IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

)
AIR PRODUCTS AND CHEMICALS, INC., )
)
Plaintiff, ) C.A. No. 5249-CC
)
v. )
)
AIRGAS, INC., PETER MCCAUSLAND, ) REDACTED
REDACTED VERSION
VERSION
JAMES W. HOVEY, PAULA A. SNEED, ) Dated:
Dated: February
February 3,
2, 2011
2011
DAVID M. STOUT, ELLEN C. WOLF, LEE M. )
THOMAS AND JOHN C. VAN RODEN, JR., )
)
)
Defendants. )
)
)
IN RE AIRGAS INC. SHAREHOLDER ) C.A. No. 5256-CC
LITIGATION )
)

DEFENDANTS’ POST-SUPPLEMENTAL HEARING MEMORANDUM

POTTER ANDERSON & CORROON LLP

OF COUNSEL: Donald J. Wolfe, Jr. (No. 285)

Kevin R. Shannon (No. 3137)
Kenneth B. Forrest Berton W. Ashman, Jr. (No. 4681)
Theodore N. Mirvis Ryan W. Browning (No. 4989)
Eric M. Roth Hercules Plaza
Marc Wolinsky 1313 North Market Street, 6th Floor
George T. Conway III P.O. Box 951
Joshua A. Naftalis Wilmington, Delaware 19801
Bradley R. Wilson (302) 984-6000
Jasand Mock
Charles D. Cording
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
(212) 403-1000

Dated: February 2, 2011 Attorneys for Defendants

 TABLE OF CONTENTS
Page

TABLE OF AUTHORITIES ......................................................................................................... iii

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

ISSUES TO BE DECIDED .............................................................................................................4

I. WHETHER, UNDER UNOCAL AND ITS PROGENY, THE COURT SHOULD

ORDER THAT AIRGAS BE STRIPPED OF ALL ITS DEFENSES TO
FACILITATE AN INADEQUATE OFFER. ANSWER: NO. .........................................4

A. Unocal does not apply in a situation where the bidder’s nominees agree
with the incumbent directors after receiving advice from a new investment
banker.......................................................................................................................4

B. The independent Airgas Board acted in good faith and after reasonable in-
vestigation. ...............................................................................................................6

1. The new directors and Credit Suisse enhanced the already robust
investigation by the Airgas Board................................................................7

2. The Airgas Board relied on the advice of three preeminent invest-

ment banks and on its own business judgment based on Airgas’
performance, improvements in the economic environment and sev-
eral other factors. .........................................................................................9

3. Plaintiffs did not prove that the Board’s reliance on expert advice
and Airgas’ five-year plan was unreasonable. ...........................................10

C. The Airgas Board reasonably concluded that the $70 offer constitutes a
threat. .....................................................................................................................15

1. The $70 offer is clearly inadequate............................................................15

2. The offer is opportunistic and came at a time when it would be dis-

advantageous to sell the company..............................................................20

3. Consummation of the offer will interfere with the execution of

Airgas’ corporate plan................................................................................21

4. The $70 offer is particularly coercive given the successful execu-

tion of Air Products’ plan to drive shares into the hands of arbitra-
geurs...........................................................................................................23

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 5. The possibility of an appraisal remedy, the majority shareholder’s
fiduciary duties to the minority shareholders, and the possibility of
a subsequent offering period do not diminish the coercive nature of
the $70 offer. .............................................................................................26

6. The offer is substantively coercive. ...........................................................30

7. The Board reasonably concluded that Air Products has not neces-
sarily made its best and final offer and the company’s defenses
therefore still provide the Board with a valuable negotiating tool.............34

D. The Airgas Board’s response is reasonable in relation to the threat posed. ..........38

1. The Board is willing to sell........................................................................39

2. The effect of the Board’s actions is to require Air Products to pro-

ceed in accordance with the company’s pre-existing corporate go-
vernance structure, a structure that is authorized by Delaware law...........40

3. Removing the Airgas Board by obtaining a 67% vote at a special

meeting is “realistically attainable.” ..........................................................42

II. WHETHER EQUITABLE PRINCIPLES SUPPORT THE ENTRY OF A

PERMANENT INJUNCTION. ANSWER: NO..............................................................51

A. Plaintiffs have failed to demonstrate that, absent an injunction, they will

suffer irreparable harm...........................................................................................51

B. The equities do not favor entry of a mandatory permanent injunction..................52

III. WHETHER McCAUSLAND’S OPTION EXERCISE WAS PROPER.

ANSWER: YES................................................................................................................56

CONCLUSION..............................................................................................................................57

- ii -
 TABLE OF AUTHORITIES
Cases Page

Barkan v. Amsted Indus., Inc.,

567 A.2d 1279 (Del. 1989) ........................................................................................................ 6

Berlin v. Emerald Partners,

552 A.2d 482 (Del. 1988) ....................................................................................................... 41

Broz v. Cellular Info. Sys.,

673 A.2d 148 (Del. 1996) ....................................................................................................... 41

Centaur Partners, IV v. Nat’l Intergroup, Inc.,

582 A.2d 923 (Del. 1990) ...................................................................................................... 41

eBay Domestic Holdings, Inc. v. Newmark,

2010 WL 3516473 (Del. Ch.) .................................................................................................. 36

Frazer v. Worldwide Energy Corp.,

1987 WL 8739 (Del. Ch.) .................................................................................................. 51, 53

In re Gaylord Container Corp. S’holders Litig.,

753 A.2d 462 (Del. Ch. 2000).................................................................................................. 55

In re Topps Co. S’holders Litig.,

926 A.2d 58 (Del. Ch. 2007)................................................................................................ 8 n.4

Moran v. Household Int’l, Inc.,

490 A.2d 1059 (Del. Ch.), aff’d, 500 A.2d 1346 (Del. 1985).............................................. 6, 54

M.P.M. Enters., Inc. v. Gilbert,

731 A.2d 790 (Del. 1999) ....................................................................................................... 27

NCR Corp. v. Am. Telephone & Tel. Co.,

761 F. Supp. 475 (S.D. Ohio 1991) ......................................................................................... 46

NiSource Capital Mrkts. v. Columbia Energy Group,

1999 WL 959183 (Del. Ch.) ................................................................................................... 22

Paramount Commn’cs, Inc. v. Time, Inc.,

571 A.2d 1140 (Del. 1990) ............................................................................ 3 n.1, 6, 22, 30, 31

Phelps Dodge Corp. v. Cyprus Amax Minerals Co.,

1999 WL 1054255 (Del. Ch.) .................................................................................................. 48

- iii -
Schoon v. Smith,
953 A.2d 196 (Del. 2008) .................................................................................................... 8 n.4

Shamrock Holdings, Inc. v. Polaroid Corp.,

559 A.2d 257 (Del. Ch. 1989).................................................................................................. 54

TW Services, Inc. v. SWT Acquisition Corp.,

1989 WL 20290 (Del. Ch.) ..................................................................................................... 22

Unitrin, Inc. v. Am. Gen. Corp.,

651 A.2d 1361 (Del. 1995) ....................................................................................... 6, 48, 49-51

Unocal Corp. v. Mesa Petroleum Co.,

493 A.2d 946 (Del. 1985) ................................................................. 4-5, 6, 7, 20, 26, 34, 38, 52

Versata Enters., Inc. v. Selectica, Inc.,

5 A.3d 586 (Del. 2010) ............................................................................................................ 49

Wood v. Frank E. Best, Inc.,

1999 WL 504779 (Del. Ch.) .................................................................................................... 27

Rules & Statutes

8 Del. C. § 141 .............................................................................................................................. 34

8 Del. C. § 203 .............................................................................................................. 4, 29, 41, 54

17 C.F.R. 240.14d-101 (2010) ............................................................................................. 23 n.13

17 C.F.R. 229.1012 (2010) ................................................................................................... 23 n.13

17 C.F.R 240.14d-11(c) ................................................................................................................ 28

Other Authorities

Andrew G.T. Moore, II, The 1980s — Did We Save the Stockholders While the
Corporation Burned, 70 WASH. U.L.Q. 277 (1992) ............................................................ 6 n.3

John Laide, Poison Pill M&A Premium (Aug. 30, 2005),

https://www.sharkrepellent.net/pub/rs_20050830.html ........................................................... 56

J.P. Morgan & Co., Poison Pill and Acquisition Premiums (July 1997)................................. 55-56

J.P. Morgan & Co., Poison Pill and Acquisition Premiums (May 2001) ..................................... 55
- iv -
J. Travis Laster, Exorcizing the Omnipresent Specter: The Impact of Substantial
Equity Ownership by Outside Directors on Unocal Analysis,
55 BUS. LAW 109 (1999) ...................................................................................................... 5 n.1

Patrick A. Gaughan, Mergers, Acquisitions, and Corporate Restructurings

(5th ed. 2011) .......................................................................................................................... 55

Robert Comment & G. William Schwert, Poison or Placebo? Evidence on the

Deterrence and Wealth Effects of Modern Antitakeover Measures,
39 J. FIN. ECON. 3 (1995) ......................................................................................................... 55

Ronald J. Gilson & Reiner Kraakman, Delaware’s Intermediate Standard for

Defensive Tactics: Is there Substance to Proportionality Review,
44 BUS. LAW 247 (1989) .......................................................................................................... 32

Stephen M. Bainbridge, MERGERS AND ACQUISITIONS (2d ed. 2009) .................................. 56 n.26

Thomas W. Bates et al., Board classification and managerial entrenchment:

Evidence from the market for corporate control, 87 J. FIN. ECON. 656 (2008) ....................... 55

A. Gilchrist Sparks, III & Helen Bowers, After Twenty-Two Years, Section 203
of the Delaware General Corporation Law Continues to Give Hostile Bidders a
Meaningful Opportunity for Success, 65 BUS. LAW 761 (2010). ................................... 45 n.20

Guhan Subramanian et al., Is Delaware’s Antitakeover Statute Unconstitutional?,

65 BUS. LAW. 685 (2010)................................................................................................. 45 n.20

-v-
 The Airgas defendants respectfully submit this brief in response to the Court’s re-

quest that the parties identify the issues that require resolution, the passages in prior briefs that

address those issues, and the evidence adduced at the supplemental hearing that addresses those

issues. For the Court’s convenience, attached as Exhibit A is a summary chart listing the issues

and the pages in prior Airgas briefs discussing them.

PRELIMINARY STATEMENT

As will be shown below there is no basis under our existing law for the Court to

order the Airgas Board to dismantle Airgas’ defenses against Air Products’ clearly inadequate

$70 bid. The Airgas Board was not only justified in resisting Air Products’ inadequate offer, it

was obligated to do so. At the supplemental hearing, there was no better testament to this than

that given by Air Products’ lead director, William Davis:

THE COURT: And so if an offer was made for Air Products that you
considered to be unfair to the stockholders of Air Products, what would you con-
sider your duty to be to do?
THE WITNESS: Fiduciary duty would be to hold out for the proper price.
THE COURT: And to use every legal mechanism available to you to do
that?
THE WITNESS: Mm-hmm. Yes, sir.

Supp. Tr. 104.

That directors must hold out for a proper price, a price reflecting their good faith

assessment of long-term value, is not only dictated by Delaware law, it is also compelled by a

simple, practical consideration: the directors know things about a corporation’s prospects that

stockholders don’t, and can’t, know. Again, Air Products’ lead director put the point best:

THE COURT: . . . I’m curious whether . . . you think that you know bet-
ter than the average stockholder in Air Products what the value of Air Products is
today?
 THE WITNESS: Well, I have more information than most, than the aver-
age shareholder of Air Products probably, yes, as to what’s really happening, so I
would say yes.
THE COURT: So you would agree that you probably do have a better un-
derstanding of the value of Air Products than the average stockholder in Air
Products.
THE WITNESS: I would agree.

Supp. Tr. 103 (Davis).

The point is well illustrated, too, by the experience of the three Air Products no-

minees who now sit on Airgas’ Board. Air Products picked them, supported them, vouched for

their independence, and hoped that, once in office, they would see things Air Products’ way.

And indeed they were independent. They called for a “fresh look.” They demanded informa-

tion. They insisted that a new investment bank be hired, and a new bank, a third, was engaged.

What did the new directors and the incumbent directors all conclude? That “in

light of the improving business and operating environment and based upon the report of a third

investment banker, the offer was clearly inadequate.” Ex. 1063 at 10-11. What did this mean, in

terms of what the Airgas directors accordingly had to do? Exactly what one of the new directors,

John Clancey, told his fellow Airgas directors at their meeting on December 21: “We have to

protect the pill.” Supp. Tr. 420 (emphasis added). And why did Clancey conclude that? Be-

cause “we have a company . . . that is worth, in my mind, worth in excess of 78, and I wanted, as

a fiduciary, I wanted all shareholders to have an opportunity to realize that.” Supp. Tr. 421

(Clancey).

In short, there can be only one answer to the ultimate legal question presented by

this case: Whether the directors of an unquestionably independent board, one that has indisputa-

bly acted in good faith and upon reasonable investigation, should be branded as having breached

their fiduciary duties and be ordered to violate their duties, based on clear Supreme Court

precedent in effect for a generation, act in a manner they believe is contrary to the best interest of

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the company’s shareholders and facilitate a bid that is clearly inadequate by every relevant

measure. The answer to that question must be “no.”

“Let the shareholders decide,” the mantra invoked by Air Products at every turn,

simply is not the law of Delaware. The fundamental power and duty to “select[] a time frame for

achievement of corporate goals” is one that under our law “may not be delegated to stockhold-

ers,”1 and it would mean nothing if it had a clock on it. Corporate goals often take years to real-

ize, as our courts have consistently recognized. And if a time fuse were engrafted upon them, the

power and duty to resist inadequate bids would mean nothing as well.

Hostile bidders would understand: no need to make your best bid, no need to

share synergies, no need to pay for the value of the future stand-alone growth of the enterprise

being acquired. For if you start with a low-ball offer, hang around long enough, as long as Air

Products has, make minor increases to draw enough risk arbitrageurs into the stock, and finally

claim “best and final,” a court will let you have the company. Negotiate with the court, not the

board. And Delaware targets would know: the business judgment of the board, in the end,

would become the instrument of its own demise, for each time the board communicates its views

on the bid, thereby informing the shareholders, it would hasten the day that a court will strike

down the board’s powers on the ground that stockholders supposedly have everything they need

to know.

