Exhibit 10.25


 


SUPPLY AGREEMENT


 


This
SUPPLY AGREEMENT (“Agreement”) is made as of this 12th day of December, 2007,
but effective as of January 1, 2008 (“Effective Date”), by and between:


 


	
   

  	
  AXT, Inc.

  
	
   

  	
  4281
  Technology Drive

  
	
   

  	
  Fremont,
  CA 94538

  
	
   

  	
  Hereinafter
  referred to as “AXT”

  



 


	
  And

  	
  IQE plc

  
	
   

  	
  265 Davidson Avenue

  
	
   

  	
  Suite 215

  
	
   

  	
  Somerset,
  New Jersey 08873

  
	
   

  	
  Hereinafter
  referred to as “IQE plc”

  



 


Preamble


 


IQE
plc has requirements for substrates to be used by IQE plc as raw materials to
manufacture IQE plc Epi wafers, and AXT is willing, subject to the terms and
conditions of this Agreement, to supply IQE plc with such substrates.


 


Now,
therefore, in consideration of the foregoing and the mutual premises
hereinafter contained, AXT and IQE plc hereby agree as follows:


 


1.             Definitions.


 


1.1              Blanket
Purchase Order shall mean a binding open purchase order
identifying the Products to be purchased by Product Identification Number, and
indicating a global quantity of Products to be delivered within the Initial
Term as well as associated price, in accordance with the Product Purchase
Addendum.


 


1.2              Inventory shall mean the inventory of Products
held at IQE plc’s premises located at IQE plc’s Somerset, New Jersey or other
inventory facility pursuant to the SMI Program.


 


1.3              Ordering
Entity shall mean an entity controlled by, under common control
with, or controlling IQE plc (with “control” meaning ownership of more than
fifty percent (50%) of the voting stock of the entity or, in the case of a
non-corporate entity, an equivalent interest), that is authorized to make
purchases hereunder by submitting Purchase Order Releases to AXT.


 


1.4              Products
shall mean substrates to be purchased hereunder, as identified on the Product
Purchase Addendum.


 


1.5              Product
Purchase Addendum shall mean the addendum to this Agreement
attached as Appendix A, as may be modified during the term hereof as provided
in this Agreement, setting forth the Products to be purchased hereunder
together with their respective Specifications and agreed upon purchase price.


 


1.6              Purchase
shall mean that the Products that have been placed in Inventory have been
either (i) released or pulled from Inventory pursuant to a Purchase Order
Release or Purchase Order, as 


 


[***]  Indicates redacted terms for which confidential
treatment has been requested from the Securities and Exchange Commission.


 


 

















 


applicable, or (ii) deemed released from
Inventory due to expiration of the Shelf Life as set forth in Section 6.1
below or deemed released to satisfy the Minimum Purchase requirement set forth
in Section 2.3 below.


 


1.7              Purchase
Order shall mean an official purchase order for Products made by
IQE plc or an Ordering Entity for any Products that are not within the Minimum
Purchase.


 


1.8              Purchase
Order Release shall mean an official purchase order release made
against the Blanket Purchase Order issued by IQE plc to AXT; to be issued a
minimum of 4 weeks lead-time before the date which IQE plc forecasts they will
withdraw from Inventory the specific Products held in Inventory under the SMI
Program.


 


1.9              Shelf
Life is defined as the one hundred eighty (180) day period from
date of placement of each Product into the Inventory.


 


1.10            SMI
Program is defined as a supplier managed inventory program
whereby a reserve Inventory of Products at IQE plc’s premises located at IQE
plc’s Somerset, New Jersey facility and others as designated by IQE plc.


 


1.11            Specification(s) shall
mean the current Product specifications set forth for each Product on the
Product Purchase Addendum.  The Specifications
may only be changed by a writing signed by both parties.


 


2.             Scope of Agreement.


 


2.1              Agreement.  The purpose of this Agreement is to describe
the terms and conditions under which the Products shall be supplied by AXT to
IQE plc and its Ordering Entities. The terms of this Agreement represent the
entire agreement between the parties regarding its subject matter and shall
prevail over the terms of any prior or contemporaneous agreements (whether
written or oral) to the extent they may be inconsistent or in conflict with the
terms of this Agreement.


