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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 1996
Commission File No. 0-21154
CREE RESEARCH, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1572719
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2810 Meridian Parkway, Suite 176, Durham, NC 27713
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 361-5709
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.005 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The approximate aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of September 26, 1996 was $124,247,457
(based on the average bid and asked sales prices on that date of $12.69).
Number of registrant's shares of Common Stock, par value $0.005 per share,
outstanding as of September 26, 1996 was 12,300,858.
Documents incorporated by reference: Portions of Proxy Statement accompanying
the notice of the annual meeting of the shareholders of Cree Research, Inc. to
be held on November 12, 1996(Part III).
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INDEX
Part I Page
Item 1. Description of Business 3
Item 2. Description of Property 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements:
Report of Independent Accountants 21
Consolidated Balance Sheets at June 30, 1996 and 1995 22
Consolidated Statements of Operations for the
years ended June 30, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows for the
years ended June 30, 1996, 1995 and 1994 24
Consolidated Statements of Shareholders'
Equity for the years ended
June 30, 1996, 1995 and 1994 26
Notes to Consolidated Financial Statements 27
Part III
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 37
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management 37
Item 13. Certain Relationships and Related Transactions 37
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 38
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PART I
Item 1. Business
Cree Research, Inc. ("Cree" or the "Company") was incorporated in North
Carolina in July, 1987. The Company develops, manufactures and markets
electronic devices using silicon carbide ("SiC,") semiconductor technology. The
Company believes that, for certain applications, SiC-based semiconductor devices
offer significant advantages over products based on other semiconductor
materials. The Company was founded to continue the research and development
begun at North Carolina State University, to commercialize the production of SiC
material, and to develop and market SiC-based semiconductor products. Cree has
developed a proprietary process for the growth of SiC crystals and their
fabrication into wafers and semiconductor devices. The first commercial
application of this technology is a unique type of LED that takes advantage of
SiC's ability to emit blue light. The Company's LED was introduced in October
1989. The Company believes that it is currently the primary commercial
manufacturer of SiC wafers and SiC-based blue light emitting diode ("LED")
products in the world although blue LEDs are produced by competitors using
non-SiC materials. The Company markets its blue LED chip products principally to
customers who incorporate them into packaged lamps for resale to original
equipment manufacturers ("OEMs"). Cree began to ship volume quantities of the
blue LED in fiscal 1991 and 1992. In 1995, Cree released an improved blue LED
using gallium nitride on silicon carbide. The Company has since worked to ramp
up its manufacturing capacity for this product.
The Company also sells SiC wafer products to corporate, government, and
university research laboratories. In addition, the Company is engaged in a
variety of research programs related to the advancement of SiC process
technology and the development of electronic devices that take advantage of
SiC's unique physical and electronic properties. These research projects are
primarily funded by federal government agencies and departments and corporate
partners.
In August 1994, the Company formed a North Carolina wholly-owned
subsidiary, Real Color Displays, Inc. ("RCD"), for developing and marketing full
color LED displays. RCD acquired the assets and assumed the liabilities of a
Hong-Kong based company in this line of business. Vertical integration into the
LED display market is a natural way for the Company to enhance its core position
in LED chip production. Initially, the Company's strategy was to target the
low-end full color moving message display market comprised of one and two-line
message signs designed to display text messages and single graphics. These
products are used in a variety of applications such as retail point of sale
advertising, office information signs, casino displays, transportation signs and
market information tickers. During fiscal 1996 RCD developed a new LED based
product, the "Real Color Module(TM)". This product, introduced during the second
half of fiscal 1996, has become the primary focus of RCD's business and is
expected to account for the majority of RCD's sales during fiscal 1997.
Cree Products
Blue LEDs
Cree introduced its blue LEDs to the marketplace in fiscal 1990 and has
since developed several generations of blue LED products. Inexpensive, bright
LEDs that produce red and green light have been available for many years. Bright
blue LEDs have only recently been available from the Company at prices that
begin to allow market penetration. Certain competitors offer bright blue LEDs
but at selling prices higher than the Company's prices. Because the Company's
blue LED is a solid-state device, it provides the same advantages over
conventional incandescent lamps as do red and green LEDs. Moreover, with the
availability of blue LEDs, the range of LED color possibilities, previously
restricted to red, green, yellow, orange, and combinations of these colors, is
virtually unlimited. Any color in the visible spectrum, including white light,
may be created by using at least one LED for each primary
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color (red, green, and blue) in a single lamp or in an array and varying the
intensity of the color components until the desired color is obtained. There are
two primary segments of the LED market that the Company's blue LED product is
currently serving; the markets for displays and solid-state light components.
The Company's blue LEDs are presently being used or designed into applications
such as full-color flat-panel displays, automotive lighting and printer array
bars.
Blue LEDs combined with red and green LEDs allow the development of
large-scale flat panel LED based displays. Such displays are currently being
marketed in various formats by customers of the Company for indoor messaging and
advertising applications. The majority of the market for LED-based display
applications is in the Far East. The Company's principal customers who serve the
display market are located in China, Taiwan and Japan. Cree also sells the LED
product to European and domestic accounts.
The Company supplies blue LEDs that OEMs use to manufacture solid-state
light components. Single lamp red-green-blue indicators can be useful for
consumer electronics, industrial instrumentation, automotive, and military
electronics applications that require a full spectrum of colors. As the Company
continues to move down the traditional LED price curve, the Company expects that
more of these applications will become available for its LED product.
During fiscal 1995 Cree developed a significantly higher performance
blue LED. In the fourth quarter of fiscal 1995 the Company announced the release
of its new LED chip known as the DH-85 and initial shipments began. The DH-85
combines the Company's SiC substrate and a compound known as gallium nitride
("GaN") to create a LED that produces a light output intensity approximately 30
times greater than the Company's older generation SiC chip. The higher intensity
light output makes the chip viable for a broader range of applications and uses.
Cree shipped increasing volumes of the DH-85 each quarter during fiscal 1996 but
was not able to attain yields from manufacturing sufficient to provide a
positive gross margin on this product. Cree's focus in manufacturing is to
increase yields so that costs can be offset and a margin earned, ultimately
allowing flexibility in pricing the product. If the Company were unable to do
this, its earnings would be negatively impacted.
Modules
The Company's Real Color Displays division has developed a modular
LED-based component that is sold to customers as a building block for customized
video and graphic display systems. The RGB Module is a low profile full-color
LED module for use in both large scale and small scale full-color LED display
systems. The RGB module combines the three primary LED chips into surface mount
pixels which are then assembled into very thin modules and can be combined to
form any size display. The Company is in the process of applying for patents on
the unique module design which combines the red, green and blue LED chips and
the specialized drive circuitry which is required to drive each individual LED
element with the speed necessary for video applications.
Due to the extremely large and diverse market for LED display systems,
the Company cannot effectively address all opportunities at the display system
level and therefore the Company has chosen a strategy of supplying modules
directly to well established LED display system suppliers. This approach is
expected to dramatically shorten the sales cycle for full-color displays
and maximize the efficiency of the Company's sales resources while minimizing
the capital investments that would need to be made as a systems
supplier. The Company believes that the RGB module gives it a unique advantage
in the commercialization of full-color LED displays.
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Moving Message Signs
RCD has been manufacturing full color moving message sign products
since its inception in August of 1994. The Company is able to produce 64 color
moving message products at costs which are comparable to multi-three-color signs
by utilizing the patented betagraphing technology which RCD acquired. The moving
message sign products range in size from one to two lines of text with varying
graphics capabilities. These products provide a low cost and effective way of
displaying text messages which can be easily changed and updated. The possible
sign applications for these displays range from lobby greetings to restaurant or
bar promotions to informational signage in schools or factories.
SiC Wafer Products
The Company manufactures its SiC wafers, both for its own internal use
and for sale to customers. The wafers are supplied to three market segments:
corporate, government and university research and development programs.
Typically, the Company's customers order wafers with epitaxial films and specify
the film properties desired, which vary depending upon the nature of the devices
the customer intends to research and develop. The application areas for these
devices might include high frequency power, high power, high temperature
optoelectronic, and radiation hard based uses. Wafer prices vary substantially,
depending upon the customer's specifications.
Product Development
The Company is engaged in a wide number of research and development
projects. Some projects have the goal of developing commercial products for the
market in the near term. Other projects have longer term goals. There can be no
assurance as to the successful development of commercial products or the timing
thereof.
The Company benefits from research and development efforts sponsored by
both U.S. Government contracts and from internal corporate funding. Contracts
are awarded to the Company to fund both short term and long term research
projects. Contract revenues represent reimbursement by these various government
entities for research and development costs and a portion of the Company's
general and administrative expenses either on a cost plus or a cost share
basis. Funding for projects with near term applications for the Company
typically include a cost share component that the Company is responsible for
absorbing as a cost of revenues. Projects that may not have readily available
production applications or projects that relate to longer term development are
normally awarded on a cost plus basis with built in margins of 7% to 10%.
Contract revenues funded related expenditures of $5,721,000, $4,348,000 and
$2,891,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
The Company has included $5,128,000, $3,599,000 and $2,426,000 of these
expenditures for fiscal years 1996, 1995 and 1994, respectively, in cost
of revenues. The remainder of these costs are classified as operating expenses
under sales, general and administrative. Contract revenues reimbursed general
and administrative expenses of $593,000, $749,000 and $465,000 for the fiscal
years 1996, 1995 and 1994, respectively. The Company also contributed
$1,565,000, $880,000 and $289,000 for the years ended June 30, 1996, 1995 and
1994, respectively, as a cost sharing component for the government contract
revenues. The Company incurred research and development costs unabsorbed by
contract revenues totaling $444,000, $473,000 and $712,000 for the fiscal
years 1996, 1995 and 1994, respectively.
Silicon Carbide Material
The Company continually conducts research aimed at improving the
quality of its SiC wafers and enhancing its SiC epitaxial process. In so doing,
the Company believes it can lower manufacturing costs and permit the development
of more complex SiC devices. The key factor impacting an eventual production
timetable for more complex devices such as power
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semiconductors is the SiC substrate and epitaxial technology, specifically
material quality and wafer size. Reduction of defects below current levels is
essential for demonstrating products such as large area power devices and
achieving reasonable yields in production. Doping and epitaxial thickness
uniformity are key yield factors. Yield is very important because device cost
will be an important barrier to the introduction of advanced SiC products such
as power and high temperature devices. Therefore, improvement of wafer and
epitaxial quality is a high priority in the Company's research and development
programs. Wafer size is also important not only for achieving lower costs but
because most production fabrication facilities are scaled for at least two inch
wafers. Therefore a larger wafer will accelerate the process of bringing
advanced SiC products to market. The Company continues work on a $5.8 million
contract awarded by the Defense Advanced Research Projects Agency ("DARPA") to
fund this research and development. The contract runs through May 1998. Cree is
working with Motorola, General Electric and Honeywell on three separate projects
under the contract that will address power and high temperature device
applications for the technology.
Cree also believes that it has the opportunity to sell a significantly
increased volume of its SiC wafers at premium prices to its customers if it can
develop a process for consistently producing material with very low defect
levels. While the Company has produced such low-defect material from time to
time, a reliable consistent process has yet to be demonstrated. The speed with
which the Company can improve its material will directly impact Cree's ability
to grow the market for advanced semiconductors based on SiC.
Low Cost Super-Bright Blue LEDs
In fiscal 1995 Cree developed a blue LED, the DH-85, that is much
brighter than its prior generation blue LED. The brighter chip was developed by
depositing a thin layer of gallium nitride (GaN) on a SiC substrate as opposed
to a SiC thin film on SiC substrate. The GaN thin film significantly enhanced
the efficiency of the light output from the LED. Cree increased production of
the DH-85 each quarter during fiscal 1996 but not to the point that revenues
could offset the additional investment made in equipment, facilities and
personnel to manufacture the product. The Company currently relies on three
"epitaxy" systems to produce the DH-85 and conduct research and development runs
to improve the manufacturing process and to advance its blue laser program. From
time to time the Company has experienced unplanned downtime with these systems
and unpredictable yields. This has kept costs high. Cree's goal is to stabilize
the process and achieve increasing and predictable yields from this critical
part of the manufacturing cycle. Under a recently signed contract to supply
Siemens A.G. with blue LEDs, the Company will be adding at least one additional
epitaxy system to meet production requirements.
Cree is also attempting to redesign the epitaxial layers or thin films
to reduce manufacturing complexity and costs and to improve the performance of
the LED. The Company's goal is to be a high volume supplier of super-bright blue
LED chips. The Company believes that to achieve this goal it must offer the
product at prices below its current average selling prices. Accordingly, Cree
must reduce its costs of production. Management believes that its current
strategy of apportioning its epitaxy systems between research and development
and production is a viable approach to achieving this goal. By allocating
appropriate research and development capacity, the Company is attempting to
improve and stabilize the epitaxy process to achieve appropriate yields. If the
Company does not achieve appropriate increases in yields, then costs would fail
to decline at the planned rate, the market for the product would probably fail
to develop at otherwise expected rates and the Company's ability to generate a
positive gross margin and net profits would be jeopardized.
High-Power Radio Frequency and Microwave Transistors
The Company is working with corporate partners to develop high-power
radio frequency and microwave transistors. Such devices could eventually have
important applications in cellular phone base stations, high-power solid-state
broadcast systems for television and radio, satellite communications, radar
search and detection equipment and electronic counter measure systems.
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During fiscal 1995, the Company reported the development of SiC
transistors that operate at frequencies up to 32 gigahertz ("GHz"). In addition,
Motorola completed power measurements on the devices and has determined that the
transistors operate at 2.8 watts per millimeter at 1.8 GHz. This power density
is two to three times higher than that normally achieved with equivalent silicon
or gallium arsenide devices. Although prototype devices have been developed,
additional development work is needed to achieve commercial viability. Because
of the development costs involved, the Company has applied for significant
additional funding from a government agency for this project.
Blue and Ultraviolet ("UV") Laser Diodes
The storage capacity of optical disk drives can be increased
significantly by utilizing a laser diode capable of emitting short wavelength
light. The Company believes that a laser diode fabricated from gallium nitride
and related materials deposited on SiC substrates could be capable of emitting
short wavelength light in the blue or ultraviolet spectrum, potentially
increasing the storage capability of optical disk drives by a factor of three
to four. This increased storage capability could lead to advances in CD-ROM
data storage and audio and video compact disc applications. The government's
interest in the blue laser diode is for the next generation of high density
optical recording and playback systems as well as lightweight countermeasure
and covert communication systems for the military. In April, 1995 the Company
began work on a two year $4.0 million contract from DARPA to develop a blue
laser diode. The Company also entered into a joint development agreement
with Philips Laboratories-Briarcliff ("Philips") to develop this technology.
Cree, Philips and another contractor are providing another $4.0 million bringing
total funding for this program to approximately $8.0 million.
Additional funds were allocated to the development of the blue laser
diode in June of 1996 when DARPA awarded another $4.3 million to be spent over a
three year period. As part of the contract Cree and Philips will provide
approximately one million dollars. The deliverable specified in the latest DARPA
contract is for Cree to demonstrate a blue laser diode within a certain range of
wavelengths and power outputs with a greater than 1,000 hour life. Commercial
lasers typically have a specification for 10,000 hours of useful life. Both Cree
and Philips will cross-license certain technology useful to the development of a
blue laser diode and will share manufacturing rights at the end of the contract.
High-Temperature Devices
The Company has developed prototype SiC-based transistors and
rectifiers that operate at very high temperatures. These high-temperature
semiconductors have potential applications in the aerospace and automotive
industries. For example, Cree has been working with a customer that is
developing a sensor based on a SiC semiconductor that could be used to measure
engine performance via insertion directly into the cylinder of an automobile
engine. The application aims to optimize fuel economy by adjusting engine
performance during operation. In addition, these devices could find use in
applications such as down hole drilling equipment, space-based power systems and
electronic vehicles. Although prototype devices have been developed for some of
the applications mentioned, additional development work is needed to achieve
commercial viability.
High-Power Semiconductors
The Company is working on the development of prototype high power
devices that, if successfully developed, could have many significant uses. Such
devices could be very important in applications involving power conditioning and
regulation. Potential application areas include variable speed drives for
heating, ventilation and air conditioning systems, lighting ballasts, industrial
motor controls, uninterruptable power supplies and power drive components for
electric vehicles.
Cree continues to make progress in improving the quality of its SiC
material, improving processes for fabricating devices and improving device
designs. However, the Company can provide no assurance that further work will
result in improvements in processes, material quality and end products that are
necessary to introduce such products to market.
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Nonvolatile Random Access Memories ("NVRAMs")
Cree is investigating the possible development of SiC-based NVRAM
products. SiC-based NVRAMs may be able to retain an electrical charge for an
extended period without being refreshed. The Company believes that SiC-based
NVRAMs could be capable of "write" speeds many times faster than silicon-based
nonvolatile memory devices. The Company is presently working on a $4.8 million
contract which ends in October, 1997 to advance work in this area. The contract
is monitored by the Office of Naval Research ("ONR"). Potential consumer
applications include portable electronic products where device power consumption
and speed are important. Defense applications include electronic circuits in
satellites where power consumption is a major concern. This program is in a very
preliminary stage and there can be no assurance that a commercially viable
product will ever be developed.
Strategic Alliances
The Company believes that the formation of strategic alliances with
other companies is a viable strategy for more quickly developing its technology,
bringing certain products to market and defraying investment in resources. For
example, the Company has teamed with Philips to develop a blue laser diode.
Since Philips was a pioneer in compact disc laser technology Cree realized that
Philips was well positioned to benefit from the development of the next
generation of laser diodes.
Likewise Cree and Siemens signed a joint agreement in October, 1995 to
embark on the development of a "true" green LED. Siemens is a major manufacturer
of LEDs for their captive systems business. Siemens committed to a $1.5 million
license fee, a third of which has been collected, to license certain epitaxial
and fabrication technology from Cree as a basis for the development of green
LEDs. The contract is for a three year period and contemplates Cree supplying a
portion of Siemens' requirements for blue LEDs. However specific amounts are not
committed and must be agreed on periodically. In a separate supply agreement
signed by Cree and Siemens in September 1996, Cree has committed to sell over
$5 million worth of LEDs to Siemens through fiscal 1997. The Company will
continue to evaluate similar opportunities from time to time as a way to more
quickly realize value for its proprietary technology.
Sales and Distribution
The Company markets its blue LED chips domestically and in a number of
foreign countries. Because the production of lamp and display products
incorporating LED chips is concentrated among a relatively small number of
manufacturers, the Company uses an executive sales approach combined with
manufacturers representatives, and distributors to market its LED chips. In
Japan the Company markets its LED products and SiC wafers through its
distributors Sumitomo Corporation and Shin-Etsu Handotai Co., Ltd. (the
"Japanese Distributors"). The sales to Sumitomo occur under a three year
distribution agreement signed in June 1995. The Company markets its SiC wafer
products throughout the rest of the world via a small direct sales staff.
RCD currently distributes the majority of its LED-based modules
directly to original equipment manufacturers (OEMs). The OEMs in turn
manufacture, sell and generally install modular based display systems at their
customer's site. RCD also maintains a sales representative in Korea who receives
a commission in connection with units the representative sells.
The majority of moving message signs are sold via a network of
international distributors in Central and South America, Australia, the Pacific
Rim and Canada. RCD also employs a direct sales program and uses a dealer
network to market a portion of its products.
Competition
The semiconductor industry is intensely competitive and is
characterized by rapid technological change, price erosion, and heightened
foreign competition. The Company
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believes that it currently enjoys a favorable position in the existing and
potential emerging markets for SiC-based products and materials primarily as a
result of its proprietary SiC-based technology. However, the Company faces
potential competition from a number of established domestic and international
semiconductor companies, each of which is conducting SiC-related research and
development. All of these companies have vastly greater engineering,
manufacturing, marketing, and financial capabilities than the Company. The
Company also is aware that several smaller companies, including Advanced
Technology Materials, Incorporated are devoting resources toward the development
and marketing of SiC wafers and devices.
The Company also faces growing competition from companies working with
other wide bandgap semiconductor materials such as GaN. Nichia Chemicals
("Nichia") and Toyoda Gosei, companies in Japan, previously announced the
development of a GaN-based pn junction blue LED lamp that is brighter than the
Company's recently released SiC:GaN super bright blue LED product. The sale
price for Cree's new super bright LED is lower than the product offered by
Nichia. However, there can be no assurance that Nichia will not achieve
economies of scale in its production process that will result in lower pricing.
Price and intensity are the two primary drivers that determine the timing and
extent of market development.
Cree developed its new product by growing GaN on SiC substrates for the
subsequent fabrication of super bright blue LEDs. Although more expensive than
sapphire (Al2O3), which is used by Nichia as a substrate for GaN thin film
growth, SiC has several potential advantages. The lattice mismatch between
6H-SiC and GaN is approximately 3.5% versus 15% for Al2O3 and GaN. A closer
lattice match could result in GaN films grown on SiC having a lower defect
density than films grown on Al2O3. More importantly, unlike Al2O3, SiC is a
conductive substrate. This means that industry standard vertical devices with a
top and bottom contact can be fabricated with GaN grown on SiC, whereas GaN
grown on Al2O3 (an insulator) are being fabricated as horizontal devices with
both contacts on top. Because both contacts must be placed on top of the device,
a horizontal structure typically requires a larger chip size than a vertical
structure (Figure 1).
AN ILLUSTRATION APPEARS IN THIS SPACE DESCRIBING THE DIFFERENCES BETWEEN THE LED
DEVICE MANUFACTURED BY CREE AND THAT MANUFACTURED BY NICHIA.
Figure 1.
Additionally, a smaller chip size can provide an important cost
advantage. Cree's vertical chip can be as small as 0.01 inches on a side
yielding an area of .0001 square inch, or 44% of the competitive chip.
Competitive chips are 0.015 inches on a side yielding an area of .000225 per
square inch. Thus, SiC substrates can be 2.25 times the cost of sapphire and
still be competitive on a price per chip basis assuming all other processing
costs are the same. Furthermore, because all red and green chips are vertical
devices, Cree's vertical structure facilitates rapid acceptance in existing LED
component assembly operations. The Company has an issued patent related to GaN
LEDs fabricated on SiC substrates entitled "High Efficiency Light Emitting
Diodes From Bipolar Gallium Nitride", U.S. patent #5,210,051.
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In addition to Nichia, other LED companies are believed to be funding
development programs in the area of GaN, including, but not limited to: Toshiba,
Hewlett Packard, Siemens and Rohm.
The ability of the Company to compete successfully in existing and
future markets for its products will depend on elements both within and outside
its control. These elements include, but are not limited to, success in
designing and manufacturing new products that implement its proprietary
SiC-based technology, improvements of existing products, improvements in its
SiC-based process technology, increasing production capability of SiC:GaN
products including access to capital, protection of its products by effective
utilization of intellectual property laws, improvements in product quality,
performance and reliability, ease of use, price, diversity of product line,
efficiency of production, the rate at which customers incorporate the Company's
components into their products, product introductions by the Company's
competitors, and general domestic and international economic conditions.
Significant changes in domestic or international economic or trade conditions
could potentially impact the Company's ability to meet targeted sales goals.
Sources and Availability of Raw Materials
The Company depends on single or limited source suppliers for a number
of raw materials and components used in its SiC wafer products and LEDs,
including certain key materials and equipment used in its crystal growth,
wafering, polishing, epitaxial deposition, device fabrication, and device test
processes. The Company generally purchases these single or limited source
materials and components pursuant to purchase orders and has no guaranteed
supply arrangements with such suppliers. In addition, the availability of these
materials and components to the Company is dependent, in part, on the Company's
ability to provide its suppliers with accurate forecasts of its future
requirements. Production of many materials used in semiconductor manufacturing
is limited to one or a few manufacturing facilities worldwide. Disruption of
production at one or more of these facilities represents a risk for the entire
semiconductor industry. However, smaller companies, such as Cree, may be at
greater risk than larger companies if supplies of any materials become scarce as
suppliers may favor their larger customers in allocating their products. Any
interruption in the supply of these key materials or components could have a
significant adverse effect on the Company's operations.
Customers
For the year ended June 30, 1996, two customers accounted for 32% of
product revenues. For the same period, contract revenues consisted
entirely of U.S. Government contracts, 97% from the Department of Defense. For
the year ended June 30, 1995, two customers accounted for 24% of product
revenues. For the same period, contract revenues consisted entirely
of U.S. government contracts, 95% from the Department of Defense. For the year
ended June 30, 1994, three customers accounted for 53% of product revenues. For
the same period, contract revenues consisted entirely of U.S.
government contracts, 76% from the Department of Defense and 20% from the
Department of Commerce.
Backlog
As of June 30, 1996, the Company had a firm backlog of approximately $15.5
million consisting of approximately $2.1 million of product orders and $13.4
million of executed research contracts. This compares to a firm backlog level
of $14.1 million as of June 30, 1995, which consisted of approximately $500,000
of product orders and approximately $13.6 million of executed research
contracts. The Company considers orders for products shippable within six
months of the backlog date and fully executed research contract awards as of the
backlog date as firm backlog. Contractual termination dates on some research
contracts, included in the backlogs at both June 30, 1996 and 1995, extend
beyond the end of the succeeding fiscal years, respectively. Approximately
$10.9 million of the June 30, 1996 backlog relates to cost sharing arrangements
under four separate agreements with the U.S. Department of Defense. The total
costs to be shared by the Company under these four contracts is $2.6 million
through July 1999.
Patents and Proprietary Rights
The Company licenses ten U.S. patents from North Carolina State
University ("NCSU"), and holds twenty-five additional domestic patents of its
own or owned jointly. Cree also has license to eight foreign patents issued on
the NCSU technology and twelve foreign patents issued on Cree applications. In
addition Cree has seventeen patent applications of its own and two joint
applications with other entities pending in the United States. The Company also
has fifty-seven foreign patent applications pending. In addition to its patent
rights, the Company relies upon certain proprietary know-how and trade secrets
in its manufacturing process and has entered into non-disclosure agreements to
protect its proprietary technology with both employees and parties outside of
the Company.
