Air Products' Brief

8/7/2019 Air Products' Brief

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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

AIR PRODUCTS AND CHEMICALS, INC.,

Plaintiff,

v.

AIRGAS, INC., PETER MCCAUSLAND,JAMES W. HOVEY, PAULA A. SNEED,DAVID M. STOUT, ELLEN C. WOLF,LEE M. THOMAS and JOHN C. VANRODEN, JR.,

Defendants.

IN RE AIRGAS INC. STOCKHOLDER LITIGATION

)))

)))))))))))

))))

C.A. No. 5249-CC

LITIGATORS EYES ONLY -

FILED UNDER SEAL

C.A. No. 5256-CC

PLAINTIFF AIR PRODUCTS POST-SUPPLEMENTAL HEARING BRIEF

OF COUNSEL:Thomas G. RaffertyDavid R. MarriottGary A. Bornstein

CRAVATH, SWAINE & MOORE LLPWorldwide Plaza825 Eighth Avenue

New York, NY 10019(212) 474-1000

MORRIS, NICHOLS, ARSHT & TUNNELL LLPKenneth J. Nachbar (#2067)Jon E. Abramczyk (#2432)

William M. Lafferty (#2755)John P. DiTomo (#4850)Eric S. Wilensky (#4774)Ryan D. Stottmann (#5237)Michael S. Sirkin (#5389)1201 N. Market StreetWilmington, Delaware 19801(302) 658-9200

Attorneys for Plaintiff Air Products and Chemicals, Inc.

February 2, 2011

REDACTED VERSIONDated: February 3, 2011


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i.

TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT 1

SUPPLEMENTAL FACTS 6

I. AIR PRODUCTS MAKES ITS BEST AND FINAL OFFER AT ASIGNIFICANT PREMIUM TO AIRGASS UNAFFECTED STOCK PRICE. 6

II. THE ALLEGED FINANCIAL INADEQUACY OF AIR PRODUCTS $70 OFFER IS THE ONLY FACTOR THE AIRGASBOARD CONSIDERED WHEN IT RECOMMENDED AGAINSTTHE OFFER. 8

ARGUMENT 11

I. DEFENDANTS HAVE THE BURDEN TO PROVE THEDEFENSIVE MEASURES ARE A PROPORTIONATE RESPONSETO A REASONABLY PERCEIVED THREAT. 11

II. DEFENDANTS STILL FAIL TO DEMONSTRATE THAT THEAIRGAS BOARD IDENTIFIED REASONABLE GROUNDS FOR BELIEVING THAT AIR PRODUCTS OFFER POSES ACOGNIZABLE THREAT. 12

A. There Is No Threat Of Substantive Coercion: Airgas StockholdersAre Well-Informed, Not Confused. 13

B. Air Products Offer Is Not Structurally Coercive. 18

C. Air Products Offer Poses No Threat Of Opportunity Loss. 22

D. At This Juncture, The Timing Of Air Products Offer Cannot Be AThreat. 24

E. Defendants Unreasonably Determined That Air Products $70Offer Is Inadequate. 25

1. The Objective Market Data Presented At The SupplementalHearing Belies The Airgas Boards Determination Of Financial Inadequacy. 25


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ii.

TABLE OF CONTENTS (Cont.)

Page

2. Defendants Estimation Of Airgass Value Continues ToBe Mathematically Tied To Growth In The OverallEconomy And Defendants Still Fail To Account For TheRisk That The Economy May Not Improve As TheyPredict. 26

F. Even If Defendants Could Show That They ReasonablyDetermined Air Products Offer To Be Inadequate, AnyConsideration-Based Threat Must Still Be Viewed As Non-Cognizable Or Extremely Mild. 31

III. THE EVIDENCE PRESENTED AT THE SUPPLEMENTALHEARING CONFIRMED THAT DEFENDANTS MAINTENANCEOF AIRGASS DEFENSIVE MEASURES IS ANUNREASONABLE RESPONSE TO AIR PRODUCTS OFFER. 32

A. Since Air Products Has Made Its Best And Final Offer, There CanBe No Argument That The Defensive Measures Are Needed ToMaintain Negotiating Leverage. 33

B. Air Products Cannot Realistically Remove Airgass Poison Pill ByCalling A Special Meeting. 34

C. If The Defensive Measures Are Maintained, Airgas Stockholders

Will Never Have A Say On Air Products Offer. 39CONCLUSION 42


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iii.

TABLE OF AUTHORITIES

Page

Cases

Blasius Indus, Inc. v. Atlas Corp. ,564 A.2d 651 (Del. Ch. 1988)....................................................................................................3

Chesapeake Corp. v. Shore ,771 A.2d 293 (Del. Ch. 2000).......................................................................................... Passim

eBay Domestic Holdings, Inc. v. Newmark ,2010 WL 3516473 (Del. Ch. Sept. 9, 2010)............................................................................11

Hollinger Intl, Inc. v. Black ,844 A.2d 1022 (Del. Ch. 2004)..................................................................................................4

In re Circon Corp. Sholders Litig. ,1998 WL 34350590 (Del. Ch. Mar. 11, 1998)...................................................................14, 20

Kahn v. Lynch Commcn Sys., Inc. ,669 A.2d 79 (Del. 1995) ..........................................................................................................21

Mentor Graphics Corp. v. Quickturn Design Sys., Inc. ,728 A.2d 25 (Del. Ch. 1998)....................................................................................................34

Mercier v. InterTel (Delaware), Inc.,929 A.2d 786 (Del. Ch. 2007)..................................................................................................21

Moran v. Household Intl, Inc. ,500 A.2d 1346 (Del. 1985) ..................................................................................................4, 40

Robert M. Bass Group, Inc. v. Evans ,552 A.2d 1227 (Del. Ch. 1988)................................................................................................21

Unitrin, Inc. v. Am. Gen. Corp. ,651 A.2d 1361 (Del. 1995) ..........................................................................................11, 12, 22

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

5 A.3d 586............................................................................................................................4, 40


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iv.

TABLE OF AUTHORITIES (Cont.)

Page

Other Authorities

17 C.F.R. 240.14D-9.....................................................................................................................4

17 C.F.R. 240.14D-11.................................................................................................................21

Wachtell, Lipton, Rosen & Katz, Flawed Academic Challenge to Constitutionality of Delawares Anti-Takeover Law (Sept. 29, 2009) ....................................................................11


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1.

PRELIMINARY STATEMENT

After a month of additional discovery, including further document production and

fifteen depositions, and three days of supplemental trial testimony, the issue in this case remains

crisp and clear: is the Airgas Boards continued reliance on the companys defensive measures

to block its sophisticated, well-informed stockholders from deciding on Air Products best and

final offer a reasonable response to a reasonably perceived threat? For the reasons set forth

below and in Air Products other post-trial briefs, the answer is resoundingly no. Defendants

have failed to meet their burden of showing that Air Products offer poses a legally cognizable

threat under Unocal warranting any defensive response, let alone the disproportionate response

they have brought to bear. Defendants position is stark and unprecedented: because the Airgas

Board has decided that executing managements business plan might ultimately produce greater

long-term value than Air Products $70 per share offer, Airgas stockholders should not be

permitted to decide on Air Products offer for themselves not now, not ever . This position is

unsupportable both factually and legally.

Factually, the evidence at the supplemental hearing made clear that Air Products

fully-financed, all-cash, all-shares offer, with a committed back end or even a subsequent

offering period, poses no legally cognizable threat to Airgass corporate policy or effectiveness.

Indeed, the evidence showed that no such threat was ever identified (let alone discussed) by the

Airgas Board, and that the Airgas Board never discussed (let alone determined) whether the

Airgas defensive measures were reasonable in relation to any such threat. Following the initial

trial, Defendants introduced a new theory: that Air Products offer is structurally coercive or

presents a so-called prisoners dilemma. But none of Defendants witnesses could articulate a

coherent explanation of this purported threat and eventually conceded that their structural

coercion theory boils down to the risk . . . that the informed minority, in theory, will be forced


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2.

to do something because of the bamboozled majority, or the majority who will act because their

interests time lines are different than that minority. Supp. Tr. 454 (Clancey). Defendants

inability to elucidate their structural coercion theory is unsurprising given that the Airgas Board

never discussed this issue, and that it is nothing more than a post hoc, litigation-inspired

rationale composed by Defendants advisors after the Airgas Board rejected Air Products $70

per share offer. See Chesapeake Corp. v. Shore , 771 A.2d 293, 332-33 (Del. Ch. 2000).