 


2.2              Ordering Entities.  IQE plc shall be responsible for any act or
omission of the Ordering Entities and of each Ordering Entity’s compliance with
all of the terms of this Agreement.  Any
action or breach by any of the Ordering Entities shall be deemed an action or
breach by IQE plc and IQE plc will indemnify and hold AXT harmless from any and
all breaches of this Agreement by its Ordering Entities.  IQE plc waives all of those defenses that IQE
plc may have as to why IQE plc should not be liable for the Ordering Entities’
acts, omissions and noncompliance with this Agreement.  IQE plc hereby guarantees payment for
Products released pursuant to an Ordering Entity’s Purchase Order Release.


 


2.3              Blanket Purchase Order.  IQE plc agrees to issue a Blanket Purchase
Order within two (2) days from the Effective Date for [***] ([***]) 6”
Wafer Products (the “Minimum Purchase”). IQE plc agrees to issue an [***] 6”
Wafer Blanket Take or Pay Purchase Order at [$***]. IQE agrees to be bound
under this Agreement to Purchase the Minimum Purchase prior to December 31,
2008.  IQE plc and Ordering Entities: (i) shall
issue Purchase Order Releases for Products against the Minimum Purchase within
the Initial Term (as defined in Section 3 below) and (ii) provided,
that IQE plc and/or the Ordering Entities have Purchased and paid for the
Minimum Purchase, may issue Purchase Orders for up to an aggregate of [***] ([***])
Products in addition to the Minimum Purchase at [$***] per 6” wafer.  The Blanket Purchase Order, all Purchase
Orders and Purchase Order Releases are firm and non cancelable by IQE plc
and/or its Ordering Entities.  IQE plc is
responsible for the full price of Products as ordered in the Blanket Purchase
Order, any Purchase Order or Purchase Order Release submitted by IQE plc or an
Ordering Entity.  In the event AXT fails
to deliver the Minimum Purchase per the forecast submitted by IQE plc, 


 

















 


all purchased quantities of competitor wafers in
default of the delivery date shall be included in the Minimum Purchase
quantity. IQE plc will issue payment for all 6” wafers not released from the
SMI inventory within 60 days from December 31, 2008.


 


2.4              No Additional Terms.  The acceptance of the Blanket Purchase Order,
any Purchase Order Release and/or a Purchase Order from IQE plc and/or an
Ordering Entity, whether electronically or in hard copy form, is expressly
conditioned upon IQE plc’s and each Ordering Entity’s assent hereunder to be
bound by the terms and conditions in this Agreement, in lieu of the terms
contained in any such IQE plc and/or Ordering Entity Blanket Purchase Order,
Purchase Order Release and/or a Purchase Order. 
The parties hereby reject all provisions contained in communications
from either party that conflict with or are inconsistent with the terms
contained herein.  The parties’ failure
to object to any of the provisions contained in either party’s documentation
shall not be deemed a waiver of the terms of this Agreement under any
circumstances.


 


3.             Term of Agreement.  This Agreement shall enter into effect on the
Effective Date and shall remain in effect until December 31, 2008 (“Initial
Term”), unless terminated earlier as provided in Section 12. Thereafter,
this Agreement shall automatically renew from year to year unless a party
provides the other party with at least two (2) months’ prior written
notice of its intent to terminate this Agreement.


 


4.             Price and Payment Terms.


 


4.1              Purchase Price.  The purchase price(s) for the Products
shall be in United States Dollars as set forth in the Product Purchase
Addendum.


 


4.2              Payment Terms.  AXT will issue invoices on the date which IQE
plc Purchases the corresponding Products from the Inventory and IQE plc will
pay the invoice NET sixty (60) days from the date of invoice.


 


5.             SMI Program and Consignment of Products.


 


5.1              SMI Program.  Only products listed on the Product Purchase
Addendum will be managed using the SMI Program. 
The Product Purchase Addendum may be modified as mutually agreed by the
parties in writing.


 


5.1.1       Forecast of Products.


 


5.1.1.1          Forecasts
by IQE plc.  Commencing on the Effective Date
of this Agreement and on a monthly basis thereafter, IQE plc and each Ordering
Entity shall prepare and issue to AXT rolling ninety (90) day forecasts of its
requirements for Products using the then current agreed upon format (each, a “Forecast”).  Each such Forecast shall specify the specific
Inventory facility for shipment.


