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EFiled: Sep 15 2010 3:17PM EDT

Transaction ID 33251078
Case No. 5817-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

)
AIRGAS, INC., JAMES HOVEY, PAULA )
SNEED, DAVID STOUT, LEE THOMAS, )
JOHN VAN RODEN and ELLEN WOLF, )
)
Plaintiffs, )
) C.A. No. 5817-__
v. )
)
AIR PRODUCTS AND CHEMICALS, INC., )
)
Defendant. )
)

VERIFIED COMPLAINT

Plaintiff Airgas, Inc. (“Airgas”), a Delaware corporation, together with individual

plaintiffs James Hovey, Paula Sneed, David Stout, Lee Thomas, John van Roden, and Ellen Wolf

(collectively, “Plaintiffs”), by their undersigned attorneys, for their complaint for declaratory re-

lief, allege as follows:

NATURE OF THE CASE

1. This is an action seeking a declaration that a purported amendment to Air-

gas’ bylaws proposed by Air Products (the “Air Products Bylaw”) conflicts with both the Dela-

ware General Corporation Law and Airgas’ Certificate of Incorporation (the “Airgas Charter”)

and is accordingly invalid.

2. The Air Products Bylaw purports to set the date of Airgas’ 2011 annual

meeting for January 18, 2011, 240 days before the one-year anniversary of the company’s 2010

annual meeting, and to require Airgas to hold all future annual meetings in the month of January.

If enforced, the bylaw would require Airgas to hold two annual meetings in a span of four
months and would cause the terms of the Airgas directors who were elected at Airgas’ 2008 and

2009 annual meetings to be improperly shortened.

3. The Air Products Bylaw thus conflicts with the General Corporation Law.

Section 141(d) mandates that, absent removal, directors are elected to serve a “full term,” which

as Section 141(d) makes clear, is approximately three years. And the bylaw is also entirely at

odds with fundamental and well-recognized principles of Delaware law—most pertinently, the

mandate that an “annual meeting” to elect directors must be held annually, or yearly—not, as Air

Products contends, twice in four months.

4. The Air Products Bylaw is also invalid because it conflicts with the Airgas

Charter, which requires the approval of 67% of the voting power of the company to amend Ar-

ticle III of the bylaws. The Air Products Bylaw, which amends Article III’s provisions relating

to the election and terms of directors, purports to be effective upon adoption by only a simple

majority of Airgas stockholders voting at a meeting.

5. The Air Products Bylaw is a self-interested and manipulative gimmick, is

invalid on its face and as applied, and is of no force and effect.

PARTIES

6. Plaintiff Airgas is a corporation duly organized under the laws of the state

of Delaware, with its principal place of business at 259 North Radnor-Chester Road, Suite 100,

Radnor, Pennsylvania. Airgas is the largest U.S. supplier of industrial, medical and specialty

gasses and related hardgoods, such as welding supplies, and has built the largest national distri-

bution network in the packaged gas industry. Airgas has also become a leading U.S. distributor

of safety products, the largest U.S. producer of nitrous oxide and dry ice, the largest liquid car-

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bon dioxide producer in the Southeast and a leading distributor of process chemicals, refrigerants

and ammonia products. Airgas has more than 14,000 employees who work in more than 1,100

locations, including branches, cylinder fill plants, air separation plants, production facilities, spe-

cialty gas laboratories, and regional distribution centers.

7. Plaintiff James Hovey is, and at all relevant times was, a member of the

Airgas Board of Directors. He was elected to the Board on August 3, 2000, and re-elected on

July 29, 2003, August 9, 2006, and August 18, 2009.

8. Plaintiff Paula Sneed is, and at all relevant times was, a member of the

Airgas Board of Directors. She was appointed to the Board in August, 1999, elected to the

Board on August 3, 2000, and re-elected on July 29, 2003, August 9, 2006, and August 18, 2009.

9. Plaintiff David Stout is, and at all relevant times was, a member of the

Airgas Board of Directors. He was appointed to the Board in August, 1999, elected to the Board

on August 3, 2000, and re-elected on July 29, 2003, August 9, 2006, and August 18, 2009.

10. Plaintiff Lee Thomas is, and at all relevant times was, a member of the

Airgas Board of Directors. He was elected to the Board on August 2, 1999, and re-elected on

July 31, 2002, August 9, 2005, and August 5, 2008.

