EXHIBIT 10.20

 

CONFIDENTIAL

 

March 14, 2003

 

[***]

[***]

[***]

Sumitomo Corporation

[***]

Tokyo 104-8610, Japan

[***]

 

Re: Annual Renewal of Distributorship Agreement

 

Dear Mr. [***]:

 

This letter will serve to document the following agreements and understandings
reached between Sumitomo Corporation (“Sumitomo”) and Cree, Inc. (“Cree”) in
connection with the annual renewal of the Distributorship Agreement dated April
5, 2002 between Cree and Sumitomo (the “Distributorship Agreement”):

 

1. Sumitomo’s purchase of LED Products from Cree pursuant to this letter
agreement (“Letter Agreement”) will be subject to the terms and conditions of
the Distributorship Agreement, except as otherwise modified as provided herein.
Notwithstanding anything to the contrary in the Distributorship Agreement, in
the event of a conflict between the terms and conditions of this Letter
Agreement and those contained within the Distributorship Agreement, the terms
and conditions of this Letter Agreement shall prevail. Except as expressly
modified by this Letter Agreement, all other terms and conditions of the
Distributorship Agreement shall remain unchanged and in full force and effect.

 

2. Pursuant to Section 9.1 and Section 9.2 of the Distributorship Agreement,
Cree and Sumitomo agree that, subject to Sections 9.3 and 9.4 of the
Distributorship Agreement, as amended hereby, during Cree’s fiscal year ending
June 27, 2004 (“FY04”), Sumitomo shall purchase LED Products from Cree having an
aggregate purchase price of at least $100,000,000 (US), of which not less than
(a) $[***] (US) will be purchased in the fiscal quarter of Cree ending September
28, 2003 (the First Quarter”), (b) $[***] (US) will be purchased in the fiscal
quarter of Cree ending December 28, 2003, (c) $[***] (US) will be purchased in
the fiscal quarter of Cree ending March 28, 2004, and (d) $[***] (US) will be
purchased in the fiscal quarter of Cree ending June 27, 2004. If LED Products
ordered by Sumitomo are not shipped [***],

 

[***] 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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such LED Products will be deemed purchased [***] for the purpose of determining
whether the purchase commitment for such quarter has been met, provided that (i)
shipment of such LED Products is not delayed due to any cause attributable to
Sumitomo, (ii) [***] and (iii) in no event shall shipment delays reduce
Sumitomo’s aggregate purchase commitment hereunder. LED Products purchased using
credit memoranda issued under Sections 7.1, 8.4 and 8.5 of the Distributorship
Agreement will not be included for purposes of satisfying these purchase
commitments. If during any fiscal quarter of FY04 Sumitomo purchases more than
the amount specified above for such fiscal quarter, the excess purchase amount
will be applied to reduce Sumitomo’s quarterly purchase commitments for FY04
[***]. If during any fiscal quarter Sumitomo’s inventory of LED Products meets
or exceeds of the Inventory Cap (as defined below) and Sumitomo has not
purchased an amount of LED Products equal to [***] of its original purchase
commitments specified above in this Paragraph 2 for such fiscal quarter, Cree
has a right to terminate the Distributorship Agreement in accordance with
Section 9.4 of the Distributorship Agreement, as amended hereby. [***]. After
the termination of the Distributorship Agreement, as amended hereby, for any
reason, Sumitomo shall have the right to sell the LED Products then in its
inventory pursuant to terms and conditions determined [***].

 

3. (a) On or before May 5, 2003, Sumitomo will issue to Cree a blanket purchase
order (“Blanket PO”) pursuant to Section 7.1 of the Distributorship Agreement,
as amended hereby, setting forth a purchase quantity of LED Products for the
First Quarter equal to the amount of the purchase commitment for such quarter.
Thereafter, Blanket POs for subsequent fiscal quarters will be issued by
Sumitomo no later than [***] before the start of the quarter. Blanket POs are
for billing and administrative purposes only and do not constitute a firm
commitment by Sumitomo to purchase LED Products. Cree will reference the Blanket
PO on its shipping and billing documents. If the aggregate purchase price of LED
Products actually purchased by Sumitomo during a fiscal quarter (as provided
below) is not equal to the quarterly purchase commitment, the Blanket PO for
such quarter will be revised by Sumitomo to reflect the amount of LED Products
actually purchased by Sumitomo.

