMENT P U T I N P L A C E THAT WOULD SUPPLANT THE TERM SHEET AND SETTLEMENT AGREEMENT. A N D T H E R E W A S, THERE W A S THINGS

NEGOTIATED BACK A N D FORTH AND THAT' S WHAT HAPPENED . N O W, THERE WERE TIMES WHEN C O N N E C T U'S COUNSEL ASKED OUR CORPORATE COUNSEL F O R MORE TIME BECAUSE HE WAS H A V I N G DIFFICULTY WITH HIS CLIENTS. B U T THAT IS COMPLETELY IRRELEVANT WHEN IT COMES TO T H E E N F O R C E M E N T O F T H E TERMS IN THE SETTLEMENT AGREEMENT. IT CONTEMPLATES THAT IT BE BINDING TO

ARBITRATION BUT THIS DID NOT HAPPEN . T H E COURT: WELL , I T S O U N D S IN FRAUD IN

CONNECTION WITH THE SETTLEMENT PROCESS ITSELF. THERE 'S NO PLEADING BEFORE ME THAT RAISES THAT, B U T 36

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L E T'S A S S U M E THAT SOMEHOW THAT'S AN ISSUE .

HOW DO

I HANDLE THAT IN THE CONTEXT OF THIS D O C U M E N T I N TERMS OF YOUR CLIENT 'S POSITION? M R. CHATTERJEE: YOUR HONOR, O U R POSITION IT 'S AN ABSURD

IS THAT YOU R E J E C T I T O U T R I G H T. POSITION TO TAKE.

T H E R E'S NO REPRESENTATION IN

THIS DOCUMENT AS TO SHARE PRICE AND F O R THEM TO RAISE THAT ALLEGATION I S SIMPLY TRANSFORMING WHAT IS AN OPEN MARKET ISSUE . PUBLICLY TRADED COMPANY . FACE BOOK W A S IN LITIGATION WITH THEIR CLIENTS. DISCOVERY WAS ONGOING. W E PRODUCED FACEBOOK IS NOT A

CERTAIN DOCUMENTS WITH STOCK EVALUATION A N D WE TOLD THEM DISCOVERY WAS COMPLETE. THEY DECIDED T O G O

INTO THE MEDIATION KNOWING DISCOVERY W A S INCOMPLETE. THEY THEN TRIED, ONCE THEY DECIDED N O T T O HONOR T H E TERM SHEET A N D SETTLEMENT AGREEMENT, TO GO TO B O S T O N A N D INTRODUCE OTHER DISCOVERY I S S U E S ASSOCIATED WITH D O C U M E N T PRODUCTION A N D THIS IS NOTHING SHORT OF JUST A DOCUMENT PRODUCTION ISSUE. A N D HERE'S WHAT JUDGE WOODLOCK HAD TO S A Y IN T H E F E B R U A R Y O R D E R, HE SAID THAT FROM ALL THAT APPEARS THE PARTIES WERE P R E P A R E D T O S E T T L E THEIR DISPUTES THEN DESPITE T H E FACT THAT ASPECTS OF 37

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DISCOVERY I N THIS CASE MOST PRESENTLY FOR PRESENT PURPOSES DOCUMENT PRODUCTION HAD N O T BEEN COMPLETED AND UNRESOLVED DISCOVERY ISSUES REMAINED O U TSTANDING ." THEY KNEW THAT THEY DIDN' T HAVE A L L O F THE INFORMATION THEY NEEDED. F O R THEM TO COME IN

N O W A N D SAY WE HAVE SOME SORT OF OBLIGATION TO TELL THEM SOMETHING THEY DIDN'T KNOW, WHEN THEY DIDN 'T A S K F O R THE REPRESENTATION IN THIS DOCUMENT, THEY KNEW THEY DIDN 'T HAVE A L L OF THE DOCUMENTS. I N FACT , THE MICROSOFT INFORMATION AND T H E P R E S S RELEASE THAT THEY S U B M I T IN THEIR PAPERS , THEY DIDN'T HAVE ANY OF THOSE CORPORATE DOCUMENTS A N D THEY KNEW IT AND F O R THEM TO COME IN AND S A Y THAT, OH , W E H A D INCOMPLETE I N F O R M A T I O N WHEN WE SETTLED THE CASE, YOUR HONOR, THAT' S WHAT HAPPENS IN SETTLEMENT. T H E COURT: B U T IN ORDER TO REJECT THAT,