 


5.1.2       Delivery of Products to
Inventory.  Products will be
delivered from AXT to the Inventory based on the Forecasts.  AXT will pay for delivery of Products from
AXT to the Inventory; provided, however, that AXT shall not be responsible for
any increased shipment costs that result from IQE plc or an Ordering Entity’s
failure to provide an accurate Forecast. 
Immediately upon delivery of Products to the Inventory, IQE plc shall
inspect the integrity of packaging, the identity of Products by comparison with
the delivery papers and notify AXT of any discrepancies within the next seven (7) business
days.


 

















 


5.1.3       Acceptance.  IQE plc and its Ordering Entities shall have
thirty (30) days from release of each Product from Inventory to test the
Products (the “Acceptance Period”) in accordance with mutually agreed upon
procedures established prior to the commencement of the Acceptance Period.  If a Product does not substantially conform
to its Specifications (a “Defect”), IQE plc shall notify AXT of the nature and
specifics of the nonconformity.


 


AXT
shall work to correct nonconformities discovered during IQE plc or the Ordering
Entity’s performance of Acceptance Tests and resubmit to IQE plc or the
Ordering Entity for re-testing within a reasonable period of time.  In the event that IQE plc or the Ordering
Entity does not notify AXT of any Defects during the Acceptance Period, such
Product shall be deemed accepted subject to Section 10 hereof.  In the event that AXT is unable to correct
nonconformities after two attempts to do so under this Section 5.1.3, all
such nonconforming Products shall be counted towards the Minimum Purchase
without charge.


 


5.1.4       Consumption of Products.  IQE plc and each Ordering Entity shall notify
AXT electronically each week on Friday of releasing Products from Inventory in
a mutually agreed upon format.  IQE plc
and each Ordering Entity will consume or release the Products held in the
Inventory on a “first-in, first-out” basis according to the delivery date into
the Inventory for that specific Product. 
AXT deliveries will be used to replenish the quantities withdrawn from
this Inventory.


 


5.1.5       IQE plc’s Responsibilities.


 


5.1.5.1          Storage
conditions.  IQE plc shall
make available free of charge sufficient space for the Products included in the
SMI Program in its warehouse(s)/stores located on its premises or off-site.  IQE plc shall store the Products included in
the SMI Program in accordance with the applicable Specifications and shall
ensure the safety and security of the Products included in the SMI Program.
Products included in the SMI Program will be stored in such a way that it can
be easily distinguished from any other material belonging to or stored by IQE
plc.


 


5.1.5.2          Third
party.  Subject to AXT’s prior
written consent, IQE plc may appoint a third party to hold Products in
inventory under the SMI Program with a different (and possibly additional)
storage facility and location.  Such
third-party shall have the same duties as described herein for IQE plc as to
the Products included in the SMI Program. 
IQE plc will specify in the Blanket Purchase Order the anticipated
delivery location for the applicable Products included in the SMI Program. IQE
plc is responsible for all expenses and risks associated with using a third
party storage pursuant to this Section.


 


5.1.5.3          Product
traceability.  IQE plc shall
maintain complete traceability on all Products or packaging containing Products
which are held in Inventory showing that such Products are the property of
AXT.  IQE plc shall ensure that such
Products are explicitly designated as AXT material through assigned batch ID
numbers on every incoming shipment to Inventory.  Different batch numbers will identify
different Products/part numbers. 
Tracking of Product batches from date of receipt, through storage and
then withdrawal from inventory will be reported to AXT monthly by referencing
identified batch numbers.


 


5.1.6       AXT’s Responsibilities.


 


5.1.6.1          Accuracy.  AXT is responsible for ensuring accuracy of
all shipment documentation.


 

















 


5.1.6.2          Products
Packaging.  The Products will be packaged, labelled and identified
by AXT in accordance with the Specifications agreed between IQE plc and AXT, as
prevailing at the date of shipment from AXT’s facility.


 


5.2              SMI Program Inventory
Audit.


 


5.2.1       AXT is entitled to inspect the SMI Program Inventory and
carry out a stock audit upon thirty (30) days prior notice to IQE plc. IQE plc
will provide AXT with access to IQE plc’s representatives for this purpose.


