EXHIBIT 10.23
THE REGISTRANT HAS REQUESTED THAT CERTAIN PORTIONS OF THIS EXHIBIT
BE GIVEN CONFIDENTIAL TREATMENT. AN UNREDACTED VERSION OF THIS
EXHIBIT HAS BEEN FILED WITH THE COMMISSION.
SUPPLEMENTAL DEVELOPMENT AGREEMENT
DATED JANUARY 8, 1998
BETWEEN CREE RESEARCH, INC. AND C3, INC.
REDACTED -- OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
COMMISSION AND IS DENOTED HEREIN BY *****.
SUPPLEMENTAL DEVELOPMENT AGREEMENT
This SUPPLEMENTAL DEVELOPMENT AGREEMENT (the "Agreement") is entered
into effective as of the 8th day of January, 1998 by and between Cree Research,
Inc. ("Cree") and C3, Inc. ("C3").
R E C I T A L S:
WHEREAS, Cree and C3 are parties to an Amended and Restated Exclusive
Supply Agreement dated June 6, 1997 (the "Supply Agreement") wherein Cree and C3
agree, inter alia, for Cree to supply C3 certain silicon carbide ("SiC")
material and C3 agrees to purchase certain SiC material as provided therein; and
WHEREAS, Cree and C3 are also parties to a Development Agreement dated
June 6, 1997 (the "Principal Development Agreement") wherein Cree agrees to
perform certain research and development activities directed to improving the
colorless material available for purchase under the Supply Agreement; and
WHEREAS, Cree and C3 desire to enter into an additional agreement
whereby Cree shall perform certain research and development activities directed
more specifically to accelerating improvements in the volume of SiC material
available for purchase under the Supply Agreement;
WHEREAS, Cree and C3, in entering into this Agreement, desire to
improve and expand upon their relationship and intend to work together
cooperatively with the objective of developing, as promptly as practicable, both
the market for and commercially viable means of manufacturing colorless silicon
carbide material suitable for gemstones; and
NOW, THEREFORE, the parties hereto, in consideration of the foregoing
premises and the covenants and undertakings herein contained, mutually agree as
follows:
1. Duties of Cree
1.1 Cree agrees to use its best commercially reasonable
efforts to develop a repeatable process, as defined in Section 1.2 (the
"Repeatable Process"), for producing SiC boules which meet the specifications
provided in Section 1.3 (the "Specifications"). The effort under this Agreement
will be focused on meeting the Volume Specifications provided in Section 1.3 and
incorporating improvements for achieving the Color Specifications from the
program under the Principal Development Agreement.
1.2 The process for producing SiC boules shall be considered a
"Repeatable Process" when ***** crystal grower can produce, in a period of 30
days, at least ***** SiC boules that meet the Specifications.
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COMMISSION AND IS DENOTED HEREIN BY *****.
1.3 As used in this Agreement, the term "Specifications" shall
mean the applicable specifications set out in the Specifications and Timetable
Chart below for SiC boules. The Specifications consist of "Volume
Specifications" and "Color Specifications." The Volume Specifications are
expressed in terms of the diameter and height of each boule, but any equivalent
volume is acceptable. The Color Specifications require that a specified
percentage (the "Percentage") of the volume of SiC material required by the
Volume Specifications is in the comparable diamond color grade range of GHIJ,
with no less than ***** in the GH range, or better, according to the standards
generally accepted by the diamond industry for color using pregraded master
color stones. While the specifications do not require the absence of inclusions,
blemishes or other defects affecting clarity, Cree shall use its best
commercially reasonable efforts to minimize such defects since such defects can
have an impact on the final color grade. The Percentage shall be measured by
observation on the a-axis through "windows" ground onto two sides of the boule.
The parties acknowledge that initially C3 shall promptly provide feedback to
Cree concerning the Percentage, but the parties shall cooperate to develop a
mutually acceptable testing procedure for Cree to determine the Percentage prior
to delivery of the SiC boules to C3. The Specifications change over time, as the
Date column indicates.
