1.	to receive the consolidated financial statements of Zarlink Semiconductor Inc. prepared in accordance with United States generally accepted accounting principles for the fiscal year ended March 25, 2011 and the Auditors’ Reports thereon;

 

2.	to elect directors;

 

3.	to appoint auditors; and

 

4.	to transact such further or other business as may properly come before the meeting or any adjournment or adjournments thereof.

 

 

 

 

                                                                               

 

 

 

 

 

MANAGEMENT PROXY CIRCULAR	1
SOLICITATION OF PROXIES	1
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF	1
VOTING INFORMATION	2
CONSOLIDATED FINANCIAL STATEMENTS AND AUDITORS’ REPORTS	5
ELECTION OF DIRECTORS	6
APPOINTMENT OF AUDITORS	10
EXECUTIVE COMPENSATION	11
COMPENSATION OF DIRECTORS	31
EQUITY COMPENSATION PLAN INFORMATION	34
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS	35
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE	35
STATEMENT OF CORPORATE GOVERNANCE PRACTICES	35
AUDIT COMMITTEE DISCLOSURE	36
AUDIT AND OTHER FEES	37
PERFORMANCE GRAPH	37
NORMAL COURSE ISSUER BIDS	38
SHAREHOLDERS’ PROPOSALS	38
OTHER MATTERS	39
ADDITIONAL INFORMATION	39
DIRECTORS’ APPROVAL	39
SCHEDULE “A”	A-1
SCHEDULE “B”	B-1
SCHEDULE “C”	C-1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial Owner	Common Shares	Per Cent
Stonehill Capital Management, LLC	7,734,759 (1)	6.37%
T. Rowe Price Associates, Inc.	6,075,920 (2)	5.00%

 

(1)        Based on information contained in a Schedule 13G filed with the SEC on December 31, 2010, Stonehill Institutional Partners, L.P., Stonehill Capital Management LLC, Stonehill General Partner, LLC, Stonehill Advisers LLC and related parties (collectively, “Stonehill Group”) have shared power to vote or direct the vote of and shared power to dispose or direct the disposition of up to 7,734,759 Common Shares.

 

 

(2)         Based on information contained in a Schedule 13G filed with the SEC on December 31, 2010 by T. Rowe Price Associates, Inc. (“Price Associates”), an investment advisor registered under Section 203 of the Investment Advisers Act of 1940. Price Associates has sole power to vote or direct the vote of 1,075,920 Common Shares and the sole power to dispose or direct the disposition of 6,075,920 Common Shares.

 

 

 

 

 

 

 

 

 

 

 

 

A.

By proxy

 

1.	By mail or delivery

 

§	To vote by mail or delivery, your paper proxy must be completed, signed, dated and returned in accordance with the instructions on the Form of Proxy.

 

2.	By facsimile transmission

 

§	To vote by facsimile, your paper proxy must be completed, signed, dated and sent by facsimile in accordance with the instructions on the Form of Proxy.

 

3.	By telephone

 

§	To vote by telephone, call the toll-free number shown on the Form of Proxy. Using a touch-tone telephone to select your voting preferences, follow the instructions of the “vote voice” and refer to the directions on the Form of Proxy.

 

§	Note that voting by telephone is not available if you wish to appoint a person as a proxy holder other than the persons named on the Form of Proxy. In such a case, your proxy should be voted by mail, delivery, facsimile transmission or the Internet.

 

4.	On the Internet

 

§	To vote your proxy on the Internet, visit the website address as shown on the Form of Proxy. Follow the on-line voting instructions given on the Form of Proxy.

 

5.	By appointing another person to go to the Meeting and vote your shares for you

 

§	This person does not have to be a Shareholder.

 

§	Strike the names that are indicated as proxy holders on the Form of Proxy and write the name of the person you are appointing as proxy holder in the space provided. Complete your voting instructions, date and sign the Form of Proxy, and return it to the Transfer Agent as instructed.

 

§	Make sure that the person you appoint is aware that he or she has been appointed and attends the Meeting.

 

§	At the Meeting, the person appointed should see the scrutineers from the Transfer Agent at the registration table.

 

B.	In person at the Meeting

 

 

 

 

§	These securityholder materials are being sent to both registered and non-registered owners of the Common Shares, either directly by the Company or indirectly through your nominee or your nominee’s agent.

 

§

If you are a non-registered owner of Common Shares and the Company or its agent has sent these materials directly to you, your name and address and information about your holdings of Common Shares have been obtained in accordance with applicable securities regulatory requirements from the intermediary holding Common Shares on your behalf. In such case, the Company (and not the intermediary holding Common Shares on your behalf) assumes responsibility for (i) delivering these materials to you, and (ii) executing your proper voting instructions. Please return your voting instructions as specified in the Form of Proxy.

 

§

If you have received these materials indirectly through your nominee or your nominee’s agent, you will receive the nominee’s form of proxy, which is substantially similar to the Form of Proxy, the sole purpose of which is to instruct the registered holder of the Common Shares (i.e. the nominee) how to vote on your behalf (the “Voting Instruction Form”).

 

A.

By proxy

 

§	Please contact your nominee or the Company if you did not receive a Voting Instruction Form or the Form of Proxy in this package.

 

§

In most cases, you will receive a Voting Instruction Form that allows you to provide your voting instructions by telephone, facsimile on the Internet or by mail or delivery. If you want to provide your voting instructions on the Internet, go to the website noted on your Voting Instruction Form or Form of Proxy and follow the instructions on the screen.

 

§	Some Voting Instruction Forms may be required to be completed and returned, as directed in the instructions provided; or have been pre-authorized by your nominee indicating the number of shares to be voted, which is to be completed, dated, signed and returned to the Transfer Agent by mail.

 

B.	In person at the Meeting

 

§

The Transfer Agent does not have access to the names or holdings of our non-registered shareholders. That means you can only vote your shares in person at the Meeting if you appoint yourself proxy holder by printing your name in the space provided on the Voting Instruction Form or Form of Proxy provided to you and submitting it prior to the proxy deposit deadline.

 

§	Your vote will be taken and counted at the Meeting.

 

§	Prior to the Meeting, you should see the scrutineers from the Transfer Agent at the registration table.

 

 

 

 

 

 

 

 

 

 

§	voting again by telephone, facsimile or on the Internet by no later than 9:30 a.m. on July 25, 2011 or, if the Meeting is adjourned, at the latest 48 hours prior to the adjourned Meeting;

 

§

completing a form of proxy that is dated later than the form of proxy you are changing and mailing it or faxing it to the Transfer Agent or sending a notice to our Secretary, Mr. Renato Pontello at 400 March Road, Ottawa, Ontario K2K 3H4 so that it is received by no later than 9:30 a.m. on July 25, 2011 or, if the Meeting is adjourned, at the latest 48 hours prior to the adjourned Meeting;

 

§	giving a notice in writing to the Chairman of the Meeting, at the Meeting or any adjournment thereof. The notice can be from you or your authorized attorney.