Defendants substantive coercion theory was belied by the evidence at the

supplemental hearing, which further confirmed that Airgass stockholders are sophisticated and

that they have all of the company-specific information necessary to decide whether to accept Air

Products offer. Defendants attempted at the supplemental hearing to distance themselves from

their prior testimony on this point by asserting that Airgas stockholders have all the information

that Airgas is legally required to disclose, but not other information uniquely within the

knowledge of the Board. This effort to change the record was unavailing. Airgass witnesses

ultimately acknowledged that the Airgas stockholders have more than adequate information

upon which to base their decision on Air Products offer. Supp. Tr. 453 (Clancey). As one

Airgas director put it: all the information that [the Airgas stockholders] could ever want is

available, including, among other things, the opinion of the Airgas Board and its advisors and

analysts reports with projections very close or almost identical to managements own internal

projections. Id .

van Roden Dep. 256. This testimony undercuts any claim that the Airgas

Board perceives or could reasonably perceive a threat of substantive coercion i.e. , the risk that,

after a year of public debate, the stockholders mistakenly will accept an underpriced tender offer.


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3.

In addition, the evidence at the supplemental hearing demonstrated that

, and (2) Airgass

financial inadequacy argument is built on a house of cards premised upon a discounted cash

flow analysis that is itself premised upon an economic recovery that may or may not play out as

Airgas management predicts and may or may not result in company growth. Management

projections which, not coincidentally, have climbed over the last year along with Air Products

offer price are driven by assumptions of a robust macroeconomic recovery that are more

bullish than those of analysts, independent third parties, and even Airgass own financial advisor.

Each Airgas witness agreed that it is impossible to guarantee such a recovery and that it is

impossible to predict what Airgas will be worth in six months or a year, much less five years

from now. Moreover, it is indisputable that the Defendants have no greater ability to predict

macroeconomic conditions than do Airgass stockholders.

Legally, Defendants extreme position does not withstand scrutiny. At base,

Defendants case is that the Airgas Board always knows better than the Airgas stockholders,

and that the Airgas Board can maintain its poison pill and other defenses forever . Each Airgas

witness testified that the decision whether to accept a tender offer is for the Board to make, not

the stockholders. See, e.g. , Supp. Tr. 260 (McCausland) ([I]ts not the shareholders decision to

make a determination whether an offer should be accepted or not. Its the boards job.)

This position is not

supported by Delaware law. As this Court observed in Blasius , [t]he theory of our corporation

law confers power upon the directors as agents of the shareholders; it does not create Platonic

masters. Blasius Indus, Inc. v. Atlas Corp. , 564 A.2d 651, 663 (Del. Ch. 1988).


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4.

The passage of time has dulled many to the incredibly powerful and novel device

that a so-called poison pill is. That device has no other purpose than to give the board issuing the

rights the leverage to prevent transactions it does not favor by diluting the buying proponents

interests. Hollinger Intl, Inc. v. Black , 844 A.2d 1022, 1083 (Del. Ch. 2004). Although the

Delaware Supreme Court in Moran sanctioned the use of a poison pill in order to prevent abusive

takeover tactics, it simultaneously held (and recently re-affirmed in Selectica ) that a targets

adoption or reliance on a poison pill is not absolute. Versata Enters., Inc. v. Selectica, Inc. , 5

A.3d 586, 607 (Del. 2010) (citing Moran v. Household Intl, Inc. , 500 A.2d 1346, 1354 (Del.

1985)). Rather, the poison pill was sanctioned in the takeover context to give a board breathing

room to communicate with stockholders and to develop alternatives to a tender offer; it permits

the board to ensure that stockholders do not tender in an uninformed way and that stockholders

are not required to make their choice hurriedly, without a full range of available options. The

pill does not permit a board to prevent stockholders from making that choice in perpetuity, as the

Airgas Board seems to believe. See Supp. Tr. 231, 258-60 (McCausland); Miller Dep. 161-67.

Indeed, why would federal law require a board to make a recommendation on a tender offer (17

C.F.R. 240.14D-9), if boards are permitted permanently to prevent stockholders from having

the ability to act on that recommendation? And why would Delaware cases repeatedly state that

a targets reliance on a poison pill is not absolute if a board could forever rely upon a

paternalistic, we know better defense?

Defendants position has morphed since the start of this year-long takeover drama

to accommodate their shifting strategies. On day one, Defendants asserted that Airgas was not

for sale. Then, when convenient to their delay (and litigation) strategy, they said Airgas needed

more time to demonstrate the companys performance coming out of an economic recession and

to inform the stockholders about various matters, including the companys new SAP


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5.

implementation plan. The company has achieved these goals. It has graphically communicated

to the stockholders the companys improving performance, s ee TX 1118 at slide 3, and published

a four-page, single-spaced press release disclosing and describing the perceived future benefits

associated with SAP. See TX 499.

Now,

Defendants are taking the extreme position that they never have to lift the companys defensive

measures to allow the stockholders to decide because the Board has deemed Air Products offer

financially inadequate. No court has ever sanctioned the use of a poison pill and other defensive

measures for such a purpose or permitted such defensive measures to be maintained for this long

well after any legitimate defensive purpose has been exhausted and a best and final offer is on

the table. Rather, when the legitimate purposes of defensive measures have been served, there

comes a time when the stockholders the owners of the company who are presented with a

non-coercive, premium offer must be permitted to decide for themselves whether to tender the

shares that they own.

That time is now. Airgass poison pill and other defensive measures have

fulfilled whatever legitimate purpose they once may have had. Now, they serve only to prevent a

fully informed, sophisticated stockholder base from exercising a value judgment and they foist

upon those stockholders all of the risk associated with Airgass bet on strong macroeconomic

growth that may or may not happen. Defendants continued blocking of Air Products best and

final offer is an improper imposition on stockholders rights and an unwarranted obstacle to the

efficient functioning of the capital markets. The time has come for the stockholders to have the

opportunity to decide whether to accept Air Products premium offer. The Court should rule that

Defendants have failed to meet their burden under Unocal and order that Airgass defensive

measures be rendered inapplicable to the proposed Air Products transaction.


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6.

SUPPLEMENTAL FACTS

I. AIR PRODUCTS MAKES ITS BEST AND FINAL OFFER AT ASIGNIFICANT PREMIUM TO AIRGASS UNAFFECTEDSTOCK PRICE.

On December 9, 2010, nearly fourteen months after Mr. McCausland first told

Mr. McGlade that Airgas was not for sale, Air Products made its best and final offer to acquire

all outstanding shares of Airgas stock for $70 per share in cash. Supp. Tr. 5 (Huck), 75 (Davis),

108 (McGlade). The offer represents a 61% premium to Airgass unaffected stock price as of

February 4, 2010, is backed by committed financing, and faces no regulatory impediments. Air

Products is also committed to cashing out all non-tendering stockholders as quick as the law

would allow, and if necessary is willing to extend a subsequent offering period for non-

tendering Airgas stockholders. Supp. Tr. 15 (Huck).

The evidence at the supplemental hearing confirmed that absent Air Products $70

offer, Airgass stock price would drop precipitously, such that a reasonable stockholder could

want $70 now, instead of bearing the risk that Airgass future value is (or is not) greater. Supp.

Tr. 293-94 (McCausland), 180-81 (Miller), 353-54 (DeNunzio); see also Miller Dep. 120.

Indeed, Airgass witnesses consistently testified that they would expect Airgass stock price to

drop if Air Products offer fails. Supp. Tr. 288 (McCausland discussing potential disruption in

our stock price . . . in the event that Air Products withdraws.), 397 (DeNunzio), 566-67

(Harkins); Tr. 704 (McCausland), 1235-36 (Hubbard).

Airgass trading prices since the October trial also demonstrate that, absent Air

Products offer, Airgass standalone value is substantially less than $60 per share. For example,

Airgas disclosed in late October 2010 that it was finally ready to meet, and purportedly to

negotiate, with Air Products representatives. TX 646. Airgass stock reacted positively to the

news and traded up to $71 per share an all-time high. See TX 1064 at 8. Thus, the prospect of


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7.

a deal with Air Products increased Airgass stock price to a level Airgas had not seen in its 24-

year existence as a public company. At the long awaited meeting, however, Airgass Chairman

stated that Airgas would not accept a penny less than $78 (Supp. Tr. 195 (McCausland)), and

talks between the parties stalled at the starting line. After Airgass November 4, 2010 statement

that no further meetings of the parties are scheduled, TX 652, Airgass stock began to decline.

By December 22, 2010, the day Defendants recommended Airgas stockholders reject Air

Products $70 offer, and a month after the Supreme Court foreclosed a January 2011 annual

meeting, Airgass stock traded down to $61 per share. That ten-dollar per share drop reflected a

loss of over $800 million for Airgass stockholders and occurred despite Air Products pending

$70 per share offer. Notably, the stock price dropped despite Airgass numerous public

disclosures advocating that its standalone value was greater than Air Products offer, including

Airgass financial results over four quarters since Air Products initial public offer, see TX 304,

TX 433, TX 645, TX 1086, and a detailed quantification of the anticipated benefits from SAP,

see TX 499.

See TX 1066 at 19.

1 Credit Suisse was engaged on December 13, 2010, eight days before the Airgas board met toconsider Air Products $70 offer. Supp. Tr. 320 (DeNunzio). If the Airgas Board believedCredit Suisse could absorb all of the insider information allegedly available to theomniscient Airgas Board but not Airgas stockholders within eight days, it begs the questionwhy the Airgas Board believes the highly sophisticated Airgas stockholders could not makevalue judgments after almost a year of public disclosures.

