Document:

Exhibit 10.31

 

CONFIDENTIAL TREATMENT REQUESTED

 

SUPPLY AGREEMENT

 

This
SUPPLY AGREEMENT (“Agreement”) is made as of this 29th day of January 2010
and effective as of January 1, 2010 (“Effective Date”), by and between:

 

	
   

  	
   

  	
  AXT, Inc.

  
	
   

  	
   

  	
  4281
  Technology Drive

  
	
   

  	
   

  	
  Fremont,
  CA 94538, USA

  
	
   

  	
   

  	
  Hereinafter
  referred to as “AXT”

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
  Azur
  Space Solar Power GmbH

  
	
   

  	
   

  	
  Theresienstrasse
  2

  
	
   

  	
   

  	
  74072
  Heilbronn, Germany

  
	
   

  	
   

  	
  Hereinafter
  referred to as “Azur Space”

  

 

Preamble

 

Azur
Space has requirements for Germanium (Ge) substrates hereinafter referred to as
“substrates” to be used by Azur Space as raw materials to manufacture Solar
Cell Epi wafers, and AXT is willing, subject to the terms and conditions of
this Agreement, to supply Azur Space with such substrates.

 

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

 

1.                                       Definitions.

 

1.1                                             Blanket Purchase Order shall mean a
binding open purchase order identifying the Product 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                                             Products shall mean substrates to be
purchased hereunder, as identified on the Product Purchase Addendum.

 

1.3                                             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.

 

1.4                                             Purchase Order shall mean an official
purchase order for Products made by Azur Space or an Ordering Entity for any
Products that are not within the Minimum Purchase.

 

1.5                                             Purchase Order Release shall mean an
official purchase order release made against the Blanket Purchase Order issued
by Azur Space to AXT; to be issued a minimum of 4 weeks lead-time.

 

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

 

1

 

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
Azur Space. 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. The
terms of the Agreement represent the entire Agreement as of this date and any
changes to the terms and conditions of this Agreement have to be mutually
agreed to.

 

2.2                                             Ordering
Entities.  Azur Space
shall be responsible for any act or omission of Azur Space and any entity
controlled by, under common control with, or controlling Azur Space, or acting
in its stead and with compliance with all of the terms of this Agreement.  Azur Space hereby guarantees payment for
Products released pursuant to a Purchase Order Release issued on behalf of Azur
Space.

 

Blanket Purchase Order.  Azur Space agrees to issue a Blanket Purchase
Order (the “Blanket Purchase Order”) within thirty (30) days from the Effective
Date for 4” Wafer Products with either 140um or 175um thickness The Blanket
Purchase Order shall be a Blanket Take or Pay Purchase Order for a minimum of [***(***)] 4” wafers at US[$***] per
wafer Delivered Duty Unpaid (the “Initial Price”), with an option to purchase
an additional [***(***)] 4” Wafer Products over
years 3, 4, and 5 per the price adjustment clause and an option to purchase an
additional [***(***)] 4” Wafer Products in
year 2010 and an additional [***(***)] 4”
Wafer Products in Year 2011 at the agreed price of [$***] per
Wafer Product. Any 4” Wafer Product demands over and above [***(***)] for
Year 2010 and [***(***)] for Year 2011 shall be
priced by comparing the price of Ge as of September 30, 2009 of [$***] per kilo to the posted price of Ge Metal as posted at
www.Metal-Pages.com the month the order or orders are placed. The adjustment
price shall be per the formula set forth for years 3, 4, and 5 of this contract.
All purchase orders submitted by Azur Space after September 1, 2009 are
deemed to be/have been part of the Blanket Purchase Order. The Initial Price
shall be the purchase price for each 4” wafer purchased during the first two
years of this Agreement, through December 31, 2011.  This Initial Price per wafer shall be
adjusted for wafers purchased during years 3, 4, and 5 based on the percentage
change in Ge metal prices as posted at www.Metal-Pages.com (or other equivalent
website to be mutually agreed).  The
adjustment in the Initial Price, and in each price determined annually
thereafter, shall be agreed by September 30 of each year.  The adjustment shall be made by comparing the
price of Ge as of September 30 for the current year with the price of Ge
as of November 30 for the prior year, multiplied by [***] %.  The price established by the Initial Price is
based on a Ge price of US[$***].  For example: if Ge metal price increases to [$***] per kilogram as of September 30, 2011,
difference = [$***] - [$***]=[$***]or [***]%.  Accordingly, the Initial Price would be
adjusted beginning January 1, 2012 by [***]% (being [***]% x [***]% = [***]%; US[$***] increased
by [***]% = US[$***]).
If Ge Metal Prices increases beyond [$***] per
kilogram, Azur Space is entitled to submit a termination of this agreement

