Exhibit 10.36

 

Final

 

AGREEMENT FOR WAFER PRODUCTION

 

between

 

Advanced Power Technology, Inc.

 

and

 

CSMC Manufacturing Co., Ltd.

 

This Agreement (“Agreement”) is entered into on June 22, 2005 by Advanced Power
Technology, Inc.; a Delaware Corporation with headquarters located at 405 SW
Columbia Street in Bend, Oregon, USA (hereinafter referred to as “APT”)

 

and

 

CSMC Manufacturing Co., Ltd., a Corporation with its principal business address
at Suite 1101 Landmark North, 39 Lung Sum Avenue, Sheung Shui, Hong Kong, for
the provision of foundry services to be performed by CSMC Technologies Fab 1
Co., Ltd., a subsidiary located at No.14, Liangxi Road, Wuxi, Jiangsu Province,
China. Post code: 214061 (hereinafter referred to as “CSMC”).

 

RECITALS

 

WHEREAS APT is engaged in the design, development, marketing and sale of certain
semiconductors.

 

WHEREAS APT owns certain intellectual property rights to the technology and
design methods used in the design and manufacture of APT’s Products.

 

WHEREAS APT desires CSMC to produce and supply die to APT in the form of fully
processed wafers (including wafer thinning and backside metalization).

 

WHEREAS CSMC has the capability of manufacturing such products and desires to
produce and supply fully processed wafers to APT upon the terms and conditions
contained in this Agreement.

 

WHEREAS both parties seek to enter into a long-term business relationship where
CSMC produces wafers / die conforming to the requirements of APT’s present and
future technologies. These technologies include but are not limited to APT’s
Mosfets and IGBT products.

 

WHEREAS APT understands and CSMC agrees that production will be conducted in
CSMC Technologies Fab 1 Co., Ltd. located at No.14, Liangxi Road, Wuxi, Jiangsu
Province, China and that the wafer diameter will be 6”.

 

WHEREAS APT understands and CSMC agrees that sufficient production capacity will
be made available to APT at CSMC Technologies Fab 1 Co., Ltd. in Wuxi, China.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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WHEREAS both parties agree to cooperate in order to continuously improve the
outgoing quality of wafers manufactured pursuant to this Agreement.

 

WHEREAS both parties agree to cooperate in order to cooperate to identify means
to reduce cost over time.

 

NOW THEREFORE, based on mutual promises and covenants contained herein and
intending to be legally bound, CSMC and APT agree as follows:

 

1.0                                    DEFINITIONS

 

1.1.                                   “Products” shall mean fully processed
wafers containing finished Power MOS Die of APT’s process / technology described
by part numbers listed in Exhibit 1, to be manufactured by CSMC for APT. 
Exhibit 1 will consist of mutually authorized Production release documents for
each Product type and will be amended by agreement between APT and CSMC as new
die types are released for production.

 

1.2.                                   “Product Information Package” shall mean
the technical (Process / design) information to be provided to CSMC by APT for
each Product for the purpose of specifying the Process and will be contained in
Exhibit 2.

 

1.3.                                   “Process” shall mean a manufacturing
process which as a minimum consists of the “Process Steps” in sequence for the
manufacture of Wafers including but not limited to the specific sequence of such
Process Steps and will include the masks and parameters for each such process
step, CD, and depth or implant doses and energies, heat cycle descriptions, etc.
used to manufacture the wafers. Exhibit 2 contains the specific Process
Requirements as communicated by APT and Exhibit 3 shall contain the mutually
accepted final Process to be used by CSMC for the purpose of manufacturing
Wafers exclusively for APT.

 

1.4.                                   “Manufacturing Control Plan” shall mean
the collection of documented controls as established through the identification
of critical processes and the implementation of control techniques, (Statistical
Process Control, Process Capability Cpk, or other techniques) to ensure process
repeatability. The manufacturing Control Plan will be documented in Exhibit 6
upon commencing of Production.

 

1.5.                                   “Wafers” shall mean probed or non-probed
silicon wafers that contain the die of the Products and meet the required
specifications for acceptance agreed herein.

 

1.6.                                   “Good Die” shall mean a Die on a Wafer
which meets the specifications as per the relevant test program for Wafer test,
defined by APT.

 

1.7.                                   “Proprietary Information” shall mean any
and all information including but not limited to technical information, database
tapes, specifications, test programs and supporting documentation provided
either orally, in writing, or in machine readable format and reticles or masks
generated by or for CSMC using the Product Information Package; provided that
all such information is marked “Confidential” or similarly, or, if oral,
identified as proprietary at time of disclosure and reduced to writing within
thirty (30) days thereafter.  Additionally, the parties agree that this
Agreement and its Exhibits as such and the content thereof shall be kept
confidential except as required to comply with U.S. Securities and Exchange
Commission rules and regulations and applicable stock exchange rules. 
Notwithstanding the foregoing Proprietary Information does not include
information generally available to the public, information independently
developed or known by the receiving party without reference to information
disclosed hereunder,

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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information rightfully received from a third party without breach of
confidentiality obligations, or information authorized in writing for release by
the disclosing party hereunder.

