Exhibit
10.38


 


CUSTOM
MANUFACTURE AGREEMENT


 


This
is a Custom Manufacture Agreement effective as of January 1, 2008, by and
between AIR PRODUCTS AND CHEMICALS, INC.,
having its principal place of business located in Allentown, Pennsylvania (“APCI”)
and KMG ELECTRONIC CHEMICALS, INC. (“CUSTOMER”),
having its principal place of business located in Houston, Texas.


 


In
consideration of the mutual covenants hereinafter set forth, and intending to
be legally bound, APCI and CUSTOMER promise and agree as follows:


 


1.                           DEFINITIONS


 


                                    The following words and
phrases will have the meanings ascribed to them below:


 


                                    A. “Product” - Means those
finished products listed in Exhibit A meeting the specifications given in Exhibit E
when analyzed by test methods set forth therein.


 


                                    B. “Raw Material” - Means
the raw materials and intermediates for the manufacture of the Products, except
for the Customer Supplied Raw Material, meeting the specifications given in Exhibit F.


 


                                    C. “Customer Supplied Raw
Material” - Means the raw materials and intermediates for the manufacture of
Products which will be provided by CUSTOMER for the production of Product and
listed in Exhibit C, meeting the specifications given in Exhibit G.


 


                                    D. “Waste” - Means any
material generated hereunder other than Product, Customer Supplied Raw
Material, or work in process streams.


 


E. “Contract Year” - Means each twelve (12) month period beginning 1 January and
ending on 31 December, except that the first Contract Year shall begin on the
date hereof and shall terminate on 31 December 2007.


 


F. “Packaging” - Means the supplies used to label, bag, box and
palletize the Products.


 


G. “APCI Facility” - Means the APCI manufacturing facility located in
Dallas, Texas, where APCI will manufacture the Product and perform the services
set forth herein.


 


H. “Containers” - Means the containers for the Products meeting the
specifications set forth in Exhibit H.


 


I. “Returned Product” - Means the Products meeting the applicable
specifications at the time of shipment, but no longer meet the applicable
specifications upon or after being returned by Customer’s customer.


 

















 


2.                           TERM OF
AGREEMENT


 


Unless
terminated sooner as provided herein, this Agreement will be in effect for an
initial term of three (3) Contract Years. This Agreement may be terminated
by Customer with respect to any particular Product by delivery to APCI of three
(3) months prior written notice of termination.


 


3.                           CUSTOMER’S
RESPONSIBILITIES


 


A.
CUSTOMER will deliver the Customer Supplied Raw Material prepaid to APCI’s
Facility. Delivery will be accompanied by CUSTOMER supplier’s certificate of
analysis.


 


B.
CUSTOMER will pay all invoices on net 30 day terms.  The price for the services to be provided by
APCI hereunder is set forth in Exhibit D.


 


C.
CUSTOMER will provide to APCI a twelve (12) month rolling forecast of its
anticipated requirements at the beginning of each calendar quarter.  These forecasts are for planning purposes
only and are not a commitment to purchase specific quantities.


 


D.
CUSTOMER will order Products by issuing a purchase order with definite
quantities to be shipped to a specific destination and a designated and agreed
ship date by the beginning of each calendar month. CUSTOMER further will
provide weekly schedule updates to APCI.


 


E.
CUSTOMER is responsible for freight and Container costs related to Products and
Customer Supplied Raw Material.


 


F.
Unless otherwise agreed in writing by the parties, if CUSTOMER does not request
APCI to ship or load Product for shipment onto CUSTOMER-designated carriers,
CUSTOMER will take delivery of Products from the APCI Facility as soon as
practical, but in any case within thirty (30) days following notice from APCI
that Product is available for shipment. 
CUSTOMER will take delivery of Returned Product from the APCI Facility
as soon as practical, but in any case, within thirty (30) days following
receipt of notice from APCI that such Returned Product is in APCI’s possession
at the APCI Facility.  If CUSTOMER does
not take delivery of Products or Returned Products in a timely manner, in
addition to any other remedies available to APCI, CUSTOMER shall pay to APCI
warehousing charges (at APCI’s standard rates) for each day that such Products
or Returned Products remain at the APCI Facility.


 


G.
CUSTOMER will take delivery of all Products, Returned Products, unused Raw
Material and Customer Supplied Raw Material within thirty (30) days after the
last campaign completed under this Agreement or by the date of termination of
this Agreement, whichever is later. If CUSTOMER does not take delivery of goods
in a timely manner, in addition to any other remedies available to APCI,
CUSTOMER shall 


 

















 


pay
to APCI warehousing charges (at APCI’s standard rates) for each day that such
goods remain at the APCI Facility.


