## Facts

- Ligand Pharmaceuticals Inc. issued convertible senior notes in underwritten private placements governed by an indenture and described to investors through an offering memorandum.
- The offering memorandum described the conversion mechanics as using “daily VWAP” (volume-weighted average price) during a fifty-trading-day observation period to calculate shares issuable upon conversion.
- The indenture contained a clause permitting Ligand and the trustee, without noteholder consent, to amend the indenture “to conform” its terms to the description of the notes in the offering memorandum.
- A drafting error in the indenture’s conversion formula used “Daily Principal Portion” (a fixed 1/50th slice of principal) in the denominator where “daily VWAP” was intended, producing an economically irrational and greatly increased conversion rate if applied literally.
- About three and a half years after issuance, Ligand executed a supplemental indenture replacing “Daily Principal Portion” with “daily VWAP” to match the offering memorandum.
- Plaintiffs—sophisticated institutional investors who purchased notes in the secondary market—sued to invalidate the amendment and enforce the literal, erroneous conversion formula, asserting breach of the indenture and violation of contract provisions modeled on the Trust Indenture Act.

## Issues

1. Whether the conversion formula’s reference to “Daily Principal Portion” reflected the parties’ agreement or was an obvious drafting error.
2. Whether the indenture’s conformity clause authorized Ligand and the trustee to correct the error unilaterally, without noteholder consent.
3. Whether contractual provisions modeled on Trust Indenture Act § 316(b) barred the amendment as an impairment of nonconsenting holders’ payment or enforcement rights.

## Decision

- The Court of Chancery granted Ligand’s motion to dismiss for failure to state a claim and upheld the supplemental indenture.
- The court held the offering memorandum set the economic terms as marketed and priced, and the indenture’s conflicting term was a clear drafting mistake.
- The court ruled the conformity clause validly permitted amendment to align the indenture with the offering memorandum without noteholder consent.
- The court rejected the Trust Indenture Act–style challenge, concluding the amendment did not impair protected rights to receive principal and interest or to sue for those payments.
- The Delaware Supreme Court affirmed on the reasoning of the Court of Chancery.

## Legal Principles

- When an indenture contains a clause authorizing amendments to conform its terms to an offering memorandum, that clause can permit unilateral correction of an obvious drafting error to match the marketed deal terms.
- Contract interpretation may account for transactional structure and economic logic; courts need not enforce literal language that renders a key formula nonsensical and inconsistent with the transaction as described to investors.
- Trust Indenture Act–type protections (by contract or analogy) are generally confined to core rights to payment of principal and interest when due and the ability to sue for those payments, not to preserving a mistaken term that would create an unintended economic benefit.
- Secondary-market purchasers cannot rely on a plain mistake to claim an economically irrational windfall where the transaction documents and offering materials show a different agreed-upon bargain.

## Conclusion

The courts upheld Ligand’s unilateral amendment correcting an obvious conversion-formula error because the indenture expressly allowed amendments to conform to the offering memorandum and the change did not impair noteholders’ protected payment and enforcement rights.


AG Oncon, LLC v. Ligand Pharm., Inc., C.A. No. 2018-0556-JTL (Del. Ch. May 24, 2019), aff’d, 224 A.3d 963 (Del. 2020)