 

1.8.                                   “Lots” shall mean a group of Wafers which
are processed simultaneously. Each lot will be assigned a specific alpha/numeric
identification that distinguishes it from any other group that contains the same
type of die so that each Lot can be separately identified and tracked through
the life of all production die in a Lot.

 

1.9.                                   “Engineering Lots” shall mean all
experimental Lots to develop or install new processes, or to improve these
processes or to further develop APT’s technology and products.

 

1.10.                             “Qualification Lots” shall mean that after
Processes are sufficiently developed to warrant transfer and use for production
of Products APT will prepare and test product, subjecting this product to
various reliability tests for the purpose of qualifying the Process for
production use.

 

1.11.                             “Risk Production” shall mean production of
Wafers before completion of APT’s internal qualification has been completed.

 

1.12.                             “Production” shall mean the manufacturing of
Products using a qualified process pursuant to purchase orders provided by APT.

 

1.13.                             “Rework” shall mean the act of doing a Process
Step over which may include stripping and re-depositing films, re-subjecting the
wafers to additional heat treatments, and any other deviation to the mutually
agreed upon Process listed in Exhibit 3. Rework may only be performed to the
extent that it has been authorized and approved by APT as set forth in
Exhibit 5.

 

2.0                                    PROCESS TECHNOLOGY, MASKS, QUALIFICATION,
WAFER TEST

 

2.1.                                   PROCESS TECHNOLOGY

 

2.1.1.                     APT shall provide CSMC with the process / design
information for each Process step as described in Exhibit 2 for the purpose of
specifying the Process in accordance with Section 2.1.2.

 

2.1.2.                     Both parties agree that technology transfer and
qualification will proceed first on APT’s Mosfet Mos8 products / technology with
the intent that the Process is qualified within six to nine (6-9) months of the
date this Agreement is executed.

 

2.1.3.                     CSMC agrees to assign a dedicated customer engineer
to APT for the duration of this agreement.

 

2.1.4.                     APT and CSMC shall agree upon Process specifications
to be documented in Exhibit 3, which shall be finalized before CSMC begins
production in accordance with Section 3.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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2.1.5.                     Subject to the stipulations and procedures set forth
in this Agreement and in accordance with the qualification plan CSMC shall
install the Processes meeting the specifications in Exhibit 3 and deliver Wafers
for qualification purposes.

 

2.2.                                   MASKS

 

2.2.1.                     APT will pay for the initial mask sets for each die
type and any mask revisions due to subsequent redesigns conducted upon APT’s
request.

 

2.2.2.                     CSMC will provide APT with sufficient information
such that APT can incorporate CSMC’s alignment structures into the mask
database.  CSMC may also choose to add the alignment marks or have them added by
a third party at no cost to APT.

 

2.2.3.                     APT will supply mask databases to CSMC or CSMC’s
designated mask vendor.

 

2.2.4.                     CSMC will pay for subsequent masks worn out or broken
during the normal course of production.  CSMC will also pay for any masks
redesigned upon CSMC’s request of changing design rules.

 

2.2.5.                     CSMC shall not use such mask sets or electronic data
for any purpose not authorized by this agreement nor transfer the same to any
third party. CSMC agrees that the mask sets and electronic data are the
exclusive property of APT and will be used exclusively for Products manufactured
for APT.

 

2.3                                      QUALIFICATION

2.3.1                        The approval by APT for each Process and each
individual Product type, manufactured with the Process, is a prerequisite for
ordering and delivery of Wafers and/or Good Dies.  This Section 2.3.1 is not
applicable in the case of Risk Starts.

 

2.3.2                        A wafer lot will be considered as “qualification
worthy” only if it has a probe yield of at least [ * ] percent. APT may choose
to waive this requirement at its own discretion.

 

2.3.3                        For the purpose of qualification CSMC shall provide
APT, with the agreed upon number of Wafers.  Such Wafers delivered for
qualification must also meet all agreed APT standards, specifications and
requirements defined in Exhibit 3, however, that if failures occur due to
reasons for which APT is responsible, CSMC shall be paid 100% of the Wafer price
as specified in Exhibit 4.  CSMC shall, in accordance with the agreed schedule,
deliver to APT any documents and reports as required.

 

2.3.4                        Prior to completion of the qualification, APT may
request that CSMC provide Wafers out of “Risk Starts”.  CSMC will provide these
Wafers out of Risk Starts to APT at the price/volume specified in Exhibit 4.

 

2.3.5                        During qualification, APT may stop production of
Wafers for any or all APT Products by giving written notice to CSMC.  CSMC will
stop production

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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following completion of the process step at which the Wafer resides at the time
of such written notification.  APT will pay CSMC for all Wafers started prior to
CSMC receiving such notice.  Prices for such Wafers will be based on the stage
of production of the Wafers as defined in Exhibit 4.

 

2.3.6                        After APT qualification approval of a Process, CSMC
shall not carry out any major changes as defined by CSMC’s internal standards
unless approved by APT. CSMC may only carry out process changes upon written
authorization from APT.