 


5.2.2       If during such an inspection, AXT
discovers any non-compliance with the terms of this Agreement, AXT shall notify
IQE plc in writing and IQE plc shall present a corrective action plan to AXT
within a reasonable timeframe.


 


6.             Ownership,
Risk, Shipment Term.


 


6.1              Title
Transfer.  The Purchase of the
Products shall be deemed to occur and title to the Products shall remain the
sole property of AXT until the earlier of: (x) the date which IQE plc
shall withdraw or release the Products from Inventory pursuant to a Purchase
Order Release or Purchase Order, as applicable, and (y) expiration of the
Shelf Life.


 


6.2              Risk
Transfer.  Risk of loss for
all Products stored at Inventory shall pass from AXT to IQE plc on the date of
delivery of the Products to Inventory. IQE plc shall be responsible for
insuring the Products in Inventory against all risk of loss or damage. IQE plc
shall bear the cost of such insurance covering, without limitation, fire, theft and
other loss of Products.  IQE plc shall
submit policies and riders to AXT together with proof of payment of premiums
and, at AXT’s request, shall cause AXT to be named as an additional insured
under such policies as its interests may appear, with waiver of recourse as
appropriate.


 


6.3              Country of Origin.  AXT hereby agrees that upon written request
from IQE plc, AXT will identify the country of origin of the Products and
provide written notification of such country of origin for IQE plc.


 


7.             Force Majeure.  Except for the payment of fees, neither party
shall be held responsible for any delay or failure in performance of any part
of this Agreement to the extent such delay or failure is caused by an act of
God or other similar causes beyond its control and without the fault or
negligence of the delayed or non-performing party (each a “Force Majeure Event”).  In the event AXT fails to deliver 6” wafers
per their schedule, and IQE plc has no choice other than to utilize 6” wafers
from another vendor, all such 6” wafers utilized by IQE plc from other vendors
shall then be included in the total [***] take or pay contract. Delays by
vendors in manufacture or delivery of materials not caused by a Force Majeure
Event, or shortages of labor or materials resulting from general market
conditions (including price increases), shall not constitute a Force Majeure
Event.  A party who is delayed or fails
to perform as a result of a Force Majeure Event (“Affected Party”) shall use
its best efforts to mitigate and minimize any resulting delay in the
performance of the suspended obligation. 
The Affected Party shall provide written notice to the other party
within forty eight (48) hours of learning of a Force Majeure Event stating the
nature and cause of the event, the anticipated length of the delay, the
measures proposed or taken by the Affected Party to minimize the delay, and the
timetable for implementation of such measures. 
If a Force Majeure Event occurs, neither party may (i) suspend this
Agreement in whole or in part for the duration of the delay; (ii) conduct
business elsewhere and deduct such business from any committed quantities;
and/or (iii) extend the term of this Agreement up to the length of time of
the delay.  If the AXT is the Affected
Party, IQE plc may terminate this Agreement or any part hereof without penalty
if the delay or 


 

















 


failure in performance continues beyond twenty (20)
days. Likewise, if IQE plc is the Affected Party, AXT may terminate this
Agreement or any part hereof without penalty if the delay of failure in
performance continues beyond twenty (20) days.


 


8.             Quality Assurance.  AXT shall maintain a “documented quality
system,” such as an ISO 9001:2000, or equivalent, at each AXT plant supplying
Product or services to IQE plc, and shall make such documented quality system
available for IQE plc’s review.  AXT’s
documented quality system shall include, but is not limited to, programs for
monitoring AXT’s manufacturing and, improving AXT’s material and procurement
process, and implementing corrective and preventative actions.  Upon IQE plc’s written request, AXT shall
provide data verifying AXT’s compliance with such quality system, including but
not limited to process capability data and SPC charts for key product
parameters as agreed between IQE plc and AXT and identified in the
Specifications. IQE plc will have the right to audit AXT during 2008 and any
renewal term hereof with thirty (30) days written notice.


