Document:

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.

 

	
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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,

 

	
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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.

 

	
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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

 

	
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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

 

	
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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.

 

	
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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

 

	
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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.

 

	
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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.

 

	
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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.

 

	
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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

 

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

 

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

 

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

 

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

 

 

EXHIBIT 2:  Specification of Processes by APT

 

[ * ]

 

	
  [
  * ] = CONFIDENTIAL TREATMENT REQUESTED

  	
   

  	
  APT / CSMC Foundry Agreement

  

 

16

 

EXHIBIT 3:
Final Processes 

 

	
  [
  * ] = CONFIDENTIAL TREATMENT REQUESTED

  	
   

  	
  APT / CSMC Foundry Agreement

  

 

17

 

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

 

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

 

 

EXHIBIT 6:

 

Manufacturing
Control Plan

 

TBD

 

	
  [
  * ] = CONFIDENTIAL TREATMENT REQUESTED

  	
   

  	
  APT / CSMC Foundry Agreement

  

 

20

 

Exhibit 7

 

Consigned
Equipment

 

	
  [
  * ] = CONFIDENTIAL TREATMENT REQUESTED

  	
   

  	
  APT / CSMC Foundry Agreement

  

 

21

 

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

 

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

 

	
  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

  

 

24Exhibit 10.(a)

 

[SUTHERLAND ASBILL & BRENNAN LLP
LETTERHEAD]

 

 

	
  DAVID S. GOLDSTEIN

  	
   

  
	
  DIRECT LINE: 202.383.0606

  	
   

  
	
  Internet: david.goldstein@sablaw.com

  	
   

  

 

 

June 27, 2005

 

 

Board of Directors

Protective Life Insurance Company

2801 Highway 280 South

Birmingham, Alabama 35223

 

Directors:

 

We hereby
consent to the reference to our name under the caption “Legal Matters” in the
statement of additional information filed as part of post-effective amendment
number 3 to the registration statement on Form N-4 (File No. 333-112892) filed
by Protective Life Insurance Company and Protective Variable Annuity Separate
Account with the Securities and Exchange Commission.  In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933.

 

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
  SUTHERLAND
  ASBILL & BRENNAN LLP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ David
  S. Goldstein

  	
   

  
	
   

  	
   

  	
  David S.
  Goldstein

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