Retirement Board of Allegheny County v. Rothblatt, et al., No. 4946-CC  (Del. Ch., Oct. 13, 2009), read opinion here.

Kevin Brady, a distinguished Delaware litigator, provides this case synopsis.

 Plaintiffs asked for expedited treatment in a preliminary injunction action brought to enjoin the exercise of options issued under an option exchange plan. On October 13, 2009, the Court denied Plaintiff’s request to expedite the matter on the grounds that plaintiff failed to show good cause to expedite the action — a sufficient threat of irreparable harm.

By way of background, In November 2008 the defendants approved an option exchange plan regarding United Therapeutics (“UTC”) stock, wherein the plan allowed UTC directors and employees to exchange their existing options for new options with an exercise price of $61.50. This plan was approved shortly after UTC experienced a substantial decline in its stock price.
Plaintiff alleged that not only did the share exchange violate UTC’s existing stock option plan, it violated CEO Martine Rothblatt’s employment agreement with UTC. Moreover, the plaintiff alleged that the board violated their fiduciary duties by approving the “repricing” plan. Rothblatt exchanged 582,607 options pursuant to the exchange plan; the shares were received in December 2007 as compensation under an employment agreement with UTC.

The Court noted that because expedited proceedings impose a substantial burden on the Court and the parties, good cause must be shown, i.e., a showing of irreparable injury. Here the plaintiff wanted the Court to preliminarily enjoin defendants and UTC employees from (1) exercising any UTC stock options issued pursuant to the option exchange, (2) issuing or selling the UTC stock necessary to fulfill the exercise of options issued in the option exchange, and (3) issuing UTC stock options to Rothblatt in December 2009.

Plaintiff argued that without an injunction it would be irreparably injured in that: (i) the cash inflows from option exercises at the lower strike price of the exchanged options would be less than inflows at the original strike price; (ii) approximately 150 employees were given “repriced” options in the exchange and plaintiff will not be able to recover from those employees once they have exercised their options and sold their shares into the market; and (iii) the number of shares underlying the “repriced” options amounts to approximately 5.5% of UTC’s public float and that exercise of the options and resale of the underlying shares will flood the market, thereby diluting the value of existing UTC shares. The Court however, was unpersuaded.

As to plaintiff’s first assertion, the Court noted that while it was true that the cash inflows from the lower strike price on the “repriced” options would be less than cash inflows would have been if the options were exercised at their original price, if the option exchange was invalidated, plaintiff’s damages are easily calculable and hence no irreparable harm. Even if it is determined later that Rothblatt is not entitled to any shares she might receive in December 2009, the damages UTC would suffer would be easy to calculate (disgorged profits).

As to plaintiff’s second assertion, plaintiff sued the UTC directors in their individual capacities for breach of fiduciary duty in approving the option exchange so the directors would be liable for the damages of the “repriced” options they personally received as well as those given to the employees. Moreover, as noted above, damages to UTC caused by the exercise of employee-held options are also easy to calculate.

Finally, as to plaintiff’s third assertion, the Court found that it did not demonstrate the type of irreparable injury for which a preliminary injunction could be granted because the options that plaintiff challenges are not additional options, but rather replacement options — “the challenged option exchange and the resale of shares acquired via that exchange will not create any greater dilution in the market than the exercise of the original options and resale of those shares would have.”