 

 

 

 

 

 

 

 

Dr. Adam Chowaniec Ottawa, Ontario, Canada   Director since:  2007-02-19   Total voting securities: approximately 201,410 consisting of:       136,000 Common Shares   45,000 Common Shares underlying options(1)   approximately 20,410 Common Shares underlying Convertible Debentures(2)	Dr. Chowaniec has been Chairperson of the Company’s Board of Directors since May 27, 2009. He has served as the Chairman and Chief Executive Officer of Amiga2 Corporation, a consulting and investment company, since 2002. Dr. Chowaniec was the founding Chief Executive Officer of Tundra Semiconductor Corporation on December 15, 1995 and served in that position until February 2002. Dr. Chowaniec was also Chairman of the Board of Directors of Tundra Semiconductor Corporation until June 2009, former Chair of the Ontario Research and Innovation Council, and serves on numerous other boards of directors in Canada and the United States, including OSI Geospatial Inc., a reporting issuer, BelAir Networks, and Microbridge Corporations. Dr. Chowaniec is a member of the board of the Export Development Corporation of Canada and has held advisory positions with the Ottawa Economic Development Corporation, the National Research Council’s Industrial Research Assistance Program, the Ottawa Health Research Institute and the Natural Science and Engineering Council of Canada. He is also the vice-chair of the Museum of Nature’s national fundraising campaign. He holds a Master's degree in Electrical Engineering from Queen's University (Canada), as well as both a Bachelor of Engineering and a Ph.D. from the University of Sheffield (England).
Oleg Khaykin Manhattan Beach, California, U.S.A.   Director since:  2007-11-12   Total voting securities:  65,000 consisting of:       25,000 Common Shares         40,000 Common Shares underlying options(1)	Mr. Oleg Khaykin has been President and Chief Executive Officer and a member of the Board of Directors of International Rectifier Corporation, a manufacturer of power semiconductors and a public reporting company in the United States, since March 2008 and a member of the Board of Directors of Newport Corporation, a legal global supplier of advanced technology and products for lasers and optics, since September 2010. Mr. Khaykin acted as Executive Vice President and Chief Operating Officer of Amkor Technology, a leading provider of advanced semiconductor assembling and test services, from May 2003 to March 2008. From May 1999 to May 2003, Mr. Khaykin was the Vice President of Strategy and Business Development for Conexant Systems Inc./Mindspeed, a company that designs, develops and sells semiconductors for networking applications. Mr. Khaykin was also with the Boston Consulting Group, a strategic consulting firm, from July 1991 to June 1999. Mr. Khaykin began his career as a senior development engineer and product manager with Motorola.
Hubert T. Lacroix Montreal, Quebec, Canada   Director since:  1992-07-21   Total voting securities:  155,000 consisting of:       100,000 Common Shares   55,000 Common Shares underlying options(1)	Mr. Hubert T. Lacroix has been President and Chief Executive Officer of the Canadian Broadcasting Corporation / Radio-Canada since January 1, 2008. Mr. Lacroix acted as Senior Advisor to Stikeman Elliott LLP (law firm) and as an adjunct professor at the Faculty of Law of Université de Montréal from May 5, 2003 until December 31, 2007 and as a consultant to Telemedia Ventures Inc., a private investment company from May 5, 2003 until December 31, 2005. Mr. Lacroix was Executive Chairman of Telemedia Corporation from February 2000 to May 2003. From 1984 until his appointment as Executive Chairman of Telemedia Corporation, Mr. Lacroix was a partner with McCarthy Tétrault LLP (law firm). He is Chairman of the Board and a member of the Audit Committee of Fibrek Inc. In addition, he is a trustee of the Lucie and André Chagnon Foundation and a director of their private holding company. Mr. Lacroix is also a Director of the Montreal General Hospital Foundation and a Trustee of the Martlet Foundation of McGill University. Mr. Lacroix received his Bachelor of Law degree from McGill University, was admitted to the Quebec Bar in 1977 and holds a Master of Business Administration degree from McGill University.

J. Spencer lanthier Toronto, Ontario, Canada   Director since:  2003-05-20   Total voting securities: approximately 130,410 consisting of:         45,000 Common Shares             65,000 Common Shares underlying options(1)   approximately 20,410  Common Shares underlying Convertible Debentures(2)

Mr. J. Spencer Lanthier has been a Corporate Director since his retirement in 1999 from KPMG Canada, where he had a long and distinguished career culminating in the position of Chairman and Chief Executive from 1993 until his retirement. A recipient of the Order of Canada, Mr. Lanthier is currently a member of the Board and Chair of the Audit Committee of the TMX Group, Inc. which is a reporting issuer. Mr. Lanthier received an honorary Doctor of Laws degree from the University of Toronto in 2002.

Jules M. Meunier Vancouver, British Columbia, Canada   Director since:  2002-07-31   Total voting securities:  150,000 consisting of:       85,000 Common Shares        65,000 Common Shares underlying options(1)

Mr. Jules M. Meunier has been General Manager, Alcatel-Lucent – 3G (3rd Generation) Wireless Division since February 2010. From November 2002 to February 2010, he was a management consultant. He was President and Chief Executive Officer of Proquent Systems Inc. from January to November 2002. Prior to January 2002, over a 20-year career with Nortel Networks Corporation, he helped shape the company’s direction as Chief Technical Officer, and held senior positions in its wired, wireless, and optical communications divisions, including serving as President of its Wireless Networks division.   Mr. Meunier holds a Bachelor of Science degree in Mathematics and Computer Science from the University of Ottawa.

Dennis Roberson Wheaton, Illinois, USA   Director since:  2004-11-05   Total voting securities:  115,522 consisting of:       50,522 Common Shares   65,000 Common Shares underlying options(1)

Professor Dennis Roberson has been Vice Provost and Research Professor with the Illinois Institute of Technology (“IIT”) since June 2003, where he established a new undergraduate business school, a wireless research center (WiNCom), IIT’s corporate relations initiative, and is responsible for IIT’s strategic plan and associated initiatives. Professor Roberson is also President, CEO and Member of Roberson and Associates, LLC, technology and consulting firm serving a variety of government and commercial customers since 2008. From April 1998 to April 2004, Professor Roberson was Executive Vice President and Chief Technical Officer of Motorola, Inc. From 1971 to 1998, he held senior executive positions with NCR Corporation, AT&T, Digital Equipment Corp. (now part of Hewlett Packard) and IBM.     Professor Roberson is a Director of Advanced Diamond Technologies, Cleversafe, Caerus Institute and Sun Phocus Technologies, LLC. He also serves on the U.S. Federal Communication Commission’s Technology Advisory Council and the U.S. Commerce Department’s Commerce Spectrum Management Advisory Committee (CSMAC), the Board of Directors of FIRST Robotics, the National Advisory Council for the Boy Scouts of America and as an International Advisory Panel member for the Prime Minister of Malaysia. He holds Bachelor of Science Degrees in Physics and Electrical Engineering from Washington State University and a Master of Science in Electrical Engineering from Stanford University.

Gary Tanner Austin, Texas, USA   Director since:  May 24, 2011(3)   Total voting securities:  723,500 consisting of:      400,000 Common Shares      323,500 Common Shares underlying options(1)

Mr. Gary Tanner has been President and Chief Executive Officer of the Company since May 24, 2011. He brings over 34 years of experience to the Company. He joined the Company when it acquired Legerity, Inc. in August 2007. Mr. Tanner was appointed the Company’s Chief Operating Officer in November, 2009 with responsibility for the Communication Products Group, which achieved very strong year-on-year revenue growth and Zarlink’s Senior Vice President, Worldwide Operations where he was instrumental in harmonizing the supply chain and offshoring Zarlink’s manufacturing, as well as managing the Custom/ASIC legacy business.   Prior to Zarlink’s acquisition of Legerity in 2007, Mr. Tanner had served as Vice President of Operations at Legerity since November 2002, which is the date he joined Legerity. Prior to joining Legerity, he was plant manager of Intel Corporation’s Fab 23. During his tenure with Intel Corporation, Mr. Tanner held various management positions, managing multiple domestic and international locations. Prior to Intel Corporation, Mr. Tanner held various management roles in fab operations at National Semiconductor, Texas Instruments and NCR Corporation.   Mr. Tanner holds a Bachelor of Science degree in Technical Management from Regis College.