2

. See TX 1066 at


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8.

4

II. THE ALLEGED FINANCIAL INADEQUACY OF AIR PRODUCTS $70 OFFER IS THE ONLY FACTOR THEAIRGAS BOARD CONSIDERED WHEN IT RECOMMENDEDAGAINST THE OFFER.

On December 21, 2010, the Airgas Board rejected Air Products $70 offer on the

same and only ground it had rejected all of Air Products prior offers alleged financial

inadequacy. No other basis for recommending against the $70 offer was discussed at this

meeting the only Airgas Board meeting at which the $70 per share offer was considered. For

example, there was no discussion about whether Airgas stockholders were confused about the

companys value or whether they were obstructed from seeing any hidden value in Airgas. See

TX 659 (Airgass Dec. 22, 2010 14D-9); see also Supp. Tr. 441-42 (Clancey). Nor did the board

Id .

3

4


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9.

discuss whether Air Products $70 offer was coercive to Airgas stockholders. See, e.g. , Supp. Tr.

158 (Miller), 368 (DeNunzio), 438 (Clancey); see also Supp. Tr. 242 (McCausland testifying

that coercion was not discussed but was merely implicit). There was also no discussion about

whether arbitrageurs were subject to unique pressures and would be forced to tender even if they

thought Air Products $70 offer was inadequate. Supp. Tr. 370 (DeNunzio), 439-40 (Clancey).

And there was no discussion about whether the offer would somehow impose upon the

stockholders a prisoners dilemma. 5 Supp. Tr. 157 (Miller), 369 (DeNunzio), 438-39 (Clancey),

554-55 (Harkins). In addition, the directors never asked the Airgas financial advisors for advice

concerning subjects such as stockholder coercion or a prisoners dilemma, and the advisors did

not provide advice on any of those subjects. Supp. Tr. 368-69 (DeNunzio), 554-55 (Harkins);

Rensky Dep. 359. In fact, the advisors do not recall those subjects ever coming up at the

meeting. 6 Supp. Tr. 368-69 (DeNunzio); Rensky Dep. 357-58.

Furthermore, the directors never discussed whether the companys defensive

measures were reasonable in relation to threats allegedly posed (but, other than alleged financial

inadequacy, not considered at Airgas Board meetings) by Air Products $70 offer and whether

5 Mr. Clancey suggested that a single scant reference in the December 21 minutes that theCompany had to protect the pill (TX 1063 at 10) was made in the context of discussingstockholder coercion. See Supp. Tr. 420-21 (Clancey). But it is clear from the face of theminutes that the statement was not made in that context; it was made in reference to thealleged financial inadequacy of Air Products offer. TX 1063 at 10. Miller testified that hedid not know why Clancey made the stray comment about the pill, and that the board hasnot discussed whether it would be appropriate at any point to pull the pill since he joined theBoard. Supp. Tr. 151-52 (Miller). Furthermore, when Mr. Clancey was pressed on crossexamination, he conceded that the subject of coercion was not discussed at the meeting, Tr.437-38, a fact that is corroborated by each Airgas witness, all of whom testified that thesubject of coercion was not specifically discussed in any Airgas Board meeting, see, e.g. ,Supp. Tr. 158 (Miller), 242 (McCausland), 368 (DeNunzio), 438 (Clancey).

6 Mr. Harkins, Defendants putative trial expert, never provided advice to the Board on any of these subjects. Supp. Tr. 554-55 (Harkins).


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10.

those defenses should be maintained as a proportionate response to any threat posed.

Indeed, the companys 14D-9 proves that the alleged financial inadequacy of Air

Products offer was the Boards sole consideration. The 14D-9 disclosed fourteen matters the

Airgas Board considered in connection with its recommendation, TX 659 at 5-6, and not a single

Airgas witness could identify a basis that the Board considered in recommending against the

offer that was not included in the 14D-9. Supp. Tr. 434-36 (Clancey); Thomas Dep. 487;

McCausland Dep. Vol. IV 85. Each consideration merely underscored the Boards valuation

judgment that the $70 offer was clearly inadequate and that the value of Airgas in a sale, at this

time, is at least $78 per share. TX 659 at 3; see also TX 1063.


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to be a genuine concern by the Airgas Board; post hoc, litigation-inspired rationale[s] do not

suffice. Chesapeake , 771 A.2d at 333.

II. DEFENDANTS STILL FAIL TO DEMONSTRATE THAT THEAIRGAS BOARD IDENTIFIED REASONABLE GROUNDSFOR BELIEVING THAT AIR PRODUCTS OFFER POSES ACOGNIZABLE THREAT.

The first prong of Unocal requires the defendants to establish that the [Airgas]

board, after a reasonable investigation, . . . determined in good faith, that the [Air Products

tender offer] presented a threat that warranted a defensive response. Chesapeake , 771 A.2d at

330 (quoting Unitrin, Inc. , 651 A.2d at 1375). When the first trial in this matter concluded, it

was clear that the Airgas Board had identified only one threat allegedly posed by Air Products

offer: the threat that the offer price was too low. See Tr. 474 (Q. Mr. Thomas, you believe that

the only threat posed to the shareholders of Airgas by the Air Products tender offer is a low

price; correct? A. I do.); TX 499 (Airgas Aug. 2010 Press Release) (McCausland: In response

to Air Products offer to acquire Airgas, we have consistently stated that it is all about value . . .

.) (emphasis added); TX 435 (34-page investor presentation titled Its All About Value); TX

480 (63-page investor presentation titled Its All About Value.); TX 511 (70-page investor

presentation titled Its All About Value.). But in the wake of the October trial, Defendants

apparently grew uncomfortable with their stark position: that an allegedly inadequate offer

always justifies blocking a companys sophisticated and well-informed owners from tendering

their shares into a tender offer forever . What has followed in the months since, at least in the

litigation, has been an effort to conjure up additional threats posed by Air Products all-shares,

all-cash offer.

But these efforts fail. After a year of litigation, Defendants have still failed to

demonstrate that they reasonably concluded that Air Products offer constitutes a legally


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13.

cognizable threat. As explained below, the supplemental hearing only confirmed the evidence at

the October trial: Air Products offer does not threaten Airgas or its stockholders.

A. There Is No Threat Of Substantive Coercion: AirgasStockholders Are Well-Informed, Not Confused.

In October, Airgass representatives readily agreed that, after extensive public

disclosures and a heated proxy contest, Airgas stockholders had all the information they needed

to decide on Air Products offer. 8 That testimony included the following:

x Ill: Q: [O]ver the last year Airgas has given its shareholders theinformation necessary to make an informed judgment about Air Productsoffers; correct? A: Thats correct. (Tr. 271.)

x Thomas: Q: In your mind, do [Airgass stockholders] have every piece of information thats available thats necessary for a reasonable stockholder to decide whether to tender? A: I think they do. (Tr. 474.)

x McLaughlin: Q: Now, you would also agree with me that prior to therecent meeting of Airgas stockholders, stockholders have all theinformation they needed to make an informed decision about whether toaccept or reject Air Products offer; right? A: That is correct. (Tr. 841.)

x Molinini: Q: [Y]ou believe that the stockholders have all the informationthey would need to make a decision on anything they wanted to make a

decision on. Isnt that correct, sir? A: That is correct. (Tr. 889.)x McCausland: Q: You believe the stockholders have enough information

to decide whether to accept the 65.50 offer; right? A: Yes. Q: [Y]ou feelyou have met your duty in providing all the information necessary for theshareholders to make a decision; right? A: Yes. (Tr. 630-31.)

The Airgas witnesses could not have credibly claimed otherwise. Since Air

Products announced its offer, Airgas has provided its stockholders with well over 100

solicitations regarding the Air Products offer, including richly-detailed presentations setting forth

8 Defendants also acknowledged that Airgass stockholders are sophisticated (Tr. 273 (Ill)),very savvy (Tr. 888 (Molinini)) and capable of making a decision as to whether to acceptor reject Air Products offer for themselves (Tr. 573 (McCausland)). See Tr. 1103-04(Harkins). Defendants did not attempt to undo these admissions at the supplemental hearing.


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14.

Airgass current views of the companys value. See, e.g. , TX 1021 (16-page investor

presentation). In addition, Airgas used television appearances, analyst conferences and hundreds

of face-to-face stockholder meetings to make its case against Air Products offer. See, e.g. , Tr.

272-73 (Ill); 509-14 (Thomas); 556-57 (McCausland). Airgas has also had the opportunity to

demonstrate its performance: since the tender offer was announced, Airgas has issued four

quarterly earnings reports and their associated disclosures. See TX 304, TX 433, TX 645, TX

1086.

At the supplemental hearing, Defendants attempted to backtrack, arguing,

essentially, that a board always has more information about a company than its stockholders.