That is not the law, and it cannot be the law. The obligations and duties of the di-

rectors of a Delaware corporation do not evaporate with the passage of time. Nor do they melt

away when stockholders are claimed to have ample information upon which to make their own

decisions. Under our law, stockholders have the right to decide whether to sell their own indi-

1
Paramount Commc’ns Inc. v. Time Inc., 571 A.2d 1140, 1154 (Del. 1990).

-3-
vidual shares, but they are not vested with the power to decide whether to sell the company as a

whole. As Paramount makes clear, that power is vested in the board, and the board’s business

judgment cannot be second-guessed by the courts, whether a battle for control has been going on

for 14 days or 14 months. If stockholders disagree with that judgment, their remedy is not in the

courts, but at the ballot box — a remedy particularly procurable here, where a third of the share-

holders can call a special meeting at which two-thirds can turn the entire board out. The Airgas

Board’s well-informed business judgment should be respected, and the plaintiffs’ claims dis-

missed.

ISSUES TO BE DECIDED

I. WHETHER, UNDER UNOCAL AND ITS PROGENY, THE COURT

SHOULD ORDER THAT AIRGAS BE STRIPPED OF ALL ITS DEFENSES
TO FACILITATE AN INADEQUATE OFFER. ANSWER: NO.

The central question in this case is whether the Airgas directors have breached

their fiduciary duties to the company’s stockholders and whether, to remedy that breach, the di-

rectors should be ordered to strip the company of all its defenses. This question controls plain-

tiffs’ claims on the rights plan, Section 203 of the DGCL, and Article 6 of Airgas’ charter, be-

cause those provisions all serve as obstacles to an acquiror gaining control of Airgas without first

securing the approval of its board. The Airgas Board’s maintenance of these provisions to im-

pede Air Products’ inadequate $70 bid must be sustained under our settled law.

A. Unocal does not apply in a situation where the bidder’s

nominees agree with the incumbent directors after receiving
advice from a new investment banker.

The sole justification for Unocal’s enhanced standard of review is “the omnipre-

sent specter that a board may be acting primarily in its own interests, rather than those of the

corporation and its shareholders.” Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954

(Del. 1985). In the absence of this specter, a board’s “obligation to determine whether [a takeo-

ver] offer is in the best interests of the corporation and its shareholders . . . is no different from
-4-
any other responsibility it shoulders, and its decisions should be no less entitled to the respect

they otherwise would be accorded in the realm of business judgment.” Unocal, 493 at 954. 2

Here, Airgas has presented irrefutable and overwhelming evidence going far

beyond simple board independence: the independent directors who acted unanimously here in-

cluded three indisputably independent directors whom Air Products had nominated to Airgas’

Board. See Airgas Post-Trial Br. 7, 41-42, 79, 83-84; Ex. 454 at 8, 41 (independence of the new

directors); see also Airgas Pre-Trial Br. 5, 55-58; Airgas Post-Trial Br. 83-84 (independence of

other Airgas directors). All three new directors concluded that Air Products’ offer was “clearly

inadequate.” E.g., Supp. Tr. 213, 217-20 (McCausland); Supp. Tr. 417 (Clancey). Not only that,

the directors acted in good-faith reliance on the advice of Airgas’ financial advisors, which in-

cluded a third, brand new firm, Credit Suisse, hired at the insistence of the Air Products nomi-

nees to provide a “different perspective[].” Supp. Tr. 411-14, 417 (Clancey).

In short, Unocal’s heightened standard of review does not apply here, where even

the theoretical specter of disloyalty does not exist. Not only does the record evidence materially

enhance a finding that no breach of duty occurred, it conclusively rebuts any possible breach.

The business judgment rule applies.

Nor is there need to extend or enhance the scrutiny to which courts subject direc-

tor conduct. If anything, there is now less justification for Unocal’s approach. Boards are more

independent than they were when Unocal was decided. And stockholders are better able,

through the proxy contest and other means, to keep boards in check. By way of example, since

2000, 101 Delaware companies that are or were in the Fortune 500 have de-staggered their

boards by shareholder-approved proposal. Ex. 1084A; Supp. Tr. 678 (Genet). What this proves

2
See also J. Travis Laster, Exorcizing the Omnipresent Specter: The Impact of Substantial
Equity Ownership by Outside Directors on Unocal Analysis, 55 BUS. LAW 109, 113 (1999).

-5-
is that shareholders and boards, through private ordering, have determined that for some compa-

nies, it is in the interests of the company and its shareholders to make it easier to remove a board

that is not acting in accordance with the shareholders’ wishes. The rules of the road that have

been in place since Moran was decided 25 years ago have worked well, quite well.

B. The independent Airgas Board acted in good faith and

after reasonable investigation.

But even if Unocal is applied, plaintiffs have no basis for the relief they seek. For

they must still show a breach of fiduciary duty by the Airgas directors, including the three Air

Products nominees arising from their efforts to promote and protect the interests of their share-

holders. “[T]he basic teaching of [Unocal and its progeny] is simply that the directors must act

in accordance with their fundamental duties of care and loyalty. . . . If no breach of duty is

found, the board’s actions are entitled to the protections of the business judgment rule.” Barkan

v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (Del. 1989) (citations omitted). Because Unocal

does not invite our courts to “substitute their business judgment for that of the directors,” Uni-

trin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1386 (Del. 1995) (citation omitted), plaintiffs must

still show that the Airgas “board’s decision . . . was lacking in good faith or dominated by mo-

tives of either entrenchment or self-interest.” Paramount, 571 A.2d at 1153. 3

The evidence unquestionably proves that the Airgas Board has satisfied the first

part of the Unocal test by demonstrating good faith and reasonable investigation. Airgas Pre-

Trial Br. 55-57; Airgas Post-Trial Br. 81- 82. With the concurrence of the three Air Products

nominees, and with the advice of three preeminent investment banks, including one hired at the

3
Accord, e.g., Andrew G.T. Moore, II, The 1980s — Did We Save the Stockholders While the
Corporation Burned, 70 WASH. U.L.Q. 277, 287-89 (1992) (the Supreme Court’s cases govern-
ing corporate takeovers, “[a]s long as the directors adhered to their fiduciary duties, it would
have been most inappropriate for any court to intrude upon a board’s business decision”).

-6-
insistence of the Air Products nominees, the Airgas Board has unanimously concluded that the

$70 offer is “inadequate, does not reflect the value or prospects of Airgas, and is not in the best

interests of Airgas, its shareholders and other constituencies.” Ex. 659 at 6. The evidence de-

monstrates that the Board reached this conclusion through a good faith and reasonable investiga-

tion. See Airgas Pre-Trial Br. 59-66; Airgas Post-Trial Br. 81-91; Ex. 659 at 5-6.

1. The new directors and Credit Suisse enhanced the already

robust investigation by the Airgas Board.

The presence of the new directors on the Airgas Board enhanced the already ro-

bust process and deliberations. The record is replete with evidence that the new directors in-

sisted that the Airgas Board and its advisors take a “fresh look” at the Air Products bid, particu-

larly when Air Products made its $70 “best and final” offer. Indeed, even before the $70 offer,

the new directors engaged Skadden Arps and wrote formally to Airgas’ Chairman pushing for

the retention of “a third bank to come to a decision on valuation from different perspectives, to

look at things that [the new directors] didn’t feel were being addressed properly.” Supp. Tr. 411

(Clancey); see also Ex. 706; Ex. 1024. With the support of the new directors, the outside direc-

tors unanimously selected Credit Suisse, a firm whose only prior involvement with Airgas was as
an advisor to the special committee opposite management in the unconsummated 2007 LBO dis-

cussions. Supp. Tr. 315-16 (DeNunzio).

Credit Suisse agreed to evaluate the offer and render an opinion as to adequacy

for a flat fee contingent upon neither the outcome of its analyses nor the consummation of a

transaction. Supp. Tr. 317 (DeNunzio). Credit Suisse approached the engagement agnostically

and advised Airgas that Credit Suisse might not reach the same conclusion that Bank of America

and Goldman Sachs had reached with respect to Air Products’ prior offers. Supp. Tr. 319 (De-

Nunzio). There can be no doubt that Credit Suisse is a competent and independent advisor. Air

-7-
Products’ own witnesses agreed that Credit Suisse was qualified and independent. Huck

Dep. 769. 4

The three new directors held separate calls with Credit Suisse without Airgas

management, incumbent directors or other advisors on the line. Supp. Tr. 320-22 (DeNunzio);

Supp. Tr. 414-15 (Clancey). They asked Credit Suisse to investigate, among other things, the

five-year plan, the company’s SAP implementation plan and expected benefits, the comparable

company set, the universe of comparable transactions, and Airgas’ ability to continue with acqui-

sitions. Supp. Tr. 166-68 (Miller); Supp. Tr. 322-24 (DeNunzio); Supp. Tr. 415 (Clancey).

Credit Suisse did all of this, and more. And it concluded that Airgas’ five-year

plan was “highly credible”; that Airgas’ was “the most impressive SAP implementation plan

we’ve seen”; that the potential upside of SAP is “orders of magnitude greater than what’s been

assumed”;5 that the comparable transactions identified by Bank of America and Goldman Sachs

4
Plaintiffs will no doubt claim that early disagreement between the new directors and incum-
bent directors undermines the good faith of the board’s investigation. To the contrary, this disa-
greement and its resolution show the board’s healthy debate and seriousness in determining how
to proceed. Schoon v. Smith, 953 A.2d 196, 207 (Del. 2008) (“directors may confer, debate, and
resolve their differences through compromise”); In re Topps Co. S’holders Litig., 926 A.2d 58,
84 (Del. Ch. 2007) (on a record reflecting “spirited debate” between incumbent and dissident di-
rectors, the court was “not at all convinced that [the incumbent directors] were wrong to resist
the Dissidents’ demand for a full auction”). In particular, the new directors’ December 7 letter to
van Roden (Ex. 1027), upon which plaintiffs rely, was, in Clancey’s words, merely “meant as
leverage,” “suggest[ed by] outside counsel” as a way to “prompt [the other directors] to act” on
the new directors’ request for an additional financial advisor. Tr. 427 (Clancey). “We wanted a
financial advisor and this was — we were trying to induce them. It’s like playing poker. We put
our chips up on the table, everything we had.” Tr. 430 (Clancey). The move worked, the new
directors got what they wanted, and, in the end, they were completely satisfied. The result was a
process that was above reproach and more than meets the threshold of a reasonable investigation.
5
Clancey, who has his own extensive experience with SAP, also testified that he was “very
impressed with Airgas’ approach. It is slow and it’s prodigious in terms of what they have to get
their arms around, but they’re taking it step by step. They’ve used every best practice. And un-
fortunately, the best practice is what they’ve learned by the failures of other companies. But
they’ve hired subject experts and they have a solid organization, and they took me through how

(footnote continued)

-8-
were the most relevant; and that Airgas’ ability to acquire additional businesses would have only

a small impact on the achievability of the five-year plan. Supp. Tr. 336, 337-38, 397 (DeNunzio).

From what they learned from Credit Suisse, and from what they saw with their

own eyes, the three new directors were entirely satisfied with the Airgas Board’s process.

Supp. Tr. 414 (Clancey) (“I was satisfied [with Credit Suisse]. . . .

They’re a good firm. I know of them and I’ve seen them, you know, in action from afar, and

everybody else felt, both the two new directors and the other directors, felt very comfortable with

them.”).

2. The Airgas Board relied on the advice of three preeminent

investment banks and on its own business judgment based on
Airgas’ performance, improvements in the economic
environment and several other factors.

Credit Suisse ultimately rendered an opinion that $70 was inadequate from a fi-

nancial point of view. Bank of America and Goldman Sachs also concluded that the offer was

inadequate. Relying on these opinions, the bankers’ presentations to the Board, Airgas’ histori-

cal and recent performance, Airgas’ strategic plan, and improvements in the overall economic

environment, along with several other factors, the Board unanimously concluded that the offer is

(footnote continued)

far they’ve come, and I am very optimistic that they’ll be very successful.” Supp. Tr. 407-08
(Clancey). And Air Products’ CEO McGlade said at the November 4 meeting that Airgas had
underestimated the cost saving achievable with SAP. Supp. Tr. 192-93 (McCausland).

-9-
clearly inadequate and that Airgas’ rights plan and other defenses should be maintained. Ex. 659

at 5-6, 17, 20, 24; Ex. 1063 at 10-11.

The Airgas Board’s consideration of these factors, and its reliance on the advice

of expert financial advisors, fully satisfies its obligation to conduct a reasonable and good faith

investigation of Air Products’ offer. See Airgas Post-Trial Br. 84-86. Even Air Products con-

cedes that the new directors have not breached their fiduciary duties. Supp. Tr. 80 (Davis) (“I

don’t believe that they have breached their fiduciary duties, no.”); Supp. Tr. 115 (McGlade) (the

three new directors have acted in accordance with their fiduciary duties).

If these new directors have not breached their fiduciary duties, then neither have

the incumbent directors, who received the same information and reached the same conclusion.

See Supp. Tr. 80-81, 102 (Davis) (“I have no knowledge of anything going on inside the Airgas

boardroom that would suggest that there is an issue.”). As noted earlier, Air Products director

Davis conceded that if an offer were made for Air Products, his “[f]iduciary duty would be to

hold out for the proper price.” Supp. Tr. 104. That is exactly what his Airgas counterparts are

doing here.

3. Plaintiffs did not prove that the Board’s reliance on expert

advice and Airgas’ five-year plan was unreasonable.