DOESN 'T IT HAVE T O B E T E N D E R E D T O T H E COURT IN SOME FORM? I 'M A L I T T L E CONCERNED THAT THE M O T I O N T O

ENFORCE THE SETTLEMENT AGREEMENT DOES NOT PROVIDE ME WITH AN OPPORTUNITY TO ADJUDICATE T H E ISSUE OF WHETHER THERE WAS FRAUD IN T H E INDUCEMENT OF T H E SETTLEMENT AGREEMENT , N O W MAYBE IT DOES A N D I NEED TO S E E CLEARLY H O W I H A N D L E THAT IN CONNECTION WITH 38

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THE MOTION. I HAVEN 'T READ ENOUGH CASES WHERE PARTIES HAVE TENDERED A SETTLEMENT AGREEMENT AND SOMEONE H A S O B J E C T E D T O I T O N T H E GROUNDS THAT IT W A S INDUCED BY FRAUD AND T H E C O U R T GOES AHEAD A N D SAID , WELL, I' M G O I N G T O S O L V E THAT IN CONNECTION WITH A M O T I O N A N D AS OPPOSED T O A TRIAL A N D THAT 'S WHAT I' M A S K I N G FOR IS WHAT IS THE PROCESS? I T'S CLEAR THAT THE PARTIES AGREED THAT I CAN ENFORCE THIS AGREEMENT AND THAT THIS AGREEMENT WOULD BE SUBMITTED INTO EVIDENCE AS PART OF THAT ENFORCEMENT . AND I UNDERSTAND FROM CALIFORNIA LAW THAT A MOTION IS PERMISSIBLE IN T H E CONTEXT OF AN OPEN CASE THAT WOULD ENFORCE THE SETTLEMENT AGREEMENT. B U T I H A V E N'T GONE FAR E N O U G H INTO IT TO FIND WHAT HAPPENS IF ANOTHER PARTY IN THAT SAYS , WELL, IT W A S INDUCED BY FRAUD . THAT? M R. CHATTERJEE: QUESTION . O N E OF THE I S S U E S THAT CONNECTU H A S R A I S E D I S THAT THIS CONTRACT IS VOID U N D E R SECTION 29 OF T H E SECURITIES EXCHANGE A C T. WITH THE THANK YOU FOR THAT HOW DO I SOLVE

UNDERLYING VIOLATION OF SECTION 29 BEING A 1 0 O R 39

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10 (B) VIOLATION A N D THEIR POSITION IS THAT THIS AGREEMENT C A N N O T BE ENFORCED UNDER SECTION 2 9 S O THEIR OPPOSITION EFFECTIVELY HAS P U T THIS ISSUE BEFORE Y O U. I D O N'T THINK Y O U NEED TO HAVE FURTHER EVIDENCE SUBMITTED, YOUR H O N O R. THEY A R E T A K I N G THE POSITION THAT THIS AGREEMENT I S VOID . IF THEY, IF THEY MAKE -- IF

THEY SUBMIT THAT ARGUMENT TO YOU , YOUR HONOR , A N D Y O U D E C I D E TO ENFORCE THIS AGREEMENT, YOU HAVE REJECTED THAT ARGUMENT. F O R THEM T O PROCEED ON THEIR FRAUD T H E O R Y, I T H I N K THEY HAVE TO PUT FORTH SOME KIND O F SHOWING. SCIENTER . T H E I R C L A I M APPEARS TO BE SOME SORT O F OMISSION IN A PRIVATELY HELD ARM 'S LENGTH TRANSACTION . THAT W O U L D ONLY COME INTO PLAY IF THEY HAVE PUT FORWARD NO SHOWING O F A N Y

