Document:

Exhibit 10.9

 

Contract
Manufacturing Agreement

 

 

This Contract
Manufacturing Agreement (the “Agreement”) is made as of February 28,
2003 (the “Effective Date”) by and between Peak Industries, Inc., its
principal offices being located at 4300 Road 18, Longmont, CO  80504 (“Peak”) and Aksys, Ltd. , its
principal offices being located at Two Marriot Drive, Lincolnshire, IL 60069 (“Aksys”).

 

AGREEMENT

 

In consideration of the mutual
covenants, promises, and conditions set forth below, the parties, intending to
be bound, agree as follows:

 

1.               Definitions.  The following capitalized terms when used in
this Agreement shall have the respective meanings set forth below.

 

a.               “Bill of Material” shall mean any
materials and components lists and related instructions and information
provided by Aksys to Peak and concerning components required or preferred for
the manufacture of a Product by Peak pursuant to this Agreement.

 

b.              “Disclosing Party” shall have the
meaning stated in Section 14 hereof.

 

c.               “Effective Date” shall have the
meaning stated in the preamble of this Agreement.

 

d.              “Improvements” shall mean all
improvements to Aksys Patents or Know-How hereafter created or acquired during
the term of this Agreement by Peak or jointly by one or more employees of Aksys
and Peak, including without limitation advances, developments, modifications,
enhancements, variations, revisions, adaptations, extensions or any element
thereof, utilizing or incorporating, or based on, the Know-How or Patents,
whether able to be patented or not.

 

e.               “Intellectual Property” shall
mean trade secrets, ideas, inventions, designs, developments, devices, methods
or processes (whether patented or able to be patented and whether or not
reduced to practice) and all patents and patent applications related thereto;
copyrightable works and mask works (whether or not registered); trademarks,
service marks and trade dress; and all registrations and applications for
registration related thereto; and all other intellectual or industrial property
rights, to the extent in or related to the Products.

 

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f.                 “Know-How” shall mean the
know-how, technical information and confidential technical data, together with
all trade secrets, non-patented technical knowledge and inventions,
confidential manufacturing procedures and methods, that are related to the
Products.

 

g.              “Losses” shall mean any and all
damages, liabilities, costs and expenses (including reasonable attorneys’ fees
and expenses), and amounts paid in settlement.

 

h.              “MPQ”  shall mean minimum package quantities purchased to support
requirements in forecast of Product.

 

i.                  “Patents” shall mean those
patents and patent applications that are now or hereafter owned or acquired by
Aksys and relate to the Products.

 

j.                  “Peak Supplier Managed Inventory
Agreement” shall mean an agreement negotiated with key suppliers to provide
inventory to Peak whose title shall not transfer until such material is pulled
into Peak’s possession and supplier is notified.

 

k.               “Products” shall mean the devices
and other goods identified in Exhibit B hereto, which shall be described in
detail in the Specifications.

 

l.                  “Proprietary Information”
shall have the meaning stated in Section 14(b).

 

m.            “Recipient” shall have the meaning
stated in Section 14(a).

 

n.              “6 Month Forecast” shall have the
meaning stated in Section 6.

 

o.              “Spares”  shall mean the components and spare parts/assemblies required to
support Products in the field.

 

p.              “Special Inventory” shall have the
meaning stated in Section 7(d).

 

q.              “Specifications” shall mean all drawings,
prints, instructions and similar materials provided by Aksys to Peak and
relating to a Product to be manufactured by Peak pursuant to this Agreement,
including without limitation the design and specifications attached as Exhibit
A for Products identified in Exhibit B.

 

2.               Supply Obligations.  During the Term of this Agreement, Peak
shall manufacture for Aksys its requirements for the Products, subject to and
in accordance with the terms and conditions set forth in this Agreement,
including without limitation the Specifications.

 

3.               Document Control and Process.

 

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a.               Document Control.   All Specifications, Bills of Material and
other documents provided to Peak pursuant to this Agreement, including without
limitation all modifications, revisions, updates, supplements and amendments
thereto, will be entered into Peak’s document control system promptly upon
receipt thereof.

