SiliconBeat

Zilog, the San Jose chip company that has been fending off multiple attempts to buy it, said it reached a “settlement agreement” with dissident investor Bryant Riley whose Riley Investment Management gave notice to the company’s board July 3 that it intended to wage a proxy battle in order to gain control of on of it’s five current seats along with the an expansion of the board by one director, which Riley sought to fill.

Riley, which first reported being a greater-than-five-percent owner of Zilog stock two years ago, joined with Universal Electronics in January in an offer to buy Zilog for $4.50 a share. We wrote about that and the company’s less-than-speedy reply, as well as a later offer at the same price made by Ixys after the first deal was rejected, an offer Ixys made and withdrew in the span of two weeks in May.

Riley’s investment firm said the reason it was offering its own nominee to the board along with proposals to increase the size of the board and to repeal any amendments made to the company’s by-laws since they were last voted on in November was “to improve (Zilog’s) corporate governance” and “enhance stockholder value.”

Under the settlement, Zilog will “promptly increase the total number of directors” five to six, divided evenly among its three classes, and appoint Eric Singer, a Riley senior investment analyst, to join it, where he will serve on the compensation committee.

For its part, Riley agreed to vote in favor of the newly reconstituted board at both the 2008 and 2009 shareholder meetings and not to wage any proxy battles during that time. Riley’s funds also agreed not to acquire more than 13 percent of Zilog before the 2009 meeting. They currently control about 8.5 percent of Zilog’s shares.

Shares of Zilog closed down 12 cents, or 3.2 percent, at $3.60.