11. Plaintiff John van Roden is, and at all relevant times was, a member of the

Airgas Board of Directors. He was elected to the Board on August 7, 2007, and re-elected on

August 5, 2008.

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12. Plaintiff Ellen Wolf is, and at all relevant times was, a member of the Air-

gas Board of Directors. She was appointed to the Board on November 11, 2008, and elected to

the Board on August 18, 2009.

13. Defendant Air Products is a corporation duly organized under the laws of

the state of Delaware, with its principal place of business at 7201 Hamilton Boulevard, Allen-

town, Pennsylvania, 18195. Air Products provides products and services including atmospheric

gases, specialty gases, performance materials, equipment and services.

FACTUAL ALLEGATIONS

A. Airgas has a staggered board with three classes of directors,


with each class elected to serve a term of approximately three
years.

14. Airgas has employed a classified board since becoming a public company

in 1986. As set forth in its Form S-1 filed on December 19, 1986:

The Company’s Board of Directors is divided into three classes. Members of


each class serve for a term expiring at the third succeeding annual meeting of
stockholders following their election and when their respective successors are
elected and qualified.

15. Consistent with D.G.C.L. 141(d), Article 5, Section 1 of the Airgas Char-

ter provides:

1. Number, Election and Terms of Directors. Except as otherwise fixed


pursuant to the provisions of Article 4 hereof relating to the rights of the holders
of any class or series of stock having preference over the Common Stock as to
dividends to elect additional directors under specified circumstances, the number
of Directors of the Corporation shall consist of no less than seven and no more
than thirteen members, as shall be specifically determined from time to time by
resolution of the Board of Directors. The Directors, other than those who may be
elected by the holders of any class or series of stock having preference over the
Common Stock as to dividends or upon liquidation, shall be classified, with re-
spect to the time for which they severally hold office, into three classes, as nearly

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equal in number as possible as shall be provided in the manner specified in the
By-Laws, one class to hold office initially for a term expiring at the annual meet-
ing of stockholders to be held in 1987, another class to hold office initially for a
term expiring at the annual meeting of stockholders to be held in 1988, and anoth-
er class to hold office initially for a term expiring at the annual meeting of stock-
holders to be held in 1989, with the members of each class to hold office until
their successors are elected and qualified. At each annual meeting of stockholders
of the Corporation, the successors to the class of Directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual meet-
ing of stockholders held in the third year following the year of their election.

16. Similarly, Article III, Section 1 of the Airgas Bylaws provides in part:

Section 1. Number, Election, and Terms.

Except as otherwise fixed pursuant to the provisions of Article 4 of the


Certificate of Incorporation relating to the rights of the holders of any class or se-
ries of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specified circumstances, the number
of Directors shall consist of no less than seven and no more than thirteen mem-
bers, as shall be specifically determined from time to time by resolution of the
Board of Directors. The Directors, other than those who may be elected by the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, shall be classified, with respect to the
time for which they severally hold office, into three classes, as nearly equal in
number as possible, one class to hold office initially for a term expiring at the an-
nual meeting of stockholders to be held in 1987, another class to hold office in-
itially for a term expiring at the annual meeting of stockholders to be held in
1988, and a third class to hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1989, with the member of each class to hold
office until their successors are elected and qualified. At each annual meeting of
stockholders, the successors of the class of Directors whose term expires at the
meeting shall be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in the third year following the year of their election.

17. Article 5, Section 6 of the Airgas Charter also provides that Article III of

the Airgas Bylaws “shall not be altered, amended or repealed, and no provision inconsistent the-

rewith shall be adopted without the affirmative vote of the holders of at least 67% of the voting

power of all the shares of the Corporation entitled to vote generally in the election of Directors,

voting together as a single class.”

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18. Airgas stockholders, in accordance with the terms of Section 141(d) and

the Airgas Charter and Bylaws, have elected a class of directors at Airgas’ annual meeting each

year for over two decades. Its Board today consists of nine directors, divided equally into three

classes of three members each.

19. Airgas has always held its annual meeting at a time that permits its annual

report and financial statements for each fiscal year to be available to the stockholders.

