Certain Canadian Federal Income Tax Considerations

The following is, at the date hereof, a general summary of the principal Canadian federal income tax considerations generally applicable to the redemption or exchange of exchangeable shares issued by SMTC Canada by holders who, for purposes of the Income Tax Act (Canada) (the “Tax Act”) and any applicable income tax treaty or convention, are resident or deemed to be resident in Canada, hold their exchangeable shares, and will hold their shares of common stock issuable on the redemption or exchange of the exchangeable shares, as capital property and deal at arm’s length with, and are not affiliated with, SMTC, SMTC Nova Scotia and SMTC Canada (a “Holder” for the purposes of this summary).

Exchangeable shares and shares of common stock will generally be considered to be capital property to a Holder provided such shares are not held in the course of carrying on a business of buying and selling securities and such shares are not acquired in a transaction considered to be an adventure in the nature of trade. Holders of exchangeable shares may in certain circumstances make an irrevocable election under subsection 39(4) of the Tax Act to have their exchangeable shares and every other “Canadian security” (as defined in the Tax Act) owned by such Holder in the taxation year of election and in all subsequent taxation years deemed to be capital property.

This summary is not applicable to a Holder that is a “financial institution” (as defined in the Tax Act for the purposes of the mark-to-market rules), a Holder an interest in which is a “tax shelter investment” (as defined in the Tax Act) or a Holder with respect to whom SMTC Corporation is or will be a “foreign affiliate” within the meaning of the Tax Act.

This summary is based on the facts set out in this prospectus, the current provisions of the Tax Act, the regulations thereunder and counsel’s understanding of the current published administrative policies and assessment practices of the Canada Revenue Agency (“CRA”). This summary also takes into account all proposed amendments to the Tax Act and the regulations thereunder publicly announced by the Minister of Finance (Canada) before the date hereof (“Tax Proposals”). There can be no assurance that any such Tax Proposals will be implemented in their current form or at all. This summary is not exhaustive of all possible Canadian federal income tax considerations, does not otherwise take into account or anticipate changes in the law, whether by judicial, governmental or legislative action or decision, or changes in the administrative policies or assessment practices of the CRA, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax considerations described herein.

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THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED AS, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF EXCHANGEABLE SHARES. ACCORDINGLY, HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES.

For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of exchangeable shares and shares of common stock, including dividends, adjusted cost bases and proceeds of disposition, must be converted into Canadian dollars using the Canadian/US dollar exchange rate prevailing at the time such amounts arise.

Redemption or Exchange of Exchangeable Shares

On the redemption (including a retraction) of an exchangeable share by SMTC Canada, the Holder will be deemed to have received a dividend equal to the amount, if any, by which the redemption proceeds (the fair market value at that time of the shares of common stock plus the amount of any cash received on the redemption) exceeds the paid-up capital for purposes of the Tax Act of the exchangeable share at the time of the redemption.

Any deemed dividend received on a redemption by a Holder who is an individual will be included in computing the Holder’s income and will be subject to the gross-up and dividend tax credit rules normally applicable to taxable dividends received from a corporation resident in Canada.

Any deemed dividend received on a redemption by a Holder that is a corporation, other than a “specified financial institution”, as defined in the Tax Act, will be included in computing the Holder’s income and, subject to the discussion below respecting the denial of the inter-corporate dividend deduction, will generally be deductible in computing its taxable income.

Any deemed dividend received on a redemption by a Holder that is a specified financial institution will be deductible in computing its taxable income only if (i) the Holder did not acquire the exchangeable shares in the ordinary course of its business, or (ii) at the time the deemed dividend is received, the exchangeable shares are listed on a prescribed stock exchange in Canada (which includes the Toronto Stock Exchange) and the Holder, alone or together with persons with whom it does not deal at arm’s length, does not receive and is not deemed to receive dividends in respect of more than 10% of the outstanding exchangeable shares either directly or through a partnership or, in certain cases, through a trust.