In their post-trial briefs and at trial, plaintiffs launched two main attacks upon the
Airgas Board’s decision-making: first, that Airgas’ five-year plan improperly relies on macroe-

conomic conditions beyond Airgas’ control; and, second, that Airgas did not consider what

might happen if the economy suffers a “double-dip” recession. Neither of these challenges was

borne out at trial. 6

6
Air Products counsel might also resurrect its cynical claim that the November 4 meeting be-
tween Airgas and Air Products representatives was a “sham designed by Airgas in order to en-

(footnote continued)

- 10 -
 The claim that Airgas’ ability to meet its projections depends in part on the over-

all economic environment is a meaningless truism. The fortunes of every business depend in

part on the overall economy. If macroeconomic uncertainty rendered business plans inherently

unreliable, then no board could ever rely on management projections. That cannot be — and is

not — the law. Under our law, boards are entitled to rely on management projections. See Air-

(footnote continued)

hance Defendants’ position before this Court, rather than a real attempt to negotiate a higher
price.” Air Products Post-Trial Reply Br. 1. However, the evidence from all sides strongly vin-
dicates Airgas’ good faith and belies counsel’s rhetoric. Supp. Tr. 81-86 (Davis) (all of the par-
ties acted in good faith during the November 4th meeting); Supp. Tr. 86-87 (Davis) (van Roden
called Davis the next day to reiterate why Airgas was worth more than Air Products was offering
and that Air Products should raise its offer); Davis Dep. 57 (“I thought that this meeting would
probably lead to further negotiations.”); Supp. Tr. 121 (McGlade) (“I believed that [Airgas] be-
lieved they had a good faith basis for their views.”); Supp. Tr. 121-22 (McGlade) (agreeing that
he believes that “representatives from Air Products and Airgas acted in a business-like manner
and in good faith during the November 4th meeting”); Supp. Tr. 33-35 (Huck) (believed at the
time that “the Airgas participants acted in good faith”); Supp. Tr. 166 (Miller) (“Mr. van Roden
called me to report that he had gotten some good feedback from the — independent director from
Air Products, Mr. Davis, and that he expected to hear back from him”); Supp. Tr. 410-11 (Clan-
cey) (Airgas reached out to Air Products to see if they could get a deal done).
Nor does the fact that the parties agreed to a joint disclosure that no further meetings were
planned at that time somehow turn the November 4 meeting into a sham. See Ex. 1016 (reflect-
ing disclosure agreed upon by parties). As McCausland testified, (a) both parties agreed not to
disclose the substance of the meeting so as to avoid a media circus; (b) McCausland brought with
him to the November 4 meeting three statements reflecting different possible outcomes; (c)
McCausland placed those three statements on the table at the end of the meeting; (d) McCaus-
land handed the statement that he thought best reflected where the parties were to Huck; and (e)
Air Products agreed to the statement that no further meetings were planned at that time. Supp.
Tr. 196-98; Ex. 1013 at ARG00050707-09 (showing three prepared statements). Airgas honored
its agreement not to reveal the substance of the meeting or seek to use it for tactical advantage.
All Airgas did was provide the Court with a copy of a public, SEC filing noting that the meeting
had occurred and argued that the Court should not pull the rights plan because, among other
things, the end stage of the takeover battle had not been reached. And before doing so, Airgas
asked Air Products’ Delaware counsel if they objected. They did not and the disclosure was
added to the record. Ex. 652. It was only later, when Air Products sought to strengthen its liti-
gating position by making its false accusations, that the claim that the meeting had been a staged
event was made.

- 11 -
gas Post-Trial Br. 85-86, 88. Davis, an Air Products director, himself testified that he believes it

is reasonable for the Airgas Board to rely on the projections provided by Airgas management.

Supp. Tr. 82 (Davis). And Air Products’ witnesses testified that no one knows Airgas better than

Airgas directors. Supp. Tr. 82 (Davis); Supp. Tr. 120, 134 (McGlade).

In any event, plaintiffs’ challenge to the macroeconomic assumptions of Airgas’

five-year plan is meritless. Airgas assumes GDP growth of

See Airgas Post-Trial Br. 13-14. Airgas’ financial advisor Filip Rensky of Bank

of America, Airgas’ expert Professor Hubbard and now Credit Suisse have all reviewed the ma-

croeconomic assumptions in the five-year plan and have found them to be reasonable. Airgas

Post-Trial Br. 11-15, 87-88; Supp. Tr. 380-81, 387, 391-92 (DeNunzio). And the Airgas direc-

tors brought their own experience and business judgment to their assessment of the five-year

plan and found the plan to be reasonable. Supp. Tr. 172 (Miller); Supp. Tr. 408-409 (Clancey).

Beyond this, Airgas’ projections are consistent with its historical performance.

DeNunzio testified that he expected Airgas management to refresh the five-year plan. Supp.

(footnote continued)

- 12 -
 Not only that, the reasonableness of Airgas’ projections has been confirmed by its

actual performance in 2010. A year has passed since the November 2009 five-year plan was pre-

sented to Airgas management. During that time, Airgas has emerged from the great recession,

grown EPS ahead of schedule

As for plaintiffs’ refrain about the possibility of a double-dip recession,

Ex. 1063 at 5; see also Ex. 1064 at 5. The directors’ own business judgment confirmed this

view; as John Clancey testified, “double-dip recessions are very rare. I don’t see any indication

of a double-dip recession.” Supp. Tr. 409 (Clancey); Supp. Tr. 181 (Miller); Supp. Tr. 234-35

(McCausland). Indeed, just four days before the supplemental hearing, Air Products’ CFO Huck

publicly stated, “I don’t see a double dip either, so I see long, good, steady, solid growth going

forward here for the economy.” Ex. 1086A at 7.

(footnote continued)

Ex. 1064 at 30.

- 13 -
 Thus, it was perfectly appropriate for Airgas management to present a single case

— with no double-dip — in its five-year plan. See Airgas Post-Trial Br. 55-57. As DeNunzio

testified, bankers expect to receive management’s “best estimates of what is most likely to hap-

pen in terms of their future performance.” Supp. Tr. 386-87 (DeNunzio). And as Miller ex-

plained, in the real world of business “you do forecasts in a range based on the facts and cir-

cumstances you understand at the time. And the question’s been asked about double-dip reces-

sion. And I mean, you could . . . . pick the midpoint between the reasonable range and Arma-

geddon. That’s not the real world, so I don’t know how else to answer that question.” Supp. Tr.

172 (Miller).

In any event, in addition to the sensitivities analysis provided to the directors as

part of the five-year plan itself, Credit Suisse presented DCF sensitivities analyses to the Board

that included the impact if Airgas missed its projected EBITDA margins by 200 basis points.

Ex. 1066 at 25. A 200 basis point miss would take approximately $100 million a year out of the

EBITDA projections in perpetuity. That is a greater loss than the one-year $81 million decrease

in EBITDA Airgas suffered during the depths of the great recession. See Ex. 1047 at 3. As De-

Nunzio testified, “the best way to think about” this analysis is as a $100 million “bucket of mon-

ey that is either subtracted or added to the company’s annual earnings or cash flow going for-

ward . . . . from whatever source.” Supp. Tr. 345-46 (DeNunzio).

8

In short, the record presents no basis upon which to dispute that the Airgas Board

acted in good faith and upon reasonable investigation.

8
The discount range of the DCF also captures “risk” to Airgas’ projections. See Airgas Post-
Trial Br. 56.

- 14 -
 C. The Airgas Board reasonably concluded that
the $70 offer constitutes a threat.

The evidence at the supplemental hearing demonstrates that the directors reasona-

bly concluded that the $70 Air Products offer represents a threat for several reasons: its inade-

quacy; its opportunistic timing; the impediment it presents to Airgas’ business plan; the coercion

caused by Air Products’ successful effort to drive shares into arbitrageurs’ hands; the coercion

that results from stockholders’ lack of access to critical nonpublic information; and the fact that

the Airgas Board has reasonably concluded that what Air Products calls its “best and final” bid

may not, in fact, be best and final.

1. The $70 offer is clearly inadequate.

The law is clear that an inadequate offer is, in and of itself, a threat that a board

has a duty to resist. Airgas Pre-Trial Br. 51-54, 74-80; Airgas Post-Trial Br. 92-93; Airgas Supp.

Br. 5. 9

The evidence at the supplemental hearing amply demonstrates that Air Products’

$70 offer is inadequate. Three of the top investment banks in the country have so advised the

Airgas Board. As Credit Suisse told the Board, it had “pretty easily concluded that the $70 a

share was inadequate from a financial point of view” and that its bankers “didn’t think it was a

close call.” Supp. Tr. 349 (DeNunzio). The three new directors agree. Indeed, at the December

21 meeting, Clancey urged that “in light of the improving business and operating environment

and based on the report of a third investment banker, the offer was clearly inadequate and that

9
Air Products might once again contend that price inadequacy is a “mild” threat. As ad-
dressed in Airgas’ Post-Trial brief, the concept of a “mild” threat is far too slender a reed to sup-
port the weight Air Products attempts to make it bear. Airgas Post-Trial Br. 100-01. As dis-
cussed below, even if the threat is characterized as mild (which it is not), the law is clear that a
rights plan is a proportional response to an inadequate offer. Moreover, Air Products’ $70 offer
is so far below full and fair value that it cannot fairly be termed a “mild” threat.

- 15 -
that language be used to describe the Air Products offer.” With advice from its financial advi-

sors, the Airgas Board unanimously agreed and also reiterated its unanimous view that “the value

of Airgas in a sale, at this time, is at least $78 per share, in light of the Board’s view of relevant

valuation metrics.” Ex. 1063 at 10-11; Ex. 659 at 3.

Notably, Air Products offered no evidence at the supplemental hearing challeng-

ing the Board’s and its advisors’ unanimous view that $70 is inadequate. Not from J.P. Morgan,

not from Perella Weinberg, and not from Professor Fischel. The shareholder plaintiffs, likewise,

decided to leave their experts home. And Huck admitted on the stand that he couldn’t identify

any recent analyst report that even comes close to supporting the Air Products’ valuation that Air

Products claims justifies its bid — its claim that Airgas, on a stand-alone basis, is worth only $51

a share. Supp. Tr. 133.

The evidence overwhelmingly proves the point, and Air Products made no effort

at the Supplemental Hearing to prove otherwise. Air Products’ $70 offer is inadequate by every

measure:

Discounted Cash Flow (Ex. 1064 at 22; Ex. 1066 at 24, 25, 28) —

As DeNunzio testified in response to the Court’s

questioning, his personal view is that the DCF implies a fair value range in the “mid to high se-

venties, and well into the mid eighties.” Supp. Tr. 393-94 (DeNunzio).

- 16 -
 Ex. 1063 at 6. 10

Future Stock Price (Ex. 1064 at 21; Ex. 1066 at 26) —

11

Unaffected Stock Price (Ex. 1064 at 20, 23-24; Ex. 1066 at 20) —

At these prices, Air Products’ offer implies a meager premium far be-

low those paid in recent transactions. Supp. Tr. 347-48 (DeNunzio).

10
See Airgas Post-Trial Br. 73, 89, 91 n.49.
11

- 17 -
 .

Selected Precedent Transactions (Ex. 1064 at 25; Ex. 1066 at 21, 22, 28) —

Within the selected precedent transactions, Credit

Suisse highlighted a half-dozen large strategic transactions as “more determinative of a company

like Airgas, given its market position, its scale and that sort of thing.” Supp. Tr. 335 (DeNun-

zio). The multiples in those transactions that Credit Suisse considered particularly relevant were

“generally north of 11.” Supp. Tr. 335-36 (DeNunzio). DeNunzio advised the Airgas Board that

“because of Airgas’ leading market share position, its scarcity value, if you will, the limited

number of large scale players in their business in the United States — you know, a change of

control transaction for Airgas ought to be closer to the high end of that range rather than the low

end of that range.” Supp Tr. 342-43, see also Supp. Tr. 335-36, 348 (DeNunzio).

Ex. 1066 at 22.

As Rensky testified at the trial in October, based on Airgas’ position

in the U.S. packaged gas market, Airgas’ EBITDA growth, and the potential synergies in a mer-

ger with Air Products, Airgas should be priced at a multiple in at least the middle or higher end

of the range. Tr. 973-75, 977 (Rensky).

Ex. 1064 at 3.

Air Products’ Offer Has Not Kept Up With The Market (Ex. 1064 at 17; Ex.

1066 at 20, 28) —

- 18 -
 Analyst Reports (Ex. 1064 at 19) — In October, Air Products told Airgas it

should consider analyst reports. Ex. 649 at 2. Recent analyst commentary reflects stand-alone

target prices for Airgas stock ranging from the mid $60s to mid $70s.

Accretion Analysis (Ex. 1064 at 26, 27) —

LBO Analysis (Ex. 1064 at 28; Ex. 1066 at 30-34) —

Ex. 1063 at 6. Thus, this analysis reinforces that Air Products’ $70 of-

fer does not fully and fairly compensate Airgas shareholders for their contribution to the signifi-

cant synergies Air Products anticipates achieving.

The LBO analysis also showed that Airgas shareholders will be better off if Air-

gas continues to follow its strategic plan than if it is sold in a purely financial transaction at this

time. As McCausland testified, “the conclusion was that selling [to] private equity did not com-

- 19 -
pete well with running the business for the long-term through execution of the management

plan.” Supp. Tr. 282-83; see also Supp. Tr. 306-07 (McCausland). 12

2. The offer is opportunistic and came at a time when it

would be disadvantageous to sell the company.

In Unocal, the Supreme Court expressly recognized that the “nature and timing”

of an offer are valid considerations when assessing whether an offer poses a threat. Airgas Post-

Trial Br. 93-94. Air Products’ witnesses have continued to concede that Air Products’ goal is to

acquire Airgas for the lowest price at which it can get 50%of the shares tendered. Supp. Tr. 17,

46 (Huck); Supp. Tr. 76 (Davis); Supp. Tr. 125 (McGlade). See also Airgas Post-Trial Br. 93-

94.

Indeed, Air Products launched its offer at a time when Airgas’ last twelve months’

EBITDA, EPS, and revenue were in the trough of the most severe recession since the Great De-

pression. Ex. 1118 at 3; Ex. 907. As Air Products’ director Davis conceded, the trading price of

Airgas’ stock was lower than it would have been had the economy not been in the middle of a

recession. Supp. Tr. 76-77. After he had an opportunity to learn about the company and its stra-

tegic plans, Airgas’ new director Clancey agreed with the testimony that McCausland gave at the

12
Air Products suggested through its questioning that Airgas is worth $70, and no more than
$70, because no other bidder has emerged that is willing to pay more. Supp. Tr. 135-36
(McGlade); Supp. Tr. 739 (Morrow). This circular reasoning fails. Indeed, by this logic, Airgas
should have been sold for $60 in February 2010 because that was the only offer outstanding at
the time. As DeNunzio testified, any public company always “can achieve a premium in a sale,”
but “[t]hat doesn’t mean the company should be sold on any given day.” Supp. Tr. 354. The
issue is one of timing. Here the record is unrebutted that Airgas has a fair value “in the mid to
high seventies, and well into the mid eighties.” Supp. Tr. 394 (DeNunzio). And “at another
time, in another market environment . . . [Airgas] could do substantially in excess of the 70, even
accounting for time value of money in the intervening period.” Supp. Tr. 398 (DeNunzio); see
also Supp. Tr. 304-05 (McCausland). For this reason, no principle of Delaware law compels a
board of directors to accept a clearly inadequate offer simply because — for the moment — it is
the only offer on the table. Airgas Post-Trial Br. 104-07; Dec. 10 Airgas Supp. Br. 11-13.

- 20 -
first trial: now is not the right time to sell. Supp. Tr. 419-20 (Clancey); see Tr. 673-74

(McCausland); Ex. 249 at 16 (“it is a terrible time for Airgas stockholders to sell their compa-

ny”).

Air Products’ witnesses have also conceded that its “best and final” $70 offer was

opportunistically timed to influence this Court. Huck admitted that Air Products increased its

offer in response to this Court’s letter of December 2, that Air Products would not have increased

its offer “but for” the Court’s letter, and that Air Products believed that raising the price to $70

and labeling it best and final would strengthen its legal position and give it “the best chance to

win.” Supp Tr. 38-39. At his deposition, Davis candidly admitted that Air Products believed it

was “negotiating with the Judge . . . because he’s going to rule on the poison pill.” Supp. Tr. 99.