 

b.              Design Implementation.  Peak’s design implementation for a Product
will be in accordance with a form of Document Control Request (“DCR”) or
Temporary Deviation Authorization (“TDA”) provided by Peak and reviewed,
approved and signed by Aksys.

 

c.               Manufacturing.  Peak will generate customary manufacturing
documentation, including without limitation manufacturing procedures, assembly
quality plans and checklists.  Such
documentation shall be controlled by Peak through its document control
system.  Peak shall be required to
obtain Aksys’ prior approval of all significant manufacturing procedures,
including without limitation manufacturing in-process, final test activities
and assembly quality plans.

 

d.              Prototypes.  In lieu of Specifications, Peak may with
Aksys’ approval develop prototypes to serve as confirmation of Aksys’
requirements.  Peak shall obtain Aksys’
written approval of such prototypes prior to commencement of manufacturing.

 

e.               Design Changes.  Aksys shall be responsible for providing
Peak with any desired modifications, updates or other changes to the
Specifications, which shall be processed by Peak in accordance with the
foregoing provisions of this Section 3. Upon submission, Peak will inform Aksys
in writing whether the requested change is a “standard change” for which Aksys
shall pay Peak a single charge of $250 or a “non-standard change” (i.e., a
change which Peak anticipates will require more than four (4) hours of
non-recurring engineering time) which Peak will separately quote to Aksys for
written pre-approval.

 

f.                 Design Change Process.  Peak will estimate scope and cost of Design
Changes beyond the standard charge. 
Peak and Aksys agree to create an exhibit with details on activities to
be performed, appropriate charges for activities and deliverables.  Aksys will deliver a purchase order for
Design Change prior to any work performed by Peak.  Any changes to scope must be pre-approved by Aksys prior to any
work performed.

 

g.              Testing and Quality.   Aksys and Peak will establish mutually
agreed testing procedures, which Peak will incorporate its manufacturing
quality system.

 

h.              Aksys Accessibility.  Aksys shall have access to the areas of
Peak’s facility where Products are being manufactured or stored or where parts
and materials are being processed or stored at all times during normal business
hours for

 

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purposes of
quality inspection, verification of manufacturing procedures and other
legitimate purposes.

 

i.                  Design Verification.  Aksys shall maintain the design history file
and shall perform all necessary design verification and validation.  Aksys shall be responsible for notifying
Peak in writing of its requirements for lot traceability of components and Peak
shall implement procedures to do so.

 

j.                   Approved Supplier List.  Peak shall maintain an approved vendor list
(“ASL”) for all components to be incorporated into the Products and the ASL
shall serve as the only list of approved suppliers.  Such suppliers may be selected by either Peak, Aksys or jointly
as mutually agreed. (i) In cases where Aksys recommends suppliers to be added
to the ASL, Peak shall be solely responsible for the evaluation, selection, and
approval of these suppliers, including without limitation any necessary
surveys, on-site visits or similar qualifications.  (ii) In cases where new suppliers are selected through a joint
process by Aksys and Peak, these suppliers will be treated as a Peak selected
supplier.   Aksys agrees to reimburse
Peak for activities related to qualifying suppliers recommended by Aksys and
the reimbursement for these must be approved by Aksys in advance.   In cases where Peak selects suppliers to be
added to the ASL, Peak shall be solely responsible for the evaluation,
selection, and approval of these vendors, including without limitation any
necessary surveys, on-site visits or similar qualifications.  Notwithstanding the foregoing, in cases
where Peak selects Suppliers to be added to the ASL, only suppliers that supply
for manufacturers indicated in the Specifications or otherwise approved by
Aksys in writing shall be added to the ASL.

 

k.               Process Validation.  Peak will perform process validation where
results cannot be verified by subsequent inspection or test and installation,
including qualification of tooling and fixtures.  Any additional process validation will be specified by Aksys and
performed by Peak.  Aksys will provide
specifications for, and will obtain any necessary regulatory approvals of,
printed materials, including labels manuals, artwork and copy.