 

2.3.7                        In the case that CSMC desires to perform major
changes to a Process as defined in Exhibit 8, APT shall be informed in written
form 6 months in advance, or a shorter period if mutually agreed upon, prior to
the planned commencement of such changes to the Process and shall receive a
detailed description of the planned changes in writing as well as the results of
any re-qualification of the Process with the intended changes to be performed by
CSMC in accordance with Exhibits 3, 5, 6 and 8.  APT will inform CSMC in writing
whether or not desired changes of the Process are acceptable.  In such case, a
re-qualification of the Process, according to this Section 2.3, is necessary and
CSMC shall provide APT with the necessary Wafers for such re-qualification free
of charge.  APT shall purchase the Wafers for re-qualification, if APT requests
such changes to the Process.  Successful re-qualification is the prerequisite
for final approval of APT to a major change to a Process.  APT shall not
unreasonably deny its consent to a major change to a process requested by CSMC
and APT shall not withhold such consent absent clear proof that such change will
have a material adverse effect on the resulting Product (e.g., but not limited
to yield, quality, reliability, specification of the respective Product, or
reasonable customer requests affecting a material quantity of Wafers).

 

2.3.8                        The specifications and requirements specified in
Exhibits 3, 4, 5, 6 and 8 may only be modified by mutual written agreement
between CSMC and APT.

 

2.3.9                        If APT determines that modifications to the
specifications are required, including modifications to photo masks, Process or
testing, or next generation MOS technology, CSMC shall perform such
modifications at APT’s cost, which shall be reasonable.  Regarding modification
of the Process, the parties have to agree to such proposed modifications in
advance.  The parties will negotiate adjustment to production price and delivery
schedule in advance if price or delivery schedule are affected by such
modifications.

 

2.3.10                  APT’s qualification plan is listed in Exhibit 9

 

2.4                                 WAFER TESTING

 

2.4.1                        The testing of Wafers will initially be performed
by APT.  For the purpose of yield improvement and for the calculation of
pricing, CSMC and APT will share all information related to wafer probe results.
APT and CSMC agree in principle that CSMC will perform Wafer testing at some
point in time after commencement of Production. The provisions, for example, APT
consigns the

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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test equipment, of such an arrangement will be defined and agreed upon at a
later date. A list of all APT consigned equipment will be maintained in
Exhibit 7.

 

3.0                               PRODUCTION, FORECAST/ORDERING

 

3.1.                              The business for each technology will be
conducted in two phases.  In Phase 1, pricing will be based on wafer pricing
with no yield guarantee as outlined in Exhibit 4.  In Phase 2, lot yield will be
guaranteed on a per die type basis.  The beginning of Phase 2 shall be defined
as production levels having reached [ * ] wafer starts per week for a given
technology. Forecasting and ordering will be on a Wafer basis.

 

3.2.                              Upon written notice from APT of successful
completion of the qualification as described in Section 2, and having received a
purchase order from APT, CSMC shall manufacture and deliver Wafers according to
the terms of this Agreement.

 

3.3.                              The purchase of Wafers and/or Good Die
pursuant to this Agreement shall be accomplished by means of purchase orders,
which will be issued to CSMC on at least an annual basis and no more frequently
than on a quarterly basis.

 

3.4.                              APT will release to CSMC device specific wafer
starts by no later than each Friday for wafers that are scheduled to begin
manufacturing the following week.  The standard lot size for any device will be
[ * ] wafers.

 

3.5.                              APT agrees to consign starting material (epi
wafers and/or substrates) pursuant to the forecasts issued by APT. Each
variation of starting material will be assigned an internal part number by APT.
CSMC agrees to provide adequate storage and handling facilities for the
consigned starting material and to provide regular visibility to APT of the
quantity of starting material by part number. APT and CSMC agree that over the
course of their relationship the procurement of starting material to satisfy
APT’s requirements may transfer to CSMC to carry out on APT’s behalf. The
provisions of such an arrangement will be defined and agreed upon at a later
date.

 

3.6.                              APT understands that CSMC may need to invest
on added equipment for APT projects, such as HTGB for back-end process and
Novellus Concept 1. Under such circumstances, APT will either consign the
equipment such as HTGB testing equipment or share the cost of implementing a
tool with CSMC [ * ]. In the event of cost sharing CSMC will reimburse APT for
their portion of the shared cost through a price reduction of [ * ] (US Dollars)
per wafer until the amount is reimbursed.

 

3.7.                              Both parties will immediately advise one
another in writing whenever they have reason to believe that wafers may not
conform to the applicable specifications.

 

3.8.                              In the case of technical problems arising in
the processing of wafers, especially with regard to yield, quality, reliability,
CSMC shall notify APT in writing and APT will be prepared to assist CSMC to a
reasonable extent in solving the problem.

 

3.9                                 In case any technical problem, defect or
malfunction should occur, which CSMC will be informed about, CSMC will
immediately start investigations and supply a first substantiated answer or
status report within seven (7) working days after receipt of APT’s notification
of such matter.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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3.10                           In order to ensure traceability, processing and
delivery of wafers and/or good die will be on a Lot-by-Lot basis unless
otherwise agreed upon.  Should lot splitting be necessary, APT will be notified
and given the opportunity to decide whether to recombine the sublots prior to
delivery or not.