 

(b) On or before May 5, 2003, Sumitomo will issue to Cree a [***]forecast of its
LED Product requirements beginning as of [***] (the “Product Forecast”). The
quantities indicated in the Product Forecast represent the number of units of
each LED Product that Sumitomo requests to be shipped by Sunday of the stated
week. The Product Forecast will be updated by Sumitomo [***]during the term of
the Distributorship Agreement. The aggregate purchase price of LED Products
requested for any fiscal quarter may not exceed [***] without Cree’s prior
written approval of such increase. If Sumitomo fails to timely update the
Product Forecast[***]the quantities for the new week of the rolling Product
Forecast will be deemed to be zero unless and until advised otherwise. Subject
to Sections 9.3 and 9.4 of the Distributorship

 

[***] 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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Agreement, as amended hereby, the quantities and types of LED Products
forecasted to be required within [***] (the “Firm Commitment Portion”) shall be
firm and may not be modified by Sumitomo[***]. Cree is authorized to accept and
ship LED Products against the Firm Commitment Portion of the Product Forecast
unless Sumitomo has notified Cree that the Inventory Cap has been reached
pursuant to Section 9.3 of the Distributorship Agreement, as amended hereby.
Cree will target to ship in accordance with the Product Forecast all quantities
and types of LED Products which have been a firm commitment for at least [***].

 

(c) In determining the quantity of LED Products to be included in the Firm
Commitment Portion, Sumitomo will evaluate its Inventory (as defined in
Paragraph 4 below), the Inventory Cap, the Firm Commitment Portion for the
remainder of the fiscal quarter and the minimum purchase commitment for that
fiscal quarter (“MPC”). [***]

 

(d) Notwithstanding the foregoing, Sumitomo’s purchase commitment in Paragraph 2
above is not conditioned upon its issuance of Blanket POs or Product Forecasts,
and Cree makes no guarantee regarding shipment or delivery dates.

 

4. The parties agree that, beginning on the first day of Cree’s 2004 fiscal year
(i.e., June 30, 2003) and continuing until otherwise mutually agreed, the
Inventory Cap in Section 9.3 of the Distributorship Agreement will be [***]. For
purposes of determining when Sumitomo’s inventory meets or exceeds the Inventory
Cap, “Inventory” shall mean the aggregate value of all units of LED Products
shipped by Cree to Sumitomo on or after [***] which are in Sumitomo’s inventory
at the time of measurement.

 

5. Effective June 30, 2003, the second sentence in Section 9.3 of the
Distributorship Agreement is hereby deleted in its entirety and replaced with
the following:

 

“If shipment of a quantity of LED Products requested in a Product Forecast (as
defined in the Letter Agreement between the parties dated March 14, 2003 (the
“First Letter Agreement”)) would cause Distributor’s inventory of New Products
to meet or exceed the Inventory Cap, Distributor must notify Manufacturer in
writing [***] that it is invoking the Inventory Cap limitation and that some
(the excess over the Inventory Cap) or all of such amounts in the Product
Forecast should not be shipped as forecasted. [***] If Distributor is unable to
meet the full purchase commitment for a fiscal quarter because of the Inventory
Cap limitation, [***].”

 

6. Effective June 30, 2003, Section 9.4 of the Distributorship Agreement is
hereby deleted in its entirety and replaced with the following:

 

“If Distributor’s inventory of New Products meets or exceeds the Inventory Cap,
Distributor may at its option terminate this Agreement by providing Manufacturer
with [***] prior written notice, in which case Distributor shall not have any
further purchase obligations for Products under Section 9.1 hereof or Paragraph
2 of the First Letter Agreement, as applicable, [***]. If, as a result of the
above Inventory Cap provisions,

 

[***] 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.