 

2.3                                 Purchase Order Releases.  Azur Space 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 Azur Space. 
Azur Space is responsible for the full price of Products as ordered in
the Blanket Purchase Order, any Purchase Order or Purchase Order Release
submitted by or on behalf of Azur Space. 
In the event AXT fails to deliver the Minimum Purchase per the forecast
submitted by Azur Space, all competitor wafers purchased by Azur Space to
fulfill the shortfall arising as a result of AXT’s default of the delivery date
shall be included in and counted as part of the Minimum Purchase quantity.  Azur Space agrees to be bound under this
Agreement to purchase the annual Minimum Purchase Take or Pay quantities per
the schedule below such that the total purchase over the 2 years by Azur Space
is a minimum of [***(***)] 4” Ge wafers with a commitment from AXT to provide the estimated
requirements for years 3, 4 and 5:

 

2

 

	
  Periods

  	
   

  	
  Minimum Quantity

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  January 1, 2010 to
  December 31, 2010

  	
   

  	
  [***(***)]

  	
   

  
	
  January 1, 2011 to
  December 31, 2011

  	
   

  	
  [***(***)]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Estimated Quantity

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  January 1, 2012 to
  December 31, 2012

  	
   

  	
  [***(***)]

  	
   

  
	
  January 1, 2013 to
  December 31, 2013

  	
   

  	
  [***(***)]

  	
   

  
	
  January 1, 2014 to
  December 31, 2014

  	
   

  	
  [***(***)]

  	
   

  
	
   

  	
   

  	
  [***(***)]

  	
   

  

 

During the Blanket Take or Pay Purchase Order for a
minimum of [***(***)] 4” Wafer Products, if
there is non-delivery due to delays in production at AXT, there will be a
contractual penalty of 0.2% of the order value (net) per calendar day that may
be charged, limited to 10% of the order value. This penalty does not apply
should the delay result from a change in specification and/or requirements
determined by Azur Space.

 

The time of delivery specified in the order shall be
binding. AXT agrees to notify Azur Space immediately in writing should
circumstances occur or become obvious so that AXT is unable to keep the agreed
upon time for delivery

 

No Additional Terms.  The acceptance of the Blanket Purchase Order,
any Purchase Order Release and/or a Purchase Order from Azur Space, whether
electronically or in hard copy form, is expressly conditioned upon Azur Space
assent hereunder to be bound by the terms and conditions in this Agreement, in
lieu of the terms contained in any such Azur Space 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.

 

2.4                                 No
Waiver. 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, 2014 (“Initial Term”), unless terminated earlier
as provided in Section 12.

 

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 Section 2.3 and the Product Purchase Addendum.

 

4.2                                             Payment Terms.  AXT will
issue invoices on the date which Azur Space purchases the corresponding
Products and Azur Space will pay the invoice NET ninety (90) days from the date
of delivery

 

5.                                       Products.

 

5.1                                             See products
listed on the Product Purchase Addendum. 
The Product Purchase Addendum may be modified as mutually agreed by the
parties in writing.

