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An employee at Israeli high-tech firm Vision Tech Ltd., which was bought in November by Broadcom Corp., is suing both companies for alleged fraud and misrepresentation in connection with the deal, according to a suit filed Monday with the Tel Aviv District Labor court. Tommy Orpaz, a senior marketing official at Vision Tech — which has been renamed Broadcom Israel — alleges that the company and its two principal founders, Amir Morad and Leonid Yavitz, diluted an employees’ stock-option plan as part of the buyout arrangement with Broadcom. In addition, the company is charged with failing to allow Orpaz to exercise his stock options. Last month, Broadcom confirmed reports that Vision Tech received 3 million shares upon the deal’s closing. An additional 5 million Broadcom shares were set aside in connection with performance-based warrants that vest when customers of the former Vision Tech satisfy certain purchase requirements. Orpaz charges in the suit that Broadcom’s move wrongfully diluted his stake in the company. Broadcom has come under fire for the use of these controversial warrants in at least four other deals struck by the acquisitive chipmaker last year. During a visit to Israel last week, Broadcom President and CEO Henry T. Nichols III said that he had demanded that Morad agree to sign deals with customers to purchase its latest chip and in exchange would be given options in Vision Tech. Orpaz is requesting that he be allowed to convert his Broadcom options at the rate conveyed to Vision Tech employees at the time of the deal. Orpaz claims the value of the stock options has dropped from about $1.4 million in February, when he first attempted to exercise them, to about $600,000 last week. Irvine, Calif.-based Broadcom acquired Vision Tech Ltd. on Nov. 28 in an all-stock deal valued at the time at $776 million. Broadcom said it would issue about 7.96 million shares in exchange for all of the shares of Vision Tech. Broadcom is a provider of integrated circuits for broadband communications. Herzliya, Israel-based Vision Tech develops compression and broadband cable technology. The suit is being brought against Vision Tech, its founders and Broadcom. Tel Aviv law firm Dekel Sabo & Co. represents Orpaz. Another Tel Aviv law firm, Naschitz Brandes & Co., represents Vision Tech. Broadcom is represented by San Francisco’s Brobeck, Phleger & Harrison LLP. Chase H&Q was financial adviser to Vision Tech on the deal. “If Broadcom and Vision Tech misrepresented the deal between them, then the employee is likely to have a very good case,” said a leading Tel Aviv-based lawyer in the high-tech field. Broadcom Israel expressed surprise over the suit and said it was still studying the matter. The case is expected to be heard by the Tel Aviv district labor court in the coming weeks. The labor courts have jurisdiction in Israel over all work-related issues. “In recent years, the labor courts have increasingly intervened on the side of employees in the high-tech industry to defend their rights,” Sabo said. Several class actions have been brought against Broadcom in the U.S. They charge the company and certain of its officers and directors with alleged violations of federal securities laws. The suits allege that the company issued false and misleading statements regarding the nature of Broadcom’s revenues and earnings, which caused the company’s stock price to become artificially inflated. Vision Tech was founded in 1996. The company began recording sales in 1999. The company said that sales this year are expected to be about $4 million. “The merger will lead to a much faster increase in our sales in the coming years than we had ever hoped for,” said Yavitz at the time of the deal. Founders Morad and Yavitz are the largest shareholders in the company, with about 20 percent. Among the other investors are two Japanese companies — CSK Inc. and Sega Inc. — and Vertex Israel, a Savyon, Israel-based venture capital fund. Private investors in Israel, Japan and the U.S. have also invested in the company. Broadcom’s market value at the time of the deal was about $23 billion. It has since dropped to below $8 billion. Olaf de Senerpont Domis in San Francisco contributed to this report. Copyright (c)2001 TDD, LLC. All rights reserved.

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