 


9.             Changes.


 


9.1              AXT Changes.  No major Product or process changes, design
changes, or other alterations affecting the performance, the mechanical form or
fit, the compatibility or characteristics, or the life reliability of Product that will impact or potentially impact the intrinsic characteristics of
the wafer being fabricated or of the resulting customer device (collectively “Major
Changes”) shall be made or incorporated in the Product without the prior
written approval of IQE plc.  AXT shall
provide written notice of any proposed Major Change at least ninety (90) days
prior to the implementation of the proposed Major Change. AXT shall provide to
IQE plc sufficient information describing the proposed Major Change in detail
so as to allow IQE plc to properly evaluate the impact of the proposed Major
Change. The following are examples of changes that
are considered to be Major Changes, and require IQE plc’s prior
written approval:


 


(i)            changes in manufacturing processes
including locations and subcontractors;


 


(ii)           changes
in final product control specifications and
testing methods;


 


(iii)          changes
in raw materials or raw materials source for
direct key materials;


 


(iv)          changes
in Product containers or packaging;


 


(v)           changes
in final inspection procedures or sample plans; and


 


(vi)          changes
to raw materials or raw materials source, including each of the types of
changes listed above. The parties will update this list from time to time.


 


10.          Warranty, Remedies, Return and Disclaimers.


 


10.1            Warranty.  AXT represents and warrants that all Products
for a period of six (6) months from the date of delivery to the Inventory:
(i) meet current industry standards, i.e., ISO 9001:2000, with respect to
materials and workmanship and (ii) substantially conform to the
Specifications.  The foregoing warranty
is subject to IQE plc storing the Products in accordance with any AXT
recommendations and the Specifications and is invalidated if IQE does not
comply with such AXT recommendations and the Specifications.


 


10.2            Remedies for Breach of
Warranty.  If any Products do
not meet the warranties specified herein, AXT may, at AXT’s option;


 

















 


(i)            replace
or correct at no cost to IQE plc any defective or nonconforming Products
pursuant to the Product return procedures set forth in Section 10.3 below,


 


(ii)           Replace
nonconforming substrates on which epi was grown on a “1 for 1” ratio for the
first 2% and a “2 for 1” ratio for all non conforming substrates on which epi
was grown that exceed 2%.


 


(iii)          Allow
IQE plc to return any nonconforming Products to AXT at AXT’s expense and
recover from AXT the full sales price and any packaging or shipping costs
thereof.


 


                Notwithstanding any other
provision herein to the contrary, in the event that any of the Products are
found not to substantially conform to those “Specific Specifications” set forth
on Appendix A attached hereto within the time required therein by one of
IQE plc’s customers (such period of time not to exceed six (6) months from
the date of delivery to IQE), AXT shall and hereby agrees to be responsible for
all such customer material costs incurred as a result of the Product’s failure
to substantially conform to such Specific Specifications; provided, that AXT’s
maximum cumulative liability for any such customer direct material costs shall
be limited to nine hundred and fifty dollars ($950.00) per non-conforming
Product.  Notwithstanding the foregoing,
AXT shall have the right to replace a non-conforming Product with a conforming
Product for the first two percent (2%) of the production at IQE of IQE products
incorporating the Products that are non-conforming due to Haze (and to replace
a non-conforming Product with two (2) conforming Products for any IQE
products incorporating the non-conforming Product that are non-conforming due
to Haze exceeding two percent (2%) of the production at IQE of IQE products
incorporating the non-conforming Products), in which case, AXT shall not have
any liability for customer material costs under this Section.  For the purposes of this
Section, Haze means a visible defect that is visual on the surface of the wafer
after a thin epitaxial film is place on it and is visible to the naked eye.


 


10.3            Return of Products.  In the event that IQE plc returns
nonconforming Products (including yield loss >2%) to AXT pursuant to Sections
10.2(i) or 10.2(iii), IQE plc will notify AXT of the nonconformity and of
IQE plc’s intent to return the nonconforming Products.  Upon receipt of IQE plc’s notification to AXT
of the nonconformity, AXT will provide a Return Material Authorization number (RMA#)
within 48 hours after receipt of notification unless otherwise agreed in
writing by both parties.  AXT shall
provide all the assistance and authorization required to return the
nonconforming Products to AXT within 72 hours of the original notification, and
shall promptly deliver replacement Products. 
The nonconforming Products shall be returned to AXT at AXT’s expense,
and AXT shall be liable and shall assume all title and responsibility for all
Products during return transport, including liability caused by hazardous
substance releases during such transport. 
AXT shall promptly investigate to determine the cause of the
nonconformity and shall notify IQE plc of its findings.  Notwithstanding any contrary statement or
requirement in this paragraph, in the event that IQE plc believes, in its sole
but reasonable discretion, that AXT has delivered nonconforming Products and
that IQE plc is in jeopardy of curtailing production or shutting down its
facility as a result, IQE plc will notify AXT of such condition in writing
(e-mail shall suffice for such notice), and AXT shall exercise all reasonable
efforts to immediately ship replacement Products to IQE plc. IQE plc will not
ship to AXT any nonconforming products that have epi grown on them. AXT will have
the right to inspect such nonconforming products at IQE plc’s facilities within
thirty (30) days.