The Airgas directors believe that, despite Air Products’ “best and final” claim, Air

Products or another bidder could ultimately offer more than $70. Supp. Tr. 218-20, 304-05

(McCausland); 418-19 (Clancey); see also Supp. Tr. 331, 397-98 (DeNunzio); Ex. 1063 at 10-

11. Thus, the Airgas Board believes that the $70 offer is opportunistically timed to try to win

control of Airgas in court and that if the Airgas defenses are upheld, Air Products or another bid-

der will be back later with a better offer. Supp. Tr. 304-05 (McCausland); Supp. Tr. 331, 397-98

(DeNunzio). Most importantly, the Board is confident that Airgas’ stand-alone performance will

deliver value to shareholders in excess of $70. Ex. 1063 at 10; Supp. Tr. at 307 (McCausland);

Supp. Tr. 419-20 (Clancey).

3. Consummation of the offer will interfere with

the execution of Airgas’ corporate plan.

The board of a Delaware company has no obligation to “abandon an in-place plan

of corporate development in order to provide its shareholders with the option to elect and realize

an immediate control premium,” and has no “fiduciary duty to jettison its plan and put the corpo-

ration’s future in the hands of its shareholders.” Paramount, 571 A.2d at 1149-50; see also TW

Services, Inc. v. SWT Acquisition Corp., 1989 WL 20290, at *8, *11 (Del. Ch.) (directors have
- 21 -
no duty to maximize “current share value” even when so desired by “holders of some 88% of the

[c]ompany’s stock”). “Directors are not obliged to abandon a deliberately conceived corporate

plan for a short-term profit unless there is clearly no basis to sustain the corporate strategy.” Pa-

ramount, 571 A.2d at 1154; see Airgas Post-Trial Br. 104-105; see also NiSource Capital Mrkts.

v. Columbia Energy Group, 1999 WL 959183, at *2 (Del. Ch.) (board of directors may reasona-

bly perceive that offer “threaten the target's long-term business plan”).

To pursue a deliberately conceived corporate plan is exactly what Airgas’ Board

has chosen to do here, and there clearly is a basis to sustain that plan. Key elements of Airgas’

plan include: (i) expansion into bulk gases; (ii) SAP; (iii) Strategic Accounts and segmentation

of Airgas’ sales force by vertical markets; and (iv) $2.5 billion in capital investments made over

the past 3 years. Tr. 644-45 (McCausland); Tr. 748-50 (McLaughlin); Tr. 865-69 (Molinini); Ex.

64 at 5; Ex. 499.

The Airgas Board made the business judgment in November 2009 that Airgas’

corporate plan would provide greater benefits to Airgas shareholders than the $60 per share Air

Products was offering at the time. Ex. 249 at 18 (“The Airgas Board is confident that Airgas

will, consistent with its history, deliver greater value to its stockholders by executing its strategic

plan than would be obtained under the Offer.”). Each time Air Products adjusted its offer, the

Airgas Board revisited its decision, and each time it came to the same conclusion — that Airgas

would be better off by pursuing its plan for expansion and improvement. As reflected in Airgas’

14D-9 response to Air Products’ $70 offer, the Airgas Board most recently considered (among

other things):

its knowledge of and its experience with the Company and its view of the Com-
pany’s business, earnings, financial condition, prospects and strategic plans;
the Company’s strategic plan, including its updated strategic plan reflecting actual
financial performance through November 30, 2010 . . . estimates of future SAP
costs and benefits, and its views as to Airgas’ future prospects;

- 22 -
 that Airgas had made substantial capital investments since the last recessionary
period, including nearly $2.5 billion in the period since 2007 alone, and consi-
dered its view of the potential benefits of such investments;
Airgas’ scarcity value as the only remaining independent gas company of scale in
the world and its view of the underlying value of Airgas’ assets, operations and
strategic plan, including its industry-leading position, more than one million cus-
tomers, unrivaled platform and future growth prospects.

Ex. 659 at 5-6; see also Ex. 1063 at 2-4, 10-11; Supp. Tr. 307 (McCausland). 13

4. The $70 offer is particularly coercive given the successful

execution of Air Products’ plan to drive shares into the hands
of arbitrageurs.

Airgas has previously shown that Air Products’ successful effort to manipulate

the Airgas shareholder base and maximize the percentage of shares held by arbitrageurs has sig-

nificantly increased the threat that shareholders will be coerced into tendering into an inadequate

offer. See Airgas Post-Trial Br. 95-98; Dec. 10 Airgas Supp. Br. 15-20. The record established

at the supplemental hearing further demonstrates that the substantial ownership of Airgas stock

by these short-term, deal-driven investors poses a threat to the company and its shareholders.

Huck reaffirmed his faith in the arbitrageurs at the supplemental hearing, when he

acknowledged that it was “Air Products’ expectation that the arbs would support Air Products

. . . because they came into the stock to get a deal done.” Supp. Tr. 45. Air Products’ board was

on the same page as management. Davis testified that Air Products’ board actively considered

the fact that “much of the Airgas stock was owned by arbs that had acquired their stock at a price

13
It should be noted that Schedule 14D-9 requires only disclosure of a target board’s recom-
mendation to its shareholders and the reasons for that recommendation. See 17 C.F.R. 240.14d-
101 (2010) (Rule 14d-101 (Item 4)); 17 C.F.R. 229.1012 (2010) (Reg. M-A (Item 1012)) (“state
whether the filing person is advising holders of the subject securities to accept or reject the ten-
der offer . . . . State the reasons for the position . . .”). Thus, Airgas’ 14D-9 is neither meant nor
required to describe the reasons why the Board determined to maintain Airgas’ rights plan and
other defenses.

- 23 -
under 70” at its December 9 meeting and that the board “believed [the arbs] would support a $70

offer.” Supp. Tr. 86-88 (Davis).

Airgas’ expert witness, Peter Harkins, described the simple logic of Air Products’

strategy. Harkins testified that “arbitrageurs have typically purchased their shares at elevated

levels in order to profit by realizing the spread between the price they paid and the deal price”

and that, as a consequence, “[i]f the offer fails and the stock returns to pre-bid levels or to antic-

ipated post-trading levels, the arbitrageurs . . . would suffer huge losses.” Supp. Tr. 567; see also

Supp. Tr. 201 (McCausland). Those losses are magnified when arbitrageurs have used leverage

to buy their positions, as they customarily do. Supp. Tr. 750 (Morrow); Ex. 1081 at 12. As Har-

kins explained, while an arbitrageur might threaten to withhold its shares if the bidder refused to

increase the price, “[o]n the expiration date of the offer, . . . in what is tantamount to a game of

chicken, they don’t have a choice. They have to tender by virtue of what they are and how they

do it.” Supp. Tr. 563.

Harkins’ testimony that arbitrageurs have skewed incentives is hardly controver-

sial. Supp. Tr. 654. Huck, McGlade and the Air Products board all share Harkins’ perspective.

Supp. Tr. 45 (Huck); Supp. Tr. 87-88 (Davis); see also Tr. 63-64 (Huck); Tr. 151-52

(McGlade). 14 ISS agrees, too:

The risk arbitrage business model is often described as “picking up pennies in

front of a steam-roller.” Because of the de minimis margin with which they often
play, one wrong trade can easily wipe out most of the profits they have made,
given the asymmetric risk/reward profile of their investments. As such, risk arbs
— at least once they have bought into a position — are more likely to be risk
averse than risk loving (although risk tolerance will also vary depending upon the
size of the firm, investment strategies, etc.).

14
Air Products’ expert witness, Joseph Morrow, seems to agree as well. Morrow acknowl-
edged that arbitrageurs will generally tender if they believe the risk that the target’s stock price
will drop if the bidder’s offer is withdrawn is too great. See Supp. Tr. 748-49.

- 24 -
Ex. 1034A at 2 (Dec. 10, 2010 M&A Edge Note). According to ISS, this “decision bias” — a

willingness to “leave some money on the table in exchange for an earlier and more certain

payout” — “can make arbs a hostile acquirer’s best ally.” Ex. 1034A at 2. Of course, that is

what Air Products has been banking on from the beginning.

The substantial concentration of shares in the hands of arbitrageurs significantly

compounds the threat faced by the Airgas shareholders. If Airgas’ poison pill were redeemed,

arbitrageurs would buy additional shares, raising their holdings to more than 50% of the out-

standing stock. Supp. Tr. 551-52 (Harkins). Even if they did not, the arbitrageurs who control a

near-majority of Airgas’ outstanding stock would tender into Air Products’ “best and final” offer

for the reasons discussed above. As a result, as Harkins explained, “a shareholder who . . .

agrees with the incumbent board’s view regarding this offer, is still faced with the dilemma

where they know that owners of the majority of the outstanding shares are compelled to accept

the offer because of the investment methodology they employ.” Supp. Tr. 572. Airgas share-

holders who believe $70 is an inadequate price could not rationally decline to tender under these

circumstances, “know[ing] everyone else, a majority, is going to tender . . . and control of the

company will trade at that one time.” Supp. Tr. 572-73.

Both Harkins and Morrow agreed that once the Air Products tender offer closes,

unless a shareholder successfully asserted its appraisal rights (an extraordinarily problematic

scenario discussed below), the non-tendering shareholders would never receive more than $70

for their shares. Supp. Tr. 564-65 (Harkins); Supp. Tr. 729-30 (Morrow). At best, these non-

tendering shareholders would receive the same $70 price later on down the road in connection

with a second-step merger, consideration that “by definition” would be “worth less than getting it

on the expiration” because of the time value of money. Supp. Tr. 564-65 (Harkins); Ex. 1081 at

7-8.

- 25 -
 Air Products’ own expert, Morrow, recognized that this would not be a palatable

option for Airgas’ shareholders:

Q. If I’m a professional investor and I know my upside is capped at

the $70 deal price, wouldn’t I prefer to cash out as soon as possible and redeploy
my funds in a new investment?
A. If you could.

Supp. Tr. 736 (Morrow). These non-tendering shareholders would also assume the risk that a

second-step merger would never occur, leaving them as minority shareholders in a company con-

trolled by Air Products. See Supp. Tr. 568 (Harkins); Ex. 1081 at 7. As Morrow noted, Air

Products’ own tender offer filings recognize this possibility and spell out adverse consequences

for non-tendering shareholders, including the risks of delisting and deregistration of their shares.

Supp. Tr. 726-34; Ex. 222 at 10, 20.

At bottom, if Airgas is stripped of all of its defenses, the Airgas shareholders will

be left with no choice at all. In Harkins’ words, in the circumstances of this case, “you’re forced

to accept something less than what you think you should receive and what your fiduciary has told

you you should receive.” Supp. Tr. 565. That is a threat posed by the Air Products offer. The

coercive nature of Air Products’ clearly inadequate offer is unquestionably a threat for Unocal

purposes

5. The possibility of an appraisal remedy, the majority

shareholder’s fiduciary duties to the minority shareholders,
and the possibility of a subsequent offering period do not
diminish the coercive nature of the $70 offer.

The threat posed by the $70 offer’s coerciveness is not diminished by the possible

availability of an appraisal or of a subsequent offering period. As for an appraisal: the right to

seek appraisal will not arise unless and until a second-step merger is consummated, and there is

thus no certainty that non-tendering shareholders will ever have appraisal rights. But in any

event, the availability of an appraisal proceeding in the future is simply not the same as receiving

- 26 -
full value in a change of control transaction. As the Court is well aware, appraisal proceedings

take a long time and can be extremely expensive — particularly for individual shareholders who

must pay all of the fees and costs associated with the proceeding. Moreover, the fair value as

determined in an appraisal does not factor in the synergies associated with the transaction itself.

M.P.M. Enters., Inc. v. Gilbert, 731 A.2d 790, 797 (Del. 1999). In this case, the cost synergies

alone are estimated to be $20 to $30 per Airgas share. Supp. Tr. 199 (McCausland); see also Ex.

511 at 49. There are also considerable risks and uncertainties associated with appraisal proceed-

ings, in which the determination of fair value will depend on expert testimony and the court’s

resolution of numerous disputed issues.

There is still another and more fundamental problem with Air Products’ position

that the appraisal remedy sufficiently protects Airgas’ shareholders from Air Products’ coercive

tender offer. Under Delaware law, directors may not abdicate their fiduciary duties based on the

premise that shareholders may have a later opportunity to seek a judicial appraisal. See Airgas

Post-Trial Br. 73; see also Wood v. Frank E. Best, Inc., 1999 WL 504779, at *5 (Del. Ch.) (Ex.

B hereto).

Air Products next suggests that the threat posed by its offer is obviated by the fact

that a second-step merger would be subject to review for entire fairness. This argument fares no

better. Air Products’ McGlade was resolute that the second-step merger would be done at the

same price as the first step, i.e., at $70 per share. Supp. Tr. 111 (McGlade). Davis said the same

thing. Supp. Tr. 104-106. Thus, all the minority shareholders would really have in that circums-

tance would be a lawsuit. And in any event, again, Delaware law does not permit the Airgas

Board to abdicate its fiduciary duties and subject its shareholders to an inadequate and coercive

tender offer simply because, if at some future date a second-step merger occurs, a new Airgas

Board appointed by Air Products will have a duty to ensure that the price paid in the merger is

fair. Likewise, a majority shareholders’ fiduciary obligations are cold comfort to shareholders

left holding stock in a controlled corporation. See Airgas Post-Trial Br. 96-97.
- 27 -
 Nor does Air Products’ courthouse proffer of a subsequent offering period solve

the problem. Air Products’ initial Schedule TO clearly stated that Air Products did not intend to

include a subsequent offering period, and it is undisputed that, even now, Air Products has not

amended its offer to include a subsequent offering period. Ex. 222 at 13. The question for the

Court is whether the Airgas Board breached its fiduciary duties in connection with its considera-

tion of the $70 offer at the December 21 Board meeting. The fact that Air Products’ offer did not

include a subsequent offering period at that time is therefore dispositive. See Supp. Tr. 142–44

(McGlade) (Q: “At the time that the Airgas board considered Air Products’ best and final offer

of $70, had Air Products suggested that it would include a subsequent offering period?”; A: “I

don’t believe so.”). Air Products’ suggestion that it would now be willing to commit to a subse-

quent offering period in exchange for an order removing Airgas’ defenses, see Supp. Tr. 147

(McGlade) — in what amounts to still another attempt to negotiate the terms of its offer with the

Court — is as inappropriate as it is irrelevant.

Moreover, a subsequent offering period would do nothing to alleviate the coercive

nature of the offer. The subsequent offering period only comes into play under the SEC rules

after the initial offering period expires and the bidder accepts the tendered shares for payment.