10
<PAGE>
The Company earns a material amount of its revenues in overseas
markets. While the Company has applied for patent protection for certain of its
technologies and products in some of these markets, there can be no assurance
that such markets will be subject to the Company's intellectual property rights.
The NCSU License. In December 1987, the Company entered into a license
agreement with NCSU pursuant to which the Company was granted a worldwide, fully
paid, exclusive license to manufacture, use, and sell products and processes
covered by the claims of ten U.S. patent applications filed by NCSU relating to
SiC materials and SiC-based semiconductor devices, some of which also have been
filed in foreign countries. Ten patents were subsequently issued with respect to
eight of those applications, with expiration dates between 2007 and 2009. Eight
of the foreign filings have been issued with expiration dates from 2006 through
2011. Under the terms of the license, the U.S. Office of Naval Research has
retained an interest in the licensed technology for certain military
applications. In exchange for the granting of the license, the Company issued
135,196 shares of its Common Stock to NCSU.
Cree's Patents. Since its inception, the Company has been granted
twenty-five U.S. patents of its own or jointly owned. These patents expire
between 2008 and 2014. The Company has filed a number of these patent
applications in foreign countries, twelve of which have been issued. In
addition, the Company has in the past entered into, and intends to continue to
seek, joint research and development programs to develop new SiC-based devices.
These efforts have resulted in the filing of several joint patent applications.
The Company filed a joint patent application with Purdue University pertaining
to certain nonvolatile memory devices, and the Company has exclusive, worldwide
rights to the resulting patent, now that it is issued. The Company has filed two
joint patent applications with General Electric Corporation ("GE"), one of which
has issued, and one joint patent application with NCSU. The NCSU patent has now
been issued as two separate patents (process and product) and Cree has secured a
worldwide, fully paid exclusive license to its use.
Although the Company has not received any claims that its products
infringe on the proprietary rights of third parties, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future with respect to current or future products or that such assertion may
not require the Company to enter into royalty arrangements, prevent the Company
from selling products, or result in protracted or costly litigation.
Because of rapid technological developments in the semiconductor
industry and the broad and rapidly developing patent and mask-work coverage, the
patent position of any semiconductor device manufacturer, including that of the
Company, is subject to uncertainties and may involve complex legal and factual
issues. Consequently, although the Company holds certain patents, is licensed
under other patents, and is currently pursuing additional patent applications,
there can be no assurance that patents will be issued from any pending
applications or that claims allowed by any existing or future patents issued or
licensed to the Company will not be challenged, invalidated, or circumvented, or
that any rights granted thereunder will provide adequate protection to the
Company. Moreover, the Company may be required to participate in interference
proceedings to determine the priority of inventions, which could result in
substantial costs to the Company.
Employees
At June 30, 1996, the Company had approximately 176 employees, 156 in
the United States and 20 in Russia, all of whom are designated as full-time,
with the exception of 4 which are temporary. None of the Company's employees are
represented by a labor union or covered by a collective bargaining agreement.
The Company has experienced no work stoppages and believes that its employee
relations are good.
Executive Officers
All but one of the Company's executive officers also serve on the
Company's Board of Directors. Biographies of the executive officers are
incorporated by reference under the
11
<PAGE>
heading "Election of Directors" in the Company's Proxy Statement to be filed
with respect to the Annual Meeting to be held November 12, 1996.
Risk Factors
Ownership of the Company's common stock is subject to a number of
risks, including the following: Since the Company's inception, the Company has
derived approximately half of its revenues from sales of products and the other
half from funded research contracts. Over the same period, the Company estimates
that approximately a third of its product sales have been made to customers for
commercial applications with the balance being sold for evaluation purposes.
Although the Company believes that, over the last six months, a majority of its
blue LED chips have been sold for incorporation into end-user commercial
products, a number of customers are still evaluating the blue LED, and on-going
sales of significant volumes of products to these customers cannot be assured.
There can also be no assurance that competitors will not introduce products that
are competitive with or superior to the Company's blue LED.
The Company periodically has experienced lower than anticipated
production yields. Production yield problems in the future could have an adverse
effect on the Company's operations. The Company manufacturers several key
components used in its crystal growth and expitaxial deposition processes and
also depends, substantially, on its custom-manufactured processing equipment and
systems. Should the Company experience protracted problems in the production of
its key components or the operation of its proprietary manufacturing systems,
its ability to deliver its products could be materially impacted. The Company is
also dependent on single or limited source suppliers for a number of raw
materials and components used in its SiC wafer products and LED's. An
interruption in the supply of these items could cause the Company's
manufacturing efforts to be hampered significantly and result in customer
dissatisfaction.
The Company relies on a small number of customers for the majority of
its sales, and the loss of any one of these customers could have a material
adverse effect on the business and prospects of the Company. The Company has and
is expected to continue to have a substantial percentage of its sales from
foreign companies, primarily in Japan, Korea, Taiwan, China and Europe. There
can be no assurance that the Company's current intellectual property position
will be enforceable in foreign countries to the extent it is enforceable in the
United States. In addition, the Company's international sales may be subject to
government controls and other risks, including export licenses, federal
restrictions on the export of technology, changes in demand resulting from
currency fluctuations, political instability, trade restrictions, changes in
tariffs, and difficulties managing international operations and collecting
accounts receivable.
The patents and other proprietary rights of the Company may not prevent
the competitors of the Company from developing noninfringing technology and
products that are more attractive to customers than the technology and products
of the Company. The technology and products of the Company could be determined
to infringe the patents or other proprietary rights of others.
To remain competitive, the Company must continue to invest substantial
resources in research and development. The Company's prospects for long-term
success is substantially dependent on its ability to continue increasing the
performance of its blue LED product. The ability of the Company to compete
effectively depends upon its ability to attract and retain highly-skilled
engineering, scientific, manufacturing, marketing and managerial personnel.
The Company has expanded its operations rapidly and operating results
will be adversely affected if net sales do not increase sufficiently to
compensate for the increase in operating expenses caused by this expansion.
Over the last several years, the Company has been awarded a number of
contracts from agencies of the United States government for purposes of
developing SiC material and SiC-based semiconductor devices. Government policy
is constantly changing, however, and there can be no assurance that the Company
will enter into any additional government contracts or, if such contracts are
entered into, that they will be profitable or produce contract revenues. In
addition, there can be no assurance that after any such contracts are entered
into, changing
12
<PAGE>
government regulations will not significantly alter the benefits of such
contracts or arrangements that can be expected to inure to the Company. Cutbacks
in or reallocations of federal spending, including changes which could be
proposed or implemented in the future, could have a material, adverse impact on
the Company's results of operations, as well as its ability to implement its
research and development programs.
The Company is subject to a variety of government regulations
pertaining to discharges and other aspects of its manufacturing process. The
Company believes that it is currently in full compliance with such regulations,
however, any failure, whether intentional or inadvertent, to comply with such
regulations could have an adverse effect on the Company's business.
The market price of the Company's securities has been very volatile as
a result of many factors, some of which are outside the control of the Company,
including, but not limited to, quarterly variations in financial results,
announcements by the Company, its competitors, customers, potential customers or
government agencies and predictions by industry analysts, as well as general
economic conditions. Sales by the Company's existing stockholders, trading by
short sellers and other market factors may adversely affect the market price of
the Companies securities. Any or all of these risks could have a material
adverse affect on the market price of the securities of the Company.
The Company's quarterly operating results have varied significantly as
a result of a number of factors, including the timing and market acceptance of
new product introductions by the Company, the timing of significant orders from
and shipments to customers, non-recurring license fee income, and general
domestic and international economic conditions. The Company's operating results
may fluctuate in the future as a result of these and other factors, including
the Company's success in developing, introducing , and shipping new products;
its product mix; and the level of competition that it experiences.
Item 2. Description of Property
The Company leases its manufacturing, marketing and primary research
and development facilities, which occupy 26,000 square feet in a facility in
Durham, North Carolina. The lease expires on December 31, 2001. The Company has
a renewal option to extend the term of the lease through December 31, 2006. The
Company's subsidiary Real Color Displays, Inc., leases approximately 3,000
square feet of office and warehouse space in Morrisville, North Carolina. RCD
conducts principally all of its business from this facility. The lease expires
early in calendar 1997 but the Company may, at its option, exercise three
additional one year rental terms. Cree completed construction of leasehold
improvements to outfit a newly leased 13,000 square foot facility in Durham in
September, 1995. The lease term is five years with an option for two additional
lease terms of two years each. In addition to the North Carolina facilities, the
Company makes use of certain laboratory space in the Ioffe Technical Institute
in St. Petersburg, Russia to house the research and development program of its
wholly-owned subsidiary, Cree Research Eastern European Division ("Cree-EED").
The Company recently signed a supply contract with Siemens A.G. to
supply blue LEDs. To meet production requirements, the Company is evaluating
whether to lease additional space. At this time no additional leases have been
signed.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Common Stock Market Information. The Company's common stock is traded
in the NASDAQ National Market System and is quoted under the symbol "CREE". The
following table sets forth, for the quarters indicated, the high and low sale
prices as reported by NASDAQ and as adjusted for the two-for-one stock split
effective August 14, 1995. Quotations represent interdealer prices without an
adjustment for retail markups, markdowns or commissions and may not represent
actual transactions.
FY 1996 FY 1995
High Low High Low
First Quarter $31-1/2 $14-1/8 $6 $3-3/4
Second Quarter $26-1/2 $12-1/2 $5-1/8 $3-1/2
Third Quarter $19 $11 $4-1/8 $2-13/16
Fourth Quarter $21-1/2 $13-3/4 $14-1/2 $3-5/8
Holders and Dividends. There were approximately 379 holders of record
of the Company's Common Stock as of September 12, 1996.
The Company has never paid cash dividends on its Common Stock and does
not anticipate that it will do so in the foreseeable future. There are no
contractual restrictions in place that would limit the Company from paying
dividends on its common stock, but applicable state law may limit the payment of
dividends. The present policy of the Company is to retain earnings, if any, to
provide funds for the operation and expansion of its business.
Item 6. Selected Financial Data
The consolidated statement of operations data set forth below with
respect to the years ended June 30, 1996, 1995 and 1994 and the consolidated
balance sheet data at June 30, 1996 and 1995 are derived from, and are qualified
by reference to, the audited consolidated financial statements included
elsewhere in this report and should be read in conjunction with those financial
statements and notes thereto. The consolidated statement of operations data for
the years ended June 30, 1993 and 1992 and the consolidated balance sheet data
at June 30, 1994, 1993 and 1992 are derived from audited consolidated financial
statements not included herein.
14
<PAGE>
Selected Financial Data
(all data in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Statement of Operations Data:
Product revenue, net $9,689 $5,989 $3,534 $3,859 $1,428
Contract revenues 5,863 5,160 3,956 2,463 1,528
License fee income 1,423 - - - -
Total Revenues 16,975 11,149 7,490 6,322 2,956
Net income (loss) 243 (17) (431) 594 (978)
Net income (loss) per share 0.02 0.00 (0.04) 0.07 (0.31)
Weighted average
shares outstanding 12,614,964 10,367,290 10,336,646 8,602,326 3,169,148
</TABLE>
<TABLE>
<CAPTION>
Years Ended June 30,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Balance Sheet Data:
Working capital $18,596 $9,971 $11,006 $15,852 $2,429
Total assets 43,796 20,924 20,018 20,309 5,736
Long-term obligations - - 14 23 476
Shareholder's equity 40,672 19,504 19,334 19,669 4,415
</TABLE>
oThe Company has not declared a dividend on common stock since its
inception
oThe years ended June 30, 1996 and 1995 include the Company's wholly
owned subsidiary, Real Color Displays, Inc.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement Identifying Important Factors That Could Cause the
Company's Actual Results to Differ From Those Projected in Forward
Looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document are advised
that this document contains both statements of historical facts and forward
looking statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earnings per share, capital expenditures, dividends, capital structure
and other financial items, (ii) statements of the plans and objectives of the
Company or its management or Board of Directors, including the introduction of
new products, or estimates or predictions of actions by customers, suppliers,
competitors or regulatory authorities, (iii) statements of future economic
performance, and (iv) statements of assumptions underlying other statements and
statements about the Company and its business.
This document also identifies important factors which could cause
actual results to differ materially from those indicated by the forward looking
statements. These risks and uncertainties include the Company's ability to
increase production capacity and yield, price competition, the actions of
competitors, infringement of intellectual property rights and licenses of the
Company or others, the effects of government regulation, both foreign and
domestic, availability of U.S. government funded research contracts, possible
delays in the introduction of new products, customer acceptance of products or
services and other factors, which are described herein.
15
<PAGE>
The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many
cases the Company cannot predict what factors would cause actual results to
differ materially from those indicated by the forward looking statements.
Results of Operations
On August 1, 1995, the Board of Directors approved a proposed
resolution for a two-to-one stock split. The final resolution, effective August
14, 1995, split each share of Cree's common stock into two whole shares of
common stock and the par value of the common stock accordingly decreased by
one-half to $0.005 per share. All share values reported throughout this document
reflect post split share data.
Results of operations include the operations of the Company's
wholly-owned subsidiary, Real Color Displays, Inc. ("RCD") from the date of
RCD's purchase of the net assets of Color Cells International, Ltd. on August 5,
1994. Details regarding the purchase were previously reported on the Company's
Form 8-K filed on August 22, 1994.
The following table sets forth, for the periods indicated, items in the
Consolidated Statements of Operations as a percentage of total revenues and the
increase (decrease) by each item as a percentage of the amount for the previous
period:
<TABLE>
<CAPTION>
Percentage of Period to Period
Total Revenues Change
1996 1995 1994
Years Ended June 30, Compared to
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1995 1994 1993
Product revenue, net 57% 54% 47% 62% 69% (8)%
Contract revenues 35 46 53 14 30 61
License fee income 8 0 0 100 0 0
Total revenue 100 100 100 52 49 18
Cost of revenue 84 80 79 60 50 37
Gross margin 16 20 21 21 44 (12)
Research and development 3 4 10 (6) (34) 59
Sales, general and administrative 17 20 23 28 30 58
Income (loss) from operations (4) (4) (12) (31) 46 *
Other income (expense) 5 4 6 88 2 164
Net income (loss) 1 0 (6) * 96 8
</TABLE>
* Not Meaningful
Throughout this subtitle all references to "the current year"or to
"fiscal 1996" refer to the year ended June 30, 1996 and all references to "the
prior year","previous year " or to "fiscal 1995" refer to the year ended June
30, 1995. All references to "fiscal 1994" refer to the year ended June 30, 1994.
The Company's fiscal 1996 revenues of $16,975,000 represent a 52%
increase over the prior year. Fiscal 1995 revenue, $11,149,000, represents a 49%
increase over the year ended June 30, 1994. Included in current year revenue is
a one time license fee of $1,423,000. In
16
<PAGE>
addition to the licensing of certain technology, the agreement allows for the
joint development and manufacture of light emitting diodes ("LEDs") using Cree's
proprietary epitaxial and fabrication technology. The license fee agreement
provided an initial cash payment of $500,000 upon confirmation of the agreement,
with additional $500,000 payments due October 1996 and October 1997. All
obligations under the license agreement were fulfilled by the Company as of
December 31, 1995. The net present value of the license fee was recognized at
the time technology transfer was completed. Product revenue is comprised of LED
sales, wafer products, Real Color Module(TM) and RCD's display sales. Total
product revenue grew at a consistent rate in the current and prior year. Product
revenue for the current year was $9,689,000 compared to $5,988,000 in the prior
year, a 62% increase. Fiscal 1995 product revenue represents a 69% increase over
fiscal 1994 product revenue of $3,534,000. A significant component of the
current year growth was attributable to optoelectronic device sales, namely the
super-bright blue LED. LED sales increased 279% over the prior year to
$3,518,000. Growth in LED sales during fiscal 1996 was limited by production
problems. LED sales declined 30% in fiscal 1995 as compared to fiscal 1994. This
was primarily attributable to customer anticipation of the super-bright blue LED
product release.
Wafer products or material sales grew 27% to $4,314,000 in the current
year as compared to a growth rate of 53% in the prior year. Current year growth
was adversely affected as the Company addressed capacity constraints. The
Company expects continued growth in this product line as the Company optimizes
additional capacity installed during the current year. The growth in revenue
from wafer sales in the prior year over that of 1994 was primarily attributable
to increasing SiC device development activities at major electronic component
and system manufacturers.
Revenues for RCD displays and the Real Color Module(TM) increased 11%
in the current year to $1,857,000. Display sales were initiated in the first
quarter of fiscal 1995 when Real Color Displays was formed. Module sales were
introduced late in the second quarter of fiscal 1996. Growth in both of these
areas has been restrained to some extent by the availability of blue LEDs. More
recently sufficient LED supply has been made available and the Company is
actively developing a customer base for its display products.
Congruent with the Company's goal, contract revenues, although
growing from year to year, is representing a smaller percentage of
total revenue, 35% in fiscal 1996, 46% in fiscal 1995, and 53% in fiscal 1994.
Contract revenues increased by 14% to $5,863,000 in the current year
compared to a 30% increase in the previous year. Growth has been mitigated due
to a shift in capacity to production of the super-bright LED chip. The Company
expects contract billings to increase based on investments in capacity made
during the current year and as the Company seeks to improve manufacturing
yields. Two contracts accounted for 59% of the revenue in the current year.
These contracts relate to the development of a blue laser diode and improving
the Company's silicon carbide ("SiC") wafer technology. These contracts expire
March, 1997 and May, 1998, respectively. In the prior year, two contracts
contributed more than 60% of contract revenues. One is for the development of a
memory chip based on SiC and will expire in October, 1996. The other is aimed at
LED product development. At June 30, 1996, the contract revenues
backlog was $13,369,000 and extends through July, 1999.
The Company's gross margin decreased to 16% of sales, as compared to
20% for fiscal years 1995 and 1994. The current period gross margin would have
reflected a gross margin decline down to 8% of sales as compared to the prior
period without the benefit of the license fee income, an income source for which
there were no material costs of revenue. The decreased margin is due to low
manufacturing yields, specifically related to acceptable LED wafers produced in
the Company's epitaxy process for the new LED product. Although the Company
increased super-bright blue LED chip throughput for fiscal 1996, the number of
chips produced did not offset the increase in manufacturing costs resulting from
a significant investment in additional capacity. Additional production reforms
are necessary for the Company to offer beneficial pricing to its customers.
Additional capacity and continued improvements in the manufacturing process are
planned and could provide stronger margins, if successful. The Company's failure
to meet these objectives could result in high costs for the LED product and
unsatisfactory margins.
17
<PAGE>
The Company benefits from research and development efforts sponsored by
both U.S. Government contracts and from internal corporate funding. Contracts
are awarded to the Company to fund both short term and long term research
projects. Contract revenues represent reimbursement by these various
government entities for research and development costs and a portion of the
Company's general and administrative expenses either on a cost plus or a cost
share basis. Funding for projects with near term applications for the Company
typically include a cost share component that the Company is responsible for
absorbing as a cost of revenues. Projects that may not have readily available
production applications or projects that relate to longer term development are
normally awarded on a cost plus basis with built in margins of 7% to 10%.
Contract revenues funded related expenditures of $5,721,000,
$4,348,000 and $2,891,000 for the years ended June 30, 1996, 1995 and 1994,
respectively. These expenditures are included primarily as a cost of revenues,
$5,128,000, $3,599,000 and $2,426,000 for fiscal years 1996, 1995 and 1994,
respectively. The remaining portion of these costs are classified as operating
expenses under sales, general and administrative. Contract revenues
reimbursed general and administrative expenses of $593,000, $749,000 and
$465,000 for the fiscal years 1996, 1995 and 1994, respectively. The Company
also contributed $1,565,000, $880,000 and $289,000 for the years ended June 30,
1996, 1995 and 1994, respectively, as a cost sharing component for the
government contract revenues.
The Company incurred research and development costs unabsorbed by
contract revenues totaling $444,000, $473,000 and $712,000 for the
fiscal years 1996, 1995 and 1994, respectively.
Sales, general and administrative expenses increased by 28% to
$2,906,000 for the current year and by 30% to $2,267,000 for the prior year. The
current period increase is primarily attributable to sales efforts to promote
the Real Color Module(TM), increased sales travel and promotions, corporate
communication costs, public company expenses and professional fees such as legal
and accounting. All periods reported reflect the impact of overall organization
growth. The increase in the prior year is primarily attributable to the
aquisition of RCD in August of 1994.
Interest income increased 85% to $872,000 in the current year. The
increase is attributable to significantly increased cash balances available for
investment as a result of the Company's private equity placement at the end of
the first quarter of the current year.
Liquidity and Capital Resources
The Company's cash and current investments (securities having
maturities of less than one year) balance was $11,949,000 at June 30, 1996,
$5,838,000 at June 30, 1995 and $8,883,000 at June 30, 1994. The Company's
operations utilized $1,636,000, $562,000 and $269,000 during the years then
ended. For all years reported, funds utilized in operations were mainly used to
fund increasing receivables and increasing inventory balances. The Company has
historically experienced a higher days sales outstanding than the general
industry. For the years ended June 30, 1996, 1995 and 1994 the Company's days
sales outstanding was 107, 94, and 88 days, respectively. The high days sales
outstanding is primarily due to the timing of the production and sales cycles
which have generally resulted in a significant portion of product revenue being
recognized and invoiced in the extreme later part of each quarter. Additionally,
the Company has historically invoiced government contract revenues in the
period following the period in which the revenue was recognized. The increase in
the current year's days sales outstanding is primarily attributable to the long
term receivable associated with the license fee income.
The Company invested $14,740,000, $3,486,000 and $1,615,000 in fiscal
1996, 1995 and 1994, respectively, on equipment and leasehold improvements. A
significant part of the equipment purchased in 1996 and 1995 related to the
production of super-bright blue LEDs. The balance of the equipment purchased
provides an increase in capacity for material production and processing. Early
in fiscal 1996, the Company brought on line a new facility dedicated to device
fabrication and testing. The new facility significantly increased production
capability directly benefiting LED production. In the latter half of fiscal
1996, the Company
18
<PAGE>
focused its capital spending at increasing crystal growth production and wafer
processing capacity. As of June 30, 1996, the Company had received or installed
but not paid for $831,000 in equipment and leasehold improvements and had open
purchase orders for an additional $914,000.
Subsequent to June 30, 1996, the Company accepted a significant
customer order that will require additional capital investments. More
specifically, the Company expects to add additional manufacturing equipment in
most process areas and to add additional space. Management expects to spend
approximately $4 to $5 million to add the capacity required by this contract.
The Company expects to finance those expenditures with approximately $4 million
in term debt.
Financing activities provided the Company $20,924,000 during fiscal
1996. The majority of the funding was provided by the Company's September 28,
1995, private placement which netted the Company approximately $17.5 million.
The remainder of the funding was provided by warrant and option exercises.
The Company's wholly-owned subsidiary, Real Color Displays, Inc. has
access to a revolving line of credit for borrowing availability of $600,000. The
line was renewed for a one year period in September, 1995. The revolver accrues
interest at the banks prime lending rate and carries customary covenants, namely
the maintenance of a minimum tangible net worth and cash and investment
balances. The revolver primarily supports the issuance of letters of credit by
RCD. As of June 30, 1996 there were no outstanding borrowings under this
facility.
The Company intends to fund its operations from internally generated
funds and from the proceeds from the planned term debt facility during fiscal
1997. However, the Company is always evaluating competitive conditions in the
industry and as a part of its ongoing strategy may seek additional funding
sources as market conditions permit.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants 21
Consolidated Balance Sheets at June 30, 1996 and 1995 22
Consolidated Statements of Operations for the years ended June 30, 1996, 1995
and 1994 23
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995
and 1994 24
Consolidated Statements of Shareholders' Equity for the years ended June 30, 1996,
1995 and 1994 26
Notes to Consolidated Financial Statements 27
Financial Statement Schedule
- ----------------------------
Report of Independent Accountants of Supplemental Schedule 41
Schedule II - Valuation and qualifying accounts 42
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Cree Research, Inc.