 

3.11                         APT may request CSMC to stop production at any time
by giving written notice to CSMC.  CSMC will stop production following
completion of the process step at which the wafers reside at the time of the
notification from APT.  If the reason for such a stop of production is not
attributable to a failure of CSMC to fulfill its obligations under this
Agreement, CSMC will be paid for the wafers.  If such a stop of production is
attributable to CSMC failing to fulfill its obligations under this Agreement,
only those Wafers that meet the criteria applicable to Production Wafers shall
be paid for.

 

3.12                         If any circumstances should arise that could result
in a delayed delivery to APT, CSMC shall promptly notify APT and CSMC will make
every reasonable effort to recover the original schedule.

 

3.13                           CAPACITY PLANNING AND FORECASTING

 

3.13.1.               Six-Month Rolling Forecast.  Upon execution of this
Agreement, APT will give CSMC a Six-Month Forecast for the total forecast volume
of Wafers to be manufactured during the first six months of volume production
(after product qualification).  At the end of each subsequent month, APT will
update the Six-Month Forecast.  Such updated Six-Month Forecast shall be known
as the “Six Month Rolling Forecast.”  The Six-Month Rolling Forecast is a
forecast of wafer production volume to be used for establishing capacity to be
used for production of APT’s Wafers, and will be itemized by technology types. 
APT will utilize its best efforts to provide the Forecast by the 10th of each
month.  If CSMC does not object to a Six-Month Rolling Forecast within seven
(7) days, such Six-Month Rolling Forecast shall establish the minimum capacity
to be provided to APT during such period.  APT makes no representation or
warranty with respect to the accuracy of the Six-Month Rolling Forecast, but
will be committed to purchase the wafer quantities as set forth in
Section 3.13.2, below.

 

3.13.2                  CAPACITY FLEXIBILITY.  APT WILL COMMIT TO PURCHASE A
MINIMUM VOLUME OF FINISHED WAFERS UNDER THIS AGREEMENT BASED ON THE SIX-MONTH
ROLLING FORECAST PER THE TABLE BELOW.  CSMC WILL COMMIT TO PROVIDE APT WITH
CAPACITY FLEXIBILITY PER THE TABLE BELOW.

 

MONTH OF 6
MONTH ROLLING
FORECAST

 

APT
COMMITMENT TO
FORECAST

 

CSMC UPSIDE
COMMITMENT TO
FORECAST

 

1

 

[ * ]

 

[ * ]

 

2

 

[ * ]

 

[ * ]

 

3

 

[ * ]

 

[ * ]

 

4-6

 

[ * ]

 

[ * ]

 

 

Where products require significant upside or downside capacity APT will make a
best

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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EFFORT TO COMMUNICATE THE INFORMATION TO CSMC AS SOON AS THE DATA IS VALIDATED,
AND BOTH PARTIES MAKE A COMMERCIALLY REASONABLE BEST EFFORT TO ACCOMMODATE THE
FORECAST CHANGE.

 

3.14                           SITE RESTRICTION

 

3.14.1                  APT REALIZES THAT FOR REASONS OF HIGHER VOLUMES; LOWER
DEFECT DENSITY, CONTINUOUS COST REDUCTION OR BACKUP CAPACITY THAT QUALIFICATION
OF AN ADDITIONAL OR ALTERNATIVE FACTORY MAY BE IN THE BEST INTEREST OF BOTH
PARTIES.  APT WILL MAKE BEST EFFORT TO RATIONALIZE THE DETAILS RELATING TO FAB
TRANSFERS WHERE BOTH PARTIES BENEFIT.

 

4.                                       PRICES, PAYMENT, DELIVERIES AND
SHIPMENTS

 

4.1.                              Pricing for Wafers and/or Good Die are
specified in Exhibit 4.

 

4.2.                              Payment shall be due [ * ] days net after
receipt by APT or one of its subsidiaries of the respective invoice from CSMC.

 

4.3.                              Subject to a respective purchase order of APT
or one of its subsidiaries, Wafers and/or Good Die shall be delivered in
accordance with the delivery specification to the address specified by APT. APT
may, without being obligated to, perform an incoming inspection.

 

4.4.                              Wafers shipped from CSMC to the address
specified by APT will be packed sufficient to prevent scratches, cracks, ESD,
and any damage from shipping and handling. No mixed production lots will be
packed in the same container, and a label will be attached to each container
containing information with CSMC Wafer Lot identification and APT die type as a
minimum. Other information will be mutually agreed upon.

 

4.5.                              A ship alert will be provided by CSMC to APT
and the recipient (i.e. third party packaging company) containing information to
be mutually agreed upon including APT purchase order number, commercial invoice
of Products, Airway Bill, etc.

