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San Antonio Fire & Police Pension Fund v. Amylin Pharms., Inc.

Court of Chancery of Delaware

May 4, 2008, Submitted; May 12, 2009, Decided

C.A. No. 4446-VCL

Opinion

 [*306]  MEMORANDUM OPINION AND ORDER

LAMB, Vice Chancellor.

The  [**2] principal issue addressed in this opinion is whether a commonplace provision found in a trust indenture governing publicly traded notes prevents the issuer's board of directors from "approving" as "continuing directors" persons nominated by stockholders in opposition to the slate nominated by the incumbent directors. Both the corporation and its stockholders take the position that it does not and that, instead, the board of directors has the power to give its approval to any nominee, whether or not nominated by the incumbent directors. The indenture trustee takes the opposite position, arguing that the incumbent directors cannot "approve" as a "continuing director" any person whose election the incumbent directors publicly oppose. The issue is consequential because if a majority of the board at any time are not "continuing directors," holders of the notes gain the right to put their notes to the corporation at face value. Because the notes are trading on a deeply discounted basis, any event threatening to trigger this provision poses a substantial economic problem for the corporation and its stockholders.

 [*307]  Noting that provisions of this kind can operate as improper entrenchment devices  [**3] that coerce stockholders into voting only for persons approved by the incumbent board to serve as continuing directors, the court holds that the indenture provision cannot be read as narrowly as urged by the indenture trustee. Instead, construed in accordance with generally applied standards, the provision is properly understood to permit the incumbent directors to approve as a continuing director any person, whether nominated by the board or a stockholder, as long as the directors take such action in conformity with the implied covenant of good faith and fair dealing and in accordance with their normal fiduciary duties.

A. The Parties

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983 A.2d 304 *; 2009 Del. Ch. LEXIS 83 **

SAN ANTONIO FIRE & POLICE PENSION FUND, on behalf of itself and all other similarly situated, Plaintiff, v. AMYLIN PHARMACEUTICALS, INC., BANK OF AMERICA, N.A., BANK OF NEW YORK TRUST COMPANY, N.A., DANIEL M. BRADBURY, JOSEPH C. COOK, JR., ADRIAN ADAMS, STEVEN R. ALTMAN, TERESA BECK, KARIN EASTHAM, JAMES R. GAVIN, GINGER L. GRAHAM, HOWARD E. GREENE, JR., JAY S. SKYLER, JOSEPH P. SULLIVAN, and JAMES N. WILSON, Defendants. AMYLIN PHARMACEUTICALS, INC., Cross-Claimant, v. THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee for Indenture dated as of June 8, 2007, Cross-Claim Defendant.

Subsequent History: Affirmed by San Antonio Fire & Police Pension Fund v. Amylin Pharms., Inc., 981 A.2d 1173, 2009 Del. LEXIS 519 (Del., Oct. 5, 2009)

CORE TERMS

Indenture, stockholder, approve, election, nominees, credit agreement, slate, nomination, dissident, parties, provisions, proxy, terms, partial, board of directors, governing body, good faith, fiduciary, negotiate, purposes, duty of care, circumstances, incumbent, triggered, Contest, loyalty, annual, senior, summary judgment, stockholder-nominated

Civil Procedure, Trials, Jury Trials, Province of Court & Jury, Contracts Law, Contract Interpretation, Ambiguities & Contra Proferentem, General Overview, Appeals, Standards of Review, Questions of Fact & Law, Parol Evidence, Business & Corporate Compliance, Contracts Law, Standards of Performance, Creditors & Debtors, Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, Duty of Care