See Supp. Tr. 189-91 (McCausland). Any attempt by Airgas to use this new testimony as a basis

to assert that Airgass stockholders are anything less than fully informed should be rejected for at

least five reasons.

First, the uniform prior testimony of Airgass witnesses drains any such argument

of credibility. 9

Second, Defendants have put forth no evidence none at all that they discussed

or cited stockholder confusion or lack of information as a basis for rejecting Air Products tender

offers. Cf. TX 659 at 5-6 (Airgass Dec. 22, 2010 Schedule 14D-9). Thus, the Board having

made no determination on this subject, there is no determination for the Court to review for

reasonableness, and, as a matter of law, any potential for stockholder confusion is not relevant to

the Courts Unocal analysis. In re Circon Corp. Sholders Litig ., 1998 WL 34350590, at *1

9

And Mr. McCausland agreed with the Court that there is, bydefinition, no injury to those arbitrageur stockholders who tender their shares at $70. SeeSupp. Tr. 301-02 (McCausland).


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15.

(Del. Ch. Mar. 11, 1998) (What is relevant is what the defendants knew and considered at the

time they took action in response to Air Products tender offer, not information defendants did

not know and did not consider.) (Tab 1). 10

Third, contrary to Defendants new contention at the supplemental hearing, the

information publicized by Airgas over the past year has not been limited only to the legally

required disclosures. See Supp. Tr. 189-90 (McCausland) ([T]heres a big difference between

what youre required to disclose in a filing and actually that which you would want to disclose in

a filing). Airgas has far, far exceeded SEC requirements. The SEC does not require, for

example, that Airgas produce richly detailed presentations on its view of the value of the

company or to hold quarterly conference calls where it discusses its performance. See, e.g., TX

435, TX 480, TX 511. The SEC does not require Airgas to maintain a large and professional

investor relations department whose sole charge is to relay managements view of the value of

the company to stockholders. The SEC did not require Mr. McCausland to host 300 meetings

with stockholders over the past year. Supp. Tr. 200-01 (McCausland). The SEC did not require

Mr. McCausland to appear on radio, television and print to advocate against Air Products offer.

Supp. Tr. 253 (McCausland) (Q. Youve said that [the $70 offer is inadequate] hundreds, if not

thousands of times. Youve said it in print. Youve said it on radio, on television. Is there any

place you havent said it, sir? A. I cant think of any.). The SEC does not require Airgas to

release forward-looking earnings guidance, as well as analyses of its successes and failures in

hitting prior guidance. The SEC does not require Airgas to communicate with and cater to the

10 Having not even considered the issue, it follows that the Board performed no factualinvestigation to determine whether any Airgas stockholders or analysts, in fact, lacked anymaterial information. See Chesapeake , 771 A.2d at 332 (discounting defendant boardsidentification of a stockholder confusion threat because the board failed to undertake anysort of informal survey of its largest stockholders or the analyst community to see if theywere befuddled by the [bidders] Tender Offer.).


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large community of brokerage house analysts that cover Airgas, including through full-day

meetings with analysts in which the company covers all major aspects of Airgass business. See

TX 109; McCausland Dep. Vol. III 150-53; Supp. Tr. 206 (McCausland). Nor does the SEC

require that Airgas enlist a roster of external advisors, including teams from Joele Frank,

Innisfree M&A, Goldman Sachs, and Bank of America/Merrill Lynch to further communicate

with its stockholders. See, e.g. , Tr. 136 (Huck). Airgass stockholders clearly have sufficient

information.

Fourth, even at the supplemental hearing, Defendants own witnesses failed to

identify any particular information lacked by Airgas stockholders. Indeed, when prompted with

precisely this question, Defendants witnesses replied that stockholders are sufficiently well-

informed to make up their own minds regarding the offer:

x DeNunzio: THE COURT: In your opinion, personally, what would youtell me a shareholder at Airgas needs to know more than they do knowabout making an informed judgment about accepting an offer at 70 or some other price? THE WITNESS: [Pause.] Well, I think you have toconclude that this shareholder base is quite well-informed. (Supp. Tr.396.)

x Miller: Q. Do you have any facts about Airgass business strategy or Air Products offer that would make Airgass stockholders incapable of

properly making an economic judgment about the tender offer? A. I haveno facts. (Supp. Tr. 154-55.)

x

x Clancey: THE COURT: What information would you recommend that thestockholders have that they dont already have? THE WITNESS: Youknow, we live in a day of information overload . . . but they have -- all theinformation that they could ever want is available.

. . .


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THE COURT: So its a pretty rich information base [available to Airgasstockholders]. Im just asking if you agree or disagree with me. THEWITNESS: It is. More than adequate. (Supp. Tr. 452-54.)

The testimony of Mr. McCausland was more equivocal on this point, but in substance it was the

same. When pressed to identify any hidden value within Airgas, Mr. McCausland could only

specify Airgass implementation of SAP software. Supp. Tr. 30709 (McCausland). But the

evidence showed that, while Airgas believes that SAP will become a valuable contributor to

Airgass performance, the impact Airgas believes will be achieved is not hidden at all. 11

Elsewhere, Defendants also noted that stockholders did not have access to every detail in

managements five-year plan. See, e.g. , Supp. Tr. 190 (McCausland). But Airgass

representatives admitted that the material information from Airgass plan has been released

publicly through, for example, SEC filings. See. Supp. Tr. 189-90 (McCausland). In fact, many

analysts (who have been briefed extensively by the company in numerous meetings) have issued

reports containing analyses and projections that very closely track managements five-year plan.

11 The October testimony of Michael Molinini (the guy [at Airgas] who is going to operate andlive with SAP, Tr. 872) and the August 31, 2010 memorandum/press release on AirgassSAP implementation prepared by Mr. Molininis team (TX 499) prove this point. Together,these can only be described as a thorough walk-through of both the qualitative andquantitative benefits Airgas hopes to achieve from SAP and why. The August 31memorandum, which spans four single-spaced pages, is particularly noteworthy. TX 499.The press release was part of an effort by Mr. McCausland to push Mr. Molinini and histeam to quantify the benefits of SAP prior to the September 2010 meeting at which Mr.McCausland was up for reelection to the Airgas Board. Tr. 906 (Molinini) (Q. So he was

pushing you along to get this done to get the benefits quantified so you could get it out to the public in advance of the meeting in September. Isnt that right? A. Yes.). And the pressrelease successfully did just that. Tr. 889 (Molinini) (Q. And this press release includes aquantification of the economic benefits expected to be achieved in the key areas of salesgrowth, price management, and administrative and operating efficiencies as a result of theimplementation of SAP. Correct? A. Yes.). Indeed, after the press release was issued, Mr.Molinini testified that Airgass stockholders had all the information they would need tomake a decision on anything they wanted to make a decision on. Tr. 889 (Molinini).Based on this record, the future implementation of SAP software cannot reasonably beviewed as an Airgas asset that is hidden from Airgass stockholders.


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See Supp. Tr. 395-96 (DeNunzio) (THE COURT: You mentioned earlier . . . how remarkably

close analysts EPS projections were to managements. THE WITNESS: Thats right. THE

COURT: . . . So that informations available to the world, isnt it? Analysts reports are available

publicly? THE WITNESS: Thats right.).

Fifth, Defendants position essentially amounts to the contention that a Board

always has more access to information about the corporation than its stockholders. 12 This is

simply a new variation on Defendants theme: that the Board always knows whats best, and

that its decisions should not be second-guessed. Under this theory, no Court could ever order a

target to redeem its poison pill. This is not a sensible interpretation of Unocal . See Chesapeake ,

771 A.2d at 308 (rejecting substantive coercion argument when [t]he most the [defendant]

directors are able to credibly say is that stockholders will never understand the relevant

information as deeply as the directors do . . . .). 13

B. Air Products Offer Is Not Structurally Coercive.

Air Products offer an all-cash, all-shares offer, with a commitment to

consummate a second-step transaction at the same price as soon as practicable presents no

12 The notion that the Airgas stockholders cannot, after a year of digesting detailed publicdisclosures regarding the value of Airgas, make a fully informed judgment on Air Productsoffer is belied by the speed with which the individuals elected to the Airgas Board inSeptember 2010 began making value judgments.

The speed with which the newdirectors joined the incumbents in rejecting Air Products offer give[s] even more reason to

believe that the Airgas shareholders will not mistakenly tender into a grossly inadequateoffer. 12/2/10 Letter Order at 2, n.2. See supra , n. 1.

13 In addition, as noted below in Section II.E, the evidence shows that reasonable stockholderscould find Air Products $70 offer to be fair value for the company in a sale.


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prisoners dilemma and is not a coercive tender offer under Delaware law. See Air Products

Dec. 21, 2010 Ltr. 8-11; Air Products Post-Trial Reply Br. 30-33; TX 1085 (Morrow Report) at

3-6. This was only reaffirmed by the evidence at the supplemental hearing, which further

showed that (1) the prisoners dilemma is a post hoc, litigation-inspired rationale and (2) Air

Products is committed, if its tender offer prevails, to provide $70 in cash for each remaining

Airgas share as quickly as possible.

