OTTAWA, CANADA (NYSE: ZL) today sent the following letter urging
Zarlink shareholders to vote FOR the Company's slate of highly
qualified Directors:
Dear Fellow Zarlink Shareholder:
As you know, our Annual and Special Meeting of Shareholders will
be held on July 23, 2008. This meeting is of vital importance to
shareholders in light of the attempt by Scott Leckie, Daniel Owen
and David Banks (the "Leckie Group") to seize control of your Board
of Directors with their slate of five designees and three current
Management directors. That group also has stated that it intends to
replace your CEO with Mr. Banks as an interim CEO.
The three Management directors have stated that they will not
serve on a board nominated by the Leckie Group as they believe that
Management's plan and its nominees continue to be the best option
for shareholders.
We believe that this action is unwarranted and unnecessary and
that the Leckie Group unfairly presents the Company's performance
in an effort to seize control of Zarlink for its own narrow
interests without paying a control premium. Replacing an
experienced board and senior management with individuals who have
much less industry experience and lack understanding of the Company
would have immediate and lasting negative consequences for
Zarlink.
The Leckie Group owns only 5.9% of Zarlink's outstanding shares,
yet they seek to take control of Zarlink by seizing control of the
Board and terminating the CEO while offering no concrete
alternatives to the clear and articulated strategy that your Board
and management have been executing since 2005. After three years of
hard work, Management and the Board have positioned the Company to
break-even in the first quarter of Fiscal 2009 and be profitable
for the Fiscal 2009 year. Now is not the time for a sudden change
in leadership, direction or strategy.
Our strategy is starting to yield results, as evidenced by
Zarlink's recent stock price outperformance.
To view Zarlink's relative performance from January 1 to July
9th, 2009, click here
(http://media3.marketwire.com/docs/Image_1.jpg)
The Board and Management believe that the current Board and
strategy present the best alternative for shareholders. The Leckie
Group's "plan" is seriously flawed.
View a comparison of Zarlink's well-qualified Board of Directors
versus The Leckie Group nominees.
(http://media3.marketwire.com/docs/Image_2.jpg)
The Leckie Group Board Lacks the Experience and Track Record to
Successfully Lead Zarlink
The Leckie Group does not have the financial and operating
experience nor track record to provide Zarlink with leadership and
strategic direction.
The experience and expertise of Zarlink's Board of Directors
compared with The Leckie Group slate.
(http://media3.marketwire.com/docs/Image_3.jpg)
The Leckie Group Slate Lacks Credibility and Has a Questionable
Track Record
The Leckie Group slate has a questionable track record:
- David Banks: 6 of the 7 companies where he has served as a
member of the board experienced share price declines since he
joined. On average, this decline is 53% (companies include
Newcourt, MediCure, Dynex Power, High Income, Cervus Financial and
Nightingale. For companies that were acquired, share price
performance represents performance from the date David Banks joined
the board until the date the company was acquired.) Two companies
sought protection from creditors under insolvency legislation while
he was a director.
- Daniel Owen and Neil Carragher: Technology board experience
includes Westaim, the share price of which is down 95% since they
joined the board.
- Kalai Kalaichelvan and Luke Smith: No public company board
experience.
Moreover, Scott Leckie, who controls the largest amount of
Zarlink shares in the Leckie Group, was fined by securities
regulators as part of a settlement agreement pursuant to which he
admitted to effecting trades in Air Canada shares where there was
no change in beneficial ownership (also known as "Wash
Trading").
The Leckie Group Imitates and Endorses Zarlink's Strategy and
Offers No Plan of Its Own
The Leckie Group's "plan", as laid out in their proxy circular,
imitates and endorses many of the actions that Zarlink has already
accomplished or which are underway at the Company. In fact, the
Leckie Group offers no plan of their own other than a laundry list
that lacks tangible action items and clarity, and demonstrates that
they do not understand the business, the industry or the
Company.
For example, while criticizing the product line-up of the
Company, the Leckie Group does not identify any product
opportunities in its circular, and only promises to "refocus
spending to pursue identified product opportunities," and to
"conduct a thorough and objective review of the Company's strengths
and weaknesses." They promise to bring "successful leadership from
the front" and "strong downward focused leadership" without
explaining what these platitudes might entail.