 

3

 

5.1.1                       Forecast of Products.

 

5.1.1.1                                  Forecasts
by Azur Space.  Commencing on the Effective Date
of this Agreement and on a monthly basis or as required thereafter, Azur Space
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

 

5.1.1.2                                  Inventory. AXT, Inc
shall maintain a minimum inventory of [***(***)] 4”
Ge wafers of each specification being utilized and forecasted by Azur Space at
its manufacturing location in China or at some other designated site of its
choosing

 

5.1.2                       Delivery of Products.  Products will be delivered from AXT to Azur
Space in Heilbronn, Germany or any other place that Azur Space designates and
Azur Space 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 thirty (30) business days. The initial inspection of the integrity of
the packaging will be limited to the outside packaging. If upon later
inspection of the packaging on the inside, there is found to be damage, Azur
Space shall notify AXT of any damage within thirty (30) business days of such
later inspection of the packaging on the inside.

 

5.1.3                       Acceptance.   If a
Product does not conform to its Specifications (a “Defect”), Azur Space shall
notify AXT of the nature and specifics of the nonconformity.

 

AXT
shall work to correct nonconformities discovered during Azur Space performance
of Acceptance Tests and resubmit to Azur Space for re-testing within a
reasonable period of time.  In the event
that Azur Space does not notify AXT of any Defects during the Acceptance
Period, such Product shall be deemed accepted subject to Section 10
hereof.

 

5.1.4                       AXT’s Responsibilities.

 

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

 

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

 

7.                                       Country of Origin.

 

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

 

8.                                       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 Azur Space has
no choice other than to utilize 4” wafers from another vendor, all such 4”
wafers utilized by Azur Space 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 

 

4

 

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

 

9.                                       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 Azur Space, and
shall make such documented quality system available for Azur Space’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 Azur Space’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 Azur Space and AXT and identified in the
Specifications. Azur Space will have the right to audit AXT during this
agreement with thirty (30) days written notice.

 

10.                                 Changes.

 

10.1                                       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 Azur Space.  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 Azur Space sufficient information describing the proposed Major
Change in detail so as to allow Azur Space 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 Azur
Space’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.

 

5

 

11.                                 Warranty,
Remedies, Return and Disclaimers.

 

11.1                                       Warranty.  AXT
represents and warrants that all Products for a period of six (6) months
from the date of delivery: (i) meet current industry standards, i.e., ISO
9001: 2000, with respect to materials and workmanship and (ii)  conform to
the Specifications.  The foregoing
warranty is subject to Azur Space storing the Products in accordance with any
AXT recommendations and the Specifications and is invalidated if Azur Space
does not comply with such AXT recommendations and the Specifications. In the
event the product is not utilized within 6 months , Azur Space has the option
to return said product to AXT to be reclean and repackage at no expense — all
transportation charges are to be the responsibility of Azur Space

 

11.2                                       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 Azur Space any defective or nonconforming Products pursuant to the
Product return procedures set forth in Section 10.3 below,

 

(ii)                                  Allow Azur Space 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.

 

11.3                                       Return of Products.  In
the event that Azur Space returns nonconforming Products to AXT pursuant to
Sections 10.2(i) or (ii) above, Azur Space will notify AXT of the
nonconformity and of Azur Space’s intent to return the nonconforming
Products.  Upon receipt of Azur Space’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
in the case of a return under Section 10.2(i) above, shall promptly
deliver replacement Products.  The
nonconforming Products shall be returned to AXT at AXT’s expense, AXT shall
promptly investigate to determine the cause of the nonconformity and shall
notify Azur Space of its findings.

 

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

 

11.5                                       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.

 

12.                                 Limitation
of Liability.

 

12.1                                       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’S 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.