 

4.6.                              Shipping terms will be Incoterms FCA

 

4.7.                              Delivery of any Products shall be deemed to
have taken place when CSMC has handed over such Products, cleared for export,
into the charge of a shipping forwarder designated by APT. Title and risk of
loss of the Products delivered to APT shall transfer from CSMC to APT in
accordance with relevant purchase orders shall transfer from CSMC to APT at the
FCA point.

 

5.                                      ON-SITE INSPECTION, DOCUMENTATION AND
REPORTING

 

5.1                                 Subject to CSMC’s standard safety and
manufacturing procedures, employees of APT shall be allowed to visit CSMC’s
factory during normal working hours with reasonable prior written notice to
CSMC.  Such employees shall be granted access to CSMC’s production flow,
production control information and quality systems related to products being
manufactured for APT.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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5.2                                 On written request, CSMC shall provide
reports to APT.  These reports may include work in process, ordered volumes and
outgoing volumes, yield, reject material and parametric data.  The detailed
procedure shall be fixed in writing separately.

 

5.3                                 Both parties shall maintain a clear
organizational responsibility for execution of this Agreement with respect to
technical, logistical as well as quality issues.  At least one person from each
party will be nominated to cover the administration of this Agreement full time.

 

5.4                                 Each party agrees to pay all its own
expenses associated with communication, travel, and accommodations while
visiting or communicating with the other party.

 

6.0                                    WARRANTY

 

6.1.                                   CSMC warrants that all Wafers and/or Good
Die delivered hereunder will meet the applicable specifications and requirements
in Exhibits 1, 3, 4, 5, 6, and 8 and shall be free from defects in material and
workmanship.

 

6.2.                                   If any Wafer supplied by CSMC hereunder
fails to conform to Exhibits 1, 3, 4, 5, 6 and 8, CSMC shall, at its own cost,
replace such Wafer after receipt of APT’s return shipment thereof within thirty
(30) days after CSMC’s receipt of such returned Wafer.

 

6.3.                                   The warranty period for the Wafers and
Good Die shall end [ * ] months after the delivery to APT.

 

6.4.                                   If Wafers and/or Good Die fail to meet
specifications in Exhibits 1, 3, 4, 5, 6 and 8 and in APT’s reasonable opinion
such failure appears material, APT or one of its subsidiaries may request CSMC
to stop production.  If CSMC is unable to correct such failures within 30 days,
APT or the Subsidiary that has ordered may cancel such particular orders.

 

6.5.                                   If defects or malfunctions appear to be
of excessive or epidemic nature resulting from processing or the use of
unsuitable materials by CSMC, then CSMC shall take appropriate actions to remedy
such defects in agreement with APT and in accordance with industry standards
applicable to the individual circumstances.  CSMC shall inform APT in writing
about its actions to be taken within two (2) weeks after notification. If APT
finds these actions unacceptable then they can terminate the Agreement per
Section 12.

 

6.6.                                   The foregoing warranty constitutes CSMC’s
exclusive liability, and the exclusive remedy of APT, for any breach of any
warranty or any nonconformity of the Wafers to the specifications.  This
warranty is exclusive and in lieu of all other warranties, express, implied or
statutory, including but not limited to the warranties for merchantability and
fitness for a particular purpose, which are hereby expressly disclaimed.

 

6.7.                                   APT understands that it shall be subject
to applicable laws and regulations, including but not limited to Chinese
applicable laws and regulations, for the purpose of implementation of this
Agreement.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

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7.0                                    FORCE MAJEURE, LATE DELIVERIES

 

7.1.                                   Neither party shall be liable to the
other for failure or delay in the performance of any of its obligations under
this Agreement for the time and to the extent such failure or delay is caused by
Force Majeure such as, but not limited to, riots, civil commotions, wars,
hostilities between nations, governmental laws, orders or regulations, actions
by the government or any agency thereof, storms, fires, strikes, lockouts,
sabotages or any other contingencies beyond the reasonable control of the
respective party and of its subcontractors.  In such events, the affected party
shall immediately inform the other party of such circumstances, together with
documents of proof, and the performance of obligations hereunder shall be
suspended during, but not longer than, the period of existence of such cause and
the period reasonably required to perform the obligations in such cases.

 

7.2.                                   In addition to any other rights, in case
of a delay of delivery by one month caused by whatever reason including late
deliveries of CSMC’s vendors, APT shall be entitled to cancel the order delayed,
in whole or in part, without incurring any liability, and may reorder the
quantities according to then existing needs of APT.  APT will have no right to
cancel purchase orders if the late delivery is due to a Force Majeure of less
than two months or APT’s fault.

 

8.0                                    PROPRIETARY INFORMATION

 

8.1.                                   Both CSMC and APT agree that Proprietary
Information of the other will be used by them exclusively for the purpose of
manufacturing Wafers and/or Good Dies hereunder and will not be disclosed to any
third party without the prior written permission of the disclosing party.

