The awarding of the share options to seven senior executives, including one of the founders, has sparked a $1bn law suit against GEC by shareholders in Fore Systems, who allege that the terms of the offer discriminate against them.
The share options will net a $23m profit for the seven executives. They were awarded at prices ranging from $13.44 to $20.56, compared with the $35 a share GEC has agreed to pay.
Lord Simpson, the chief executive of GEC, is angry that the existence of the share options only became known when negotiations to buy Fore Systems were at an advanced stage.
To avert the threatened legal action, he is said to be keen on a compromise deal whereby the options are handed back. However, GEC has no power to force the seven executives to surrender the options and could not afford to fire them because they run the company.
The seven executives named in the suit filed in the US district court of Western Pennsylvania by lawyers acting on behalf of the shareholders include Thomas Gill, the chief executive of Fore Systems, and Robert Sansom, one of the four founders of the business.
The founders, former researchers at the Carnegie Mellon institute, are already multi-millionaires in their own right, having started the business a decade ago. They own 10 per cent of the company.
This is the first time US securities laws have been used to bring such an action. The plaintiffs argue that in order for all shareholders to be treated equally, GEC will have to increase its offer by between $4 and $5 a share, which could potentially cost it an extra $1bn.
Jeffrey Krinsk of Finkelstein and Krinsk, the San Diego-based law firm that is bringing the class action, said: "There is no accounting for the rapaciousness of the average American corporate executive."
Mr Krinks said that handing back the share options would validate the plaintiff's argument that the seven executives had violated their fiduciary responsibility to other shareholders. But he added that it would also create "a difficult legal situation".