--------------------------------------------------------------------------------

Distributor has not purchased during any fiscal quarter [***] an amount of LED
Products equal to [***] of its original purchase commitment set forth in Section
9.1 or Paragraph 2 of the First Letter Agreement, as applicable [***], then
Manufacturer may at its option terminate this Agreement by providing Distributor
with [***] prior written notice, in which case Distributor shall not have any
further purchase obligations for Products under Section 9.1 hereof or Paragraph
2 of the First Letter Agreement, as applicable, [***]. Such termination right of
Manufacturer as provided above, shall be exercised by Manufacturer within [***].
If this Agreement is terminated in accordance with the provisions of this
Section 9.4, notwithstanding any language herein to the contrary, [***]
Manufacturer either directly or through any Affiliate or any third party shall
be permitted to sell Products to any person for shipment by Manufacturer into
Territory A.”

 

7. Notwithstanding the foregoing, in the event that Distributor’s ability to
sell LED Products is substantially compromised as a direct result of [***],
Sumitomo shall immediately notify Cree of such situation and, after such
notification, the parties shall try to resolve the compromised situation in good
faith or, if such resolution is not possible, [***].

 

8. (a) Notwithstanding the provisions in Section 8.2 of the Distributorship
Agreement, as amended hereby, pricing for Wafer Products that are ordered
pursuant to purchase orders placed on or after June 30, 2003 under the
Distributorship Agreement, as amended hereby, will be determined in the
following manner:

 

  (i)   The unit price payable by Distributor for Wafer Products will be [***].

 

  (ii)   The initial “Resale Price of Wafer Products” shall be [***].
Manufacturer may, after consultation with Distributor, reduce its suggested
Resale Price of Wafer Products effective upon written notice to Distributor. In
that event, [***]. In the event of a significant change in market conditions or
in prices for products of a competitor of Manufacturer, the parties will review
and discuss possible changes to the terms of the Distributorship Agreement, as
amended hereby, this Letter Agreement and/or the Resale Price of Wafer Products,
as needed, to allow Distributor to offer its customers competitive prices [***].

 

(b) In addition, Distributor will be entitled to a bonus at the end of each
fiscal quarter of FY04 equal to [***]. Such bonus shall be paid only by issuance
of a credit memorandum. Credit memoranda issued under this Paragraph 8 may be
exchanged only to purchase additional Products from Manufacturer, and
Manufacturer is not required to refund money pursuant to such credit memoranda.
The [***] for earning bonuses in subsequent fiscal periods will be increased
accordingly to take into consideration prevailing market conditions and Cree’s
manufacturing capabilities.

 

[***] 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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(c) Notwithstanding the foregoing, Section 8.2(c) of the Distributorship
Agreement shall remain in full force and effect.

 

9. The Distributorship Agreement, as amended hereby, sets forth the entire
agreement between the parties hereto as to the subject matter hereof, and
supersedes any and all prior agreements, understandings, arrangements, promises,
representations, warranties, and/or any contracts of any form or nature
whatsoever, whether oral or in writing and whether explicit or implicit, which
may have been entered into prior to the execution hereof between the parties,
their officers, directors, or employees as to the subject matter hereof. Neither
of the parties hereto has relied upon any oral representation of the other
party.

 

If you are in agreement with the foregoing, please sign below on behalf of
Sumitomo and return a copy of the signed letter by to my attention at
919-313-5558. When executed by both parties, this letter will serve as a binding
agreement between Cree and Sumitomo with respect to the matters set forth above.

 

Very truly yours, CREE, INC.

/s/ [***]

[***]

[***]

 

AGREED:

SUMITOMO CORPORATION

By:

 

/s/ [***]

   

[***]

   

[***]

Date:

 

March 14, 2003

 

[***] 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.