 

8.2.                                   CSMC agrees to use reasonable care to
maintain in confidence Proprietary Information of APT furnished hereunder, not
to make use thereof other than for the purposes set forth in this Agreement, and
not to distribute, disclose or disseminate Proprietary Information of APT in any
way or form to anyone except its own employees who have a reasonable need to
know the same provided, however, that this Agreement shall impose no obligation
on CSMC with respect to any Proprietary Information which:

 

8.2.1.                     is already in the public domain or becomes available
to the public through no breach by CSMC;

8.2.2.                     was rightfully in CSMC’s possession without
obligation of confidence prior to receipt from APT;

8.2.3.                     was received by CSMC from a third party without
obligation of confidence;

8.2.4.                     is independently developed by CSMC without reference
to information disclosed here-under

8.2.5.                     is approved for release by written Agreement of APT.

8.2.6.                     Each party acknowledges and agrees that in the course
of performing under this Agreement, it shall have access to and become
acquainted with information concerning various trade secrets and other
confidential and Proprietary Information of the other party.  This includes, but
is not limited to, marketing plans, the identities of suppliers and customers,
ideas, design rules, secret inventions, unique processes, compilations of
information, records, specifications and other information which is owned by the
other party, and shall maintain such information in confidence and shall not
apply this information either directly or indirectly without prior consent from
the other party to any products not included in this Agreement.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

10

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8.3.                                   CSMC shall destroy all defective Wafers,
Die and masks unless otherwise requested by APT in writing.  In the case of idle
masks, excessive Wafers and/or Good Die, CSMC will inform APT in writing and APT
will give the disposition instructions in writing within thirty (30) days.

 

8.4.                                   No press release or any publication of
the existence of this Agreement shall be allowed unless first approved by the
other party in writing, with such approval not being unreasonably withheld.

 

8.5.                                   Upon written request by APT, CSMC shall
return or destroy all written Proprietary Information received, as well as all
copies made of such Proprietary Information.

 

8.6.                                   All Proprietary Information of APT shall
remain the property of APT.  Any masks generated by CSMC from APT database tapes
shall be the property of APT, will be returned to APT or destroyed on APT’s
written request, and will be used exclusively to produce Wafers and Good Die for
APT.  Nothing contained in this Agreement shall be construed as granting any
license or rights under any proprietary right whether present or future.  The
disclosure of Proprietary Information shall not result in any obligation to
grant CSMC rights therein.

 

8.7.                                   If APT is furnished hereunder with
Proprietary Information of CSMC, the stipulation of this Section 8 shall apply
accordingly in the reverse relation between the parties.

 

8.8.                                   Upon termination or expiration of this
Agreement for whatever reason, the receiving party shall (i) return to the other
party or destroy the original and all copies of any Proprietary Information and
(ii) at the disclosing party’s request, have one of its officers certify in
writing that it will not make any further use of such Proprietary Information
and will not manufacture or have manufactured any product incorporating
Proprietary Information.

 

9.0                                    PATENT INDEMNITY, PRODUCT LIABILITY
INDEMNITY

 

9.1.                                   APT warrants that it owns the legal title
of, or has been duly authorized to use, the patent, trademark, industry design,
copyright, know-how and any other intellectual properties necessary for
implementing this Agreement.

 

9.2.                                   It is APT’s responsibility to defend or
otherwise resolve at APT’s sole expense any dispute arising from a claim that
the Products infringe a third party’s patent, trademark, copyright, mask work
rights, trade secret or other intellectual properties.

 

9.3.                                   Notwithstanding Section 9.1 above, it is
CSMC’s responsibility to defend or otherwise resolve at CSMC’s sole expense any
dispute arising from a claim that the CSMC Process and/or CSMC Technical
Information provided by CSMC infringe a third party’s patent, trademark,
copyright, mask work rights, trade secret or other intellectual properties due
solely to the Process used by CSMC or its subcontractors to process the Wafers.

 

9.4.                                   If a third party’s claim is made alleging
an infringement of a patent, copyright or other intellectual properties of the
said third party, then the party to this Agreement against which this claim is
raised shall immediately inform the other party thereof in writing.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

11

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9.5.                                   APT shall indemnify and hold CSMC
harmless against any third party claims, costs and expenses due to all
liabilities that may arise from CSMC’s use of know-how supplied by APT.

 

9.6.                                   CSMC shall indemnify and hold APT, its
subsidiaries and its customers harmless against any third party claims, costs
and expenses due to all liabilities that may arise due to APT’s use of CSMC’s
know-how.

 

9.7.                                   The above liabilities of a party hereto
to the other party are in any case under the condition that the other party
notifies the first party of the respective third party’s claim without any
reasonable delay and does not admit on its own initiative that said claim was
rightfully raised.

 

9.8.                                   The above liability shall be the sole and
exclusive remedies between the parties with respect to patent indemnity and
product liability.

 

10.0                             EXPORT REGULATIONS

 

10.1.                             APT’s Product / Process Information, as well
as supplies furnished under this Agreement, is subject to governmental export
regulations.  Consequently, these obligations may be subject to the approval by
the respective governmental authorities.

 

10.2                                For presentation to the International Export
Control Authorities, CSMC declares that all APT Product / Process received by
CSMC from APT are intended for manufacturing of Wafers and Good Die exclusively
for APT.  CSMC declares not to export such APT Information to third countries
without approval of the competent U.S. Export Control Authorities.