 

(1)

Reflects options to purchase Common Shares which are currently exercisable or exercisable within 60 days of June 3, 2011.

 

(2)

Reflects convertible debentures convertible into Common Shares at a conversion price of CDN$2.45 (being a ratio of approximately 408.2 Common Shares per CDN$1,000 principal amount convertible debenture) at the option of the holder at any time.

 

(3)

Gary Tanner was appointed as a director of the Company effective May 24, 2011, to fill the vacancy caused by Kirk Mandy’s resignation as of the same date.

 

 

 

 

 

Directors	Audit Committee	Compensation and Human Resources Development Committee	Nominating and Corporate Governance Committee
Independent Directors
Adam Chowaniec			Chairperson
Oleg Khaykin	√
Hubert T. Lacroix	Chairperson		√
J. Spencer Lanthier	√	√	√
Jules Meunier		Chairperson
Dennis Roberson		√
Non-Independent Director
Kirk K. Mandy(1)
Meetings held during Fiscal 2011	5	6	2

 

(1)

Kirk Mandy resigned as a director effective May 24, 2011. Gary Tanner, who was appointed to fill the vacancy, is also a non-independent director and is not currently a member of any committee of the Board of Directors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	base salary

 

·	an annual, variable incentive payment

 

·	grants under the Company’s medium and long-term incentive plans

 

·	personal benefits and perquisites

 

 

 

 

 

 

 

 

·	Current market conditions for his or her respective product group;

 

·	Expectations for future growth;

 

·	Long-term strategic plans to support future shareholder value;

 

·	Opportunities to develop people and enhance the human talent of the organization.

 

 

 

 

 

 

Kirk K. Mandy President & Chief Executive Officer(1)	Meet or exceed the Company’s Fiscal 2011 earnings targets.   The Company’s Fiscal 2011 financial performance (adjusted to include or exclude certain unusual, extraordinary, or non-recurring items such as non-cash foreign exchange losses on the convertible debentures that are considered to be outside the Zarlink’s core operating results) measured by earnings per share (EPS) was significantly greater than the targeted Budget EPS.
	Improve the Company’s quality of earnings through focus on cost containment and margin expansion.   During Fiscal 2011, exceeded the operating expense target  by $2.5M and overall gross margins improved from 51.384% to 51.435%.
	Execute the Company’s strategic plan, deriving an increasing proportion of revenue from new product programs, while growing overall revenue.   The overall percentage of revenue attributed to growth products rose by approximately 13%. During Fiscal 2011, overall revenue grew 11% from $204.6M to $230.0M. This amount excludes revenue from the Opto Electronics Product Group sale to Tyco Electronics in Fiscal 2011.
Target Bonus: $323,000	Overall Assessment: 111.0%	Cash Pool Accrual Factor: 90%	Fiscal 2011 Bonus: $323,000

André Levasseur Senior Vice President, Finance and Chief Financial Officer	Meet or exceed the Company’s Fiscal 2011 earnings targets.                                             Exceeded Target
	Improve the Fiscal 2011 Balance Sheet.                                                                                  Exceeded Target
	Increase analyst coverage on Zarlink Fiscal 2011.                                                                Exceeded Target
	Increase volume on Zarlink Stock by end of Fiscal 2011.                                                    Exceeded Target
Target Bonus: $134,600	Overall Assessment: 112.5%	Cash Pool Accrual Factor: 90%	Fiscal 2011 Bonus:  $136,400

 

Gary Tanner Chief Operating Officer, Senior Vice President Worldwide Operations and Communication Products	Meet or exceed the Company’s Fiscal 2011 earnings targets.                                            Exceeded Target
	Meet or exceed the Communications Product Group direct contribution target.       Exceeded Target
	Meet or beat the Operations’ Other Cost of Goods (OCOGs) & unallocated R&D Gross.     Exceeded Target
	Grow the Telephony Revenue and line single digit while improving margins. Grow Timing revenue 20-25%.      Target Not Met
Target Bonus: $150,000	Overall Assessment: 112.5%	Cash Pool Accrual Factor: 90%	Fiscal 2011 Bonus:  $152,000

Stanley Swirhun Chief Technology and Marketing Officer	Meet or exceed the Company’s Fiscal 2011 earnings targets.                                             Exceeded Target
	Institute internal processes to track programs to grow revenue and Total Available Market (TAM).       Met Target
	Identify, define, incubate and launch one business focused on revenue growth and expanding Total Available Market (TAM).        Met Target
	Identify $14 million in additional annual revenue from the activities of the Chief Technology and Marketing office, measured relative to the Company’s run-rate in the fourth quarter of the financial year ended March 26, 2010 (“Fiscal 2010”).                                                                                                                                        Target Not Met
	Improve the Company’s marketing effectiveness.                                                                Met Target
	Develop a database and roadmap for external relationships to drive growth, and to guide company business decisions.    Met Target
Target Bonus: $150,000	Overall Assessment: 92.0%	Cash Pool Accrual Factor: 90%	Fiscal 2011 Bonus:  $123,750

Stephen Swift Senior Vice President and General Manager, Medical Products	Meet or exceed the Company’s Fiscal 2011 earnings targets.                                            Exceeded Target
	Meet or exceed the Medical Product Group direct contribution target.                      Target Not Met
	Execute the Medical Product Group’s strategic plan for MedRadio.                          Target Not Met
	Execute the Medical Product Group’s strategic plan for wireless sensors.               Target Not Met
	Achieve the Product Group’s objectives in regards to Mergers and Acquisitions.Target Not Met
Target Bonus: $150,000	Overall Assessment: 30.0%	Cash Pool Accrual Factor: 90%	Fiscal 2011 Bonus:  $40,500

 

(1)

Kirk Mandy was succeeded by Gary Tanner as President and Chief Executive Officer of the Company on May 24, 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and Principal Position	Financial Year	Salary(1) ($)	Share based awards(2) ($)	Option-based awards(3) ($)	Non-equity incentive plan compensation(4) ($)		Pension value(5) ($)	All other compensation(6) ($)	Total compensation ($)
					Annual incentive plans	Long-term incentive plans
Kirk K. Mandy(7)   President and Chief Executive Officer	2011	$538,494	0	0	$323,096	Nil	$142,692	$22,003	$1,026,285
	2010	$499,713	$69,705	$192,887	$300,000	Nil	$148,948	$20,858	$1,232,111
	2009	$499,190	Nil	$42,219	Nil	Nil	$31,618	$18,356	$591,383
André Levasseur   Senior Vice President Finance and Chief Financial Officer	2011	$269,247	$31,957	$85,284	$161,422	Nil	$44,333	$19,070	$511,313
	2010	$208,073	$19,916	$113,990	$129,016	Nil	$26,891	$13,905	$511,791
	2009	$149,757	Nil	$2,346	$13,614	Nil	Nil	Nil	$165,717
Stephen Swift   Senior Vice President and General Manager, Medical Products	2011	$300,000	$31,957	$89,073	$40,500	Nil	$11,025	$179,272	$651,827
	2010	$300,000	$19,916	$54,464	$85,000	Nil	$11,025	$26,266	$496,671
	2009	$283,654	Nil	$18,764	$75,000	Nil	$10,956	$17,867	$406,241
Gary Tanner(7)   Chief Operating Officer, Senior Vice President Worldwide Operations and Communication Products	2011	$300,000	$31,957	$89,073	$152,000	Nil	$11,025	$108,025	$692,080
	2010	$300,000	$19,916	$54,464	$150,000	Nil	$11,025	$15,476	$550,881
	2009	$274,426	Nil	$11,728	128,000(8)	Nil	$10,887	$15,239	$440,280
Stanley Swirhun   Chief Technology and Marketing Officer	2011	$300,000	$31,957	$89,073	$223,750	Nil	$11,025	$11,920	$667,725
	2010	$300,000	$19,916	$54,464	$85,000	Nil	$10,644	$13,580	$483,604
	2009	$285,577	Nil	$18,764	$75,000	Nil	$10,262	$12,703	$402,306

 

(1)           The compensation of Messrs Mandy, and Levasseur was determined in Canadian dollars. Canadian dollar amounts have been converted to United States dollars using the Fiscal 2011 average exchange rate of $0.97908.

