Microsemi makes new proposal to acquire Zarlink

Ottawa based Zarlink designs mixed signal semiconductor products for communications and medical applications. It offers more than 900 active products and ships approximately 100million ICs per year. Microsemi's latest proposal follows earlier attempts, which were rejected by Zarlink without discussion. However James Peterson, Microsemi's president and ceo, says the company remains interested in engaging with Zarlink's board. "We are committed to building and strengthening its business and believe our proposal provides a superior outcome for Zarlink's shareholders, employees, customers, and the local economy. "We believe this proposed acquisition provides considerable growth opportunities, and greatly benefits the shareholders of both companies. Zarlink's shareholders will receive a substantial premium, in cash, and without execution or macroeconomic risk, while Microsemi's shareholders will benefit from the integration of this highly accretive opportunity." Below is the text of the letter that was sent earlier today to the board of directors of Zarlink. July 20, 2011 Zarlink Semiconductor Inc. 400 March Road Ottawa, Ontario K2K 3H4 Canada Attn: Dr. Adam Chowaniec, Chairman of the Board of Directors Dear Dr. Chowaniec: Microsemi Corporation is pleased to make a proposal to acquire Zarlink Semiconductor, Inc. ("Zarlink" or "the Company") (TSX: ZL) for CAD $3.35 in cash per share. This represents a premium of 40% to Zarlink's closing stock price as of July 19, 2011, a 43% premium to Zarlink's average closing stock price for the 30 days prior to July 20, 2011 and exceeds every price at which Zarlink's stock has traded during the past five years. We believe this proposal provides your shareholders a far superior economic alternative to the risk adjusted outcomes associated with the Company's standalone prospects. We hope and expect the board will act in the best interests of Zarlink and its shareholders and will agree to enter into private negotiations with us towards a definitive agreement in support of our proposed transaction. Your continued refusal to discuss our proposal compels us to directly inform your shareholders of our attractive proposal. As you know, we have been trying to engage in private discussions with Zarlink for more than six months. Our first approach to Zarlink was made on January 12, 2011. This approach was met with a series of delays on your end, which we accepted in good faith in pursuit of a friendly transaction. On May 20, 2011, we put forth a written proposal to acquire Zarlink for CAD $3.00 per share in cash, and expressly stated our willingness to consider increasing our proposal if we were able to learn more about Zarlink's potential value through a due diligence process. After 16 days and without the benefit of any substantive dialogue with us, your board rejected this proposal. On June 17, 2011, we sought once more to engage your board, and increased our proposal to a range of CAD $3.25 to $3.55 per share in cash, with the upper end subject to our ability to meet, perform diligence, and confirm certain assumptions. This offer represented a 41% to 54% premium to your closing price on June 17, 2011. Once again, your board rejected this proposal, without discussion with us and without offering any reasons as to why our proposal did not warrant further discussion. Due to the added costs associated with pursuing this transaction in a public manner and the inability for Microsemi to perform diligence, we are prepared today to acquire Zarlink for CAD $3.35 per share. Please note, this represents a premium to the low end of our previous range. Our proposal has been unanimously approved by our Board of Directors. Morgan Stanley Senior Funding, Inc. and Microsemi have executed a financing commitment letter to ensure that the required funds are available to finance the acquisition on an all-cash basis, and we have retained Stifel Nicolaus Weisel and Morgan Stanley & Co. LLC as our financial advisors. In addition, our Canadian and U.S. legal advisors have analyzed the transaction and do not believe there are regulatory risks that would prevent successful completion in a timely manner. We recognize the recent actions Zarlink has taken to divest non-core assets and strengthen its business focus. We believe these efforts have been reflected in Zarlink's share price and the premium in our offer. At the same time, we believe Zarlink's ability to create real value through improvements in its underlying business fundamentals will be much more difficult and can be greatly assisted by joining forces with Microsemi. Microsemi is committed to achieving a transaction that provides a superior outcome for Zarlink's shareholders, employees, customers, and other stakeholders. Your employees are highly valued and are vital to our interest in Zarlink. While you have reduced your workforce recently, we are committed to investing in Zarlink's business to capture future growth opportunities. Microsemi has a strong track record of growth through strategic acquisitions and a disciplined post-merger integration process allowing for minimal disruption in operations. Over the past 5 years, our highly experienced team has completed 14 acquisitions for total transaction consideration of more than $1.1 billion. Microsemi is steadfast in its pursuit of a transaction with Zarlink. Your refusal to meet with us delays the ability of your shareholders to receive a substantial all-cash premium. We would prefer to proceed through friendly negotiation; however, please know we stand ready to take all necessary actions to complete this transaction. We welcome the opportunity to meet with you or any special committee of independent directors in order to negotiate and consummate a transaction, and reiterate our potential to increase our offer to the higher end of our range if given the opportunity to perform diligence and confirm certain assumptions. Sincerely, James J. Peterson President and Chief Executive Officer