SETTLEMENT AGREEMENT

SETTLEMENT AGREEMENT

THIS SETTLEMENT AGREEMENT (“Settlement Agreement’’) is made as of this 3rd day of October, 2005 (the “Effective Date”), by and between MKS Instruments, Inc., a Massachusetts corporation with its principal place of business in Wilmington, Massachusetts and Applied Science and Technology, Inc., a Delaware corporation with its principal place of business in Wilmington, Massachusetts, on the one hand, and Advanced Energy Industries, Inc., a Delaware corporation with its principal place of business in Fort Collins, Colorado, on the other hand.

WHEREAS, MKS is the owner of U.S. Patent No. 6,150,628, U.S. Patent No. 6,388,226, U.S. Patent No. 6,486,431, U.S. Patent No. 6,552,296, and U.S. Patent No. 6,559,408 (collectively the “Patents-in-Suit”);

WHEREAS, on July 23, 2004, a jury in the United States District Court for the District of Delaware (the “Court”) returned a verdict in MKS Instruments, Inc. and Applied Science and Technology, Inc. v. Advanced Energy Industries, Inc. , Civil Action No. 03-469 (JJF), that Advanced Energy Industries, Inc.’s Xstream brand products, and the methods embodied therein, infringe claims of the ‘628 patent, the ‘226 patent and the ‘296 patent; and

WHEREAS, the parties desire to resolve all aspects of the present dispute without the further time and expense of litigation or other legal action;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of

which is hereby acknowledged, MKS and Advanced Energy agree as follows:

1. DEFINITIONS

1.1 “Advanced Energy” shall mean Advanced Energy Industries, Inc. and its wholly owned subsidiaries.

1.2 “Claims” shall mean:

(a) any and all claims, counterclaims, third-party claims, contribution claims, indemnity claims, demands, actions, causes of action, and all other claims of every kind and nature in law, equity, arbitration, or other forum, whether arising under state, federal, international or other law, which were asserted in or which arise from the same transactions or occurrences as those claims which were asserted in the Patent Litigations (as defined in Section 1.8); and

(b) any and all other claims directed to any Toroidal Plasma Generator Product made, used, sold, offered for sale, had made or imported by either MKS or Advanced Energy anywhere in the world, including any claim of infringement of U.S. Patent No. 6,046,546,

whether such claims described in subparagraphs (a) and (b) of this Section were absolute or contingent, direct or indirect, known or unknown. The term “Claims” shall include only claims existing as of the Effective Date of this Settlement Agreement.

1.3 “Foreign Toroidal Plasma Generator Patents” shall mean any and all foreign counterparts to any of the U.S. Toroidal Plasma Generator Patents (as defined in Section 1.12 that contain a claim that is coextensive with a claim of the U.S. Toroidal Plasma Generator Patents, whether a presently existing patent, or later issued from a patent application that is presently pending.

1.4 “License Period” shall mean the period from the Effective Date of this Settlement Agreement to the first anniversary of the Effective Date .

1.5 “Licensed Products” shall mean the only following Rapid products, referred to here by name and model number, and any Rapid products that merely represent insubstantial changes from the following Rapid products:

(including, without limitation, Applied Science and Technology, Inc.)

1.7 “Net Sales” shall mean Advanced Energy’s invoice amount for each Licensed

Product provided (i.e., sold, leased, rented or otherwise transferred) to another Person less the sum of the following:

1.7.1 sales, tariff duties and/or use taxes directly imposed and with reference to particular sales;

1.7.2 outbound transportation prepaid or allowed; and

1.7.3 returns, rebates, credits and discounts actually granted as a result of the Advanced Energy’ customers purchasing Licensed Products, but only to the extent the amounts or percentages are customary in the trade.

1.8 The “Patent Litigations” shall mean:

1.9 “Person” shall mean an individual, corporation, partnership, association, trust, enterprise or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

1.10 “Subject Patents” shall mean the U.S. Toroidal Plasma Generator Patents (as defined in Section 1.12) and the Foreign Toroidal Plasma Generator Patents (as defined in Section 1.3).

1.11 “Toroidal Plasma Generator Product” shall mean any product that generates a toroidal plasma in a plasma body (which may or may not be a toroidal plasma body) using an AC power supply (which may or may not be an AC switching power supply and may or may not use an impedance matching network) and that has a transformer for inducing an electric field within the plasma body, the toroidal plasma completing a secondary circuit of the transformer. Toroidal Plasma Generator Products shall include, without limitation, Advanced Energy’s Rapid FE, Rapid OE and Xstream products, MKS Instruments’ Astron and Revolution products, and any derivatives, modifications, enhancements, changes or improvements from or to any of Advanced Energy’s Rapid and Xstream products and MKS Instruments’ Astron and Revolution products.

1.12 “U.S. Toroidal Plasma Generator Patents” shall mean U.S. Patent No. 6,150,628 (the ‘628 patent), U.S. Patent No. 6,388,226 (the ‘226 patent), U.S. Patent No. 6,486,431 (the ‘431 patent), U.S. Patent No. 6,552,296 (the ‘296 patent), and U.S. Patent No. 6,559,408 (the ‘408 patent), and any continuations, continuations-in-part, divisionals, reexaminations, reissues, and extensions thereof, whether presently existing patents, or later issued from patent applications that are presently pending.