(2)           Units held under the MTCIP are valued based on the value of the Common Shares on the date of the grant.

(3)           Valued according to the Black-Scholes-Merton option pricing-model.

(4)           In addition to awards granted under the Company’s annual incentive plan, André Levasseur received a bonus of $25,000 for the completion of the Jarfalla Campus sale and Stanley Swirhun received a bonus of $100,000 for the completion of the Opto Electronics Business Unit sale.

(5)           Pension value includes all compensation relating to pension plans (defined benefit and defined contribution), including service costs and other compensatory items such as plan changes and earnings that are different from the estimated earnings for defined benefit plans and above-market earnings for defined contribution plans. See “Pension Plan Benefits” below.

(6)           “All other compensation” includes the following expenses: Mr. Mandy – car allowance/benefits amounting to $20,511 for Fiscal 2011, $19,565 for Fiscal 2010 and $17,181 for Fiscal 2009; Mr. Levasseur – car allowance/benefits amounting to $17,624 for Fiscal 2011 and $12,895 for Fiscal 2010 and $0 for Fiscal 2009 and options exercised $27,166.90 for Fiscal 2011; Mr. Swift – car allowance/benefits amounting to $19,698 for Fiscal 2011 and $23,944 for Fiscal 2010 and $15,544 for Fiscal 2009 and options exercised $167,916 for Fiscal 2011; Mr. Tanner – car allowance/benefits amounting to $13,400 for Fiscal 2011 and $13,412 for Fiscal 2010 and $13,372 for Fiscal 2009 and options exercised $97,000 for Fiscal 2011; Mr. Swirhun – car allowance/benefits amounting to $11,000 for each of Fiscal 2011, Fiscal 2010 and Fiscal 2009.

(7)           Mr. Mandy was succeeded by Gary Tanner as President and Chief Executive Officer of the Company on May 24, 2011. See “Employment Agreements – Kirk K. Mandy”, below.

 

 

Name	Option-based Awards (CDN$ Exercise Price)				Share-based Awards
	Number of securities underlying unexercised options (#)	Option exercise price CDN($)	Option expiration date	Value of unexercised in-the-money options  CDN ($) (1)	Vest Date	Number of MTCIP units that have not vested (#)	Market or payout value of MTCIP units that have not vested  USD ($) (2)
Kirk K. Mandy	450,000	$2.51	1/27/2012	Nil
	450,000	$2.49	2/6/2013	Nil
	450,000	$0.86	2/15/2014	$594,000
	450,000	$0.28	2/10/2015	$855,000
	338,000	$1.37	2/9/2016	$273,780
					2/9/2013	56,000	$119,280
André Levasseur	20,000	$2.51	01/27/2012	Nil
	20,000	$2.49	02/06/2013	Nil
	7,501	$0.86	02/15/2014	$9,901
	15,626	$0.28	02/10/2015	$29,689
	200,000	$0.76	08/05/2015	$284,000
	94,000	$1.37	02/09/2016	$76,140
					2/9/2013	16,000	$34,080
	94,000	$2.04	02/08/2017	$13,160
					2/8/2014	16,000	$34,080

Name	Option-based Awards (USD$ Exercise Price)				Share-based Awards
	Number of securities underlying unexercised options (#)	Option exercise price USD($)	Option expiration date	Value of unexercised in-the-money options ($)	Vest Date	Number of MTCIP units that have not vested (#)	Market or payout value of MTCIP units that have not vested ($)
Stephen Swift	125,000	$2.18	1/27/2012	Nil
	125,000	$2.11	2/6/2013	$2,500
	62,500	$0.85	2/15/2014	$80,000
	150,000	$0.23	2/10/2015	$285,000
	94,000	$1.28	2/9/2016	$79,900
					2/9/2013	16,000	$34,080
	94,000	$2.02	2/8/2017	$10,340
					2/9/2014	16,000	$34,080
Stanley Swirhun	125,000	$2.18	1/27/2012	Nil
	125,000	$2.11	2/6/2013	$2,500
	125,000	$0.85	2/15/2014	$160,000
	200,000	$0.23	2/10/2015	$380,000
	94,000	$1.28	2/9/2016	$79,900
					2/9/2013	16,000	$34,080
	94,000	$2.02	2/8/2017	$10,340
					2/9/2014	16,000	$34,080
Gary Tanner	250,000	$1.42	8/31/2013	$177,500
	100,000	$0.85	2/15/2014	$128,000
	125,000	$0.23	2/10/2015	$237,500
	94,000	$1.28	2/9/2016	$79,900
					2/9/2013	16,000	$34,080
	94,000	$2.02	2/8/2017	$10,340
					2/9/2014	16,000	$34,080

 

(1)  The value of the unexercised in-the-money options is calculated using the closing price of the Common Shares on the TSX on March 25, 2011, less the exercise price.

 

(2)  The value of the MTCIP units is based on the closing price of the Common Shares on the TSX on March 25, 2011.

 

 

Name	Option-based Awards – Value vested during Fiscal 2011 USD($) (1)	Share-based Awards – Value vested during Fiscal 2011 USD($)	Non-equity incentive plan compensation – Value earned during Fiscal 2011 USD($)
Kirk K. Mandy	$376,562	Nil	$323,096
André Levasseur	$93,888	Nil	$161,422
Stephen Swift	$142,878	Nil	$40,500
Stanley Swirhun	$142,878	Nil	$223,750
Gary Tanner	$164,006	Nil	$152,000

 

(1)  Valued according to the Black-Scholes-Merton option pricing model.

 

 

 

 

 

 

 

 

 

 

 

 

(1)  The maximum number of Common Shares issuable under the Option Plan has increased as a percentage of outstanding Common Shares since June 7, 2010 due to the fact that 1,241,300 Common Shares were repurchased by the Company pursuant to its Common Share Bid described below under “Normal Course Issuer Bids”.

 

 

 

 

 

 

 

Name	Accumulated value at start of year ($)	Compensatory ($)	Non-compensatory ($)	Accumulated value at year end ($)
Kirk K. Mandy	$331,252	$61,956	$83,954	$477,162
André Levasseur	$1,854	$20,444	$1,446	$23,743

 

 

 

 

 

 

1.

Meet or exceed the Company’s Fiscal 2012 earnings target;

 

2.

Improve the Company’s quality of earnings through margin expansion; and

 

3.

Execute the Company’s strategic plan, increasing revenue from growth products while completing the transition from legacy products.

 

 

 

 

1.	Meet or exceed the Company’s Fiscal 2011 earnings targets;

 

2.	Improve the Company’s quality of earnings through continued focus on cost containment and margin expansion; and

 

3.	Execute the Company’s strategic plan, deriving an increasing proportion of revenue from new product programs, while growing overall revenue.