THERE W A S A DUTY AND THEY DON 'T ANSWER T H E Q U E S T I O N OF THEIR KNOWLEDGE O F T H E FACT THAT DISCOVERY W A S ONGOING AND INCOMPLETE. I N FACT , THEY ENDORSE JUDGE WOODLOCK' S RECOGNITION OF THAT IN HIS ORDER . YOU C A N R E J E C T

T H E E F F O R T TO TRY A N D VOID THIS AGREEMENT UNDER SECTION 29 BASICALLY BY S A Y I N G THEY HAVE PUT 40

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FORWARD ANY EVIDENCE , NONE TO SUPPORT A 1 0(B ) VIOLATION THAT WOULD IN TURN LEAD T O SECTION 29 VOIDING OF THE AGREEMENT. T H E COURT: WHAT IS YOUR ANSWER TO MY

QUESTION T H E PARTIES AGREE THAT THIS M A T T E R CAN BE STIPULATED THAT SAN JOSE FEDERAL COURT JURISDICTION TO ENFORCE THIS AGREEMENT, S U B M I T THIS INTO EVIDENCE TO ENFORCE THE AGREEMENT A N D CALIFORNIA L A W P R O V I D E S THAT A, THAT A M O T I O N TO ENFORCE I S, IS PERMISSIBLE . HOW DO I HANDLE A CLAIM THAT T H E R E

IS FRAUD IN CONNECTION WITH T H E AGREEMENT ? M R. BARRETT: WELL, YOUR HONOR, WE WOULD ,

OF C O U R S E, BE PLEASED T O S U B M I T ANY PLEADINGS THAT , THAT YOUR H O N O R B E L I E V E S I S NECESSARY TO ASSIST IT IN DECIDING THAT QUESTION. I DO , I DO THINK THAT, THAT IT WAS R A I S E D IN O U R OPPOSITION BRIEF A N D I N O U R SURREPLY BRIEF A N D SOME OF T H E E V I D E N C E W A S PRESENTED IN T H E FORM OF AFFIDAVITS WITH T H O S E T W O SUBMISSIONS WHICH WE UNDERSTAND YOUR HONOR WOULD TAKE INTO ACCOUNT I N DECIDING WHAT TO DO. A N D THEN T O ANSWER COUNSEL'S QUESTION , FIRST OF A L L, WHEN THIS B E C A M E A SECURITIES [ TRANSAC ] T R A N S A C T I O N , AREDACTED T I O N I N V O L V I N G T H E E X C H A N G E OF T H E SECURITIES OF T W O COMPANIES THAT W A S WORTH 41

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[ $3 0, $40 ,] $ 60, $7 0 M I L L I O N , W H E T H E R OR N O T T H E Y REDACTED KNEW ABOUT IT, THEY INTENDED IT, WHETHER ALL OF THOSE FANCY CORPORATE LAWYERS THAT THEY H A D ON THEIR SIDE, A N D Y O U HEARD THAT THIS TERM SHEET WAS WRITTEN BY THEIR IN- HOUSE GENERAL COUNSEL , WHETHER OR N O T THEY FOCUSSED ON T H E FACT THAT THEY H A D DISCLOSURE OBLIGATIONS BY VIRTUE OF T H E SECURITIES L A W, THEY H A D THOSE OBLIGATIONS. T H E LAW IS VERY CLEAR ON THAT, YOUR HONOR . WE WOULD BE HAPPY TO BRIEF THAT FURTHER ,

ALTHOUGH I THINK WE HAVE G O T AMPLE BRIEFING ON IT IN O U R S U R R E P L Y. FROM. THE DUTY COMES FROM WHEN A COMPANY TRADES IN I T S O W N SECURITIES WITH AN OUTSIDE PARTY, IT DOESN 'T MATTER W H O THEY A R E, IT DOESN' T M A T T E R IF IT 'S US OR MICROSOFT . MATERIAL INFORMATION . SOMETIMES THAT DUTY IS IMPLEMENTED BY INVITING T H E O T H E R SIDE TO COME IN AND DO D U E DILIGENCE. THAT' S O N E WAY TO DEAL WITH I T T O MAKE YOU THEY HAVE A DUTY T O DISCLOSE SO THAT' S W H E R E T H E DUTY C O M E S

SURE THE OTHER SIDE GETS A N Y T H I N G THEY NEED. JUST GIVE THEM A C C E S S T O YOUR COMPANY AND YOUR BOOKS AND RECORDS . THAT DIDN' T HAPPEN HERE.

