Viratek Inc. shareholders Thursday approved a controversial proposal to award lucrative stock options to several top officers after a Delaware judge earlier in the day refused to grant an court order barring the vote.
And, in a surprise turn of events, Ira Klein, the investor who on Monday filed suit against the company--charging that the options were illegal--dropped the action less than two hours after shareholders approved the options.
"We are in the process of terminating the suit," Klein said in a telephone interview. "I just think it's in my best interest and the company's best interest."
Klein denied that his decision to drop the suit was made under any duress. "I just needed time to think it over," he said.
The vote had been contested by Klein, a Houston physician who argued that the options were unfair because they have an exercise price of $13.625 a share while Viratek stock currently trades for more than $70 a share.
Viratek--as well as stock in its parent company, ICN Pharmaceuticals, and its sister company, SPI Pharmaceuticals Inc.--has shot up wildly since April, largely on speculation that its proprietary drug, Virazole, will be approved as a treatment for AIDS. Traded over the counter, Viratek closed Thursday at $74.50 a share.
Klein's suit, filed in Delaware's Chancery Court, claimed that Milan Panic, who is Viratek's vice-chairman, and other Viratek directors could reap millions of dollars in profits from the immediate exercise of the options and the sale of the stock.
Based on Thursday's closing price, Panic alone would realize a profit of more than $23 million from the immediate exercise and sale of the 400,000 shares the options will to buy.
However, on Thursday morning, the Delaware court said there was little risk that the executives would exercise the options and sell the stock quickly, because such quick action may be prohibited by federal securities laws.
After the vote Thursday, Panic, who also serves as ICN's chairman and chief executive, rejected the suit's allegation that he and the other defendants knew or had reason to know that Viratek stock was undervalued in April when they voted themselves the options.