 

 

 

 

 

 

 

 

 

 

 

 

 

Name	Base Salary	Annual Incentive	Benefits	Total
Gary Tanner (up to May 24/11)	$300,000	$150,000	$21,308	$471,308
Gary Tanner (as of May 25/11)	$450,000	$100,667	$21,308	$571,975
André Levasseur	$269,247	$134,624	$6,431	$410,302
Stephen Swift	$300,000	$41,833	$21,308	$363,141
Stanley Swirhun	$300,000	$69,583	$21,308	$390,891

 

 

 

 

 

 

(i)	a change of control occurs, and

 

(ii)

(a) prior to the change of control the Eligible Officer that was employed on the date of such change of control had his employment terminated by the Company in anticipation of a change of control or at the instance of a Buyer; or (b) within 24 months of the change of control, an Eligible Officer that was employed on the date of such change of control terminates his own employment for good reason (as defined in the Change of Control Policy) or has his employment terminated by the Company for reasons other than for cause, disability or death (a “qualifying termination”).

 

 

·	A lump sum in an amount equal to 24 months of his annual base salary;

 

·	A lump sum in an amount equal to two times his average bonus earned over the previous three completed fiscal years (or any lesser number of fiscal years he has been employed by the Company as an executive officer);

 

·	Continued coverage under the Company’s benefit plans in place for him for a period of 24 months or a lump sum equivalent in the case of United States residents.

 

 

 

 

Name	Base Salary	Annual Incentive	Benefits	Accelerated Stock Options(1)	Accelerated MTCIP Units(2)	Total
Gary Tanner	$900,000	$201,333	$42,616	$297,390	$68,301	$1,509,640
André Levasseur	$538,494	$183,634	$12,862	$305,546	$68,301	$1,108,837
Stephen Swift	$600,000	$83,667	$42,616	$300,265	$68,301	$1,094,849
Stanley Swirhun	$600,000	$139,167	$42,616	$300,265	$68,301	$1,150,349

 

(1)  The value of the accelerated options is calculated using the closing price of the Common Shares on the TSX on March 25, 2011, less the exercise price.

 

(2)  The value of the accelerated MTCIP Units is calculated using the closing price of the Common Shares on the TSX on March 25, 2011.

 

 

 

 

Name	Fees earned ($)	Share-based awards(1) ($)	Option-based awards ($)	Non-equity incentive plan compensation ($)	Pension value ($)	All other compensation ($)	Total ($)
Dr. Adam Chowaniec	$85,670	$34,953	Nil	Nil	Nil	Nil	$120,623
Oleg Khaykin	$48,220	$29,960	Nil	Nil	Nil	Nil	$78,180
Hubert T. Lacroix	$64,619	$29,960	Nil	Nil	Nil	Nil	$94,579
J. Spencer Lanthier	$0	$75,358	Nil	Nil	Nil	Nil	$75,358
Jules M. Meunier	$7,588	$67,455	Nil	Nil	Nil	Nil	$75,043
Dennis Roberson	$46,996	$29,960	Nil	Nil	Nil	Nil	$76,956

 

(1)   Units held under the DSU Plan are valued based on the value of the Common Shares at the date of the grant. Two Directors elected to have annual and meeting fees paid in DSU units. The number of units are calculated by dividing the fees by the greater of the volume weighted average trading price of common shares on the TSX for the five trading days preceding the 15th of the month following the quarter-end for which the fees are owing or the closing share price on the last trading day before the 15th.

 

 

Retainers (CAD)
Non-Executive Chair of the Board	$60,000
Board Member	$20,000
Audit Committee Chair – Additional Retainer	$15,000
Compensation & Human Resources Development Committee Chair – Additional Retainer	$6,000
Corporate Governance & Nominating Committee Chair – Additional Retainer	$3,000
Meeting Fees (CAD)
Board Meeting (in person)	$2,000
Committee Meeting (in person)	$2,000
Payment for each day spent on the affairs of the Company	$2,000
Board Meeting (telephone)	$1,250
Committee Meeting (telephone)	$1,250

 

 

 

 

 

 

 

Name	Option-based Awards (CDN$ Exercise Price)				Share-based Awards
	Number of securities underlying unexercised options (#)	Option exercise price CDN($)	Option expiration date	Value of unexercised in-the-money options CDN ($)	Issue Date	Number of DSU units (#)	Market or payout value of DSU units  USD ($) (1)
Dr. Adam Chowaniec	20,000	$2.47	2/19/2013	Nil
	20,000	$0.86	2/15/2014	$26,400
	20,000	$0.28	2/10/2015	$38,000
	Nil	N/A	N/A	N/A	2/9/2010	17,500	$37,275
	Nil	N/A	N/A	N/A	2/8/2011	17,500	$37,275
Hubert T. Lacroix	20,000	$2.51	01/27/2012	Nil
	20,000	$2.49	02/06/2013	Nil
	20,000	$0.86	02/15/2014	$26,400
	Nil	N/A	N/A	N/A	2/9/2010	15,000	$31,950
	Nil	N/A	N/A	N/A	2/8/2011	15,000	$31,950
J. Spencer Lanthier	20,000	$2.51	01/27/2012	Nil
	20,000	$2.49	02/06/2013	Nil
	20,000	$0.86	02/15/2014	$26,400
	20,000	$0.28	2/10/2015	$38,000
	Nil	N/A	N/A	N/A	2/9/2010	15,000	$31,950
	Nil	N/A	N/A	N/A	4/15/2010	8,032	$17,108
	Nil	N/A	N/A	N/A	7/15/2010	8,516	$18,139
	Nil	N/A	N/A	N/A	10/18/2010	3,892	$8,290
	Nil	N/A	N/A	N/A	1/18/2011	4,557	$9,706
	Nil	N/A	N/A	N/A	2/8/2011	15,000	$31,950

Jules M. Meunier	20,000	$2.51	01/27/2012	Nil
	20,000	$2.49	02/06/2013	Nil
	20,000	$0.86	02/15/2014	$26,400
	20,000	$0.28	2/10/2015	$38,000
	Nil	N/A	N/A	N/A	2/9/2010	15,000	$31,950
	Nil	N/A	N/A	N/A	4/15/2010	7,458	$15,886
	Nil	N/A	N/A	N/A	7/15/2010	7,143	$15,215
	Nil	N/A	N/A	N/A	10/18/2010	5,896	$12,558
	Nil	N/A	N/A	N/A	2/8/2011	15,000	$31,950

	Number of securities underlying unexercised options (#)	Option exercise price USD($)	Option expiration date	Value of unexercised in-the-money options  USD ($)	Issue Date	Number of DSU  units (#)	Market or payout value of DSU units  USD ($)
Oleg Khaykin	20,000	$1.16	11/12/2013	$19,400
	20,000	$0.85	2/15/2014	$25,600
	20,000	$0.23	2/10/2015	$38,000
	Nil	N/A	N/A	N/A	2/9/2010	15,000	$31,950
	Nil	N/A	N/A	N/A	2/8/2011	15,000	$31,950
Dennis Roberson	20,000	$2.18	1/27/2012	Nil
	20,000	$2.11	2/6/2013	$400
	20,000	$0.85	2/15/2014	$25,600
	20,000	$0.23	2/10/2015	$38,000
	Nil	N/A	N/A	N/A	2/9/2010	15,000	$31,950
	Nil	N/A	N/A	N/A	2/8/2011	15,000	$31,950

 

(1)  The value of the DSU units is based on the value of the Common Shares on March 25, 2011.

 

 

 

Name	Option-based Awards – Value vested during Fiscal 2011 USD($) (1)	Share-based Awards – Value vested during Fiscal 2011 USD($)	Non-equity incentive plan compensation – Value earned during Fiscal 2011 USD($)
Dr. Adam Chowaniec	$14,423	$37,275	Nil
Oleg Khaykin	$19,193	$31,950	Nil
Hubert T. Lacroix	$5,867	$31,950	Nil
J. Spencer Lanthier	$14,423	$85,194	Nil
Jules M. Meunier	$14,423	$75,609	Nil
Dennis Roberson	$14,824	$31,950	Nil

 

(1)  Valued according to the Black-Scholes-Merton option pricing model.

