Semiconductor Manufacturing International Corp., or SMIC, (SMI) said Tuesday that it entered into a settlement agreement to resolve all pending lawsuits between the company and Taiwan Semiconductor Manufacturing Co., Ltd., or TSMC, (TSM). Under the agreement, SMIC will make a payment to TSMC of an aggregate of US$200 million, and also grant about 8% of SMIC's issued share capital to TSMC.
The pending lawsuits include the legal action filed by TSMC in California for which a verdict was returned by the jury against SMIC on November 4 2009, and the legal action filed by SMIC in Beijing.
SMIC, the Shanghai, China-based semiconductor foundry, noted that the agreement was made on Monday 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.
Key provisions of the agreed settlement include mutual release of all claims that were or could have been brought in the pending lawsuits, termination of SMIC's obligation to make remaining payments under the prior settlement agreement between the parties of about US$40 million, and payment to TSMC of an aggregate of US$200 million. Of the payment, US$15 million would be paid upon execution, funded from SMIC's existing cash balances, and the remainder to be paid in installments over a period of four years. The company noted that US$15 million will be payable by December 31, 2009, US$80 million by December 31, 2010, US$30 million payable by December 31, 2011, US$30 million payable by December 31, 2012 and US$30 million payable by December 31, 2013.
The provisions also include grant to TSMC of about 1.79 billion shares of SMIC, representing about 8% of SMIC's issued share capital as of October 31, 2009, and a warrant, exercisable within three years of issuance, to subscribe for 695.91 million shares of SMIC, subject to adjustment, at a purchase price of HK$1.30 per share, subject to receipt of required government and regulatory approvals. This would allow TSMC to obtain total ownership of approximately 10% of SMIC's issued share capital after giving effect to the share issuances.
SMIC said that TSMC, in connection with its acquisition of the securities, has agreed to certain standstill, voting, and transfer restrictions for so long as they own any of the securities. TSMC will not get representation on SMIC's Board of Directors, will vote its shares in favor of the actions recommended by SMIC's Board, and will not be involved in the day-to-day operations of SMIC, the company added.
SMIC also said it 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.
According to SMIC, the settlement is a win-win for the parties, resolving uncertainty for their employees, mutual customers, and other stakeholders.
Late Monday, SMIC announced the appointment of Dr. David Wang as an Executive Director of the Board and the President and Chief Executive Officer of the company, effective immediately, succeeding Dr. Richard Chang, who resigned to pursue other personal interests.
SMI last traded on November 3 at $2.42.
TSM closed Monday's regular trading session at $9.95, up $0.16, on a volume of 10 million shares.
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