[W H A T DID ]H A P P E N REDACTED 42

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[H E R E, Y O U] H O N O R, IS T H A T T H E Y, T H E Y M A D E A REDACTED R TRANSACTION AT A SHARE PRICE OF APPROXIMATELY $3 5.9 0 P E R SHARE, A N D I F Y O U DO THE MATH, WE HAVE IT A L L OVER O U R P A P E R S, Y O U'L L S E E THAT THAT 35 .90 SHARE PRICE , W H I C H I S T H E VALUE OF THE STOCK IN T H E MICROSOFT TRANSACTION, TRANSLATES EXACTLY INTO $45 MILLION, AN O D D N U M B E R OF SHARES , A N D IT TRANSLATES EXACTLY INTO $ 45 MILLION. A N D IF WE GET INTO THE MEDIATION EVIDENCE , WHAT WE 'LL SHOW, YOUR HONOR, A N D THEY SAID WE DIDN'T MAKE A P R O F I T OR SO IN OUR SURREPLY . WE D I D MAKE A PROFIT . WHAT Y O U'L L S E E, YOUR HONOR, IS THAT THE GOAL WAS TO GIVE 45 MILLION I N V A L U E T O, TO CONNECTU IN T H E FORM OF FACEBOOK STOCK . THEY , WITH THEIR , NOT ONLY THEIR GENERAL COUNSEL, B U T T H E I R C H I E F FINANCIAL OFFICER, MR. YU , A N D, AND MR . ZUCKERBERG , W H O IS NOT ONLY THE C E O O F T H E COMPANY B U T I S O N T H E BOARD OF DIRECTORS OF T H E COMPANY, A N D THAT 'S IMPORTANT F O R REASONS I' LL GET TO IN A MINUTE , T H E THREE OF THEM WERE PRESENT AT THE MEDIATION. [ REDACTED ] T H E Y S A I D, O K A Y, WE 'LL G I V E YOU 1, 253 ,3 2 6 SHARES. A VERY STRANGE NUMBER, YOUR H O N O R. UNLESS

Y O U D O T H E MATH A N D YOU S E E THAT BASED ON A $15 43

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BILLION M ] [ REDACTED I C R O S O F T V A L U A T I O N, T H A T T H E Y T O U T E D I N THEIR O W N P R E S S RELEASE A FEW M O N T H S B E F O R E, IF Y O U DO T H E MATH , THAT N U M B E R O F S H A R E S COMES OUT TO EXACTLY $45 MILLION AT THE MICROSOFT VALUATION. WHAT , WHAT THEY DIDN'T TELL US, WHAT THOSE THREE FACEBOOK EXECUTIVES WHO WERE SITTING I N THAT MEDIATION DIDN' T TELL US , EVEN T H O U G H A S A M A T T E R O F FEDERAL SECURITIES LAW THEY HAVE A N ABSOLUTE OBLIGATION TO DISCLOSE MATERIAL INFORMATION WHETHER WE ASKED FOR IT OR N O T, YOUR HONOR , R E M E M B E R, SECURITIES L A W IS NOT C A V E A T EMPTOR. SECURITY LAWS IS DISCLOSURE WHEN T H E L A W