Supp. Tr. 569 (Harkins); 17 C.F.R 240.14d-11(c). At that point, as both Harkins and Morrow

testified, Airgas shareholders who believed the offer is inadequate would still be compelled to

accept $70 for their shares, whether in the subsequent offering period or in a second-step merger.

Supp. Tr. 572-73 (Harkins); Supp. Tr. 739-41 (Morrow). 15 As Morrow put it, even with a sub-

15
Airgas shareholders would also have the option of selling their shares in the open market, but
as Morrow conceded, once Air Products has bought 50%-plus-one of the shares for $70 at the
initial expiration date, the selling shareholders are not going to get $78 in the open market.
Supp. Tr. 740-41 (Morrow).

- 28 -
sequent offering period, “[i]f there was ever a chance that it could be worth 78, yes. It’s gone

forever.” Supp. Tr. 741.

Nor could Airgas shareholders who believe the offer is inadequate engage in ef-

fective collective bargaining with Air Products in an attempt to extract more value. As Harkins

testified, target company shareholders have a collective action problem. Supp. Tr. 603, 633, 667.

The problem stems from a variety of factors, including the disclosure requirement imposed by

Section 13(d), individual investors’ specific investment restrictions, and the fact that target com-

pany shareholders are a diverse group with diverse investment objectives and considerations.

Ex. 1081 at 9-10. The third factor is especially significant here, as a near-majority of Airgas’

shares are held by arbitrageurs who are acutely sensitive to the risk of missing out on Air Prod-

ucts’ “best and final” bid and would therefore be unwilling to forgo the offer — even if they be-

lieve it is inadequate — and wait for the realization of the company’s long-term value. Ex. 1081

at 11-12. Under these circumstances, only the Airgas Board equipped with the pill can effective-

ly negotiate with Air Products to receive maximum value on behalf of all shareholders. Ex. 1081

at 14-15. As John Clancey said at the Board’s December 21 meeting, the directors must “protect

the pill.” Ex. 1063 at 10.

In sum, if the poison pill is redeemed and Article 6 and § 203 are rendered nuga-

tory, Airgas shareholders will be compelled to tender into an offer that the Airgas Board — in-

cluding the three new directors — has unanimously determined to be inadequate based on the

advice of its three financial advisors. For this additional reason, the Airgas Board’s determina-

tion that the offer constituted a threat was reasonable. 16

16
Contrary to Air Products’ repeated claim that the threat of coercion is all some sort of litiga-
tion construct, the Airgas Board has long been keenly focused on the fact that arbitrageurs were
building a substantial ownership position and the threat that this posed. At Board meetings
throughout 2010, the Airgas directors received updates on the percentage of shares held by arbi-

(footnote continued)

- 29 -
 6. The offer is substantively coercive.

The $70 offer also poses a threat of “substantive coercion” — which, as the Su-

preme Court has recognized, is “the risk that shareholders will mistakenly accept an underpriced

offer because they disbelieve management’s representations of intrinsic value.” Paramount, 571

A.2d at 1153 n.17 (internal quotes and citations omitted); see also Airgas Pre-Trial Br. 75-76;

Airgas Post-Trial Br. 94-95.

The record here perfectly illustrates what the Court in Paramount was talking

about. At the supplemental hearing, Air Products’ own witnesses conceded that the Airgas

shareholders do not and cannot know as much about the company and its prospects as the Airgas

Board. Supp. Tr. 33 (Huck); Supp. Tr. 103 (Davis). Even Air Products’ expert Morrow agreed.

Supp. Tr. 754. Air Products’ own witnesses also conceded that Airgas management is in the best

position to make projections for the future financial performance of the company. Supp. Tr. 82

(Davis); Supp. Tr. 120 (McGlade). And the parties are in accord that the Board, not the share-

(footnote continued)

trageurs or similarly incentivized short-term investors, see Ex. 245A at 2; Ex. 328A at 31; Ex.
415A at 4; Ex. 1008A at 4; Ex. 1011 at 5; Ex. 1051A at 8, and the percentage was again dis-
cussed at the Board’s December 21 meeting. Supp. Tr. 369 (DeNunzio). The significance of the
substantial concentration of arbitrageurs in the stock, and its bearing on the likelihood of success
of Air Products’ offer was not lost on Airgas’ directors. As one of the new directors to the Air-
gas board testified: “Certainly, I understand the situation [the arbs] are in.” Supp. Tr. 439
(Clancey). The Airgas directors are hardly babes in the woods.
Moreover, the directors reviewed and authorized the filing of a brief with the Court that ad-
dressed this very issue, a brief that discussed the high concentration of arbs and their short-term
investment horizon and noted that “[w]hile these shareholders are largely sophisticated, they face
a collective action problem if the pill is pulled.” Ex. 1031 at 15-16. And it noted that as a result
“shareholders may be pressured into tendering into an offer that they don’t want to accept be-
cause of the prospect that a bare majority of the other shares will be tendered.” Ex. 1031 at
16. Indeed, it was for this reason that Clancey stated at the December 21 board meeting: “the
Company had to protect the pill.” Ex. 1063 at 10; Supp. Tr. 420-21. As Miller testified, protect-
ing the pill “was implicit in everything we were doing.” Supp. Tr. 160.

- 30 -
holders, is in the best position to understand the intrinsic value of the company. See Supp. Tr.

138 (McGlade); Supp. Tr. 188-89 (McCausland).

And there can be no dispute about it: stockholders simply do not have all the in-

formation about the company’s business plans and prospects that is available to the Airgas

Board. As McCausland elaborated:

Well, we — we’re the industry leader in packaged gases. We know a lot about
what’s going on in our business that even our shareholders don’t know. We know
about our strategies on acquisitions, we know about current negotiations, we
know about negotiations on sourcing product, on building air separation plants
and CO2 plants. We know what our pricing strategies are. We know about all of
our sales strategies and where we’re going to put our resources. We know what
we’re doing in E-commerce. You know, we just have a wealth of information
about the company, and it’s our job, as directors, to do that.

Supp. Tr. 189. DeNunzio concurred: there are “a number of upsides that aren’t reflected in the

plan.” Supp. Tr. 397. And the magnitude of these undisclosed benefits is substantial. For in-

stance, Airgas has not disclosed the full expected range of benefits from SAP implementation,

which is “orders of magnitude greater than what’s been assumed and which would give substan-

tially higher values.” Supp. Tr. 397-98 (DeNunzio).

Shareholders also lack the detailed valuation information available to the Airgas

Board. Airgas has not disclosed its full five-year plan. Supp. Tr. 32 (Huck); Supp. Tr. 190

(McCausland); Ex. 1047 (refreshed five-year plan produced on Litigators Eyes Only basis). And

it has not disclosed the investment bankers’ analyses. Ex. 1064 (Goldman Sachs/Bank of Amer-

ica book produced on Litigators Eyes Only basis); Ex. 1065 (Credit Suisse book produced on

Litigators Eyes only basis). As Huck agreed, the discounted cash flow analysis contained in

these books “is the most important for valuing Airgas” and Airgas stockholders don’t have it.

Supp. Tr. 32. Stockholders have not seen, and will not see, this critical data.

Nor could Airgas simply cure the problem by disclosing all of this highly sensi-

tive competitive and strategic information to the market. Disclosing the numbers without the

- 31 -
rationale behind them or business developments without any detail would only leave sharehold-

ers guessing whether the information was reliable. Supp. Tr. 585-86 (Harkins). Indeed, the doc-

trine is premised on the notion that shareholders may “mistakenly accept an underpriced offer

because they disbelieve management’s representation of intrinsic value.” Ronald J. Gilson &

Reiner Kraakman, Delaware’s Intermediate Standard for Defensive Tactics: Is There Substance

to Proportionality Review, 44 BUS. LAW 247, 267 (1989), cited in Paramount, 571 A.2d at 1153

n.17. If the shareholders are not told how the company will meet its projections, they have no

good reason other than “trust me” to believe them.

And as McCausland testified, and as common sense confirms, disclosing the stra-

tegic plans and considerations that justify the projections in the five-year plan would risk enorm-

ous harm to the business:

Well, for instance, if we told everyone that we were negotiating with ABC com-
pany, to build a CO2 plant, or an air separation plant, then all of our competitors
would rush in. If we told everyone we were negotiating with XYZ company for a
strategic account covering 26 facilities in the U.S., the competitors would all jump
in and probably cut the prices.

Supp. Tr. 190-91. For this very reason, target boards and management, which are tasked with

the responsibility of running the business during the pendency of a hostile offer, retain legitimate

interests in preserving the confidentiality of such information. Supp. Tr. 585 (Harkins). Any

rule to the contrary would harm the shareholders. It certainly would be terrible policy to oblige

target company to disclose highly sensitive competitive and strategic information simply because

a bidder (here a competitor itself) has made an inadequate offer.

Nor does it suffice to say that stockholders are in the same position as the Board

to evaluate the financial adequacy of the offer because management’s projections are close to the

analyst projections and the analyst projections are available to the market. Supp. Tr. 395-96

(DeNunzio); Supp. Tr. 453 (Clancey). Analyst projections only go out to FY 2013; Airgas’ pro-

jections and the bankers’ DCF analysis include FY 2014 through FY 2016. Compare Ex. 1047

- 32 -
at 3, Ex. 1064 at 35, Ex. 1065 at 2, with Ex. 1061 at 10, and Ex. 1058 at 4. (Airgas will not real-

ize the full annual benefits of SAP until FY . Ex. 457.)

Even to the extent certain information has been disclosed to the market, share-

holders lack the insight of the Airgas directors in evaluating that information. Shareholders do

not attend Board meetings. They do not get individual access to management and the company’s

advisors to raise questions or to assess the credibility of their projections and analyses. Supp. Tr.

164 (Miller). Plus, as McCausland explained: “[T]he management and the board have —

they’re in a better position to evaluate the information because they have experience in the indus-

try and experience with Airgas.” Supp. Tr. 190.

In this regard, the experience of John Clancey, one of the new directors, is in-

structive. Based on the information made publicly available during the proxy contest, Clancey’s

initial perspective was that Airgas was just saying no. Supp. Tr. 403. But after receiving sub-

stantial amounts of nonpublic information, attending one-on-one briefing sessions with manage-

ment on the five-year plan and consulting with the company’s advisors, Clancey’s perspective

changed. Supp. Tr. 417.

This is evidence of substantive coercion in action. Even though Clancey believes

that all the information shareholders could want is available (Supp. Tr. 452-53), it was not until

he gained access to nonpublic information, joined in the Board’s process of evaluating that in-

formation, and heard from Credit Suisse that he fully accepted management’s view on value.

And the same holds true for the other two new directors, Miller and Lumpkins. It was not until

they joined the board and gained access to “all the information at its disposal” that they fully be-

lieved the company’s position on value. Supp. Tr. 163, 164 (Miller); Ex. 1063 at 10-12. There

is simply no way Airgas could replicate that process with each of its thousands of shareholders

holding the 84 million shares outstanding. Supp. Tr. 701 (Morrow).

- 33 -
 That is why plaintiffs’ oft-repeated mantra of “let the shareholders decide” is mis-

guided and unrealistic. E.g., Shareholder Plaintiffs Post-Trial Br. 51-56; Air Products Post-Trial

Reply Br. 34, 39. The rhetoric glosses over the crucial point that the role of the board is not

simply to act as a conduit of information so the shareholders can make decisions themselves.

Directors manage the affairs of the corporation through the exercise of their independent busi-

ness judgment. 8 Del. C. § 141(a). And at no time is this responsibility more important than

when control of the company is at stake. Dec. 10 Airgas Supp. Br. 10-14.

When the board elects to sell the company, the decision forces out the sharehold-

ers who do not want to sell. That is why change of control decisions are, in the first instance,

decisions of the board that cannot be delegated to the shareholders. While shareholders are free

to sell their shares to serve their own interests, the board is charged with making control deci-

sions because it has both the power and the duty to protect the company and all of its sharehold-

ers from perceived harms. So long as the board acts in good faith and with due care, its judg-

ments cannot be second-guessed by our courts. Airgas Post-Trial Br. 72-73, 75, 77, 94, 98, 105;

Dec. 10 Airgas Supp. Br. 5, 10-14, 20. As Airgas director Ted Miller observed: “That’s why

they elect us to the board. Otherwise, why have boards? Why have a board?” Supp. Tr. 163.

7. The Board reasonably concluded that Air Products has not

necessarily made its best and final offer and the company’s
defenses therefore still provide the Board with a valuable
negotiating tool.

Air Products claims that $70 is its “best and final” offer. Supp. Tr. 5 (Huck);

Supp. Tr. 104 (Davis); Supp. Tr. 108 (McGlade). But the Airgas Board determined that further

increases are possible, and reasonably concluded that it should still press for a higher price. Un-

der Unocal, it is this reasonable belief of the Airgas Board that controls. 493 A.2d at 955.

The minutes of the December 21 meeting reflect that the directors, clearly of the

view that there was more than $70 to be had, continued to focus on how to get a higher price for

- 34 -
Airgas.

The Board unanimously approved including the $78 sale price in the Schedule

14D-9 on this very basis. Ex. 1063 at 11; Ex. 659 at 3 (Schedule 14D-9 filed with SEC). The

consensus of the Airgas Board was clear: “[A]s a practical matter, I don’t think anyone in that

room really believed it was best and final.” Supp. Tr. 218-19 (McCausland).

As new director John Clancey explained the Board’s reasoning at trial:

Q: There was some discussion at the December 21st

board meeting about the term best and final. Did you express any
views on that?
A. Yes. I’m not bashful about best and final. We do
90 percent of our business on contracts. We play best and final.
Our customers play best and final. The governments play best and
final. Best and final is normally a cliché that gets you into the fi-
nals so that you can take your price up or take your price down,
and it’s meant to force a situation. And in the commercial world, I
think it’s being used less and less.

Supp. Tr. 418. In addition, Credit Suisse concluded that in different market conditions, “there

may be other acquirers of the company at higher prices than what Air Products is offering to-

day,” which could lead to a sale of the company at a price above $70 per share to a third-party or

prompt a topping bid by Air Products. Supp. Tr. 398. As McCausland explained, Airgas has not

pursued an alternative transaction because Air Products’ offer was so low; bidders might be dis-

couraged by Air Products’ head start with the FTC; and the because “some of the industrial, big

industrial gas companies, are in Europe. And Europe is still in difficulty.” Supp. Tr. 304-

05.DeNunzio made the additional point that European bidders prefer to negotiate transactions out

of the lime light. Supp. Tr. 331.

