Ex-employees sue NovaSol over stock
They claim management broke the law by dropping a promise to buy back shares when workers left
Honolulu-based optical technology company NovaSol bills itself as a "model for premium employee benefits in Hawaii's technology industry," touting a retirement plan that allows "every employee (to) profit from the growth of their company."
But according to a lawsuit filed by 11 former employees, the company's retirement plan is far from what they were told about when they started accumulating company stock. According to the suit, which was filed on Friday in U.S. District Court in Honolulu, NovaSol has reneged on an initial promise to buy back shares of employee stock once a worker had left the company due to retirement or other reasons.
The former employees have asked the court to require the company, which is formally called Innovative Technical Solutions Inc., to buy back a total of approximately 460,000 shares. This, according to the suit, represents slightly less than 15 percent of the company's 3.1 million shares outstanding as of March 2005.
Bill McCorriston, an attorney for NovaSol, called the suit "completely without merit."
"It's a rather transparent attempt to obtain money without any justification whatsoever," he said.
Central to the complaint are changes made to the company's retirement program, which includes pension and 401(k) plans. According to the complaint, employees initially were allowed to cash in shares after leaving NovaSol by selling them back to the company.
Terminated employees also were to be allowed to receive cash from the company for their shares.
According to the complaint, several of the plaintiffs accumulated large positions of NovaSol stock based on these terms, with one acquiring nearly 250,000 shares.
The complaint asserts that management changed the plan in late 2004 and early 2005 so that the company was no longer required to buy back the shares. Furthermore, the suit states, management changed the status of shares held by former employees, stripping the shares of their voting rights and thus making them less valuable than shares that carried voting rights.
The suit alleges the changes amount to a violation of federal Employee Retirement Income Security Act.
Although the former employees theoretically could sell their NovaSol shares to a private buyer, John D'Amato, an attorney for the plaintiffs, said his clients would be unlikely to find such a buyer, particularly since the shares carry no voting rights.
D'Amato said that management disputes, including disagreements over whether to position the company as an acquisition target, appear to have caused friction that has hurt the company, which made Inc. magazine's list of the nation's 500 fastest-growing companies in 2004.
"Here you had a company that was phenomenally successful in its first years, and now it appears to be hitting bad times based on internal political strife," D'Amato said.
NovaSol specializes in the research and development of high-tech optical systems used by customers such as the U.S. Navy, Army and NASA, as well as several defense contractors.
NovaSol describes its staff as "highly experienced and well-educated" with half holding master's or doctoral degrees; on average, technical staff employees have 12 years' experience in their fields.
"NovaSol has an excellent rate of retention of its technical staff, greater than 95 percent for each of the past three years, without executing employment contracts or non-compete clauses," the company states on its Web site. "This is the result of a corporate commitment to maintain a creative and positive environment to facilitate personal and professional growth. The NovaSol philosophy is manifest in a competitive compensation package with an opportunity for equity ownership."