DEFENDANT AMYLIN PHARMACEUTICALS, INC. S MEMORDANDUM OF LAW IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT

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1 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE SAN ANTONIO FIRE & POLICE PENSION FUND, on behalf of itself and all others similarly situated, v. Plaintiff, 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. SKYLAR, JOSEPH P. SULLIVAN, JAMES N. WILSON, and AMYLIN PHARMACEUTICALS, INC. 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. ) ) ) ) ) ) ) C.A. No VCL ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) DEFENDANT AMYLIN PHARMACEUTICALS, INC. S MEMORDANDUM OF LAW IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT

2 STATEMENT OF FACTS On June 8, 2007, Amylin Pharmaceuticals, Inc. ( Amylin or the Company ) and The Bank of New York Trust Company, N.A. ( BONY ), as Trustee, executed an indenture, pursuant to which the Company issued approximately $575 million in 3.00% convertible senior notes (the Indenture ). The Indenture contains certain change of control provisions that are implicated, inter alia, when the Company s Board of Directors ceases to be comprised of individuals whose nomination for election by the stockholders of the Company was approved by at least a majority of the directors then still in office (or a duly constituted committee thereof) either who were directors on the Issue Date or whose election or nomination for election was previously so approved. (Compl. Ex. A at 12, 15 & 77.) On January 30, 2009, the Company received notices from Icahn LP and affiliated funds ( Icahn ) and Eastbourne Capital Management, L.L.C. ( Eastbourne ) stating their intentions each to nominate slates of five directors to stand for election at the Company s 2009 annual meeting. (Declaration of Thad J. Bracegirdle ( Bracegirdle Decl. ) Exs. 1 & 2.) On March 30, 2009, the Company filed a preliminary proxy statement, identifying twelve nominees for election to the Board at the Company s May 27, 2009 annual meeting. (Id., Ex. 3.) On April 3, 2009, Eastbourne filed a preliminary proxy statement soliciting proxies in support of five nominees as directors of Amylin. (Id., Ex. 4.) And on April 7, 2009, Icahn filed a preliminary proxy statement soliciting proxies in support of five nominees as directors of Amylin (collectively with the Eastbourne slate of 2

3 nominees, the Dissident Slates ). (Id., Ex. 5.) On March 30, 2009, Eastbourne and Icahn each received no action letters from the Securities and Exchange Commission permitting each of them to list the other s nominees on its proxy card so long as it does not solicit proxies for the other s nominees. (Id., Exs. 6 & 7.) The Indenture contains a change in control provision ( Fundamental Change ) that is triggered at any time the Continuing Directors do not constitute a majority of the Company s Board of Directors. Amylin s Board of Directors currently is comprised of eleven directors. 1 In the event six or more of the nominees on the Dissident Slates are elected at the Company s May 27, 2009 annual meeting, a Fundamental Change under the Indenture may be triggered, giving noteholders the right to accelerate the Company s obligation to repurchase the notes at face value. (Compl. Ex. A, at 12, 15, 77.) The Indenture contains an exception, however, that allows the Board to approve new directors for purposes of making them Continuing Directors. Specifically, any new directors whose election to the Board of Directors or whose nomination for election by the stockholders of the Company was approved by at least a majority of the directors then still in office is considered a Continuing Director under the Indenture. The replacement of half or more of Amylin s Directors by persons the Board has approved would not constitute a Fundamental Change under the Indenture. (Id. at 12, 15.) In light of the possibility that a majority of the Company s Directors could be replaced in the upcoming election, on March 31, 2009, Amylin requested that BONY 1 At the time this action was commenced, the Board was comprised of 12 directors; however, one director, Ted Greene, has since resigned. 3

4 confirm its view that Amylin s Directors have the right, up to the time of the election, to approve the Dissident Slates for purposes of making them Continuing Directors, and thereby prevent the triggering of a Fundamental Change under the Indenture in the event six or more dissident directors are elected at the Company s annual meeting. (Bracegirdle Decl. Ex. 8.) On April 2, 2009, BONY declined to provide the confirmation requested by the Company. (Id., Ex. 9.) After BONY declined to give the Company the confirmation it requested, the Company filed a cross-claim against BONY seeking a declaration that the Board has the authority under the Indenture to approve the Dissident Slates for purposes of avoiding triggering the Fundamental Change provision, notwithstanding the fact that the Company has recommended that stockholders vote against their election. That same day, April 6, 2009, Plaintiff filed its third amended complaint, naming BONY as a defendant and purporting to seek the same relief a declaration of the Company s rights under the Indenture. On April 10, 2009, Plaintiff filed a motion for partial summary judgment seeking, in part, a declaration that the Indenture permits the Company s Board to approve the Dissident Slates. ARGUMENT I. SUMMARY JUDGMENT IS APPROPRIATE HERE BECAUSE THERE ARE NO FACTS IN DISPUTE AND THE ISSUE PRESENTED IS A PURE QUESTION OF LAW. A motion for summary judgment should be granted where there is no genuine issue as to any material fact and [the movant] is entitled to judgment as a matter of law. The Bank of New York Mellon v. Realogy Corp., 2008 WL , at *4 (Del. Ch. Dec. 4