- 35 -
 In sum, based on decades of experience with business negotiations generally and

months of dealing with Air Products in particular, the Airgas Board made a business judgment

that Air Products could return with a bid above $70, if not now, then later. Supp. Tr. 418-19

(Clancey); Ex. 1063 at 9. That business judgment is reserved to the Board: under settled Dela-

ware law, a target board may properly use a pill under such circumstances to preserve negotiat-

ing leverage. See Airgas Post-Trial Br. 2 (quoting eBay Domestic Holdings, Inc. v. Newmark,

2010 WL 3516473, at *19 (Del. Ch.)); Ex. 1081 at 13-15 (Second Supp. Harkins Rep.).

The testimony of the Air Products witnesses only confirms that Air Products’ of-

fer is not necessarily “best and final” — and that this formulation was a litigation tactic. When

asked if “Air Products believed that, by raising its price to 70 and labeling it best and final, that it

would strengthen its position on the removal of the pill,” Huck responded: “Yes, we did.” Supp.

Tr. 38. And, as noted above, rather than negotiate with the Airgas Board, Air Products, having

waited 14 months, thought it was now “negotiating with the Judge,” as Davis candidly admitted

at deposition and was forced to concede on cross-examination at trial. Supp. Tr. 98-99.

At its December 9, 2010 meeting, the Air Products Board did not receive financial

information from its investment bankers about the $70 offer. Nor did it consider how accre-

tive/dilutive an acquisition would be at various price points, information that would be essential

to any board in determining its highest bid. Instead, the Board’s focus was on the litigation.

Ex. 1033 at 2.

Ex. 1033 at 4.

- 36 -
 At the supplemental hearing, Huck hedged his bet on “best and final” testifying

that Air Products never determined $70 was its highest offer regardless of future circumstances.

Supp. Tr. 49, 50 (Huck). Davis went even further, testifying that, if Airgas made a counterpro-

posal, the Air Products board would need to hold another meeting because management needed

authority to go above $70. Supp. Tr. 93. In fact, Davis testified that he believed that Air Prod-

ucts’ $70 best and final offer would elicit a counteroffer from Airgas that would lead to a “dis-

cussion of value.” Supp. Tr. 93. Davis further testified that he specifically inquired of Huck or

McGlade whether “70 would be the absolute end or would it be possible that Airgas would go

higher” and he understood that “Air Products might go higher to put the deal over the top.”

Supp. Tr. 93-94. And in January, Huck told the Wall Street firm of Dominick & Dominick that

if the Airgas shareholders decided to change the board, Air Products would bid again. Ex. 1077

at 4. That Huck has admitted that Air Products’ litigation-driven “best and final” offer is really

not best and final is understandable given that Airgas “fills a major missing hole in Air Products’

U.S. business model.” Supp. Tr. 77 (Davis).

In short, the Airgas Board has reasonably concluded that Air Products needs Air-

gas, and that accordingly “best and final” likely means nothing more than “best and final” for

now. 17 And if there were any doubt about the reasonableness of that business judgment, it

would be erased by history: this would not be the first time that a hostile bidder came back with
a higher offer after being rebuffed by the target board at what was nominally its best price. As

DeNunzio advised one of the Airgas directors, regarding the strikingly similar situation involv-

17
The Airgas Board’s skepticism that $70 represents Air Products’ “best and final” is not sur-
prising given that, prior to the October trial, Huck and McGlade had publicly stated, more than
once, that Air Products would not bid against itself or raise its offer price in the absence of com-
peting bidders, but it nonetheless twice proceeded to do so, raising the price from an original $60
to $65.50. Supp. Tr. 49 (Huck), Supp. Tr. 127-28 (McGlade); see also, e.g., Ex. 309 at 1, Ex.
322 at 1.

- 37 -
ing CF’s bid for Terra Industries: “[S]urprise, surprise. The original bidder came roaring back

with a much higher proposal that was, you know, much more than nickels and dimes.” Supp. Tr.

328-31. There are indeed numerous examples of a bidder making a “best and final” offer and

then making another offer at a higher price. Exs. 1001A-F.

Target Bidder “Best& Final” Subsequent % Change

Offer Offer

Cablevision Dolan Family 1/12/2007 5/2/2007 20.9%

Systems Corp. Group $30.00 $36.26

Vincor Interna- Constellation 11/28/2005 4/3/2006 10.6%

tional, Inc Brands, Inc. $33.00 $36.50

PeopleSoft, Inc. Oracle Corp. 11/1/2004 12/13/2004 10.4%

$24.00 $26.50

For all of these reasons, and because the Board in the exercise of its business

judgment with advice from qualified independent advisors has concluded that Airgas is worth at

least $78 per share in a sale, the Airgas Board has reasonably concluded that the $70 Air Prod-

ucts bid represents a threat.

D. The Airgas Board’s response is reasonable in

relation to the threat posed.

The evidence at the supplemental hearing demonstrates that the proportionality

prong of Unocal has been met as well. The Board’s actions have done nothing more than pre-

vent a sale at an inadequate price — and allowed Airgas to pursue its pre-existing plan to max-

imize shareholder value — while leaving the door open for a sale at the right price. And the

Board has done nothing to change the company. And assuming that Air Products is not willing

to make an offer that would be attractive to the current directors, Air Products can appeal directly

to the shareholders and, with a 67% vote at either a special meeting or at an annual meeting, re-

move the entire Board.

- 38 -
 1. The Board is willing to sell.

The Airgas Board’s maintenance of the company’s existing defenses in response

to Air Products’ $70 inadequate offer is within the range of reasonableness because the Airgas

Board is willing to sell the company. Airgas Post-Trial Br. 83-84. Airgas’ directors have not

forsworn a sale, and do not seek to entrench themselves; rather, they have discussed repeatedly

their willingness to sell and would embrace a sale at a full and fair price. Indeed, as previously

noted, the Airgas Board tried to sell the company in 2008. Airgas Pre-Trial Br. 5-6; Airgas Post-

Trial Br. 83-84; Tr. 519, 532-35 (Thomas); Tr. at 621-29 (McCausland).

The supplemental hearing testimony confirms that the continuing Airgas directors

remain willing to sell — but, again, only at a full and fair price. Airgas Post-Trial Br. 83-84;

Supp. Tr. 217 (McCausland) (Q. Mr. McCausland, are you opposed to a sale of Airgas? A. Ab-

solutely not.). And of course, the new directors embrace a sale at a full and fair price as well.

Supp. Tr. 171 (Miller) (“[I]f the price offered is a value that the board believes is worth selling

the company, the company will be sold. Forget the pill.”).

The Airgas Board’s willingness to do a deal with Air Products is demonstrated by

the Airgas Board’s October 26 and November 2 letters, which culminated in the November 4
meeting between the companies. Exs. 646, 651. At the urging of the new Airgas directors, Air-

gas met with Air Products without preconditions. Ex. 650; Supp. Tr. 118-19 (McGlade); Supp.
Tr. 192 (McCausland). Airgas and Air Products had a constructive meeting and made their re-

spective cases on valuation. Exs. 1013, 1014; Supp. Tr. 192-96 (McCausland).

Airgas left the meeting “with a feeling of optimism” about the negotiations.

Supp. Tr. 192, 199 (McCausland). Van Roden called Davis the next day to continue the discus-

sions and go over the key valuation assumptions, and Davis said, I read you “loud and clear.”

Ex. 1015; Supp. Tr. 84 (Davis). Davis expected that Air Products would get back to Airgas after

its Board met the following week. Supp. Tr. 85-86 (Davis). And van Roden called Airgas’ di-

- 39 -
rectors to let them know he thought there had been a breakthrough. Supp. Tr. 166 (Miller). Ne-

gotiations ended only after Air Products made the false accusation that the meeting was a cha-

rade. Ex. 1018; Ex. 655.

For this reason too, the Board’s maintenance of the company’s exist-

ing defenses is well within the range of reasonableness and its business judgment should be res-

pected.

2. The effect of the Board’s actions is to require Air Products to

proceed in accordance with the company’s pre-existing
corporate governance structure, a structure that is authorized
by Delaware law.

The reasonableness of Airgas’ response to the $70 offer is confirmed by the fact

that all the Airgas Board is doing is relying on a corporate governance structure that has been in

place for decades. Every piece of this liberal governance regime is authorized by Delaware law.

Airgas Post-Trial Br. 77-78; Dec. 10 Airgas Supp. Br. 1-3; Dec. 21 Airgas Supp. Br. 3-5.

Airgas’ shareholders — its long-term shareholders, its short-term shareholders

and Air Products — bought their shares with the understanding of Airgas’ governance structure.

And in responding to Air Products’ offer, the Airgas Board has simply and reasonably relied on

the company’s pre-existing defenses. Airgas Post-Trial Br. 101-104, 109-113; Dec. 10 Airgas

Supp. Br. 1-3, 8-14; Airgas Pre-Trial Br. 72-73, 83-84. As shown at trial, of the 86 Delaware

companies in the Fortune 500 with staggered Boards, only six (including Airgas) have charter

provisions that permit shareholders to remove directors without cause between annual meetings

- 40 -
(that is, at a special meeting and/or by written consent). Supp. Tr. 679 (Genet); Ex. 1084A; Dec.

21 Airgas Supp. Br. 5 & n.1.

The fact that Airgas’ charter permits shareholders to seek to remove directors at

any time makes Airgas’ response to the offer all the more reasonable. Air Products can call a

special meeting to try to dismantle Airgas’ pre-existing defenses whenever it wants; it doesn’t

have to wait for two annual meetings.

The Airgas Board’s reliance on its pre-existing defenses is reasonable for the fur-

ther reason that Airgas’ corporate governance structure — specifically Article 6 of Airgas’ char-

ter and Section 203 — promises that minority shareholders are protected during a takeover at-

tempt. Pre-Trial Br. 84-85 n.36. See Centaur Partners, IV v. Nat’l Intergroup, Inc., 582 A.2d

923, 927 (Del. 1990) (“fair price” or “high vote requirement may protect a minority shareholder

against squeeze-out techniques employed by insurgents able to command a bare majority of

votes.”); see also id. (citing Berlin v. Emerald Partners, 552 A.2d 482, 489 n.8 (Del. 1988)

(“Supermajority vote provisions were originally formulated as antitakeover devices. By requir-

ing a greater percentage of stockholders to approve a proposed action, stockholders are given

more power to defeat actions adverse to their interests.”)). Airgas shareholders relied on these

statutory and charter protections in buying their stock, and reasonably expected that the Board

would use them in the event of the takeover. Cf. Broz v. Cellular Info. Sys., 673 A.2d 148, 159

(Del. 1996) (“[W]e note that certainty and predictability are values to be promoted in our corpo-

ration law.”).

In sum, Airgas’ rules of the road were written long ago. That the Airgas Board is

following them in defense of Air Products’ takeover, and that Air Products must follow them as

well, is the mildest of responses, and well within a range of reasonableness.

- 41 -
 3. Removing the Airgas Board by obtaining a 67% vote at a
special meeting is “realistically attainable.”

The evidence at the first trial established that the 67% removal provision gives

Air Products a “realistically attainable” means of circumventing all of Airgas’ defenses. See

Dec. 10 Airgas Supp. Br. at 6-7; Dec. 21 Airgas Supp. Br. 3-8. The evidence adduced at the

supplemental evidentiary hearing overwhelmingly reinforces this conclusion. 18

Indeed, Air Products’ witnesses conceded that the 67% vote could be obtained at

the right price. E.g., Supp. Tr. 40-44 (Huck). Air Products, however, does not want to increase

its offer to the price necessary to secure support of 67% of the Airgas shareholders — indeed,

that would be inconsistent with its admitted strategy to acquire Airgas at the lowest price neces-

sary to obtain the tender of 50% of the Airgas shareholders. Supp. Tr. 17, 43-44 (Huck); Supp.

Tr. 76 (Davis); Supp. Tr. 113, 140 (McGlade). Certainly, Air Products cannot succeed in estab-

lishing that a 67% vote is “realistically unattainable” or “mathematically impossible” simply be-

cause it is not willing to raise its offer price above the lowest amount at which it can obtain the

tender of a bare majority of Airgas shares.

Moreover, Airgas’ expert witness, Peter Harkins, opined not only that Air Prod-

ucts could “realistically attain 67 percent of the outstanding shares at a special meeting to re-

move the Airgas directors in furtherance of a sufficiently attractive bid,” but that Air Products

“could easily do that.” Supp. Tr. 456, 457, 483. The point of Harkins’ analysis was not to pre-

18
Air Products has another readily available means of circumventing Airgas’ takeover defenses
— running another proxy contest at Airgas’ next annual meeting. See Dec. 10 Airgas Supp. Br.
1-2. There is nothing in Morrow’s testimony, or any of the other evidence presented by Air
Products at the supplemental evidentiary hearing, to suggest that Air Products would not have a
realistic chance of succeeding in a second proxy contest. If Air Products were willing to keep its
offer open (or make a new offer) in conjunction with the next Airgas annual meeting, a second
group of Air Products nominees could be elected to the Airgas Board. It is settled law that a
board’s decision to maintain its defenses under these circumstances is not preclusive. See Versa-
ta Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 604 (Del. 2010).

- 42 -
dict that an offer at $70 per share (or any other price) would result in a 67% vote to remove the

Airgas Board, but to show that Air Products could realistically attain such a vote, even without

the support of the Airgas Board. Supp. Tr. 507 (Harkins).