 

6

 

12.2                                       Limitation on Liability.  IN NO EVENT SHALL AXT’S LIABILITY EXCEED
DOUBLE THE U.S. DOLLAR AMOUNT PAID BY AZUR SPACE FOR THE COST OF THE PRODUCTS
PAID BY AZUR SPACE 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. IN THE EVENT OF A DEFECT IDENTIFIED AS HAZE AZUR
SPACE IS TO RETURN THE  WAFERS WITHOUT
THEIR PROPIETARY STRUCTURE BACK TO AXT, INC AT AXT, INC EXPENSE

 

12.3                                       Limitations on Limitations. 11.1 and 11.2 DO NOT APPLY WHERE AZUR SPACE
IS HELD LIABLE BY ITS CUSTOMER(S) FOR DAMAGES OUT OF AND/OR IN CONNECTION
WITH PRODUCTS.

 

7

 

13.                                 Termination.

 

13.1                                       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; provided, however, that the sole remedy for
nonconforming Products shall be as set forth in Section 10 above. 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 and such proceeding is not turned down within 2 months; (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.

 

14.                                 Confidentiality.

 

14.1                                       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.

 

14.2                                       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. Non disclosure shall remain in force for five (5) years
for the duration of this Agreement, and for a further period of three (3) years
after the end of the Agreement.

 

14.3                                       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.

 

8

 

15.                                 General Terms and Conditions.

 

15.1                                       Modifications, Appendices, Addenda.

 

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

 

15.1.2                  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.

 

15.2                                       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.

 

15.3                                       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.

 

15.4                                       Compliance With Law.  In
the performance of this Agreement, each party shall at all times comply with
all  relevant 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.

 

16.                                 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 Azur
Space 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 Commercial Arbitration Rules of the American
Arbitration Association.  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.  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 

 

9

 

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 State of California
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 Germany under exclusion of the CISG.

 

17.                                 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.

 

10

 

Date:  January 29, 2010

 

 

	
  AXT, Inc.

  	
   

  	
  Azur Space Solar Power GmbH

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert G. Ochrym

  	
   

  	
  By:

  	
  /s/ Patrick Kilper

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Authorized
  Signature

  	
   

  	
  Authorized Signature

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Robert G. Ochrym

  	
   

  	
  Patrick Kilper

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Print Name

  	
   

  	
  Print Name

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VP Business Development

  	
   

  	
  Manager—Supply Management

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Print Title

  	
   

  	
  Print Title

  

 

11

 

Appendix A:

 

PRODUCT PURCHASE ADDENDUM

 

	
  Product

  	
   

  	
  Price

  	
   

  	
  Specifications

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4” Ge Wafer

  	
   

  	
  ·                 For Products within the Minimum Purchase- [$***]
  Delivered Duty Unpaid per Product first and second years with Ge
  Metal at a per kilogram price of [$***]

  ·                 Year 3 price to be adjusted according to
  the % change in price of Ge Metal as posted the last quarter of year 2 in the
  Metal Pages multiplied by [***]%

  ·                 Year 4 price to be adjusted according to
  the % change in price of Ge Metal as posted the last quarter of year 3 in the
  Metal Pages multiplied by [***]%

  ·                 Year 5 price to be adjusted according to
  the % change in price of Ge Metal as posted the last quarter of  year 4 in the Metal Pages multiplied
  by [***]%

  	
   

  	
  Azur specifications —.

  HNR0080140-00-01 E

  HNR00800126-00-02 E

  

 

12Exhibit 10.1

 

	
  CITIBANK,
  N.A.

  730 Veterans Memorial Highway

  Hauppauge, New York 11788

  	
   

  	
  HSBC
  BANK USA, NATIONAL ASSOCIATION

  534 Broad
  Hollow Road

  Melville, New York 11747

  

 

January 22, 2010

 

Via
Telecopy and By Hand

P&F Industries, Inc.

Florida Pneumatic Manufacturing
Corporation

Embassy Industries, Inc.

Green Manufacturing, Inc.

Countrywide Hardware, Inc.

Nationwide Industries, Inc.

Woodmark International,
L.P.

Pacific Stair Products, Inc.

WILP Holdings, Inc.

Continental Tool Group, Inc.

Hy-Tech Machine, Inc.

