The communications chipmaker will pay tens of millions of dollars in settling disputes stemming from the ousting of its ServerWorks subsidiary's top executive.
Broadcom dismissed ServerWorks co-founder Raju Vegesna in March, citing disagreements between his group and the corporation, and replaced him with Duane R. Dickhut. ServerWorks is a key supplier to IBM, Hewlett-Packard and Dell Computer of server chipsets, which connect processors to computer systems, such as memory and network cards.
On Friday, Broadcom said its settlement with Vegesna and two other employees who left the company entails the chipmaker paying $25 million in cash and recording "a one-time noncash charge of $88 million, reflecting the acceleration from future periods of stock-based compensation expense." The expenses and the charge affect the quarter ended June 30.
The settlement "resolves various issues and disputes raised by employees and former securities holders of ServerWorks relating to agreements entered into when Broadcom acquired ServerWorks," the company said.
Also in that quarter, Broadcom will take a $41 million noncash charge relating to financial terms of the January 2001 acquisition of ServerWorks. These terms govern "earnouts," financial rewards based on ServerWorks's performance. Broadcom reserved as many as 9 million shares of Broadcom common stock for employees if certain financial goals were achieved.
Broadcom said only two ServerWorks employees beside Vegesna left their jobs at Broadcom as a result of the management changes. All other employees, including engineers and Vegesna's fellow ServerWorks co-founders, stayed at the company, Broadcom said.
The news of the management change in March sent Broadcom stock down 16 percent to $12.91 the next day, but the share price has since more than recovered. In midday trading Friday, the stock was trading at $18.71.
One prominent company appears to be satisfied with Dickhut thus far. ServerWorks "continues to be a fine company with a lot of potential," said Tom Bradicich, chief technology officer for IBM's Intel-based xSeries server line and a major ServerWorks customer.