If SMTC, or any other person with whom SMTC does not deal at arm’s length, is a specified financial institution at the time of a redemption, then subject to the exemption described below, a Holder that is a corporation will not be entitled to deduct the deemed dividend received on the redemption in computing its taxable income. In general, a corporation is a specified financial institution if it is a bank, a trust company, a credit union, an insurance corporation or a corporation whose principal business is lending money to, or purchasing debt obligations issued by, persons with whom the corporation is dealing at arm’s length or a combination of these activities, or a corporation that is controlled by, or related to, one or more of such entities. SMTC is of the view that neither it nor any person with whom it does not deal at arm’s length is a specified financial institution at the present time. There can be no assurance, however, that this status will not change before exchangeable shares are redeemed. In any event, this rule will not apply if, at the time a dividend is deemed to be paid on a redemption, SMTC is related to SMTC Canada for purposes of the Tax Act, as it is at the date hereof, and the exchangeable shares are listed on a prescribed stock exchange (which includes the Toronto Stock Exchange), unless deemed dividends in respect of more than 10% of the outstanding exchangeable shares are, or are deemed to be, paid to the Holder or to the Holder and persons with whom the Holder does not deal at arm’s length or any partnership or trust of which the Holder or non-arm’s length person is a member or beneficiary.

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A Holder that is a private corporation, as defined in the Tax Act, or any other corporation resident in Canada and controlled or deemed to be controlled by or for the benefit of an individual (other than a trust) or a related group of individuals (other than trusts) may be liable to pay a refundable tax under Part IV of the Tax Act of 33  ¹ / 3 % of any deemed dividend received on the redemption of exchangeable shares to the extent that such deemed dividend is deductible in computing the Holder’s taxable income. A Holder that is a Canadian-controlled private corporation, as defined in the Tax Act, may be liable to pay an additional refundable tax of 6  ² / 3 % on any deemed dividend in certain circumstances.

The exchangeable shares will be “taxable preferred shares” and “short-term preferred shares” for purposes of the Tax Act. Accordingly, SMTC Canada may be subject to a 50% tax under Part VI.1 of the Tax Act on any dividends deemed to be paid on a redemption of the exchangeable shares. SMTC Canada will also be entitled to deduct three times any Part VI.1 tax payable in computing its taxable income. Any dividends deemed to be paid on a redemption of the exchangeable shares will not be subject to the 10% tax under Part IV.1 of the Tax Act.

On the redemption (including a retraction) of an exchangeable share by SMTC Canada, the Holder will also be considered to have disposed of the exchangeable share for proceeds of disposition equal to the redemption proceeds less the amount of any deemed dividend received on the redemption and will generally realize a capital gain (or a capital loss) equal to the amount by which such proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the Holder’s adjusted cost base of the exchangeable share. See “Taxation of Capital Gains or Capital Losses” below. In some circumstances, the amount of any deemed dividend received on a redemption by a Holder that is a corporation may be treated as proceeds of disposition and not as a dividend.

Where exchangeable shares are exchanged with SMTC or SMTC Nova Scotia for shares of common stock, the Holder will generally realize a capital gain (or a capital loss) to the extent the proceeds of disposition of the exchangeable shares, net of any reasonable costs of disposition, exceed (or are less than) the Holder’s adjusted cost base of the exchangeable shares. For this purpose, the proceeds of disposition will be the aggregate of the fair market value, at the time of the exchange, of the shares of common stock received on the exchange and the amount of any cash received by the Holder as part of the exchange consideration. See “Taxation of Capital Gains or Capital Losses” below.

Because of the existence of the call rights, the exchange right and the automatic exchange right, a Holder of exchangeable shares cannot control whether such Holder will receive shares of common stock by way of redemption of the exchangeable shares by SMTC Canada or by way of an exchange of the exchangeable shares with SMTC Corporation or SMTC Nova Scotia. As described above, the Canadian federal income tax consequences of a redemption differ from those of an exchange.