SAYS THAT Y O U HAVE T O MAKE IT A N D T H E LAW SAYS THAT WHEN THEY D O THIS TRADE , THEY HAVE TO MAKE I T. WHAT THEY DIDN'T TELL US WAS THAT THE FACEBOOK BOARD , O F W H I C H M R. ZUCKERBERG, WHO W A S A T THAT MEETING W A S A M E M B E R, A N D U N D O U B T E D L Y T H E CFO A N D GENERAL COUNSEL KNEW A B O U T THIS BECAUSE THAT'S PART OF THEIR JOB . B U T WHAT THEY DIDN' T TELL US A N D THEY ONLY TOLD U S LATER O N I N MARCH WHEN THE CORPORATE LAWYERS, IF Y O U WILL , PERHAPS , D O I N G SOME OF THAT D U E DILIGENCE IN NEGOTIATING THE TRANSACTION ASKED T H E Q U E S T I O N, THEY DIDN 'T TELL U S A B O U T WHAT IS CALLED A 4 0 9(A ) VALUATION. A N D I D O N' T KNOW IF 44

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YOUR HONOR HAS R U N A C R O S S THAT TERM IN SOME OF YOUR OTHER CASES . B U T THAT I S A VALUE THAT, THAT A VALUATION THAT , THAT A PRIVATE COMPANY HAS A HUGE INCENTIVE T O MAKE UNDER THE INTERNAL REVENUE CODE RECENTLY AMENDED WITHIN T H E LAST COUPLE Y E A R S. T H E REASON IT H A S A HUGE INCENTIVE TO DO THAT IS THAT BECAUSE IF IT G R A N T S S T O C K OPTIONS AT A PRICE LOWER THAN T H E 409 (A) VALUATION O R, OR H I G H E R, IT, IT -- T H E EMPLOYEES WHO RECEIVED THOSE OPTIONS MAY FACE EXTREME, EXTREME T A X PENALTIES IN CONNECTION WITH RECEIVING THOSE OPTIONS A N D THE COMPANY MAY , M A Y INCUR SOME LIABILITY AS WELL. S O T H E R E I S A VERY STRONG T A X R E A S O N TO DO AN ACCURATE 4 0 9(A ) VIOLATION. I N O R D E R F O R THAT VALUATION TO BE EFFECTIVE UNDER THE INTERNAL REVENUE CODE , THE COMPANY HAS TO GO THROUGH CERTAIN S T E P S THAT A R E PRESCRIBED IN THE STATUTE. A N D ULTIMATELY T H O S E S T E P S CULMINATE IN T H E COMPANY 'S BOARD OF DIRECTORS PASSING A RESOLUTION WHICH SAYS THAT THE FAIR MARKET VALUE O F OUR STOCK IS X. SO THIS I S N O T, Y O U KNOW , SOME THIS IS, THIS

VAGUE , V A G U E CONCEPT OF VALUATION.

IS A RESOLUTION O F T H E BOARD OF DIRECTORS A N D Y O U 45

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H A D A M E M B E R O F T H E BOARD OF DIRECTORS A N D Y O U HAD T H E S E N I O R FINANCIAL OFFICER AND T H E S E N I O R LEGAL P E R S O N O F T H E COMPANY SITTING THERE AT THAT MEDIATION, KNOWING THAT THEY HAD AN OBLIGATION TO DISCLOSE ALL MATERIAL INFORMATION. [ REDACTED ] A N D, A N D D O I N G A T R A N S A C T I O N , D O I N G A TRANSACTION IN THEIR COMPANY STOCK WHERE THE STOCK W A S B E I N G V A L U E D AT 35. 90 PER SHARE . A N D YOUR H O N O R, WHAT W A S THE FAIR MARKET VALUE ACCORDING T O T H E BOARD OF DIRECTORS AT THAT TIME? [ REDACTED . 89. I T W A S $8 ] S O A T THAT FAIR MARKET SHARE

WE S H O U L D HAVE G O T FOUR TIMES , N O T 1.2 B U T 5 MILLION OF SHARES OF FACEBOOK STOCK . YOUR HONOR , W E ALSO HAVE TO SHOW I T W A S MATERIAL . [I T H I N K U] D E R A N Y B O D Y 'S D E F I N I T I O N O F REDACTED N