 


H.
The price and any other amounts due hereunder exclude all taxes howsoever
described and howsoever denominated except for those imposed on APCI by the
government of the United States of America, any State thereof, and any
political subdivisions of the foregoing and which are based upon APCI’s net
income, corporate existence, or general right to transact business (hereinafter
“U.S. Income Taxes”).  If any taxes,
duties, fees, imposts, or similar charges, other than U.S. Income Taxes become
due as a result of this Agreement or the transactions contemplated hereunder,
said taxes, duties, fees, imposts, or similar charges will be added to the
price and any other amounts due hereunder in an amount as will be necessary to
ensure that the net amount received by APCI, after all liability for taxes on
or with respect to any such payment and the payment of the additional amount,
equals the amount of the price and any other amounts due hereunder.


 


I.
The parties hereby acknowledge that APCI and CUSTOMER have entered into that certain
Asset Purchase Agreement dated as of October 19, 2007 (the “Purchase
Agreement”), pursuant to which CUSTOMER is acquiring the Transferred Assets (as
defined in the Purchase Agreement), including the assets set forth in Exhibit J
that are located at the Facility and will be used by APCI to perform its
obligations hereunder (the “Licensed Equipment”).  Accordingly, CUSTOMER hereby grants to APCI
an irrevocable, royalty-free right to use the Licensed Equipment to perform its
obligations hereunder during the term of this Agreement.  Upon the termination of this Agreement, such
license for the Licensed Equipment shall be automatically terminated.


 


J.    The parties hereby
acknowledge that APCI and CUSTOMER have entered 
into that certain Transition Services Agreement dated January 1,
2008 (the “Transition Services Agreement”), pursuant to which APCI will perform
certain services on behalf of CUSTOMER, including certain obligations to be
performed by CUSTOMER under this Section 4.  Accordingly, APCI and CUSTOMER agree to
reasonably cooperate with one another to coordinate the performance of such
obligations during the term of the Transition Services Agreement.


 


4.                           APCI’s
RESPONSIBILITIES


 


A.           APCI shall, at the APCI
Facility, receive, unload, handle and store Raw Material and Customer Supplied
Raw Material, and manufacture and ship such quantities of Products as ordered
by CUSTOMER pursuant to Section 3.D above, analyze and test such finished
Product for conformance with applicable specifications, maintain Product
samples and production records, package and label Product, load Product onto
CUSTOMER-designated carriers, and dispose of all Wastes.


 


B.             APCI will
purchase, on behalf of CUSTOMER, all Raw Material from CUSTOMER-approved
vendors using the blanket order method, and CUSTOMER will bear the cost of such
Raw Material. CUSTOMER will provide APCI with 


 

















 


instructions for ordering Raw Material from CUSTOMER
vendors.  If CUSTOMER does not pay for
such Raw Material, all costs therefor will be to CUSTOMER’s account. In such
case, APCI will invoice CUSTOMER for the Raw Materials at the actual cost to
acquire such Raw Materials plus ten percent (10%) and in accordance with the
unit consumption rates for the Raw Materials set out in Exhibit E.


 


C.             APCI will
manufacture all Product in the Containers and Packaging in accordance with
CUSTOMER’s reasonable packaging instructions. APCI will purchase such
Containers and Packaging on behalf of CUSTOMER from CUSTOMER-approved vendors
using the blanket purchase order method, and CUSTOMER will bear the cost of
such Containers. CUSTOMER will provide APCI with instructions for ordering
Containers and Packaging from CUSTOMER vendors. If CUSTOMER does not pay for
such Containers, all costs therefor will be to CUSTOMER’s account. In such
case, APCI will invoice CUSTOMER for the Containers at the actual cost to
acquire such Packaging plus ten percent (10%).


 


D.            APCI will
provide a Certificate of Analysis (“COA”) with every shipment of Product using
the analytical methods described in Exhibit E hereof.


 


E.              APCI will
conduct analysis of Raw Materials and Customer Supplied Raw Material consistent
with the manner in which APCI analyzed such raw materials in the ordinary
course of business.  APCI will notify
CUSTOMER if, in APCI’s reasonable opinion, the use of any such analyzed Raw
Materials or Customer Raw Materials is likely to result in or becomes aware of
the Product failing to meet a particular customer’s non-standard
specifications.


 


F.              APCI will
notify CUSTOMER if Product will not be available for shipment as instructed in
the CUSTOMER purchase order.


 


G.             APCI will
invoice CUSTOMER as material is shipped from the manufacturing facility.
Payment shall be due thirty (30) days from the date of shipment.