20. Airgas held its first annual meeting on August 3, 1987, and its most recent

annual meeting on September 15, 2010. Since the company went public in 1986, Airgas’ annual

meetings for the election of directors have been held as follows:

Fiscal Year End Annual Meeting


March 31, 1987 August 3, 1987
March 31, 1988 August 1, 1988
March 31, 1989 August 7, 1989
March 31, 1990 August 6, 1990
March 31, 1991 August 5, 1991
March 31, 1992 August 3, 1992
March 31, 1993 July 28, 1993
March 31, 1994 August 1, 1994
March 31, 1995 August 7, 1995
March 31, 1996 August 5, 1996
March 31, 1997 August 4, 1997
March 31, 1998 August 3, 1998
March 31, 1999 August 2, 1999
March 31, 2000 August 3, 2000
March 31, 2001 August 2, 2001
March 31, 2002 July 31, 2002
March 31, 2003 July 29, 2003
March 31, 2004 August 4, 2004

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March 31, 2005 August 9, 2005
March 31, 2006 August 9, 2006
March 31, 2007 August 7, 2007
March 31, 2008 August 5, 2008
March 31, 2009 August 18, 2009
March 31, 2010 September 15, 2010

21. On average, Airgas has held its annual meeting within 4.13 days of the

anniversary of the previous year’s annual meeting.

22. Each class of directors elected by the Airgas stockholders pursuant to Ar-

ticle 5, Section 1 of the Airgas Charter and Article III, Section 1 of the Airgas Bylaws has served

a term of approximately three-years.

23. Consistent with this standard practice, on August 5, 2008, at the 2008 Air-

gas annual meeting, the Airgas shareholders elected William Albertini, Lee Thomas, and John

van Roden to the Airgas Board for a term expiring at the company’s 2011 annual meeting. Mr.

Albertini passed away and Ellen Wolf was appointed to fill the vacancy created by Mr. Alberti-

ni’s death. Ms. Wolf was then elected to fill a term expiring at the 2011 annual meeting at the

2009 annual meeting held on August 18, 2009.

24. On August 18, 2009, the Airgas shareholders elected James Hovey, Paula

Sneed, and David Stout to the Airgas Board for a term expiring at the company’s 2012 annual

meeting.

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B. The common understanding is that directors on staggered
boards are elected for terms of approximately three years.

25. Airgas’ annual election cycle, the structure of its classified board and the

language of its Charter is consistent with the common practice and understanding that directors

elected to staggered boards are elected to terms of approximately three years at annual meetings

held approximately 12 months apart.

26. Of the 293 Fortune 500 companies incorporated in Delaware, 89 have

classified boards comprised of three classes of directors. The provisions that implement the

staggered boards of these 89 companies are generally formulated in two ways.

27. The majority, 58 of 89—including, for example, McDonald’s, Capital One

Financial, United States Steel and Valero Energy—define the terms of each class of directors via

provisions substantially similar to the Airgas Charter, and provide that a director’s term will ex-

pire at “the third succeeding annual meeting” or at the “annual meeting in the third year” after

election. Exhibit A hereto.

28. A minority, 29 of 89—including, for example, Dick’s Sporting Goods,

The Estee Lauder Companies, Unum Group, and The Western Union Company—provide that

each class of directors will hold office for a “three-year term.” Ex. A. The remaining two com-

panies implemented their staggered boards via charter provisions that conform to neither of these

formulations.

29. The fact that the charter and bylaw provisions of these 89 companies use

slightly different words to implement their staggered boards confirms the common understanding

that directors elected to staggered boards serve terms extending for three annual meetings held

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approximately one year apart. It would be illogical to conclude that Delaware companies em-

ploying staggered boards, as authorized by statute, in fact have radically different corporate go-

vernance structures due to two slightly different ways of expressing a single, commonly unders-

tood concept. Indeed, the majority of companies that implemented a staggered board via provi-

sions setting directors’ terms by reference to annual meetings simultaneously refer to the term of

each class of directors as “three years” in their public filings, confirming that these descriptions

are interchangeable. Ex. A.

30. Air Products, for example—which established its staggered board via a

charter provision providing that each class of directors’ terms expire “at the third succeeding an-

nual meeting of stockholders”—in its most recent annual proxy states that its board “is divided

into three classes for purposes of election, with three-year terms of office ending in successive

years.” Ex. A. Air Products, in fact, has for 27 straight years described its directors’ terms, in

public filings, as “three year terms.” Exhibit B hereto.

31. The practice of companies that recently destaggered their boards further

confirms the common understanding that directors on staggered boards serve three-year terms.

