Thursday, June 14, 2007

Fursa Alternative Strategies Boosts Stake in ASM Intl (ASMI) to 9.2%, Voices Concerns

In an amended 13D filing on ASM International NV (Nasdaq: ASMI), Fursa Alternative Strategies disclosed they raised their stake from 8.9% to 9.2%. The firm also disclosed a letter to the board. The firm expressed concerns about the appointment of Mr. Del Prado Jr. as CEO, the company's corporate governance, the lack of financial detail in the company's Q1 report, votes on the motion at the Nov 2006 EGM, and the company's current and future strategy.

A Copy of the Letter:

Dear Sirs,

As a shareholder holding approximately 9.2% of common shares in the capital ofASM International N.V. we bring the following to your attention:
On the day of the AGM of ASMI you announced that Mr. Del Prado Jr. has beenappointed Chief Executive Officer. Obviously, such appointment is an importantdecision within the corporate governance structure of the Company, especiallygiven the fact that the chairman has the right to cast as many votes as thereare other board members in office (article 17.3 Articles of Association (AoA)).This gives rise to the following questions:

a. Why was the appointment of Mr. Del Prado Jr. not been included on the agenda of the AGM, despite the fact that your boards apparently intended to discuss this appointment during this meeting? We refer to article 10.5 of the Supervisory Board Rules which states that each substantial change in the corporate governance structure will be submitted to the General Meeting of Shareholders for discussion under a separate agenda item.

b. Have the family ties between the incorporator and present CEO Mr. Del Prado Sr. and Mr. Del Prado Jr. been taken into consideration and if so, in what manner? In particular, have you considered that appointment of a qualified external candidate would have been, in the eyes of many shareholders, an important contribution to value restoration of the front-end business? We refer to the discussions during the AGM of 18 May 2006 regarding the appointment of Mr. Del Prado Jr. as member of the Management Board, wherein several shareholders criticized his candidacy and the lack of clarity regarding the nomination procedure.

For the avoidance of doubt: Mr. Del Prado Sr. was quoted in Financieele Dagbladof 23 May last as being "irritated" that Fursa was not represented at the AGM.In the first place, this assumption is incorrect; Fursa has cast its votes onthe limited number of agenda items. In the second place, there was noannouncement by ASMI that appointment of the CEO would be discussed let alonevoted upon.

The appointment of Mr. Del Prado Jr. confirms our concern, raised several timesbefore, that the present corporate governance structure of ASMI leads tominimization of influence of outside shareholders. We refer for instance to ourletter of 13 April 2006 and the letters of our Dutch legal counsel of 23November and 28 December 2006.

We reiterate that the present appointment and dismissal process vested in ASMI'sArticles of Association still does not reflect the principles and best practicesof the Corporate Governance Code, despite the clear and unambiguous commitmentby the ASMI Boards to procure such compliance. The present appointment anddismissal procedure basically means that board members can only be appointed anddismissed by a shareholders' vote representing more than half of the issuedcapital or, alternatively, on the basis of a nomination by the SupervisoryBoard. This as a practical matter means that the newly appointed CEO cannot bedismissed by shareholders without the supporting vote of his father.

We therefore strongly repeat our previous requests to propose amendments to theArticles of Association in order to achieve compliance with principle IV.1.1 ofthe Corporate Governance Code and the best practice provisions relating thereto.

In its Q4 and 2006 annual results, ASMI presented greater detail on theperformance of the front-end business, helping the market to appreciate theachievements made in this business, including a break-down in earnings fromoperations relating to established products, products in development andoverhead. This level of detail was, however, dropped in the Q1 2007presentation. This stepping back from your commitment of 24 November 2006 iscounterproductive in view of the intended value restoration of the front-endbusiness, and we strongly urge you to reassume this level of detail.