Consolidation or Subdivision of Exchangeable Shares

As a result of certain transactions, including a reverse stock split (such as the one for which the Board is soliciting stockholder approval of at the Company’s 2004 Annual Meeting of Stockholders) or the payment of a stock dividend on the shares of common stock, the exchangeable shares may be consolidated or subdivided, as the case may be, to ensure that the number of issued and outstanding exchangeable shares is equal to the number of issued and outstanding shares of common stock. Provided that a Holder does not receive any cash in lieu of a fractional exchangeable share in the course of such a transaction, the consolidation or subdivision of exchangeable shares, as the case may be, will not constitute a disposition of the exchangeable shares for the purposes of the Tax Act, and, as such, the Holder will not realize any gain or loss as a result of such a consolidation or subdivision of the exchangeable shares. If a Holder receives cash in lieu of a fractional exchangeable share, a Holder will be considered to have disposed of such fractional exchangeable share for the purposes of the Tax Act. A Holder will generally realize a capital gain (or a capital loss) equal to the amount by which the cash received for the fractional exchangeable share, net of any reasonable costs of disposition, exceeds (or is less than) the adjusted cost base of such fractional exchangeable share to the Holder. The tax treatment of capital gains and losses is discussed in greater detail below under “Taxation of Capital Gains or Capital Losses.”

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Acquisition, Holding and Disposition of Common Stock

The cost of the shares of common stock received on the redemption or exchange of exchangeable shares will be equal to the fair market value of such common stock at that time and will be averaged with the adjusted cost base of all other shares of common stock held by the Holder as capital property at that time for the purposes of determining the adjusted cost base of each such share of common stock to the Holder.

Dividends received on shares of common stock will be included in a Holder’s income for the purposes of the Tax Act. Such dividends received by a Holder who is an individual will not be subject to the gross-up and dividend tax credit rules in the Tax Act. A Holder that is a corporation will not be entitled to deduct the amount of such dividends in computing its taxable income. A Holder that is a Canadian-controlled private corporation may be liable to pay an additional refundable tax of 6  ² / 3 % on such dividends. Subject to the detailed rules in the Tax Act, a Holder may be entitled to a foreign tax credit or deduction for any United States non-resident withholding tax paid on dividends received on shares of common stock.

A disposition or deemed disposition of common stock by a Holder will generally result in a capital gain (or capital loss) to the extent that the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the Holder’s adjusted cost base of such shares of common stock. See “Taxation of Capital Gains or Capital Losses” below.

Taxation of Capital Gains or Capital Losses

A Holder will be required to include one-half of the amount of any capital gain (a “taxable capital gain”) in income, and will generally be required to deduct one-half of the amount of any capital loss (an “allowable capital loss”) against taxable capital gains realized by the Holder in the year of disposition. Allowable capital losses not deducted in the taxation year in which they are realized may generally be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against taxable capital gains realized in such years, to the extent and under the circumstances specified in the Tax Act.

A Holder that is a Canadian-controlled private corporation may be liable to pay an additional refundable tax of 6  ² / 3 % on taxable capital gains.

The amount of any capital loss realized on the disposition or deemed disposition of an exchangeable share by a Holder that is a corporation or a trust may be reduced by the amount of dividends received or deemed to have been received by it on such shares to the extent and in the circumstances prescribed by the Tax Act. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns exchangeable shares or where a trust or partnership of which a corporation is a beneficiary or a member is a member of a partnership or a beneficiary of a trust that owns any such shares.

Alternative Minimum Tax

In general terms, individuals and certain trusts that receive or are deemed to receive taxable dividends on exchangeable shares or realize a capital gain on the disposition or deemed disposition of exchangeable shares or shares of common stock may realize an increase in their liability for alternative minimum tax.

Qualified Investments

The shares of common stock, if issued on the date hereof, would be qualified investments under the Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds and deferred profit sharing plans, provided such shares are listed on a prescribed stock exchange (which includes the NASDAQ).

Foreign Property

Shares of common stock will constitute “foreign property” for the purposes of the Tax Act.

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Foreign Property Information Reporting

A Holder of shares of common stock who is a “specified Canadian entity” for a taxation year or a fiscal period and whose total cost amount of “specified foreign property”, including shares of common stock, at any time in the year or fiscal period exceeds C$100,000 will be required to file an information return for the year or period disclosing prescribed information. Subject to exceptions, a taxpayer resident in Canada in the year will generally be a specified Canadian entity. Holders should consult their tax advisors as to whether they must comply with these rules.

