<PAGE>
DOCUMENT OF UNDERSTANDING BETWEEN ADVANCED ENERGY INDUSTRIES AND ADVANCED
POWER TECHNOLOGY
CONTRACT NUMBER: 1010
1. PREAMBLE
This agreement is an extension of the original contract between Buyer and Seller
entered into on August 14th, 1998. Amendments to the original agreement are made
on this 19th day of August, 1999 by and between-Advanced Energy. Industries,
Inc. (hereinafter referred to as "Buyer") and Advanced Power Technology,
(hereinafter referred to as "Seller") and are in effect through December 31,
2000.
2. TERMS AND CONDITIONS
No terms and conditions other than the terms and conditions set forth in this
document and such terms and conditions as are set forth in any document attached
to or incorporated by reference in this contract shall be binding unless
specifically accepted by Buyer's authorized Purchasing Agent or Commodity
Manager. This contract will be reviewed on a semi-annual basis and unless
terminated by either party, as provided for in Section 19, shall continue to be
in force. This contract is intended as the complete and final agreement of both
parties and exclusive statement of its terms and may not be changed, altered or
modified, except in writing by agreement of both parties.
3. WARRANTY
Seller warrants the goods and materials furnished under this contract for
workmanship, material and compliance with all specifications, for a period of
twelve (12) months. Seller shall comply with all applicable Colorado State,
Federal and local laws, rules and regulations. The exclusive venue for any
litigation concerning this matter shall be in the Larimer County District Court
in Fort Collins, Colorado.
4. LIMITATION OF LEGAL LIABILITIES
Seller agrees that the relationship established by this contract constitutes a
relationship as Supplier and Purchaser only and no other legal relationship and
that no tax assessment or legal liability of Seller or Buyer or their agents or
employees becomes, by reason of this document, an obligation of the other.
5. REMEDY
Seller agrees to defend at its own expense any suit or legal proceedings brought
against Buyer as a result of the specified use of any materials or equipment
furnished hereunder. In the event that Buyer has given Seller prompt notice of
such claim, Seller hereby agrees to reimburse Buyer for expenses resulting from
that claim and to pay judgment that may be rendered against Buyer. Seller shall
repair or replace such units or products or refund the purchase price for such
units or products.
[*] = Material has been omitted pursuant to a request for confidential
treatment, and such material has been filed separately with the SEC.
<PAGE>
6. BUYER CHANGES
Buyer shall have the right to make changes to existing orders. Purchase order
changes will be allowed only if authorized by Buyer. If such change affects
delivery, quality or amount to be paid by Buyer, Seller shall notify Buyer of
such changes in writing.
7. ENGINEERING CHANGE ORDERS
All Engineering change orders will be communicated to Seller via an Engineering
Change Order (ECO). If such change affects delivery, quality or the amount to be
paid by Buyer, Seller shall notify Buyer immediately. The charges for scrappage
and/or rework resulting from any change submitted via Buyer's ECO process, shall
be limited to the materials in process at the time of the change and within
Seller's manufacturing cycle, as defined in addendum. These charges will be
communicated in their entirety in writing, to Buyer, within fifteen (15) working
days of receipt of ECO. Buyer will not be responsible for any costs associated
with the change order which are not identified within the fifteen (15) working
day review window.
8. DELIVERY
The goods described herein shall be delivered FOB point of origin. Means of
shipment shall be authorized by Buyer's Purchasing Agent or Commodity Manager.
Preferred means of shipment is UPS ground.
Seller is to schedule shipments such that deliveries are received no more than
three (3) days earlier than the due date and zero (0) days late. The purchase
order date is the date due in house. Seller is responsible for all costs
associated with expedited delivery when the need to expedite is due to Seller's
inability to meet Buyer's demand. The only exception is when Buyer pulls in
demand within Seller's lead time window.
Identification of the goods shall occur when they are placed in the hands of the
Carrier. Title shall pass to Buyer upon delivery to Carrier. The goods shall be
placed in suitably protected container, the nature of which may be determined by
Buyer.
9. KANBAN PULL PROCESS
Seller will participate in a Kanban pull process for specifically agreed upon
assemblies, subassemblies and component part numbers, as listed in addendum.