Harkins predicated his opinion on a “bottoms-up analysis, which is the only prop-

er way to do this kind of a projection.” Supp. Tr. 466. Using the same methodology that he uses

in advising clients, Harkins created a vote projection model — an assessment of who can vote,

who will vote (turnout) and how they will vote (for or against/abstain) at a special meeting in

favor of an Air Products proposal to remove the Airgas Board. Supp. Tr. 457, 508, 510. The

starting point for his analysis was an investor relations report presented at the Airgas Board

meeting of December 21, 2010, that specified the percentage of Airgas stock held by each of

nine categories of shareholders as of December 9, 2010 (the day Air Products raised its bid to

$70 per share). Supp. Tr. 457-58 (Harkins); Ex. 1051A at 8. On a category-by-category basis,

Harkins then applied “reasonable assumptions” regarding both the turnout and support level from

each category based on his “career experience, [his] own skills, and [his] assessment of the . . .

particular facts and circumstances of this case, including [his] review of the votes cast at the

2010 annual meeting.” Supp. Tr. 465; see also Supp. Tr. 470-82. 19

19
Thus, with respect to the Company Employee Plans, Harkins made the “conservative as-
sumption” that 95 percent of their votes would be cast against the Air Products proposal because
that is the “highest level . . . that [he has] seen in [his] career of employee support for an incum-
bent’s position in opposition for an to the insurgent.” Supp. Tr. 470. With respect to the Retail
(Individual Investors) category, his turnout assumption of 24% was the same level of turnout this
category demonstrated at the annual meeting, and the 20% support assumption reflected the level
of support that, in his experience, bidders had garnered from retail investors when soliciting
proxies in aid of a premium bid. Supp. Tr. 470-71 (referencing GE Capital-Kemper and Kansas
City Power & Light deals). As to the Arbitrageurs and Event-Driven Investors category, Harkins
conservatively assumed a 95% turnout, which is “actually less than the 99.2 or .3 percent that
[he] observed at the annual meeting.” Supp. Tr. 473. As to the category Institutional Investors
Subscribing to ISS, which consists of the “hard-line followers” of ISS who either “subcontract[ ]
their vote-decision making to ISS” or “rely heavily upon the voting recommendations of ISS” —

(footnote continued)

- 43 -
 Harkins’ vote projection model, Exhibit 912, demonstrates that, based upon these

reasonable assumptions, Air Products would be readily able to achieve a 67% vote to remove the

Airgas directors in furtherance of a sufficiently appealing bid. To do so, Air Products would on-

ly need to obtain 51.3% of the shares voted by shareholders in the “Other Institutional Investors”

category (the variable for which Harkins’ model was designed to solve):
% of
Outstanding
% % Voting for Voting for
Shareholder Category Voting Air Products Air Products
Officers and Directors..................................... 100.0% 0.0% 0.0%
Company Employee Plans .............................. 83.3 5.0 0.1
Retail (Individual Investors) ........................... 24.0 20.0 0.2
Air Products .................................................... 100.0 100.0 2.0
Long/Short Hedge Funds ................................ 50.0 50.0 0.5
Arbitrageurs and Event-Driven Investors ....... 95.0 100.0 43.7
Institutional Investors Subscribing to ISS ...... 90.0 95.0 9.4
Large Index Funds (Vanguard, Black-
Rock, State Street) ...................................... 100.0 67.0 6.7
Other Institutional Investors ........................... 85.0 X = 51.3 4.4
Total.................................................... 89.8% 75.0% 67.0%

(footnote continued)

whose former lead M&A analyst is on record as saying that once a target company has had “suf-
ficient time to convince its shareholders why the offer is not in the shareholders’ best interests, it
is shareholders which should have the right to accept or reject an offer without interference by
the board” (Ex. 1001G; Supp. Tr. 477) — Harkins projected a 90% turnout and a 95% support
level to “conservatively give effect to the possible erosion of some support, even amongst the
ISS hard-liners.” Supp. Tr. 480. As to the three Large Index Funds, Harkins assumed they
would “vote all of their shares at they did at the annual meeting” and that two-thirds of their
shares would be voted for the Air Products proposal; at the annual meeting, one of the three
(State Street) voted for Air Products and a second (Vanguard) split its vote, and the investment
policies for all three funds states that “they seek to maximize value for their portfolio.” Supp.
Tr. 480-82, 532-33. Finally, as to the category called Other Institutional Investors, Harkins esti-
mated that 85% of the shares would turn out, “at the low end of what [he] would expect them to
do.” Supp. Tr. 482.

- 44 -
 Moreover as Harkins explained, shareholder profiles are not static. Supp. Tr. 488.

Had Air Products coupled the announcement of its “best and final” bid with a solicitation for the

purpose of calling a special meeting to vote on a proposal to remove the Airgas Board, “still

more shares would have poured into the hands of merger arbitrage firms and hedge funds . . . be-

ing shown a clear path to consummation of a transaction with Air Products.” Supp. Tr. 488

(Harkins). Since NYSE rules require that at least ten calendar days’ notice be given of a record

date for a special meeting, the arbitrage community would have “more than enough time” to pur-

chase an additional, “substantial block of Airgas shares” if it found Air Products’ offering price

sufficiently appealing. Supp. Tr. 489-90. Indeed, Harkins testified that, in that circumstance, he

would expect arbitrage and hedge fund holdings to “easily grow to 56 percent . . . [over] a ma-

jority of the outstanding shares.” Supp. Tr. 551-52.

Air Products’ rebuttal expert, Joseph Morrow, offered the conclusory assertion

that it was not realistically possible for Air Products to obtain a 67% vote at a special meeting

called to remove Airgas directors. Supp. Tr. 692. Morrow’s superficial analysis did not with-

stand scrutiny and should not be credited.

Morrow did not do a bottoms-up analysis of the turnout and support levels from

each of the Airgas shareholder constituencies. Supp. Tr. 692. His opinion boiled down to the

proposition that Air Products would have to win roughly 86% of the votes cast by participating

non-management holders and that this represented an “unrealistic margin to attain.” Supp. Tr.

693. 20 Thus, Morrow’s opinion was nothing more than ipse dixit, which cannot remotely be

20
Air Products may argue that victory at a special meeting is unattainable in light of a recent
article arguing on the basis of a review of 60 hostile or unsolicited takeovers for Delaware com-
panies between 1988 and 2008 that bidders had rarely increased their stake in the target company
from less than 15% to more than 85% in a single tender offer. See Guhan Subramanian et al., Is
Delaware’s Antitakeover Statute Unconstitutional?, 65 BUS. LAW. 685 (2010). That study’s me-
thodology and its conclusions have been strongly criticized. A. Gilchrist Sparks, III & Helen

(footnote continued)

- 45 -
compared to the detailed vote projection Harkins offered in support of his opinion. Cf. NCR

Corp. v. Am. Telephone & Telegraph Co., 761 F. Supp. 475, 494 n.11 (S.D. Ohio 1991) (credit-

ing Morrow’s opinion that AT&T had a “realistic chance of achieving victory at the special

meeting” by achieving an 80% vote because Morrow “provided a detailed basis for [his] conclu-

sions,” while NCR’s expert’s conclusions were “unexplained and, therefore, suspect”).

At his deposition and at trial, Morrow was asked to perform the bottoms-up anal-

ysis of the Airgas shareholder profile that he had failed to do before. It is telling that once Mor-

row’s assumptions regarding turnout and vote support (to the extent Morrow was willing to

supply them) were incorporated into Harkins’ model, it was actually easier to achieve the 67%

vote at Airgas than it was using Harkins’ assumptions alone. With Morrow’s assumptions incor-

porated, Harkins’ model determined that Air Products would only need to obtain 47.1% of the

shares voted by shareholders in the “Other Institutional Investors” category to prevail at a special

meeting. Supp. Tr. 490-506; Ex. 913. This result strongly reinforces the conclusion that a 67%

vote is realistically attainable. 21

(footnote continued)

Bowers, After Twenty-Two Years, Section 203 of the Delaware General Corporation Law Con-
tinues to Give Hostile Bidders a Meaningful Opportunity for Success, 65 BUS. LAW 761 (2010).
Among other criticisms, Sparks and Bowers have observed that the Subramanian study fails to
account for the fact that “with the leverage of the poison pill and consistent with their obligations
[under Delaware law], boards in the past twenty years frequently have negotiated with bidders to
achieve the best result attainable in those circumstances where it appeared that an unsolicited of-
fer would ultimately achieve an 85% threshold.” Sparks & Bowers at 767.
21
Morrow adhered to the assumptions he gave at deposition during his examination by Airgas’
counsel at the hearing (Supp. Tr. 711-23), but on examination by Air Products’ counsel, offered
opinions at variance with his prior hearing and deposition testimony. Thus at deposition and at
the hearing Morrow testified that he had no opinion as to how arbitrageurs and hedge funds
would vote at a special meeting to remove Airgas directors, stating that he would never predict
how they were going to vote “until the game is over.” Supp. Tr. 723. But Morrow then testified
in response to Air Products’ counsel’s questioning that there was “no way” Air Products could
get 100% of the vote from arbitrageurs and hedge funds at the special meeting. Supp. Tr. 760;

(footnote continued)

- 46 -
 Indeed, both on direct and cross-examination, Morrow conceded that if Air Prod-

ucts could convince shareholders that “best and final” really was “best and final,” Air Products

could get a 67% vote. Supp. Tr. 759, 769-70. These concessions were elicited during the course

of Morrow’s attempt to explain away the testimony he gave in the AT&T/NCR litigation.

AT&T was soliciting proxies from shareholders of NCR to replace a majority of the company’s

board in furtherance of AT&T’s unsolicited takeover bid. Supp. Tr. 702-03. NCR’s charter re-

quired the vote of 80% of the outstanding shares to replace a majority of its staggered board, and

the turnout at each of the four previous NCR shareholder meetings had been less than 80%.

Supp. Tr. 703, 707. Morrow nevertheless opined that AT&T had a “realistic chance” of getting

the 80% vote and achieving victory if NCR’s leveraged ESOP was not permitted to vote. Supp.

Tr. 708. Finding that Morrow had provided a “detailed basis” for his conclusions at trial and that

his analysis was “reasonable,” the Ohio federal court concluded that an 80% vote was realistical-

ly attainable by AT&T. Supp. Tr. 708-10.

Morrow tried to explain away his testimony in the AT&T case with the observa-

tion that, after the Ohio court issued its decision, AT&T failed to attain the 80% vote at NCR.

Supp. Tr. 756-58. According to Morrow, up until the end of the contest, about half or more of

the arbitrageurs were willing to elect an AT&T-supported minority slate to the NCR board. But

then, at the last minute, arbitrageur support evaporated because the arbs believed that if they

gave AT&T full control of the NCR board, the bidding would end at AT&T’s initial price of $90

per share. Supp. Tr. 757-58. Indeed, contemporaneous media reports show (and Morrow con-

ceded) that negotiations between the two companies continued up until the eve of the vote, and

(footnote continued)

see also Supp. Tr. 761 (“Definitely not. I don’t believe you’re going to get anywhere near a 100
percent vote from the arbs.”). Ultimately, Morrow provided no cogent explanation for his ele-
venth-hour conversion to Air Products’ theory of the case.

- 47 -
the investment community widely believed that AT&T had not made it best and final bid. Supp.

Tr. 763-68; Ex. 1129. Morrow acknowledged — in response to questioning by Air Products’

counsel — that if AT&T had been able to convince the arbitrageurs that $90 was “as far as [it’s]

willing to go,” then obtaining an 80% percent vote was “a possibility.” Supp. Tr. 759, 770.

Morrow concluded: “If [the arbs are] convinced on it, you know, maybe.” Supp. Tr. 759. 22

Morrow made the same admission on cross-examination. Supp. Tr. 769-70. Mor-

row thus conceded — on direct and cross-examination — that if Air Products were able to con-

vince the arbitrageurs that $70 was truly its “best and final” offer, then a 67% percent vote at a

special meeting was reasonably attainable. 23

While neither Morrow nor Harkins opined that Air Products would, in fact, re-

ceive 67% of the vote at a price of $70 per share (or at any other price), that hardly means that

67% is not “realistically attainable.” Much like a standard proxy contest in aid of a hostile bid,

Air Products’ success or failure at a special meeting would ultimately turn on the price that Air

Products offered to the Airgas shareholders. See Unitrin, 651 A.2d at 1383 (“If American Gen-

eral presented an attractive price as the cornerstone of a proxy contest, it could prevail, irrespec-

22
Morrow’s testimony in this respect was consistent with Harkins’ view that, while it is gener-
ally easier to prompt investors to support a minority slate than it is a controlling slate, as more
time elapses and more facts are known, electing a controlling slate does not “pose as much of a
problem.” Supp. Tr. 521-22; see also Supp. Tr. 644 (“it can be easier to elect a controlling slate,
if there is a sufficiently appealing platform”).
23
Morrow’s conclusory opinion that a 67% vote is not realistically attainable should be discre-
dited for several additional and independent reasons. First, Morrow is hardly a disinterested ex-
pert. Though it did not retain him to handle the proxy fight at Airgas’ annual meeting, Air Prod-
ucts has been a client of Morrow’s firm for some 25 years and he is hopeful of maintaining the
relationship. Supp. Tr. 688-89. Second, though Morrow has some 46 years’ experience as a
proxy solicitor, his current responsibilities are principally supervisory; he was unable to identify
a single proxy solicitation or unsolicited tender offer in which he had been personally involved in
the last five years. Supp. Tr. 685, 689.

- 48 -
tive of whether the shareholder directors’ absolute voting power was 23% or 28%.”); see also

Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 603 (Del. 2010) (“The key variable in a

proxy contest would be the merit of the bidder’s proposal and not the magnitude of its stockhold-

ings.”). As Harkins explained, “you’re not guaranteed to win a vote any time you go to solicit

proxies for something. . . . [T]here’s no statutory right to win. There’s a right to have a realistic

— something that’s realistically attainable under the circumstances.” Supp. Tr. 529-30.

As previously noted, Air Products further argument, that a 67% vote is not realis-

tically attainable because it is not willing to pay the price that would be needed to receive such a

vote, misses the point. Air Products does not deny that there is some price at which it could pre-

vail at a special meeting; its claim is simply that victory cannot be achieved at $70 per share. See

Supp. Tr. 40-41 (Huck) (“I am sure that at some price that you could get it. . . . It was our judg-

ment, along with our advisors, that our best and final price — that there was no chance of win-

ning — of winning an election to remove the board . . . .”).

“[S]tockholders are presumed to act in their own best economic interests when

they vote in a proxy contest.” Unitrin, 651 A.2d at 1380-81. If Air Products is not willing to pay

the price that the shareholders would require to get a 67% majority, the problem is with Air

Products, not the shareholders. Delaware law does not require that a hostile bidder be guaran-

teed victory at its chosen price. 24

But Air Products has no idea what price would be required to garner a 67% vote

because it has not even attempted to pursue the option of calling a special meeting to remove the

24
Air Products’ suggested through its questioning that even if it replaced the entire board
through a special meeting, the new board might not support the offer. Not only is that an unrea-
listic suggestion, if Air Products succeeds in replacing the entire Airgas Board and the new board
rejects the offer and keeps the company’s defenses in place, the problem is with the offer, not
with the board.

- 49 -
Airgas directors. And Air Products admits that its view that $70 is not enough to prevail at a

special meeting is unsupported by any written analysis. Supp. Tr. 40-41 (Huck). Of course, Air

Products need not resort to “speculation upon price.” Supp. Tr. 41 (Huck). As Harkins testified,

were Air Products to commence the process of soliciting Airgas’ shareholders in advance of a

special meeting (an action that requires a mere one-third approval), it would quickly get a sense

of whether $70 was a sufficient price and, if necessary, Air Products “could raise their offer

price.” Supp. Tr. 647-48. Quite obviously, a bidder like Air Products cannot be heard to main-

tain that success at the ballot box is not realistic because its bid is too low.