 


H.            APCI will
dispose of any Waste generated during the services provided hereunder on behalf
of CUSTOMER in a properly permitted Waste disposal facility. All costs
associated with Waste treatment and disposal will be to APCI’s account.


 


I.                 For each
campaign, APCI will document the volumes of Raw Materials and Customer Supplied
Raw Material used, campaign progress and operating parameters using a
documentation template mutually agreed upon between CUSTOMER and SPCI prior to
start of each campaign.


 


J.                APCI shall be granted the
annual yield loss allowance (the “Loss Allowance”) set forth opposite the
following Customer Supplied Raw Materials:


 

















 


	
  Material

  	
   

  	
  Loss
  Allowance

  	
   

  
	
  Acetone

  	
   

  	
  2.5

  	
  %

  
	
  N-butyl acetate

  	
   

  	
  3

  	
  %

  
	
  IPA
  99%

  	
   

  	
  3

  	
  %

  
	
  IPA MB/GB

  	
   

  	
  2

  	
  %

  
	
  PBR
  50

  	
   

  	
  2.5

  	
  %

  
	
  H2O2LP

  	
   

  	
  3.5

  	
  %

  
	
  H2O2 MB

  	
   

  	
  8

  	
  %

  
	
  H2O2 GB

  	
   

  	
  5

  	
  %

  
	
  H2SO4

  	
   

  	
  8

  	
  %

  
	
  Phosphoric Acid 80%

  	
   

  	
  6

  	
  %

  
	
  HMDS

  	
   

  	
  8

  	
  %

  
	
  Phosphoric
  Acid 85%

  	
   

  	
  10

  	
  %

  
	
  Negative Photoresist Developer

  	
   

  	
  2.5

  	
  %

  
	
  PBR 40

  	
   

  	
  2

  	
  %

  
	
  PM Acetate

  	
   

  	
  1.5

  	
  %

  



 


If
the actual yield loss for any of such Customer Supplied Raw Materials exceeds
the applicable Loss Allowance, APCI shall give CUSTOMER a credit against future
purchases hereunder equal to: (a) the difference (in kilograms) between (i) the
actual yield loss and (ii) the applicable Loss Allowance, multiplied by (b) the average cost (per kilogram) of
such Customer Supplied Raw Material during such year.


 


5.                           ADDITIONAL FEES


 


In
addition to reimbursing APCI those costs in Sections 3 and 4 identified as
being to CUSTOMER’s account, CUSTOMER will pay to APCI the fees set forth on Exhibit I
hereto regarding the various Products (“Fees”).


 


6.                           WARRANTIES


 


                                    Provided the Customer
Supplied Raw Material conforms to the specifications set forth in Exhibit G,
APCI warrants that the Product generated hereunder will conform to the
specifications set forth in Exhibit E. 
CUSTOMER warrants that the Customer Supplied Raw Material shall conform
to the specifications set forth in Exhibit G. CUSTOMER assumes
responsibility to conduct any required performance testing for specific
Products before use, and APCI shall have no liability resulting from
performance failure if CUSTOMER sells those specific Products that do not
conform to the aforesaid testing. CUSTOMER represents that it is familiar with
the characteristics of the Product and indemnifies APCI against loss or injury
to persons or property arising out of the handling, use or possession of
Product delivered to it or its customers as set forth in Section 11.A.
below.


 


APCI
AND CUSTOMER MAKE NO OTHER WARRANTIES OR REPRESENTATIONS, EXPRESSED OR IMPLIED,
CONCERNING THE PRODUCTS OR CUSTOMER SUPPLIED RAW MATERIAL, AS APPLICABLE, OR
THE MERCHANTABILITY OR FITNESS THEREOF FOR ANY PURPOSE. APCI SHALL NOT, UNDER
ANY CIRCUMSTANCES, BE LIABLE TO CUSTOMER 


 

















 


FOR
ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND,
INCLUDING BY WAY OF ILLUSTRATION AND NOT OF LIMITATION, LOSS OF USE, LOSS OF
WORK IN PROCESS, DOWN TIME, CLAIMS BY CUSTOMERS OR LOSS OF PROFITS, WHETHER
CAUSED BY BREACH OF THIS AGREEMENT, APCI’S NEGLIGENCE OR OTHERWISE, AND SUCH
LIMITATION ON DAMAGES SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY.  CUSTOMER SHALL NOT, UNDER ANY CIRCUMSTANCES,
BE LIABLE TO APCI FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES OF ANY KIND, INCLUDING BY WAY OF ILLUSTRATION AND NOT OF LIMITATION,
LOSS OF USE, LOSS OF WORK IN PROCESS, DOWN TIME, CLAIMS BY THIRD PARTIES OR
LOSS OF PROFITS, WHETHER CAUSED BY BREACH OF THIS AGREEMENT, CUSTOMER’S
NEGLIGENCE OR OTHERWISE, AND SUCH LIMITATION ON DAMAGES SHALL SURVIVE FAILURE
OF AN EXCLUSIVE REMEDY.