The information laid out in the Leckie Group's circular is also
void of credibility and demonstrates a lack of understanding of the
industry and Company by touting opportunities in an industry
segment that is considered legacy, and calls for Zarlink to exit a
business that the Company exited over five months ago.
Since Zarlink is producing results that demonstrate that
management and the Board are successfully executing on their
clearly articulated strategy, the "opportunity" described in the
Leckie Group's proxy circular entails significant risk for Zarlink
shareholders. Calling for a freeze in corporate action in order to
develop an understanding of the business and to create a strategic
plan would put the brakes on the Company's positive momentum.
Furthermore, the Leckie Group has said that it would install a
temporary CEO with no semiconductor management operating
experience, and has not identified any potential candidate to take
on that role permanently.
Zarlink's Current Board and Management Team Are Executing on Its
Rebuilding Strategy
Key elements of the current Board and management's strategy
are:
- Focusing the Business: Your Board and management are extremely
active in evaluating our lines of business, product portfolio and
the demands of an ever-changing market to ensure the Company is
positioned for success. We have exited the money-losing set-top
box, packet switching and foundry businesses, while adding key
products and expertise to strengthen our portfolio. More than 50%
of our products are growth rather than legacy products. The
acquisition of Legerity provides us with market-leading technology
required to deliver voice service over cable and broadband
networks.
- Targeting the Right Markets Through Full Solutions: We have
successfully positioned Zarlink as a higher-value solutions
provider delivering products that solve key problems for our
customers. This includes new products targeting the fast-growing
network timing, voice-over-packet, optical interconnect and medical
wireless markets.
- Establishing Clear Leadership in Target Growth Markets:
Zarlink boasts key market-leading customers in each sector that
depend on our products. For example, in the medical market, Zarlink
is the only supplier with standards-based ultra low power radios
for implantable medical devices. Through the purchase of
Primarion's high-speed integrated circuits business, we added
optical technology that has allowed us to be first-to-market with a
new class of optical interconnect products for the data center and
high performance computing markets. Through the Legerity
acquisition, we gained a market-leading portfolio of voice
interface products required by telephone and cable operators to
deliver integrated voice, television and Internet services.
The current Board and Management's strategy has significantly
improved the Company's financial performance:
- Despite the Leckie Group's claims, the Company has
demonstrated revenue growth over the last few quarters, with gross
margins stabilizing. Revenue is up approx. 13% in the last quarter
and is expected to continue to grow in Fiscal 2009 with Q1 Fiscal
2009 expected to be up between 8% and 11% over Q4 Fiscal 2008.
- Our strategy has driven significant operating expense
improvements, with operating expenses declining an estimated 7%
from Q4 Fiscal 2008 to Q1 Fiscal 2009, as indicated in the
Company's May 2008 guidance.
Zarlink's revenue growth and operating expenses in $millions
(http://media3.marketwire.com/docs/Image_4.jpg)
In the dissident proxy circular filed July 7, 2008 by the Leckie
Group, Zarlink's financial results, product direction and strategy
are in some cases completely misstated and, in many other cases,
unfairly presented. Many comments show a complete misunderstanding
of the industry and our Company. We view this as disturbing given
that the Leckie Group wants the shareholders to entrust them to run
the Company.
- The Leckie Group claims that the Company's operating expenses
are greater than the average of comparable companies - this is
simply not true. In the latest 12 months ("LTM"), Zarlink's R&D
and SG&A costs were below those of its peer group as a
percentage of gross revenue.
- Furthermore, the Company has continued to improve operating
expenses, bringing operating expenses as a percentage of gross
revenue to an estimated 43% in Q1 Fiscal 2009, versus the average
of its peer group of 68%.
Zarlink's operating expenses as a percentage of revenue.
(http://media3.marketwire.com/docs/Image_5.jpg)
Under the strategy formulated by the current Board and
management, Zarlink has made and continues to make great strides in
its return to profitability. We expect to continue these efficiency
improvements in order to drive further operating margin
improvements and profitability throughout Fiscal 2009.
Zarlink's Product Portfolio is Focused and Market Leading
Contrary to the Leckie Group's claims that Zarlink has no
leading products, the Company enjoys product leadership in four
industry sectors:
- Medical/Wireless Circuits & Modules for In-Body Devices -
Zarlink is the only supplier of standards-compliant low-power
radios and modules for implanted medical devices supporting
wireless healthcare monitoring and advanced therapies, and is the
chosen supplier of the transmitter technology for the world's first
swallowable camera capsule.