We have audited the accompanying consolidated balance sheets of Cree Research,
Inc. and subsidiary as of June 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cree Research,
Inc. and subsidiary as of June 30, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
Raleigh, North Carolina
August 29, 1996
21
<PAGE>
ITEM 8 - Financial Statements
Consolidated Balance Sheets
CREE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,161,706 $ 3,748,422
Short-term investments, held to maturity 1,787,271 2,089,278
Accounts receivable, net 6,393,394 3,599,722
Inventories 3,226,484 1,677,092
Deferred costs on research contracts - 81,006
Prepaid expenses and other current assets 150,990 195,697
-------------------- ------------------
Total current assets 21,719,845 11,391,217
Long-term investments, held to maturity - 1,821,911
Long-term accounts receivable 464,253 -
Property and equipment, net 20,218,101 6,455,584
Patent and license rights, net 1,204,738 1,020,475
Other assets 61,714 65,915
Goodwill, net 127,692 169,026
-------------------- ------------------
Total assets $ 43,796,343 $20,924,128
-------------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,657,054 $ 1,111,562
Accrued expenses 467,201 309,008
-------------------- ------------------
Total current liabilities 3,124,255 1,420,570
Commitments and contingencies
Shareholders' equity:
Common stock, $0.005 par value; 14,500,000 shares authorized; shares
issued and outstanding 12,277,418 and 10,410,726,
net of treasury shares, at June 30, 1996 and 1995 61,437 52,104
Additional paid-in capital 45,342,063 24,427,446
Accumulated deficit (4,693,599) (4,936,454)
-------------------- ------------------
40,709,901 19,543,096
Less: Unearned compensation - (1,725)
10,000 shares of common stock in treasury, at cost (37,813) (37,813)
-------------------- ------------------
Total shareholders' equity 40,672,088 19,503,558
-------------------- ------------------
Total liabilities and shareholders' equity $ 43,796,343 $20,924,128
==================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
Consolidated Statements of Operations
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------------
1996 1995 1994
------------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues:
Product revenue, net $ 9,688,833 $ 5,988,465 $ 3,534,113
Contract research and grants 5,862,962 5,160,258 3,955,971
License fee income 1,423,160 - -
------------------- ------------------ -----------------
Total revenue 16,974,955 11,148,723 7,490,084
Cost of revenues 14,249,031 8,886,687 5,923,186
Gross margin 2,725,924 2,262,036 1,566,898
Operating expenses:
Research and development 444,009 473,201 712,084
Sales, general and administrative 2,905,535 2,266,800 1,739,600
------------------- ------------------ -----------------
Loss from operations (623,620) (477,965) (884,786)
Other income (expense):
Interest income 871,953 471,992 458,819
Interest expense (5,478) (11,101) (2,327)
Other - - (2,589)
------------------- ------------------ -----------------
Net income (loss) $ 242,855 $ (17,074) $ (430,883)
=================== ================== =================
Net income (loss) per share $ 0.02 $ (0.00) $ (0.04)
=================== ================== =================
Weighted average shares outstanding 12,614,964 10,367,290 10,336,646
=================== ================== =================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
1996 1995 1994
---------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 242,855 $ (17,074) $ (430,883)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Net gain on disposal of fixed asset (8,126) -- --
Provision for uncollectible accounts 203,057 20,081 21,514
Depreciation and amortization 1,764,796 1,381,866 905,399
Amortization of patent rights 125,651 87,608 50,125
Amortization of goodwill 41,334 37,649 --
Non-cash compensation expense related to stock options 1,725 3,444 24,063
Changes in assets and liabilities:
Accounts receivable (3,460,982) (1,470,704) (707,045)
Inventories (1,549,392) (1,027,627) 20,965
Deferred costs on research contracts 81,006 (81,006) --
Prepaid expenses and other assets 48,908 226,882 (97,668)
Accounts payable, trade 714,496 190,887 (115,094)
Accrued expenses 158,193 86,396 59,569
------------ ------------ ------------
Net cash used in operating activities (1,636,479) (561,598) (269,055)
Investing activities:
Purchases of investment securities -- (2,203,878) (13,469,406)
Maturities of investment securities 2,123,918 5,495,884 11,216,079
Purchases of property and equipment (14,740,102) (3,485,780) (1,615,460)
Proceeds from sale of property and equipment 51,911 -- --
Payment of equipment deposits -- (71,240) (237,875)
Payment for acquisition of subsidiary -- (214,523) --
Purchases of patent rights (309,914) (273,076) (217,537)
------------ ------------ ------------
Net cash used in investing activities (12,874,187) (752,613) (4,324,199)
Financing activities:
Proceeds from issuance of note payable -- 415,622 --
Principal payments on notes and capital leases -- (438,662) (8,474)
Net proceeds from issuance of common stock 20,923,950 199,583 44,871
Repurchase of common stock -- -- (37,813)
Receipt of Section 16(b) common stock profits -- -- 64,100
Payment of legal fees related to receipt of section 16(b)
common stock profits -- (16,000) --
------------ ------------ ------------
Net cash provided by financing activities 20,923,950 160,543 62,684
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalants 6,413,284 (1,153,668) (4,530,570)
Cash and cash equivalents:
Beginning of the year 3,748,422 4,902,090 9,432,660
------------ ------------ ------------
End of the year $ 10,161,706 $ 3,748,422 $ 4,902,090
============ ============ ============
</TABLE>
24
<PAGE>
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,478 $ 10,940 $ 2,327
=============== ============== ==============
Cash paid for income taxes $ - $ - $ 10,000
=============== ============== ==============
Supplemental schedule of non-cash investing and financing activities:
Accounts payable recorded for purchases of equipment $ 830,996 $ 329,646 $ 109,213
=============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL TOTAL
PAR PAID-IN ACCUMULATED UNEARNED TREASURY SHAREHOLDERS'
VALUE CAPITAL DEFICIT COMPENSATION STOCK EQUITY
-------------- --------------- --------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 $ 51,617 $ 24,140,479 $ (4,488,497) $ (34,332) $ - $ 19,669,267
Common stock options exercised
for cash, 33,966 shares 170 34,701 34,871
Common stock warrants exercised
for cash, 2,666 shares 13 9,987 10,000
Expired stock options (5,100) 5,100 -
Purchase of common stock for
the treasury, 10,000 shares (37,813) (37,813)
Compensation expense for
common stock options 24,063 24,063
Receipt of Section 16(b)
common stock profits
from an officer of the
Company 64,100 64,100
Net Loss (430,883) (430,883)
-------------- --------------- ------------------------------ ------------- ---------------
Balance at June 30, 1994 51,800 24,244,167 (4,919,380) (5,169) (37,813) 19,333,605
Common stock options exercised
for cash, 22,806 shares 114 15,229 15,343
Common stock warrants exercised
for cash, 37,866 shares 190 184,050 184,240
Compensation expense for
common stock options 3,444 3,444
Payment of legal fees related
to receipt of Section 16(b)
common stock profits (16,000) (16,000)
Net Loss (17,074) (17,074)
-------------- --------------- ------------------------------ ------------- ---------------
Balance at June 30, 1995 52,104 24,427,446 (4,936,454) (1,725) (37,813) 19,503,558
Common stock options exercised
for cash, 121,783 shares 609 412,520 413,129
Common stock warrants exercised
for cash, 665,442 shares 3,327 2,916,257 2,919,584
Compensation expense for
common stock options 1,725 1,725
Proceeds from sale of 1,079,467
shares of common stock and
300,000 common stock
warrants, net of issuance costs 5,397 17,585,840 17,591,237
of $624,769
Net Income 242,855 242,855
-------------- --------------- ------------------------------ ------------- ---------------
Balance at June 30, 1996 $ 61,437 $ 45,342,063 $ (4,693,599) $ - $ (37,813) $ 40,672,088
============== =============== ============================== ============= ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
CREE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Cree Research, Inc. (the "Company"), incorporated in the State of North
Carolina on July 14, 1987, develops, manufactures, and markets silicon
carbide-based semiconductor devices. Revenues are primarily derived from the
sale of blue light emitting diodes (LEDs), silicon carbide (SiC) wafers and
full-color LED based electronic displays and modules. The Company markets its
blue LED chip products principally to customers who incorporate them into
packaged lamps for resale to original equipment manufacturers. The Company also
sells SiC wafer products to corporate, government, and university research
laboratories. In addition, the Company is engaged in a variety of research
programs related to the advancement of SiC process technology and the
development of electronic devices that take advantage of SiC's unique physical
and electronic properties. These research projects are primarily funded by
federal government agencies and departments. The Company recovers the costs of a
majority of its research and development efforts from revenues on these
contracts with agencies of the Federal government.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Cree
Research, Inc. and Real Color Displays, Inc. (RCD). All material intercompany
accounts and transactions have been eliminated.
Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at June 30, 1996 and 1995, and
the reported amounts of revenues and expenses during each of the three years in
the period ended June 30, 1996. Actual results could differ from those
estimates.
Advertising Costs
Effective July 1, 1995, the Company adopted the provisions of SOP 93-7,
"Reporting on Advertising Costs." The Company has elected to expense all
advertising costs as incurred or the first time advertising takes place, with
the exception of direct response advertising, which is capitalized and amortized
over the period of its expected future benefit. At June 30, 1996, the Company
did not have any amounts capitalized as direct response advertising. The Company
incurred total advertising expenditures of approximately $151,000, $147,000 and
$121,000 during the years ended June 30, 1996, 1995, and 1994, respectively. The
adoption of the provisions of SOP 93-7 did not result in a change in accounting
policy or have an effect on net income.
Fair Values of Financial Instruments
Effective July 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The Company estimates the fair values of its investments
based on market quotations and the fair values of its cash equivalents based on
interest rates available on similar instruments. At June 30, 1996, the market
values of the Company's investments and cash equivalents approximated their
respective carrying values.
Revenue Recognition
The Company recognizes revenue from product sales at the time of
shipment for product sales. Revenues from contract revenues represent
reimbursement by various U.S. Government entities of research and development
costs and a portion of the Company's general and administrative expenses and
other operating expenses on either a cost plus or cost share basis. The specific
reimbursement provisions of the contracts, including the portion of the
Company's general and administrative expenses and other operating expenses that
are reimbursed, vary by contract.
27
<PAGE>
The contracts are awarded to the Company in order to aid in the
furthering of the development of the Company's technology by supplementing the
Company's research and development efforts. Any resulting technology obtained by
the Company through these research and development efforts remains the property
of the Company after the completion of the contract. The Company recognizes the
contract research and grants funding related to these contracts as the related
expenses are incurred in accordance with the terms of the contract.
The Company entered into its first agreement to license its technology
in October 1995. The agreement also provides for the joint development and
manufacture of LEDs using Cree's technology. The license portion of the
agreement provided an initial cash payment of $500,000 upon confirmation of the
agreement, with additional $500,000 payments due in October 1996 and October
1997. All obligations under the license agreement with respect to fees paid to
the Company have been fulfilled by the Company as of December 31, 1995. The net
present value of the entire license fee was recognized at the time the
technology transfer was completed.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with
original maturities of three months or less when purchased.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined under the first-in, first-out (FIFO) method. Inventories consist of
the following at June 30:
1996 1995
--------------- ----------------
Raw materials $ 1,308,766 $ 713,824
Work-in-progress 947,785 635,763
Finished goods 969,933 327,505
--------------- ----------------
$ 3,226,484 $ 1,677,092
=============== ================
Property and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets, which range
from five to nine years. Leasehold improvements are amortized over the shorter
of the life of the related lease or their estimated useful lives. Expenditures
for repairs and maintenance are charged to expense as incurred. The costs of
major renewals and betterments are capitalized and depreciated over their
estimated useful lives. The cost and related accumulated depreciation of the
assets are removed from the accounts upon disposition and any resulting profit
or loss is reflected in operations.
During the first quarter of fiscal 1996, the Company changed its
previous estimate on the useful lives of some of its manufacturing equipment
from five to nine years. The change in estimate was based on the Company's
experience with similar fixed assets. The net adjustment increased net income
approximately $280,000 or $0.02 per share for the year.
Patent and License Rights
Patent rights reflect costs incurred to enhance and maintain the
Company's intellectual property position. License rights reflect costs incurred
to use the intellectual property of others. Both are amortized on a
straight-line basis over 17 years. Total accumulated amortization was
approximately $424,000 and $298,000 at June 30, 1996 and 1995, respectively.
28
<PAGE>
Goodwill
Goodwill represents the amount by which the costs of acquired net
assets exceed their related fair value and is being amortized on a straightline
basis over a life of five years. The carrying value of goodwill will be reviewed
if the facts and circumstances suggests that it is impaired. If this review
indicates that goodwill will not be recoverable as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company will adjust the carrying value of goodwill in accordance
with FAS No. 121 "Accounting for Impairment of Long Lived Assets." Accumulated
amortization related to goodwill was approximately $79,000 and $38,000 at June
30, 1996 and 1995, respectively.
Research and Development Cost Policy
The Company benefits from research and development efforts sponsored by
both government agencies and from internal corporate funding. Contracts are
awarded to the Company to fund both short term and long term research projects.
Contract revenues represent reimbursement by these various U.S.
Government entities of research and development costs and a portion of the
Company's general and administrative expenses either on a cost plus or a cost
share basis.
The Company incurred research and development costs unabsorbed by
revenues totaling $444,000, $473,000 and $712,000 for fiscal years
1996, 1995, and 1994, respectively.
Contract revenues funded Company expenditures of $5,721,000,
$4,348,000 and $2,891,000 for the years ended June 30, 1996, 1995 and 1994,
respectively. The Company has included $5,128,000, $3,599,000 and $2,426,000 of
these expenditures for fiscal years 1996, 1995 and 1994, respectively, in cost
of revenues. The remainder of these costs are classified as operating expenses
under sales, general and administrative. Contract revenues reimbursed
general and administrative expenses of $593,000, $749,000 and $465,000 for the
fiscal years 1996, 1995 and 1994, respectively. Also included in the cost of
revenues are Company incurred costs of $1,565,000, $880,000, and $289,000 as a
cost sharing component of the government contract research grants, during the
same periods, respectively.
Credit Risk, Major Customers and Major Suppliers
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash equivalents,
investments and accounts receivable. The Company's investments consist of U.S.
Treasury notes, commercial paper and corporate bonds. Certain bank deposits may
at times be in excess of the FDIC insurance limit. On July 1, 1994, the Company
adopted Statement of Financial Accounting Standards No. 115 ("FAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities." All of the
Company's short- and long-term investments are classified as securities
held-to-maturity and are reported at amortized cost. The Company has the
positive intent and ability to hold these investments to maturity. The adoption
of FAS No. 115 had no material effect on the Company's financial statements.
Investments consist of the following at June 30:
1996 1995
U.S. Treasury obligations $ 1,000,000 $ 2,988,567
Corporate debt 922,622
787,271
--------------- ----------------
$ 1,787,271 $ 3,911,189
=============== ================
The Company sells its products to manufacturers and researchers
worldwide, and generally requires no collateral. The Company maintains reserves
for potential credit losses, and such losses, in the aggregate, have generally
been within management's expectations. The Company presently derives primarily
all of its contract revenues from contracts with the U.S. Department of Defense.
Approximately 30% and 56%, respectively, of the Company's
29
<PAGE>
accounts receivable at June 30, 1996 and 1995 was due from the Department of
Defense. In addition, the Company had receivables from one customer totaling 23%
of accounts receivable at June 30, 1996. Slightly more than half of that amount
relates to license fee income earned in the second quarter of fiscal year 1996
but due to be paid through October 1997. The remainder relates to product sales.
The Company has derived its product revenue from sales primarily in the
United States, the Far East, and Europe as follows:
Year Ended
1996 1995 1994
United States 31% 50% 39%
Far East 27% 14% 24%
Europe 38% 31% 37%
Rest of World 4% 5% -
Two customers accounted for 32% of product revenue in fiscal 1996 as
compared to two customers accounting for 24% in fiscal year 1995. Three
customers accounted for 53% of product revenue in fiscal 1994. One customer
accounted for 97%, 95% and 76% of contract revenues during fiscal
1996, 1995, and 1994, respectively. In addition, a second customer accounted for
20% of contract revenues during fiscal 1994.
The Company depends on single or limited source suppliers for a number
of raw materials and components used in its SiC wafer products and LEDs. Any
interruption in the supply of these key materials or components could have a
significant adverse effect on the Company's operations.
Shareholders' Equity
Stock Split
On August 14, 1995, the Company effected a stock split, splitting each
share of common stock into two whole shares of common stock and the par value of
the common stock accordingly decreased by one-half to $0.005 per share. All
share values reported throughout this document reflect post split data.
Per Share Data
Net income (loss) per common share is computed using the weighted
average number of common stock shares and common stock equivalents outstanding
during each quarterly period.
Dividends
The payment of dividends is limited by the laws of the State of North
Carolina.
Long Lived Assets
In March 1995, the Financial Accounting Standards Board issued Satement
of Financial Accounting Standards No. 121 ("FAS 121"),"Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which became effective for fiscal years beginning after December 15, 1995. FAS
121 establishes standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The Company
adopted FAS 121 effective July 1, 1995. The financial statement impact of
adopting FAS 121 was not material.
30
<PAGE>
Accounting for Stock Based Compensation
In October, 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123 ("FAS 123"), "Accounting for Stock Based Compensation."
This Statement establishes fair value as the measurement basis for equity
instruments issued in exchange for goods or services and stock-based
compensation plans. Fair value may be measured using quoted market prices,
option-pricing models or other reasonable estimation methods. FAS 123 permits
the Company to choose between adoption of the fair value based method or
disclosing pro forma net income information. The Statement is effective for
transactions entered into after December 31, 1995 and the disclosure
requirements are effective for fiscal years beginning after December 15, 1995.
The Company will continue to account for stock-based compensation in accordance
with Accounting Principals Board Opinion No. 25 and provide only the pro forma
disclosures required by FAS 123. Hence, the adoption of the Statement is not
expected to have a material impact on the Company's net income or financial
position.
Reclassification
Reclassifications of certain amounts have been made to the 1995 and
1994 financial statements to conform to the 1996 presentation. These
reclassifications had no effect on shareholders equity, the results of
operations or per share data previously reported.
3. ACCOUNTS RECEIVABLE
The following is a summary of accounts receivables as of June 30:
1996 1995
--------------- --------------
Trade receivables................. $ 5,863,796 $ 3,584,408
Other receivables................. 1,043,651 37,658
--------------- --------------
6,907,447 3,622,066
Allowance for doubtful accounts... 49,800 22,344
--------------- --------------
$ 6,857,647 $ 3,599,722
=============== ==============
4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of June 30:
1996 1995
--------------- ---------------
Office equipment and furnishings.... $ 848,042 $ 565,557
Machinery and equipment............. 19,955,391 9,429,138
Construction in progress............ 1,199,080 588,104
Leasehold improvements.............. 5,371,713 1,464,078
---------------- ----------------
27,374,226 12,046,877
Accumulated depreciation............ 7,156,125 5,591,293
---------------- ----------------
$ 20,218,101 $ 6,455,584
================ ================
5. SHAREHOLDERS' EQUITY
The Board of Directors is authorized to issue, at its discretion, Class
A preferred stock and Class B preferred stock in one or more series with the
number of shares, designation, relative rights, preferences, and limitations to
be determined by resolution of the Board of Directors.
31
<PAGE>
6. STOCK OPTIONS AND STOCK WARRANTS
The Company maintains a non-qualified stock option plan for its
officers and employees. Upon issuance of stock options under the plan, unearned
compensation equivalent to the difference, if any, between the fair market value
and the exercise prices of the options at the measurement date is charged to
shareholders' equity and subsequently amortized over the stock option vesting
period. Options granted to date become exercisable on various dates through
April 2000 and expire at various dates through April 2005. The following table
details the number of stock options outstanding and their related exercise
prices.
Number of Options Outstanding
Option Price 1996 1995
< $0.01 4,666 8,534
0.42 36,846 40,370
2.82 7,094 7,094
3.13 20,000 20,000
3.63 263,798 319,888
3.75 14,397 19,444
4.00 53,400 58,500
4.38 -- 2,000
6.82 9,420 17,400
7.38 6,000 6,000
7.50 30,000 30,000
In addition to the options detailed above, the following table includes
186,000 options, exercisable at prices ranging from $3.63 to $12.13 per share
granted to current or former outside directors of the Company and consultants.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ------------------ ---------------
<S> <C> <C> <C>
Authorized 1,240,000 840,000 800,000
Granted (net, cumulative) 885,132 885,132 662,632
Exercised during year (at prices from <$0.01 to $4.00) 121,783 22,808 33,966
Exercised (cumulative) 192,823 71,040 48,232
Exercisable at year end 487,062 307,508 183,132
Expired and Forfeited 15,826 21,420 15,282
Expired and Forfeited (cumulative) 60,688 44,862 23,442
Outstanding at year end 631,621 769,230 614,400
Available for future grants 415,556 (270) 160,810)
</TABLE>
During fiscal year 1992, the Company issued stock warrants to
purchasers of Class B non-voting preferred stock, Series C. The warrants entitle
the holders to purchase 607,320 shares of common stock at $3.75 per share. In
September 1992, the Company issued stock warrants to additional purchasers of
Class B non-voting preferred stock, Series C. The warrants entitle the holders
to purchase 363,644 shares of common stock at $4.13 per share. Warrants to
purchase 425,642, 2,666 and 2,666 shares of common stock were exercised during
the years ended June 30, 1996, 1995 and 1994, respectively. The remaining
539,990 warrants are fully exercisable and expire on February 8, 1998.
32
<PAGE>
Commensurate with an initial public offering of common stock in
February 1993 the Company granted the lead underwriter warrants to purchase
280,000 shares of the Company's common stock at $4.95 per share. During the
years ended June 30, 1996 and 1995, 239,800 and 35,200 of these warrants were
exercised, respectively. The remaining 5,000 warrants are exercisable and will
expire on February 8, 1998, if not sooner exercised.
In connection with the Company's September 1995 private placement, the
Company issued an additional 300,000 warrants, which have an exercise price of
$27.23 and expire September 2000. As of June 30, 1996, none of these warrants
had been exercised.
7. COMMITMENTS
The Company currently leases three facilities under four separate lease
agreements. These facilities are comprised of both office and manufacturing
space. The first facility has a remaining lease period of approximately five
years, with an option to renew for an additional five years. Also associated
with this facility is a sublease agreement entered into on January 4, 1996 to
acquire an adjacent 2,000 square feet. The sublease expires on October 24, 1998.
The second facility relates to the Company's subsidiary, RCD. The lease for that
facility has an initial term of two years with three one year renewal options.
At June 30, 1996, approximately seven months remain on the original term. The
lease term for the third facility began in September 1995. The lease has an
initial term of five years with two options of two years each. Each lease and
sublease agreement provide for rental adjustments for increases in property
taxes, the consumer price index and general property maintenance.
Rent expense associated with these leases totaled $388,000, $257,000
and $240,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
Future minimum rentals as of June 30, 1996 under these leases for each of the
next five fiscal years are as follows:
June 30,
1997 $ 403,000
1998 396,000
1999 390,000
2000 390,000
2001 341,000
thereafter 195,000
-------
Total $ 2,115,000
=========
8. INCOME TAXES
The Company accounts for its income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for
Income Taxes." Under the asset and liability method of FAS 109, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. Under FAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company had no provision for income tax for the years ended June
30, 1996, 1995 and 1994, due to the reversal in 1996 of valuation allowances
recorded in prior years and the establishment of valuation allowances in 1995
and 1994. Reconciliations of expected income tax at the statutory federal rate
with actual income tax expense for the years ended June 30, 1996, 1995 and 1994
are as follows:
33
<PAGE>
1996 1995 1994
---------- ---------- -------------
Expected income tax provision
(benefit) at statutory rate
(34%).......................... $ 82,569 $ (5,805) $ (146,500)
State tax provision (benefit).... 36,585 (105,831) --
Increase (decrease) in income
tax expense resulting from:
Increase (decrease) in
valuation allowance........ (105,762) 129,112 144,600
Other........................ (13,392) (17,476) 1,900
----------- ----------- -------------
Income tax expense............... $ -- $ -- $ --
============ =========== =============
At June 30, 1996, the Company had deferred tax liabilities of
$1,012,000, deferred tax assets of $3,676,000 and a valuation allowance of
$2,664,000. The principal temporary differences included above are deferred
asset items consisting of net operating loss carryforwards of $3,290,000,
research tax credits of $157,000, compensation of $55,000, inventory of $53,000
and a deferred liability item consisting of depreciation of $1,012,000. The net
change in the valuation allowance is composed of an $106,000 decrease, reflected
in the provision for taxes, and an increase of $765,000 to offset the net
operating loss carryforwards generated by stock options exercised. The benefit
of the $765,000 valuation allowance will be credited to additional paid-in
capital when realized.
At June 30, 1995, the Company had deferred tax liabilities of $379,000,
deferred tax assets of $2,384,000 and a valuation allowance of $2,005,000. The
principal temporary differences included above are deferred asset items
consisting of net operating loss carryforwards of $2,087,000, research tax
credits of $157,000, compensation of $65,000, and a deferred liability item
nsisting of depreciation of $379,000.
The Company has net operating loss carryforwards for federal purposes
of $8,885,000 and for state purposes of $5,299,000. The carryforward expiration
period is from 2004 to 2011 for federal tax purposes and from 1997 to 2001 for
state purposes. The amount and timing of the utilization of the Company's net
operating loss carryforwards are limited under Section 382 of the Internal
Revenue Code.
9. RELATED PARTY TRANSACTIONS
Sumitomo Corporation ("Sumitomo") owns 159,996 shares of common stock
or 1.3% of outstanding shares as of June 30, 1996, 1995 and 1994. During 1996,
1995, and 1994, sales to Sumitomo totaled $1,572,000, $616,000 and $52,000.
These sales were at margins consistent with those achieved in connection with
sales of similar products to the Company's other customers. At June 30, 1996,
1995 and 1994, accounts receivable includes $515,000, $326,000 and $36,000,
respectively, related to these product revenues. During the year ended June 30,
1994 the Company was engaged in an LED development project with a company whose
chief executive was a principal stockholder of Cree. During that year Cree
recorded $57,000 in development fees related to this project.
10. ACQUISITION
In August 1994, the Company formed a North Carolina wholly-owned
subsidiary, RCD, to develop and market full color LED displays. Subsequently,
RCD acquired the net assets of Color Cells International, Ltd., a Hong-Kong
based company in this line of business, for cash consideration of $214,523
and assumption of $151,932 of liabilities. The terms of the acquisition call
for an "Earn-Out Payment" based on calculated net profits, payable half in cash
and half in Cree common stock. Earn-Out Payments are subject to certain
limitations concerning the timing (calculation based on certain eligible
shipments through September 1997) and amount (maximum payments of $1.8 million)
of any such payments. To date, no amounts have been earned or paid under this
agreement.
34
<PAGE>
The above acquisition was accounted for as a purchase transaction and
accordingly, the various assets acquired and liabilities assumed, have been
recorded at their respective fair market value as of the date of acquisition,
with the excess of the purchase price of $206,675 being recorded as goodwill.
This goodwill is being amortized over a five year period. The Company intends to
record amounts paid, if any, under the earn out provisions described above as
additional purchase consideration in the period the amount is determinable. The
results of operations of the acquired business have been included in the
consolidated statements of operations since the purchase date.
11. RETIREMENT PLAN
The Company maintains an employee benefit plan (the "Plan") pursuant to
Section 401(k) of the Internal Revenue Code. Under the Plan, there is no fixed
dollar amount of retirement benefits, and actual benefits received by employees
will depend on the amount of each employee's account balance at the time of
retirement. All employees are eligible to participate under the Plan after
completing six months of service. The Plan is not insured by the Pension Benefit
Guaranty Corporation.
