Manufacturing Agreement

MANUFACTURING AGREEMENT


[*] = CONFIDENTIAL TREATMENT REQUESTED


This agreement is made as of ____________________, 1997 by and between SIEMENS AG, a German corporation located in Munich, Germany, hereinafter referred to as "SIEMENS", and Advanced Power Technology, a Delaware Corporation located in Bend, Oregon, USA, and its subsidiaries and affiliates, hereinafter referred to as "APT".


WITNESSETH:


WHEREAS, APT desires to enter into a long-term agreement with SIEMENS for the procurement of products to be manufactured by SIEMENS in accordance with specifications submitted by APT, including IGBT discrete products and IGBT processed wafers as listed in ATTACHMENT A. Attachment A can be changed every time if both parties mutually agree in this change in writing.


NOW, THEREFORE, and in consideration of the mutual promises contained herein, APT and SIEMENS agree as follows:


1. MANUFACTURE OF PRODUCTS


SIEMENS hereby agrees to manufacture certain IGBT discrete products and
IGBT processed wafers for APT in accordance with orders for specified
products to be communicated to SIEMENS from to time to time via fax, and
in a accordance with specifications for those ordered products to be
provided to-SIEMENS by APT and APT agrees to pay for such products in
U.S. Dollars in accordance with SIEMENS's price schedules contained in
the attached quotations. SIEMENS agrees to be bound by the terms and
conditions of this Agreement in connection with the manufacture and sale
of these products. APT is not required to purchase any minimum quantity
of products from, nor is APT required to purchase these or similar IGBT
discrete products and IGBT processed wafers exclusively from SIEMENS


2. COORDINATION


APT has identified its Vice President, Discrete Power Products, currently
Mr. John Hess as its coordinator. SIEMENS has identified its Senior
Director, Power Semiconductors, currently Mr. Claus Geisler, as its
coordinator. The coordinators represent their companies for the
implementation and communications of all items contained in this
Agreement. In the event that a coordinator is changed by either party,
notice of such change shall be made in writing to the other party.


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3. PAYMENT


A. APT shall pay SIEMENS by international bank transfer, [*],
in accordance with the agreed upon fixed schedules of product and
processed wafer shipments.


B. Prices will be in U.S. Dollar.


C. Prices in U.S. Dollar shall be as set forth in annual quotation
and cannot be changed during a twelve-month period after signature
unless otherwise agreed upon in writing by both parties. All
prices of products included in these quotations and any future
prices or products will be reviewed annually by both parties. Any
prices agreed upon for products or wafers not included in an
annual price quotation or review will be fixed until the end of
these twelve-month period to ensure that all pricing remains on
the same annual price cycle.


D. All APT divisions, subsidiaries and other affiliated companies,
foreign and domestic are permitted to purchase all SIEMENS items
at the prices which appear in the above referenced quotation and
in accordance with the terms of this Agreement.


E. Price per good die and wafer quantities are set forth in
Attachment A1 and A2.Siemens and APT will review quantities on a
yearly basis to set up the pricing. The prices for 1998 are
agreed.


4. INSPECTION


SIEMENS agrees that APT Representatives, designated by APT's Coordinator,
shall have the right of inspection of SIEMENS's manufacturing facilities,
the manufacturing work in progress, and those offices areas containing
documentation and records relevant of this Agreement at normal business
hours and after at least two (2) weeks prior written notice once a year.


5. RETURNS


A. SIEMENS agrees to supply products to APT which meet the mutually
agreed upon specifications. If, within 3 months after delivery of
products from SIEMENS, APT determines that the products do not
meet those specifications, SIEMENS will replace the defective
returned products at the SIEMENS expense. Immediately upon such
determination and' prior to any return by APT of such products,
SIEMENS shall be so notified and shall have the option of having a
representative of SIEMENS inspect the products being returned,
provided that such inspections takes place within two (2) weeks of
such notification by APT. Following such inspection or expiration
of the two-week period, APT will ship these products back to
SIEMENS. SIEMENS will replace such returned defective products
which meet the mutually agreed upon specification within six (6)
weeks following SIEMENS's receipt of the returns at any SIEMENS
location. SIEMENS