- Network Timing & Synchronization - Zarlink is ranked in
the top two suppliers of network synchronization products, with the
industry's broadest offering of products.
- Optical Cables and Products for Data Centres - Zarlink was the
first to support volume production of innovative ZLynx optical
cables for data center interconnect, and is one of top four
suppliers of optical modules.
- IP Telephony - Zarlink is one of three key suppliers in a
large, stable market.
The Current Zarlink Board Is Comprised Of Directors With the
Right Balance of Financial, Technical and Business Experience
The Nominating and Corporate Governance Committee of the Board
reviews the needs of the Board annually and, when appropriate,
seeks to augment what is already a strong Board with individuals
whose skills will support our management team and assist in the
oversight of and overall management of the Company. In the last 18
months, we have added two new Board members as follows:
- Dr. Adam Chowaniec has been a member of the Board since
February 2007 and has a strong technical and business background.
He is also the founding CEO of Tundra Semiconductor (to Dec.
2005).
- Oleg Khaykin has been a member of the Board since November
2007 and has a strong technical and business background. He is
President and CEO of International Rectifier and former EVP and COO
of Amkor Technology.
These individuals have made significant and valuable
contributions to the Board since joining the other Board members
consisting of:
- Hubert T. Lacroix has been a member of the Board for 16 years
and has a strong financial and legal background. He is President
and CEO of CBC/Radio-Canada, a former partner of or counsel to
McCarthy Tetrault LLP and Stikeman Elliott LLP, two of Canada's
foremost law firms. He is a financial expert under the NYSE
governance rules.
- J. Spencer Lanthier has been a member of the Board since 2003.
He is a former Chairman and CEO of KPMG Canada, sits on other
public company boards and is a financial expert under the NYSE
governance rules.
- Kirk Mandy is Zarlink's CEO, having worked in many capacities
for the Company for over 20 years.
- Jules M. Meunier has been a member of the Board since 2002 and
has had a 20-year career with Nortel Networks including Chief
Technical Officer.
- Dennis Roberson has been a member of the Board since 2004 and
is Executive Director and Research Professor of Illinois Institute
of Technology and the former Chief Technical Officer of
Motorola.
- Dr. Henry Simon is the Chairman and has been a member of the
Board since 1992. He has been actively involved in the technology
industry for over 30 years in both North America and Europe and is
a Special Partner of SV Lifesciences.
Our Board is highly experienced and skilled and actively
participates in the formation of the Company's strategy and
execution of its plans. By comparison, it appears that of the five
individuals nominated by the Leckie Group, only Luke Smith has
worked in the semiconductor business and the Leckie Group's
nominees including the proposed interim CEO, as a group, offer
little experience in the technology industry in general. We believe
this should be of significant concern to Zarlink shareholders. We
question how a board composed of only five individuals with such
little industry and Company knowledge would be able to provide
adequate oversight of new senior management.
Zarlink also has an effective corporate governance model in
place that is in compliance with both Canadian and United States
Governance requirements. It consistently gets very high ratings on
its corporate governance from proxy advisory firms and other
governance monitoring organizations.
Zarlink Offers Market Leading Transparency to All
Stakeholders
Zarlink is also an industry leader in transparency of financial
reporting, financial guidance and communications with shareholders
and the research community. Zarlink discloses financial results in
four business segments and four geographies. The Company has met
earnings guidance in the past 11 of 12 quarters, and regularly and
actively engages shareholders and research analysts in an active
dialog. This is consistent with, if not greater than the level of
transparency provided by comparable companies.
The Leckie Group are Not Long-Term Shareholders
The trading pattern disclosed in the circular reveals that Mr.
Leckie, Mr. Banks and Mr. Owen are, contrary to their claim,
traders rather than long-term holders of Zarlink shares.
Mr. Banks acquired his shares beginning in 2008 and Mr. Owen
acquired the shares he owns only last month. In addition, while the
funds Mr. Leckie manages have bought and sold shares over the last
few years, the shares the Leckie Group and associates control have
not been consistently held for the long-term, with 36% having been
purchased since June 2007. Overall, in the past two years, the
Leckie Group and associates have made many purchases and sales in
Zarlink's shares, trading over 2.7 times the position disclosed in
the Leckie Group circular.