 


10.4            No Waiver.  No inspection or acceptance, approval or
acquiescence by IQE plc with respect to Products shall relieve AXT from any
portion of its warranty obligation nor shall waiver by IQE plc of any
Specification requirement for one or more items constitute a waiver of such
requirements for remaining items unless expressly agreed by IQE plc in writing.


 

















 


10.5            Disclaimer of Warranty.  EXCEPT AS EXPRESSLY SET FORTH IN SECTION 10
ABOVE, AXT DOES NOT MAKE ANY OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE.  ALL IMPLIED
WARRANTIES AS TO SATISFACTORY QUALITY, PERFORMANCE, MERCHANTABILITY, FITNESS
FOR PARTICULAR PURPOSE OR NON INFRINGEMENT ARE EXPRESSLY DISCLAIMED.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS SECTION 10, AXT DOES NOT WARRANT THAT THE PRODUCTS ARE ERROR-FREE OR
THAT THEIR USE WILL BE UNINTERRUPTED.


 


11.          Limitation of Liability.


 


11.1            Disclaimer of
Consequential Damages.  IN NO
EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT,
EXEMPLARY, PUNITIVE, SPECIAL OR OTHER DAMAGES WHATSOEVER RESULTING FROM AXT’
PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT OR THE FURNISHING,
PERFORMANCE OR USE OF ANY GOODS SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF
CONTRACT, BREACH OF WARRANTY, STRICT LIABILITY, PRODUCT LIABILITY, THE
NEGLIGENCE OF AXT OR OTHERWISE.


 


11.2            Limitation on Liability.  IN NO EVENT SHALL EITHER PARTY’S LIABILITY
EXCEED THE U.S. DOLLAR AMOUNT EQUAL TO THE AMOUNT PAID BY IQE plc FOR THE COST
OF THE PRODUCTS PAID BY IQE plc UNDER THIS AGREEMENT.  THE DAMAGE LIMITATIONS PROVIDED IN THIS
AGREEMENT AND THE REMEDIES STATED HEREIN SHALL BE EXCLUSIVE AND SHALL BE A
PARTY’S SOLE REMEDY.  THIS LIMITATION ON
LIABILITY SHALL SURVIVE FAILURE OF ANY ESSENTIAL PURPOSE.


 


12.          Termination.


 


12.1            In the event that either party commits any breach of any
provision of this Agreement and does not rectify such default within a period
of thirty (30) days after having received written notice, specifying the
default, the other party may terminate this Agreement immediately. Further,
should either party (i) be adjudged or become insolvent; (ii) have
any proceedings instituted by or against it in bankruptcy, under insolvency
laws, or for the party’s reorganization, receivership, dissolution, or
liquidation; (iii) make an assignment for the benefit of creditors or any
general arrangement with creditors; or (iv) discontinue business or adopt
a resolution calling for same, the other party may terminate this Agreement for
cause upon 24-hours written notice. 
Notwithstanding the above, either party shall have the right to seek any
other remedy that may be available at law or in equity.