This list will be updated as parts are added on to or deleted off of the kanban
program, with agreement between Buyer and Seller. Buyer's authorized Purchasing
Agent or Commodity Manager and Seller shall agree on the kanban quantity and
replenishment strategy for each part number. Kanban quantities for all part
numbers will be reviewed by Buyer on an as required basis and adjusted
accordingly. Buyer's quantity of Finished Goods Bins is subject to change
dependent upon Seller's ability to reduce manufacturing lead time. Changing the
quantity of Finished Goods bins at the Buyer's facility does not necessitate
renegotiation of this contract. Seller agrees that no shipments will be made to
Buyer unless authorized by Buyer.
<PAGE>
10. PURCHASE ORDER
Buyer will also be entitled to issue purchase orders for individual items
separate from the Kanban Pull process and the Schedule Agreement Process, as
quoted by Seller and agreed to in writing by Buyer.
11. LIMITATION OF MATERIAL LIABILITY
The extent and limitation of Buyer's liability for materials purchased by Seller
is as defined in addendum.
12. PRICING
Buyer and Seller agree to the prices) set forth in addendum. The prices are firm
and fixed for the term of the contract period. Any change in the contracted
price must have written approval by Buyer's Commodity Manager or Purchasing
Agent, prior to implementation. Seller will establish a cost reduction program,
which will be reviewed on a quarterly basis.
13. PAYMENT TERMS
Terms of payment are net [ * ] for each shipment invoiced, unless otherwise
expressly provided for and confirmed in writing by Seller.
14. PROPRIETARY INFORMATION
It is understood that Buyer may provide proprietary information to Seller,
likewise Seller may provide proprietary information to Buyer in the performance
of this contract. "Proprietary Information" shall be deemed to include all
information conveyed by one party to the other party orally, in writing, by
demonstration or by magnetic or other media. If the disclosure is in other than
written form, the information shall not be deemed Proprietary Information after
thirty (30) days unless within that period the disclosing party has identified
it as such in written summary communicated to the receiving party. Proprietary
Information may also include, by way of example but without limitations, data,
know-how, formulas, algorithms, processes, design, sketches, photographs, plans,
drawings, specifications, samples, reports, customer and distributor names,
pricing information, product demand information, market definitions, inventions
and ideas. Proprietary Information shall not include information which can be
clearly demonstrated to be:
(a) generally known or available to the public, through no act of
omission on the part of the receiving party; or
(b) known to the receiving party prior to disclosure under this
agreement; or
(c) provided to the receiving party by a third party without any
restriction on disclosure and without breach of any obligation
of confidentiality to a party.
[*] = Material has been omitted pursuant to a request for confidential
treatment, and such material has been filed separately with the SEC.
<PAGE>
Both parties to this agreement, agree to return to the receiving party all
documents containing proprietary information and to retain no copies thereof. In
addition, ownership and possession of all product assembly and test fixtures,
tooling, test programs, Non- Recurring Engineering (NRE) tooling, test equipment
and consigned equipment, shall revert to Buyer. Both parties to this agreement
agree that the obligation to protect proprietary information shall be ongoing
and shall not cease upon completion or termination of this contract.
15. REVIEWS
Buyer and Seller agree to conduct quarterly business reviews, at an agreed venue
and agenda.
16. DEFECTIVE MATERIAL RETURN POLICY
Buyer will issue a Defective Material Return (DMR) to Seller prior to returning
failed product to Seller. Seller shall acknowledge Buyer DMR with a Returned
Material Authorization (RMA) number within twenty-four (24) hours. Seller shall
repair or replace the failed product in an agreed upon time schedule. Seller
will pay freight on goods returned to the Buyer which are covered by warranty.
17. QUALITY ASSURANCE
Seller's quality must meet-all applicable Buyer's specifications. Further,
Seller confirms it has manufacturing processes which consistently meet all
applicable Buyer's specifications. Seller, when acting as a distributor, will
ensure that the manufacturers they purchase from satisfy all applicable Buyer's
specifications. Seller will notify Buyer immediately if products which do not
meet Buyer's specifications. Buyer and Seller will identify and implement a
corrective action process to resolve non-conformances. Seller agrees to
participate in continuous improvement plans and programs as defined by Buyer and
Seller. Seller agrees that due to the nature of the technology employed by
Buyer, reliability and or quality issues may not arise until the assemblies
utilizing devices provided by Seller are in use by Buyer's customers. Buyer
retains the right to disqualify a component provided by Seller based on
performance and or reliability data as compiled by Buyer based on field
performance, customer service, quality and or reliability data.