 

11.0                             ASSIGNMENT

 

11.1.                             Neither party shall delegate any obligations
under this Agreement, or assign this Agreement or any interest or rights
hereunder without the prior written consent of the other, except incident to the
Sale or transfer of substantially all of such party’s business.

 

11.2.                             APT’s obligations under this Agreement may be
performed by its subsidiaries at APT’s discretion.

 

12.0                             TERMS AND TERMINATION

 

12.1.                             This Agreement becomes effective with the
execution hereof by both parties and shall remain in effect until terminated
pursuant to the provisions of this Section 12.  During the duration of this
agreement each party may terminate the Agreement with twenty-four (24) months
prior written notice unless mutually agreed to reduce this notice time.

 

12.2.                             This Agreement may be terminated immediately
by one party if the other party

 

12.2.1.               breaches any material provision of this Agreement and does
not remedy such breach within thirty (30) days of notice of breach; or

12.2.2.               becomes insolvent or otherwise subject to insolvency
procedures;

12.2.3.               comes under outside control, i.e. 50% or more of the
shareholders’ voting rights are held directly or indirectly by a third party or
third parties that are direct competitors of the other party.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

12

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12.3.                             APT may terminate this Agreement if the
Products do not pass APT’s qualification criteria and provided APT has made a
reasonable attempt to execute the qualification within 6 months after receipt of
qualification wafers.

 

12.4.                             The provisions of Section 6, 8, 13 and 14
shall also apply after termination of this Agreement.

 

13.0                             ARBITRATION

 

13.1.                             Any controversy or claim arising out of or
relating to this Agreement, including, without limitation, the making,
performance, or interpretation of this Agreement, shall be settled by
arbitration.  Unless otherwise agreed, the arbitration shall be conducted in the
Hong Kong International Arbitration Center in accordance with its Arbitration
Rules then in effect, provided that if the Arbitration Rules are in conflict
with the express provisions of this Agreement, such provisions shall prevail.
The arbitration shall be held in Hong Kong. The arbitration proceedings shall be
conducted, and the award shall be rendered, in the English Language.  The
parties agree that all facts and other information relating to any arbitration
arising under this Agreement shall be kept confidential to the fullest extent
permitted by law.

 

14.0                             GOVERNING LAW

 

This Agreement shall be governed by and construed in accordance with the laws of
the Hong Kong Special Administrative Region.

 

15.0                             ATTORNEY FEES

 

If any suit or action is filed by any party to enforce this Agreement or
otherwise with respect to the subject matter of this Agreement, the prevailing
party shall be entitled to recover reasonable attorney fees incurred in
preparation or in prosecution or defense of such suit or action as fixed by the
trial court, and if any appeal is taken from the decision of the trial court,
reasonable attorney fees as fixed by the appellate court.

 

16.0                             NOTICES

 

All notices required to be sent by either party under this Agreement will be
sent to the addresses set forth below, or to such other address as may
subsequently be designated in writing:

 

If to APT:

Advanced Power Technology, Inc.

405 S.W. Columbia Street

Bend, Oregon 97702 USA

Attention:  Russell Crecraft

Title:  Executive Vice-President and Chief Operating Officer

Telephone:  (541) 382-8028

Fax: (541) 389-1241

e-mail: rcrecraft@advancedpower.com

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

13

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If to CSMC:

CSMC Manufacturing Co., Ltd.

 No.14, Liangxi Road,

Wuxi, Jiangsu Province

China

Attention: Elvis Deng

Title:  Vice President

Telephone:  (86) 510 586-1988

Fax: (86) 510 586 7443

e-mail: elvis_deng@csmc.com.cn

 

17.0                             AMENDMENTS

 

Only an instrument in writing executed by all the parties may amend this
Agreement.

 

18.0                             ENTIRE AGREEMENT

 

This document is the entire understanding between CSMC and APT with respect to
the subject matter hereof and merges all prior Agreements, dealings and
negotiations.  The terms of this Agreement shall govern the Sales and purchase
of Wafers and Good Die.  The parties recognize that the Exhibits to this
Agreement will have to be amended or exchanged, as the case may be, from time to
time.  No modification, alteration or amendment shall be effective unless in
writing and signed by both parties.  No waiver of any breach shall be held to be
a waiver of any other or subsequent breach.

 

AGREED TO:

 

Advanced Power Technology, Inc.,

CSMC Manufacturing Co., Ltd

 

 

 

 

By:

 

 

By:

 

 

 

 

Name:

 

 

Name:

 

 

 

 

Title:

 

 

Title:

 

 

 

 

Date:

 

 

Date:

 

 

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

14

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EXHIBIT 1: Production Agreements

 

Customer Advanced Power Technology

 

APT Device

 

CSMC Device

 

 

 

Mask Set ID

 

CSMC Process Flow

 

 

 

Available Die Per Wafer

 

 

 

Risk Production Signoff

 

Production Signoff

 

 

 

 

 

 

CSMC

 

CSMC

 

 

 

Date

 

Date

 

 

 

Remarks

 

Remarks

 

 

 

 

 

 

 

 

 

APT

 

APT

 

 

 

Date

 

Date

 

 

 

Remarks

 

Remarks

 

 

 

 

 

 

 

 

 

 

 

Guaranteed Probe Yield

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

15

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EXHIBIT 2:  Specification of Processes by APT

 

[ * ]

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

16

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EXHIBIT 3: Final Processes

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

17

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EXHIBIT 4:

 

•                  The wafer prices for production listed below do not include
epi wafers.