[*] = CONFIDENTIAL TREATMENT REQUESTED


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shall be deemed to have met the six (6) week time table if, within
six (6) weeks, such replacement products are shipped from a
SIEMENS facility to a common carrier for shipment to APT. Upon
SIEMENS's failure to so ship within (6) weeks, APT will be
entitled to receive the next subsequent shipments of any products
from SIEMENS at no cost to APT for the goods of the shipping
thereof, until APT has received the equivalent value of goods
which were not promptly replaced. In such circumstances the
equivalent value shall be the original cost of the goods which
were not properly replaced, without regard to any subsequent price
changes for the same product.


B. No products, other than replacement products, will be accepted by
APT with date codes older than six (6) months prior to the date of
receipt at the APT facility. For replacement, date codes will be
accepted which are up to six (6) months prior to the date of the
receipt at SIEMENS of returned defective products. Under no
circumstances will APT accept any replacement products with date
codes older than 26 weeks prior to the date of receipt at the APT
facility.


6. PACKAGING BY SIEMENS


A. All packaging will be of anti static materials in accordance with
the mutually agreed upon specifications.


B. Quantities must be packaged as described in Attachment B.


C. Boxes shall be taped closed and/or sealed in plastic.


D. Packaging must be resistant to lead bend or unit damage of any
kind.


E. Changes in packaging, even if within the mutually agreed upon
specifications, must be approved by both parties.


7. QUALITY


A. After qualification, SIEMENS may not carry out any significant
alteration to the product or process which affects the
suitability, functions, processing or reliability, without
previously informing the customer. The customer must be informed
three (3) months before the planned commencement of delivery and
must receive a detailed description of the alteration. The
customer will announce his decision within 45 days.


B. Device marking will be in accordance with the mutually agreed upon
specifications.


8. SHIPPING PROCEDURES


A. SIEMENS shall provide APT's Coordinator with a confirmation of
APT's order, in which the delivery date is announced.


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B. APT agrees to pay shipping costs F.O.B. Germany for the wafers and
products shipments other than replacement wafers and products.


C. SIEMENS may be required to make deliveries to other specified APT
locations after procedures are established and agreed upon by both
parties. Initially, product will be shipped to APT, Bend, USA or
APTE, Merignac, France, only.


9. ON-TIME DELIVERY/SCHEDULING


A. If the delivery date is by day, SIEMENS shall not deliver more
than seven (7) days earlier or three (3) days later as the agreed
delivery day.


In case SIEMENS realizes that he cannot adhere to the agreed
delivery date, he shall without delay inform APT and indicate the
prospective duration of the delay. The Parties shall immediately
endeavour to find reasonable remedial measures.


If SIEMENS is in delay with deliveries for which he is responsible
and if APT substantiates that he has suffered damages due to the
delay, he may claim per full week of delay liquidated damages of
0,5% of the price of the delayed SIEMENS Products up to a maximum
amount of 5% of such price. Any further claims for damages due to
the delay shall be excluded.


APT may terminate the relevant separate purchase contract without
incurring any liability, provided the Products have not been
delivered within a reasonable grace period set by APT. Further APT
may terminate this Agreement, if, during a nine-week period,
SIEMENS' on-time delivery performance is less than 85 % in
quantity for any four (4) weeks of that nine-weeks period.


B. a) Finished Goods


APT will provide a thirteen (13) week order requirement
schedule to SIEMENS on a monthly basis with nine (9) weeks
being firm and four (4) weeks floating. The fixed nine (9)
week requirement may only be modified with the consent of
both parties. The four (4) week floating requirement
schedule may only be reduced by either party by up to 20 %
quantity.


b) Wafers/Die


APT will provide a fourteen (14) week order requirement
schedule to SIEMENS on a monthly basis with six (6) weeks
being firm and eight (8) weeks floating. The fixed six (6)
weeks requirement may only be modified with the consent of
both parties. The first four (4) week floating requirement
schedule may only be reduced by either party by up to 20 %
quantity. The next four (4) week floating requirement
schedule may only be reduced by either party by up to 40 %
quantity.


