Zarlink Concerned Shareholders File Proxy Circular Nominating New Board of Directors



    Urgent Action Needed to Change Leadership

    OTTAWA, July 7 /CNW/ - The Concerned Shareholders of Zarlink
Semiconductor Inc. today filed a Proxy Circular which nominates an alternative
slate of Directors who can lead the Company to greater value creation for all
shareholders.
    In a letter to all Zarlink shareholders that accompanies the Proxy
Circular, the Concerned Shareholders say: "Like you, we are concerned by
Zarlink's chronic underperformance over the past several years. The Company's
financial results have been poor and its shares have lost approximately 95% of
their value since January of 2002. It is evident to us that Zarlink lacks the
vision, discipline and leadership to succeed. As significant long-time
shareholders, we believe that new leadership is required to refocus and
reinvigorate Zarlink and move it toward its true potential. With a new
direction and proven leaders, Zarlink can once again generate value for all
shareholders. With your help, we will make these changes."
    The Concerned Shareholders are Scott Leckie, who manages funds owning the
second-largest holding in the Company, as well as David Banks and Daniel Owen.
Together, they own or control more than 5.9% of Zarlink's shares.
    They recommend that Zarlink shareholders use the BLUE proxy enclosed with
the Concerned Shareholder Proxy Circular to vote for their nominees to the
Board: David Banks, Neil Carragher, Kalai Kalaichelvan, Daniel Owen and Luke
Smith. Further information about the nominees is provided in the Circular.
They also recommend shareholders vote in favour of three of the Management
Nominees to the Board: Adam Chowaniec, Hubert T. Lacroix and J. Spencer
Lanthier. Together, the nominees recommended by the Concerned Shareholders
provide the Board with extensive semiconductor industry experience, business
value enhancement expertise, and proven ability to execute effective
strategies.
    With support from other shareholders at the Company's Annual and Special
Meeting scheduled for July 23, 2008, the new Board of Directors would move
immediately to replace Zarlink's President and Chief Executive Kirk Mandy and
implement an action plan designed to rebuild shareholder value lost under the
"Mandy Board".
    The Concerned Shareholders believe their fellow Zarlink shareholders will
recognize the need for immediate change:

    
    A weak and deteriorating share price:

    -  A decline of more than 60% since Kirk Mandy returned as CEO in
       February 2005.
    -  Significantly underperforming both Zarlink's direct peer group and
       other companies in the semiconductor industry.

    Poor financial performance:

    -  Almost $500 million in cumulative net losses from continuing
       operations since 1999.
    -  More than $300 million in lost shareholders' equity in the past eight
       years.
    -  Net cash has decreased from positive cash balances of more than
       $150 million to a current deficit of $17.5 million.
    -  Overhead and R&D costs are more than twice as high as industry norms -
       and rising.

    Poor acquisition track record:

    -  Over $600 million spent on acquisitions since 1996 have led to almost
       $500 million in losses since Kirk Mandy first became CEO in 1998.
    -  Rather than building Zarlink, acquisitions have left it smaller and
       weaker.

    Unfocused and weak product portfolio:

    -  Zarlink has no leading products in any of the three competitive
       segments it serves.
    -  Product misalignment has led to declining organic revenue for seven
       years in a row.

    Poor relationship with investors:

    -  Lack of transparency in financial reporting.
    -  Lack of responsiveness to, and communication with, shareholders.

    (All dollar amounts are in U.S. currency, which Zarlink uses for
    financial reporting.)
    

    "This cannot be allowed to continue. We, the Concerned Shareholders, have
an alternative - a plan for positive change. We believe that Zarlink has
opportunities for value creation and that its operating management team and
employees are capable of delivering better results. However, we have concluded
that the Company is not well led. For year after year, the existing CEO and
his Board have failed to develop - and execute - a value-enhancing strategy,"
the Concerned Shareholders say.
    Details of the Concerned Shareholders' plan for enhanced value are
provided in the Proxy Circular being distributed to all shareholders beginning
today.
    "The goal of the Concerned Shareholders is to increase profitability,
enhance the intrinsic value of the Company, and to have that value recognized
and rewarded by the equity markets. We are not seeking to take control of
Zarlink for ourselves," the Concerned Shareholders state in the Circular. "We
want only to see it led by an independent Board and management who can control
the Company's runaway costs, focus its product portfolio and rebuild its
deteriorated financial position. Our interests are those of all shareholders -
to see appreciation of our investment".
    The Concerned Shareholder Proxy Circular is currently being delivered to
all Zarlink shareholders and is available at www.sedar.com.
    Zarlink shareholders are reminded that the time available to effect
change is short. To be voted at the annual and special meeting, the BLUE proxy
must be submitted by Friday July 18, 2008.
    The Concerned Shareholders are long-term investors who have held their
Zarlink shares for at least three years. During that time, they have
repeatedly expressed their concerns and made constructive suggestions for
change, only to be rebuffed by Mr. Mandy and his Board. Most recently, in a
June 30, 2008 letter to the Board, the Concerned Shareholders called for
urgent action to reverse the long-term erosion in shareholder value and asked
the Board to agree to a meeting by July 2 to discuss their proposal to correct
Zarlink's course. Dr. Henry Simon, Chairman of the Board of Directors refused
the meeting request.
    Kirk Mandy and his Board of Directors issued a news release on the
evening of July 2, 2008 in an effort to respond to the letter from the
Concerned Shareholders. While the Zarlink news release fails to address many
of the issues raised by the Concerned Shareholders, it includes a number of
allegations that fellow shareholders should understand are false. A few are
listed below:

    
    Zarlink claims:             The facts are:
    Scott Leckie manages a      The Scott Leckie Intrinsic Value Funds are a
    "hedge fund ...seeking      group of Segregated Accounts and a Limited
    short-term gain"            Partnership managed on behalf of ordinary
                                Canadians who have entrusted their retirement
                                savings and family assets to Scott Leckie.
                                They can in no way be described as a hedge
                                fund. The investment style and the intention
                                with this Zarlink initiative is long-term
                                value creation. They have held Zarlink shares
                                for more than three years. Mr. Owen and
                                Mr. Banks first invested in Zarlink in 2005.