Foreign Investment Entity Status

On October 30, 2003, the Minister of Finance (Canada) released revised draft legislation relating to the income tax treatment of investments by Canadian residents in non-resident entities that constitute “foreign investment entities” (“FIEs”) applicable for taxation years commencing after 2002 (the “FIE Tax Proposals”). In general terms, the FIE Tax Proposals, as currently drafted, would apply to require a Holder that holds a “participating interest” (that is not an “exempt interest”) in a non-resident entity that is an FIE at the entity’s taxation year-end to take into account in computing the Holder’s income for the Holder’s taxation year that includes such taxation year-end: (i) an amount based on a prescribed rate of return on the “designated cost” of such participating interest held by a Holder at the end of each month ending in the Holder’s taxation year at which time the participating interest is held by the Holder; (ii) in certain limited circumstances, any gains and losses accrued on such participating interest for the year; or (iii) in certain limited circumstances, a Holder’s proportionate share of the FIE’s income (or loss) for the year calculated using Canadian tax rules. For the purposes of the FIE Tax Proposals, shares of common stock will constitute a participating interest in SMTC.

SMTC will not be an FIE at the end of its taxation year provided that, at that time, the “carrying value” of all of SMTC’s “investment property” is not greater than one-half of the “carrying value” of all its property. SMTC is of the view that if SMTC had a taxation year-end on the date of hereof, SMTC would not be an FIE on that date on the basis that the carrying value of its investment property is not greater than one-half of the carrying value of all of its property. However, the determination of whether or not SMTC is an FIE must be made on an annual basis at the end of each taxation year-end of SMTC and no assurances can be given that SMTC will not be an FIE at the end of any of its taxation years.

Even if SMTC were an FIE at the end of one of its taxation years, a share of common stock may be an exempt interest provided that throughout the period that such a share is held by a Holder during such taxation year of SMTC: (i) SMTC is resident in the United States for the purposes of the Tax Act (as it is now); (ii) the share of common stock is listed on a prescribed stock exchange (which includes the NASDAQ) and (iii) the share of common stock constitutes an “arm’s length interest” (as defined for the purposes of the FIE Tax Proposals). It is expected that the shares of common stock will constitute an “arm’s length interest” of a particular Holder thereof for the purposes of the FIE Tax Proposals provided that such Holder (together with entities and individuals with whom the Holder does not deal at arm’s length) does not hold, in the aggregate, more than 10% of the shares of common stock, based on the fair market value of such shares. Additionally, a share of common stock of a Holder will only constitute an exempt interest at the end of SMTC’s taxation year if, at that time, it is reasonable to conclude that the Holder has no “tax avoidance motive” in respect of such share of common stock. For this purpose, the Holder will generally be regarded as having a tax avoidance motive only if it is reasonable to conclude that the main reasons for acquiring or holding such shares of common stock include directly or indirectly benefiting principally from income, profits, gains or increases in value in respect of investment property and from the deferral or reduction of tax that would have been payable on such income, profits or gains. Holders should consult their own tax advisors regarding the determination of whether or not they have such a tax avoidance motive. The determination of whether or not shares of common stock constitute an exempt interest must be made on an annual basis at the end of the taxation year of SMTC and no assurances can be given that shares of common stock will constitute an exempt interest at any taxation year-end of SMTC.

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Economic Statement of October 18, 2000

In the Economic Statement released on October 18, 2000 (the “Economic Statement”), the Minister of Finance (Canada) announced a proposal to formulate and introduce a rule to permit shares of a Canadian corporation held by a Canadian resident to be exchanged for shares of a foreign corporation on a tax-deferred basis. This statement included no details of the circumstances in which such tax-deferred share-for-share exchanges could occur but rather indicated that these rules would be developed in consultation with the private sector. The Economic Statement indicated that any such rules would not be effective before the public release of draft legislation including such rules. The Canadian Federal Budget of February 18, 2003, reiterated the statements made in the Economic Statement and indicated that draft legislative proposals would be released in the near future for public review and comment. The recent Canadian Federal Budget of March 23, 2004 (the “2004 Budget”) indicated that it is intended that a detailed proposal will be released for public comment within months after the release of the 2004 Budget. The 2004 Budget also indicated that the proposals are expected to be in the form of draft legislation and there has been no indication as to an effective date for the proposal.