 

445 Broadhollow Road, Suite 100

Melville, NY 11788

Attention: Joseph A.
Molino, Vice President

 

Ladies &
Gentlemen:

 

Reference is made to that
certain Credit Agreement, dated as of June 30, 2004, by and among P&F
Industries, Inc., Florida Pneumatic Manufacturing Corporation, Embassy
Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc.,
Nationwide Industries, Inc., Woodmark International, L.P., Pacific Stair
Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc.
and Hy-Tech Machine, Inc. (each, a “Co-Borrower” and collectively, the “Co-Borrowers”),
Citibank, N.A. and HSBC Bank USA, National Association (formerly known as HSBC
Bank USA) (collectively, the “Lenders”) and Citibank, N.A., as Administrative
Agent for the Lenders (as same has been and may be further amended, restated,
supplemented or otherwise modified, from time to time, the “Credit Agreement”),
pursuant to which the Lenders made available to the Co-Borrowers certain
financial accommodations.  Capitalized
terms used herein shall have the meanings given to them in the Credit
Agreement.

 

You previously informed
the Lenders of the existence of one or more Defaults or Events of Default under
the Credit Agreement (the “Existing Defaults”), including, without
limitation,  the Events of Default
arising because of the Co-Borrower’s non-compliance with (a) Section 3.03(b) of
the Credit Agreement, Mandatory Prepayment, requiring the immediate
payment or prepayment of so much of the Loans as shall be necessary in order
for the Aggregate RC Outstandings not to exceed the Borrowing Base, and the
failure of the Co-Borrowers to pledge Cash Collateral in accordance with Section 3.03(b) of
the Credit Agreement, (b) Section 7.13(b) of the Credit
Agreement, Minimum Capital Base, for the fiscal quarter ended June 30,
2009, (c) Section 7.13(c) of the Credit Agreement, Consolidated
Senior Debt to Consolidated EBITDA, 

 

 

for the fiscal quarters
ended June 30, 2009 and September 30, 2009, (d) Section 7.13(e) of
the Credit Agreement, No Consolidated Net Loss, for the fiscal quarters
ended June 30, 2009 and September 30, 2009 and at all times
thereafter and (e) Section 3.2 of Amendment No. 20 and Waiver to
Credit Agreement, dated as of August 27, 2009, requiring Consolidated
EBITDA of not less than $460,000 for the month ending September 30, 2009.

 

Pursuant to the terms of
the Credit Agreement, upon the occurrence of a Default or an Event of Default,
the Administrative Agent and the Lenders may, among other remedies, terminate
the Existing Loans and declare all Obligations of the Co-Borrowers and all
other amounts owing under the Credit Agreement and the Notes, to become
immediately due and payable.  In
addition, the Lenders may, but shall not be required to, entertain additional
requests for Revolving Credit Loans and other credit and financial
accommodations under the Credit Agreement, but the making of any future
Revolving Credit Loans and credit and financial accommodations to the
Co-Borrowers is without waiver to the Lenders’ right to cease making Revolving
Credit Loans and credit and financial accommodations to the Co-Borrowers
without further notice at any time and without waiver of the Existing Defaults,
provided that, in any event, the Lenders shall not make Revolving Credit
Loans to the Co-Borrowers in excess of $17,500,000, in the aggregate.

 

The Administrative Agent
and the Lenders hereby expressly reserve all rights and remedies arising from
any Default or Event of Default that may have occurred and be continuing, or
may in the future occur, under the Credit Agreement or any other Loan Document
whether at law or in equity, including, without limitation, the right to
terminate the Credit Agreement.  The
Co-Borrowers expressly acknowledge and agree that all such rights, remedies or
causes of action relating to any existing Defaults or Events of Default may be
enforced or exercised at any time and from time to time, and that nothing
contained herein shall constitute an agreement by either Lender or the
Administrative Agent to forbear from the exercise of such rights, remedies or
causes of action.  Neither the
continuation of the currently outstanding Revolving Credit Loans and the
Additional Term Loans (collectively, the “Existing Loans”) or the making of
additional Revolving Credit Loans and other credit and financial accommodations
nor the failure or delay on the part of the Administrative Agent and/or the
Lenders in exercising any of the rights and remedies with respect to any
Default or Event of Default shall operate as a waiver thereof or require the
Administrative Agent and/or any Lender to make any further Loan at any other
time, nor shall a single or partial exercise thereof preclude any other or
further exercise of any other right or remedy.