 


12.2            Effect of
Termination/Survival.  Upon
the expiration or termination of this Agreement (i) provided that this
Agreement was not terminated for IQE plc’s breach of this Agreement and except
for the Products subject to the Minimum Purchase requirements specified in Section 2.3
above, IQE plc will have the right with respect to any Products remaining in
Inventory as of the date of termination to withdraw such Products in Inventory
immediately pursuant to the SMI Program and pay for them subject to payment
being made within thirty (30) days end of month, or to return the Products to
AXT at AXT’s expense.  IQE plc shall
notify AXT of its selection of one of the foregoing options within five (5) days
of the expiration or termination date; (ii) if this Agreement was
terminated for IQE plc’s breach of this Agreement, then AXT shall have the
right to require IQE plc to return all Products remaining in Inventory (except
for the Products subject to the Minimum Purchase requirements specified in Section 2.3)
to AXT at IQE plc’s expense ; and (iii) the following Sections shall
survive: Sections 1, 2.4, 4, 6, 7, 10, 11, 12, 13, 14 and 15. In the event of
the termination of this Agreement as a result of a breach by AXT, IQE plc shall
have no further obligation under this Agreement except with respect to 


 

















 


Section 4 for payments that accrued prior to
the effective date of termination and Section 13 with respect to ongoing
confidentiality obligations.


 


13.          Confidentiality.


 


13.1            Confidential Information.  Each party acknowledges that, in the course
of performing its duties under this Agreement, it may receive information
relating to the other party, which the receiving party knows, or has reason to
know, is confidential or proprietary information of the other party or is
identified as confidential and/or proprietary nature (“Confidential Information”).  The receiving party shall at all times both
during the term of this Agreement and for a period of five (5) years
thereafter, keep and hold such Confidential Information in confidence, and
shall not use such Confidential Information for any purpose, other than as may
be reasonably necessary for the performance of its duties pursuant to this
Agreement.  The receiving party shall not
disclose any Confidential Information to any person or entity, other than to
the receiving party’s employees or consultants as may be reasonably necessary
for purposes of performing its duties hereunder; provided that such employees
and consultants have first entered into agreements at least as protective of
the Confidential Information as the terms and conditions of this Section 13.


 


13.2            Exceptions.  The parties’ obligation under Section 13.1
with respect to any portion of Confidential Information, shall not apply to any
such portion that the receiving party can document:  (a) was lawfully in the public domain at
or subsequent to the time such portion was communicated to the receiving party
by the disclosing party through no fault of the receiving party; (b) was
rightfully in the receiving party’s possession free of any obligation of
confidence at or subsequent to the time such portion was communicated to the
receiving party by the disclosing party; or (c) was developed by employees
or agents of the receiving party independently of and without reference to any
information communicated to the receiving party by the disclosing party.  A disclosure of any portion of Confidential
Information, either: (a) in response to a valid order by a court or other
governmental body; or (b) otherwise as required by law, shall not be
considered to be a breach of this Agreement or a waiver of confidentiality for
other purposes; provided, however, that the party being required to disclose
the information shall provide prompt prior written notice thereof to the other
party to enable the other party to seek a protective order or otherwise prevent
such disclosure.


 


13.3            Advertising.  Each party agrees that it shall not publish
or cause to be disseminated through any press release, public statement, or
marketing or selling effort any information that relates to the other party or
this Agreement without the prior written approval of the other party.


 


14.          General
Terms and Conditions.


 


14.1            Modifications,
Appendices, Addenda.


 


14.1.1     No modification of this Agreement shall be
valid unless in writing, signed by an authorized representative of each party.


 


14.1.2     Each Addendum hereto is an integral part of
this Agreement. In the event of any conflict between the contents of this
Agreement and any Addendum the regulations of this Agreement shall prevail.


 


14.2            Severability.  If any provision of this Agreement is
declared void, invalid, or illegal by any governmental, judicial or arbitral
authority, the validity or legality of any of the other provisions and of the
entire Agreement shall not be affected thereby and the parties shall replace
such provision with one as near in substance as possible to the original
provision.


 

















 


14.3            Notices.  All notices relating to this Agreement shall
be in writing and shall be deemed given (i) in the case of mail, on the
date deposited in the mail, postage prepaid, either registered or certified,
with return receipt requested (or its equivalent); (ii) in the case of
personal delivery to an authorized representative or officer of the party, or
in the case of express courier service or overnight delivery service of
national standing, on the date of delivery or attempted delivery (if receipt is
refused); or (iii) in the case of facsimile, 24 hours after it has been
sent provided that a duplicate copy of such notice is also promptly sent
pursuant to (i) or (ii) above. 
Notices shall be addressed to the parties as set forth on the first page hereof,
but each party may change its address by written notice in accordance with this
section.