During the EGM of 27 November 2006, on our behalf doubts were expressed whetherthe total number of votes in favour of our motion, as counted by the civil lawnotaries, was correct. As a result of the correspondence between our respectivecounsels of 28 December 2006 and 16 January 2007, our Dutch counsel hasforwarded the information available to us by mail of 17 January 2007 to thecivil law notary. Eventually, a few days before the AGM she informed our Dutchcounsel that she was not able to determine the votes cast during that EGM or theorigin of such votes. The civil law notary announced she would confirm thisposition in writing, which however has not been the case.

In our view this is unacceptable. During the EGM the civil law notaries had tocorrect themselves in the sense that they admitted that approximately 4.5million proxy votes in favour of our motion were initially not included. Monthslater, the civil law notary confirmed orally it would not be possible todetermine the number of votes and their origin, which raises serious doubtsregarding the voting system. We look forward to receiving a clear answer to ourquestion on the number of votes cast in favour of our motion.

During the AGM, you stated you continue to support and execute the currentstrategy of combining front-end and back-end operations. In November 2006 youstated you "will continue to evaluate developments in the semi-conductorindustry and the strategy of ASMI and will give all options, without exception,appropriate consideration" (press release of 24 November 2006). The currentstrategy appears to be failing despite improvements in top line and operationalmargins of the front-end business:

a. The valuation of the market capitalisation of the front-end business (ASMI's current market capitalisation before dilution) still appears effectively negative in as much as it is surpassed in value by the market capitalisation of its subsidiary ASM Pacific Technology (ASM PT). The current ASMI share price performance is driven, we believe, by the performance of the ASM PT shares. Before the EGM of 27 November 2006, the net market value of the front-end business was slightly positive. However, since then it has drifted back to currently minus (euro) 1.50 per share;

b. Leading semi-conductor equipment analysts and industrial specialists continue to believe that the combination of the ASM PT participation and the front-end business does not create added value. The market perception apparently also is that ASMI's front-end operations lack sufficient scale to realize margins at peer group level;

c. ASM PT has an excellent manufacturing platform - in a diversified market - and would appear otherwise well positioned to take up the role of consolidator in its niche. However, as a result of ASMI's current contro of ASM PT, ASM PT is perceived as being unable to take up this role.

Immediately prior to the EGM of November 2006, you committed yourself tocontinuously evaluate ASMI's position and to give all options "withoutexception" appropriate consideration, as well as your preparedness to createindependence between front-end and back-end operations. Your commitment on thisimportant point appeared to make a decisive difference for that shareholders'meeting to not adopt the motion to split at that time.Our questions therefore are:

a. Does the present position of ASMI (including the ratio between ASM PT's market cap and ASMI's market cap) give rise for you to reconsider the current corporate structure of ASMI?;

b. If this is presently not the case, have you determined milestones (time wise, as well as operational and valuation parameters) for such assessment? If so, what are these milestones? If not, why not?

c. Which actions are you considering to restore value to the front-end business? What are your alternative plans if the market continues to place an irregular valuation to the front-end business?

d. The Supervisory Board chose to support a medium-to-high risk strategy evidenced by (i.) supporting a family member as a new CEO in a public company, (ii.) Supporting deviations from corporate governance code, (iii.) supporting a corporate structure not appreciated by the market and questioned by the industry and (iv.) supporting the continuation of subscale business units in the front-end business portfolio. Have further assessments been made by the Supervisory Board, including any recent risk analysis of margin recovery process of the front-end business, possible consolidation plays in both the front-end and back-end sectors and assessment of ASMI's positioning in a possible sector downturn?

It is our preference to discuss the above questions and comments withrepresentatives of your Supervisory Board within a short period of time. We areanxious to understand why the Supervisory Board chooses to support the abovedescribed corporate structure and strategy, as well as the fact that it is theresponsibility of the Supervisory Board to mediate in discussions as thesebetween material shareholders and the Board (see the ruling of the EnterpriseChamber re Stork of 17 January last).

We look forward to your response within two weeks from today.

Yours sincerely,
Fursa Alternative Strategies LLC
William F. Harley, III
President & Chief Investment Officer


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