The Company may, at its discretion, make contributions to the Plan.
However, the Company did not make any contributions to the Plan during the years
ended June 30, 1996, 1995 or 1994.
-35-
<PAGE>
12. LINE OF CREDIT
The Company's wholly-owned subsidiary, Real Color Displays, Inc. has
access to a revolving line of credit for borrowing availability of $600,000. The
line was renewed for a one year period in September 1995. The revolver accrues
interest at the banks prime lending rate and carries customary covenants, namely
the maintenance of a minimum tangible net worth and cash and investment
balances. The revolver primarily supports the issuance of letters of credit by
RCD. As of June 30, 1996 there were no outstanding borrowings under this
facility.
36
<PAGE>
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
The information called for in items 10 through 13 is incorporated by reference
to Cree Research, Inc.'s definitive proxy statement relating to its annual
meeting of stockholders, which will be filed with the Securities and Exchange
Commission within 120 days of the end of fiscal 1996.
37
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) Financial statements and financial statement schedule
- - the financial statements, financial statements schedule, and report of
independent accountants are filed as part of this report (see index to
Consolidated Financial Statements at Part II Item 8 on page 20 of this Form
10-K).
(a) (3) The following exhibits have been or are being filed herewith
and are numbered in accordance with Item 601 of Regulation S-K:
Exhibit
No. Description
3.1 Articles of Incorporation, as amended to date(1)
3.2 Bylaws, as amended to date(1)
10.1 Employee Stock Option Plan adopted by the Company on
August 2, 1989(1)
10.2 Amendment to the Employee Stock Option Plan by resolution
dated December 17, 1992(1)
10.12 Employment Agreement with Alan J. Robertson dated December
11, 1992(1)
10.19 Lease Agreements for Meridian Parkway facility dated
February 10, 1988, as amended from time to time through
August 25, 1992(1)
10.20 Amendments to Lease Agreements for the Meridian Parkway
facility dated April 12, 1993 and June 15, 1993(2)
10.24 License Agreement between the Company and North Carolina
State University dated December 3, 1987(1)
10.25 Amendment to License Agreement between the Company and
North Carolina State University dated September 11, 1989(1)
10.27 Memorandum Agreement among the Company, Sumitomo Corporation
of America and Shin-Etsu Handotai Co., Ltd. dated April 16,
1990(1)
10.28 Manufacturing Agreement between the Company and Marquette
Electronics, Inc. dated September 18, 1992(1)
10.29 Research Agreement and Option to License between the
Company and North Carolina State University dated September
13, 1989(1)
10.30 Agreement between General Instrument Corporation and the
Company dated June 24, 1988(1)
10.31 Letter Agreement with General Instrument Corporation dated
February 21, 1992, superseding agreement dated June 24,
1988(1)
10.33 Contract between the Company and Office of Naval Research,
Contract No. N00014-92-C-0083(1)
38
<PAGE>
10.36 Summary Plan Description for the Cree Research, Inc. 401(k)
Savings Plan(1)
10.37 Contract between the Company and the Defense Advanced
Research Projects Agency dated May 8, 1992, Contract No.
N00014-92-C- 0100(1)
10.39 Contract between the Company and the Office of Naval
Research, Contract No. N00014-93-0071(2)
10.41 Contract between the Company and NASA Lewis Research Center
Contract No. NAS3-26927(2)
10.42 Amendment to Contract No. NAS3-26927 between the Company
and NASA Lewis Research Center(2)
10.43 Agreement between the Company and Motorola, Inc. dated
September 17, 1992(2)
10.44 Contract between the Company and the Department of the Air
Force, I.D. No. F33615-93-C-1294(3)
10.45 Contract between the Company and the U.S. Air Force dated
August 9, 1994, I.D. No. F33615-94-C-2500(4)
10.46 Contract between the Company and the U.S. Office of Naval
Research dated September 30, 1994, I.D. No.
N00014-94-C-0293(4)
10.47 Contract between the Company and the U.S. Office of Naval
Research dated October 28, 1994, I.D. No N00014-95-C-0038(4)
10.48 Contract between the Company and the U.S. Advanced Research
Projects Agency dated March 15, 1995, I.D. No.
MDA972-95-C-0016(4)
10.49 Contract between the Company and U.S. Air Force dated May
25, 1995, I.D. No. F33615-95-C-5426(4)
10.50 Contract between the Company and Siemens A.G. dated October
24, 1995(5)
10.51 Contract between the Company and Purdue University,
Agreement No. 530-1360-03, subgrant under the U.S. Office of
Naval Research, grant No. N00014-95-1-1302
10.52 Contract between the Company and the U.S. Air Force dated
July 2, 1996, I.D. No, F19628-96-C-0066
10.53 Contract between the Company and Siemens A.G. dated
September 11, 1996 (6)
11.00 Computation of Per Share Earnings
21.00 Subsidiaries of Registrant (4)
23.00 Consent of Independent Accountants
27.00 Financial Data Schedule (for SEC use only)
39
<PAGE>
(1) Incorporated by reference herein. Filed as an exhibit to the Company's
Registration Statement filed on Form SB-2 and declared effective by the
Securities and Exchange Commission on February 8, 1993 and bearing
Registration #33-55998.
(2) Incorporated by reference herein. Filed as an exhibit to the Company's
annual report filed on Form 10-KSB with the Securities and Exchange
Commission on August 1, 1993.
(3) Incorporated by reference herein. Filed as an exhibit to the Company's
annual report filed on Form 10-KSB with the Securities and Exchange
Commission on August 2, 1994.
(4) Incorporated by reference herein. Filed as an exhibit to the Company's
annual report filed on Form 10-KSB with the Securities and Exchange
Commission on August 10, 1995.
(5) Incorporated by reference herein. Filed as an exhibit to the Company's
Registration Statement filed on Form S-3 (No. 33-98728) declared effective
by the Securities and Exchange Commission on December 27, 1995. Confidential
treatment of portions of this Exhibit was granted by the Securities and
Exchange Commission pursuant to Rule 24 b-2 by order dated December 29,
1995.
(6) Confidential treatment of portions of this Exhibit is being requested
pursuant to Rule 24 b-2.
(b) Reports on Form 8-K filed during the last quarter of the period covered by
this report.
None.
40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
Board of Directors and Shareholders
Cree Research, Inc.
In connection with our audits of the consolidated financial statements of Cree
Research, Inc. and subsidiary as of June 30, 1996 and 1995, and for each of the
three years in the period ended June 30, 1996, which financial statements are
included in this Form 10-K, we have also audited the financial statement
schedule listed in Item 14(a) herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Raleigh, North Carolina
August 29, 1996
-41-
<PAGE>
SCHEDULE II
CREE RESEARCH, INC.
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Allowance for Doubtful Accounts
Balance at Charged to Deductions
Years Beginning Costs and (Write-Offs Balance at End
Ended June 30, of Period Expenses Charged to Reserve) of Period
_______________________________________________________________________________
1996 $22 $203 $(175) $50
1995 $27 $ 20 $ (25) $22
1994 $42 $ 22 $ (37) $27
_______________________________________________________________________________
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CREE RESEARCH, INC.
By: s/ F. Neal Hunter
F. Neal Hunter
Date: September 30, 1996 President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
s/ F. Neal Hunter Chairman of the Board September 30, 1996
______________________________
F. Neal Hunter
s/ Alan J. Robertson Chief Financial Officer September 30, 1996
______________________________
Alan J. Robertson
s/ Calvin H. Carter, Jr., Ph.D. Director September 30, 1996
_______________________________
Calvin H. Carter, Jr., Ph.D.
s/ James E. Dykes Director September 30, 1996
______________________________
James E. Dykes
s/ Michael W. Haley Director September 30, 1996
______________________________
Michael W. Haley
s/ Walter L. Robb, Ph.D. Director September 30, 1996
______________________________
Walter L. Robb, Ph.D.
s/ Dolph W. von Arx Director September 30, 1996
______________________________
Dolph W. von Arx
s/ John W. Palmour, Ph.D. Director September 30, 1996
______________________________
John W. Palmour, Ph.D.
</TABLE>
43
<PAGE>
PURDUE UNIVERSITY
WEST LAFAYETTE, IN 47907
AMENDMENT NO. 01
AGREEMENT NO. 530-1360-03
SUBGRANT UNDER OFFICE OF NAVAL RESEARCH
GRANT NO. N00014-95-1-1302
This is an amendment to Agreement No. 530-1360-03, which carries an effective
date of September 29, 1995, between Purdue University and Cree Research, Inc.
Purdue University and Cree Research, Inc. to amend Agreement No. 530-1360-03.
This amendment will increase the subcontract by $212,487.
Total Obligated Funds under Agreement No. 530-1360-03 Changed to $421,462
Section B Period of Performance is replaced with:
The work under this Subgrant shall be performed during
the period September 29, 1995 through October 31, 1996.
Section D Consideration is replaced with:
In full consideration of the Grantee's performance
hereunder, the University shall reimburse the Grantee an
amount not to exceed a total of $421.462.
Except as provided herein, all terms and conditions remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 01.
CREE RESEARCH, INC PURDUE UNIVERSITY
By: Calvin H. Carter, Jr. /s/ By: Douglas W. Sabel /s/
------------------- ---------------------
Douglas W. Sabel
Associate Contract Administrator
Typed Name: Calvin H. Carter, Jr.
Vice President
Date: 6-12-96 Date: 5-8-96
<PAGE>
PURDUE UNIVERSITY
WEST LAFAYETTE, INDIANA 47907
AGREEMENT NO. 530-1360-03
SUBCONTRACT UNDER OFFICE OF NAVAL RESEARCH
GRANT NO. N00014-95-1-1302
Type of Contract: Cost Reimbursement
Effective Date: September 29, 1995
Subcontractor: Cree Research, Inc.
2810 Meridian Parkway, Suite 176
Durham, NC 27713
Project: "Manufacturable Power Switching Devices"
Obligated Funds: $208,975
The Subcontractor agrees to furnish and deliver all supplies to Purdue
University (hereafter referred to as University) and to perform all services set
forth in the attached Schedule for the consideration stated therein. The rights
and obligations of the parties to this Agreement shall be subject to and
governed by the Schedule and General Provisions.
Mail Invoices To: Purdue University
Office of Contract & Grant
Business Affairs
1063 Hovde Hall, Room 339
West Lafayette, IN 47907-1063
ATTN: Kathleen Poindexter
CREE RESEARCH, INC. PURDUE UNIVERSITY
BY: Calvin H. Carter, Jr. /s/ BY: Larry E. Pherson /s/
Vice President Larry E. Pherson, Director
Office of Contract and Grant
Business Affairs
DATE: 1-30-96 DATE: 11-28-95
<PAGE>
Subcontract Schedule
Section A - Statement of Work
The Subcontractor shall perform the research entitled: "Manufacturable Power
Switching Devices", in accordance with the Subcontractor's Statement of Work,
which incorporated into this agreement as Attachment A.
Section B - Period of Performance:
The work under this Agreement shall be performed during the period September 29,
1995 throuh April 30, 1996.
Section C - Deliverable Items:
Deliverables under this Subcontract, namelv, fabrications of prototype and full
size devices, shall be in accordance with the Statement of Work (Attachment A,
Page 4).
Section D - Allowable Cost and Payment:
For the performance of this Agreement, the Universitv shall pay the
Subcontractor the cost thereof determined to be allowable in accordance with the
provisions of Subpart 31.2 of the Federal Acquisition
Regulations, Defense FAR Supplement Part 231. The Agreement budget summarizes
the category of costs and is incorporated herein as Attachment B.
The Subcontractor may submit invoices to the University not more frequently than
monthly. Said invoice should state the period for which reimbursement is being
requested and should itemize the costs by budget category per the budget
summary.
In the event that any payments to the Subcontractor under this Agreement are
subsequently disallowed by the Government as items of cost of this Agreement,
the Subcontractor shall repay the University on demand the amount of any such
disallowed items or, at the discretion of the University, the University may
deduct such amounts from subsequent payments to be made to the Subcontractor
hereunder, without prejudice, however, to the Subcontractor's right thereafter
to establish the allowability of any such item of cost under the Agreement.
Section E - Pre-Contract Costs
In accordance with FAR 31.205-32, all costs which have been incurred by the
Subcontractor up to ninety (90) days prior to the effective date of this
Agreement, where their incurrence is necessary to comply with the proposed
schedule, will be considered allowable costs. However, these costs will be
allowable only to the extent that they would have been allowable if incurred
after the start date of the project under this Agreement, and only to a maximum
of $208,975 through the date of the Subcontract award.
Any pre-contract costs are made at the Subcontractor's own risk. Should these
pre-contract costs be disallowed for any reason, such costs incurred shall be
the sole responsibility of the Subcontractor and will not be used as the basis
of a claim against or construed as an obligation of the University or the
Government.
Section F - Consideration:
This Subcontract is incrementally and contingent upon the availability of funds.
No liability on the part of the University or the Government beyond the
obligated funds in this Subcontract exists unless and until funds are made
available to the Subcontractor through written amendment to the Subcontract. In
full consideration of the Subcontractor's performance described hereunder, the
University shall reimburse the Subcontractor an amount not to exceed $208,975.
Section G - Publication:
All publications must cite the source of support (i.e., Office of Naval Research
funds through the University and shall indicate that the findings, opinions and
recommendations expressed therein are those of the author and not necessarily
those of Purdue University or the Government. A copy of all proposed
publications shall be submitted to the University's Principal Investigator.
The Subcontractor may not use the mm of the University or the Office of Naval
Research in news releases or advertising or in other publications directed to
the general public without the written approval of the University.
Section H - Audit:
Notwithstanding any other conditions of this Agreement, the books and records of
the Subcontractor hereunder will be n" available upon request, at the
Subcontractor's regular place of business, for audit by the Federal Government.
Additionally, the books and records must be retained for a period of three (3)
years following final payment.
Section I - Principal Investigator:
The University's Principal Investigator is Dr. James A. Cooper, Jr. Dr. Cooper
is not authorized to change any element of this Agreement. All changes shall be
consummated by formal written amendment.
The Subcontractor's Principal Investigator is Dr. John W. Palmour, who is
responsible for the conduct of the work contemplated by the Subcontractor.
Should Dr. Palmour become unavailable, the Subcontractor shall propose a
substitute investigator for approval by the University
Section J - Indemnity:
The Subcontractor and its employees engaged in performance under this Agreement
shall at all times be deemed to be performing as independent contractors and not
as agents or employees of the University, and the negligent acts and omissions
of such employees shall be deemed to be those of the Subcontractor.
The Subcontractor shall indemnify and hold harmless the University and its
employees from and against any and all losses, claims, demands, judgments, costs
and expenses of every nature and kind arising out of or incidental to or in any
way resulting from negligent acts and omissions of the Subcontractor or the
Subcontractor's employees while acting within the scope of their employment-
Section K - Order of Precedence:
In the event of any inconsistencies in this Agreement, unless otherwise provided
herein, shall be resolved by giving precedence in the following order:
1. The Schedule (Section A through Section K)
2. General Provisions (Section L)
Section L - General Provisions:
This Agreement will be administered in accordance with the terms and conditions,
as applicable to the Subcontractor, set forth in Attachment C.
Section M - Alterations in this Contract:
The terms "Contracting Officer" and "Government" as used throughout this
Agreement shall for the purpose of this Agreement mean "Purdue University", with
the exception of Clauses 14 and 15 of the General Provisions, Attachment C. In
these cases, the clauses shall retain their original language and meaning.
Section N - Communication:
PURDUE UNIVERSITY
Technical Matters: Contractual Matters:
Dr. James A. Cooper, Jr. Kathleen Poindexter
Department of Electrical Assistant Project Administrator
and Computer Engineering OCGBA
1285 Electrical Engineering Bldg. 1063 Hovde Hall
Purdue University Purdue University
West Lafayette, IN 47907-1285 West Lafayette, IN 47907-1063
Phone: (317) 494-3514 Phone: (317) 494-1078
Fax: (317) 494-1360
CREE RESEARCH, INC.
Technical Matters: Contractual Matters:
Dr. John W. Palmour Mr. Calvin H. Carter, Jr.
PI-Senior Scientist Vice President, New Product Development
Cree Research, Inc. Cree Research, Inc.
2810 Meredian Pkwy. 2810 Meredian Pkwy.
Durham, NC 27713 Durham, NC 27713
Phone: (919) 361-5709 Phone: (919) 361-5709
Fax: (919) 361-4630 Fax: (919) 361-4630
<PAGE>
ATTACHMENT A
A Proposal to the
PURDUE RESEARCH FOUNDATION
1021 HOVDE HALL
West Layfayette. IN 47907- 1021
entitled
MANUFACTURABLE POWER SWITCHING DEVICES
Base Project Price: $857,988
Price of Option: $589.898
Period of Performance
Base Program: September 30, 1995 to September 29, 1998
Option Program: September 30, 1998 to September 29, 2000
Submitted by
Cree Research, Inc.
2810 Meridian Parkway, Suite 176
Durham, North Carolina 27713
John W. Palmour /s/ Calvin H. Carter, Jr. /s/
Dr. John W. Palmour Dr. Calvin H. Carter, Jr.
PI-Senior Scientist Vice President
"This data shall not he disclosed outside the Government and Shall not be
duplicated, used or disclosed--in whole or in part.-for any purpose other than
to evaluate the proposal; provided that if a contract is awarded to this offerer
as a result of or in connection with the submission of this data. the government
shall have 'he right to duplicate, use or disclose the data to the extent
provided by the contract. This restriction does not limit the government's right
to use information contained in the data if it is obtained from another source
without restriction. The data subject to this restriction is contained on all
pages of the technical proposal."
<PAGE>
Summary
Silicon carbide has been projected to have tremendous potential for high
voltage solid-state power devices with very high voltage and current ratings
because of its electrical and physical properties. The rapid development of the
technology for producing high quality single crystal SiC wafers and thin films
presents the opportunity to fabricate solid-state devices with power-temperature
capability far greater than devices currently available. This capability is
ideally suited to the application of power conditioning on new more-electric or
all-electric defense systems, turbine engine actuators, and space-based power
systems. These applications require switches and amplifiers capable of large
currents with relatively low voltage drops. The potential for improved
performance is indicated by the SiC material characteristics. For example, the
breakdown characteristics of a semiconductor are very important in determining
the safe operating area (SOA) of a power device fabricated from that material.
The measured electric breakdown field for SiC is in the range of 2-4x10 to the
6th power V/cm depending on the doping range, (reference 1) and is about 8-10
times higher than that of Si. This indicates that devices fabricated from SiC
should be capable of supporting large DC and AC voltages. This permits the
devices to amplify and switch large power levels.
The requirement that a power device must be able to dissipate a
significant amount of power indicates that the thermal characteristics of the
semiconductor are also of fundamental importance. The thermal conductivity of
SiC is 4.9 W/(degree)'C-cm at 27(degrees)'C which is greater than that of any
metal.(reference 2) The high value of thermal conductivity for SiC allows
dissipated energy to be readily extracted from the device. This. in turn. allows
a corresponding increase in power to be applied to the device for a given
allowed junction temperature. An additional advantage offered by SiC is the
allowed magnitude of channel temperature. Devices fabricated from SiC have been
operated at temperatures in the range of 400-650(degrees)'C, whereas Si devices
can be operated to only about 175(degrees)C without severe degradation in the
device characteristics. Thus. not only would a SiC power device have better
thermal characteristics than a Si device, it would also have a higher rated
junction temperature. The high temperature capability of SiC power devices
provides two distinct and powerful advantages for use in defense applications.
The first advantage is that it allows electric control in aggressive
environments, such as turbine engines, that were previously problematic or even
impossible. Secondly, a large amount of power can be pulsed through the device
without exceeding the rated junction temperature. A high operating temperature
also allows much smaller heat sinks to be used for these devices.
Of the numerous SiC polytypes, 4H-SiC shows the best potential for
high power and high frequency operation because the electron mobility in 4H-SiC
is almost double that of 6H-SiC, with measured mobilities as high as 1050 cm (to
the 2nd power) fV-sec. Moreover. 6H-SiC exhibits a high degree of mobility
anisotropy, having a mobility in the (000 1) direction that is 1/5th that in the
basal plane, (reference 3) yielding a lOx advantage for 4H-SiC over 6H-SiC for
vertical power devices. The wider bandgap of 4H-SiC (3.26 eV) should also allow
even higher reliability and lower leakage currents at high temperature.
Therefore, a strong emphasis has been placed on developing 4H-SiC at Cree for
both the high power and high frequency applications. Cree Research has recently
demonstrated high quality 30 mm diameter 4H-SiC substrates and has also
developed and characterized the epitaxial growth of 4H-SiC on these substrates.
Likewise, Cree has been developing SiC power devices and has now
demonstrated several types of device structures fabricated in 4H-SiC. High
voltage rectifiers (reference 4) and power switches such as power MOSFETs and
thyristors have shown desirable characteristics, (reference 5) further
confirming the potential of this material. The vertical power MOSFETs and
thyristors have been demonstrated at both room temperature and high
temperatures. All of these devices had relatively small active areas in order to
avoid micropipe defects (about 100 cm(to the negative 2nd power)), but show
promise for much larger power devices as the material quality is improved.
The voltage drop resulting from the on-state resistance is one of the
most important parameters of a power switch, as it determines the amount of
dissipated energy due to Joule heating. The much higher breakdown electric field
of SiC should also allow SiC power devices to have much thinner drift regions
than a Si device with an equivalent voltage rating. Since the majority of the
on-resistance in a unipolar device, such as a power MOSFET, is due to the
resistance of the drain-drift region. the ability of SiC to have about one
eighth of the drain-drift region thickness is very significant. In fact. a SiC
power MOSFET theoretically should have a much lower specific R than an
equivalent Si device. despite the lower electron mobility of SiC. Two authors
have published figure of merit studies that predict the superiority of SiC over
Si for power applications based on this comparison.(references 6 and 7) The
latter of these has predicted that high voltage SiC unipolar devices can have a
specific on-resistance that is 1/200th that of an equivalent Si device!
One advantage of the unipolar switching. devices such as MOFSETS,
JFETS, or Static Induction Transistors (SITs), is that the voltage drop can be
kept very low (less than 2 V) because there is no pn junction built-in potential
to overcome. However, the major disadvantage of these devices is that their
current densities are relatively low because there is no minority carrier
current. Typical high voltage (greater than 600 V) Si power MOSFET current
densities are in the range of 30-50 A/cm (to the 2nd power). The SiC power
MOFSETs discussed above were typically in the range of 100-200 A/cm (to the 2nd
power). Cree will develop improved 4H-SiC MOSFETs as part of this program.
Although bipolar power devices such as thvristors, insulated gate
bipolar transistors (IGBTs), and MOS-controlled thyristors (MCTS) must have a
voltage drop higher than the built-in voltage of a diode, the current densities
above this voltage can be much higher than for unipolar devices because of their
minority carrier current. Typical Si IGBT current ratings are in the range of
200-300 A/cm (to the 2nd power) and Si thyristors are generally above 1000 A/cm
(to the 2nd power). Cree's SiC thyristor current densicv was I 000 A/cm (to the
2nd power) with a voltage drop of 4.0 V.
Therefore, if the combination of high voltage and high current is
desired. bipolar devices are typically required. In particular. Si IGBTs and
MCTs are beginning to dominate the market in this arena. Because of the
relatively small wafer size and the higher cost of SiC material. the issue of
obtaining very high current densities will become even more important. A higher
current density device will translate into a much smaller., higher yield, less
expensive device. It is anticipated by Cree that a high voltage bipolar SiC
device will have 10 times higher current density than a unipolar device and that
the price will be less than one tenth that of an equivalently rated unipolar
device.
As naval systems move closer to more-electric or all-electric motor
controls and power distribution, in which very high voltage - high current
devices are typically desired, then the choice of which material and type of
device becomes critical. It is now generally accepted that SiC devices
theoretically have tremendous potential over Si devices not only because of
their high temperature / high reliability characteristics, but because of their
potential to have much smaller, more efficient parts, which can in turn make
them very cost competitive. For high current applications it is also apparent
that a bipolar device would be the most cost efficient for the reasons discussed
above. The final question is which type of bipolar switching device would be the
optimal device for SiC. The objective of the proposed program is to design,
fabricate and evaluate various types of 4H-SiC power devices.
REFERENCES
1. J.A. Edmond, D.G. Waltz, S. Brueckner. H.S. Kong, I.W. Palmour, and C.H.
Carter. Jr., Proceedings of the First International High Temperature
Electronics Conference, D.B. King and F.V. Theme, eds., (Sandia National
Labs, Albuquerque, 1991), p. 500.
2 . G.A. Slack, J. Phvs. Chem. Solids, 34, 321 (1973).
3. W. J. Schaffer, G.H. Negley, K.G. Irvine, and J.W. Palmour, Diamond, SiC,
and Nitride Wide- Bandgap Semiconductors, C.H. Carter, Jr., G. Gildenblatt,
S. Nakamura, and R.J. Nemanich, eds., Mater Res Soc Proc 339, (MRS,
Pittsburgh, PA, 1994) p. 595.
4. J.W. Palmour, J.A. Edmond. H.S. Kong and C.H. Carter, Jr, in Silicon
Carbide and Related Materials, M.G. Spencer, R.P. Devatv, J.A. Edmond. M.A.
Khan, R. Kaplan, and M. Rahman, eds, Inst. of Phys. Conf. Series 137. (IOP,
Bristol, 1993) pp 499-502.
5 . J.W. Palmour, V.F. Tsverkov, L.A. Lipkin, and C.H. Carter, Jr., Inst.
Phys. Conf. Ser. No 141, H- Gioronkin and U. Mishra, eds., (IOP Publishing.
Philadelphia, PA, 1995) pp. 377-382.
6. K. Shenai, R.S. Scott, and B.J. Baliga, IEEE Trans. Electron Devices, 36,
1811 (1989).