The record before the Court clearly establishes that the alleged threat of a

prisoners dilemma was conceived by counsel after the fact and is not a real threat identified as a

genuine concern by the Airgas Board. Chesapeake , 771 A.2d at 333. In fact, Defendants

witnesses never mentioned a prisoners dilemma or structural coercion at the first trial; the theory

first appeared in Defendants Post-Trial Brief. Additionally, the evidence introduced at the

supplemental hearing including the Schedule 14D-9 filed by Airgas, the minutes of Airgass

Board meetings, and the testimony of Airgass witnesses all confirmed that coercion or a

prisoners dilemma was never identified or deemed a threat by Airgass Board when rejecting

Air Products offers, including the current $70 per share offer. For example, at the supplemental

hearing, Airgass witnesses gave the following testimony:

x DeNunzio: Q. No discussion at [Airgass December 21 Board] meetingwhether Airgas stockholders would be coerced into tendering if theythought the price was inadequate, was there? A. Not that I recall.

Q. No discussion at [Airgass December 21] board meeting aboutstockholders being subject to a prisoners dilemma, was there? A. Notthat I recall. (Supp. Tr. 368-69.)

x Clancey: Q. But you never said and nobody else ever actually saidanything about shareholders being coerced. Correct? A. Correct.

Q. And neither you nor any of your fellow board members said anythingabout a so-called prisoners dilemma. Is that correct? A. That is correct.(Supp. Tr. 438.)


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x Miller: Q. Do you recall any discussion at any time with anyone aboutwhether Air Products shareholders are being subject to pressures or coercion that would force them somehow to tender the $70 share offer.A. I dont recall that specifically.

Q. Did you generally discuss that topic with someone? A. No.

Q. Did you recall that subject being discussed at any board meeting?A. No. (Supp. Tr. 158.)

Indeed, Mr. Miller testified that the only time he had ever discussed a prisoners dilemma in

connection with Air Products offer was with litigation counsel while preparing for his

testimony. Supp. Tr. 157-58; see also Supp. Tr. 439 (Clancey) (Q. [P]rior to your deposition,

you had never heard the concept of a prisoners dilemma used in the context of the Air Products

offer. Is that correct? A. That is correct.).

This record cannot support Defendants burden of demonstrating that they made

an informed judgment that the Airgas stockholders would be coerced into accepting an

inadequate offer as a result of the structure of the offer. For example, no evidence was

considered by the Airgas Board that might show that Air Products was unwilling or unable to

consummate a second-step merger at $70 per share as soon as possible. And no evidence was

presented that even a single stockholder of Airgas feels that, if the pill were to be pulled, it would

be coerced into tendering its shares despite believing that $70 per share was inadequate. Cf.

Supp. Tr. 13 (Huck) (Q. Have any Airgas stockholders ever complained to you that Air

Products offer is coercive in any way? A. They have not.). As such, Defendants

identification of this threat for litigation purposes is irrelevant to the issues before the Court.

See In re Circon Corp. Sholders Litig ., 1998 WL 34350590, at *1 (Del. Ch. Mar. 11, 1998); see

also Chesapeake , 771 A.2d at 333.

But even if the Airgas Board had considered the so-called prisoners dilemma and

deemed it a threat to Airgass corporate policy and effectiveness, that decision would have been


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unreasonable based on the record in this case. Even if one ignored appraisal rights and potential

entire fairness implications, there is no credible evidence to suggest that a single Airgas

stockholders tendering decision will be coerced by fear that the second step would not be

promptly consummated at $70 per share the same price received by those initially tendering.

See, e.g. , Kahn v. Lynch Commcn Sys., Inc. , 669 A.2d 79, 86 (Del. 1995) (In this case, no

shareholder was treated differently in the transaction from any other shareholder, nor subjected

to a two-tiered or squeeze-out treatment. [The bidder] offered cash for all the minority shares

and paid cash for all shares tendered. Clearly there was no coercion exerted which was material

to this aspect of the transaction . . . .) (internal citation omitted). To the contrary, Air Products

has now committed in court to (1) promptly pay $70 in cash for each and every share of Airgas

that is acquired; (2) do so as quickly as the law and/or the Airgas Board will allow; and (3)

include a subsequent offering period 14 for Airgas stockholders if they request it or the Court

makes it a condition to disarming Airgass takeover defenses. See e.g. Supp. Tr. 15-16 (Huck). 15

14 The effect of a subsequent offering period is to give a non-tendering stockholder a secondchance to tender into the offer immediately after the offer initially expires, and promptly toreceive the same consideration that is received by stockholders who tender into during theinitial offering period. See TX 1085 (Morrow Report) at 5-6; 17 C.F.R. 240.14D-11.Defendants fail coherently to explain how any coercion could exist if Air Products were toinclude a subsequent offering period. While Mr. Harkins opined that a delay of even one daywould be costly for stockholders, Supp. Tr. 569, such costs are obviously de minimis , andDefendants fail to appreciate the irony that this argument presents given their blocking Air Products offer for a year.

15 Contrary to Defendants arguments, a cognizable threat under Unocal cannot exist solely because a portion of Airgas stockholders may have investment horizons shorter than other

Airgas stockholders. First, shorter-term holders now are in the stock precisely becauselonger-term stockholders sold. See TX 1085 (Morrow Rep.) at 6-8; Supp. Tr. 747-48(Morrow). Merger arbitrageurs provide liquidity in almost every hostile takeover when ahigh premium is offered. Supp. Tr. 747-48 (Morrow). This inevitable occurrence is no basisfor allowing a company to use its pill to block a tender offer forever. Mercier v. InterTel (Delaware), Inc., 929 A.2d 786, 815 (Del. Ch. 2007) ([T]he bad arbs and hedge funds who

bought in, had obviously bought their shares from folks who were glad to take the profits thatcame with market prices generated by the Merger and Vector Capitals hint of a higher price.


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C. Air Products Offer Poses No Threat Of Opportunity Loss.

The October trial established that Air Products offer has ceased to pose any

threat of opportunity loss the threat that stockholders may tender into the offer before their

board has had sufficient time to consider it and present strategic alternatives for their

consideration. See Unitrin , 651 A.2d at 1384 (defining opportunity loss as the threat that a

hostile offer might deprive target stockholders of the opportunity to select a superior alternative

offered by target management or . . . another bidder) (internal citation omitted). Specifically,

the evidence established that Airgas fully explored its strategic alternatives going forward, Tr.

291 (Ill), such as selling the company to another bidder or undertaking a recapitalization

transaction, and decided that it needed no further time to do so. Indeed, in the course of

preventing inquiry into the lack of alternative bidders, defense counsel affirmatively represented

to the Court that were not asserting that we need more time to explore a specific alternative.

Tr. 315.

Those folks, one can surmise, had satisfied whatever long-term objective they had for their investment in Inter-Tel.); see also Robert M. Bass Group, Inc. v. Evans , 552 A.2d 1227,1240 (Del. Ch. 1988). Second, Defendants entire argument that shorter- and longer-termholders are pitted against each other is based on a series of unsupported assumptions notfact regarding the behavior of hedge funds and merger arbitrageurs, includingunsubstantiated speculation that the arbitrageurs are highly leveraged. See Supp. Tr. 222(McCausland does not know in fact if any Airgas shareholder[s] are leveraged); see alsoTX 1085 (Morrow Report) at 7-8; Supp. Tr. 555-56 (Harkins). Yet, Defendants have

provided no evidence that any particular Airgas stockholder is so focused on the short-termthat they would take a smaller harvest in the swelter of August over a larger one in IndianSummer. Mercier , 929 A.2d at 815. In fact, even Defendants own expert acknowledgedthat a significant percentage of the arbitrageurs and hedge funds voted against Air Products

proposals at the 2010 annual meeting. There is no evidence in the record that these holderswould not similarly reject the $70 offer if it was viewed by them to be inadequate. See TX638A at 2. In short Defendants have not demonstrated a single fact supporting their argument that a threat to Airgas stockholders exists because the Airgas stock is held byinvestors with varying time horizons.


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At the supplemental hearing, however, Airgas witnesses repeatedly insinuated

that other industrial gas companies, having chosen not to bid on the company at any point over

the past year, were unwilling to outbid Air Products for only temporary reasons, ranging from a

reluctan[ce] to bid in a public fish bowl, Supp. Tr. 331 (DeNunzio), to sovereign debt

problems, Supp. Tr. 305 (McCausland). But that is speculation.

. See Tr. 316

(Ill). To the contrary, all three potential alternative suitors of Airgas in the industrial gas industry

have affirmatively disavowed any interest in acquiring Airgas. These potential bidders have

done so not because they fear public fish bowls or European sovereign debt problems, but

because they concluded that Airgas will grow at a rate they find unattractive. See, e.g. , TX 525

at slide 9 (showing Praxairs CFO stating that Praxair do[es]nt see much growth in U.S.

packaged gases and Air Liquides CEO stating that Airgas is an American operation. Our

strategy is growth. We see growth in emerging markets and thats where we will invest our

resources.).