 

l.                  Regulatory Requirements.  Aksys will be responsible for compliance
with all regulatory and related matters which may require regulatory agency
notification including FDA Medical Device Report, MDD Vigilance report, and
safety agency notifications.  Peak shall
provide such assistance and cooperation as Aksys shall reasonably request,
including without limitation the provision of relevant manufacturing records,
provided that Aksys shall reimburse Peak for its out-of-pocket expenses in
connection therewith.  Each party shall
obtain all domestic and foreign governmental licenses, permits and approvals
required for such party’s performance under this Agreement.  Without limiting the generality of the 

 

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foregoing: (i) Aksys shall be responsible for
complying with all applicable foreign and U.S. federal, state and local laws,
rules, regulations and orders and for obtaining all applicable U.S. FDA and other
governmental agency product and design approvals and applicable foreign agency
approval for sale of the Product; and (ii) Peak shall be responsible for
complying with all U.S. FDA and applicable state and local laws, rules,
regulations and orders applicable to the manufacturing processes and
procedures.

 

m.            Product Recall.  Aksys is responsible for conducting product
recalls.  Peak shall cooperate with
Aksys recall investigations, including providing manufacturing-related records
as they relate to the recall. Peak and Aksys shall cooperate in jointly
assessing the root cause of a product recall. 
Both parties will mutually agree as to the assessment of
responsibility.  Should Aksys be
determined solely responsible for the recall, Aksys will reimburse Peak for all
reasonable costs and expenses in cooperation of such recall.  Should Peak be determined solely
responsible, Aksys will not reimburse Peak for expenses incurred in providing
replacement components.  Aksys will bear
the cost of all field service related activities

 

4.               Tools and Fixtures.  Aksys shall be responsible for purchasing
all custom tooling and custom fixtures that are required for manufacturing of
the Products (including any tooling and fixtures required due to a change to
the Specifications) which Peak does not otherwise own as of the Effective
Date.  All tooling and fixtures
purchased by Aksys shall be held by Peak in trust for Aksys’ exclusive use in
accordance with manufacturing and testing procedures established for the
Products.  Peak shall publish and
provide to Aksys a listing of such tooling at least once per year.  Such tooling and fixtures shall be owned by
Aksys and identified to Peak’s lenders, creditors, shareholders and other third
parties as Aksys assets in the possession of Peak.  Except for normal production maintenance, which will be the
responsibility of Peak, Aksys shall be exclusively responsible for the costs to
repair or replace such tooling and fixtures. 
Peak and Aksys shall cooperate to obtain the best available pricing for
all such tooling and fixtures.  Peak
agrees to execute and deliver to Aksys upon request a form UCC-1 or such
other documents as Aksys reasonably may request to protect its interest in such
assets.

 

5.               Cost Reductions.  Peak and Aksys agree to seek ways to reduce
the cost of manufacturing Products by methods such as obtaining alternate
sources of materials and improved assembly or test methods.  Peak shall notify Aksys in writing not less
than thirty (30) days prior to starting any such cost reduction efforts or
implementation of any such cost reduction methods. Peak and Aksys agree to meet
at least every six (6) months to identify cost reduction opportunities.  The benefits of any cost reduction
initiative proposed independently by Peak will be shared by Peak and Aksys on
terms to be agreed and the benefits of any cost reduction initiative proposed
independently by Aksys will be realized 100% by Aksys.  Peak will provide updated pricing for
Products to incorporate Aksys’ share of all cost reduction initiatives.

 

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6.               Forecasts.  Aksys shall provide to Peak prior to the
first day of each month a six (6) month rolling forecast (6 Month Forecast) of
Aksys’ reasonably anticipated manufacturing requirements for each Product.  All such forecasts provided by Aksys shall
be confidential information, whether so marked or not, and shall be treated in
accordance with Section 14 hereof.