 

 

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by securityholders(1)	9,681,049	$1.37	3,630,287
Equity compensation plans not approved by securityholders	N/A	N/A	N/A
Total	9,681,049	$1.37	3,630,287

 

(1)	For more information regarding the Option Plan, please refer to the section “Executive Compensation – “1991 Stock Option Plan for Key Employees and Non-Employee Directors” and “Procedure for Amending the Option Plan”.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEES	FISCAL 2011(2)	FISCAL 2010(3)
Audit services(1)	$1,008,427	$929,136
Audit-related services	$19,582	$78,703
Tax services	nil	nil
Non-audit services	$41,513	nil
Total Fees:	$1,069,341	$1,007,839

 

(1)           These fees included fees for the audit of the consolidated financial statements and other services performed such as statutory audits and quarterly reviews.

(2)           The fees were converted to United States dollars from Canadian dollars using the Fiscal 2011 average exchange rate of $0.97908.

(3)           The fees were converted to United States dollars from Canadian dollars using the Fiscal 2010 average exchange rate of $0.90857.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	Guidelines	Compliance	Description of Approach
1.	Board of Directors	Yes
(a)	Disclose the identity of directors who are independent.		The Board of Directors is composed of seven directors. The Governance Guidelines recommend that a majority of the board be “independent”. The Governance Guidelines define a director as independent if he or she has no direct or indirect relationship with the Company which could, in the view of the Board of Directors, be reasonably expected to interfere with the exercise of the director’s independent judgment. The Governance Guidelines deem certain relationships to be indicative of non-independence. The Board of Directors has determined that, on a rigorous application of this definition, the Board would be composed of six “independent” directors out of seven board members, namely Oleg Khaykin, Adam Chowaniec, Hubert T. Lacroix, J. Spencer Lanthier, Jules Meunier and Dennis A. Roberson.
(b)	Disclose the identity of directors who are not independent, and describe the basis for that determination.		The President and Chief Executive Officer of the Company, Gary Tanner, is the one director out of seven on the Board of Directors not considered to be an “independent” director.
(c)	Disclose whether or not a majority of the directors are independent.		In determining whether or not a director is independent, as that term is defined in the Governance Guidelines, the Board of Directors considers all relevant facts applicable to a director. Based on the foregoing and on the information provided by directors as to their individual circumstances (see “Election of Directors”), the Board has determined that six of the seven Board of Directors members are independent. See Item 1(a) above.
(d)	Disclose the names of directors who are directors of any other reporting issuer and the name of the reporting issuer.		This information is provided in each director’s biography under the heading “Election of Directors” of this Circular.

(e)	Disclose whether or not the independent directors hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance. If the independent directors hold such meetings, disclose the number of meetings held since the beginning of the issuer’s most recently completed financial year.		The independent directors meet at regularly scheduled “executive sessions” without management. The Chairperson of the Board of Directors chairs the executive sessions; however, he may choose to defer to a Committee Chairperson when the subject matter of the meeting falls within the purview of a Board Committee. The independent directors, led by the Chairperson of the Board of Directors, determine the frequency, length and agenda for executive sessions. An executive session is scheduled immediately before or after a regular Board of Directors meeting at least quarterly each year. At least four executive sessions were held during the course of the last fiscal year.
(f)	Disclose whether or not the chair of the board is an independent director. If the board has a chair or lead director who is an independent director, disclose the identity of the independent chair or lead director, and describe his or her role and responsibilities.		The Chairperson of the Board of Directors, Dr. Adam Chowaniec, is an independent director and ensures that the Board of Directors can function independently of management. The Chairperson’s primary role includes ensuring that the Board of Directors functions properly, that it meets its obligations and responsibilities, that it fulfills its mandate and that its organization and mechanisms are in place and are working effectively. The Chairperson’s responsibilities are to ensure that the Board of Directors meets on a regular basis and at least quarterly without management present; in consultation with the CEO, to establish a calendar for holding meetings of and setting the agendas for the meetings of the Board of Directors and the Shareholders; to coordinate the schedule of meetings of the Board Committees with the Chairpersons of the Board Committees; to act as liaison and to maintain communication with all directors and Board Committee Chairpersons to optimize and co-ordinate input from directors, and to optimize effectiveness of the Board of Directors and Board Committees; to ensure that the Board of Directors receives adequate and regular updates from the President and CEO on all issues important to the welfare and future of the Company; and to meet periodically with the CEO and the Secretary to optimize his liaison function and to ensure efficient communication between management and the Board of Directors. A copy of the role description for the Chairperson of the Board of Directors can be found on the Company’s website at www.zarlink.com.
(g)	Disclose the attendance record of each director for all board meetings held since the beginning of the most recently completed financial year.		Each director’s attendance at Board of Directors meetings is disclosed under “Election of Directors” and each director’s attendance at Committee meetings is disclosed under “Election of Directors – Independence and Board Committees”.
2.	Board Mandate	Yes
	Disclose the text of the board’s written mandate.		The mandate of the Board of Directors is reproduced under Schedule C to this Circular and can also be found on the Company’s website at www.zarlink.com.
3.	Position Descriptions	Yes
(a)	Disclose whether or not the board has developed written position descriptions for the chair of the board and the chair of each board committee.		The Board of Directors has developed written position descriptions for the Chairperson of the Board of Directors (see item 1(f) above) as well as for each Committee Chair. A copy of the role description for the Chairperson of the Board and for the Committee Chairs can be found on the Company’s website at www.zarlink.com.
(b)	Disclose whether or not the board and CEO have developed a written position description for the CEO.		The Board of Directors has developed a written position description for the CEO under the name “Terms of Reference for the Chief Executive Officer” and can be found on the Company’s website at www.zarlink.com.

4.	Orientation and Continuing Education	Yes
(a)	Briefly describe what measures the board takes to orient new members regarding:		The Board of Directors considers that orienting and educating new directors is an important element of ensuring responsible corporate governance. In addition to having extensive discussions with the Chairperson of the Board of Directors and the President and CEO with respect to the business and operations of the Company, a new director receives a record of public and other information concerning the Company and prior minutes of recent meetings of the Board of Directors and applicable committees. The details of the orientation of each new director are tailored to that director’s individual needs and areas of interest.
	(i) the role of the board, its committees and its directors, and
	(ii) the nature and operation of the issuer’s business.
(b)	Briefly describe what measures, if any, the board takes to provide continuing education for its directors.		The Board of Directors is responsible for ensuring that an appropriate continuing education program is made available to all directors. Educational presentations are provided at the Board of Directors meetings from time to time. In addition, all directors receive from the CEO regular business updates and are provided with a copy of all CEO communications to employees.
5.	Ethical Business Conduct	Yes
(a)	Disclose whether or not the board has adopted a written code for its directors, officers and employees. If the board has adopted a written code:   (i) disclose how a person or company may obtain a copy of the code;		All of the Company’s employees (including the senior executives) are subject to a Code of Ethics and Business Conduct, a copy of which is available on the Company’s website at www.zarlink.com. The CEO, the CFO and the Corporate Controller of the Company must, in addition, meet the standards and requirements of the Supplementary Code of Ethics and Business Conduct, which can be found on the Company’s website at www.zarlink.com.
	(ii) describe how the board monitors compliance with its code; and		Two direct email links posted on Zarlink’s website to the Audit Committee Chairperson and the Chairperson of the Board of Directors permit employees and third parties to communicate directly with the Board of Directors. The Audit Committee Chairperson is also copied directly on all ad hoc incident and monthly reports sent to the Company by ReportLine, a third party ethics line provider to which employees and third parties may complain or report.
	(iii) provide a cross-reference to any material change report filed since the beginning of the issuer’s most recently completed financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the code.		The Board of Directors has not granted any waiver to its Code of Ethics and Business Conduct.
(b)	Describe any other steps the Board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.		No material conflicts of interest were declared by a director or an officer in Fiscal 2011 except relating to the discussion and determination of compensation matters for the CEO. When there is a declaration of material conflict of interest, the declarant is asked to immediately leave the Board of Directors or Committee meeting for the duration of the discussion, and not participate in any decision, relating to the transaction or agreement in respect of which he or she has a material interest.
(c)	Describe any other steps the Board takes to encourage and promote a culture of ethical business conduct.		The Board of Directors requires employees to review annually the Company’s Code of Ethics and Business Conduct and to sign acknowledgements that the employees have read and understood the Code. The Board also requires the CEO, the CFO and the Corporate Controller of the Company to review annually the Supplementary Code of Ethics and Business Conduct and sign an acknowledgement that they have read and understood the Supplementary Code. The Board also provides direct email links to the Audit Committee Chairperson and Chairperson of the Board of Directors and provides an ethics reporting line hosted by a third party provider, ReportLine to ensure ease of communication directly to the Board of employee or third party complaints or reports relating to ethical business conduct.

