Chinese semiconductor foundry Semiconductor Manufacturing International Corporation has announced that it reached an agreement with Taiwan Semiconductor Manufacturing Company Limited.

SMIC was previously found guilty of theft of trade secrets from TSMC by the Superior Court of California, County of Alameda, in the United States.

Under the settlement agreement, the two parties will implement mutual release of all claims that were or could have been brought in the pending lawsuits. SMIC's obligation to make remaining payments of approximately USD40 million under the previous settlement agreement signed on November 9, 2009, between the two parties will be terminated. SMIC will also pay USD200 million to TSMC, including USD15 million paid upon execution and the remainder to be paid in installments over a period of four years.

SMIC will grant to TSMC of 1.789 million new shares, accounting for about 8% of SMIC's issued share as of October 31, 2009, and a warrant exercisable within three years of issuance of 695 million shares of SMIC at a purchase price of HKD1.3 per share. This will allow TSMC to obtain total ownership of approximately 10% of SMIC's issued share capital after giving effect to the share issuances.

The settlement agreement stated that TSMC will not be granted representation on SMIC's board of directors and will not be involved in SMIC's daily operation.