 


7.                           TITLE AND RISK
OF LOSS


 


Title
to Product and Customer Supplied Raw Material will be and remain with CUSTOMER.
Title to Raw Material, Product that does not meet the specifications set forth
in Exhibit E (provided that the Customer Supplied Raw Materials meet the
specifications set forth in Exhibit F), and Waste will be and remain with
APCI. Risk of loss of Customer Supplied Raw Material will transfer to APCI upon
receipt of Customer Supplied Raw Material from a CUSTOMER-designated carrier.
Risk of loss of Product will transfer to CUSTOMER upon delivery of Product to a
CUSTOMER designated carrier at APCI’s loading dock.


 


8.                           LIMITATION OR
LIABILITY


 


If
the Product fails to meet the specifications warranted in Section 6, APCI,
as APCI’s sole liability and CUSTOMER’s sole and exclusive remedy, will either (a) promptly
manufacture conforming Product and properly dispose of such off specification
Product, or (b) reimburse CUSTOMER for the price paid by CUSTOMER, the
cost of Raw Materials, Customer Supplied Raw Material, Containers, shipping, Packaging
and Fees. In addition, unless CUSTOMER knowingly and in writing directed APCI
to ship or load such off specification Product, if such off specification
Product has been shipped or loaded, APCI will, at CUSTOMER’s option, promptly
substitute and ship, at APCI’s sole cost and expense, conforming Product and,
if returned to APCI, such off specification Product will be properly disposed
of at APCI’s sole cost and expense.


 


NOTWITHSTANDING
THE FOREGOING, NO CLAIM OF ANY KIND, WHETHER BASED ON DELIVERY OR NON-DELIVERY
OF PRODUCT OR ON TORT (E.G., NEGLIGENCE, STRICT LIABILITY, ETC.) SHALL BE
GREATER IN AMOUNT THAN THE SUM CHARGED TO CUSTOMER FOR THE PRICE PAID BY
CUSTOMER, THE COST OF RAW MATERIALS, CUSTOMER SUPPLIED RAW MATERIAL,
CONTAINERS, SHIPPING, PACKAGING AND FEES TO WHICH SUCH CLAIM RELATES. Any
claims by CUSTOMER must be received by APCI in 


 

















 


writing
within sixty (60) days of the date of shipment or scheduled shipment (in the
case of non-delivery). Failure to deliver notice of claim to APCI within such
sixty (60) days period will constitute a waiver by CUSTOMER of all claims in
respect of such delivery or non-delivery.


 


9.                           NOTICES


 


All
notices or other communications hereunder shall be deemed to have been duly
given and made if in writing and if served by personal delivery upon the party
for whom it is intended, if delivered by registered or certified mail, return
receipt requested, or by an internationally recognized courier service, or if
sent by facsimile, provided that the facsimile is promptly confirmed by written
confirmation thereof to the party at the address set forth below, or such other
address as may be designated in writing hereafter, in the same manner, by such
party:


 


Any
notice to be given to APCI shall be addressed as follows:


 


Air
Products and Chemicals, Inc.


7201
Hamilton Boulevard


Allentown,
PA 18195-1501


Fax:
610-481-8223


Attention:
Corporate Secretary


 


Any
notice to be given to CUSTOMER shall be addressed as follows:


 


KMG Electronic Chemicals, Inc.


10611 Harwin Drive, Suite 402


Houston, Texas 77036


Attention: Roger C. Jackson


Facsimile:
(713) 600-3150


 


with a copy to:


 


Haynes and Boone, LLP


1221 McKinney Street, Suite 2100


Houston, Texas 77002


Attention:  George G. Young III and William B. Nelson


Facsimile:
(713) 236-5557


 


10.                     PLANT ACCESS AND AUDITS


 


Upon
reasonable advanced written notice, APCI will grant CUSTOMER personnel
reasonable access to APCI’s Facility during normal business hours while
services are being performed hereunder, provided that such personnel execute
APCI’s standard hold 


 

















 


harmless
agreement prior to entry upon the site and such access does not unreasonably
interfere with APCI’s business operations.