    The Concerned Shareholders  On July 1, 2008, the Chairman of the Board
    released their letter       had already rejected the Concerned
    requesting a meeting with   Shareholders' request to meet with the Board
    the Board before the Board  to discuss their proposal.
    meeting was over.

    Scott Leckie's agenda is    There is no reason for a shareholder who owns
    to "destroy one of the few  or controls approximately 5.45% of Zarlink's
    remaining Canadian-based    shares to want to "destroy" its investment.
    high tech companies."       Mr. Leckie's agenda is to prevent that
                                destruction under Mr. Mandy. Scott Leckie and
                                the other Concerned Shareholders want to save
                                and enhance the value of Zarlink.

    "...the semiconductor       Even in a weak market, Zarlink's share price
    sector is currently out of  decline of about 95% in six years is
    favour with the public      exceptional. It is worse than comparable
    markets."                   companies and far worse than the SOX index
                                measuring only semiconductor companies.

    The Legerity acquisition    Analysis indicates that Legerity is the only
    is "helping fuel revenue    source of revenue growth at Zarlink. But,
    growth."                    according to Zarlink's most recent financial
                                results, Legerity's revenue has actually
                                declined by roughly 75% on a historical
                                pro rata basis. The investment is failing.

    "we enjoy market-leading    Industry information and analysis indicate
    positions" with our         that Zarlink has no products among the top
    products.                   seven in its three main business segments.

    "We make the necessary      The "short-term impacts" have been continuing
    decisions that may at       for more than six years. We can find no sign
    times impact short-term     of the promised longer-term growth.
    financial performance in
    favour of longer-term
    growth".

    "Zarlink has established a  The experience does not include creating
    very experienced            sustainable value at Zarlink. Individually,
    management team and Board   the members of the Board are generally good
    of Directors".              directors. We believe, however, they are
                                poorly led and as a group have not been
                                effective.

    "We are confident that our  That confidence is not shared by the equity
    product investment and      markets, which value Zarlink at a discount to
    strategic focus will drive  its peers. As history has shown, the Company
    profitable growth in Fiscal has not been able to deliver on the
    2009 and future years."     Chairman's promises.

    "Zarlink is surprised that  National Bank Financial respects the
    National Bank Financial     responsibility of each of its
    has supported this          employee/portfolio managers to act in the
    threatened proxy fight,     best interests of their customers. The
    and finds it very           opinions expressed by the Concerned
    unprofessional."            Shareholders should not be attributed to
                                National Bank Financial.

    The Concerned Shareholders note that, as troubling as the misstatements in
the Mandy Board's response were the issues for which it had NO answers. These
include:

    -  Lack of executive and Board leadership.
    -  Seven years of declining organic revenues.
    -  Almost $500 million in cumulative net losses from continuing
       operations since 1999.
    -  More than $300 million in lost shareholders equity in the past eight
       years.
    -  A decline in net cash from positive balances of over $150 million to a
       deficit of about $17.5 million.
    -  Unfocused and high spending on R&D, with little tangible result.
    -  Inability to control overheads costs.
    

    Voting for Change

    The Concerned Shareholders remind their fellow Zarlink shareholders:
    Your vote is very important to the future of your investment in Zarlink.
If, after reading the Concerned Shareholder Proxy Circular, you agree that the
Concerned Shareholder Nominees, together with the three management nominees,
will better serve your interests as a shareholder of Zarlink, please vote
"FOR" the Concerned Shareholder Nominees on the BLUE form of proxy distributed
with the Concerned Shareholder Proxy Circular.
    You may vote the BLUE proxy for change even if you have previously
deposited a management proxy or other proxy. A timely delivered and
later-dated BLUE proxy automatically revokes any earlier one.
    There is only a short time in which to make the needed change at Zarlink.

    
    -  In order to be deposited with Zarlink's registrar and transfer agent
       in time to be used at the meeting, your BLUE proxy should reach
       Kingsdale Shareholder Services Inc. before 5:00 p.m. (Eastern Time) on
       Friday, July 18, 2008.

    -  Please fax only your BLUE proxy to 416-867-2271 or toll free:
       1-866-545-5580. Hand delivered proxies should be returned to Kingsdale
       at the Exchange Tower, 130 King Street West, Suite 2950, P.O. Box 361,
       Toronto, Ontario, M5X 1E2.

    -  Non-registered shareholders are advised to refer to the information
       under "General Proxy Information - Non-Registered Shareholders" in the
       Concerned Shareholder Proxy Circular.

                           It's time for a change.
                   For new leadership. For a new direction.
                       For renewed shareholder value.
    





For further information:

For further information: Scott Leckie, (416) 363-3399

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CONCERNED SHAREHOLDERS OF ZARLINK SEMICONDUCTOR INC.

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