Specifications and Timetable Chart
Date Diameter Height %G-J Grade
---- -------- ------ ----------
*****/1998 ***** ***** *****
*****/1998 ***** ***** *****
If, pursuant to Section 1.7, the polytype used in the development work is
changed to the ***** polytype at C3's written request or with its written
consent, (i) the *****, 1998 date shown above will be extended by ***** if the
change is effective on or before *****, 1998, and by ***** if the change is
effective after *****, 1998; and (ii) Cree will no longer be obligated to
attempt to achieve the *****, 1998 Specifications by that date but will continue
to use its best commercially reasonable efforts to work toward such
Specifications during the remainder of the term of this Agreement. For each of
the Specifications above, Cree will provide prompt notice to C3 when Cree has
developed a Repeatable Process for producing boules meeting such specifications.
1.4 In seeking to achieve the Specifications, Cree will use
its best commercially reasonable efforts to incorporate color-related and other
improvements developed in the work conducted under the Principal Development
Agreement into the work being conducted under this Agreement within ***** after
such improvements are made under the Principal Development Agreement, subject to
such delays as may result from lead times required to obtain necessary equipment
or services from third parties and other similar circumstances.
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REDACTED -- OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
COMMISSION AND IS DENOTED HEREIN BY *****.
1.5 In performing development services under this Agreement,
Cree will assign to the work such Cree personnel, for such amounts of time, as
may be mutually agreed upon in writing by Cree and C3 from time to time. Cree
reserves the right to alter such assignments upon written notice to C3.
1.6 Cree agrees to report to C3 the progress of the
development services provided pursuant to this Agreement at monthly progress
meetings. Cree further agrees to keep C3's President informed of significant
developments on a weekly basis. Any "Confidential Information" provided by Cree
to C3 at such meetings or otherwise under this Agreement shall be subject to the
terms of Section 5 of the Supply Agreement. Nothing herein shall obligate Cree
to disclose to C3 any Confidential Information regarding Cree's processes for
SiC growth.
1.7 Development work under this Agreement will initially be
directed to the production of boules meeting the Specifications that are
composed of the ***** polytype of SiC. If requested by C3 in writing,
development work shall be redirected to the production of boules meeting the
Specifications that are composed of the ***** polytype of SiC, except that Cree
shall not be required to change polytypes if it has achieved the then applicable
specifications using the ***** polytype under the Principal Development
Agreement. Unless otherwise mutually agreed, the change in polytype will be
effective on the first day of the month following Cree's receipt of C3's
request, provided the request is received at least 14 days in advance. Cree
reserves the right to change the polytype used in the development work to *****,
if it reasonably determines the change is necessary or desirable to achieve the
Specifications, and shall advise C3 of the change in writing at least 7 days in
advance.
1.8 If prior to *****, 1998 (or such later date as may be
applicable under Section 1.3 in the event of a change in SiC polytype) Cree does
not develop a Repeatable Process for producing SiC boules that meet both the
Volume Specifications and Color Specifications shown in Section 1.3 for *****,
1998, then Cree and C3 shall consult on appropriate development goals for the
remainder of the term of this Agreement and shall in good faith endeavor to
reach a mutual agreement on the work to be conducted thereafter.
1.9 All SiC boules produced pursuant to this Agreement,
including SiC boules that do not meet the Specifications but excluding seed
boules, shall be the property of C3; provided that the seeds from all SiC boules
produced shall remain the property of Cree and shall be removed and retained by
Cree. Cree shall in any event deliver to C3 each month SiC material having a
minimum volume of ***** and a minimum height of *****. Cree shall identify each
boule delivered to C3 both by the crystal growth system in which it was grown
and with the date it was produced. Crystal growth systems used in the
development activities shall not be
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considered as "in use for production" for purposes of the Supply Agreement. All
SiC boules delivered hereunder will
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COMMISSION AND IS DENOTED HEREIN BY *****.
be supplied "AS IS." EXCEPT AS PROVIDED ABOVE IN THIS PARAGRAPH WITH RESPECT TO
IDENTIFICATION OF BOULES, CREE MAKES NO WARRANTY OF ANY KIND WITH RESPECT TO ANY
MATERIAL SUPPLIED HEREUNDER AND DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
NONINFRINGEMENT OF PATENT OR SIMILAR RIGHTS.
