Infinidat is fighting three lawsuits alleging improper stock option dilution brought by employees. We knew about one lawsuit in October 2020 but two more surfaced in a Globes report at the end of July.
The basic situation is that Infinidat, which makes high-end memory-cached storage arrays, has been issuing Class B stock options to employees and advisors since 2015. These shares were worth $1,290 in 2018. The first lawsuit, filed by Tel Aviv law firm Horovitz, Even, Uzan & Co., claims the stock option value was emphasized by a company statute which said: “Class B shares will always receive the first 20 per cent of recompense and rights in the company in the case of an acquisition, without the possibility of dilution by anyone who isn’t an employee or advisor.”
After a June 2020 fundraising round, amounting to tens of millions of dollars, Infinidat devalued these shares to one thousandth of their 2018 amount. It stated: “Whoever holds Class B shares and no longer works for the company will have their share diluted so that it would be worth one thousandth of its former value … and that current employees will be offered a new option program (combining a new class of shares with a new maturation process) that would be worth 6 percent of the previous value of their holdings.”
The ex-employees’ Class B shares were suddenly worth $1.29 and current employees’ Class B stock was valued at $7.40. The lawsuit claims that the registered capital of Class B shares was increased in the June 2020 funding round “to allow an anti-dilution mechanism for two companies (Claridge Israel and ICP), who probably invested in the company in return for Class B shares and are meant to hold 54 percent of Class B shares in any situation,” and to issue thousands of new Class B shares for the company’s employees.
These investors were not advisors and so not entitled to Class B shares – if the claims of the first group of ex-employees are confirmed by the Israeli legal system.
Several dozen employees then left Infinidat.
Horovitz is representing 29 ex-Infinidat employees. A second group of suing employees are represented by Gad Ticho and Alon Kanety of Caspi & Co. A third case involves Dr Alex Winokur who worked at Infinidat and then co-founded Axxana, acquired by Infinidat in 2018.
Lawsuits have been filed in the Tel Aviv District Court (Economic Affairs court) and the Bat Yam Regional Labor Court. They name Infinidat, its board of directors, Infinidat founder Moshe Yanai, and Goldman Sachs.
The company tells us: “We believe that the claims are baseless, and in any case will be determined by the appropriate courts.”