It also emerged at the supplemental hearing that Mr. McCausland has again

pursued a management-led leveraged buyout of Airgas. Despite the fact that interest rates are

currently at historic lows, Mr. McCausland conceded that his attempts to find a private equity

firm to outbid Air Products allegedly low $70 offer had proven to be kind of a stretch. Supp.

Tr. 306. Indeed, when Mr. McCausland approached Bain and Clayton Dubilier, neither of those

firms . . . expressed enthusiasm about an LBO at prices of $70 or higher. Supp. Tr. 378

(DeNunzio). And Airgass bankers advised the Board that they did not believe that an LBO

could be accomplished at a price higher than Air Products $70 offer. Supp. Tr. 377 (DeNunzio)


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(Q. You certainly didnt think an LBO could be financed at prices higher than $70 per share;

right? A. Thats correct.).

The fact that Defendants have delayed a potential transaction with Air Products

for more than a year while they explored and failed to find any more attractive alternative

precludes any argument that the Air Products offer poses a risk of opportunity loss.

D. At This Juncture, The Timing Of Air Products Offer Cannot Be A Threat.

There has never been any merit to Airgass allegation that the timing of Air

Products offer constituted a threat because it was made at a time when Airgass earnings were

at the trough of a recession. See Air Prods. Post-Trial Reply Br. 29-30. As Air Products has

argued previously, Defendants claim that the timing of Air Products offer poses a threat is

simply another variation of their argument that Air Products offer is financially inadequate. See

id. The evidence at the supplemental hearing further undermined this argument. According to

Airgass witnesses, Airgass business is currently performing strongly. Supp. Tr. 184

(McCausland) (Q. Hows business? A. Very good.) In fact, Mr. McCausland testified that

Airgas is now hitting higher profit margins than ever and has increased its earnings guidance.

Supp. Tr. 185 (McCausland). Following the Courts December 2 letter requesting additional

information from the parties, various brokerage houses that cover Airgas put out a rash of off-

cycle analysts reports (Supp. Tr. 147 (McGlade)) that included price targets reflecting the

views of Airgass management. See Supp. Tr. 206 (McCausland) (Q. You talked to some of the

analysts who published in the last month or so, is that right? A. I talk to the analysts all the

time.). Those analyst reports are of course available for Airgas stockholders to review and

consider. Airgas stockholders have had more than adequate time to see and absorb information

about Airgass performance in the current economic environment, as it has evolved since the

announcement of Air Products offer.


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E. Defendants Unreasonably Determined That Air Products$70 Offer Is Inadequate.

As with Air Products previous offers, Defendants assert that the $70 offer

constitutes a threat because, by executing its five-year plan, Airgas may create more value for its

stockholders in the future than Air Products offer represents today. But it is unreasonable to

perceive Air Products $70 offer as a threat.

Second, Defendants assessment of Airgass value is mathematically tied to,

and wholly dependent on, robust growth in the overall economy, and Defendants did not

reasonably account for the very real prospect that the economy may not perform as well as they

predict. A reasonable stockholder could disagree with the Boards optimistic macroeconomic

forecasts indeed, market consensus forecasts are below the forecasts on which Airgass five-

year plan is predicated. In these circumstances, there is no price-based threat.

1. The Objective Market Data Presented At The

Supplemental Hearing Belies The Airgas BoardsDetermination Of Financial Inadequacy.

At the December 21, 2010 Airgas Board meeting, Credit Suisse presented three

analyses: a selected public companies analysis, a selected transactions analysis and a discounted

cash flow analysis. The Airgas Boards determination of inadequacy was based on those three

analyses. TX 659, at 6; TX 1063 at 7-9.


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Despite Defendants refusal to call any witness from either Goldman Sachs or

BAML to testify at the supplement hearing, the banks did present five analyses to the Airgas

Board on December 21, 2010:

Id.

2. Defendants Estimation Of Airgass ValueContinues To Be Mathematically Tied To Growth

In The Overall Economy And Defendants Still FailTo Account For The Risk That The Economy May

Not Improve As They Predict.

TX 1066 at

24. But Credit Suisses DCF was not based on objective, ascertainable data. Rather, it was

based on managements projections, which assume robust, continuous growth over all five years

of the plan and which may or may not be realistic.


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More specifically, it remains undisputed that (1) projected same-store-sales growth is the

foundation of Airgass five-year plan (McLaughlin Dep. 343; Tr. 733 (McLaughlin)); (2) same-

store-sales growth projections are mathematically tied to five non-Airgas-specific

macroeconomic factors by an arithmetic algorithm (Supp. Tr. 361 (DeNunzio)); and (3) three of

those five macroeconomic factors (private nonresidential construction, fabricated new metals,

new orders, and the ISM index) are the principal drivers of Airgass same-store-sales growth

projections (Supp. Tr. 280 (McCausland)). As for those key drivers, Airgas management

estimates

Id .

Rather they are bullish assumptions that mathematically determine Airgass projected

same-store-sales growth. Supp. Tr. 361 (DeNunzio). And projected same-store-sales in turn

drive EBITDA projections. If Airgass estimates are too optimistic by just a small amount,

Airgas stockholders stand to lose a lot of money.


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28.

16

TX 1064 at 29.


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The economic reality does not support managements bullishness. Despite

positive macroeconomic performance generally since the October trial, at his January 22, 2011

deposition, CFO McLaughlin testified that management had still

.18

17 Defendants declined to call Mr. McLaughlin to testify at the supplemental hearing.

18 See TX 639 (Fischel Report), at 17

upp.Tr. 237 (McCausland testifying that plan assumes modest economic growth);


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1063 at 8. Given Airgass forecasting track record, a reasonable stockholder may not want to

take that bet.

Furthermore, while Airgass Board relied on the bankers analyses (and

principally the DCF analyses) to conclude that the Air Products offer is inadequate, Airgass

own bankers agreed that if the projections that went into the DCF analysis are overly optimistic,

the DCF analysis will result in inflated valuations. Supp. Tr. 361 (DeNunzio). However, the

bankers never tested managements assumptions and relied wholly on managements projections.

Supp. Tr. 363-64, 391-92 (DeNunzio); Rensky Dep. 320. The bankers did not test the

macroeconomic assumptions underlying the plan. Supp. Tr. 361-62 (DeNunzio). They did not

run any analysis on less optimistic assumptions. Supp. Tr. 375-76 (DeNunzio). 19

19

; see alsoSupp. Tr. 372 (DeNunzio). Indeed, Mr. DeNunzio confirmed this when he testified thatCredit Suisse was not asked to perform, and did not perform, a downside case analysis. SeeSupp. Tr. 371 (Q: Theres no discussion about the sensitivity of the projections tomacroeconomic factors, was there? A: No, not specifically.); id . at 375 (impeachingwitnesses with prior inconsistent testimony); see also


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. And one thing is undisputed by both Air Products and

Airgas -- reasonable minds can differ as to the view of future value. Supp. Tr. 31 (Huck), 82

(Davis), 121 (McGlade); 293-94 (McCausland), 353-54 (DeNunzio), 180-81 (Miller).

* * *

In sum, the evidence shows that if there is any value-based threat from Air

Products $70 offer, it is that Airgass bet will turn out to be wrong and its stockholders will be

robbed of the opportunity to accept the immediate value they stand to gain through a transaction

with Air Products. For these reasons, as well as those set forth in Air Products prior briefs,

Defendants have failed to demonstrate that the alleged financial inadequacy of Air Products

offer constitutes a threat that warrants a defensive response.

F. Even If Defendants Could Show That They ReasonablyDetermined Air Products Offer To Be Inadequate, AnyConsideration-Based Threat Must Still Be Viewed As Non-Cognizable Or Extremely Mild.

As explained above, Defendants primary (as a matter of litigation strategy) and

sole (as a matter of fact) basis for rejecting Air Products offer the offers alleged financial

inadequacy remains unfounded. But, in any event, and as discussed at length in Air Products

prior briefs, financial inadequacy does not constitute a threat once a board has had sufficient time

to explore alternatives and to communicate its view on valuation to sophisticated and well-

informed stockholders. See Air Prods. Post-Trial Br. 27-43; Air Prods. Post-Trial Reply Br. 23-

27; Air Prods. Supp. Br. 4-7. If Airgass stockholders, who are the companys true owners,

make the fully informed decision to sell the company, that cannot constitute a threat to Airgas.

No evidence introduced by Airgas at the supplemental hearing altered that analysis.


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III. THE EVIDENCE PRESENTED AT THE SUPPLEMENTALHEARING CONFIRMED THAT DEFENDANTSMAINTENANCE OF AIRGASS DEFENSIVE MEASURES ISAN UNREASONABLE RESPONSE TO AIR PRODUCTSOFFER.

Under Delaware law, Defendants bear the burden of proving that their use of the

Defensive Measures is proportionate to any legitimately identified threat posed by Air Products

offer. Prior to the supplemental hearing, it was clear that Defendants had not met this burden.