1.10 Cree will use all commercially reasonable efforts to
reduce costs of the development services performed under this Agreement.
1.11 Cree is not obligated to contribute resources to the
development services performed under this Agreement beyond those funded by C3,
as provided in Section 2.1.
1.12 Cree provides no assurances that the development services
performed under this Agreement will be successful.
2. Duties of C3
2.1 Subject to Sections 2.2 and 2.3, C3 shall pay to Cree each
month a development fee equal to the sum of:
(i) The costs of materials and equipment used in the
development activities undertaken pursuant to this Agreement (including
the costs of operating such equipment; with such costs calculated in
the same manner as "loaded manufacturing costs," but without reduction
for boules that do not meet the "minimum specifications," as provided
in the Supply Agreement);
(ii) An amount equal to a ***** gross margin of the
costs described in Section 2.1(i); and
(iii) All research and development labor costs and
outside services costs directly incurred by Cree in providing
development services pursuant to this Agreement; provided, that these
costs shall be charged to C3 on the same basis as Cree charges similar
costs in providing research services pursuant to contracts between Cree
and the U.S. government, using allocations, conditions and calculations
no less favorable to C3 than those available under any such contract of
Cree (it being understood that reductions in costs from cost-sharing
shall not be applicable and that such costs include
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certain overhead allocations).
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WITH THE COMMISSION AND IS DENOTED BY *****
2.2 Subject to Section 2.3 and notwithstanding Section 2.1, C3
shall pay to Cree each month this Agreement continues in effect a development
fee equal to the lesser of:
(i) The fee calculated pursuant to Section 2.1; or
(ii) The total development budget for the appropriate
month set forth in Exhibit A.
2.3 If the fee calculated pursuant to Section 2.1 is less than
the total development budget for the appropriate month set forth in the proposal
in Exhibit A, the difference will be carried forward and applied to the
development budget for subsequent months.
2.4 If, prior to *****, 1998, Cree has developed a Repeatable
Process for producing SiC boules that meet both the Volume Specifications and
Color Specifications shown in Section 1.3 for *****, 1998, C3 shall pay Cree
the sum of five hundred thousand dollars ($500,000.00) in addition to all other
amounts due under this Agreement. If, prior to *****, 1998, Cree has developed a
Repeatable Process for producing SiC boules that meet both the Volume
Specifications and Color Specifications shown in Section 1.3 for *****, 1998, C3
shall pay Cree the sum of five hundred thousand dollars ($500,000.00) in
addition to all other amounts due under this Agreement.
2.5 Cree shall invoice amounts due from C3 under this
Agreement, and such invoices shall be due and payable within thirty days.
2.6 C3 shall have the right, at its expense, to have an
independent public accounting firm reasonably acceptable to Cree audit Cree's
costs described in Sections 2.1(i) and 2.1(iii) (the "Audited Costs"). The audit
shall be conducted during normal business hours and upon reasonable prior
notice. The accounting firm conducting the audit shall be required to enter into
a mutually acceptable nondisclosure agreement with Cree under which such firm
will be obligated not to disclose any information obtained during the course of
the audit, except that it may disclose to C3 its analysis of the correctness of
the Audited Costs as calculated by Cree. The audit right under this paragraph
may be exercised not more than once during any fiscal year of Cree and only with
respect to costs applicable to the year preceding the request for an audit. Cree
shall provide reasonable assistance to the public accounting firm including, but
not limited to, providing a schedule of the Audited Costs (which shall provide
reasonable detail as to the calculation of the Audited Costs, including but not
limited to hours charged by person at billing rates applicable to each, total
material costs, equipment charges and overhead charges, however such schedule
shall not divulge any proprietary or confidential information of Cree),
supporting analyses and any supporting source documentation reasonably required
by the public accounting firm. Such accounting firm will audit and report to C3
on the schedule of Audited Costs, but will not divulge to C3 any proprietary or
confidential information (including but not limited to
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supporting schedules and source documents) disclosed during the audit process.
