Today's San Diego Union Tribune : Qualcomm hit with a lawsuit
Employees of division sold to Ericsson fight to
keep millions in unvested stock options
By Mike Drummond
STAFF WRITER
May 7, 1999
Disgruntled employees potentially numbering in the hundreds filed a
class-action lawsuit against Qualcomm yesterday, in a fight to keep millions of
dollars in unvested stock options.
The employees, including a vice president, are the intellectual backbone of
Qualcomm's wireless infrastructure equipment business, which Swedish
archrival Ericsson bought as part of a sweeping patent settlement the two
companies reached in March.
The lawsuit demands "immediate vesting" of unvested stock options and "full,
fair and just compensation" in monetary damages that all told could top $50
million, said Richard Williams, an attorney with one of three local law firms
that filed the lawsuit on behalf of the employees.
The action threatens the smooth transfer of more than 1,200 employees and
underscores the overarching role stock options play in hiring and retaining
high-tech talent.
After Qualcomm and Ericsson forged their landmark truce in March, affected
workers wanted to know what would happen to their unvested stock options.
Both companies said workers would have to surrender the unvested portion
of those options, fanning employee anger as the value of Qualcomm's stock
soared to record levels recently.
Attorney David Perkins said Qualcomm lured many recent infrastructure
recruits with the promise of lucrative stock options to be paid out over a
five-year period, but never revealed that the company was negotiating to sell
the division as far back as mid-1998.
"We're alleging fraud," Perkins said.
Perkins and fellow attorneys said they will not know exactly how many will
join the lawsuit until after today, when a deadline to sign a Qualcomm
severance package expires.
Thomas M. Sprague, a Qualcomm vice president at the jettisoned
infrastructure division and the lead plaintiff in the lawsuit, said he personally
stands to lose more than $1 million in unrealized unvested options.
Flanked by attorneys at the downtown law offices of Perkins & Miltner,
Sprague, a former Motorola executive who came to Qualcomm about two
years ago, yesterday called Qualcomm's denial of unvested options "unfair"
and a "sad situation."
Sprague, 50, is among those who will be working for Ericsson. He said he
planned to retire within 10 years, buoyed into his golden years on vested
Qualcomm options.
"I felt somebody had to step forward," he said.
Ericsson wants to use the infrastructure division as the research and
development epicenter of its new venture into making mobile phone
technology based on code division multiple access, or CDMA, technology
which Qualcomm pioneered and commercialized and which has since become
the hottest-selling wireless technology on the planet.
The infrastructure division makes closet-sized base stations that keep mobile
phones connected to standard phone networks.
Ericsson officials downplayed the obviously uncomfortable prospect of
acquiring an unhappy work force.
"We feel we have a good place for them," said spokeswoman Kathy Egan.
"We hope there's a peaceful transition."
However, alarmed by mounting discord, Qualcomm and Ericsson recently
tried to quiet rebellion by funding a retention bonus plan, which will dispense
four payments over two years based on the number of unvested options each
employee possesses.
Many entry-level workers would receive about $20,000, while senior
executives could see about $1 million or more, Qualcomm officials said.
Several hundred employees have signed the plan, officials added.
The value of the offer generally is about 20 percent to 50 percent of what the
unvested options are worth at today's stock price, Qualcomm said.
Qualcomm chief executive Irwin Jacobs said yesterday the company has no
plans to amend the plan, which he said represented "substantial
compensation."
Dan Sullivan, Qualcomm's senior vice president of human resources, accused
aggrieved employees of trying to profit off the run-up in Qualcomm stock
while simultaneously enjoying the fruits of the bonus plan.
Moreover, he noted the company is keeping transferred employees on its
payroll through June so they can take advantage of Qualcomm's employee
stock-purchasing program. Employees can buy Qualcomm stock at about
$43 a share, five times under yesterday's market price, Sullivan said.
"Some of these employees, through their attorneys, are asking to double dip,"
Sullivan said. "It seems very wasteful to spend this kind of money on
attorneys.
"We are all working very, very hard to provide packages to employees that
are really industry-standard setting."
Not all agreed.
"Financially, (the package) is not any better than if we were to keep our
options," said one infrastructure worker moving to Ericsson. He requested his
name not be used.
San Diego employment attorney David Strauss said the employees have an
uphill battle. The offer of stock options does not guarantee employment.
"They're tough cases," said Strauss, who is not affiliated with the suit. "I'm not
saying they're not winnable."
Qualcomm stock closed at about $52 at the end of last year, and has since
quadrupled, closing down yesterday nearly 4 percent at 216.061/4. Ericsson
stock inched up .23 percent yesterday, closing at $27.371/2.
Tony Chartrand, Ericsson's vice president of human resources, said yesterday
the company will roll out a stock-option plan for former Qualcomm
employees effective Jan. 1. Details are still being hammered out, he added.
Qualcomm has a reputation of seducing potential employees with stock
options. Many in the company's ranks have turned down or left jobs at
Motorola, Nortel and other larger telecom corporations because of
Qualcomm's generous stock-option incentive.
Options typically are awarded to employees as bonuses or hiring inducements
and allow workers to buy stock at a current market price. Options can be
exercised or sold at certain preset vesting dates, usually at a price higher than
for what they were purchased.
Many Qualcomm infrastructure workers are fuming that they are losing
options just months, in some cases weeks, shy of their vesting dates.
Sometimes, companies allow employees to exercise unvested options when a
company is acquired.
Qualcomm argues that this so-called change-of-control provision does not
apply because only one of its business units, not the entire company, is being
sold.
Meanwhile, Ericsson confirmed yesterday it is assimilating 1,280 infrastructure
workers in a deal expected to close by May 24. There are about 1,600
workers at the division, meaning Qualcomm will have to absorb or lay off at
least 320 employees in the coming weeks.
Qualcomm's Sullivan confirmed yesterday that the company is in the process
of trying to absorb the infrastructure employees not on Ericsson's list, which
could take a couple of months. Qualcomm has room for 600.
"Theoretically, we could easily absorb all of them," Sullivan said. "But we
must see if their skills match requirements."
Copyright 1999 Union-Tribune Publishing Co. |