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10. PROPRIETARY RIGHTS


A. If a third party raises justified claims against APT for
infringement of US Patents by wafers or other products supplied by
SIEMENS (hereinafter "Products"), SIEMENS shall at its cost
acquire for APT a right to use the 'Product. In case this is not
possible at economically reasonable conditions, SIEMENS' liability
for infringement of any intellectual property rights or copy
rights shall be limited as follows:


(a) Seller shall indemnify and hold harmless Buyer against any
legal costs and damages of Buyer caused by Protective
Right infringement by the Product as such up to the amount
of an appropriate license fee, which the owner of the
Protective Rights could claim directly from Seller for the
use of the infringing Product.


(b) For future deliveries SIEMENS shall, if economically
reasonable, at its option and in compliance with the
specifications modify the Product to become non infringing
or deliver an equivalent non infringing product.


Claims shall be deemed justified only if they are acknowledged as
such by Seller or finally adjudicated as such by a court of
competent jurisdiction.


B. The obligations of SIEMENS mentioned in Section 10.A above apply
under the precondition that APT informs SIEMENS without delay in
writing of any claims for infringement of Protective Rights, does
not accept on its own any such claims and conducts any disputes,
including settlements out of court, only in agreement with
SIEMENS.


C. Any liability of SIEMENS shall also be excluded, if the
infringement of US patents results from specific instructions
given by APT or the fact that the Product has been changed by APT
or is being used in conjunction with products not delivered by
SIEMENS, which convert an otherwise non-infringing Product to an
infringing Product.


D. Any liability of SIEMENS pursuant to Section 10.A shall be
excluded, if the infringement of US patents is not caused by the
Product itself, for example if such infringement results from the
application of the Product (including any application specific
circuitry implemented in the Product), unless SIEMENS did offer
the Product especially for such infringing application.


11. RISK, TITLE


A. Risk of loss or damages shall pass onto APT according to the
clause of the incoterms 990 as defined in Section 8. B.


B. SIEMENS retains title to the Products until all payments due to
SIEMENS have been finally effected by APT.


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12. WARRANTY


A. The warranty period shall be [*] starting on the date the risk of
loss or damage has passed onto APT according to Section 11 A.


B. SIEMENS' liability for any further damages resulting from the
defects) of the Products shall be limited pursuant to the
stipulations of Section 13.


13. LIABILITY


A. SIEMENS assumes liability for any personal injury for which he is
found responsible without limitation. If found. responsible for
property damages of APT, SIEMENS shall indemnify APT for expenses
incurred for restoration of the damaged property up to a maximum
amount of DM 1 Million per damage event.


B. Apart from warranties and liabilities expressly stipulated in this
Agreement, SIEMENS disclaims ail liability regardless of the cause
in law, in particular the liability for indirect or consequential
damages arising from interrupted operation, loss of profits, loss
of information and data, unless in cases of gross negligence,
intent, lack of assured characteristics or in any cases where
liability is mandatory at law.


14. NON-DISCLOSURE


A. In consideration of the disclosure of Proprietary and Confidential
information by both parties to each other, both parties agree that
the information relating to requirements, processes,
specifications, schedules, materials, financial data and pricing
exchanged between parties is hereby designated as Proprietary and
Confidential by APT and SIEMENS.


B. It is agreed that for a period of ten (10) years, both parties
shall (1) restrict dissemination of the above as Proprietary and
Confidential information to only those employees who must be
directly involved in the manufacturing of wafers and products for
APT and (2) use the same degree of care as its uses for its own
information of like importance against disclosure to other
employees within each party or others outside of it.


C. Any breach of these Non-Disclosure restrictions shall be deemed as
a breach of the Manufacturing Agreement. Both Parties shall pursue
all remedies of law for such breaches.


D. This obligation shall not a ...