SMIC settles all pending lawsuits with TSMC, no disruption to customers anticipated

SHANGHAI, CHINA: Semiconductor Manufacturing International Corp. announced that it entered into a settlement agreement with Taiwan Semiconductor Manufacturing Co. Ltd to resolve all pending lawsuits between the parties, including the legal action filed by TSMC in California for which a verdict was returned by the jury against SMIC on 4 November 2009 and the legal action filed by SMIC in Beijing.

Settlement agreement
SMIC and TSMC have entered into a settlement agreement on 9 November 2009 to settle and dismiss the California Case, including all claims and defenses of SMIC yet to be decided in that case and SMIC's appeal in the Beijing Case, thus concluding all pending court litigation between the parties.

Key provisions of this settlement include:
(a) mutual release of all claims that were or could have been brought in the pending lawsuits;
(b) termination of SMIC's obligation to make remaining payments under the prior settlement agreement between the parties (approximately $40 million);
(c) payment to TSMC of an aggregate of $200 million (with $15 million paid upon execution, funded from SMIC's existing cash balances, and the remainder to be paid in installments over a period of four years -- $15 million payable by 31 December, 2009, $80 million payable by 31 December, 2010, $30 million payable by 31 December, 2011, $30 million payable by 31 December, 2012 and $30 million payable by 31 December, 2013);
(d) grant to TSMC of 1,789,493,218 shares of SMIC (representing approximately 8 percent of SMIC's issued share capital as of October 31, 2009) and a warrant (exercisable within three years of issuance) to subscribe for 695,914,030 shares of SMIC, subject to adjustment, at a purchase price of HK$1.30 per share (which would allow TSMC to obtain total ownership of approximately 10 percent of SMIC's issued share capital after giving effect to the share issuances), subject to receipt of
required government and regulatory approvals; and
(e) certain remedies in the event of breach of this settlement.

In connection with its acquisition of the securities, TSMC has agreed to certain standstill, voting, and transfer restrictions for so long as they own any of the securities.

TSMC will not be granted representation on SMIC's Board of Directors, will vote its shares in favor of the actions (including recommended Directors) recommended by SMIC's Board (except as to certain change in control transactions), and will not be involved in the day-to-day operations of SMIC. TSMC is welcomed as a new shareholder.

SMIC will have no continuing payment obligations to TSMC other than those under this settlement agreement, and SMIC may continue to use the trade secrets and technology disputed in the California Case, subject to confidentiality restrictions, under a covenant not to sue. SMIC anticipates no disruption in its wafer foundry service to its customers, or in its independent management of the company as a result of the settlement.

SMIC believes this settlement is a win-win for the parties, resolving uncertainty for their employees, mutual customers, and other stakeholders.

With new certainty, opportunity, and synergy for our customers and management, SMIC looks forward to improving shareholder value.