Document:

Exhibit 10.29

 

SUPPLY AGREEMENT

 

This SUPPLY AGREEMENT
(“Agreement”) is made as of this 31st day of December, 2008 but effective as of
January 1, 2009 (“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.

 

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

 

 

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 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 a [***] 6”
Wafer Blanket Take or Pay Purchase Order at [$***]. IQE agrees to be bound
under this Agreement to Purchase the Minimum Purchase prior to March 31,
2010.  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).  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 or if AXT
is disqualified by IQE

 

 

plc’s customers, all
purchased quantities of competitor wafers in default of the delivery date shall
be included in the Minimum Purchase quantity. In addition, all 5” wafer
purchases (price to be agreed upon separately) will also be counted towards the
Minimum Purchase quantity.  IQE plc will
issue payment for all 6” wafers not released from the SMI inventory within 60
days from March 31, 2010.

 

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 parties’ 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 March 31, 2010 (“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 or if a customer disqualified IQE plc due
to an identifiable substrate issue, 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 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, IQE plc 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.  If IQE cannot return nonconforming Products
to AXT due to non-disclosure agreements signed with their customers, AXT retains
the right to inspect such nonconforming Products on IQE’s site.

 

Nothwithstanding 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) 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 placed 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%, haze or not meeting IQE group specifications) 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.  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 AXT 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 AXT’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 (ii) the following Sections shall survive:
Sections 1, 2.4, 4, 6, 7, 10.5, 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.

 

14.5.                        Waiver or Modification.  No provision of this
Agreement can be waived or amended in favor of either Party except by written
consent of the other Party, which consent shall specifically refer to such
provision and explicitly make such waiver or amendment.  No failure or
delay by either Party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or future exercise thereof or the exercise of any
other right, power or privilege hereunder.  In addition, no failure or
delay by either Party in exercising any right, power or privilege under or
waiver of any provision of any prior or other agreement between the Parties
shall operate as a waiver of any provision of this agreement.

 

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 the United Kingdom.

 

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 31, 2008

 

 

	
   

  	
  AXT, Inc.

  	
   

  	
  IQE plc

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Robert G. 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 Purchase-[$***] per Product

  	
   

  	
  IQE Inc P/Ns 00A8-14D4-FXV
  and 0068-1454-FXV

   

  IQE RF P/N F10012Q4, Rev Q
  

   

  MBE P/N 6-DP-Lan-2D-VGFExhibit 10.30

 

SUPPLY AGREEMENT

 

This
SUPPLY AGREEMENT (“Agreement”) is made as of this 31st day of December 2008,
but effective as of January 1, 2009 (“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.

 

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

 

 

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 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 [***] ([***]) 4” Wafer Products (the “Minimum Purchase”).
IQE plc agrees to issue a [***] 4” 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, 2009. 
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)   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 or if AXT is disqualified by IQE

 

 

plc’s customers, 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 4” wafers not
released from the SMI inventory within 60 days from December 31, 2009.

 

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, 2009 (“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 or if
a customer disqualified IQE plc due to an identifiable substrate issue, 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 4” wafers
per their schedule, and IQE plc has no choice other than to utilize 4” wafers
from another vendor, all such 4” 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%. For IQE RF
only, AXT, Inc shall provide a 1for 1 replacement on the first 1% of haze
issues and 2 for 1 for haze issues over 1%.

 

(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. 
If IQE cannot return nonconforming Products to AXT due to non-disclosure
agreements signed with their customers, AXT retains the right to inspect such
nonconforming Products on IQE’s site.

 

Return of Products.  In the event that IQE plc
returns nonconforming Products (including yield loss >1%, haze or not
meeting IQE group specifications) 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.

 

10.3         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.

 

10.4         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.

 

14.5.        Waiver  or Modification. 
No provision of this Agreement can be waived or amended in favor of either
Party except by written consent of the other Party, which consent shall
specifically refer to such provision and explicitly make such waiver or
amendment.  No failure or delay by either Party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or future exercise
thereof or the exercise of any other right, power or privilege hereunder. 
In addition, no failure or delay by either Party in exercising any right, power
or privilege under or waiver of any provision of any prior or other agreement
between the Parties shall operate as a waiver of any provision of this
agreement.

 

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 the United Kingdom.

 

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 31, 2008

 

 

	
  AXT, Inc.

  	
   

  	
  IQE plc

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/
  Robert G. 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

  
	
  4” Wafer

  	
   

  	
  ·  For Products within the Minimum
  Purchase-[$***] per Product

  	
   

  	
  IQE Inc P/Ns 0046-12EU-FXV

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  IQE RF P/N’s

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  F10017Q7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  MBE P/N’s

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  4EJ-DP-LB-2D

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  4-US-DP-LF-2D,MOB>4500

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  4-US-DP-LF-2D,RES:>6E7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  0046-0044-BXV

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  0046-10EU-BXV

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