Air Products also continues to complain that pursuing a special meeting is an un-

realistic alternative because it would take too long. See Supp. Tr. 48 (Huck). Of course, the tim-

ing of a special meeting is and always has been exclusively within Air Products’ control. See

Dec. 21 Airgas Supp. Br. 5. Nothing prevented Air Products from calling for a special meeting

when it first made its tender offer in February 2010, or on November 23 when it lost the appeal

on its January meeting bylaw in the Supreme Court, or at any other time. Air Products took four-

teen months from when it made its first offer to get to its supposed “best and final” $70; it ought

not be heard to complain about delay now.

Indeed, as Huck admitted, had Air Products commenced the process of soliciting

consents to call a special meeting in early December, when it raised its offer to $70, the special

meeting could have occurred in March or April. Supp. Tr. 48. If Air Products were to win at the

trial court, there will be an appeal that would not be decided before sometime in March at the

earliest. So assuming there is an appeal here, the difference between a litigation victory and a

victory at the ballot box is not about timing. It is about money. Air Products has put a bid on the

- 50 -
table that it believes will attract the tender of 50% of the shares plus one. Supp. Tr. 17 (Huck),

76 (Davis). It does not want to pay the price it would take to get 67%. 25

II. WHETHER EQUITABLE PRINCIPLES SUPPORT THE ENTRY OF A

PERMANENT INJUNCTION. ANSWER: NO.

The Court must also decide whether the equities weigh in favor of the mandatory

injunction that plaintiffs seek. Airgas Post-Trial Br. 81; Dec. 10 Airgas Supp. Br. 21-22.

A. Plaintiffs have failed to demonstrate that, absent an injunction,

they will suffer irreparable harm.

As already noted, the evidence adduced at the supplemental hearing demonstrates

that, if Air Products were to make an offer for Airgas at an attractive price, it could realistically

obtain control of Airgas’ Board by obtaining a 67% vote at a special meeting. Through this

route, Air Products retains the “viable alternative to turn the [Airgas] Board out in a proxy con-

test,” Unitrin, 651 A.2d at 1388 n.39.

In light of this readily available self-help measure plaintiffs cannot demonstrate

any need for this Court’s intervention. Phelps Dodge Corp. v. Cyprus Amax Minerals Co., 1999

WL 1054255, at *2 (Del. Ch.) (“When . . . self-help measures are clearly available . . . it is not

for this Court to ride to [plaintiffs’] rescue.”) (Ex. C hereto). That Air Products would prefer to

have Airgas’ pill redeemed by court order rather than pursue these alternatives does not render

irreparable the harm of which it now complains. Frazer v. Worldwide Energy Corp., 1987 WL

8739, at *6 (Del. Ch.) (discounting harm of plaintiff’s “own making”) (Ex. D hereto).

25
Air Products also ignores that, if the pill is pulled, it will have to run a proxy contest to install
a board that would approve the second step, whether it is long-form or short-form.

- 51 -
 B. The equities do not favor entry of a
mandatory permanent injunction.

The evidence at the supplemental hearing demonstrates further that the balance of

the equities does not support plaintiffs’ request for mandatory injunctive relief. After this Court

asked Air Products whether “$65.50 per share [was] the price that Air Products want[ed] this

Court to rely upon in addressing the ‘threat’ analysis under Unocal,” Letter of Dec. 2, 2010 at 2,

Air Products raised its offer to $70 per share. Air Products did not do so because it believed $70

reflected Airgas’ intrinsic value. To the contrary, the supplemental hearing confirmed that Air

Products is still seeking to acquire Airgas at the lowest possible price. Supp. Tr. 17 (Huck);

Supp. Tr. 76 (Davis).

Air Products raised its bid to $70 for a very simple reason. In Davis’s words, Air

Products had decided to bypass Airgas’ Board and was “negotiating with [the Court] who had

taken over that process because he’s going to rule on the poison pill.” Supp. Tr. 98-99 (Davis).

See also Supp. Tr. 36-39 (Huck) (Air Products raised its bid in response to the Court’s letter);

Supp. Tr. 56 (Huck) (in implementing strategy to acquire Airgas, Huck told Airgas shareholders

to write letters to the Court); Supp. Tr. 143 (McGlade) (McGlade “would . . . commit to the

Court that [Air Products] would go for the minority shares at $70 if that was a condition” of the

pill being pulled).

Air Products did not have to take this approach. It could have offered a full and

fair price to Airgas’ Board, which, all along, has been willing to sell Airgas. Ex. 646 at 1. Or it

could have pursued another proxy contest at a special or annual meeting.

The balance of the equities thus tilts significantly in favor of Airgas. First, as

noted in Airgas’ December 10 submission to this Court, “Air Products can pay $78 and still have

a transaction that would be 17.9% accretive on a cash basis.” Dec. 10 Airgas Supp. Br. 21. Air

Products has not rebutted this point at trial. See Supp. Tr. 17-18 (Huck) (transaction at $70 is

“immediately accretive to Air Products”); Supp. Tr. 113-14 (McGlade) (same).

- 52 -
 Second, Air Products does not have a legally protected interest in acquiring Air-

gas at an inadequate price. Airgas can sell itself only once, and its stockholders can receive a

control premium only once. Air Products has offered no evidence even suggesting that $70 per

share reflects Airgas’ intrinsic value. The Court’s injunctive power should not force the Airgas

Board to allow a bare and transitory majority of stockholders to force a sale of the corporation at

an inadequate price, when the superiority of the target’s long-term prospects on a stand-alone

basis remains clear, and when the company’s shareholders and Air Products have a viable, non-

judicial means for overturning the good faith judgment of the shareholders’ elected representa-

tives.

Air Products asserts the process has taken 14 months, and the pill has served its

purpose. Supp. Tr. 136 (McGlade). But Air Products made its best-and-final offer on December

9, 2010 — less than two months ago. Supp. Tr. 136 (McGlade). Moreover, although Air Prod-

ucts asserts that the process of calling a special meeting would now take “too long,” see Supp.

Tr. 48 (Huck), Air Products could have called the meeting long ago. Instead of making a full

and fair offer, and rather than engaging in a constructive dialogue with the Airgas Board that

would result in an acceptable price, Air Products made a tactical decision to try to force through

two “annual meetings” in the space of four months. The reason why Air Products did this is ob-

vious: it recognized that it would cost more to get a 67% supermajority vote than a 50-plus one

share vote or tender and that the Board’s view of value would not jibe with that of Huck and the

other members of Air Products management. Now that its original, lowball-offer strategy has

failed, Air Products is asking this Court to assist it in forcing through the result that it was denied

by the Supreme Court, strategically raising its offer just to the point at which it believes it can get

a bare majority tendered and to a level that this Court would find acceptable in the negotiati[on]

that Davis testified to. Supp. Tr. 98-99 (Davis). But having elected to pursue a strategy that the

Supreme Court rejected, Air Products cannot now be heard to say that the process of obtaining a

67% vote will take too long. See Frazer, 1987 WL 8739, at *6.
- 53 -
 Third, Airgas’ stockholders do not have a right to accept tender offers that their

Board, in good faith, determines to be clearly inadequate. Moran v. Household Int’l, Inc., 490

A.2d 1059, 1070 (Del. Ch. 1985) (“shareholders do not possess a contractual right to receive

takeover bids. The shareholders’ ability to gain premiums through takeover activity is subject to

the good faith business judgment of the board of directors in structuring defensive tactics.”),

aff’d, 500 A.2d 1346 (Del.); Shamrock Holdings, Inc. v. Polaroid Corp., 559 A.2d 257, 272

(Del. Ch. 1989) (same).

The shareholders who are now in the stock want to be in the stock. They, bought

their shares knowing that Airgas’ corporate-governance structure included a rights plan, a 67%

removal provision, and a fair price provision in Article 6 of the charter and that Airgas had not

opted out of § 203. Those stockholders who would prefer that Airgas not be sold at $70 had

every expectation that those defenses would protect Airgas against inadequate bids, such as Air

Products’ offer, aimed at garnering the tender a bare majority of the company’s shares. See

Supp. Tr. 76 (Davis) (Air Products’ strategy was to make an offer that appealed to 50% of the

stockholders); Supp. Tr. 17, 43-44 (Huck) (same); Supp. Tr. 125 (McGlade) (same). The risk

arbitrageurs too understood that there was a risk that the deal would not go through; they had no

right or reason to expect that this Court would sidestep decades of precedent and take the “risk”

out of “risk arbitrage.” There is thus no inequity in denying the shareholder plaintiffs’ request

for an injunction.

Fourth, to date, the only Airgas stockholders to have testified are Airgas’ direc-

tors and employees. Thus, it remains the case that the only Airgas stockholders to have testified

in this Court have opposed Air Products’ request to have the pill redeemed. Moreover, McGlade

acknowledged that “in [his] discussions with the Airgas shareholders, many of them suggested

that Air Products should pay more than 70.” Supp. Tr. 137 (McGlade). Entry of a permanent

injunction would carry the substantial risk that these shareholders would be unable to resist Air

Products’ bid, and be forced to lose not only their ability to own the stock of a high-performing
- 54 -
corporation, but also their one-time opportunity to obtain a lucrative control premium. See Supp.

Tr. 202 (McCausland) (“The tender offer would succeed if the pill were pulled. I have no doubt

about that.”).

Fifth, the public interest does not favor entry of a permanent injunction. As Har-

kins testified, an injunction in this case would give every would-be acquirer the blueprint for ac-

quiring Delaware corporations on the cheap: make an opportunistic, low-ball bid, make vague

allusions to an impending price increase to draw more arbs into the stock, raise the offer to a still

inadequate level but call it “best and final,” and wait around long enough for a court to intercede

and overrule the board. See Supp. Tr. 579-80 (Harkins). Air Products thus invites this Court to

adopt a rule that would disable target boards from acting as effective negotiators once it has been

judicially determined that a takeover has gone on “long enough.” The public interest would be

disserved by such a rule.

Air Products’ approach, by putting an expiration date on every rights plan, evisce-

rates the well recognized benefits of such plans. As our courts have observed, empirical research

has consistently demonstrated that stockholders of a target will enjoy higher premiums in

change-of-control transactions if the target is able to employ a pill in an effective manner. In re

Gaylord Container Corp. S’holders Litig., 753 A.2d 462, 482 n.72 (Del. Ch. 2000); see Patrick

A. Gaughan, Mergers, Acquisitions, and Corporate Restructurings (5th ed. 2011), at 193-96

(discussing scholarship); Thomas W. Bates et al., Board classification and managerial entren-

chment: Evidence from the market for corporate control, 87 J. FIN. ECON. 656, 659 (2008)

(“[P]oison pill provisions do not systematically deter bids but do increase the premiums received

by target shareholders” (citing Robert Comment & G. William Schwert, Poison or Placebo?

Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures, 39 J. FIN.

ECON. 3 (1995))); J.P. Morgan & Co., Poison Pill and Acquisition Premiums (May 2001)

(“[O]ur analysis,” covering 400 acquisitions since 1997, “continues to support the conclusion

that shareholders of firms with pills in place receive higher takeover premiums than those with-
- 55 -
out pills”); J.P. Morgan & Co., Poison Pill and Acquisition Premiums (July 1997) (For the 300

U.S. transactions from 1993 through June 1997, “the median takeover premium at firms that had

a poison pill in place was nearly 10 percent higher than for companies that did not have one.”);

see also John Laide, Poison Pill M&A Premium (Aug. 30, 2005),

https://www.sharkrepellent.net/pub/rs_20050830.html (documenting, on basis of “all transac-

tions for at least a majority of a company’s outstanding stock completed between January 1,

2002 and June 30, 2005,” a premium received by stockholders of companies with a poison pill in

place). 26

III. WHETHER McCAUSLAND’S OPTION EXERCISE WAS PROPER.

ANSWER: YES.

Finally, the Court must determine whether there is any merit to plaintiffs’ claims

that McCausland “misappropriated . . . confidential information belonging to Airgas” when he

exercised 300,000 stock options on January 5, 2010, and that the Airgas Board breached its fidu-

ciary duties by not stopping him. Am. Compl. ¶ 62. For the reasons previously given, these al-

legations should be rejected, and Airgas should be awarded the fees of Airgas’ executive com-

pensation expert David Gordon. Airgas Pre-Trial Br. 87-90; Airgas Post-Trial Br. 114-117.

26
Accord Stephen M. Bainbridge, MERGERS AND ACQUISITIONS 192 (2d ed. 2009) (without ef-
fective “[t]akeover defenses,” the bidder can simply “bypass the target board and make an offer
directly to the target’s shareholders”). Stockholders, then facing tremendous collective-action
problems, will be incapable of coordinating a unified response to the bidder’s offer, making it
unlikely that the stockholders will be able to extract from the bidder its best offer. See id. at 160
(“[C]ollective action problems preclude the hard bargaining needed to extract a full share of the
gains.”).

- 56 -
 CONCLUSION

Plaintiffs should be denied any relief, their claims should be dismissed with pre-

judice, and Airgas should be awarded affirmative relief on Air Products’ allegations concerning

McCausland’s lawful option exercises. 27

POTTER ANDERSON & CORROON LLP

By /s/ Kevin R. Shannon

OF COUNSEL: Donald J. Wolfe, Jr. (No. 285)

Kevin R. Shannon (No. 3137)
Kenneth B. Forrest Berton W. Ashman, Jr. (No. 4681)
Theodore N. Mirvis Ryan W. Browning (No. 4989)
Eric M. Roth Hercules Plaza
Marc Wolinsky 1313 North Market Street, 6th Floor
George T. Conway III P.O. Box 951
Joshua A. Naftalis Wilmington, Delaware 19801
Bradley R. Wilson (302) 984-6000
Jasand Mock
Charles D. Cording
WACHTELL, LIPTON, ROSEN & KATZ Attorneys for Defendants
51 West 52nd Street
New York, New York 10019
(212) 403-1000

Dated: February 2, 2011

999299

27
If the Court concludes that a permanent mandatory injunction is warranted in this case —
which it should not — Airgas will promptly file a motion seeking an appropriate stay.

- 57 -
 CERTIFICATE OF SERVICE

I hereby certify that on this 3rd day of February, 2011, a copy of the foregoing was

served electronically via LexisNexis File & Serve upon the following attorneys of record:

Kenneth J. Nachbar, Esquire Pamela S. Tikellis, Esquire

Jon E. Abramczyk, Esquire Robert J. Kriner, Jr., Esquire
William M. Lafferty, Esquire CHIMICLES & TIKELLIS LLP
John P. DiTomo, Esquire 222 Delaware Ave.
Ryan D. Stottman, Esquire Wilmington, DE 19899
MORRIS NICHOLS ARSHT &
TUNNELL LLP
1201 North Market Street
Wilmington, DE 19801

/s/ Berton W. Ashman, Jr.

Berton W. Ashman, Jr. (No. 4681)

PAC 988563v.1