6.	Nomination of Directors	Yes
(a)	Describe the process by which the board identifies new candidates for board nomination.		The Nominating and Corporate Governance Committee reviews and recommends the slate of directors nominees to be proposed annually for election by the shareholders, considering the size of the Board of Directors and the competencies and skills of proposed nominees, and annually reviews the composition of the Board of Directors and its committees to determine if the members meet the “independent” director criteria of the Governance Guidelines. When considering a potential candidate, the Nominating and Corporate Governance Committee will take into consideration such factors as it deems appropriate, including the following:   · the appropriate size of the Board of Directors;     · the needs of the Company with respect to the particular talents and experience of its directors;     · the knowledge, skills and experience of nominees, including experience at the policy making level in technology, business, finance, administration or public service, in light of prevailing business conditions, the knowledge, skills and experience already possessed by other members of the Board of Directors and the highest professional and personal ethics and values;     · minimum individual qualifications, including strength of character, mature judgment, familiarity with the Company’s business and industry, independence of thought and an ability to work collegially;     · experience with accounting rules and practices;     · appreciation of the relationship of our business to the changing needs of society; and     · the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.   The Nominating and Corporate Governance Committee will evaluate director candidates recommended by shareholders in light of the Committee’s criteria for the selection of new directors. Any shareholder recommendation of a director candidate should include the candidate’s name, biographical data and a detailed description of the candidate’s qualifications for membership on the Board of Directors, and should be sent to Zarlink Semiconductor Inc., 400 March Road, Ottawa, Ontario, Canada K2K 3H4, Attention: Corporate Secretary or can be communicated directly to the Chairperson of the Board of Directors by addressing an e-mail to boardchair@zarlink.com. Any shareholder recommendations must be submitted in sufficient time for an appropriate evaluation by the committee. However, if a shareholder wishes the recommendation of a potential candidate to constitute a proposal intended to be included in the Company’s next year circular, it must follow the procedure set forth under the heading “Shareholders’ Proposals” of this Circular. The Nominating and Corporate Governance Committee will periodically assess the appropriate size of the Board of Directors, and whether any vacancies on the Board of Directors are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Committee will consider potential candidates for director who may come to its attention through current members of the Board of Directors, shareholders or other persons. The Company has in the past engaged search firms to help identify or evaluate or assist in identifying potential nominees. The candidates will be evaluated at meetings of the Nominating and Corporate Governance Committee, and may be considered at any point during the year.
(b)	Disclose whether or not the board has a nominating committee composed entirely of independent directors.		The Board of Directors has a nominating committee, the Nominating and Corporate Governance Committee, composed of three independent directors, namely Dr. Adam Chowaniec (Chairperson), Hubert T. Lacroix and J. Spencer Lanthier.
(c)	If the board has a nominating committee, describe the responsibilities, powers and operation of the nominating committee.		The mandate of the Nominating and Corporate Governance Committee is (i) to conduct the CEO candidate identification and appointment process; (ii) to conduct the director identification, evaluation, selection and performance assessment processes; and (iii) to take the leadership role in shaping corporate governance by establishing, amending and monitoring the corporate governance processes and practices of the Company, including an annual review that members of the Board of Directors and its committees meet the “independent” director criteria of the Governance Guidelines. The Committee also has the mandate to review the compensation of directors to ensure that the compensation realistically reflects the responsibilities and risk involved in being an effective director. A copy of the mandate of the Nominating and Corporate Governance Committee can be found on the Company’s website at http://www.zarlink.com

7.	Compensation	Yes
(a)	Describe the process by which the board determines the compensation for the issuer’s directors and officers.		The process by which the Board determines the compensation for the Company’s directors and officers is outlined under “Executive Compensation – Compensation Discussion and Analysis” included in this Circular.
(b)	Disclose whether or not the board has a compensation committee composed entirely of independent directors.		The Board of Directors has a compensation committee, the Compensation and Human Resources Development Committee, composed of three independent directors, namely Jules Meunier (Chairperson), J. Spencer Lanthier and Dennis Roberson.
(c)	Describe the responsibilities, powers and operation of the compensation committee.		A copy of the mandate of the Compensation and Human Resources Development Committee can be found on the Company’s website at www.zarlink.com.
(d)	If a compensation consultant or advisor has, at any time since the beginning of the issuer’s most recently completed financial year, been retained to assist in determining compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the company, state that fact and briefly describe the nature of the work.		In 2011, the Hay Group Consultants (Toronto) was engaged to conduct a study with respect to the compensation of the President and Chief Executive Officer. In 2008, the Compensation Committee engaged the Hay Group Consultants (Toronto) to review against the Comparator Group of semiconductor companies the compensation of directors and executives as well as option grants to directors, executives and employees. In addition, in 2006, Hay Group was retained to assist management in the design and operation of a 360° evaluation process for executives.
8.	Other Board Committees	Yes
	If the board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function.		The Board of Directors has no other standing committees.
9.	Assessments	Yes
	Disclose whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments.		The Board has implemented and reviews, from time to time, a process to annually assess the effectiveness of the Board of Directors, the Board committees and individual directors. Annually, each director completes a questionnaire evaluating the performance of the Board of Directors generally. In addition, the Chairperson of the Board of Directors conducts one-on-one interviews with each director in order to obtain information regarding the effectiveness and performance of the Board of Directors, and of each member of the Board of Directors. The results of all assessments are discussed with the Board of Directors and form the basis of recommendations to the Board of Directors for change. The last full Board of Directors and director performance review was completed by the Board of Directors in December 2010.

 

 

 

 

 

 

 

 

1.	The Committee’s purpose will be to assist the Board oversight of:

 

i.	The integrity of the Company’s financial statements;

 

ii.	The Company’s compliance with legal and regulatory requirements;

 

iii.	The independent auditors’ qualifications and independence;

 

iv.	The performance of the Company’s internal control self-assessment committee and independent auditors; and

 

v.	The process for monitoring compliance with laws and regulations and with the Code of Ethics and Business Conduct.