 

In accordance with Section 3.01(e) of
the Credit Agreement, effective with the date of this letter, the outstanding
principal amount of the Revolving Credit Loans shall bear interest at a rate
equal to 2% above the rate otherwise in effect with respect to such loans.  Provided that no other Defaults or Events of
Default exist as of such date, the Lenders and the Administrative Agent may
consider the prospective revocation of such default rate of interest upon the
date that the last of the following conditions is satisfied:  (a) the Borrowing Base exceeds the
Aggregate RC Outstandings for a period of four consecutive weeks, as reported
weekly, and (b) the financial consultant referenced below has been engaged
and has delivered a report to the Lenders and the Administrative Agent meeting
the requirements of clause (b) below and which is otherwise satisfactory
to the Lenders and the Administrative Agent.

 

2

 

By signing below, and in
recognition of the occurrence of the Existing Defaults, each Co-Borrower
covenants and agrees as follows:

 

(a)           By no later than January 28,
2010, Co-Borrowers shall enter into an agreement satisfactory to the Lenders
and the Administrative Agent requiring that during the remaining term of the
Credit Agreement, and until the payment in full of all Obligations owing
thereunder, all receipts with respect to payment of the Co-Borrowers’ accounts
receivable be made to a lockbox maintained by Administrative Agent.

 

(b)           By no later than February 5,
2010, Co-Borrowers shall engage a consultant from the list of approved names
provided by Administrative Agent to Co-Borrowers, to assist Co-Borrowers in the
preparation of a report/plan as described in an engagement letter between such
consultant and Co-Borrowers.  The
Co-Borrowers shall be solely responsible for payment of the Consultant’s fees
and expenses.  The scope of such
report/plan shall be satisfactory to each Lender and the Administrative Agent,
and shall include, among other things, a review of the Co-Borrowers’ collateral
and financial reporting and systems, revised financial projections, including a
13 week rolling cash plan forecast, and a business plan designed to eliminate
the overadvance.  A draft of the
report/plan prepared by such consultant shall be provided to Lenders and the
Administrative Agent by no later than February 19, 2010, and the final
report/plan shall be provided to Lenders and the Administrative Agent by no
later than March 5, 2010.

 

(c)           By no later than March 5, 2010,
an appraisal of the premises located at 25 Leonberg Road, Cranberry Township,
PA shall commence and be conducted by an appraiser engaged by Lenders at the
sole cost and expense of Co-Borrowers. 
Co-Borrowers shall deliver a check for $5,000 payable to the Administrative
Agent, upon execution of this Agreement, which shall be applied against the
fees of such appraiser.

 

(d)           Co-Borrowers shall request from
Wachovia Bank copies of the current appraisals obtained on the premises located
10333 Windhurst Road, Tampa Florida and the premises located at 851 Jupiter
Park Lane, Jupiter, Florida and shall deliver them to the Lenders and
Administrative Agent upon receipt thereof.

 

(e)           By virtue of the occurrence of Events
of Default under the Credit Agreement, and in accordance with the terms of that
certain Subordination Agreement dated as of June 26, 2009 by and among
Hy-Tech Machine, Inc. (“Hy-Tech”), Hy-Tech Holdings, Inc. (the “Junior
Creditor”) and the Administrative Agent (the “Subordinate Agent”), Hy-Tech
acknowledges and agrees that it shall not make any payment to Junior Creditor
on account of the Junior Obligations (as such term is defined in the
Subordination Agreement) unless and until such payment is permitted by the
terms of the Subordination Agreement.