32. Of those Delaware companies that are or were in the Fortune 500, 99

companies with boards having three classes of directors have declassified their boards in the last

ten years by submitting a declassification proposal to their shareholders. Exhibit C hereto. Of

those 99 companies, 97 described the length of their directors’ terms as “three-year” terms in

their charter, bylaws, or annual public filings. Ex. C.

33. The 99 charter and bylaw provisions classifying these companies’ boards

pursuant to D.G.C.L. § 141(d) used both the “three-year terms” formulation and language sub-

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stantially similar to the language used in the Airgas Charter. Ex. C. Of the 64 with language

specifying that directors are elected to serve until “the third succeeding annual meeting” or at the

“annual meeting in the third year” after election, 62—or over 96.9%—simultaneously described

their directors’ terms as lasting “three years” in the declassification proposals set forth in their

proxy statements. Ex. C.

C. Air Products has improperly attempted to manipulate


the Airgas corporate machinery.

34. Between October 15, 2009 and December 17, 2009, Air Products made

three non-public proposals to acquire Airgas.

35. The Airgas Board, which is overwhelmingly compromised of outside, in-

dependent directors, rejected each such offer as inadequate.

36. On February 4, 2010, Air Products made a public proposal to acquire Air-

gas at a price of $60 per share in cash. Thereafter, on February 11, 2010, Air Products com-

menced a tender offer at $60 per share on an all-cash basis.

37. By making public its offer to acquire Airgas, Air Products drove Airgas

shares into the hands of arbitrageurs and other speculators interested in making a short term gain

on the value of their shares in a change of control transaction. Air Products understood and in-

tended that this would happen.

38. On July 8, 2010, Air Products raised its bid to $63.50 in order to “get more

shares in the hands of arbs.”

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39. On September 6, 2010, Air Products further raised its bid to $65.50 per

share.

40. One of Air Products’ principal objectives in driving Airgas shares into the

hands of arbitrageurs was to further its attempt to manipulate Airgas’ established corporate go-

vernance regime by, among other tactics, ensuring that as many shareholders as possible voting

at Airgas’ 2010 annual meeting would support a proposed bylaw purporting to shorten the terms

of the incumbent directors and to require Airgas to hold its 2011 “annual” meeting on January

18, 2011, only a few months after the company’s 2010 annual meeting.

41. Air Products decided to implement this strategy in order to avoid the re-

quirement of Article 5, Section 3 of the Airgas Charter, which provides that directors may be

“removed from office without cause only by the affirmative vote of the holders of 67% of the

combined voting power of the then outstanding shares of stock entitled to vote generally in the

election of Directors, voting together as a single class.”

42. To that end, by letter dated May 13, 2010 (the “Notice”), Air Products

gave notice of its intention: (i) to nominate for election, and solicit proxies to elect, John P.

Clancey, Robert L. Lumpkins, and Ted B. Miller, Jr., to the Airgas Board of Directors; (ii) to

propose an amendment to the Airgas’ bylaws to require that Airgas’ 2011 “annual” meeting be

held on January 18, 2011, and that Airgas hold its annual meetings thereafter in the month of

January; (iii) to implement a blanket repeal of any bylaw amendment adopted by the Airgas

Board, without stockholder approval, after April 7, 2010; and (iv) to propose an amendment to

the Airgas bylaws to implement director eligibility and disqualification requirements.

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43. The Notice further advised that Air Products believed each of its proposals

required the approval of only a majority vote of the shares of common stock represented at Air-

gas’ 2010 annual meeting.

44. On August 30, 2010, Airgas committed to its shareholders that if Air

Products’ proposal to accelerate the 2011 annual meeting did not receive the support of a majori-

ty of votes represented at the 2010 annual meeting, it would call a Special Meeting of Stockhold-

ers to be held on June 21, 2011.

45. On September 8, the institutional shareholder advisor ISS recommended

that Airgas stockholders reject the January meeting bylaw proposal.

46. ISS recommended as follows:

[Air Products’] January [meeting] proposal … is a bold, unprece-


dented move by a bidder to obviate the defensive value of a classi-
fied board by collapsing the time required to win control… Be-
cause this proposal cedes significant control of the negotiation
process to the bidder, we believe it carries a higher price tag than
simply earning a seat at the table. As the current bid remains be-
low a fair and full price, we do not recommend shareholders sup-
port the proposal.