Last Minute Proxy Challenge is Costly and Disruptive
Zarlink's ability to succeed in its competitive markets requires
focus, attention to detail and the support and guidance of an
expert Board of Directors that understands our business and is up
to speed on the many moving pieces involved in executing on our
strategy. Zarlink's current Board is comprised of the right
Directors, who understand both our industry and our Company.
Mr. Leckie, Mr. Owen and Mr. Banks, who only control a combined
5.9% percent of the Company's shares, are seeking to seize control
of the Board and replace the Company's CEO through an eleventh
hour, costly and disruptive process. If successful, it is clear
that the Leckie Group will seek to impose the costs incurred by
them on the Company. These costs will be substantial.
Vote FOR the Re-election of the Zarlink Board
Zarlink's Management and Board of Directors strongly recommend
that you reject the attempt by Mr. Leckie, Mr. Owen and Mr. Banks
to take over Zarlink while offering no control premium and only a
self-serving, short-term agenda. We urge you to support your strong
and well-qualified Board of Directors by voting "FOR" the election
of the slate of director nominees set out in the Zarlink Management
Proxy Circular, a copy of which is available on SEDAR at
www.sedar.com. Please discard any proxy or related materials you
may receive from the Leckie Group and vote using only our YELLOW
form of proxy.
Voting is a very quick and easy process. To be effective,
completed YELLOW proxies must be received by 10:30 a.m. on July 21,
2008. Due to the limited time available we recommend that you vote
using one of the quicker options available as noted in the YELLOW
proxy, preferably by Internet, telephone or facsimile, today or at
least 24 hours in advance of the deadline. Please visit the Zarlink
website for a link to the Internet voting site. If you have already
voted using the dissident proxy you have every right to change your
vote by simply executing and delivering the YELLOW proxy. It is the
later dated proxy form that will be counted.
If you have questions about voting your proxy or need additional
information, please contact Zarlink's proxy solicitation agent,
Georgeson (North American toll-free, 1-866-717-8088).
On behalf of the Zarlink Board of Directors and Management, we
thank you for your continued support and promise that we will
continue to work hard on behalf of all our shareholders.
Sincerely,
Dr. Henry Simon
Chair
Zarlink Semiconductor Inc.
Kirk Mandy
President and CEO
Zarlink Semiconductor Inc.
Download a pdf of Zarlink's Letter to Shareholders.
http://media3.marketwire.com/docs/ZL_ShareHLetter10072008.pdf
Forward-Looking Statements
Certain statements in this shareholder letter constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and Canadian securities
legislation. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and assumptions include,
among others, the following: our dependence on the successful
development and market introduction of new products; our dependence
on revenue generation from our legacy products in order to fund
development of our new products; our ability to successfully
integrate Legerity and any businesses acquired in the future; any
potential undisclosed liabilities associated with the Legerity
acquisition; our ability to operate profitably and generate
positive cash flows in the future; our dependence on our foundry
suppliers and third-party subcontractors; order cancellations and
deferrals by our customers; and other factors referenced in our
Annual Report on Form 20-F. Investors are encouraged to consider
the risks detailed in this filing.
About Zarlink Semiconductor
For over 30 years, Zarlink Semiconductor has delivered
semiconductor solutions that drive the capabilities of voice,
enterprise, broadband and wireless communications. The Company's
success is built on its technology strengths including voice and
data networks, optoelectronics and ultra low-power communications.
For more information, visit www.zarlink.com.
Shareholders and other individuals wishing to receive, free of
charge, copies of the reports filed with the U.S. Securities and
Exchange Commission and Regulatory Authorities, should visit the
Company's web site at www.zarlink.com or contact Investor
Relations.
Certain statements in this press release constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied
by such forward-looking statements. Such risks, uncertainties and
assumptions include, among others, the following: our dependence on
the successful development and market introduction of new products;
our dependence on revenue generation from our legacy products in
order to fund development of our new products; our ability to
successfully integrate Legerity and any businesses acquired in the
future; any potential undisclosed liabilities associated with the
Legerity acquisition; our ability to operate profitably and
generate positive cash flows in the future; our dependence on our
foundry suppliers and third-party subcontractors; order
cancellations and deferrals by our customers; and other factors
referenced in our Annual Report on Form 20-F. Investors are
encouraged to consider the risks detailed in this filing.
Contacts: Zarlink Semiconductor Inc. Ed Goffin 613-270-7112
edward.goffin@zarlink.com
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