 

2.	The Committee shall:

 

i.	Review the significant accounting principles and management estimation processes incorporated in the Company’s financial statements, including any changes in the Company’s accounting principles or application thereof;

 

ii.	Review the results of assessments of the Company’s internal controls including disclosure controls and procedures, and the steps adopted to correct significant internal control deficiencies, if any;

 

iii.

Oversee the work of the independent auditors, including (a) resolving disagreements between management and the independent auditors with respect to financial reporting and (b) reviewing the planned scope and approach of the independent audit and the areas of significant emphasis and the measures taken by management to deal with significant internal control deficiencies, if any. The Committee shall discuss with the independent auditors any difficulties encountered in the course of the audit work and any restrictions on the scope of activities or access to requested information.

 

iv.

Review the analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements;

 

v.	Review the effect of regulatory and accounting initiatives as well as off-balance sheet structures, if any, on the financial statements of the Company;

 

vi.	Pre-approve earnings press releases as well as financial information and earnings guidance provided to analysts and rating agencies;

 

vii.	Obtain and review a report by the Company’s independent auditors describing:

 

a.

The independent auditing firm’s internal quality control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues;

 

b.	The results of the most recent SEC Peer Review and (when available) the practice inspection assessments conducted on behalf of the Public Accounting Oversight Board, and similar practice inspection assessments conducted on behalf of the Canadian Public Accountability Board; and

 

c.	All relationships between the Company and the independent auditor which would permit the Committee to assess the auditor’s independence;

 

viii.

Discuss the annual audited financial statements and unaudited quarterly financial statements with management and the independent auditors including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and review related press releases, before such information is publicly disclosed;

 

ix.	Ensure that adequate procedures are in place for review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements (other than (viii) above) and periodically assess the adequacy of such procedures;

 

x.	Discuss policies with respect to risk assessment and risk management;

 

xi.	Meet separately, at least quarterly, with management, with the internal control self-assessment committee and with the independent auditors;

 

xii.	Review with the independent auditors any audit problems or difficulties and management’s response to them;

 

xiii.

Set clear hiring policies for employees, partners or former employees or partners of the independent auditors;

 

xiv.	Establish procedures for the receipt, retention, processing and treatment of complaints regarding accounting, internal accounting controls, or auditing matters;

 

xv.	Establish procedures for the confidential, anonymous submission by employees and third parties of concerns regarding questionable accounting or auditing practices;

 

xvi.	Inquire of the appropriate personnel of the Company and the independent auditors as to any deviation from the established Code of Ethics and Business Conduct and Supplementary Code of Ethics and Business Conduct for Designated Executives and periodically review the policies covering such Codes;

 

xvii.

Review and evaluate the qualifications and performance of the lead audit partner and other relevant personnel of the auditors;

 

xviii.

Report regularly to the Board any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditors, or the performance of the internal control self-assessment committee;

 

xix.

Review and discuss with management and the independent auditor a) the annual audited financial statements, including disclosures made in management’s discussion and analysis, and recommend to the Board whether the audited financial statements should be included in the Company’s Form 20-F and b) the Company’s quarterly financial statements prior to the filing of its Form 6-K, including the results of the independent auditor’s review of the quarterly financial statements;

 

xx.	Review and pre-approve all audit services and all permissible non-audit services to be performed by the independent auditors subject to the de minimis exception for non-audit services set forth in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934;

 

xxi.	Annually review the status of the Company’s environmental compliance program;

 

xxii.

Review and discuss with management and the independent auditors any related party transaction (as defined in the rules of the U.S. Securities and Exchange Commission (SEC);

 

xxiii.

Prepare the report of the Committee to be included in the annual proxy circular or statement;

 

xxiv.

Review, with the Company’s General Counsel, any legal matter that could have a significant impact on the Company’s financial statements.

 

 

 

 

1.

All members of the Committee shall be “independent” directors as defined by applicable U.S. and Canadian securities legislation, rules and policies. All members shall be financially literate and have relevant and practical business experience and competencies as determined by the Nominating and Corporate Governance Committee from time to time. At least one member shall be determined by the Board to be an audit committee “financial expert” as defined by applicable U.S. and Canadian securities legislation, rules and policies.

 

2.

Committee members shall not serve on three or more public company audit committees simultaneously unless the Board determines that such simultaneous service would not impair the ability of such member to effectively serve the shareholders’ and Company’s best interests. Any such determination shall be disclosed in the Company’s annual proxy circular and annual report on Form 20-F.

 

3.

Committee members are barred from accepting any consulting, advisory or other compensatory fee, directly or indirectly, from the Company or an affiliate of the Company, other than in the member’s capacity as a member of the Board and any Board committee. This prohibition precludes payments to a spouse, a minor child or stepchild or a child or stepchild sharing the home with the member, as well as payments accepted by an entity in which a Committee member is a partner, member, officer or principal or occupies a similar position and which provides accounting, consulting, legal, investment banking, financial or other advisory services or any similar services to the Company. A Committee member shall not be an affiliated person of the Company or any subsidiary of the Company.

 

4.	The Committee shall elect from its members a Chairperson. The Secretary shall be elected from its members, or shall be the Secretary, or the Assistant or Associate Secretary, of the Company.

 

5.	Any member of the Committee may be removed or replaced at any time by the Board. A member shall cease to be a member of the Committee upon ceasing to be a director of the Company.

 

6.	Meetings of the Committee shall be called by the Chairperson of the Committee and shall be held at least four times a year.

 

7.	The times and places where meetings of the Committee shall be held and the procedures at such meetings shall be as determined, from time to time, by the Committee.

 

8.

Notice of each meeting of the Committee shall be given to each member of the Committee. Subject to the following, notice of a meeting shall be given orally or by letter, telex, telegram, electronic mail, telephone facsimile transmission or telephone not less than 48 hours before the time fixed for the meeting. Notice of regular meetings need state only the day of the week or month, the place and the hour at which such meetings will be held and need not be given for each meeting. Members may waive notice of any meeting.

 

9.	The Committee may invite from time to time such person as it may see fit to attend its meeting and to take part in discussion and consideration of the affairs of the Committee. However, any such persons invited may not vote at any meeting of the Committee.

 

10.	A meeting of the Committee may be held by means of such telephonic, electronic or other communications facilities as permit all persons participating in the meeting to communicate adequately with each other during the meeting.

 

11.	The majority of the Committee shall constitute a quorum for the purposes of conducting the business of the Committee. Notwithstanding any vacancy on the Committee, a quorum may exercise all of the powers of the Committee.

 

12.	Any decision made by the Committee shall be determined by a majority vote of the Members of the Committee present. A member will be deemed to have consented to any resolution passed or action taken at a meeting of the Committee unless the member dissents.

 

13.	A record of the minutes of, and the attendance at, each meeting of the Committee shall be kept. The approved minutes of the Committee shall be circulated to the Board forthwith.

 

14.	The Committee shall report to the Board on all proceedings and deliberations of the Committee at the first subsequent meeting of the Board, and at such other times and in such manner as the Board or the By-laws of the Company may require or as the Committee in its discretion may consider advisable.

 

15.	The Committee shall review annually its Mandate and all Guidelines, Procedures, Policies or other documents used by it in fulfilling its responsibilities.

 

16.	The Committee shall assess performance of the Committee and each of its members on an annual basis in accordance with performance assessment guidelines provided by the Nominating and Corporate Governance Committee.

 

17.

In the performance of its duties and responsibilities, the Committee shall have access to any and all books and records of the Company necessary for the execution of the Committee’s obligations and may discuss with the officers and auditors of the Company such accounts, records, documents and other matters considered appropriate.

 

18.	The Committee may retain, at the Company expense, such outside legal, accounting or other consultants and advisors as it deems necessary from time to time to fulfill its duties and responsibilities.