As Air Products argued more fully in its previous briefs, and as further explained above, there is

no threat here to Airgass corporate policy and effectiveness. The only threat even

conceivably posed by Air Products offer is that Airgass sophisticated and fully informed

stockholders might disagree with the Boards conclusions on value. Defendants argument that

they can respond to such an alleged threat by using the Defensive Measures to block Air

Products offer in perpetuity is unsupportable. Defendants position amounts to an assertion that

a board can always use a poison pill and its other defensive measures to block any tender offer

on a permanent basis, as long as the Board purports to conclude that the offer is financially

inadequate. Such a position would gut Unocal and effectively render it indistinguishable from

the business judgment rule.

The additional evidence adduced at the supplemental hearing reinforces these

conclusions. Most importantly, the chief proportionality argument in Defendants Post-Trial

Brief that Defendants need the Defensive Measures to maintain negotiating leverage is now a

dead letter. Air Products has made its best and final offer, and no other bidder has emerged, so

there is nothing more to negotiate. Further, Defendants admitted that their assertion that Air

Products can circumvent the pill and other defensive measures by calling a special meeting is not

a viable path to a transaction. In Defendants view, even a newly elected Board would have the

obligation to continue to maintain the Defensive Measures to prevent stockholders from having


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the opportunity to tender into Air Products offer. Supp. Tr. 226-27 (McCausland). The

evidence at the supplemental hearing also showed that victory at such a special meeting is not

realistically attainable. In any event, the viability of a special meeting would only show that the

defensive measures were not preclusive but would not address the reasonableness of Defendants

response to the offer. The evidence at the supplemental hearing confirms that the Boards

decision to refuse to render the Defensive Measures inapplicable to the proposed transaction is

unreasonable.

A. Since Air Products Has Made Its Best And Final Offer,There Can Be No Argument That The Defensive MeasuresAre Needed To Maintain Negotiating Leverage.

In their Post-Trial Brief, Defendants offered one main explanation for why their

refusal to render the Defensive Measures inapplicable to the proposed transaction was a

proportionate response to Air Products offer: that the Defensive Measures would give the

Board leverage to extract a greater price from Air Products. Defs. Post-Trial Br. 102-04. That

argument carries no weight now. As all three of Air Products witnesses have testified, Air

Products has made its best and final offer. Supp. Tr. 5-6 (Huck), Supp. Tr. 75-76 (Davis), Supp.

Tr. 108-09 (McGlade). Further, Air Products has announced to the world that its offer will not

be further increased. See TX 657; TX 1075. At this late stage in the game, whatever usefulness

the pill might have had as a bargaining tool is now gone. Air Products has made its last offer; it

is time for stockholders to have the opportunity to decide whether to accept it.

At the supplemental hearing, Defendants contended that they did not believe Air

Products had really reached the maximum price it was willing to pay. For example, some

witnesses stated that they thought Air Products might raise its offer on the grounds that other

bidders have sometimes done so after making a best and final offer. Supp. Tr. 418 (Clancey)

(Im not bashful about best and final. We do 90 percent of our business on contracts. We play


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best and final.). Others argued that Air Products could raise its offer because they believed that

the transaction would still be accretive to Air Products at a higher price. See Supp. Tr. 219-20

(McCausland). These other considerations are irrelevant. Air Products has always said that it

would be disciplined on price, Supp. Tr. 127 (McGlade), and the evidence shows that Air

Products management has concluded that $70 is the highest price it can justify paying to acquire

Airgas, in light of competing business considerations. See Supp. Tr. 9 (Huck), 109-10

(McGlade). After performing that analysis, Air Products management recommended to the Air

Products Board that it authorize a $70 best and final offer, and after robust discussion the Air

Products Board unanimously endorsed that recommendation. Supp. Tr. 7-9 (Huck), 108-10

(McGlade). Defendants argument that Air Products $70 offer might be further increased finds

no support in the record.

B. Air Products Cannot Realistically Remove Airgass PoisonPill By Calling A Special Meeting.

The evidence at the supplemental hearing confirmed that Air Products cannot

realistically expect to win a special meeting election to remove the Board. The evidence also

showed that this issue is something of a side-show. It is Defendants view that victory at a

special meeting would have no effect on the Defensive Measures because the newly elected

Board would be obligated to keep them in place. Supp. Tr. 226-27 (McCausland). Thus, the

only purported option that Defendants contend the stockholders have to make their views felt

is no option at all. The evidence at the supplemental hearing shows that Defendants claim for

themselves the right to block stockholders from deciding whether to accept Air Products offer

forever. Further, even if victory were realistically attainable, that would only prove that the

Defensive Measures are not preclusive and would not address the reasonableness portion of the

Unocal analysis. See Mentor Graphics Corp. v. Quickturn Design Sys., Inc. , 728 A.2d 25, 47-52

(Del. Ch. 1998) (finding delayed redemption pill to be non-preclusive but enjoining it as


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unreasonable), affd on other grounds , sub nom. Quickturn Design Sys., Inc. v. Shapiro , 721

A.2d 1281 (Del. 1998); cf. Chesapeake Corp. v. Shore , 771 A.2d 293 (Del. Ch. 2000) (enjoining

a bylaw that did not prevent bidder from replacing board by winning two director elections).

In any event, Defendants have failed to prove that Air Products could realistically

attain victory at a special meeting election. Under Airgass bylaws, stockholders must win the

votes of 67% of the outstanding shares to remove directors without cause. See TX 295 at 6.

Airgass officers and directors own roughly 11% of Airgass stock, TX 1051A at 8, and based on

the quorum at the September 2010 annual meeting, roughly 12% of the stock can be expected not

to vote, TX 565A. Thus, taking into account Air Products roughly 2% ownership, TX 1051A

at 8, Air Products would have a pool of only approximately 75% of the shares from which to win

the additional 65% needed to reach the 67% threshold. Put differently, it is undisputed that Air

Products would need to win approximately 86% of the votes from participating, unaffiliated

shares. See TX 1085 (Morrow Report) at 2-3; Supp. Tr. 523 (Harkins). 20 In his 46 years in the

proxy solicitation business, Mr. Morrow cannot recall this ever occurring. Supp. Tr. 759; see

also Chesapeake , 771 A.2d at 341-44 (winning 88% of participating, unaffiliated shares not

realistically attainable). Mr. Harkins brought his 25 years of experience to trial and noticeably

did not offer a single counterexample. And neither Mr. Morrow nor Mr. Harkins can remember

any instances of a bidder winning a contested control election where a two-thirds supermajority

requirement applied. See Supp. Tr. 535-36 (Harkins); Supp. Tr. 759 (Morrow). Certainly,

Defendants have failed to identify any such instance.

20 Mr. Harkins estimates that turnout would be 89.8%, Supp. Tr. 465, but this does notmaterially change the analysis. Even under this assumption, Air Products would have to win84.7% of the participating, unaffiliated shares to prevail.


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Mr. Harkins nonetheless predicts that the 67% threshold is realistically attainable,

but the record demonstrates at least five additional reasons why Mr. Harkinss predictions should

be given no weight. First, Mr. Harkinss predictions are based on a circuitous and undefined

formulation that Air Products could realistically obtain the votes of 67% of the outstanding

shares so long as Air Products makes a sufficiently appealing offer, which Harkins defines as

[a]n offer that that will garner 67 percent of the vote. Supp. Tr. 508. A prediction based on

such circular logic is devoid of any useful meaning. It is hard to see how Defendants position is

helped in any way if, for example, Air Products could replace a majority of the Board if it

offered $1,000 per share. Without any analysis of whether the price at which the Board can be

replaced is realistically possible (for example, whether any bidder could obtain financing to

make such an offer or whether any bidder realistically would make such an offer), Mr. Harkinss

opinion regarding the realistic attainability of a 67% vote cannot assist the Court. 21

Second, Mr. Harkins based his predictions on his assumptions regarding the

likely turnout and likely voting behavior of various categories of stockholders. Supp. Tr.

482. The record confirms, however, that in forming his view, Mr. Harkins did not talk to a

single Airgas stockholder. Supp. Tr. 509-10 (Harkins). Such predictions are not reliable unless

based on communications with a targets stockholders, Supp. Tr. 760-61, 771-74 (Morrow), and

21 Mr. Harkins never defined the specific number that is necessary and sufficient to obtain the67% vote. In other words, he has no opinion on what a sufficiently attractive bid is and hehas no opinion on whether $70 per share is a sufficiently attractive bid. See Supp. Tr. 508(Im not opining as to how appealing $70 is.). However, he did testify that stockholdersowning at least 50% of the shares would accept Air Products offer. Supp. Tr. 591; see alsoSupp. Tr. 202 (McCausland) (The tender offer would succeed if the pill were pulled. I haveno doubt about that.). Defendants have identified no principle that allows the Board to

prevent a tender offer supported by a majority of the stockholders from succeeding unless the bidder can obtain the affirmative vote of 67% of the outstanding shares.