 


14.4            Compliance With Law.  In the performance of this Agreement, each
party shall at all times comply with all applicable governmental laws,
statutes, ordinances, rules, regulations, orders, and other requirements,
including, without limitation, such governmental requirements applicable to
environmental protection, health, safety, wages, hours, equal employment
opportunity, nondiscrimination, working conditions, import or export control,
customs, and transportation.


 


15.          Applicable Law.  Except for
the right of either party to apply to a court of competent jurisdiction for a
temporary restraining order, a preliminary injunction, or other equitable
relief to preserve the status quo or prevent irreparable harm pending the
appointment of one or more arbitrators, any dispute between IQE plc and AXT
under this Agreement involving its interpretation or the obligations of a party
hereto, shall be determined by binding arbitration conducted in English.  Arbitration shall be held in accordance with
the Rules of the London Court of International Arbitration in the City of
London in the United Kingdom (“LCIA”). 
Arbitration may be conducted by one (1) attorney arbitrator by
mutual agreement or by three (3) arbitrators if the parties are unable to
agree on a single arbitrator within thirty (30) days of first demand for arbitration.  All arbitrators are to be selected from a
panel provided by the LCIA.  In the case
of a three-arbitrator panel being necessary, the chairman and one other
arbitrator shall be attorneys at law, and the third arbitrator shall have a
background or training in either computer law, computer science, computer
engineering, or marketing of computer industry products.  The arbitrators shall have the authority to
permit discovery, to the extent deemed appropriate by the arbitrators, upon
request of a party.  The arbitrators
shall have no power or authority to add to or detract from the agreements of
the parties.  The costs of the
arbitration shall be borne equally pending the arbitrator’s award.  The arbitrator shall have the authority to
grant any temporary, preliminary, or permanent injunctive or other equitable
relief in a form substantially similar to that would otherwise be granted by a
court.  The arbitrators shall have no
authority to award punitive or consequential damages.  The resulting arbitration award may be
enforced by all lawful remedies, including without limitation injunctive or
other equitable relief in any court of competent jurisdiction.  The trial courts of the United Kingdom are
courts of competent jurisdiction.  The
parties agree to submit to the jurisdiction of those courts, as applicable, for
all purposes concerning any arbitration. This Agreement shall be
governed by the laws of USA and the State of California.


 


16.          Binding Effect. Neither party shall assign this Agreement
without the prior written consent of the other party.  Subject to the foregoing, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns.


 

















 


Date:
December 12, 2007


 


	
   

  	
  AXT, Inc.

  	
  IQE plc

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert Ochrym

  	
   

  	
  By:

  	
   /s/ Alex Ceruzzi

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Authorized Signature

  	
  Authorized Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Robert G. Ochrym

  	
   

  	
  Alex Ceruzzi

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Print Name

  	
  Print Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  VP Business Development

  	
   

  	
  VP and General Manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Print Title

  	
  Print Title

  



 

















 


Appendix A:


 


PRODUCT PURCHASE ADDENDUM


 




	
  Product

  	
   

  	
  Price

  	
   

  	
  Specifications

  	 

	 
	
  6” Wafer

  	
   

  	
  ·

  	
  For Products

  within the

  Minimum

  	
   

  	
  IQE Inc P/Ns

  
	 
	
   

  	
   

  	
   

  	
  00A8-14D4-

  
	 
	
   

  	
   

  	
   

  	
  FXW and

  
	 
	
   

  	
   

  	
   

  	
  Purchase-[$***]

  per Product

  	
   

  	
  0068-1454-

  
	 
	
   

  	
   

  	
   

  	
  FXW

  
	 
	
   

  	
   

  	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
  ·

  	
  For additional

  	
   

  	
  IQE RF P/N

  
	 
	
   

  	
   

  	
   

  	
  Products above

  	
   

  	
  F10012Q4,

  
	 
	
   

  	
   

  	
   

  	
  the Minimum

  	
   

  	
  Rev Q

  
	 
	
   

  	
   

  	
   

  	
  Purchase-[$***]

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  	
  per Product

  	
   

  	
  MBE P/N 6-

  
	 
	
   

  	
   

  	
   

  	
   

  	
  DP-Lan-2D-

  
	 
	
   

  	
   

  	
   

  	
   

  	
  VGF