 

•                  The initial business will be for fully processed wafers
processed to APT’s requirements.

 

WSPM*

 

Mos8, 7 mask

Up to 1000

 

[ * ]

> 1000

 

[ * ]

Wafer thinning

 

[ * ]

 

--------------------------------------------------------------------------------

WSPM* means Wafer Starts Per Month

 

EXHIBIT 4 continued:

 

•                  Once volumes have been reached of [ * ] wafer starts per week
for a given Process technology, CSMC will guarantee over-all average probe yield
on a lot by lot basis for each die / technology type. The wafer cost will be
pro-rated downward on a linear basis if the average target lot yield is not
achieved.  For example, if the actual probe yield for a given lot is 90% of the
guaranteed target yield, the price of the wafers for that particular lot will be
90% of the contract price. Probe yields will be mutually agreed upon by APT and
CSMC in advance.

 

•                  Once in Production CSMC will guarantee a Wafer line yield of
[ * ]. If Wafer line yield for a given Wafer Lot is less than [ * ] CSMC will
compensate APT for the cost of the starting material equal to the cost of the
starting material which will be made available to CSMC by APT. The frequency of
compensation will be no more than once per month and no less than once per
quarter.

 

•                  CSMC will scrap individual wafers which do not meet a [ * ]
minimum probe yield during both Phase 1 and Phase 2 production.

 

•                  Pricing will be reviewed on an annual basis as a minimum.
However, either party may request a pricing review whenever a significant trend
in business warrants such a change.

 

•                  Pricing for future technologies or alternate manufacturing
locations will be mutually agreed upon as required.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

18

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EXHIBIT 5:

 

Specifications for Rework

 

Apt authorizes CSMC for the following reworks on APT’s products:

 

TBD (i.e. Photoresist rework)

 

Any other rework not listed in this attachment is not authorized and requires
written approval by APT on either a case by case basis or an amendment to this
exhibit.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

19

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EXHIBIT 6:

 

Manufacturing Control Plan

 

TBD

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

20

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Exhibit 7

 

Consigned Equipment

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

21

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Exhibit 8

 

Major Changes

 

CSMC’s specification WQC-73102 will serve as the guiding document describing
major changes. In addition, APT also considers changes to the final wafer
thickness to be a major change. Additional criteria will be mutually agreed upon
and amended in this exhibit.

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

22

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Exhibit 9

 

Qualification Guidelines

 

The MOS 8 qualification will be performed via vehicles representative for the
whole product family.

Typically 3 lots,

The definition of qualification vehicles takes into account:

•                  structural similarity

•                  package

•                  assembly line

•                  the production volume of the various types

 

 

Stress name

 

Test conditions

 

Qty to test per lot

D.C. electricals

 

Standard APT D.C. Static electrical tests

 

all units, verify they are equivalent to APT product

Selected dynamic tests

 

Capacitance, switching, gate charge & trr

 

22 pcs

Unclamped inductive switching

 

rated conditions for the product

 

all units, verify they are equivalent to APT product

Thermal resistance

 

[Mil-Std-750, TM3161], steady state -Rthjc, measure at pre temp cycle, after 100
and 500 cycle

 

12 pcs

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

23

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Stress name

 

Test conditions

 

Qty to test per lot

Temperature cycle

 

[Mil-Std-750, TM1051G] -55 to 150°C, electrical test @ 50 cycles, 100 cycles,
250 & 500 cycles

 

12 pcs

Power cycle

 

[Mil-Std-750, TM1042D] deltaTj=70°C, electrical test @ 1k, 2k, 4k & 6k cylces

 

24 pcs

HTRB

 

[Mil-Std-750, TM1042A] Vds=400V, Vgs=0V, Tc=150°C, electrical tests @ 168, 500 &
1k hours

 

24 pcs

HTGB

 

[Mil-Std-750, TM1042B] Vgs=24V, Vds=0V, Tc=150°C, electrical tests @ 168, 500 &
1k hours

 

24 pcs

85/85

 

[JESD 22, TM A101-B] 85% humidity, 85°C, bias Vdss=10V, electrical tests @ 168,
500 & 1k hours

 

24 pcs

Pressure Pot

 

[JESD 22, TM A102-B] 100% humidity, ~15 psig, electrical tests at 24, 28 & 96
hours

 

12 pcs

ESD classify

 

[Mil-Std-750, TM1020] to classify product class 1, 2, 3, or 4

 

8 pcs

 

[ * ] = CONFIDENTIAL TREATMENT REQUESTED

 

APT / CSMC Foundry Agreement

 

24

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