It is not known whether the draft legislation containing the proposed amendments described above will be released in time to affect a subsequent exchange of exchangeable shares for shares of common stock, and it is therefore possible that such exchange of exchangeable shares may be achieved on a tax-deferred basis. In any case, until such rules are developed and released, it is not possible to state whether such rules would apply to a Holder who exchanges exchangeable shares for shares of common stock. Holders should consult their own tax advisors once the draft legislation is released, if at all, to determine how the draft legislation might apply to the Holder’s particular circumstances.

United States Federal Income Tax Considerations

The following is a summary of the material U.S. federal income tax considerations applicable to non-U.S. holders of exchangeable shares issued by SMTC Canada who redeem or exchange such shares for shares of common stock. For purposes of this discussion, a non-U.S. holder is a beneficial owner of exchangeable shares or shares of common stock who or that is:

If a partnership holds exchangeable shares or shares of common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. Partners of partnerships holding exchangeable shares or shares of common stock should consult their own tax advisors.

Individuals may, in certain cases, be deemed to be resident aliens, as opposed to non-resident aliens, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year (counting for such purposes, all of the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year). Resident aliens are generally subject to U.S. federal income tax. This discussion does not address the U.S. federal income tax consequences applicable to resident aliens. These individuals are urged to consult their own tax advisors.

This summary does not discuss all U.S. federal income tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances or to non-U.S. holders that may be subject to special treatment under U.S. federal income tax laws (for example, individuals who were formerly citizens or residents of the

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United States, insurance companies, tax-exempt organizations, financial institutions, dealers in securities, and persons who hold exchangeable shares or shares of common stock as part of a straddle, hedging, constructive sale or conversion transaction). This summary assumes that non-U.S. holders hold their exchangeable shares or shares of common stock as capital assets. Furthermore, this summary does not discuss all aspects of U.S. federal income taxation nor does it address any aspects of U.S. state or local taxation.

This summary is based on current provisions of the Code, existing, temporary and proposed regulations promulgated thereunder, and administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect. No advance income tax ruling has been sought or obtained from the Internal Revenue Service (the “IRS”) regarding the tax consequences of the transactions described herein.

The discussion does not address Canadian Residents who are also citizens or residents of the U.S. (for U.S. federal income tax purposes). Such Canadian Residents should consult their tax advisors concerning the U.S. tax consequences of the receipt of holding exchangeable shares or shares of common stock.

THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR HOLDER. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE DESCRIBED TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES.

Exchange of Exchangeable Shares

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized on the exchange of exchangeable shares for common stock, unless such gain is effectively connected with a U.S. trade or business of the non-U.S. holder and, if certain tax treaties apply, is attributable to a permanent establishment of the non-U.S. holder in the U.S. If a non-U.S. holder’s gain is effectively connected with a U.S. trade or business (and, where applicable, attributable to a permanent establishment in the U.S.), the non-U.S. holder will be subject to tax as described below under “Common Stock – Sale or Exchange of Common Stock”. In addition, in the case of an individual non-U.S. holder, such individual may be subject to U.S. federal income tax on any gain realized on the exchange of exchangeable shares if such individual is present in the U.S. for 183 days or more during the taxable year of disposition and certain other conditions are satisfied.

The IRS may assert that an exchange of exchangeable shares for common stock constitutes a disposition of an interest in SMTC. If the IRS took this position, non-U.S. holders could be subject to tax if SMTC is or has been during certain periods preceding the disposition a “U.S. real property holding corporation,” as described below under “Common Stock – Sale or Exchange of Common Stock.” SMTC does not believe that it is, or has been, a U.S. real property holding corporation and is not likely to become a U.S. real property holding corporation in the future.

Common Stock

Dividends on Common Stock. Dividends (other than certain dividends of common stock) paid to a non-U.S. holder of common stock of SMTC generally will be subject to withholding of U.S. federal income tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Under the Canada-U.S. Income Tax Convention (the “Tax Treaty”), the withholding rate on dividends for eligible Canadian Residents is generally 15%. A non-U.S. holder must demonstrate its entitlement to treaty benefits by certifying, among other things, its non-resident status. A non-U.S. holder generally can meet this certification requirement by providing an Internal Revenue Service Form W-8BEN (or successor form) or appropriate substitute form. Such form generally would contain such non-U.S. holder’s name and address and a certification that such holder is eligible for the benefits of such treaty. In addition, to the extent there is no “established financial market” for the common stock of SMTC within the meaning of applicable Treasury regulations, such non-U.S. holder would be required to furnish its Taxpayer Identification Number.