5 18, 2008) (quotations and citations omitted). By this motion, the Company seeks an interpretation of a single, unambiguous provision in the Indenture, which is governed by New York law. Under New York law, as in Delaware, [t]he construction and interpretation of an unambiguous written contract is an issue of law within the province of the court, and therefore is appropriate for determination by the court on summary judgment. Law Debenture Trust Co. of New York v. Petrohawk Energy Corp., 2007 WL , at *5 (Del. Ch. Aug. 1, 2007). II. THE CONTINUING DIRECTOR PROVISION ALLOWS A MAJORITY OF THE BOARD TO APPROVE THE DISSIDENT SLATES FOR PURPOSES OF MAKING THEM CONTINUING DIRECTORS. Under New York law, courts are required to adjudicate [parties ] rights according to the unambiguous terms of the contract and therefore must give the words and phrases employed their plain meaning. Laba v. Carey, 277 N.E.2d 641, 644 (N.Y. 1971). Moreover, with respect to boilerplate provisions in standardized contracts such as an indenture, courts interpreting such provisions are mindful of the fact that the provisions are not the consequence of the relationship of particular borrowers and lenders and do not depend upon particularized intentions of the parties to an indenture. Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1048 (2d Cir. 1982). See also Law Debenture Trust Co. of New York, 2007 WL , at *5. The Indenture clearly permits the Company to approve the Dissident Slates for purposes of making them Continuing Directors. Under the terms of the Indenture, a noteholder has the right to require repurchase of the notes at par value in the event of a Fundamental Change. (Compl. Ex. A at 77.) A Fundamental Change occurs where, 5

6 among other things, at any time the Continuing Directors do not constitute a majority of the Company s Board of Directors (or, if applicable, a successor Person to the Company). (Id. at 15.) Section 1.01 defines Continuing Directors as: (Id. at 12.) (i) individuals who on the Issue Date constituted the Board of Directors and (ii) any new directors whose election to the Board of Directors or whose nomination for election by the stockholders of the Company was approved by at least a majority of the directors then still in office (or a duly constituted committee thereof) either who were directors on the Issue Date or whose election or nomination for election was previously so approved. First, the plain language of the Indenture vests authority in the Board of Directors to approve the nomination or election of directors for purposes of making them Continuing Directors, without regard to whether the Company has recommended its stockholders vote in favor of such directors. The phrase whose nomination or election by the stockholders of the Company was approved by at least a majority of the directors is not restricted to those directors who the Company also recommends and endorses. Approval is distinct from recommend or endorse Compare Black s Law Dictionary 98 (7th ed. 1999) (defining approve as [t]o give formal sanction to; to confirm authoritatively ) with American Heritage Dictionary (4th ed. 2000) (defining recommend as [t]o praise or commend (one) to another as being worthy or desirable ). And although one cannot recommend without at least implicitly approving, the reverse is not true. Rather, one can approve a nominee for election that it does not also recommend. Indeed, by giving the Board the power to approve either the nomination 6

7 or election of directors for purposes of making them Continuing Directors, the Indenture specifically contemplates the possibility of Board approval of candidates it did not itself nominate for its own slate. Second, the language of the Indenture does not contain any provision limiting the right of Amylin s Board to approve directors under the Indenture to those it is supporting for election. If such a limitation had been intended, the parties would have said so explicitly. Indeed, such language is not uncommon a restriction of just this type is found in Amylin s own Credit Agreement. (Compl. Ex. B at 18.) Unlike the Indenture at issue on this motion, Amylin s Credit Agreement expressly forbids the Company s Board from approving a director who is first nominated in a proxy contest other than by the Board. Thus, as an ordinary matter of contractual interpretation, given the absence of any restrictions in the contract, the Court should not imply restrictions on the ability of the Board to approve any nominees they determine should be approved for any reason they determine to do so. Third, this interpretation is consistent with this Court s determination in similar contexts that the intent of this change of control provision is to give the incumbent board the authority to determine when a change of control has or should occur. See Law Debenture Trust Co. of New York, 2007 WL , at *11 (provision that allowed Board to approve directors nominated for election or elected for purposes of making them Continuing Directors was intended to give the incumbent board the power to determine whether a transaction would trigger a Change of Control or not ); California Public Employees Retirement Sys. v. Coulter, 2005 WL (Del. Ch. Apr. 21, 7