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even Mr. Harkins admits that, in the normal course of his proxy solicitation business, he usually

relies on such communications. Supp. Tr. 510.

Third, Mr. Harkins provides no support for the unrealistic assumption that 100

percent of the shares voted by arbitrageurs and event-driven investors will be voted for Air

Products. Even under Mr. Harkinss own calculations, only 81.6% of the shares voted by

arbitrageurs and hedge funds voted for Air Products January Meeting Bylaw (90.4% of those

shares voted for Air Products director nominees), TX 638A (Harkins Supp. Rep.) at 2, and Mr.

Harkins has long argued that it would be even tougher to convince stockholders to support Air

Products at a control election. See TX 638A (Harkins Rep.) at 4-8. Indeed, as Mr. Morrow

testified based on his extensive experience in the proxy solicitation business, one cannot count

on arbitrageurs to vote 100% of their shares in favor of a bidder in any contested control election.

Supp. Tr. 760. Mr. Harkins does not provide any examples of transactions in which 100% of the

arbitrageur vote has sided with a bidder. Although Mr. Harkins has provided no support for this

prediction, it is critical to his conclusion that Air Products could realistically expect to win a

special meeting election. If only 90% of the shares voted by arbitrageurs and hedge funds are

voted in favor of Air Products and all of Mr. Harkinss other distorted assumptions remain

unchanged then victory would be mathematically impossible under Mr. Harkins

calculations. 22

22 Mr. Harkins testified that Air Products would only have to win 51.3% of the votes cast byother institutional investors if all of his other assumptions regarding the likely turnout andvoting behavior of other Airgas shareholders proved correct. Supp. Tr. 482. But if only 90%of the shares voted by arbitrageurs and other event-driven investors were to vote for Air Products, then Air Products would need more than 100% of the votes of other institutionalinvestors to win under Mr. Harkins own formulae. This is obviously mathematicallyimpossible.


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Fourth, Mr. Harkins provides no support for the assumption that ISS will

recommend in favor of Air Products. In fact, he cannot recall any instances in which ISS has

recommended against the board in a control election. Supp. Tr. 539-40; see also Supp. Tr. 759-

60 (Morrow opining that ISS would likely not support Air Products). If Mr. Harkins is wrong

and ISS recommends against Air Products and all of Mr. Harkinss other assumptions remain

unchanged then victory would again be mathematically impossible under Mr. Harkins

calculations. 23

Finally, Mr. Harkins also assumes that two of the three large index fund investors

would vote in favor of Air Products, even though this did not happen at the last election. 24 But if

only one of these investors votes in Air Products favor and all of Mr. Harkinss other

assumptions remain unchanged then victory becomes unrealistically out of reach. 25

All three of these assumptions find no support in the record, and Harkins has

failed to talk to even a single Airgas stockholder to determine whether his assumptions are

realistic. Supp. Tr. 509-10 (Harkins); Supp. Tr. 760-61, 771-74 (Morrow). In addition, Air

Products has to hit all three of these targets to win; if it falls short in the arbitrageur vote, fails to

receive the recommendation of ISS, or loses the vote of one more index fund investor, it has no

realistic shot of winning even under Mr. Harkinss own predictions. And he has provided little

23 Again, if Mr. Harkins had assumed that ISS would recommend in favor of Airgas, Air Products would need more than 100% of the votes cast by other institutional investors towin. Accordingly, in this scenario victory would be mathematically impossible. under Mr.Harkins own calculations.

24 According to Defendants, one of the three funds voted for Air Products, the second voted for Airgas, and the third split its vote. See Supp. Tr. 216-17 (McCausland); Supp. Tr. 481(Harkins).

25 In such a scenario, under Mr. Harkins calculations, Air Products would have to win morethan 90% of the votes cast by shareholders labeled by Mr. Harkins as other institutionalinvestors.


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proof for many of the other assumptions in his chart: that arbitrageurs would own 46% of the

stock as opposed to the current 41% 26; that 100% of the shares held by arbitrageurs would vote;

etc. While Defendants have not explained why Air Products ability to win a special meeting is

central to the key issues before the Court, Mr. Harkins testimony does nothing to establish that

such a victory is realistically attainable.

C. If The Defensive Measures Are Maintained, AirgasStockholders Will Never Have A Say On Air ProductsOffer.

If the Court does not enjoin the application of the Defensive Measures to the

proposed transaction, Airgass stockholders will permanently lose the opportunity to decide on

Air Products offer. As Mr. Huck testified, and as Air Products publicly announced, Air

Products cannot continue its pursuit of Airgas until Airgass 2011 annual meeting (whenever it

may be held). See Supp. Tr. 10-12 (Huck). Air Products continued pursuit of Airgas requires it

to forego other strategic opportunities. See id. The uncertainty to Air Products caused by

maintaining its offer has also weighed on Air Products stock price for over a year, and Air

Products stockholders must at some point be free of this burden. See id. In addition, pursuing

the offer drains managements resources and requires Air Products to incur significant expenses.

See Supp . Tr. 10-12, 18 (Huck). At some point, Air Products acquisition attempt must come to

an end. (It is little surprise that no bidder has ever replaced a majority of the directors on a

staggered board by winning two successive annual meeting elections. See Supp Tr. 657-58

(Harkins). It is an extraordinarily demanding feat, even for a bidder as determined as Air

Products.).

26 See Supp. Tr. 203 (McCausland testifying that the percentage of arbitrageur and hedge fundownership has decreased to about 41%).


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In addition, even if Air Products kept its offer open for an additional nine or ten

months to participate in a second proxy contest, there would still be no guarantee that Airgas

stockholders would be able to accept the offer. According to Mr. McCausland, any new

directors elected to Airgass Board would be duty-bound to use the Defensive Measures to

continue blocking Air Products offer. See Supp. Tr. 226-27. In Mr. McCauslands view,

Airgass poison pill confers to the Airgas Board a permanent, unappealable veto.

Defendants decision to effectively deprive stockholders of a choice on Air

Products offer is unreasonable. Defendants acknowledge that their actions force Airgass

stockholders to bear considerable risks. Defendants admit that Airgass stock price which is

already considerably below Air Products offer price will decline if Air Products withdraws its

offer. See Supp. Tr. 397 (DeNunzio). They also concede that Airgas might not perform as well

as managements optimistic projections assume. See Supp. Tr. 163 (Miller), 353 (DeNunzio).

Nor can they dispute that Airgas would be adversely affected if the economy does not recover as

strongly as management predicts. See Supp. Tr. 376 (DeNunzio). Rather than incur these risks,

the owners of Airgas may reasonably prefer Air Products offer, as it provides an opportunity to

lock in a certain gain in an uncertain environment. See Supp. Tr. 353-54 (DeNunzio).

* * *

Defendants ultimate argument is that Delaware law grants a Board authority to

block any tender offer indefinitely, as long as it deems the offer to be financially inadequate.

This is inconsistent with the promise, announced in the Supreme Courts earliest pill decision

and reaffirmed in its most recent, that the poison pill is not absolute. Versata Enters., Inc. v.

Selectica Inc. , 5 A.3d 586, 606-07 (Del. 2010); Moran v. Household Intl, Inc. , 500 A.2d 1346,

1354-55 (Del. 1985). Under Defendants reasoning, the decision to refuse to redeem a poison


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pill is effectively reviewable only under the deferential business judgment standard. That is

contrary to the principles of Unocal , and it is not the law in Delaware.


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CONCLUSION

For the foregoing reasons, the Court should enter Air Products proposed partial

final order and judgment.

MORRIS, NICHOLS, ARSHT & TUNNELL LLP

/s/ William M. LaffertyKenneth J. Nachbar (#2067)Jon E. Abramczyk (#2432)William M. Lafferty (#2755)John P. DiTomo (#4850)Eric S. Wilensky (#4774)Ryan D. Stottmann (#5237)

Michael S. Sirkin (#5389)1201 N. Market StreetWilmington, DE 19801(302) 658-9200

Attorneys for Plaintiff Air Products and Chemicals, Inc.

OF COUNSEL:

Thomas G. RaffertyDavid R. MarriottGary A. BornsteinCRAVATH, SWAINE & MOORE LLPWorldwide Plaza825 Eighth Avenue

New York, NY 10019(212) 474-1000

February 2, 20114068327.4


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CERTIFICATE OF SERVICE

I hereby certify that on this 3 rd 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, EsquireJon E. Abramczyk, EsquireWilliam M. Lafferty, EsquireJohn P. DiTomo, EsquireRyan D. Stottman, EsquireMORRIS NICHOLS ARSHT &

TUNNELL LLP1201 North Market StreetWilmington, DE 19801

Pamela S. Tikellis, EsquireRobert J. Kriner, Jr., EsquireCHIMICLES & TIKELLIS LLP222 Delaware Ave.Wilmington, DE 19899

/s/ Berton W. Ashman, Jr.Berton W. Ashman, Jr. (No. 4681)

Documents

Air Products' Brief