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The withholding tax does not apply to dividends paid to a non-U.S. holder that provides a Form W-8ECI (or successor form), certifying that the dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business within the U.S. Instead, the effectively connected dividends will generally be subject to U.S. net income tax at ordinary rates as if the non-U.S. holder were a U.S. resident. If the non-U.S. holder is eligible for the benefits of a tax treaty between the U.S. and the holder’s country of residence, any effectively connected income will be subject to U.S. federal income tax only if it is attributable to a permanent establishment in the U.S. maintained by the holder. A non-U.S. corporation receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate, if applicable ) on an earnings amount that is net of the regular tax.

Unless non-U.S. holders comply with certain IRS certification or documentary evidence procedures, they generally will be subject to U.S. backup withholding tax at a 28% rate under the backup withholding rules described below, rather than at a 30% or reduced tax treaty rate. The certification requirement may be fulfilled by providing a properly executed Internal Revenue Service Form W-8BEN or W-8ECI.

A non-U.S. holder may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund along with the required information with the IRS.

Sale or Exchange of Common Stock. A non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of any gain recognized on the sale or other taxable disposition of common stock unless:

(i) the gain is effectively connected with a trade or business of the non-U.S. holder in the United States and, if certain tax treaties apply, is attributable to a permanent establishment in the U.S. maintained by such holder, in which case the holder would be taxed on the net gain derived from the sale or other disposition under applicable graduated U.S. federal income tax rates. If the holder is a foreign corporation, the holder may be subject to an additional “branch profits tax” at a rate of 30% or a lower rate as may be specified by an applicable income tax treaty;

(ii) in the case of a non-U.S. holder who is an individual and holds the shares as a capital asset, the non-U.S. holder is present in the U.S. for 183 or more days during the taxable year of the disposition and satisfies certain other conditions; or

(iii) (A) SMTC is or has been during certain periods preceding the disposition a “U.S. real property holding corporation” for U.S. federal income tax purposes (which SMTC does not believe it is, has been or is likely to become); and (B) assuming that the common stock will be “regularly traded on an established securities market” for U.S. federal income tax purposes, the non-U.S. holder held, directly or indirectly, at any time during the five-year period ending on the date of disposition, more than 5% of the outstanding common stock.

Backup Withholding and Information Reporting

Dividends. In order to avoid backup withholding tax at 28% rate on dividends from SMTC that are paid within the United States, a non-U.S. holder is required to certify its non-U.S. status under penalties of perjury or otherwise establish an exemption. The certification requirement may be fulfilled by providing a properly executed Internal Revenue Service Form W-8BEN or W-8ECI. SMTC must report annually to the IRS and to each non-U.S. holder the amount of dividends paid within the United States to, and the tax withheld with respect to, such non-U.S. holder, regardless of whether any tax was actually withheld. This information may also be made available to the tax authorities in the non-U.S. holder’s country of residence under the provisions of an applicable income tax treaty or agreement or as required by local law.

Sale or Exchange of Common Stock. Upon the sale or other disposition of common stock by a non-U.S. holder to or through a U.S. office of a broker, the broker must backup withhold at a rate of 28% and report the sale to the IRS, unless the non-U.S. holder certifies its non-U.S. holder status under penalties of perjury or

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otherwise establishes an exemption, as described above. Upon the sale or other disposition of common stock by a non-U.S. holder to or through the foreign office of a U.S. broker, or a foreign broker with certain types of relationships to the United States, the broker must report the sale to the IRS (but not backup withhold), unless the broker has documentary evidence in its files that the seller is a non-U.S. holder and/or certain other conditions are met, or the non-U.S. holder otherwise establishes an exemption.

Backup withholding is not an additional tax. Rather, amounts withheld under the backup withholding rules are generally allowable as a credit against such non-U.S. holder’s U.S. federal income tax liability (if any), which may entitle such non-U.S. holder to a refund, provided that the required information is furnished to the IRS.