This contract is intended as the complete and final agreement of the parties and
exclusive statement of its terms. This contract may not be changed, altered or
modified, except in writing by the party against whom enforcement is sought.
This agreement may be terminated by either party with thirty (30) days written
notice.
<PAGE>
18. SIGNATURE PAGE
Signature attests that the parties have reviewed this agreement and concur with
the parameters:
<TABLE>
<S> <C>
Advanced Energy Industries, Inc. Advanced Power Technology
S/S S/S
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Fred Weaver Date Thomas A. Loder Date
Vice President of Operations Vice President of Sales
S/S
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Kyle Pettine Date
Director of Materials
S/S
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Deb Dahlinger Date
Procurement Manager
S/S
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Joyce Bowser Date
Commodity Manager
S/S
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Hollis Caswell Date
COO and President
S/S
</TABLE>
<PAGE>
ADDENDUM A:
CURRENT STOCK SITUATION - FINISHED GOODS
AND RAW MATERIAL INVENTORY
Document of Understanding between Advanced Energy Industries Inc.
and Advanced Power Technology
Contract Number: 1010
Date: August 19, 1999
STANDARD PRODUCTS: Advanced Energy Industries Inc.'s liabilities for finished
goods inventory is limited [ * ]. For all other Power MOS IV products
Advanced Energy Industries, Inc.'s liability includes [ * ]
POWER PACK PART NUMBER 8705109:
Raw materials = [ * ]
DIE BUFFER INVENTORY Die buffer inventories are set at a level which will
enable APT to immediately meet a 100% increase in AE's requirements and
maintain it indefinitely. To meet this requirement, die buffer inventory
levels are set at a quantity which equals [ * ] Die buffer inventory levels
will be reviewed on a quarterly basis to insure that they are sized according
to the business expectations in the coming quarters. In the event that APT
must remove die from the die buffer inventory to meet production requirements
by AE, the die buffer inventory will be replenished as quickly as possible,
with a maximum lead time of 10 weeks.
Liability for the old die inventory level is [ * ]. The amount of this
liability will decrease or increase per AE demand. With respect to Contract
1010, AE's liability for the die buffer inventory will be limited to either
[ * ] in the event APT does not have customers to consume the die in either
die or packaged part form. At that point, AE will have the option of either
scrapping the die or having it packaged and consumed prior to or in
conjunction with utilizing Power Mos V devices.
[*] = Material has been omitted pursuant to a request for confidential
treatment, and such material has been filed separately with the SEC.
<PAGE>
ADDENDUM B:
NON-CANCELABLE, NON-RETURNABLE PARTS LIST
Document of Understanding between Advanced Energy Industries Inc.
and Advanced Power Technology
Contract Number: 1010
Date: August 19, 1999
PREFACE:
Pursuant to contract agreement between Advanced Energy Industries, Inc. and
Advanced Power Technology, Advanced Energy Industries Inc. wishes to establish a
critical parts list of non-cancelable, non-returnable raw materials used in the
build of Advanced Energy Industries Inc. product. This list is to include the
following:
<TABLE>
<CAPTION>
AE P/N SUPPLIER P/N SUPPLIER NAME PART LEAD TIME MIN BUY QTY
------ ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
230590 220-4340 Kyocea 14 weeks [ * ] (at current
price)
Lid 220-4511C Kyocea 6 weeks [ * ]
</TABLE>
[*] = Material has been omitted pursuant to a request for confidential
treatment, and such material has been filed separately with the SEC.