MATERIALITY FOUR TIMES OF AS MUCH S T O C K O R A VALUATION THAT IS INFLATED FOUR TIMES AS MUCH A S THE FAIR MARKET VALUE I S A MATERIAL M I SREPRESENTATION . COUNSEL IS RIGHT , W E HAVE TO SHOW SCIENTER . YOUR H O N O R, I T H I N K I JUST DESCRIBED A

[ REDACTED ] BASIS OF PRIMA FACIE SCIENTER IN WHICH Y O U C O U L D N' T REDACTED T D I S M I S S THE F R A U D C L A I M , [W H I C H I S ] H A T T H E Y EFFECTIVELY M I SREPRESENTED THAT THEY KNEW WE WERE UNDERSTANDING THAT THE VALUE THAT W E WERE GETTING 46

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[OR T H E S T] C K W E W E R E G E T T I N G WAS [ REDACTED 90 P E R REDACTED O WORTH 35 . ] SHARE . THEY KNEW BECAUSE THEY PARTICIPATED IN MR. ZUCKERBERG MUST HAVE

THESE BOARD MEETINGS .

BECAUSE HE' S A BOARD M E M B E R A N D THE O T H E R S I 'M SURE D I D BECAUSE OF THEIR POSITION . STOCK W A S REALLY WORTH 8.8 8. T H E COURT: ALL O F THIS . L E T ME GO BACK A N D I'V E READ [ HEY KNEW TREDACTED ] T H A T T H A T

BUT L E T M E G O BACK TO A STATEMENT

THAT YOU MADE THAT U N D E R T H E SECURITIES L A W THERE W A S A N OBLIGATION TO , T O MAKE T H E, MAKE T H E -- MAKE A CERTAIN KIND OF DISCLOSURE. M R. BARRETT: T H E COURT: NEED EDUCATING ON . I N O T H E R W O R D S, IN THE CONTEXT OF A SETTLEMENT, IF STOCK IS OFFERED IN THE GIVE AND TAKE OF THE SETTLEMENT IN CASH, AT THAT P O I N T T H E NEGOTIATIONS HAVE TO TAKE A DIFFERENT TURN I S WHAT Y O U'R E TELLING ME . A T THAT POINT THE PARTY CANNOT OFFER STOCK B U T MUST AT THAT POINT MAKE A DISCLOSURE ABOUT DUE DILIGENCE KIND O F DISCLOSURE AND COMPLY WITH ALL OF T H E SECURITIES LAWS WITH RESPECT TO T H E DISCLOSURE. A N D INDEED IT COULD NEVER , U N D E R T H E LAW , 47 UH -H U H. THAT 'S THE PART I, I G U E S S, I

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OFFER STOCK WITHOUT THOSE DISCLOSURES AND IF STOCK IS OFFERED AS A PART OF T H E SETTLEMENT , I T I S ILLEGAL. M R. BARRETT: WELL, THEY ARE CERTAINLY - -

IF THEY DO THAT, YOUR H O N O R, I T H I N K THAT 'S ESSENTIALLY CORRECT. T H E COURT: THAT? M R. BARRETT: MINUTE. I' LL GET TO THAT IN ONE I F THEY DO THAT -WHAT IS YOUR AUTHORITY F O R

IF THEY DO THAT, THEY'R E CERTAINLY TAKING

THAT RISK. T H E COURT: WELL , BOTH SIDES ARE TAKING A

RISK, IT SEEMS TO ME , BECAUSE IT COULD BE THAT THE PARTY W H O GETS T H E S T O C K, GETS S T O C K WHEN T H E DISCLOSURE COMES OUT IS WORTH MORE. M R. BARRETT: OBVIOUSLY - T H E COURT: I T JUST DEPENDS ON, IT ABSOLUTELY. AND

DEPENDS ON, A N D A S I UNDERSTAND THIS T R A N S A C T I O N NEITHER SIDE I S T R Y I N G TO MOVE AWAY FROM THE TRANSACTION BECAUSE THEY BELIEVE THAT SOMETHING ABOUT THE VALUE I S DIFFERENT. I T'S BECAUSE OF THE

