Lu wants to do digital video AND bandwidth..could CUBE/DIVI do it too?
Dirty laundry at VLSI is getting hung out for all to see......
Posted at 12:47 p.m. PST Monday, March 29, 1999
VLSI chief's greed
knows no bounds
BY ADAM LASHINSKY
Mercury News Staff Writer
ALFRED J. Stein's greed seems to know no end.
And the board members of VLSI Technology Inc.
(Nasdaq, VLSI), where Stein is chairman and CEO,
appear to know no shame.
This column has detailed the instances when Stein
has helped himself to riches rightly belonging to
VLSI's shareholders. Now, with VLSI the target of
an unsolicited takeover bid from Philips Electronics
NV (PHG, NYSE), the tale of the wealth he and one
of his pals/directors have arranged to reap has taken
another, surprisingly sordid turn.
New information filed last week with the Securities
and Exchange Commission reveals the tangled web
of apparent self-dealings and conflicts of interest:
In August, the VLSI board awarded Stein, 66, a
''supplemental employment agreement'' that granted
him a bevy of goodies, including two new cars, a
driver and multiple home-security systems.
In February, with full knowledge that Philips was interested in acquiring
VLSI, Stein borrowed $6.2 million from VLSI to exercise stock options.
While there is no evidence he sold any shares, he was altering his ownership
in the company -- perhaps to increase his voting power -- at a time his
company was about to be in play.
Director Robert P. Dilworth, a member of the compensation committee
during 1998, earned $172,860 during the year in consulting fees for services
''to the company.'' Dilworth, 57, former CEO of Los Gatos-based
Metricom Inc. (Nasdaq, MCOM), in late December became a full-time
employee of VLSI and received 200,000 stock options with an exercise
price of $10.94. At Friday's closing price of $19.38, the unrealized value of
Dilworth's options, many of which probably are not vested, is nearly $1.7
million.
What's relevant here is that even as Dilworth was working as a paid
consultant for VLSI, he led the compensation committee that made deals
with CEO Stein once in July and twice in August. After stepping down from
that committee, but remaining on the board, he received a fat options
package to become a senior officer.
Oh, guess how many times that compensation committee met during 1998
to negotiate three agreements for Stein? Once, according to VLSI's proxy
statement.
The disclosure of Dilworth's having been hired as a senior vice president is a
first for VLSI, by the way. A company spokesman acknowledges that
VLSI never issued a press release noting that a current board member had
joined the company in a senior operations role. This clearly is information
shareholders had a right to know.
Where's the board in all this? An independent board is supposed to look
out for the shareholders' interests. This board has done a better job of
looking out for the interests of its CEO and one of its own.
Two board members don't live anywhere near San Jose, where
semiconductor maker VLSI is based. Pierre S. Bonelli, chairman and CEO
of the consulting firm Sema Group, is based in Paris. He was the only other
member of the compensation committee with Dilworth. Horace H. Tsiang is
a computer manufacturing executive based in Taiwan.
The two U.S.-based directors who don't work for VLSI are William G.
Howard Jr., a consultant in Scottsdale, Ariz., and Paul R. Low, a former
International Business Machines Corp. (NYSE, IBM) executive who
lives in Greenwich, Conn. Howard, who replaced Dilworth on the
compensation committee, didn't return a phone call. Low, reached by
telephone Friday, declined to comment.
Still, the board met seven times in 1998, showing it was somewhat aware of
the goings-on at VLSI.
A VLSI spokesman said neither Stein nor Dilworth would comment for this
column.
Their trail is easy to follow, however, in the SEC filings.
Two documents filed March 24 with the Securities and Exchange
Commission, one by VLSI and the other by Philips, are free and easily
obtained at the SEC's Web site www.sec.gov. The Philips ''consent
statement'' urges VLSI shareholders to vote for its slate of VLSI directors
and details its negotiations with VLSI. VLSI's proxy statement advises
shareholders to reject the offer to its own shareholders.
The documents spell out the Philips-VLSI chronology and how Stein and
Dilworth have profited. Arthur van der Poel, the head of Philips'
semiconductor business, first approached Stein about a merger last
September. Stein ''did not wish to entertain such discussions at that time,''
according to the Philips filing. But on Nov. 20, Van der Poel had a
conference call with Stein and Dilworth in preparation for a Nov. 23
face-to-face meeting in San Jose. At that meeting, Van der Poel told Stein
the Dutch company wanted to investigate the possibility of acquiring VLSI
further.
Stein rebuffed that offer too but agreed to keep talking. Dilworth resigned
from the compensation committee on Nov. 25 and officially became a
senior vice president three weeks later.
Philips and VLSI executives held several additional meetings. On Feb. 17
Van der Poel and Stein exchanged e-mails to arrange a meeting for Feb.
25. Philips immediately made public its offer to buy the company for $17 a
share in cash.
On Feb. 19 and 22, Stein exercised a total of 646,821 options, purchasing
the shares with $6.2 million borrowed from VLSI.
Since then, VLSI formally has rejected that offer but signaled last week it is
willing to discuss it further with Philips as well to entertain other offers. At
$19.38 a share, the stock indicates investors believe either Philips or
another bidder will pay more than $17 a share to acquire VLSI. In the
meantime, plaintiff attorneys have filed seven suits on behalf of shareholders
because VLSI has not accepted the Philips offer.
But let's get back to the greed.
As previously reported, Stein negotiated two employment contracts in
1998. They included such provisions as a guaranteed $700,000 annual
salary for five years plus a $700,000 signing bonus for hitting certain targets.
(He did not receive the bonus in 1998).
Then he wanted more. As part of the ''supplemental employment
agreement'' in August, Stein also got a security system for each of his
residences; new cars in 1998 and 2001 (if he's still employed at VLSI); a
chauffeur/bodyguard; and a country club membership plus dues.
Can't a guy get a decent car -- make that two -- on 700 grand a year?
A final word on the money that's at the center of this debate. Silicon Valley
worships money at least as much as it reveres technology. It honors and
admires the entrepreneurs who build great companies and the executives
who guide the firms to great returns for shareholders.
But executives who neither create a company nor build shareholder wealth
simply don't deserve entrepreneurial returns as the fruit of their labor. They
haven't risked anything by negotiating guaranteed contracts and borrowing
cheap money to buy sure-thing stock. They deserve to be shown the door
-- and to be sued for abusing the shareholders' trust.
VLSI went public in 1983 at $13 a share, $2.25 more than its price when
Philips made its offer. Stein was CEO then and has been ever since.
Where's the shame?
Pretty sad, never enough.......Starting to root for PHG in this one....Glad Umesh got fed up and moved to CUBE! |