<PAGE>
ADDENDUM C:
SUPPLIER INFORMATION
Document of Understanding between Advanced Energy Industries Inc.
and Advanced Power Technology
Contract Number: 1010
Date: August 19, 1999
PREFACE:
Pursuant to contract agreement between Advanced Energy Industries Inc. and
Advanced Power Technology and with the intent to better understand the supply
chain for its product line, Advanced Energy Industries Inc. solicits information
regarding specific contractual agreements between Advanced Power Technology and
its suppliers with respect to Advanced Energy finished goods. The specific
contractual agreements are
Kyocea
Reschedules: [ * ]
Cancellation Charges: [ * ]
Restocking: [ * ]
[*] = Material has been omitted pursuant to a request for confidential
treatment, and such material has been filed separately with the SEC.
<PAGE>
APT/ADDENDUM D:
AUGUST 19, 1999
PART NUMBER PRICING AND LIABILITY INFORMATION
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
# of Bins FGI Total $ WIP Lia., Die Buffer Cycle
AE P/N Class EAU* Unit Price* Est. Annual $ Bin Size Liable Lia. Liable (2 Bins) (6 Bins) Time
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1501227 A 3797 $ [ * ] $ [ * ] 100 2 200 $ [ * ] 200 600 14 wks
1501232 A 8915 $ [ * ] $ [ * ] 260 2 520 $ [ * ] 520 1560 14 wks
1501257 A 1379 $ [ * ] $ [ * ] 45 2 90 $ [ * ] 90 270 14 wks
1501258 N/A 239 $ [ * ] $ [ * ] N/A N/A N/A $ [ * ] N/A N/A 14 wks
1501260 A 682 $ [ * ] $ [ * ] 50 2 100 $ [ * ] 100 300 14 wks
1501291 A 4500 $ [ * ] $ [ * ] 110 2 220 $ [ * ] 220 660 14 wks
1541031 A 3600 $ [ * ] $ [ * ] 720 2 1440 $ [ * ] 1440 4320 14 wks
1541036 A 1300 $ [ * ] $ [ * ] 480 3 1440 $ [ * ] 960 2880 14 wks
1541047 A 3473 $ [ * ] $ [ * ] 300 See note See note $ [ * ] See note See note 14 wks
1541048 A 1611 $ [ * ] $ [ * ] 108 2 216 $ [ * ] 216 648 14 wks
1541052 A 43587 $ [ * ] $ [ * ] 1100 2 2200 $ [ * ] 2200 6600 14 wks
1541054 A 2007 $ [ * ] $ [ * ] 260 2 520 $ [ * ] 520 1560 14 wks
1541059 N/A 95 $ [ * ] $ [ * ] N/A N/A N/A $ [ * ] N/A N/A 14 wks
1541064 A 977 $ [ * ] $ [ * ] 50 2 100 $ [ * ] 100 300 14 wks
1541083 A 2691 $ [ * ] $ [ * ] 60 2 120 $ [ * ] 120 360 14 wks
1541088 A 4601 $ [ * ] $ [ * ] 240 2 480 $ [ * ] 480 1440 14 wks
1541095 N/A 789 $ [ * ] $ [ * ] N/A N/A N/A $ [ * ] N/A N/A 14 wks
1541098 A 14078 $ [ * ] $ [ * ] 350 2 700 $ [ * ] 700 2100 14 wks
8100014 N/A 179 $ [ * ] $ [ * ] N/A N/A N/A $ [ * ] N/A N/A N/A
8100019 A 18197 $ [ * ] $ [ * ] 750 See note See note $ [ * ] See note See note 14 wks
8100021 A 6231 $ [ * ] $ [ * ] 130 2 260 $ [ * ] 260 780 14 wks
8100023 N/A 986 $ [ * ] $ [ * ] NA N/A N/A $ [ * ] N/A N/A 14 wks
8705109 A 9665 $ [ * ] $ [ * ] 310 2 620 $ [ * ] 620 1860 14 wks
</TABLE>
AE is ONLY liable for Power Mos IV parts and parts that APT has no other
customers (FGI and WIP)
[*] = Material has been omitted pursuant to a request for confidential
treatment, and such material has been filed separately with the SEC.
<PAGE>
APT/ADDENDUM D:
AUGUST 19, 1999
PART NUMBER PRICING AND LIABILITY INFORMATION
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Comments
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Kanban starts Nov. 99
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will stay with IEC until 3-00
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will stay with IEC until 3-00
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Took off kanban 9/13 - Demand moved to 1541098
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