8 2005) (same). Restrictions on the power of the Board, if any, should not be implied where they are not expressly set forth. See, e.g., Perlegos v. Amtel Corp., 2007 WL (Del. Ch. Feb. 8, 2007) (finding that a special committee of the Company s Board had authority to terminate officers of the Company because the bylaws conferred authority to remove officers upon the Board, and the Company s bylaws imposed no express limitation on the Board s authority to delegate that task to a committee). Fourth, although there is no authority directly on point, this Court s decision in Hills Stores Co. v. Bozic, 769 A.2d 88 (Del. Ch. 2000), is premised on the assumption that a board had the authority, pursuant to a change of control provision similar to the one here, to approve dissident directors that it did not recommend, solely for the purpose of preventing a change in control from occurring under certain executives employment agreements. In Hills, a third party made an acquisition offer for Hills and launched a proxy contest to elect a slate of nominees to Hills board, with the promise that the dissident directors, if elected, would either sell Hills to the third party or conduct an auction to sell the company. Hills board determined that the acquisition was not in the best interest of the company, but determined to allow the stockholders to decide via the election contest. Id. at 90. Hills, however, was a party to certain agreements that contained change of control provisions that would be triggered by a change in the majority of the board, unless the current board approved the dissident slate of directors prior to its election. Id. at The day before the stockholder meeting, the board met to determine whether it should approve the dissident directors for purposes of avoiding the change in control provisions. Id. at 90. The board ultimately decided not to 8

9 approve the dissident slate, and the dissident slate won the election. The effect was to trigger the change in control provisions of various executives employment agreements, and to cause the company s creditors to terminate their debt agreements. Id. The successful dissident slate then caused the company to bring an action against the former directors, asserting, among other things, a claim that the former directors breached their fiduciary duty by failing to approve the dissident slate and thereby avoid triggering the change in control provisions. In rejecting plaintiffs breach of fiduciary duty claims, the Court s inquiry did not center on the scope of the board s ability to approve the dissident slate even though it was advocating against them. But, implicit in the Court s consideration of plaintiffs claim that the board breached its duties by not approving the slate is the assumption that the board had the authority to approve the dissident slate in the first place. See id. at Likewise, in Comprehensive Care Corp. v. Bosch, 899 S.W.2d 435 (Tex. Ct. App. 1995), the court did not explicitly address the scope of a board s approval power for purposes of these boilerplate change in control provisions. But, the court s finding that no change of control occurred where a board approved a dissident slate of directors on the eve of the contested election in order to avoid triggering certain severance pay agreements and acceleration provisions in the company s debt instruments is premised on the assumption that the board was authorized under the relevant agreements to approve the dissident directors in an election contest. 9

10 CONCLUSION For the reasons set forth above, Amylin respectfully requests this Court to enter an order granting its motion for partial summary judgment. /s/ Thad J. Bracegirdle Thad J. Bracegirdle (#3691) Wilks, Lukoff & Bracegirdle, LLC 1300 North Grant Avenue, Suite 100 Wilmington, Delaware (302) Attorneys for Defendant Amylin Pharmaceuticals, Inc. as to Amylin s Cross-Claim Dated: April 13, 2009 Raymond J. DiCamillo (#3188) Margot F. Alicks (#5127) Richards, Layton & Finger, P.A. One Rodney Square 920 North King Street Wilmington, Delaware (302) And Robert A. Sacks Diane L. McGimsey Sullivan & Cromwell LLP 1888 Century Park East Los Angeles, California Attorneys for Defendant Amylin Pharmaceuticals, Inc. other than on the Cross-Claim 10

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

EFiled: May 12 2009 4:45PM EDT Transaction ID 25145091 Case No. 4446-VCL IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE SAN ANTONIO FIRE & POLICE ) PENSION FUND, on behalf of itself and ) all other