United States Estate Tax Consequences

Common stock owned (or deemed owned) at the time of his or her death by an individual non-U.S. holder at the time of death will be includable in his or her gross estate for United States federal estate tax purposes and, subject to certain credits, may be subject to United States federal estate tax, unless an applicable income or estate tax treaty provides otherwise. Under certain circumstances, Article XXIX B of the Tax Treaty limits the application of the U.S. estate tax to Canadian Residents. Accordingly, Canadian Residents are urged to consult their tax advisors regarding the possible application of the United States federal estate tax.

Definitions

Unless the context otherwise requires, the following terms shall have the meanings set forth below when used in the “Details of Exchangeables Shares” section.

“Canadian Dollar Equivalent” means in respect of an amount expressed in a currency other than Canadian dollars at any date, the product obtained by multiplying:

(i) the foreign currency amount; and

(ii) the noon spot exchange rate on such date for such foreign currency expressed in Canadian dollars as reported by the Bank of Canada or, if such noon spot exchange rate is not available, such spot exchange rate on such date for such foreign currency expressed in Canadian dollars as may be deemed by the board of directors of SMTC Canada to be appropriate for such purpose.

“Canadian Resident” means a resident of Canada for the purposes of the Tax Act.

“Company Insolvency Event” means the consent of SMTC Canada to the institution of bankruptcy, insolvency or winding-up proceedings against it, or the filing of a petition, answer or consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws, including without limitation, the Companies Creditors’ Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), where SMTC Canada fails to contest in good faith any such proceedings commenced in respect of it within 30 days of becoming aware thereof, or the consent by SMTC Canada to the filing of any such petition or to the appointment of a receiver, or the institution by SMTC Canada of any such proceeding, or the making by SMTC Canada of a general assignment for the benefit of creditors, or the admission in writing by SMTC Canada of its inability to pay its debts generally as they become due, or SMTC Canada not being permitted, pursuant to solvency requirements of applicable law, to redeem any retracted exchangeable shares.

“Company Liquidation Amount” means, with respect to each exchangeable share, an amount equal to the current market price of a share of common stock on the last business day prior to the effective date of the liquidation, dissolution or winding-up of SMTC Canada, to be satisfied by the delivery of one share of common stock plus the full amount of all dividends, if any, declared and unpaid on each such exchangeable share held by a holder on any dividend record date occurring prior to such time.

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“Exchangeable Share Voting Event” means any matter in respect of which holders of exchangeable shares are entitled to vote as shareholders of SMTC Canada, other than an Exempt Exchangeable Share Voting Event, and, for greater certainty, excluding any matter in respect of which holders of exchangeable shares are entitled to vote (or instruct the trustee to vote) in their capacity as beneficiaries under the Voting and Exchange Trust Agreement.

“Exempt Exchangeable Share Voting Event” means any matter in respect of which holders of exchangeable shares are entitled to vote as shareholders of SMTC Canada in order to approve or disapprove, as applicable, any change to, or in the rights of the holders of, the exchangeable shares, where the approval or disapproval, as applicable, of such change would be required to maintain the equivalence of the exchangeable shares and the common stock.

“SMTC Control Transaction” means any merger, amalgamation, tender offer, material sale of shares or rights or interests therein or thereto or similar transactions involving, for or by SMTC, or any proposal to take any such action.

“SMTC Liquidation Amount” means, with respect to each exchangeable share, an amount equal to the current market price of a share of common stock on the fifth business day prior to the effective date of an SMTC Liquidation Event, to be satisfied by delivery of one share of common stock plus any declared and unpaid dividends.

“SMTC Liquidation Event” means (i) any determination by SMTC’s Board of Directors to institute voluntary liquidation, dissolution, or winding-up proceedings with respect to SMTC or to effect any other distribution of its assets among its stockholders for the purpose of winding-up its affairs; or (ii) the earlier of (A) receipt by SMTC of notice of, and (B) SMTC becoming aware of, any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of SMTC or to effect any other distribution of assets of SMTC among its shareholders for the purpose of winding-up its affairs, in each case of (A) or (B) above where SMTC has failed to contest in good faith any such proceeding commenced in respect of SMTC within 30 days of becoming aware thereof.

“SMTC Nova Scotia” means SMTC Nova Scotia Company, a wholly-owned subsidiary of SMTC.

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