D. Airgas’ 2010 annual meeting

47. Airgas held its 2010 annual meeting on September 15, 2010. As of the

record date of that meeting, there were 83,629,731 shares entitled to vote generally in the elec-

tion for directors.

48. The Air Products Bylaw proposal received the affirmative vote of approx-

imately 38.2 million Airgas shares, or 51.8% of the 73.7 million shares voted. These 38.2 mil-

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lion shares represent only 45.7% of Airgas shares entitled to vote generally in the election for

directors.

49. This vote is less than the 56,031,920 shares, or 67% vote, required by Ar-

ticle 5, Section 6 of the Airgas Charter to adopt a provision inconsistent with Article III of the

bylaws.

CLAIM FOR RELIEF


(Declaratory Judgment)

50. Plaintiffs repeat and reallege the allegations set forth in paragraphs 1

through 44 as if fully set forth herein.

51. January 18, 2011 is 240 days before the one-year anniversary of Airgas’

2010 annual meeting. On January 18, 2011, Airgas will be in the same fiscal year as it was at its

2010 annual meeting. Airgas will not have issued a new annual report to shareholders.

52. As of January 18, 2011, the two directors elected at Airgas’ 2008 annual

meeting, plaintiffs Thomas and van Roden, will have served only two years and five months of

their term of office. The director elected on August 18, 2009, plaintiff Wolf, will have served

only one year and five months of her term of office.

53. As of January 2012, the three directors elected at Airgas’ 2009 annual

meeting, plaintiffs Hovey, Sneed and Stout, will have served only two years and five months of

their term of office.

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54. The Air Products Bylaw is invalid because it conflicts with both the Dela-

ware General Corporation Law and the Airgas Charter, both of which provide that directors are

elected to a term extending three annual meetings to be held approximately one year apart.

55. The Air Products Bylaw also purports to shorten the term of directors as

provided in Article III, Section 1 of the Airgas Bylaws. As such, the Air Products Bylaw is in-

consistent with Article III of the Airgas bylaws and can be adopted only upon the affirmative

vote of the holders of at least 67% of the voting power of all shares of the company entitled to

vote generally in the election of directors.

56. An actual controversy exists between plaintiffs and defendant over the va-

lidity of the Air Products Bylaw.

57. Plaintiffs claim that the Air Products Bylaw is invalid under Delaware

Law and under the Airgas Charter and that it was not duly adopted at the 2010 Airgas annual

meeting.

58. Defendant claims that the Air Products Bylaw is valid under Delaware

Law and under the Airgas Charter and that it was duly adopted at the 2010 Airgas annual meet-

ing.

59. Plaintiffs are entitled to a declaration of the Court that the Air Products

Bylaw is of no force or effect, and is invalid under D.G.C.L. § 141(d).

60. Plaintiffs are entitled to a declaration of the Court that the Air Products

Bylaw is of no force or effect, and is invalid under D.G.C.L. § 211(b).

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61. Plaintiffs are entitled to a declaration of the Court that the Air Products

Bylaw is of no force or effect, and is invalid under the Airgas Charter.

WHEREFORE, Plaintiffs request judgment as follows:

A. Declaring and decreeing that Article II, Section I of the Airgas bylaws, as

amended on September 15, 2010, is invalid and of no force and effect;

B. Declaring and decreeing that Article II, Section I of the Airgas bylaws as

written, adopted, and in effect prior to September 15, 2010, is valid and operative;

C. Declaring and decreeing that the Airgas Annual Meeting for 2011 will

take place at a date, time, and place specified by the Board of Directors, as set forth in Article II,

Section 1 of the Airgas bylaws.

D. For such other, further and different relief as the Court may deem just and

proper.

POTTER ANDERSON & CORROON LLP


OF COUNSEL:
By: /s/ Donald J. Wolfe, Jr.
Theodore N. Mirvis Donald J. Wolfe, Jr. (No. 285)
Marc Wolinsky Kevin R. Shannon (No. 3137)
George T. Conway III Berton W. Ashman, Jr. (No. 4681)
Meredith L. Turner Ryan W. Browning (No. 4989)
WACHTELL, LIPTON, ROSEN & KATZ Hercules Plaza
51 West 52nd Street 1313 North Market Street, 6th Floor
New York, New York 10019 Wilmington, Delaware 19801
(212) 403-1000 (302) 984-6000

Dated: September 15, 2010 Attorneys for Plaintiffs


982357

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