2.0 PAYMENT

Within one business day of the Effective Date, Advanced Energy shall pay to MKS an amount in cash, by wire transfer of immediately available funds, equal to Three Million Dollars (U.S.) ($ 3,000,000).

3.0 RESTRICTED ACTIVITIES

3.1 Advanced Energy agrees that it shall not make, use, sell, rent, lease, offer to sell, have made and/or import any Toroidal Plasma Generator Product in the United States for the entire time period extending from the Effective Date until the date that the last of the U.S. Toroidal Plasma Generator Patents expires, or, in the case of a pending patent application, is abandoned.

3.2 Advanced Energy agrees that it shall not make, use, sell, rent, lease, offer to sell, have made and/or import any Toroidal Plasma Generator Product into any country in which a Foreign Toroidal Plasma Generator Patent exists for the entire time period from the Effective Date until the date that the last of the Foreign Toroidal Plasma Generator Patents in that country expires.

3.3 Advanced Energy shall withdraw all Toroidal Plasma Generator Products from the market in any and all countries in which at least one Subject Patent is effective. Advanced Energy shall not reintroduce any Toroidal Plasma Generator Product into the market of any such country until all of the Subject Patents are effective in that country have expired. Advanced Energy shall be permitted to honor its warranty obligations with respect to Toroidal Plasma Generator Products sold prior to the Effective Date of this Agreement during the applicable warranty periods, which shall in any event not exceed a period of 15 months from the Effective Date of this Agreement.

3.4 The License Agreement between MKS and Advanced Energy dated August 26, 2002 (the “2002 License Agreement”) is hereby terminated as of the Effective Date, except that Sections 5.2, 6, 7, 8, 9, 10.3-10.6 and 11 of the 2002 License Agreement shall survive the termination.

3.5 Notwithstanding the provisions of this Section 3, MKS hereby grants to Advanced Energy, for the duration of the License Period, a non-transferable, non-exclusive, royalty-bearing, license under the Subject Patents, to make, have made, use, sell, rent, lease, offer to sell, and to import Licensed Products solely to Applied Materials, Inc. (“AMAT”).

3.6 The license granted pursuant to this Settlement Agreement does not (a) include the right to grant sublicenses; (b) extend to any Person other than to AMAT, (c) include the right to make, use, sell, offer for sale, rent, lease and import any Licensed Product for the purpose of being installed, used or operated on or in combination with any MKS product, and (d) extend to any product designed by another Person or designed by Advanced Energy for another Person and manufactured, sold, leased, licensed or otherwise transferred from Advanced Energy to that Person for sale under a mark not owned by Advanced Energy. The foregoing is not intended to exclude Advanced Energy’s sale of Toroidal Plasma Generator Products acquired from another Person so long as such products are Licensed Products that have been designed, developed and manufactured by or for Advanced Energy and sold by Advanced Energy to AMAT under a trademark owned by Advanced Energy. The license granted under Sections 3.5 and 3.6 of this Settlement Agreement shall terminate at the end of the License Period.

3.7 Advanced Energy shall cause all Licensed Products made, used or sold in the

United States to be marked in legible print with a legend that includes the United States patent numbers of the Subject Patent(s) on each Licensed Product. Advanced Energy may also mark, at its discretion, catalogs and price pages. To the extent that the inclusion of such marking is impractical for any Licensed Product, Advanced Energy shall mark in a manner acceptable to MKS. The legend shall take the following form: “Licensed under U.S. Patent No(s). [list applicable patents]”. To demonstrate compliance with its marking obligations, Advanced Energy shall provide MKS with sample data plates, packaging materials and pages of applicable product manuals for each Licensed Product either in advance of selling such Licensed Product or within sixty (60) days of the Effective Date of this Settlement Agreement, whichever comes later.

3.8 In consideration of the license granted herein from MKS to Advanced Energy,

Advanced Energy shall pay MKS royalties on Licensed Products in the amounts and manner hereinafter provided to the end of the License Period: royalties in an amount equal to fifteen (15%) of Net Sales of each Licensed Product provided to AMAT on or after the Effective Date.

3.9 On the dates specified in Section 3.11 below for the submission of royalty reports and royalty report summaries by Advanced Energy, Advanced Energy shall, irrespective of its own business and accounting methods, pay to MKS the royalties payable for such quarterly period as shown on the royalty report. Each royalty report shall be sent to an independent accounting firm selected and hired by MKS (currently PriceWaterhouseCoopers LLP) together with a photocopy of the payment. Each such royalty report shall be maintained confidential and not disclosed to MKS. However, at the request of legal counsel for MKS, the independent firm shall provide (on an attorneys’ eyes only basis) the quantity of Licensed Products sold for each royalty rate listed in the royalty report. The payment In United States dollars for the royalties due, shall be sent to MKS at the address specified in Section 5.11, or at such other address as MKS shall, from time-to-time, specify to Advanced Energy by written notice. If any currency conversion shall be required in c