7. B.J. Baliga, IEEE Trans. Electron Devices Lett., EDL-10, 455 (1989).
STATEMENT OF WORK
<TABLE>
<CAPTION>
3 Year Base Program
Contract Months
<S> <C>
1) Study defect limiting minority carrier lifetime in SiC for bipolar devices. 1-36
2) Fabricate prototype SiC MOSFETS. 1-24
3) Fabricate full-size SiC MOSFETS. 18-36
4) Fabricate prototype SiC thyristors and/or IGBTS. 12-36
5) Fabricate full-size SiC thvristors and/or IGBTS. 24-36
Years 4 and 5 Option Program
1) Fabricate full-size SiC MOSFETS. 36-60
2) Fabricate prototype SiC thvristors and/or IGBTS. 36-42
3) Fabricate full-size SiC thyristors and/or IGBTS. 36-60
</TABLE>
<PAGE>
COST PROPOSAL (REVISED RATES 8/17/95)
Name of Offeror: Cree Research, Incorporated
2810 Meridian Pkwy, Suite 176
Durham, NC 27713
Title of proposed effort: MANUFACTURABLE POWER SWITCHING DEVICES
Total Base Contract Cost: $977,058 Cost of Base to Government: $857,988
Cost of Option to Govt: $589,899
<TABLE>
<CAPTION>
DETAILED DESCRIPTION OF COST ELEMENTS Year 1 Year 2 Year 3 Year 4 Option Year 5 Option
<S> <C> <C> <C> <C> <C>
1. Clean Room Processing
$50,000 $50,000 $50,000 $50,000 $50,000
2. Package & Test Department Costs
Direct Labor 1.04 x Yr 1 Rate 1.04 x Yr 2 Rate 1.04 x Yr 3 Rate 1.04 x Yr 4 Rate
P & T Technicians $11.25 Hours 200 200 300 300 300
$2,250 $2,340 $3,650 $3,796 $3,948
Total P & T Labor $2,250 $2,340 $3,650 $3,796 $3,948
P & T Fringe Benefit Cost 28.33% x Base = $637 $663 $1,034 $1,075 $1,118
P & T Overhead 154.40% x Base = $3,474 $3,613 $5,636 $5,861 $6,096
Total P & T Department Costs $6,361 $6,616 $10,320 $10,732 $11,162
3. Mfg. Admin. Expenses = Total Direct Costs x 15.01% $8,460 $8,498 $9,054 $9,116 $9,180
Total Mfg. Direct Costs + Mfg. Overhead = $64,821 $65,114 $69,374 $69,848 $70,342
4. R&D Department Costs
R&D Labor Rate/Hour 1.04 x Yr. 1 Rate 1.04 x Yr 2 Rate 1.04 x Yr 3 Rate 1.04 x Yr 4 Rate
Pl- John W. Palmour $47.12 Hours 200 200 200 200 200
9,424 $9,801 $10,193 $10,601 $11,025
Pm- Calvin H. Carter, Jr. $50.48 Hours 200 200 200 100 100
$10,096 $10,500 $10,920 $5,678 $5,905
Ranbir Singh $31.25 Hours 1,000 1,000 1,000 1,000 1,000
$31,250 $32,500 $33,800 $35,152 $36,558
Doug Waltz 32.24 Hours 200 200 300 300 300
$6,448 $6,706 $10,461 $10,880 $11,315
Total R&D Labor $57,218 $59,507 $65,374 $62,311 $64,803
R&D Fringe & Occupancy 28.33% x Base = $16,210 $16,858 $18,520 $17,653 $18,359
R&D Overhead 29.78% x Base = $17,040 $17,721 $19,468 $18,556 $19,298
Total R&D Department Costs $90,468 $94,086 $103,362 $98,520 $102,460
5. Services
Ion Implantation $4,400 $4,400 $4,400 $4,400 $4,400
Poly Si Deposition $9,000 $9,000 $9,000 $9,000 $9,000
Deposited Oxide $10,000 $10,000 $10,000 $10,000 $10,000
Total Services $23,400 $23,400 $23,400 $23,400 $23,400
6. Supplies and Materials
a. SiC Wafers w/Epi (Catalog Pricing) $79,380 $79,380 $79,380 $79,380 $79,380
b. Photomasks $10,000 $10,000 $10,000 $10,000 $10,000
Total Supplies and Materials $89,380 $89,380 $89,380 $89,380 $89,380
7. Travel $7,594 $12,254 $7,594 $12,254 $7,594
Total Direct Cost and Overhead $275,663 $284,234 $293,110 $293,402 $293,176
8. G&A Expense = Total Cost Input x 12.13% $33,438 $34,478 $35,554 $35,590 $35,562
SUBTOTAL $309,101 $318,712 $328,664 $328,992 $328,738
9. Facilities Capital Cost of Money = $6,551 $7,091 $6,939 $6,176 $5,372
TOTAL YEARLY COST $315,652 $325,803 $335,603 $335,168 $334,110
LESS COST SHARE $36,690 $36,690 $36,690 $36,690 $36,690
COST TO GOVERNMENT $275,962 $286,113 $295,913 $295,478 $294,420
Funded: 9/29/95 - 4/30/96 $208,975
</TABLE>
<PAGE>
ATTACHMENT C
GENERAL PROVISIONS
CLAUSES INCORPORATED BY REFERENCE (FAR 52.252-2) (JUN 1988)
This contract incorporates the following clauses, and any updates or revisions
thereto, by reference with the same force and effect as if they were given in
full text. Upon request, the Contracting Officer will make their full text
available.
a. FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSES
1. 52.202-1 Definitions. . . . . . . . . . . . . . . . . . (SEP 1991)
2. 52.203-1 Officials Not to Benefit. . . . . . . . . . . .(APR 1984)
3. 52.203-3 Gratuities. . . . . . . . . . . . . . . . . . .(APR 1984)
4. 52.203-5 Covenant Against Contingent Fees. . . . . . . .(APR 1984)
5. 52.203-6 Restrictions on Subcontractor Sales to the
Government . . . . . . .. . . . . . . . . . . (JUL 1985)
6. 52.203-7 Anti-Kickback Procedures . . . . . . . . . (OCT 1988)
7. 52-203-10 Price or Fee Adjustment for Illegal or Improper
Activity . . . . . .. . . . . . . . . . . (SEP 1990)
8. 52.203-12 Limitation on Payments to Influence Certain Federal
Transactions . . . . . . . . . . . . . . . . (JAN 1990)
9. 52-203-8 Requirement for Certification of Procurement
Integrity . . . . . . . . . . . . . . . . . (NOV 1990)
*10. 52.204-2 Security Requirements . . . . . . . . . . . (APR 1994)
11. 52.209-6 Protecting the Government's Interest when
Subcontracting with Contractors barred, Suspended,
or Proposed for Debarrment . . . . . . . . (NOV 1992)
*12. 52.212-8 Defense Priority Allocation Requirements . . (SEP 1990)
13. 52.212-13 Stop Work Order (Negotiation Acquisition) . . (AUG 1989)
14. 52.215-1 Examination of Records by Comptroller
General . . . . . . . . . . . . . . . . . . (FEB 1993)
15. 52.215-2 Audit - Negotiation . . . . . . . . . . . . (FEB 2993)
16. 52.215-22 Price Reduction for Defective Cost or Pricing
Data . . . . . . . . . . . . . . . . . . . . (JAN 1991)
17. 52.215-24 Subcontractor Cost or Pricing Data . . . . . (DEC 1991)
18. 52.215-26 Integrity of Unit Prices . . . . . . . . . . (APR 1991)
19. 52.215-27 Termination of Deferred Benefit Pension
Plan . . . . . . . . . . . . . . . . . . . . (SEP 1989)
20. 52.215-30 Facilities Capital Cost of Money . . . . . . . (SEP 1987)
*21. 52.215-31 Waiver of Facilities Capital Cost of Money . . (SEP 1987)
22. 52.215-33 Order of Precedence . . . . . . . . . . . . . (JAN 1986)
23. 52.216-7 Allowable Cost and Payment . . . . . . . . . . (JUL 1991)
*24. 52.216-8 Fixed Fee . . . . . . . . .. . . . . . . . . (APR 1984)
25. 52.217-9 Option to Extend the Term of the Contract - Services
"60 months" . . . . .. . . . . . . . . . . . (MAR 1989)
26. 52.219-8 Utilization of Small Business Concerns and
Small Disadvantaged Business Concern . . . . (FEB 1990)
*27. 52.219-9 Small Business and Small Disadvantaged Business
Subcontracting Plan . .. . . . . . . . . . . (JAN 1991)
*28. 52.219-13 Utilization of Women-Owned Small Businesses . .(AUG 1986)
*29. 52.219-16 Liquidated Damages - Small Business Subcontracting
Plan . . . . . . . . . . . . . . . . . . . (JAN 1991)
*30. 52.220-3 Utilization of Labor Surplus Area Concerns . . (APR 1984)
*31. 52.220-4 Labor Surplus Area Subcontracting Program . . .(APR 1984)
32. 52.222-1 Notice to the Government of Labor Disputes. . .(APR 1984)
*33. 52.222-2 Payment for Overtime Premiums "30" . . . . (JUL 1990)
*34. 52.222-3 Convict Labor . . . . . . . . . . . . . . . (APR 1984)
35. 52.222-26 Equal Opportunity . . . . . . . . . . . . . (APR 1984)
*36. 52.222-28 Equal Opportunity Preaward Clearance of
Subcontracts . . .. . . . . . . . . . . . . (APR 1984)
*37. 52.222-29 Notification of Visa Denial . .. . . . . . . (APR 1984)
38. 52.222-35 Affirmative Action for Special Disabled and Vietnam
Era Veterans . . . . . . . . . . . . . . . (APR 1984)
39. 52.222-36 Affirmative Action for Handicapped Workers . . (APR 1984)
40. 52.222-37 Employment Reports on Special Disabled Veterans
and Veterans of the Vietnam Era . . . . . . . (JAN 1988)
41. 52.223-2 Clean Air and Water . . . . . . . . . . . . . (APR 1984)
42. 52.223-6 Drug-Free Workplace . . . . . . . . . . . . (JUL 1990)
43. 52.224-1 Privacy Act Notification . . . . . . . . . . (APR 1984)
*44. 52.224-2 Privacy Act . . . . . . . . . . . . . . . . (APR 1984)
*45. 52.225-13 Restrictions on Contracting with Sanctioned
Persons . . . . . . . . . . . . . . . . . . (APR 1991)
46. 52.227-1 Authorization and Consent. . . . . . . . . . (APR 1984)
Alternate I . . . . . . . . . . . . . . . . (APR 1984)
47. 52.227-2 Notice and Assistance Regarding Patent and Copyright
Infringement . . . . . . . . . . . . . . . (APR 1984)
48. 52.227-11 Patent Rights - Retention by the Contractor
(Short Form) . . . . . . . . . . . . . . . (JUN 1989)
*49. 52.227-12 Patent Rights - Retention by the Contractor
(Long Form) . . . . . . . . . . . . . . . . (JUN 1989)
*50. 52.228-6 Insurance - Immunity from Tort Liability . . . (APR 1984)
51. 52.228-7 Insurance - Liability to Third Persons . . . (APR 1984)
52. 52.230-2 Cost Accounting Standards . . . . . . . . . . (AUG 1992)
53. 52.230-3 Disclosure and Consistency of Cost Accounting
Practices . . . . . . . . . . . . . . . . . (AUG 1992)
54. 52.230-5 Administration of Cost Accounting Standards . .(AUG 1992)
55. 52.232-8 Discounts for Prompt Payment . . . . . . . . . (APR 1989)
56. 52.232-9 Limitation on Withholding of Payments . . . . (APR 1984)
57. 52.232-17 Interest . . . . . . . . . . . . . . . . . . . (JAN 1991)
58. 52.232-18 Availability of Funds . . . . . . . . . . . . .(APR 1984)
59. 52.232-22 Limitation of Funds . . . . . . . . . . . . . .(APR 1984)
60. 52.232-23 Assignment of Claims . . . . . . . . . . . . . (JAN 1986)
61. 52.232-25 Prompt Payment . . . . . . . . . . . . . . . . (MAR 1994)
62. 52.232-28 Electronic Funds Transfer Payment Methods (When
available) . . . . . . . . . . . . . . . . . (APR 1989)
63. 52.233-1 Disputes . . . . . . . . . . . . . . . . . . (MAR 1994)
64. 52.233-3 Protest After Award .. . . . . . . . . . . . (AUG 1989)
Alternate I . . . . . . . . . . . . . . . . . (JUN 1985)
65. 52.242-1 Notice of Intent to Disallow Costs . . . . (APR 1984)
66. 52.243-2 Changes - Cost Reimbursement . . . . . . . . (AUG 1987)
Alternate V . . . . . . . . . . . . . .. . . (APR 1984)
*67. 52.243-7 Notification of Changes . . . . . . . .. . . (APR 1984)
68. 52.244-2 Subcontracts (Cost Reimbursement and Letter
Contracts . . . . . . . . . . . . . . . . . . (FEB 1995)
Alternate I . . . . . . . . . . . . . . . .. (APR 1985)
69. 52.244-5 Competition in Subcontracting . . . . . . . (APR 1984)
70. 52.245-5 Government Property (Cost Reimbursement, Time and
Material or Labor-Hour Contracts) . . . . . (JAN 1986)
71. 52.246-25 Limitation of Liability - Services . . . . . (APR 1984)
*72. 52.247-1 Commercial Bill of Lading Notations (F.O.B.
Destination) . . . . . . . . . . . . . . . . .(APR 1984)
73. 52.249-6 Termination (Cost Reimbursement) . . . . . . . (MAY 1986)
74. 52.249-14 Excusable Delays . . . . . . . . . . . . . . (APR 1984)
75. 52.251-1 Government Supply Sources . . . . . . . .. . (APR 1984)
b. DEPARTMENT OF DEFENSE FAR SUPPLEMENT (48 CFR CHAPTER 2) CLAUSES
1. 252.203-7000 Statutory Prohibitions on Compensation to Former
Department of Defense Employees . . . . . . . (DEC 1991)
2. 252.203-7001 Special Prohibitions on Employment . . . . . . (APR 1993)
3. 252.203-7002 Display of DOD Hotline Poster . . . . . . . . (DEC 1991)
4. 252.205-7000 Provision of Information to Cooperative Agreement
Holders . . . . . . . . . . . . . . . . . . . (DEC 1991)
5. 252.209-7000 Acquisitions from Subcontractors Subject to On-Site
Inspection Under the Intermediate . . . . . . . . . . .
Range Nuclear Forces (INF) Treaty . . .. . . . (DEC 1991)
6. 252.215-7000 Pricing Adjustments . . . . . . . . . . . . . (DEC 1991)
7. 252.215-7002 Cost Estimating System Requirements . .. . . (DEC 1991)
*8. 252.219-7003 Small Business and Small Disadvantaged Business
Subcontracting Plan (DOD Contracts) . . . . (DEC 1991)
*9. 252.219-7005 Incentive Program for Subcontracting with Small and
Small Disadvantaged Business . . . . . . . . . . . . . .
Concerns. Historically Black Colleges and Universities
and Minority Institutions . . . . . . . . . (APR 1990)
*10. 252.223-7005 Drug-Free Workforce . . . . . . . . . . . . . (SEP 1988)
11. 252.225-7026 Reporting of Overseas Subcontracts . . . . . . (MAY 1995)
12. 252.227-7013 Rights in Technical Data - Noncommercial
Items . . . . . . . . . . . . . . . . . . . (JUN 1995)
*13. 252.227-7018 Rights in Noncommercial Technical Data and Computer
Software - Small Business . . . . . . . . . . . . . . .
Innovative Research (SBIR) Program . . . .. . .(JUN 1995)
14. 252.227-7019 Validation of Asserted Restrictions - Computer
Software . . . . . . . . . . . . . . . . . . (JUN 1995)
15. 252.227-7028 Technical Data or Computer Software Previously Delivered
to the Government . . . . . . . . . . . . . (JUN 1995)
16. 252.227-7030 Technical Data - Withholding of Payment . . . (OCT 1988)
17. 252.227-7036 Certification of Technical Data Conformity . . (MAY 1987)
18. 252.227-7037 Validation of Restrictive Markings on Technical
Data . . . . . . . . . . . . . . . . . . . . (JUN 1995)
19. 252.231-7000 Supplemental Cost Principles . . . . . . . . . (DEC 1991)
20. 252.231-7001 Penalties for Unallowable Costs .. . . . . . . (DEC 1991)
21. 252.233-7000 Certification of Claims and Requests for Adjustment
or Relief . . . . . . . . . . . . . . . . . . (MAY 1994)
22. 252.242-7001 Certification of Indirect Costs . . . . . . .. (DEC 1991)
23. 252.246-7001 Warranty of Data . . . . . . . . . . . . . . . (DEC 1991)
(*) Deleted
<PAGE>
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY (NOV 1990)
ALTERNATE I - (SEP 1990)
NOTE: The offeror is required to execute and forward this certificate with
submission of its proposal. If Best and Final Offer (BAFO) are requested, the
offeror will be required to submit an updated certificate with the submission
of its BAFO.
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY (NOV 1990)
ALTERNATE I - (SEP 1990)
a. Definitions. The definitions at FAR 3.104-4 are hereby incorporated in
this provision.
b. Certifications. As required in paragraph (c) of this provision, the officer
or employee responsible for this offer shall execute the
following certification:
CERTIFICATE OF PROCUREMENT INTEGRITY
(1) I, Calvin H. Carter, Jr., (Name of Offeror), am the officer or employee
responsible for the preparation of this offer and hereby certify that, to the
best of my knowledge and belief, with the exception of any information described
in this certificate, I have no information concerning a violation or possible
violation of subsection 27(a), (b), (d), or (f) of the Office of Federal
Procurement Policy Act as amended(*) (41 U.S.C. 423), (hereinafter referred to
as "the Act"), as implemented in the FAR, occurring during the conduct of this
procurement (solicitation number).
(2) As required by subsection 27(e)(1)(B) of the Act, I further certify
that, to the best of my knowledge and belief, each officer, employee, agent,
representative, and consultant of Cree Research, Inc., (Name of Offeror) who has
participated personally and substantially in the preparation or submission of
this offer has certified that he or she is familiar with, and will comply with,
the requirements of subsection 27(a) of the Act, as implemented in the FAR, and
will report immediately to me any information concerning a violation or possible
violation of subsections 27(a), (b), (d) or (f) of the Act, as implemented in
the FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity (Continuation Sheet),
ENTER NONE IF NONE EXISTS) [NONE]
(4) I agree that, if awarded a contract under this solicitation, the
certifications required by subsection 27(e)(1)(B) of the Act shall be maintained
in accordance with paragraph (f) of this provision.
SIGNATURE: /s/ Calvin H. Carter, Jr.
TYPED NAME: Calvin H. Carter, Jr.
DATE: 1-30-96
*Subsections 27(a), (b), and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
<PAGE>
CERTIFICATION REGARDING LOBBYING; DEBARMENT, SUSPENSION AND OTHER
RESPONSIBILITY MATTERS; AND DRUG-FREE WORKPLACE REQUIREMENTS
Applicants should refer to the regulations cited below to determine the
certification to which they are required to attest. Applicants should also
review the instructions for certification included in the regulations before
completing this form. Signature of this form provides for compliance with
certification requirements under 34 CFR Part 42, "New Restrictions on Lobbying,"
and 34 CFR Part 85, "Government-wide Debarment and Suspension (Nonprocurement)
and Government-wide Requirements for Drug-Free Workplace (Grants)." The
certification shall be treated as a material representation of fact upon which
reliance will be placed when the Department of Defense determines to award the
covered transaction, grant, or cooperative agreement.
1. LOBBYING
The undersigned certifies, to the best of his or her knowledge and belief, that:
(1) No Federal appropriated funds have been paid or will be paid, by or on
behalf of the undersigned, to any person for influencing or attempting to
influence an officer or employee of any agency, a Member of Congress, an officer
or employee of Congress, or an employee of a Member of Congress in connection
with the awarding of any Federal contract, the making of any federal grant, the
making of any Federal loan, the entering into of any cooperative agreement, and
the extension, continuation, renewal, amendment, or modification of any Federal
contract, grant, loan, or cooperative agreement.
(2) If any funds other than Federal appropriated funds have been paid or will be
paid to any person for influencing or attempting to influence an officer or
employee of any agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection with this Federal
contract, grant, loan, or cooperative agreement, the undersigned shall complete
and submit Standard Form L11, "Disclosure Form to Report Lobbying," in
accordance with its instructions.
(3) The undersigned shall require that the languahg4e of this certification be
included in the award documents for all subawards at all times (including
subcontracts, subgrants, and contracts under grants, loans, and cooperative
agreements) and that all subrecipients shall certify and disclose accordingly.
This certification is a material representation of fact upon which reliance was
placed when this transaction was made or entered into. Submission of this
certification is a prerequisite for making or entering into this transaction
imposed by section 1352, title 31, U.S. Code. Any person who fails to file the
required certification shall be subject to a civil penalty of not less than
$10,000 and not more than $100,000 for each such failure.
2. DEBARMENT, SUSPENSION, AND OTHER RESPONSIBILITY MATTERS
(1) The prospective primary participant certifies to the best of its knowledge
and belief, that it and its principals:
(a) Are not presently debarred, suspended, proposed for debarment,
declared ineligible, or voluntarily excluded from covered transactions by any
Federal department or agency;
(b) Have not within a three-year period preceding this proposal been
convicted of or had a civil judgment rendered against them for commission of
fraud or a criminal offense in connection with obtaining, attempting to obtain,
or performing a public (federal, State or local) transaction or contract under a
public transaction; violation of Federal or State antitrust statutes or
commission of embezzlement, theft, forgery, bribery, falsification or
destruction of records, making false statements, or receiving stolen property;
[c] Are not presently indicted for or otherwise criminally or civilly
charged by a governmental entity (Federal, State or local) with commission of
any of the offenses enumerated in paragraph (1)(b) of this certification; and
(d) Have not within a three-year period preceding this
application/proposal had one or more public transactions (Federal, State or
local) terminated for cause or default.
(2) Where the prospective primary participant is unable to certify to any of the
statements in this certification, such prospective participant shall attach an
explanation to this proposal.
3. DRUG-FREE WORKPLACE
This certification is required by the Drug-Free Workplace Act of 1988 (Pub. L.
100-690, Title V, Subtitle D) and is implemented through additions to the
Debarment and Suspension regulations published in the Federal Register on
January 31, 1989, and May 25, 1990.
ALTERNATE 1
(GRANTERS OTHER THAN INDIVIDUALS)
(1) The grantee certifies that it will or will continue to provide a drug-free
workplace by:
(a) Publishing a statement notifying employees that the unlawful
manufacture, distribution, dispensing, possession, or use of a controlled
substance is prohibited in the grantee's workplace and specifying the actions
that will be taken against employees for violation of such prohibition;
(b) Establishing an ongoing drug-free awareness program to inform
employees about:
(1) The dangers of drug abuse in the workplace;
(2) The grantee's policy of maintaining a drug-free workplace;
(3) Any available drug counseling, rehabilitation, and employee
assistance programs; and
(4) The penalties that may be imposed upon employees for drug
abuse violations occurring in the workplace;
[c] Making it a requirement that each employee to be engaged in the
performance of the grant be given a copy of the statement required by paragraph
(a);
(d) Notifying the employee in the statement required by paragraph (a)
that, as a condition of employment under the grant, the employee will:
(1) Abide by the terms of the statement; and
(2) Notify the employer in writing of his or her conviction
for a violation of a criminal drug statute occurring the workplace not later
than five calendar days after such conviction;
(e) Notifying the agency, in writing, within ten calendar days after
receiving notice under subparagraph (d)(2) from an employer or otherwise
receiving actual notice of such conviction. Employers of convicted employees
must provide notice, including position title, to every grant officer or other
designee on whose grant activity the convicted employee was working, unless the
Federal agency has designated a central point for the receipt of such notices.
Notice shall include the indemnification number(s) of each affected grant;
(f) Taking one of the following actions, within 30 calendar days of
receiving notice under subparagraph (d)(2), with respect to any employee who
is so convicted:
(1) Taking appropriate personnel action against such an employee,
up to and including termination, consistent with the requirements of the
Rehabilitation Act of 1973, as amended; or
(2) Requiring such employee to participate satisfactorily in a
drug abuse assistance or rehabilitation program approved by such purposes by
a Federal, State or local health, law enforcement, or other appropriate agency.
(g) Making a good faith effort to continue to maintain a drug-free
workplace through implementation of paragraphs (a), (b), [c], (d), (e), and (f).
(2) The grantee may insert in the space provided below the s (s) for
the performance of work done in connection with the specific grant:
Place of Performance:
(Street address, city, county, state, zip code)
2810 Meridian Parkway
Suite 176
Durham, Durham County, NC 27713
X Check if there are workplaces on file that are not identified here.
ALTERNATE II (GRANTEES WHO ARE INDIVIDUALS)
(1) The grantee certifies that, as a condition of the grant, he or she will not
engage in the unlawful manufacture, distribution, dispensing, possession, or
use of a controlled substance in conducting any activity with the grant.
(2) If convicted of a criminal drug offense resulting from a violation occurring
during the conduct of any grant activity, he or she will report the conviction,
in writing, within 10 calendar days of the conviction, to every grant officer or
other designee, unless the Federal agency designates a central point for the
receipt of such notices. When notice is made to such a central point, it shall
include the identification number(s) of each affected grant.
As the duly authorized representative of the applicant, I hereby certify that
the applicant will comply with the above certifications.
NAME OF APPLICANT PR/AWARD NUMBER AND/OR PROJECT NAME
Cree Research, Inc.