FAILURE TO DISCLOSE, YOUR ARGUMENT IS THE FAILURE TO DISCLOSE T H E VALUATION FOR T H E S T O C K B E N E F I T S I S INFORMATION THAT SHOULD HAVE BEEN DISCLOSED. 48

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B U T RATHER THAN IN A M I N U T E, I NEED T H E AUTHORITY N O W. THAT FOR M E I S VERY IMPORTANT T O

UNDERSTAND A CASE WHERE A JUDGE HAS HELD THAT I N T H E CONTEXT OF A SETTLEMENT T H E PROPOSAL OF STOCK OF THAT KIND I S ILLEGAL WITHOUT THE DISCLOSURES ACCOMPANYING I T. D O Y O U HAVE A CASE AUTHORITY TO T H E CONTRARY THAT IN THE C O U R S E O F A SETTLEMENT THE OFFER OF CASH AND STOCK IS OKAY EVEN WITHOUT T H E DISCLOSURES THAT WOULD ACCOMPANY T H E, THE STOCK IF IT WERE BEING SOLD I N A N A R M' S L E N G T H TRANSACTION? M R. CHATTERJEE: YOUR HONOR, WE HAVE NOT

BEEN ABLE T O L O C A T E CASES ON EITHER SIDE OF THIS CANDIDLY . I DO THINK THAT ONCE Y O U ENGAGE IN AN A R M'S L E N G T H T R A N S A C T I O N A N D YOU 'RE N O T TALKING ABOUT T H E OPEN M A R K E T, THE DYNAMICS DO C H A N G E CONSIDERABLY. I MEAN, T H E DUTY TO DISCLOSE COMES UP BASED UPON THE SOPHISTICATION OF T H E RELATIONSHIP, T H E N A T U R E OF THE TRANSACTION , PRIVATELY HELD VERSUS PUBLICLY HELD . STANDARD CASE LAW . ALL OF THAT IS PRETTY

AND IF Y O U LOOK AT T H E CONTEXT

OF THIS NEGOTIATION, THEY CAN 'T CO M E I N A N D SAY THERE W A S N O MISREPRESENTATION, THERE WAS NO 49

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M I SREPRESENTATION MADE IN THIS D O C U M E N T A S T O S H A R E PRICE . EVERYTHING Y O U H E A R D M R. BARRETT S A Y ABOUT H O W MUCH THEY VALUED IT , NONE OF THAT IS EMBODIED IN THIS DOCUMENT. A N D IF WHATEVER THEIR SUBJECTIVE INTENTIONS WERE, AT THIS P O I N T I T S E E M S LIKE AN AFTER -T H E-FACT JUSTIFICATION FOR T R Y I N G T O ESTABLISH FRAUD RATHER THAN SOMETHING THAT THEY UNDERSTOOD AT THE TIME AND H A D A N O P P O R T U N I T Y T O, TO HAVE WRITTEN DOWN . T H E COURT: WAS MENTIONED. DOES THAT PLAY A PART IN THIS? M R. BARRETT: YOUR HONOR, I DON 'T THINK U M, THE QUINN EMANUEL LIEN

IT PLAYS A N Y PART IN THIS AT ALL . [ REDACTED ] I T H I N K T H E R E A S O N T H A T M Y C L I E N T S A R E CONTESTING THE ENFORCEABILITY OF THIS SETTLEMENT I S BECAUSE THEY THOUGHT THEY HAD A DEAL THAT W A S W O R T H $6 5 MILLION . I F Y O U DO THE MATH, WHAT THEY HAVE AT THIS, AT THIS INFLATED, WHAT THEY HAVE AT T H E TRUE M A R K E T V A L U E O F 8 .88 IS ABOUT $1 MILLION. T H E COURT: B U T IF I, IN OTHER WORDS,