 

(f)            Co-Borrowers shall furnish to
Lenders and the Administrative Agent any management letters that have been
provided by their independent auditors prior to the date hereof, simultaneously
herewith, or if provided to Co-Borrowers subsequent to the date hereof, upon
the receipt thereof by Co-Borrowers.

 

By signing below each
Co-Borrower on its own behalf and on behalf of its successors and assigns
hereby releases (i) each Lender and the Administrative Agent and all of
the affiliates 

 

3

 

of each Lender and the
Administrative Agent, and each of their respective successors and assigns, and (ii) all
of the shareholders, directors, officers, employees, attorneys, agents and
representatives of each Lender and the Administrative Agent and such
affiliates, and their respective heirs, executors, successors and assigns
(collectively, the “Released Persons”), from any and all claims,
demands, liabilities, actions and causes of action of any nature whatsoever,
whether liquidated or unliquidated, known or unknown, matured or unmatured,
fixed or contingent which any Co-Borrower had, has or may have had against any
of the Released Persons arising out of or in any way relating to the
Obligations, any Collateral (as defined in the Security Agreement), any Loan
Document or any document, dealing or other matter in connection with any Loan
Document or any Collateral referenced therein, in each case to the extent
arising on or prior to the date hereof or out of, or relating to, actions,
dealings or other matters occurring prior to the date hereof (including any
action or omission of any Released Person prior to the date hereof), the
negotiation and documentation of this Agreement, and any of the transactions
made or contemplated to be made hereunder or thereunder (collectively the “Released
Claims”).  Each Co-Borrower
acknowledges and agrees that (i) this release may be pleaded as a full and
complete defense and may be used as a basis for an injunction against any
action, suit or other proceeding which may be instituted, prosecuted or
attempted in breach of the provisions of such release; and (ii) no fact,
event, circumstance, evidence or transaction which could now be asserted or
which may hereafter be discovered shall affect in any manner the final and
unconditional nature of such releases.

 

No oral communication
from or on behalf of either Lender or the Administrative Agent shall constitute
an agreement, commitment or evidence of any assurance or intention of such
Lender or the Administrative Agent with respect to any aspect of the Credit
Agreement or any other Loan Document. 
Any agreement, commitment, assurance or intention of either Lender or
the Administrative Agent with respect to any aspect of the Credit Agreement or
any other Loan Document shall be effective only if in writing and signed by an
authorized officer of such Lender or the Administrative Agent.

 

[the next page is
the signature page]

 

4

 

	
   

  	
  CITIBANK, N.A., as a Lender and
  as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John King

  
	
   

  	
  Name:

  	
  John King

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL
  ASSOCIATION, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alan M. Harris

  
	
   

  	
  Name:

  	
  Alan M. Harris

  
	
   

  	
  Title:

  	
  Vice President

  
				

 

ACCEPTED
AND AGREED:

 

P&F
INDUSTRIES, INC.

FLORIDA
PNEUMATIC MANUFACTURING

CORPORATION

EMBASSY
INDUSTRIES, INC.

GREEN
MANUFACTURING, INC.

COUNTRYWIDE
HARDWARE, INC.

NATIONWIDE
INDUSTRIES, INC.

WOODMARK
INTERNATIONAL, L.P.

By:                             Countrywide Hardware, Inc.,
its General

Partner

PACIFIC
STAIR PRODUCTS, INC.

WILP
HOLDINGS, INC.

CONTINENTAL
TOOL GROUP, INC.

HY-TECH
MACHINE, INC.

 

 

	
  By:

  	
  /s/
  Joseph A. Molino, Jr.

  	
   

  
	
   

  	
  Joseph A.
  Molino, Jr., the Vice President

  	
   

  
	
   

  	
  of each of the
  corporations named above

  	
   

  
	
   

  	
   

  
	
  cc:

  	
  Richard Goodman,
  General Counsel, P&F Industries, Inc.

  
				

 

 

[signature page to
Letter dated January 22, 2010]

 

5

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