PRINTED NAME AND TITLE OF AUTHORIZED RESPRESENTATIVE
Calvin H. Carter, Jr., Vice President
SIGNATURE DATE
/s/ Calvin H. Carter, Jr. 1-30-96
<PAGE>
AWARD/CONTRACT 1. Page 1 of 23
2. Procurement Instrument ID No. (PIIN): F19628-96-C-0066
3. Effective Date: Mailing Date
4. Requisition/Purchase Request/Project NO.: None
5. Certified for National Defense under BDC Reg 2/DMS Reg 1
rating DO-A7
6. Issued by: Electronic Systems Center/PKR Code FA8718
Air Force Material Command, USAF
104 Barksdale Street
Hanscom AFB MA 01731-1806
Buyer: Barbara A. Cook, ESC/PKRC, 617-377-2259
7. Administrered by: DCMAO Atlanta Code S1103A
805 Walker Street
Marietta, GA 30060-2789
PAS: NONE
8. Contractor Name and Address: Cree Research Code 0C9J8
2810 Meridian Parkway, Suite 176
Durham County
Durham, NC 27713
9. Submit invoices (4 copies unless otherwise specified) to
address shown in BLANK
10. Discount for Prompt Payment: NONE
11. Authorized Rate A. Progress Pay B. Recoup
12. Contract Percent Fee
13. Payment will be made by: DFAS Columbus Center Code SC1020
DFAS-CO-JSA/Southease Division
PO Box 182225
Columbus OH 43218-2225
14. Purchase Office Point of Contact: HNR/H12/HLB
15. Svc/Agency Use
16. Type Contractor: B
17. Security: A. Class U B. Date of DD254
18. Contract Administration Data: A. Fast Pay (1) Kind 2 (2) Type T
19. Reserved
20. Date Signed
21. Surv Crit: C
22. Total Amount: $4,756,556.00
23. Authority for using other than full and open competition: Blank
24. Table of Contents (The following sections marked "x" are
contained in the contract)
Part 1 - THE SCHEDULE
(X) SEC Description Page(s)
X A SOLICITATION/CONTRACT FORM 1
X B SUPPLIES OR SERVICES AND PRICES/COSTS 2
X C DESCRIPTION/SPECS/WORK STATEMENT 4
X D PACKAGING AND MARKING 5
X E INSPECTION AND ACCEPTANCE 6
X F DELIVERIES OR PERFORMANCE 7
X G CONTRACT ADMINISTRATION DATA 8
X H SPECIAL CONTRACT REQUIREMENTS 10
Part 2 - CONTRACT CLAUSES
X I CONTRACT CLAUSES 11
Part 3 - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH
X J LIST OF ATTACHMENTS 23
Part 4 - REPRESENTATIONS AND INSTRUCTIONS
* K REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF
<PAGE>
OFFERORS
L INSTRS., CONDS., AND NOTICES TO OFFER
M EVALUATION FACTORS FOR AWARD
* incorporated by reference
CONTRACTING OFFICER WILL COMPLETE BLOCK 25 OR 29, AS APPLICABLE 25. X
CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is required to sign this document
and return 1 copy to issuing office.) Contractor agrees to furnish and deliver
all items or perform all the sevices set forth or otherwise identified herein
for the consideration stated herein. The rights and obligations of the parties
to this contract shall be subject to and governed by the following documents:
(a) this award/contract, (b) the solicitation, if any, (c) such provisions,
representations, certifications, and specifications, as are attached or
incorporated by reference herin. (Attachments are listed herein.)
26. CONTRACTOR
Calvin H. Carter Jr. \s\
--------------------------
27. NAME AND TITLE OF SIGNER (TYPE OR PRINT)
Calvin H. Carter Jr., Vice President
28. DATE SIGNED: 96JUN26
29. AWARD (not marked) (Contractor is not required to sign this document.) Your
offer on Solicitation Number ___________________, including the additions or
changes made by you which additions or changes are set forth in full above, is
hereby accepted as to the items listed herein. This award consummates the
contract which consist of the following documents (a) the Government's
solicitation and your offer, and (b) this award/contract. No further contractual
document is necessary.
30. UNITED STATES OF AMERICA
Karen M. Stone \s\
by______________________
(Signature of Contracting Officer)
31. NAME OF CONTRACTING OFFICER (TYPE OR PRING)
KAREN M. STONE
32. DATE SIGNED: 96JUL02
<PAGE>
70B - PART I, SECTION B OF THE SCHEDULE
A. Quantity Unit Price
Item No Supplies/Services Purch Unit Total Item Amount
0001 Service CLIN sec class: U
E$4,756,556.00
desc of services: R&D SERVICES
completion date: ASREQ
acrn: 9
pr/mipr data: See Info SubCLIN 000101
descriptive data:
A. Perform research in accordance with
Section C, Description/Specifications/Work
Statement.
B. Commencement Date: Date of Contract Award
(defined as the Mailing Date of the Contract)
C. Completion Date: 36 MAC (Months after
Contract Award).
D. F.O.B. Destination
E. Line Items 0001 and 0002
(1) Total estimated cost: $4,756,556
(2) Government's Estimated Cost Share: 4,284,214
(3) Contractor's Estimated Cost Share: 472,342
(4) Government's share shall be 90% of
costs incurred of all allowable costs.
The Contractor's share shall be 10%
of costs incurred of all allowable costs.
000101 Info SubCLIN sec class: U
noun: $840,000.00
acrn: AA
pr/mipr data: FY7620-96-RL7293
descriptive dat:
Breakout for funding/payment purposes. See Section G for payment
instructions.
0002 Service CLIN sec class: U
NSP
desc of services: R&D DATA
completion date: ASREQ
acrn: 9
pr/mipr data: NONE
descriptive data:
A. Delivery of data in accordance with Contract
Data Requirements List (CDRL), DD Form 1423,
Exhibit A, dated 96APR11. Place of Delivery is
the addressee(s) on the Exhibit.
B. Completion Date: As required in accordance
with CDRL, Exhibit A.
C. F.O.B. Destination.
D. Not Separately Priced (NSP). Cost is
included in CLIN 0001.
SECTION B - SUPPLIES OR SERVICES AND PRICES/COST (cont'd)
B. AFMC FAR Sup Clauses in Full Text
5352.232-9000 IMPLEMENTATION OF LIMITATION OF FUNDS (DEC 1995)
The sum allotted to this contract and available for payment of costs
under CLINs 0001 and 0002 through 96OCT30 in accordance with the clause in
Section I entitled "Limitation of Funds" is $840,000.00.
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
A. The Contractor shall furnish the supplies and/or services
set forth in Section B as follows:
<PAGE>
Line Item 0001 - Design, fabricate and deliver a blue laser diode for high
density optical storage in accordance with CREE Research technical proposal
entitled, "Low Defect Density Short Wavelength III-Nitride Laser Diode," dated
95DEC07, incorporated
herein by reference.
Line Item 0002 - Provide R&D Data in accordance with Contract Data Requirements
List (CDRL), DD Form 1423, Exhibit A, dated 96APR11.
SECTION D - PACKAGING AND MARKING
A. AFMC FAR Sup Clauses in Full Text
5352.247-9007 SPECIFICATION COMMERCIAL PACKAGING AND MARKING (FEB
1996)
Items shall be packaged and marked in accordance with American Society
for Testing and Materials (ASTM) D3951, "Standard Practice for Commercial
Packaging." Individual shipments exceeding 150 pounds or 108 inches in length or
130 inches in girth plus length, shall be packaged on skidded crates or
palletized to allow handling by forklift.
SECTION E - INSPECTION AND ACCEPTANCE
A. 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more clauses by reference, with the same
force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available.
I. FEDERAL ACQUISITION REGULATION CLAUSES
52.246-8 INSPECTION OF RESEARCH AND DEVELOPMENT -
<PAGE>
COST-REIMBURSEMENT (APR 1984)
ALTERNATE I (APR 1984)
II. DEFENSE FAR SUPPLEMENT CLAUSES
252.246-7000 MATERIAL INSPECTION AND RECEIVING REPORT (DEC 1991)
B. Inspection and Acceptance shall be accomplished as follows:
Line Item 0001 - shall be delivered F.O.B. Destination and inspected
and accepted at Rome Laboratory (RL/EROC), 80 Scott Road, Hanscom AFB, MA
01731-2909. Acceptance shall be evidenced by execution of a DD Form 250,
Material Inspection and Receiving Report, by an authorized Government
representative.
Line Item 0002 - all data under Line Item 0002 shall be inspected and
accepted at Rome Laboratory (RL/EROC), 80 Scott Road, Hanscom AFB, MA
01731-2909. All data shall be accepted on a DD Form 250, Material Inspection and
Receiving Report, on a one-time basis only, to be submitted with the last CDRL
item required to be delivered.
SECTION F - DELIVERIES OR PERFORMANCE
A. 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more clauses by reference, with the same
force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available.
I. FEDERAL ACQUISITION REGULATION CLAUSES
52.242-15 STOP-WORK ORDER (AUG 1989)
ALTERNATE I (APR 1984)
52.247-34 F.O.B. DESTINATION (NOV 1991)
B. AFMC FAR Sup Clauses in Full Text
5352.247-9004 COMMERCIAL BILL OF LADING SHIPMENTS--CARRIER'S RATES
(JAN 1996)
Before making any shipment, the contractor shall ensure that the
proposed carrier offers acceptable service at reduced rates under Interstate
Commerce Commission Section 10721, if available, or other rate schedule of equal
or lower rates. In order to comply with this requirement, the contractor shall
contact the transportation officer for this contract, as identified by the
Administrative Contracting Officer, for confirmation that the proposed carrier's
rates are no higher than those otherwise available to the government. The
contractor shall separately list the shipping costs on the invoice to the
government and attach a copy of the carrier's billing. Failure to properly
annotate the invoice and provide a copy of the carrier's billing may result in
those costs not being reimbursed or only partially reimbursed.
C. Completion dates for the effort in Section C are as follows:
Line Item 0001 - 36 MAC (Months After Contract Award)
Line Item 0002 - In accordance with CDRL, Exhibit A
69G - PART I, SECTION G OF THE SCHEDULE
Appropriation/Lmt Subhead/CPN Recip DODAAD Obligation
ACRN Acct Class data Supplemental Accounting Classification Amount
AA ACCOUNT
UNCLASSIFIED 9760400 1302 F03000 $840,000.00
D16 4713 6D1000 OD7340 67293 61101E 503000
pr/mipr data:
FY7620-96-RL7293 (Complete)
descriptive data:
JON: D734AR10 HS96-0060
Payment Instructions for Multiple Acounting Classification Citations
a. This contract will be funded by multiple accounting
classification citations. Payment shall be made from ACRNs in alphabetical order
(AA, AB, etc.). DO NOT USE A PRORATED METHOD to pay, disburse and liquidate
funds. Do not liquidate any funds from an ACRN unless the preceding ACRNs have
been fully liquidated, or if revised payment instructions are provided per
paragraph b. below.
b. Additional ACRNs will be assigned when new accounting
<PAGE>
classifications are available. When adding new ACRNs or changing existing ACRNs,
the above payment instructions shall apply, unless specific revised payment
instructions are provided as part of a contract modification.
c. Incremental funding shall be in accordance with AFMC
5352.232-9000 in Section B of this contract.
SECTION G - CONTRACT ADMINISTRATION DATA (cont'd)
2. Administrative Information:
a. Contracting Office Representative: TBD
b. Contracting Officer: Karen M. Stone
c. Symbol of Purchasing Officer: ESC/PKRC
d. Telephone Number and Extension: (617)377-5914
3. Instructions Re Patents Clause
The ACO will forward all documentation (reports, invention disclosures,
notices, requests) and other information concerning patents to the following
addressee:
ESC/JANP (Patent Counsel)
35 Hamilton Street
Hanscom AFB, MA 01731-2010
4. Transportation Office: Transportation Officer
(Address - Same as Office of Administration)
5. Technical Contract Manager: Joe Lorenzo
Alternate: E. Martin
Location: Rome Laboratory (RL/EROC)
80 Scott Road
Hanscom AFB, MA 01731-2909
6. Submit Invoices/Vouchers to: DCMAO
<PAGE>
805 Walker Street
Marietta, GA 33030-2789
7. Auditor's Address and Telephone: DCAA
415A North Edgeworth Street
Greensboro, NC 27401-2107
Tel: (910)333-5287
8. AFMC FAR Sup Clauses in Full Text
5352.232-9000 REMITTANCE ADDRESS (MAY 1996)
If the remittance address is different from the mailing
address, enter the remittance address below. Failure to provide
this information may impact payment.
SECTION H - SPECIAL CONTRACT REQUIREMENTS
A. Other Special Contract Requirements
1. PRINCIPAL INVESTIGATOR (JUL 1993) (ESC/H-18)
The CREE Research Principal Investigator for this effort is Dr. Gary
Bulman. No substitution shall be made without the prior written approval of the
Air Force Procuring Contracting Officer (PCO).
SECTION I - CONTRACT CLAUSES
Contract clauses in this section from the FAR, Defense FAR Sup, Air Force
FAR Sup, and Air Force Materiel Command FAR Sup are current through the
following updates:
FAR: 1990 Edition through FAC 90-37; Defense FAR Sup: 1991
Edition through DAC 91-10; AF FAR Sup: 1996 Edition; AFMC FAR
Sup: 1992 Edition through AFMCAC
96-1 & through IPL 96-009 & IPL 96-011 through IPL 96-13 & 96-15
<PAGE>
A. 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more clauses by reference, with the same
force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available.
I. FEDERAL ACQUISITION REGULATION CLAUSES
52.202-1 DEFINITIONS (OCT 1995)
52.203-3 GRATUITIES (APR 1984)
52.203-5 COVENANT AGAINST CONTINGENT FEES (APR 1984)
52.203-6 RESTRICTIONS ON SUBCONTRACTOR SALES TO THE
GOVERNMENT (JUL 1995)
52.203-7 ANTI-KICKBACK PROCEDURES (JUL 1995)
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR
IMPROPER ACTIVITY (SEP 1990)
52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN
FEDERAL TRANSACTIONS (JAN 1990)
52.204-4 PRINTING/COPYING DOUBLE-SIDED ON RECYCLED
PAPER (MAY 1995)
52.209-6 PROTECTING THE GOVERNMENT'S INTEREST WHEN
SUBCONTRACTING WITH CONTRACTORS DEBARRED,
SUSPENDED, OR PROPOSED FOR
DEBARMENT (JUL 1995)
52.211-15 DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS
(SEP 1990)
52.215-2 AUDIT AND RECORDS--NEGOTIATION (OCT 1995)
52.215-22 PRICE REDUCTION FOR DEFECTIVE COST OR
PRICING DATA (OCT 1995)
52.215-24 SUBCONTRACTOR COST OR PRICING DATA (OCT 1995)
52.215-26 INTEGRITY OF UNIT PRICES (OCT 1995)
52.215-27 TERMINATION OF DEFINED BENEFIT PENSION PLANS
(MAR 1996)
52.215-31 WAIVER OF FACILITIES CAPITAL COST OF MONEY
(SEP 1987)
52.215-33 ORDER OF PRECEDENCE (JAN 1986)
52.215-39 REVERSION OR ADJUSTMENT OF PLANS FOR
POSTRETIREMENT BENEFITS (PRB) OTHER THAN
PENSIONS (MAR 1996)
52.215-40 NOTIFICATION OF OWNERSHIP CHANGES (FEB 1995)
52.216-7 ALLOWABLE COST AND PAYMENT (DEVIATION AFAC
92-49)
<PAGE>
(JUL 1995)
52.216-12 COST-SHARING CONTRACT - NO FEE (APR 1984)
52.219-8 UTILIZATION OF SMALL, SMALL DISADVANTAGED
AND WOMEN-OWNED
SMALL BUSINESS CONCERNS (OCT 1995)
52.219-14 LIMITATIONS ON SUBCONTRACTING (JAN 1991)
52.222-1 NOTICE TO THE GOVERNMENT OF LABOR DISPUTES
(APR 1984)
52.222-2 PAYMENT FOR OVERTIME PREMIUMS (JUL 1990)
(Insert "zero" in para (a))
52.222-3 CONVICT LABOR (APR 1984)
52.222-26 EQUAL OPPORTUNITY (APR 1984)
52.222-28 EQUAL OPPORTUNITY PREAWARD CLEARANCE OF
SUBCONTRACTS (APR 1984)
52.222-35 AFFIRMATIVE ACTION FOR SPECIAL DISABLED AND
VIETNAM ERA VETERANS (APR 1984)
52.222-36 AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS
(APR 1984)
52.222-37 EMPLOYMENT REPORTS ON SPECIAL DISABLED
VETERANS AND VETERANS OF THE VIETNAM ERA
(JAN 1988)
52.223-2 CLEAN AIR AND WATER (APR 1984)
52.223-6 DRUG-FREE WORKPLACE (JUL 1990)
52.223-14 TOXIC CHEMICAL RELEASE REPORTING (OCT 1995)
52.225-11 RESTRICTIONS ON CERTAIN FOREIGN PURCHASES
(MAY 1992)
52.227-1 AUTHORIZATION AND CONSENT (JUL 1995)
ALTERNATE I (APR 1984)
52.227-2 NOTICE AND ASSISTANCE REGARDING PATENT AND
COPYRIGHT
INFRINGEMENT (APR 1984)
52.227-11 PATENT RIGHTS -- RETENTION BY THE CONTRACTOR
(SHORT FORM)(JUN 1989)
52.228-7 INSURANCE - LIABILITY TO THIRD PERSONS (MAR
1996)(See AFMC 5352.228-9004 for
implementation)
52.232-9 LIMITATION ON WITHHOLDING OF PAYMENTS (APR
1984)
52.232-17 INTEREST (JAN 1991)
52.232-22 LIMITATION OF FUNDS (APR 1984)
(See AFMC 5352.232-9000 in Section B
for implementation)
52.232-23 ASSIGNMENT OF CLAIMS (JAN 1986)
52.232-25 PROMPT PAYMENT (MAR 1994)
(Insert "14th day" in para (b)(2))
<PAGE>
52.232-28 ELECTRONIC FUNDS TRANSFER PAYMENT METHODS
(APR 1989)
52.233-1 DISPUTES (OCT 1995)
52.233-3 PROTEST AFTER AWARD (OCT 1995)
ALTERNATE I (JUN 1985)
52.242-1 NOTICE OF INTENT TO DISALLOW COSTS (APR 1984)
52.242-3 PENALTIES FOR UNALLOWABLE COSTS (OCT 1995)
52.242-4 CERTIFICATION OF INDIRECT COSTS (OCT 1995)
52.242-13 BANKRUPTCY (JUL 1995)
52.243-2 CHANGES - COST-REIMBURSEMENT (AUG 1987)
ALTERNATE V (APR 1984)
52.243-6 CHANGE ORDER ACCOUNTING (APR 1984)
52.243-7 NOTIFICATION OF CHANGES (APR 1984)
(In paragraphs (b) & (d), insert
"...within 30 calendar
days...".)
52.244-2 SUBCONTRACTS (COST-REIMBURSEMENT AND LETTER
CONTRACTS)
(MAR 1996)
(In paragraph (e) insert: NONE)
ALTERNATE I (JUL 1995)
52.244-5 COMPETITION IN SUBCONTRACTING (JAN 1996)
52.245-5 GOVERNMENT PROPERTY (COST-REIMBURSEMENT,
TIME-AND-MATERIAL, OR LABOR-HOUR
CONTRACTS) (JAN 1986)
52.246-23 LIMITATION OF LIABILITY (APR 1984)
52.247-1 COMMERCIAL BILL OF LADING NOTATIONS (APR
1984)
52.249-6 TERMINATION (COST-REIMBURSEMENT) (MAY 1986)
52.251-1 GOVERNMENT SUPPLY SOURCES (APR 1984)
52.253-1 COMPUTER GENERATED FORMS (JAN 1991)
II. DEFENSE FAR SUPPLEMENT CLAUSES
252.203-7000 STATUTORY PROHIBITION ON COMPENSATION TO
FORMER DEPARTMENT OF DEFENSE EMPLOYEES
(NOV 1995)
252.203-7001 SPECIAL PROHIBITION ON EMPLOYMENT (NOV 1995)
252.204-7000 DISCLOSURE OF INFORMATION (DEC 1991)
252.204-7003 CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT
(APR 1992)
252.205-7000 PROVISION OF INFORMATION TO COOPERATIVE
AGREEMENT HOLDERS (DEC 1991)
252.209-7000 ACQUISITION FROM SUBCONTRACTORS SUBJECT TO
ON-SITE INSPECTION UNDER THE
INTERMEDIATE-RANGE NUCLEAR FORCES
(INF) TREATY (NOV 1995)
252.215-7000 PRICING ADJUSTMENTS (DEC 1991)
252.215-7002 COST ESTIMATING SYSTEM REQUIREMENTS (DEC
1991)
252.225-7012 PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES
(NOV 1995)
252.225-7026 REPORTING OF CONTRACT PERFORMANCE OUTSIDE
THE UNITED STATES (NOV 1995)
252.225-7031 SECONDARY ARAB BOYCOTT OF ISRAEL (JUN 1992)
252.227-7013 RIGHTS IN TECHNICAL DATA--NONCOMMERCIAL
ITEMS (NOV 1995)
252.227-7016 RIGHTS IN BID OR PROPOSAL INFORMATION (JUN
1995)
252.227-7030 TECHNICAL DATA--WITHHOLDING OF PAYMENT (OCT
1988)
252.227-7034 PATENTS -- SUBCONTRACTS (APR 1984)
252.227-7036 CERTIFICATION OF TECHNICAL DATA CONFORMITY
(MAY 1987)
252.227-7037 VALIDATION OF RESTRICTIVE MARKINGS ON
TECHNICAL DATA (NOV 1995)
252.227-7039 PATENTS -- REPORTING OF SUBJECT INVENTIONS
(APR 1990)
252.231-7000 SUPPLEMENTAL COST PRINCIPLES (DEC 1991)
252.232-7006 REDUCTION OR SUSPENSION OF CONTRACT PAYMENTS
UPON FINDING OF FRAUD (AUG 1992)
252.233-7000 CERTIFICATION OF CLAIMS AND REQUESTS FOR
ADJUSTMENT OR RELIEF (MAY 1994)
252.235-7010 ACKNOWLEDGEMENT OF SUPPORT AND DISCLAIMER
(MAY 1995)
(In paragraphs (a) and (b) insert "Air
Force Materiel
Command (AFMC)"; in para (a) insert
"F19628-96-C-0066")
252.235-7011 FINAL SCIENTIFIC OR TECHNICAL REPORT
DISCLAIMER (MAY 1995)
252.242-7000 POSTAWARD CONFERENCE (DEC 1991)
252.242-7004 MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM
(DEC 1991)
252.245-7001 REPORTS OF GOVERNMENT PROPERTY (MAY 1994)
252.249-7002 NOTIFICATION OF PROPOSED PROGRAM TERMINATION
OR REDUCTION
(MAY 1995)
252.251-7000 ORDERING FROM GOVERNMENT SUPPLY SOURCES (MAY
1995)
<PAGE>
B. FAR Clauses in Full Text
52.203-9 REQUIREMENT FOR CERTIFICATE OF PROCUREMENT
INTEGRITY --
MODIFICATION (SEP 1995)
(a) Definitions. The definitions set forth in FAR 3.104-4
are hereby incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set
forth in paragraph (c) of this clause when requested by the Contracting Officer
in connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the
officer or employee responsible for the modification proposal shall execute the
following certification. The certification in paragraph (c)(2) of this clause is
not required for a modification which procures commercial items.
CERTIFICATE OF PROCUREMENT INTEGRITY - MODIFICATION (NOV 1990)
(1) I, ** , am the officer or employee responsible for the
preparation of this modification proposal and hereby certify that, to the best
of my knowledge and belief, with the exception of any information described in
this certification, I have no information concerning a violation or possible
violation of subsection 27(a), (b), (d), or (f) of the Office of Federal
Procurement Policy Act, as amended* (41 U.S.C. 423), (hereinafter referred to as
"the Act"), as implemented in the FAR, occurring during the conduct of this
procurement ** [contract and modification number].
(2) As required by subsection 27(e)(1)(B) of the Act, I
further certify that to the best of my knowledge and belief, each officer,
employee, agent, representative, and consultant of ** [Name of Offeror] who has
participated personally and substantially in the preparation or submission of
this proposal has certified that he or she is familiar with, and will comply
with, the requirements of subsection 27(a) of the Act, as implemented in the
FAR, and will report immediately to me any information concerning a violation or
possible violation of subsections 27(a), (b), (d), or (f) of the Act, as
implemented in the FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on
plain bond paper if necessary and label Certificate of
Procurement Integrity - Modification (Continuation Sheet), ENTER
NONE IF NONE EXIST) **
**
[Signature of the officer or employee responsible for the
modification proposal and date]
<PAGE>
**
[Typed name of the officer or employee responsible for the
modification proposal]
* Subsections 27(a), (b), and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
** To be completed ONLY for a modification
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF THE
UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT CERTIFICATION
MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18, UNITED STATES CODE,
SECTION 1001.
(End of Certification)
(d) In making the certification in paragraph (2) of the certificate,
the officer or employee of the competing Contractor responsible for the offer or
bid, may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by periodic
training. These certifications shall be obtained at the earliest possible date
after an individual required to certify begins employment or association with
the contractor. If a contractor decides to rely on a certification executed
prior to the suspension of section 27 (i.e. prior to December 1, 1989), the
Contractor shall ensure that an individual who has so certified is notified that
section 27 has been reinstated. These certifications shall be maintained by the
Contractor for a period of 6 years from the date a certifying employee's
employment with the company ends or, for an agency, representative, or
consultant, 6 years from the date such individual ceases to act on behalf of the
contractor.
(e) The certification required by paragraph (c) of this clause is a
material representation of fact upon which reliance will be placed in executing
this modification.
52.215-42 REQUIREMENTS FOR COST OR PRICING DATA OR
INFORMATION OTHER
THAN COST OR PRICING
DATA--MODIFICATIONS (OCT 1995)
ALTERNATE I (OCT 1995)
(a) Exceptions from cost or pricing data.