PART OF WHAT Y O U WOULD HAVE M E D O I S T O E V A L U A T E 50

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THE SETTLEMENT ? M R. BARRETT: T H E COURT: NO , YOUR HONOR . WELL , H O W DO YOU KNOW THAT

T H E V A L U E I S WHAT Y O U'R E C L A I M I N G I T T O B E? M R. BARRETT: NUMBERS, YOUR HONOR. T H E COURT: NUMBER I S NOT CORRECT? M R. CHATTERJEE: THOSE ARE THEIR NUMBERS . I WANT TO I KNOW, B U T WHAT IF THEIR I' M JUST USING THEIR

THOSE ARE NUMBERS THAT THEY SUBMITTED. BE VERY CLEAR ABOUT THAT.

THEY CAME U P WITH THE THAT 'S

N U M B E R O F ]3 5 O R W H A T E V E R I T I S P E R S H A R E. [ REDACTED THEIR NUMBER. T H E COURT: I UNDERSTAND THAT.

BUT YOUR

POSITION IS THAT THE SETTLEMENT CAN 'T BE ENFORCED BECAUSE THERE WAS A FAILURE T O D I S C L O S E THIS STOCK OPTION P R I C E. M R. BARRETT: Y E S, IT' S A STOCK O P T I O N,

PRICE , B U T WHAT I T I S, IS A FAILURE TO DISCLOSE A RESOLUTION OF THE BOARD OF DIRECTORS THAT SAYS THAT REDACTED ] T H E FAIR M A R K E T V A L U E O F C O M M O N STOCK IS [ $8. 88. T H E REASON I BRING UP THE VALUE , YOUR HONOR , I S N O T -- IS PURELY TO SHOW YOU T H E MATERIALITY OF T H E M I SREPRESENTATION, HOW OBVIOUS IT IS THAT THIS I S, THAT THIS IS MATERIAL N O NP U B L I C 51

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INFORMATION . N O W, THEY CAN DO -- Y O U C A N DO A PRIVATE , A PRIVATE T R A D E I N YOUR STOCK B U T WHAT Y O U HAVE TO DO IS Y O U HAVE TO MAKE SURE THAT T H E O T H E R P A R T Y H A S A L L MATERIAL INFORMATION OR HAS A C C E S S T O MATERIAL INFORMATION . THAT WASN 'T DONE HERE .

YOUR HONOR , Y O U ASKED FOR , Y O U ASKED FOR SOME, SOME CASE AUTHORITY. F I R S T O F A L L, I WANT T O

CITE A CASE CALLED LIVID HOLDINGS AGAINST SOLOMON A N D S M I T H B A R N E Y, WHICH IS A NINTH CIRCUIT CASE AT PAGE 13 OF OUR SURREPLY . AND THAT WAS A CASE , AMONG OTHER THINGS, DISCUSSING THE QUESTION OF SCIENTER T H E N I N T H CIRCUIT SAID I F Y O U ALLEGE THAT THE DEFENDANTS IN THIS CASE, THE PLAINTIFF F A C E B O O K, KNEW T H E CONTESTED STATEMENTS MOST OBVIOUS INTERPRETATION W A S F A L S E WHEN MADE. THAT 'S -T H E COURT: WELL , WHAT I' M ASKING, WHAT

T H O U G H, THERE ARE LOTS OF SECURITIES C A S E S.

I' M CONCERNED WITH I S WHETHER OR N O T T H E R E I S A DIFFERENCE WHEN PARTIES COME TOGETHER TO SETTLE A LAWSUIT -M R. BARRETT: T H E COURT: RIGHT . - - A N D TRY TO IN T H E C O U R S E 52

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OF THAT COME T O T E R M S THAT THEY ARE SATISFIED WITH . I 'M JUST N O T AS FAMILIAR WITH THAT BECOMING T H E SUBJECT OF LITIGATION LATER ON OVER EVALUATION BECAUSE ONCE I OPEN THAT UP , T H E R E'S GOING TO BE A LOT OF LITIGATION IN THE COURT . PARTIES A R E PERMITTED TO, IN T H E C O U R S E OF SETTLEME