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WITH THE COMMISSION AND IS DENOTED BY *****
3. Terms and Termination
3.1 Unless earlier terminated pursuant to Section 3.2 or
Section 5.6, or unless extended by the mutual consent of the parties hereto,
this Agreement shall terminate on December 31, 1998.
3.2 C3 shall have the option to terminate this Agreement, upon
written notice given thirty days prior to the effective date of the termination,
if Cree does not develop by *****, 1998 (or such later date as may be applicable
under Section 1.3 in the event of a change in SiC polytype) a Repeatable Process
for producing SiC boules that meet the Volume Specifications shown in Section
1.3 for *****, 1998; provided, that such termination option, if not sooner
exercised by C3, shall expire at 11:59 p.m. eastern daylight savings time on the
tenth day following the termination of the deadline for establishing the
Repeatable Process. If C3 exercises its option to terminate this Agreement
pursuant to this Section 3.2, Cree shall not be entitled to payment for any work
done or any expenses incurred during the period from the time C3's option to
terminate became exercisable to the time such option is exercised.
4. Intellectual Property
4.1 All inventions developed by Cree personnel in performing
work under this Agreement shall be the sole property of Cree.
4.2 Except for the inventions related to the bulk growth of
silicon carbide or gallium nitride, C3 shall have a perpetual, irrevocable,
royalty-free, exclusive (including exclusive of Cree) license to use,
manufacture, sell and otherwise practice (including the right to sublicense) all
inventions developed by Cree pursuant to this Agreement for all gemstone
applications and applications for gemological instrumentation; provided that
Cree shall have the right to use and practice the invention to manufacture or
process material for C3 for the licensed applications. References in this
Agreement to "gemstones" are understood to mean "gems" (and vice versa).
5. General
5.1 This Agreement shall not be amended, modified or altered
except pursuant to a document signed by both parties.
5.2 This Agreement is made in and shall be construed in
accordance with and governed by the laws of the State of North Carolina.
5.3 This Agreement shall inure to the benefit of and be
binding upon the
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parties and their respective successors and permitted assigns.
5.4 The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
5.5 This Agreement may not be assigned by either party without
the other party's prior written consent, which consent shall not be unreasonably
withheld except that either party may, in its sole discretion, withhold consent
to assignment of this Agreement to anyone other than a permitted assignee of all
rights under the Supply Agreement. Any attempted assignment in violation of this
Section 5.5 is void and shall constitute a breach of this Agreement.
5.6 In the event of a material breach by either party of any
obligation under this Agreement to the other party, the other party may
terminate this Agreement upon written notice if the breach is not cured within
thirty (30) days after giving written notice to the party in breach, setting out
the nature of the breach in reasonable detail; provided, however, that no cure
period shall apply to a termination pursuant to the terms of the Agreement by C3
pursuant to Section 3.2 (it being understood that the grounds for termination
specified in Section 3.2 do not constitute a breach) or in the event of a
material breach by a party that has breached this Agreement and been given
notice of similar material breaches on two prior occasions. In addition, this
Agreement shall automatically terminate upon any termination of the Supply
Agreement under Section 3.3 thereof.
