EXHIBIT 10.1

 

February 9, 2005

 

Robert S. Thomas   

Charles M. Swoboda

President & CEO   

President & CEO

Charles & Colvard, Ltd.   

Cree, Inc.

300 Perimeter Park, Suite A   

4600 Silicon Drive

Morrisville, NC 27560   

Durham, NC 27703

 

This letter, when signed on behalf of Charles & Colvard, Ltd. (formerly C3 Inc.)
and Cree, Inc., will serve as an agreement between Charles & Colvard and Cree
amending the parties’ December 14th, 2003 letter agreement to provide the
following terms, effective on and after December 27, 2004.

 

  1. Cree will supply SiC production crystals to Charles & Colvard, and Charles
& Colvard will purchase SiC production crystals from Cree, according to the
terms stated in this agreement.

 

  2. Charles & Colvard will purchase [*****] kg each quarter of calendar 2005 of
“usable material” (where “usable material” will be determined in the manner
described in Paragraph 3) at a price of $[*****]/gram. Provided that Cree uses
its best commercially reasonable efforts to deliver the quantities of usable
material required by this agreement, Cree will not be held in breach for delays
in delivery. As used in this agreement, “quarter” refers to fiscal quarters of
Cree ending during the indicated period.

 

  3. The quantity of “usable material” of crystals delivered to Charles &
Colvard pursuant to this agreement will be determined according to the
following:

 

  A. Material will be graded according to the specifications in Attachment A.

 

  B. Grams of usable material will be calculated on a crystal by crystal basis
according to the following equation: (usable mm) as a percent of total length of
the crystal in mm multiplied by the actual weight of the crystal in grams.
“Usable mm” means millimeters of usable material as defined in Attachment A.

 

  C. Crystals shipped to Charles & Colvard must contain at least [*****] grams
of usable material for the 2” crystals, [*****] grams for 2.25” crystals or
[*****] grams for 3” crystals. This usable area must be contiguous. Crystal
diameter to be shipped will be 2”, 2,25” or 3” as determined by Cree.

 

  4. Except as provided above, the supply and purchase of SiC material will be
governed by the terms and conditions of the parties’ Amended and Restated
Exclusive Supply Agreement dated June 6, 1997 (the “Supply Agreement”, as
amended).

 

  5. The contents of this letter shall be considered “Confidential Information”
of each party subject to the provisions of Section 5 of the Supply Agreement.

 

CHARLES & COLVARD, LTD.

     

CREE, INC.

By:   /s/ Robert S. Thomas       By:   /s/ Charles M. Swoboda    

Robert S. Thomas

         

Charles M. Swoboda

   

President & CEO

         

President & CEO

   

Charles & Colvard Ltd.

         

Cree, Inc.

 

1 of 2    Cree, Inc. and Charles and Colvard, Ltd. Proprietary    02/08/05

 

[*****]  Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

 

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ATTACHMENT A

 

Specification of usable material as referenced in paragraph 2 above.

 

COLOR: Usable material is calculated as “light gray” or “very light gray”.
Specifically tone/color number 20 and 10 1 as used in the Charles & Colvard
boule-grading screen will be considered acceptable tone and color material.
(Note: Grade 10 is preferred. Grade 20 material will be valued at $[*****]
per-gram.)

 

DEFECTS:

 

Material volume of acceptable color will be reduced by the percentage of the
defects listed in the table below. Charles & Colvard shall set the acceptable
standards for the quality of both the color and defects of all material
purchased pursuant to this letter agreement. Unless otherwise mutually agreed by
the parties in writing, however, the grading of the material by both Cree and
Charles & Colvard will adhere to those standards and methods identified in Notes
1-3 below, applied on a consistent basis in the same manner as applied during
September, October and November of calendar 2003. Should Charles & Colvard deem
such standards and methods or new defects unacceptable, it can request changes
to its volume commitment or the methods, standards or list of price reducing
defects, with such changes to be effective 60 days after giving Cree notice of
the changes. Cree may request changes to its pricing and/or volume commitment.
If the parties do not agree in writing on the changes to be made, before the
effective date of the requested changes, either party can terminate this
agreement upon notice and, in that event, the Supply Agreement will govern the
parties’ obligations thereafter.

 

ID

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D-Type

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1

   [*****]    Reduce

2

   [*****]    Reduce

3

   [*****]    Reduce

4

   [*****]    No reduction

5

   [*****]    Reduce

6

   [*****] 2    Reduce

7

   [*****]    No reduction

8

   [*****]    Reduce

9

   [*****] 3    Reduce

 

Notes

 

1 CH0257R 17.4mm tone/color 20 (lightest 20), new gray boules that are lighter
than this will grade as 10, CE0269R 9.5mm tone/color 30 (lightest 30), new gray
boules that are lighter than this will grade as 20

 

2 Micropipe grading will be performed according to the Cree document identified
as the CCG – 948 Dense Fine Pipe Grading procedure (Revision 12/3/03). The area
determined according to this procedure multiplied by 1.2, (“20% adder”), defines
the area of non-usable material for micropipes.

 

3 Crystals CC0213R, CH0165R and CH0215R represent [*****] grading.

 

2 of 2    Cree, Inc. and Charles and Colvard, Ltd. Proprietary    02/08/05

 

[*****]  Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.