(1) In lieu of submitting cost or pricing data for
modifications under this contract, for price adjustments expected to exceed the
threshold set forth at FAR 15.804-2(a)(1) on the date of the agreement on price
or the date of the award, whichever is later, the Contractor may submit a
written request for exception by submitting the information described in the
following subparagraphs. The Contracting Officer may require additional
supporting information, but only to the extent necessary to determine whether an
exception should be granted, and whether the price is fair and reasonable--
<PAGE>
(i) Information relative to an exception granted
for prior or repetitive acquisitions.
(ii) Catalog price information as follows:
(A) Attach a copy of or identify the catalog
and its date, or the appropriate pages for the offered items, or a statement
that the catalog is on file in the buying office to which this proposal is being
made.
(B) Provide a copy or describe current
discount policies and price lists (published or unpublished), e.g., wholesale,
original equipment manufacturer, and reseller.
(C) Additionally, for each catalog item that
exceeds $1,000 (extended value not unit price), provide evidence of substantial
sales to the general public. This may include sales order, contract, shipment,
invoice, actual recorded sales or other records that are verifiable. In
addition, if the basis of the price proposal is sales of essentially the same
commercial item by affiliates, other manufacturers or vendors, those sales may
be included. The offeror shall explain the basis of each offered price and its
relationship to the established catalog price. When substantial general public
sales have also been made at prices other than catalog or price list prices, the
offeror shall indicate how the proposed price relates to the price of such
recent sales in quantities similar to the proposed quantities.
(iii) Market price information. Include the
source and date or period of the market quotation or other basis for market
price, the base amount, and applicable discounts. The nature of the market
should be described. The supply or service being purchased should be the same as
or similar to the market price supply or service. Data supporting substantial
sales to the general public is also required.
(iv) Identification of the law or regulation
establishing the price offered. If the price is controlled under law by periodic
rulings, reviews, or similar actions of a governmental body, attach a copy of
the controlling document, unless it was previously submitted to the contracting
office.
(v) Information on modifications of contracts or
subcontracts for commercial items.
(A) If (1) The original contract or
subcontract was granted an exception from cost or pricing data requirements
because the price agreed upon was based on adequate price competition, catalog
or market prices of commercial items, or prices set by law or regulation; and
(2) the modification (to the contract or subcontract) is not exempted based on
one of these exceptions, then the Contractor may provide information to
establish that the modification would not change the contract or subcontract
from a contract or subcontract for the acquisition of a commercial item to a
contract or subcontract for the acquisition of an item other than a commercial
item.
<PAGE>
(B) For a commercial item exception, the
Contractor may provide information on prices at which the same item or similar
items have been sold in the commercial market.
(2) The Contractor grants the Contracting Officer or an
authorized representative the right to examine, at any time before award, books,
records, documents, or other directly pertinent records to verify any request
for an exception under this clause, and the reasonableness of price. Access does
not extend to cost or profit information or other data relevant solely to the
Contractor's determination of the prices to be offered in the catalog or
marketplace.
(3) By submitting information to qualify for an exception, an
offeror is not representing that this is the only exception that may apply.
(b)(1) The Contractor shall submit cost or pricing data on Standard
Form (SF) 1411, Contract Pricing Proposal Cover Sheet (Cost or Pricing Data
Required), with supporting attachments
prepared in the following format:
(2) As soon as practicable after agreement on price, but
before award (except for unpriced actions), the Contractor shall submit a
Certificate of Current Cost or Pricing Data, as prescribed by FAR 15.804-4.
52.244-6 SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL
COMPONENTS (OCT 1995)
(a) Definition.
Commercial item, as used in this clause, has the meaning
contained in the clause at 52.202-1, Definitions.
Subcontract, as used in this clause, includes a transfer of
commercial items between divisions, subsidiaries, or affiliates of the
Contractor or subcontractor at any tier.
(b) To the maximum extent practicable, the Contractor shall
incorporate, and require its subcontractors at all tiers to incorporate,
commercial items or nondevelopmental items as components of items to be supplied
under this contract.
(c) Notwithstanding any other clause of this contract, the Contractor
is not required to include any FAR provision or clause, other than those listed
below to the extent they are applicable and as may be required to establish the
reasonableness of prices under Part 15, in a subcontract at any tier for
commercial items or commercial components:
(1) 52.222-26, Equal Opportunity (E.O. 11246);
<PAGE>
(2) 52.222-35, Affirmative Action for Special Disabled
and Vietnam Era Veterans (38 U.S.C. 4212(a));
(3) 52.222-36, Affirmative Action for Handicapped
Workers (29 U.S.C. 793); and
(4) 52.247-64, Preference for Privately Owned U.S.-Flagged
Commercial Vessels (46 U.S.C. 1241) (flow down not required for subcontracts
awarded beginning May 1, 1996).
(d) The Contractor shall include the terms of this clause, including
this paragraph (d), in subcontracts awarded under this contract.
52.252-6 AUTHORIZED DEVIATIONS IN CLAUSES (APR 1984)
(a) The use in this solicitation or contract of any Federal Acquisition
Regulation (48 CFR Chapter 1) clause with an authorized deviation is indicated
by the addition of "(DEVIATION)" after the date of the clause.
(b) The use in this solicitation or contract of any Department of
Defense FAR Supplement (48 CFR Chapter 2) clause with an authorized deviation is
indicated by the addition of "(DEVIATION)" after the name of the regulation.
C. Defense FAR Sup Clauses in Full Text
252.247-7023 TRANSPORTATION OF SUPPLIES BY SEA (NOV 1995)
(a) Definitions.
As used in this clause --
(1) "Components" means articles, materials, and supplies
incorporated directly into end products at any level of manufacture,
fabrication, or assembly by the Contractor or any subcontractor.
(2) "Department of Defense" (DoD) means the Army, Navy, Air
Force, Marine Corps, and defense agencies.
(3) "Foreign flag vessel" means any vessel that is not
a U.S.-flag vessel.
(4) "Ocean transportation" means any transportation aboard a
ship, vessel, boat, barge, or ferry through international waters.
(5) "Subcontractor" means a supplier, materialman,
distributor, or vendor at any level below the prime contractor whose contractual
obligation to perform results from, or is conditioned upon, award of the prime
contract and who is performing any part of the work or other requirement of the
prime contract. However, effective May 1, 1996, the term does not include a
supplier, materialman, distributor, or vendor of commercial items or commercial
components.
(6) "Supplies" means all property, except land and interests
in land, that is clearly identifiable for eventual use by or owned by the DoD at
the time of transportation by sea.
(i) An item is clearly identifiable for eventual
use by the DoD if, for example, the contract documentation contains a reference
to a DoD contract number or a military destination.
(ii) "Supplies" includes (but is not limited to)
public works; buildings and facilities; ships; floating equipment and vessels of
every character, type, and description, with parts, subassemblies, accessories,
and equipment; machine tools; material; equipment; stores of all kinds; end
items; construction materials; and components of the foregoing.
(7) "U.S.-flag vessel" means a vessel of the United States or
belonging to the United States, including any vessel registered or having
national status under the laws of the United States.
(b) The Contractor shall employ U.S.-flag vessels in the transportation
by sea of any supplies to be furnished in the performance of this contract. The
Contractor and its subcontractors may request that the Contracting Officer
authorize shipment in foreign-flag vessels, or designate available U.S.-flag
vessels, if the Contractor or a subcontractor believes that --
(1) U.S.-flag vessels are not available for timely
shipment;
(2) The freight charges are inordinately excessive or
unreasonable; or
(3) Freight charges are higher than charges to private persons
for transportation of like goods.
(c) The Contractor must submit any request for use of other than
U.S.-flag vessels in writing to the Contracting Officer at least 45 days prior
to the sailing date necessary to meet its delivery schedules. The Contracting
Officer will process requests submitted after such date(s) as expeditiously as
possible, but the Contracting Officer's failure to grant approvals to meet the
shipper's sailing date will not of itself constitute a compensable delay under
this or any other clause of this contract. Requests shall contain at a minimum
- --
(1) Type, weight, and cube of cargo;
(2) Required shipping date;
<PAGE>
(3) Special handling and discharge requirements;
(4) Loading and discharge points;
(5) Name of shipper and consignee;
(6) Prime contract number; and
(7) A documented description of efforts made to secure
U.S.-flag vessels, including points of contact (with names and telephone
numbers) with at least two U.S.-flag carriers contacted. Copies of telephone
notes, telegraphic and facsimile message or letters will be sufficient for this
purpose.
(d) The Contractor shall, within 30 days after each shipment covered by
this clause, provide the Contracting Officer and the Division of National Cargo,
Office of Market Development, Maritime Administration, U.S. Department of
Transportation, Washington, DC 20590, one copy of the rated on board vessel
operating carrier's ocean bill of lading, which shall contain the following
information --
(1) Prime contract number;
(2) Name of vessel;
(3) Vessel flag of registry;
(4) Date of loading;
(5) Port of loading;
(6) Port of final discharge;
(7) Description of commodity;
(8) Gross weight in pounds and cubic feet if available;
(9) Total ocean freight in U.S. dollars; and
(10) Name of the steamship company.
(e) The Contractor agrees to provide with its final invoice under this
contract a representation that to the best of its knowledge and belief --
(1) No ocean transportation was used in the
performance of this contract;
<PAGE>
(2) Ocean transportation was used and only U.S.-flag
vessels were used for all ocean shipments under the contract;
(3) Ocean transportation was used, and the Contractor
had the written consent of the Contracting Officer for all
non-U.S.-flag ocean transportation; or
(4) Ocean transportation was used and some or all of the
shipments were made on non-U.S.-flag vessels without the written consent of the
Contracting Officer. The Contractor shall describe these shipments in the
following format:
ITEM CONTRACT
DESCRIPTION LINE ITEMS QUANTITY
TOTAL
(f) If the final invoice does not include the required representation,
the Government will reject and return it to the Contractor as an improper
invoice for the purposes of the Prompt Payment clause of this contract. In the
event there has been unauthorized use of non-U.S.-flag vessels in the
performance of this contract, the Contracting Officer is entitled to equitably
adjust the contract, based on the unauthorized use.
(g) The Contractor shall include this clause, including this paragraph
(g) in all subcontracts under this contract, which exceed the simplified
acquisition threshold in Part 13 of the Federal Acquisition Regulation.
252.247-7024 NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA
(NOV 1995)
(a) The Contractor has indicated by the response to the solicitation
provision, Representation of Extent of Transportation by Sea, that it did not
anticipate transporting by sea any supplies. If, however, after the award of
this contract, the Contractor learns that supplies, as defined in the
Transportation of Supplies by Sea clause of this contract, will be transported
by sea, the Contractor--
(1) Shall notify the Contracting Officer of that
fact; and
(2) Hereby agrees to comply with all the terms and conditions
of the Transportation of Supplies by Sea clause of this contract.
(b) The Contractor shall include this clause, including this paragraph
(b), revised as necessary to reflect the relationship of the contracting
parties, in all subcontracts hereunder, except (effective May 1, 1996)
subcontracts for the acquisition of commercial items or components.
<PAGE>
D. AF FAR Sup Clauses in Full Text
5352.223-9000 ELIMINATION OF USE OF CLASS I OZONE DEPLETING SUBSTANCES
(ODS) (MAY 1996)
(a) It is Air Force policy to preserve mission readiness while
minimizing dependency on Class I Ozone Depleting Substances (ODS), and their
release into the environment, to help protect the Earth's stratospheric ozone
layer.
(b) Unless a specific waiver has been approved, Air Force
procurements:
(1) May not include any specification, standard, drawing or
other document that requires the use of a Class I ODS in the design,
manufacture, test, operation, or maintenance of any system, subsystem, item,
component or process; and
(2) May not include any specification, standard, drawing or
other document that establishes a requirement that can only be met by use of a
Class I ODS;
(c) For the purposes of Air Force policy, the following
are Class I ODS:
(1) Halons: 1011, 1202, 1211, 1301, and 2402;
(2) Chlorofluorocarbons (CFCs): CFC-11, CFC-12, CFC-13,
CFC-111, CFC-112, CFC-113, CFC-114, CFC-115, CFC-211, CFC-212, CFC-213, CFC-214,
CFC-215, CFC-216, and CFC-217, and the blends R-500, R-501, R-502, and R-503;
and
(3) Other Controlled Substances: Carbon
Tetrachloride, Methyl Chloroform, and Methyl Bromide.
(d) The Air Force has reviewed the requirements specified in this
contract to reflect this policy. Where considered essential, specific approval
has been obtained to continue use of the following substances:
Substance Application/Use Quantity (lbs)
NONE
(e) To assist the Air Force in implementing this policy, the
offeror/contractor is encouraged, but not required, to notify the contracting
officer if any Class I ODS not specifically listed above is required in the
performance of this contract.
5352.235-9000 SCIENTIFIC/TECHNICAL INFORMATION (STINFO) (JAN 1992)
<PAGE>
If not already registered, the Contractor shall register for Defense Technical
Information Center (DTIC) service by
contacting the following:
Defense Technical Information Center
ATTN: Registration Section (DTIC-BCS) Bldg 5
Cameron Station, Alexandria, Virginia
22304-6145
(703)274-6871
To avoid duplication of effort and conserve scientific and technical resources,
the Contractor shall search existing sources in DTIC to determine the current
state-of-the-art concepts, studies, etc.
E. AFMC FAR Sup Clauses in Full Text
5352.212-9000 CONTRACTOR REPORTING REQUIREMENTS (JUL 1992)
Any report required by 15 CFR 700, Subpart D, Section 700.13(d) of the
Defense Priorities and Allocation System regulation relating to an actual or
anticipated delayed shipment, reason for delay, and/or new projected shipment
date is to be sent concurrently by the Contractor to both the Procuring
Contracting Officer (PCO) and the Administrative Contracting Officer (ACO)
within the specified ten (10) calendar days.
5352.215-9020 INCORPORATION OF CONTRACTOR'S TECHNICAL PROPOSAL
(DEC 1995)
a. The following documents are incorporated herein by
reference and made a part of this contract:
CREE Research technical proposal entitled, "Low Defect Density Short Wavelength
III-Nitride Laser Diode," dated 95DEC07.
b. Nothing contained in the contractor's technical proposal shall
constitute a waiver to any other requirement of this contract. In the event of
any conflict between the contractor's technical proposal and any other
requirement of the contract, the conflict shall be resolved in accordance with
the Order of Precedence clause. For purposes of the Order of Precedence clause
the document(s) listed above shall rank last.
c. The detailed technical content of the contractor's proposal was an
important factor in the selection of the contractor for award of this contract.
The documents listed above are now contractually binding. The contractor shall
not change or otherwise deviate from the content of these documents without
prior written approval from the contracting officer.
d. If it is necessary to change the performance, design, configuration,
or other items specified in the technical proposal in order to comply with the
requirements of the contract clauses, special contract requirements, or
statement of work, the contract shall be modified appropriately.
e. The contractor agrees that the documents listed above will reflect
the results/responses to all discussions, Clarification Requests (CRs), and/or
Deficiency Reports (DRs) issued during the negotiation process. If, after
contract award, it is discovered that changes made during negotiations were not
incorporated in the SOW and/or technical proposal, such changes to the
contractor's documents shall be considered administrative in nature and shall be
made by unilateral modification to the contract, at no change in contract cost
or price or other terms and conditions.
5352.228-9004 INSURANCE CLAUSE IMPLEMENTATION (FEB 1996)
The contractor shall obtain and maintain the minimum kinds and amounts
of insurance during performance of this contract as specified by FAR 28.307-2
and contemplated by FAR 52.228-5 and/or 52.228-7.
SECTION J - LIST OF DOCUMENTS, EXHIBITS, AND OTHER ATTACHMENTS
1. Exhibit A - Contract Data Requirements List (CDRL), DD Form 1423, dated
96APR11, on 2 pages with backup on 6 pages for a total of 8 pages.
- -23-
F19628-96-C-0066
[*] -- Certain information omitted and filed separately with the Commission
pursuant to a confidential treatment request under Rule 24b-2 of the Commission.
PURCHASE AGREEMENT
between
CREE RESEARCH, INC.
Durham, North Carolina, USA
("Seller")
and
SIEMENS AKTIENGESELLSCHAFT
Berlin and Munich
Federal Republic of Germany
("Purchaser")
Dated September 6, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. CONTRACT DOCUMENTS; DEFINITIONS................................................................................1
1.1. Documents...........................................................................................1
1.2. Definitions.........................................................................................1
2. PURCHASE AND SALE..............................................................................................2
2.1. Purchase Commitment.................................................................................2
2.2. Price...............................................................................................2
2.3. Payment Terms.......................................................................................2
3. DELIVERY.......................................................................................................3
3.1. Shipment Schedule...................................................................................3
3.2. Packaging...........................................................................................3
3.3. Manner of Shipment..................................................................................3
4. NON-CONFORMING SHIPMENTS.......................................................................................3
4.1. Reporting of Claims.................................................................................3
4.2. Remedies for Non-Conforming Shipments...............................................................4
4.3. Compliance with Instructions........................................................................4
5. TECHNICAL COOPERATION..........................................................................................4
6. WARRANTIES.....................................................................................................4
6.1. Limited Warranty....................................................................................4
6.2. Warranty Disclaimer.................................................................................5
7. INDEMNIFICATION................................................................................................5
7.1. By Seller...........................................................................................5
7.2. Conditions of Indemnification.......................................................................5
8. LIMITATIONS OF LIABILITY.......................................................................................5
9. FORCE MAJEURE..................................................................................................5
10. TERMINATION...................................................................................................6
10.1. Termination upon Default or Insolvency.............................................................6
10.2. Effect of Termination..............................................................................6
11. CONFIDENTIAL INFORMATION......................................................................................6
11.1. Definition.........................................................................................6
Page i
<PAGE>
11.2. Identification.....................................................................................6
11.3. Confidentiality Obligations........................................................................7
11.4. Terms of Agreement.................................................................................7
12. ADDITIONAL UNDERTAKINGS.......................................................................................7
12.1. Publicity..........................................................................................7
12.2. Use of Trademarks, Etc.............................................................................7
13. GENERAL.......................................................................................................8
13.1. Notices............................................................................................8
13.2. Authority; No Conflicting Obligations..............................................................8
13.3. Relationship of the Parties........................................................................8
13.4. Assignment.........................................................................................8
13.5. Dispute Resolution.................................................................................8
13.6. Severability.......................................................................................9
13.7. Amendments; Waiver.................................................................................9
13.8. No Implied License.................................................................................9
13.9. Export Regulation..................................................................................9
13.10. Enforcement Costs.................................................................................9
13.11. Governing Law.....................................................................................9
13.12. Construction......................................................................................9
13.13. United Nations Convention.........................................................................9
13.14. Entire Agreement..................................................................................9
</TABLE>
Page ii
<PAGE>
[*] -- Certain information omitted and filed separately with the Commission
pursuant to a confidential treatment request under Rule 24b-2 of the Commission.
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), made and effective as of the 6th day of
September, 1996 (the "Effective Date"), by and between CREE RESEARCH, INC.
(hereinafter referred to as "Seller"), a corporation organized under the laws of
the State of North Carolina, the United States of America, and SIEMENS
AKTIENGESELLSCHAFT (hereinafter referred to as "Purchaser"), a corporation
organized under the laws of the Federal Republic of Germany.
Recitals
WHEREAS, Seller is engaged in the business, among others, of manufacturing and
selling LED's in die form; and
WHEREAS, Purchaser is engaged in the business, among others, of manufacturing
LED's packaged in lamp form and desires to purchase a quantity of custom LED die
products from Seller; and
WHEREAS, the parties have agreed on the terms and conditions under which Seller
will sell such LED's to Purchaser and desire to memorialize such terms in this
Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual obligations
undertaken in this Agreement, the parties agree as follows:
1. CONTRACT DOCUMENTS; DEFINITIONS
1.1. Documents.
The following documents are annexed to and made a part of this
Agreement:
(a) Schedule 1 -- Quantity and Shipment Schedule
(b) Schedule 2 -- Price and Payment Schedule
(c) -- Product Specifications
(d) Schedule 4 -- Technical Cooperation
1.2. Definitions.
For purposes of this Agreement, the terms defined in this
Section 1.2 shall have the meaning specified and such
definitions shall apply to both singular and plural forms:
(a) "Affiliates" of a designated corporation, company or
other entity (as such term is used in Articles 11 and
12) means all entities which control, are controlled
by, or are under common control with the named
entity, whether directly or through one or more
intermediaries. For purposes of this definition
"controlled" and "control" mean ownership of more
than fifty percent (50%) of the voting capital stock
or other interest having voting rights with respect
to the election of the board of directors or similar
governing authority.
(b) "Confidential Information" shall have the meaning
defined in Section 11.1.
<PAGE>
(c) "Product Specifications" means the specifications set
forth in Schedule 3, as the same may be amended from
time to time by mutual written agreement of the
parties or pursuant to the terms and conditions set
forth in such schedule.
(d) "Products" mean LED chips conforming to the Product
Specifications.
2. PURCHASE AND SALE
2.1. Purchase Commitment.
(a) Purchaser will purchase from Seller and Seller will
sell to Purchaser the quantity of Products shown in
Schedule 1, subject to and in accordance with the
terms and conditions of this Agreement.
(b) Concurrently with the execution of this Agreement,
Purchaser shall issue a purchase order to Seller
evidencing Purchaser's commitment to purchase
Products hereunder. The terms and conditions of this
Agreement shall govern the purchase of Products
hereunder notwithstanding any contrary provisions of
such purchase order.
(c) Purchaser shall be entitled to reduce the quantity of
Products to be purchased under this Agreement only
under the terms and conditions and upon payment of
the cancellation charges specified in Schedule 1.
2.2. Price.
(a) The purchase price of the Products is set forth in
Schedule 2.
(b) The prices stated in this Agreement do not include
transportation or insurance costs, or any sales, use,
excise or other taxes, duties, fees or assessments
imposed by any jurisdiction.
(c) All applicable taxes, duties, fees or assessments
imposed by any jurisdiction with respect to the
purchase of the Products (other than taxes on
Seller's net income) will be paid by Purchaser. Any
taxes, duties, fees or assessments at any time paid
by Seller which are to be paid by Purchaser under
this Agreement shall be invoiced to Purchaser and
reimbursed to Seller.
2.3. Payment Terms.
(a) Purchaser will pay for Products to be purchased under
this Agreement in accordance with the payment terms
in Schedule 2.
(b) Payment will be made in U.S. dollars by wire transfer
to an account designated in writing by Seller,
without reduction for any currency exchange or other
charges.
(c) Seller will provide Purchaser an invoice and/or
shipping documentation for each shipment showing the
quantity shipped, the applicable price, any amounts
prepaid by Purchaser for the shipment, and any taxes,
duties, fees or other assessments due from Purchaser
with respect to the shipment.
Page 2
<PAGE>
(d) Amounts not paid when due under this Agreement shall
accrue interest at the rate of twelve percent (12%)
per annum or, if less, the maximum rate permitted by
law.
3. DELIVERY
3.1. Shipment Schedule.
(a) Seller will use all commercially reasonable efforts
to ship Products in accordance with the shipment
schedule set forth in Schedule 1. Seller reserves the
right to ship quantities prior to the scheduled
dates; provided, however, that no shipment shall be
made such that Purchaser receives the shipment
earlier than the calendar month immediately preceding
the month such quantity was originally scheduled to
be shipped.
(b) Seller shall be deemed in default due to a delay in
meeting the shipment schedule set forth in Schedule 1
only if, immediately after the last day of any
calendar month specified therein, the cumulative
quantity actually shipped by Seller is less than
ninety-five percent (95%) of the cumulative quantity
due to have been shipped.
(c) In the event of a default by Seller as provided in
Section 3.1(b), Purchaser shall be entitled to
liquidated damages of *** percent (*%) per week of
the purchase price of the delayed Products, subject
to a maximum of *** percent (**%) of such purchase
price. If Product shipments are delayed six weeks or
more due to circumstances within Seller's reasonable
control, then in lieu of the foregoing liquidated
damages Purchaser may claim damages actually
resulting from the delay up to ***** percent (**%) of
the purchase price of the delayed Products.
3.2. Packaging.
Seller will ship Products in Seller's standard packaging or
packaged in such other manner as the parties may mutually
agree in writing.
3.3. Manner of Shipment.
Products shall be shipped F.O.B. Seller's manufacturing
facilities by delivery to a transportation company designated
by Purchaser. Products shall be deemed delivered to Purchaser
when delivered to the transportation company at the shipping
point. Title and risk of loss or damage shall pass to
Purchaser upon delivery. All transportation charges and
expenses, including the cost of insurance against loss or
damage in transit, shall be Purchaser's sole responsibility.
Any such amounts paid by Seller will be invoiced to and paid
by Purchaser.
4. NON-CONFORMING SHIPMENTS.
4.1. Reporting of Claims.
Except for warranty claims under Article 6, in the event any
shipment does not conform to the ordered amount and type of
Product or suffers other faults or defects clearly discernible
upon reasonable inspection, such non-conformity will be
reported in writing to Seller as soon as possible and in any
event no later than thirty (30) days after shipment of the
Product to Purchaser. All other non-conformities in shipments
shall be reported in
Page 3
<PAGE>
writing to Seller promptly upon discovery. If not so reported,
the non-conformity shall be deemed waived.
4.2. Remedies for Non-Conforming Shipments.
Seller's sole obligation with respect to shipments determined
to be non-conforming shall be, at its option, to replace the
non-conforming Products (with shipment at Seller's expense) or
to issue a credit to Purchaser in the amount of the price paid
for such Products with interest calculated at the rate of
twelve percent (12%) per annum from the date of payment to the
date of credit. This paragraph states Seller's sole
obligations with respect to non-conforming shipments. After
acceptance of any shipment Purchaser's sole remedies for
defects in such shipment shall be as provided in the warranty
provisions of this Agreement.