5.7 Neither party shall issue any press release nor otherwise
make any public announcement concerning this Agreement without the prior consent
of the other party, except as may be required by law. The parties further agree
that the terms of this Agreement shall be treated as Confidential Information of
each other subject to Section 5 of the Supply Agreement; provided, however that
either party may, upon notice to the other, make such public disclosures
regarding this Agreement as in the opinion of counsel for such party are
required by applicable securities laws or regulations or other applicable law.
Neither party shall use the name of the other party in any advertising,
marketing or similar material without the other party's prior written consent.
5.8 The parties acknowledge and agree that in the event of a
breach of the Agreement, in addition to any other rights and remedies available
to it at law or otherwise, the parties shall be entitled to seek equitable
relief in the form of a temporary restraining order ("TRO") from any court of
competent jurisdiction; provided however, that in the event a TRO is obtained,
the parties shall request that any hearing on the merits of the dispute shall be
stayed pending arbitration of the dispute as provided in this Section 5.8. In
the event a party seeks a TRO or in the event of any other controversy or claim
(including, without limitation, any claim based on negligence,
misrepresentation, strict liability or other basis) arising out of or relating
to this Agreement or its performance or breach, a party shall give the other
party notice of the
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dispute, setting out the circumstance in reasonable detail, and requesting a
meeting of the representatives of the parties to attempt to resolve the dispute
or to reduce the scope of the issues subject to dispute. The chief executive
officers of the parties, and such other representatives as each may desire to
have attend, shall meet at a mutually agreeable time within five business days
from the date the meeting request was received and shall hold such meeting at
the offices of the party not requesting the same, or at some mutually agreeable
alternative location. In the event the parties do not resolve the dispute at
such meeting, or any mutually agreed upon adjournment thereof, the dispute shall
be settled exclusively by arbitration in the City of Raleigh, North Carolina
pursuant to the expedited procedures of the Commercial Arbitration Rules of the
American Arbitration Association (other than notice requirements which shall be
as provided in Section 5.9 below and the expedited procedures for selection of
arbitrators which shall be as provided in Sections 14 and 15 of such Rules).
There shall be three arbitrators, one selected by each of C3 and Cree and a
third selected by the arbitrators selected by the parties. The arbitrators shall
in no event make any damage award that contravenes Section 5.10 of this
Agreement, but shall order the losing party to pay all of the charges of the
American Arbitration Association for such arbitration and all of the prevailing
party's costs of the arbitration, including reasonable attorneys' fees. The
decision in such arbitration shall be final and binding and judgment on any
award rendered therein may be entered in any court having jurisdiction.
5.9 All notices under this Agreement shall be in writing and
addressed to the other party at the address shown below or to such other
addresses as the party may hereafter designate by notice under this Agreement.
All notices so addressed shall be deemed given five (5) days after mailing if
sent by certified mail, return receipt requested, postage prepaid, or when sent
via facsimile if receipt is acknowledged in writing or otherwise when actually
received.
5.10 In no event shall either party be liable to the other for
incidental, consequential or special loss or damages of any kind, however
caused, or any punitive damages.
IN WITNESS WHEREOF, the parties have executed this Agreement by and
through their duly authorized representatives.
CREE RESEARCH, INC. C3, INC.
By: /s/ Charles M. Swoboda By: /s/ Jeff N. Hunter
Charles M. Swoboda, Vice President Jeff N. Hunter, President
and Chief Operating Officer
Address for Notices: Address for Notices:
Cree Research, Inc. C3, Inc.
4600 Silicon Drive P.O. Box 13533
Durham, North Carolina 27703 Research Triangle Park, NC 27709-3533
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Attention: President Attention: President
Fax No.: (919) 361-5415 Fax No.: (919) 468-0486
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REDACTED -- OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
COMMISSION AND IS DENOTED HEREIN BY *****.
EXHIBIT A
Development Budget
Jan-98 Feb-98 Mar-98 Apr-98 May-98 June-98 July-98 Aug-98 Sept-98 Oct-98 Nov-98 Dec-98
Total ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****
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