 

















 


11.                     INDEMNIFICATION


 


A.           CUSTOMER shall
hold harmless, defend and indemnify APCI, its officers, agents, servants and
employees from and against all claims, loss, costs, expenses, fines, penalties
or damages, including court costs and reasonable attorneys’ fees, incurred or
sustained by them or any of them as a result of injury to persons or damage to
property occurring after the loading of Product onto CUSTOMER-designated
carriers, in connection with or arising out of the receipt, handling, storage,
use, possession, or shipment of such Product by CUSTOMER or third parties,
regardless of whether such injury or damage is caused in whole or in part by
the negligence of APCI, its agents, employees, and affiliates, but excluding,
however, personal injury or property damage to the extent caused by the gross
negligence or willful misconduct of APCI.


 


B.             APCI shall hold
harmless, defend and indemnify CUSTOMER, its officers, agents, servants and
employees from and against all claims, loss, costs, expenses, fines, penalties
or damages, including court costs and reasonable attorneys’ fees, incurred or
sustained by them or any of them as a result of injury to persons or damage to
property or to the environment, including but not limited to any environmental
hazard, accident, spill, leak, emission or contamination or remedial measures
or requirements on or off APCI’s Facility, occurring at APCI’s Facility prior
to the loading of Product onto CUSTOMER designated carriers in connection with
or arising out of APCI’s processing or possession of Product, including the
handling of Waste, regardless of whether such injury or damage is caused in
whole or in part by the negligence of CUSTOMER, its agents, employees, and
affiliates, but excluding, however, personal injury or property damage to the
extent caused by the gross negligence or willful misconduct of CUSTOMER.


 


12.                     FORCE MAJEURE


 


Neither
party will be liable for any failure or delay in performance hereunder (other
than the obligation to pay monies owed) which may be due, in whole or in part,
to any cause or causes of any nature beyond the reasonable control of the party
affected, including but not limited to fire; explosion; strike or labor
difficulty; machinery or equipment breakdown; accident, curtailment in the
supply of energy, whether pursuant to actions or proceedings already or
hereafter commenced; inability to obtain power, labor, or material from normal
sources of supply; transportation or handling accidents or delays; acts of God;
act, order or regulation of government authority; war; riot; or civil disorder.
Any party whose performance is suspended by an event of force majeure shall use
its reasonable efforts to remedy the cause of delay, provided, however, neither
party will be obligated to settle any labor dispute. The party affected by any
of such causes will promptly notify the other party, stating the exact nature thereof,
its estimated effect on the ability of such party to perform its obligations,
and its estimated duration.


 

















 


13.                     ASSIGNABILITY


 


This
Agreement may not be assigned by either party without the prior written consent
of the other party, and any attempted assignment, whether directly or
indirectly, by operation of law or otherwise, shall be deemed null and void.
All of the terms and provisions of this Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.


 


14.                     CONFIDENTIALITY


 


Each
party shall, during the term of this Agreement and for five (5) years
thereafter, keep in confidence and not disclose to any third party, and not use
for any purpose other than its performance of this Agreement, any and all
information disclosed to it by the other party in connection with this
Agreement, except as such information is or becomes in the public domain or is
already in the party’s possession prior to disclosure by the other party, or is
subsequently obtained from some third party, both without the obligation of
confidentiality.


 


15.                     ENTIRETY OF AGREEMENT


 


This
Agreement contains the complete and exclusive agreement of the parties, merges
and supersedes all prior understandings and representations (oral or written)
between CUSTOMER and APCI concerning the custom manufacture of Products, and
terminates all prior contracts between CUSTOMER and APCI concerning the
performance of the services with respect to such manufacture. All purchase
orders or purchase order acknowledgments which may be used to order or
acknowledge orders for delivery of Product hereunder will be deemed to be
intended for record purposes only and the provisions contained therein will not
serve to add to or otherwise vary the provisions of this Agreement. Neither
this Agreement nor any agreement supplementing or amending this Agreement will
be effective unless it is reduced to a writing subscribed to by duly authorized
representatives of CUSTOMER and APCI.


 


16.                     SURVIVAL OF OBLIGATIONS


 


Sections
8, 11 and 17 will survive termination of this Agreement.


 


17.                     GOVERNING LAW


 


This
Agreement will be governed by and construed under the laws of the State of New
York, without giving effect to the choice of law principles thereof.


 


[Signature page follows]


 

















 


IN
WITNESS WHEREOF, the parties hereto have signed this Agreement in duplicate as
of the day and date first written above.


 


 


	
  AIR
  PRODUCTS AND CHEMICALS, INC.

  	
   

  	
  KMG
  ELECTRONIC CHEMICALS, INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
							



 


Signature Page to
Custom Manufacture Agreement – Dallas


 

















 


Exhibit to Custom Manufacture Agreement – Dallas