4.3. Compliance with Instructions.
In addition to such other duties as may be imposed by law,
Purchaser will comply with all of Seller's reasonable
instructions regarding rejected goods. If Purchaser incurs any
expenses in complying with such instructions, Seller shall
reimburse Purchaser for such expenses promptly upon receipt of
Purchaser's written request therefor.
5. TECHNICAL COOPERATION
Purchaser and Seller agree to cooperate in the development of
improvements to the Products in the manner set forth in and subject to
the terms and conditions of Schedule 4.
6. WARRANTIES
6.1. Limited Warranty.
(a) Seller warrants to Purchaser that Products purchased
from Seller under this Agreement will conform to and
perform in accordance with the applicable Product
Specifications.
(b) This warranty is extended only to Purchaser and does
not constitute a warranty to Purchaser's customers or
any other person. This warranty shall not apply to
any defect or failure to perform resulting in whole
or in part from improper use, application,
installation or operation, and Seller shall have no
liability of any kind for failure of any equipment or
other items in which the Products are incorporated.
(c) All claims under this warranty must be reported in
writing to Seller (with such report accompanied by
the Product claimed to be defective, including the
die "package" in the case of Products sold in die
form) as soon as possible, but in any event no later
than three hundred sixty (360) days after shipment of
the Products to Purchaser. If not so reported, such
claims shall be waived.
(d) Seller's sole obligation with respect to Products
determined not to meet the terms of this warranty
shall be, at its option, to replace such Products or
to issue a credit or refund to Purchaser in the
amount of the price received by Seller for the
Products. This paragraph states the exclusive remedy
against Seller with respect to breach of the warranty
given herein or other alleged defects in the
Products.
Page 4
<PAGE>
6.2. Warranty Disclaimer.
THE WARRANTY IN SECTION 6.1 ABOVE IS GIVEN IN LIEU OF ALL
OTHER WARRANTIES, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED,
OR IMPOSED BY STATUTE OR OTHERWISE. ALL IMPLIED WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY ARE
EXPRESSLY DISCLAIMED BY SELLER.
7. INDEMNIFICATION
7.1. By Seller.
(a) Seller at its expense will defend any claim or
judicial action brought against Purchaser by a third
party, and indemnify Purchaser against any liability
for damages finally awarded in any such action,
insofar as the same is based on a claim that Products
purchased under this Agreement infringe any patent of
a third party.
(b) If any Products are held to be infringing and their
use or sale enjoined, or if in the opinion of Seller
any Products are likely to become the subject of such
a claim of infringement, Seller may, in its sole
discretion and at its own expense, procure a license
which will protect Purchaser against such claim
without cost to Purchaser, replace Seller's inventory
of Products with non-infringing Products, or require
return of Products in Seller's inventory and refund
the price paid by Purchaser for such Products.
(c) Seller shall have no obligation hereunder for or with
respect to claims, actions or demands alleging
infringement that arise by reason of combination of
noninfringing items with any items not supplied by
Seller.
(d) This Section 7.1 states the entire liability of
Seller with respect to any claim of infringement.
7.2. Conditions of Indemnification.
Seller's obligations under the foregoing indemnity are subject
to the condition that the Purchaser give the Seller: (1)
prompt written notice of any claim or action for which
indemnity is sought; (2) complete control of the defense and
settlement thereof by Seller; and (3) cooperation of the
Purchaser in such defense. The obligations under the foregoing
indemnity are also subject to the condition that the Purchaser
not enter into any compromise or settlement or make any
admission of liability without the prior written consent of
the Seller.
8. LIMITATIONS OF LIABILITY
EXCEPT AS PROVIDED IN ARTICLE 7, NEITHER SELLER NOR PURCHASER WILL HAVE
ANY LIABILITY TO THE OTHER FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT
OR SPECIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR THE USE OR PERFORMANCE OF ANY PRODUCTS, EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION APPLIES REGARDLESS OF
WHETHER SUCH CLAIM IS BASED ON TORT, CONTRACT, WARRANTY, NEGLIGENCE,
STRICT LIABILITY OR ANY OTHER THEORY. This limitation shall not apply
if liability is mandatory by law, as for example in cases of intent or
gross negligence.
Page 5
<PAGE>
9. FORCE MAJEURE
Seller shall not be in default or liable for any delay or failure in
performance of this Agreement due to strike, lockout, riot, war, fire,
act of God, accident, delays caused by Purchaser or compliance with any
law, regulation, order or direction, whether valid or invalid, of any
governmental authority or instrumentality thereof or due to any causes
beyond its reasonable control, whether similar or dissimilar to the
foregoing and whether or not foreseen. Seller shall use all
commercially reasonable efforts to avoid or remove such causes of
non-performance or to limit the impact of the event on Seller's
performance and shall continue performance with the utmost dispatch
whenever such causes as removed.
10. TERMINATION
10.1. Termination upon Default or Insolvency.
Either party may terminate this Agreement by giving written
notice of termination to the other:
(a) if the other party commits a material breach of its
obligations under this Agreement or any other
agreement between the parties (including but not
limited to the Development, License and Supply
Agreement dated October 25, 1995) and does not cure
such breach within thirty (30) after receipt of
written notice of the breach from the non-breaching
party; or
(b) if the other party becomes insolvent, or any
voluntary or involuntary petition for bankruptcy or
for reorganization is filed by or against the other
party, or a receiver is appointed with respect to all
or any substantial portion of the assets of the other
party, or a liquidation proceeding is commenced by or
against the other party; provided that, in the case
of any involuntary petition or proceeding filed or
commenced against a party, the same is not dismissed
within sixty (60) days.
10.2. Effect of Termination.
Nothing in this Article 10 shall affect, be construed or
operate as a waiver of any right of the party aggrieved by any
breach of this Agreement to recover any loss or damage
incurred as a result of such breach, either before or after
the termination hereof.
11. CONFIDENTIAL INFORMATION
11.1. Definition.
"Confidential Information" means any information received by
one party or its Affiliates (the "receiving party") from the
other party or its Affiliates (the "disclosing party") and
which the receiving party has been informed or has a
reasonable basis to believe is confidential to the disclosing
party, unless such information: (1) was known to the receiving
party prior to receipt from the disclosing party; (2) was
lawfully available to the public prior to receipt from the
disclosing party; (3) becomes lawfully available to the public
after receipt from the disclosing party, through no act or
omission on the part of the receiving party; (4) corresponds
in substance to any information received in good faith by the
receiving party from any third party without restriction as to
confidentiality; or (5) is independently developed by an
employee or agent of the receiving party who has not received
or had access to such information.
Page 6
<PAGE>
11.2. Identification.
Information which the disclosing party wishes to have treated
as Confidential Information under this Agreement shall be
identified at the time of disclosure as "confidential" by
marking, or in the case of oral disclosures, shall be
confirmed as such in writing within thirty (30) days following
the oral disclosure.
11.3. Confidentiality Obligations.
(a) Each party agrees to maintain Confidential
Information received from the other in confidence and
neither use nor disclose such Confidential
Information, without the prior written approval of
the disclosing party, except as required to comply
with any order of a court or any applicable rule,
regulation or law of any jurisdiction or as provided
in Section 11.4.
(b) In the event that a receiving party is required by
judicial or administrative process to disclose
Confidential Information of the disclosing party, it
shall promptly notify the disclosing party and allow
the disclosing party a reasonable time to oppose such
process.
(c) Within each party and their respective Affiliates,
Confidential Information shall be disclosed only on a
need-to-know basis. Each party shall protect
Confidential Information of the other by using the
same degree of care, but not less than a reasonable
degree of care, to prevent unauthorized disclosure or
use as that party uses to protect its own
confidential information of like nature.
(d) The foregoing obligations shall remain in force for
five (5) years following any termination or
expiration of this Agreement.
(e) Each party represents and warrants to the other that
its employees, agents or consultants having access to
any Confidential Information of the other party shall
be subject to a valid, binding and enforceable
agreement to maintain such Confidential Information
in confidence.
(f) Each party agrees upon request of the other party to
return all Confidential Information received from the
other party under this Agreement.
11.4. Terms of Agreement.
Purchaser and Seller agree that the terms of this Agreement
shall be treated as Confidential Information of each other
subject to this Article 11; 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.
12. ADDITIONAL UNDERTAKINGS
12.1. Publicity.
The parties agree to cooperate in the preparation of a
mutually acceptable joint press release, to be issued promptly
following execution of this Agreement, but shall otherwise
make no public announcement regarding the terms of this
Agreement.
Page 7
<PAGE>
12.2. Use of Trademarks, Etc.
Neither party will, without the prior written consent of the
other, (a) use in advertising, publicity or otherwise in
connection with any Products sold under this Agreement, any
trade name, trademark, trade device, service mark, or symbol
owned by the other party or its Affiliates; or (b) represent,
either directly or indirectly, that any product of such party
or its Affiliates is a product manufactured by the other party
or its Affiliates, or vice versa.
13. GENERAL
13.1. Notices.
All notices under this Agreement shall be in writing and sent
by prepaid airmail post, by reputable courier service, or by
facsimile message (with a confirmation copy concurrently
dispatched by prepaid airmail post or courier service), to the
addresses of the respective parties as set forth by their
signatures below or to such other address as the party may
hereafter specify by written notice so given. Notices shall be
effective upon receipt at the location of the specified
address.
13.2. Authority; No Conflicting Obligations.
Each party warrants that its has all requisite power and
authority to enter into and perform this Agreement, and that
it has no agreement with any third party or commitments or
obligations which conflict in any way with its obligations
hereunder.
13.3. Relationship of the Parties.
The relationship of Purchaser and Seller under this Agreement
is intended to be that of independent contractors. Nothing
herein shall be construed to create any partnership, joint
venture or agency relationship of any kind. Neither party has
any authority under this Agreement to assume or create any
obligations on behalf of or in the name of the other party or
to bind the other party to any contract, agreement or
undertaking with any third party.
13.4. Assignment.
Except as expressly provided for in this Agreement, neither
this Agreement nor any right or obligations hereunder shall be
assignable by either party without the prior written consent
of the other party and any purported assignment without such
consent shall be void. Either party may assign this Agreement
without such consent in connection with the sale or transfer
of all or substantially all of the assets of the assigning
party. Any permitted assignee shall assume all obligations of
its assignor under this Agreement. No assignment shall relieve
any party of responsibility for the performance of its
obligations hereunder.
13.5. Dispute Resolution.
Any disputes or claims arising from this Agreement or its
breach shall be submitted to and resolved exclusively by
arbitration conducted in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of
Commerce. The arbitration shall be conducted by three (3)
arbitrators appointed in accordance with such rules. The place
of arbitration shall be in Geneva, Switzerland. An award
rendered in the arbitration shall be
Page 8
<PAGE>
final and binding upon the parties and judgment may be entered
thereon in any court of competent jurisdiction.
13.6. Severability.
If any provision of this Agreement is found invalid or
unenforceable, the remaining provisions will be given effect
as if the invalid or unenforceable provision were not a part
of this Agreement.
13.7. Amendments; Waiver.
This Agreement may not be amended except in a writing signed
by the authorized representatives of both parties. No waiver
of any provision of this Agreement shall be effective unless
made in writing and signed by the party sought to be charged
therewith. The failure of either party to enforce any
provision of this Agreement shall not constitute or be
construed as a waiver of such provision or of the right to
enforce it at a later time.
13.8. No Implied License.
Nothing in this Agreement shall be construed to convey any
license under any patent, copyright, trademark or other
proprietary rights owned or controlled by either party,
whether relating to the Products sold or any other matter.
13.9. Export Regulation.
Purchaser shall comply in all respects with all laws and
regulations of the United States government or any agency
thereof pertaining to exports.
13.10. Enforcement Costs.
The prevailing party in any arbitration or judicial action
brought to enforce the provisions of this Agreement shall be
entitled to recover its costs and expenses, including
reasonable attorneys' fees, incurred in filing and prosecuting
or defending such action.
13.11. Governing Law.
This Agreement shall be governed by and construed in
accordance with the internal laws of Switzerland, without
regard to conflicts of laws principles.
13.12. Construction.
The captions contained in this Agreement are for reference
only and shall not be used in its construction or
interpretation. The provisions of this Agreement shall be
construed and interpreted fairly to both parties without
regard to which party drafted the same.
13.13. United Nations Convention.
The United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement.
Page 9
<PAGE>
13.14. Entire Agreement.
This Agreement sets forth the entire agreement between the
parties with respect to the subject matter hereof and
supersedes all previous agreements and understandings between
the parties, whether oral or written, relating to such subject
matter.
IN WITNESS WHEREOF, the parties, through their respective duly authorized
officers, have executed this Agreement to be effective as of the Effective Date
set out in the preamble hereto.
CREE RESEARCH, INC. SIEMENS AKTIENGESELLSCHAFT
By /s/ F. Neal Hunter By /s/ R. Mueller /s/ C. Hagan
Name F. Neal Hunter Name R. Mueller C. Hagan
Title President Title President Opto Semicond. VP Fin.&Adm.
Date Sept. 11, 1996 Date Sept. 11, 1996 Sept. 11, 1996
Address for Notices Address for Notices
Cree Research, Inc. Siemens AG
2810 Meridian Parkway, Suite 176 Semiconductor Group, Opto Semiconductors
Durham, North Carolina 27713 Wernerwerkstr. 2
USA 8400 Regensburg 1, Germany
Attention: President Attention: R. Mueller and C. Hagan
Fax No: (919) 361-4630 Fax No: 49 341 202 2951
Page 10
<PAGE>
*=Information for which the company has sought confidential treatment
pursuant to applicable SEC rules.
SCHEDULE 1
Quantity and Shipment Schedule
A. Quantity. Purchaser will purchase ********** units of the Product (one
unit being one LED die) from Seller under this Agreement.
2. Shipment Schedule. The shipment schedule for the Products is as
follows, with each monthly quantity commencing in ************* to be
shipped in approximately equal installments on a weekly basis during
the month:
------------------------------------ --------------------------
Month Quantity
------------------------------------ --------------------------
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
------------------------------------ --------------------------
------------------------------------ --------------------------
Total *
------------------------------------ --------------------------
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
Seller will use all commercially reasonable efforts to ramp up its
manufacturing capacity as necessary meet the shipment schedule above.
Without limiting the foregoing, in order to provide a margin of safety
to meet such schedule, Seller will use all commercially reasonable
efforts to increase its capacity to manufacture Products available for
shipment under this Agreement to a minimum planned capacity of
********* units per month by the end of **************. If Seller
determines that such increase will not be completed by that date,
Seller will promptly notify Purchaser of the delay and Seller and
Purchaser shall in good faith negotiate and use their best efforts to
implement a mutually agreeable emergency program to rectify the delay.
Page 11
<PAGE>
3. Delay and Cancellation of Shipments. Purchaser shall be entitled to
delay or cancel shipment of all or any portion of the quantities
scheduled to be shipped during the period from ************* through
***************** under the following terms and conditions:
(a) Purchaser may without charge reschedule shipment of such
quantities to a date not later than ***************** provided
Purchaser gives Seller written notice at least ninety (90)
days prior to the beginning of the calendar month in which
such quantities are scheduled to be shipped. Purchaser's
notice must specify the quantities to be deferred and the
calendar month in which shipment of such quantities is to be
made. In no event, however, shall Seller be obligated to ship
more than ********* units in any calendar month. Subject to
the foregoing, a shipment may be rescheduled any number of
times under this paragraph.
(b) Purchaser may cancel shipment of such quantities provided
Purchaser pays Seller a cancellation charge of $******* per
unit for all quantities canceled and gives Seller written
notice specifying the canceled quantities at least ninety (90)
days prior to the beginning of the calendar month in which
such quantities are scheduled to be shipped. The cancellation
charges shall be due and payable within thirty (30) days after
the date notice of cancellation is given. The parties agree
that the amount of such cancellation charges represents a
reasonable estimate of Seller's damages resulting from
cancellation of the shipments scheduled during the period from
*********** through *************** and shall be due and
payable as liquidated damages and not as a penalty.
Page 12
<PAGE>
*=Information for which the company has sought confidential treatment
pursuant to applicable SEC rules.
SCHEDULE 2
Price and Payment Schedule
1. Prices. The prices for Products purchased under this Agreement shall be
as follows:
<TABLE>
<CAPTION>
--------------------------------------- ------------------------- -------------------------
Incremental Quantities Shipped Unit Price (US$) Extended Price
--------------------------------------- ------------------------- -------------------------
<S> <C> <C>
* * *
* * *
* * *
* * *
--------------------------------------- ------------------------- -------------------------
--------------------------------------- ------------------------- -------------------------
Total *
--------------------------------------- ------------------------- -------------------------
</TABLE>
Before shipment of more than ********** units under this Agreement,
representatives of Seller and Purchaser will meet to review the price
applicable to quantities in excess of ********** units. If mutually
agreed the parties may reduce the price stated above.
Purchaser acknowledges that the Products to be shipped hereunder have
different specifications than the standard products generally offered
by Seller and that the prices stated above may be higher than the
prices Seller charges for its standard products. If Seller commences
offering a standard product having the same specifications as the
Products to be purchased under this Agreement, and if the prices
charged by Seller for purchase of the standard product, under terms and
conditions comparable to those of this Agreement, are less than the
prices applicable to the Products not then shipped hereunder, Seller
will offer in writing to amend this Agreement to reduce the prices
applicable to Products not then shipped hereunder to the prices Seller
charges for the standard product.
2. Payment Terms.
The purchase price of the first ********* units, or $*********, shall
be due and payable in ********* equal installments on or before
*********************** and *******************. The purchase price of
the next ********** units, or $*********, shall be due and payable in
****** equal installments on
**********************************************************************.
The purchase price of the remaining units shall be invoiced to
Purchaser upon shipment and shall be due and payable within ten (10)
days from the date of the invoice.
If Seller fails to ship Products in accordance with the shipment
schedule set forth in Schedule 1 and Purchaser terminates this
Agreement on account of such failure in accordance with Section 10.1,
then upon such termination Seller refund to Purchaser any payment made
in advance for Products not then shipped. Seller agrees to grant
Purchaser a security interest in certain manufacturing equipment --
namely, two epi reactor systems to be ordered by Seller upon or
promptly after execution of this Agreement -- to secure such obligation
of Seller to refund any payment made in advance for Products not
shipped. The security interest shall be granted pursuant to a mutually
agreeable Security Agreement to be executed by the parties on or before
October 1, 1997.
Page 13
<PAGE>
*=Information for which the company has sought confidential treatment
pursuant to applicable SEC rules.
SCHEDULE 3
Product Specifications
1. Product Specifications for Products purchased under this Agreement
shall be the current published specifications for Seller's Model DH-85
LED die product (as set forth in Attachment A hereto), except that the
Products purchased under this Agreement shall have:
(a) **************************************************************
(b) **************************************************************
2. Seller may elect to substitute a version of the Products
************************************************
subject to Purchaser's approval which shall be given under the terms
and conditions set forth below. Commencing thirty (30) days after the
date of such approval, or such earlier date as may be agreed by the
parties, the Product Specifications applicable to shipments made
thereafter shall be the specifications of the new version supplied by
Seller as provided below, and Seller may not ship the original version
without Purchaser's prior written consent.
(a) The new version must meet the original specifications except
that *********************************************************
**************************************************************
*************************************************************.
(b) Seller will provide Purchaser with production prototypes of
the new version manufactured from wafers from at least three
different epi runs and will provide Purchaser the
specifications applicable to the new version and such
qualification data as may then be available to Seller.
(c) Purchaser will give Seller notice of Purchaser's approval or
disapproval within seventy-five (75) days after receipt of the
prototypes and specifications.
(d) Purchaser may withhold its approval only if new version does
not meet the minimum specifications described in (a) above.
Page 14
<PAGE>
*=Information for which the company has sought confidential treatment
pursuant to applicable SEC rules.
SCHEDULE 4
Technical Cooperation
1. Seller and Purchaser intend to work to improve the forward voltage,
brightness and ESD of the Product (with an ESD target of *********) and
to develop a conductive buffer layer version. Such efforts shall be
conducted as part of the Joint Development Program under the
Development, License and Supply Agreement dated October 25, 1995
between the parties (the "Development Agreement"), and all of the terms
and conditions of the Development Agreement (including without
limitation the provisions regarding joint ownership of inventions)
shall be applicable to such work.
2. To facilitate such additional work in the Joint Development Program,
Purchaser agrees with Seller as follows:
(a) Purchaser will make available to Seller, at Seller's
facilities for a period of six months beginning not later than
September 30, 1996, the full-time services of one scientist
and one specialist, each with expertise in epitaxial growth,
and two device fabrication engineers, all of whom shall be
Purchaser's employees with adequate qualifications.
(b) Purchaser will be responsible for all compensation, benefits
and expenses of such personnel.
(c) Purchaser's scientific personnel will work on tasks, in
accordance with the mutually agreed Joint Development Program,
which shall be directed to (i) improving device yields, (ii)
improving forward voltage, brightness and ESD, and (iii)
developing an improved product using a conductive buffer
layer.
(e) Purchaser's fabrication engineers will work on tasks, in
accordance with the mutually agreed Joint Development Program,
which shall be directed to the production of Products to be
purchased by Purchaser and to providing assistance to
Purchaser's scientific personnel in carrying out the work
described above.
(f) Purchaser agrees to hold Seller harmless from any claims by
Purchaser's personnel arising from work performed at Seller's
facilities, other than claims for intentional misconduct or
gross negligence of Seller.
(g) Purchaser's personnel assigned to Seller may be required by
Seller to execute an acknowledgment of confidentiality
obligations in the form annexed hereto as Attachment B.
Page 15
<PAGE>
ATTACHMENT A
Information attached in its entirety and filed separately with the Commission
pursuant to a confidential treatment request under Rule 24b-2 of the Commission.
C430-DH85 PRODUCT SPECIFICATIONS
<PAGE> ATTACHMENT A
Information attached in its entirety and filed separately with the Commission
pursuant to a confidential treatment request under Rule 24b-2 of the Commission.
<PAGE>
ATTACHMENT A
Information attached in its entirety and filed separately with the Commission
pursuant to a confidential treatment request under Rule 24b-2 of the Commission.
<PAGE>
ATTACHMENT A
Information attached in its entirety and filed separately with the Commission
pursuant to a confidential treatment request under Rule 24b-2 of the Commission.
<PAGE>
ATTACHMENT B
ACKNOWLEDGMENT OF
CONFIDENTIALITY OBLIGATIONS
As a condition of being permitted access to premises of Cree Research, Inc.
("Cree"), and to induce Cree to disclose to the undersigned certain confidential
information, the undersigned, an employee of Siemens AG ("Siemens"), hereby
acknowledges and represents as follows:
1. The undersigned has been advised that:
(a) Siemens and Cree entered into a Development, License and Supply
Agreement dated as of October 25, 1995 (the "Development Agreement").
(b) The Development Agreement imposes certain obligations regarding
"Confidential Information" (as defined in the agreement) disclosed by
either party to the other.
(c) Siemens and Cree represented and warranted to each other in the
Development Agreement that their respective employees having access
to Confidential Information of the other party would be subject to a
valid, binding and enforceable agreement to maintain such information
in confidence.
(d) The Development Agreement defines Confidential Information, with
certain exceptions, to include "any information, including data,
diagrams, drawings, reports, samples, research results and in general
all information or know-how, whether in written form or oral and
whether on tape, diskette, paper, files or on whatever other
material, . . . which the receiving party has been informed or has a
reasonable basis to believe is confidential to the disclosing party
or is treated by the disclosing party as confidential . . . ."
(e) The Development Agreement further provides that: "In the event that
visiting personnel are present on the premises of the host party, all
information of the host Party received or learned by the visiting
personnel shall be treated as Confidential Information of the host
party, regardless of whether such information is related to the
Subject Technology [as defined in the agreement] or marked or
otherwise identified as confidential."
2. The undersigned hereby represents to Cree that he or she is subject to a
valid, binding and enforceable agreement to maintain in confidence all
Confidential Information of Cree disclosed to the undersigned pursuant to
the Development Agreement, including all Confidential Information of Cree
received or learned while present on Cree's premises.
Signed this the ___ day of __________, 19____.
Signature
Typed or Printed Name
<PAGE>
<PAGE>
CREE RESEARCH, INC.
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1996 1995 1994 1993 1992
--------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
PRIMARY
Weighted average common stock outstanding 11,825,857 10,367,290 10,336,646 8,073,174 3,169,148
Net effect of dilutive stock options and
warrants - based on treasury stock
method 789,107 - - 529,152 -
------------- ------------- ------------- ---------------- -------------
Total 12,614,964 10,367,290 10,336,646 8,602,326 3,169,148
============= ============= ============= ================ =============
Net income (loss) 242,855 (17,074) (430,883) 593,535 (978,340)
============= ============= ============= ================ =============
Net income (loss) per common share $ 0.02 $ (0.00) $ (0.04) $ 0.07 $ (0.31)
============= ============= ============= ================ =============
FULLY DILUTED
Weighted average common stock outstanding 11,825,857 10,367,290 10,336,646 8,073,174 3,169,148
Net effect of dilutive stock options and
warrants - based on treasury stock
method 821,582 - - 647,940 -
------------- ------------- ------------- ---------------- -------------
Total 12,647,439 10,367,290 10,336,646 8,721,114 3,169,148
============= ============= ============= ================ =============
Net income (loss) 242,855 (17,074) (430,883) 593,535 (978,340)
============= ============= ============= ================ =============
Net income (loss) per common share $ 0.02 $ (0.00) $ (0.04) $ 0.07 $ (0.31)
============= ============= ============= ================ =============
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Cree Research, Inc. on Form S-8 (Numbers 33-98956 and 33-98958) and Form S-3
(Number 33-98728) of our report dated August 29, 1996, on our audits of the
consolidated financial statements and financial statement schedule of Cree
Research, Inc. as of June 30, 1996 and 1995, and for the years ended June 30,
1996, 1995 and 1994, which report is included in this Annual Report on Form
10-K.
Raleigh, North Carolina
September 27, 1996
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