 

7.               Orders, Changes and Cancellation.

 

a.               Purchase Orders.  Peak shall initiate manufacturing of Product
upon receipt of a written purchase order (“Order”) from Aksys.  Orders shall specify a delivery date not
less than thirteen (13) weeks from the date delivered to Peak, unless otherwise
agreed in writing by Peak.  Peak shall satisfy
all such Orders in full; provided however that Peak shall be under
no obligation to satisfy any Order(s) which, when combined with all other
Orders for the relevant 13 Week period, exceeds purchase order quantity.  Notwithstanding the foregoing, Peak shall
use its commercially reasonable efforts to satisfy any Order specifying a
delivery date less than thirteen weeks from the date delivered to Peak and to
satisfy any portion of an Order that exceeds its obligations and in doing so
shall make satisfaction of Aksys’ Order(s) a priority over other customers.

 

b.              Order Changes.  The quantity or shipment date for any Order
may be adjusted by mutual written agreement of the parties.  Peak shall use its best efforts to
accommodate any changes requested by Aksys.

 

c.               Order Cancellation.  Aksys may cancel any Order; provided
that in such event, Peak shall stop any work-in-process and Aksys
shall purchase from Peak all finished goods inventory, work in process and raw
material for which title has not passed to Aksys.

 

d.              Materials Inventory.  Peak shall be authorized to purchase
inventory and maintain levels needed to support open purchase order(s).  Such material inventory schedule shall be
based on material lead-times, reasonable inventory on-hand stocking levels,
MPQ’s.  Peak may periodically request
from Aksys written authorization to purchase certain long lead time items to be
held in inventory, as safety stock or to meet anticipated manufacturing
requirements (Special Inventory). 
Authorization can be in the form of an e-mail or other written
communication from Aksys.  Upon
termination or cancellation of this Agreement, Aksys shall purchase from Peak,
at Peak’s burdened cost, any unused inventory. With respect to materials
controlled by a Peak Supplier Managed Inventory Agreement,  Peak will not take title to inventory faster
on behalf of Aksys than it would on its own behalf.

 

e.               Carrying Charges.  Provided that Peak observes the requirements
of Section 7(d) hereof, in the event that Aksys has requested Peak to delay
shipment of

 

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confirmed purchase order(s) in excess of 30
days and as a result, Peak’s materials inventory has become stagnant, Aksys
shall pay Peak a carrying charge of 1.5% per month calculated on the stagnant
portion of such materials at Peak’s actual cost of such inventory.  Notwithstanding the foregoing, Aksys may at
any time purchase from Peak, at Peak’s actual cost, or remit a deposit for the
equivalent amount of, any stagnant inventory in order to avoid being charged
inventory carrying charges.

 

f.                 Obsolete Inventory.  Aksys agrees to purchase from Peak, at
burdened cost, any inventory purchased by Peak in reliance on Aksys purchase
orders or authorization for Special Inventory, which inventory is rendered
obsolete due to a change to the Specifications.  Peak shall, however, first use reasonable efforts to return any
such inventory, and Aksys agrees to pay for the restocking charges, shipping
and similar out-of-pocket costs to Peak as applicable.

 

8.               Packaging, Shipping and Delivery.  Peak shall ship the Products in accordance
with packaging and shipping instructions provided by Aksys.  Unless otherwise specified in writing in a
particular Order, all Product deliveries shall be shipped F.O.B. Peak’s
facilities to the destination specified by Aksys.

 

9.               Spares.  Aksys may require Peak to provide spares to support Products in
the field.  Aksys agrees to pay Peak a
markup as identified in Exhibit B based on the actual costs of such spares.

 

10.         Payment.

 

a.               Invoice.  Peak will invoice at the time of shipment of
Products or at the time such Products are available for fulfillment pursuant to
Aksys’ instructions in as contemplated by Section 11 hereof.  Aksys shall pay such invoices within 30 days
of receipt.

 

b.              Pricing.  Peak’s invoices shall reflect charges for the Products as
specified in Exhibit B.  Such charges
are exclusive of taxes, shipping and insurance.  Charges for taxes, shipping and insurance (to the extent
applicable) shall be separately stated on Peak’s invoice.

 

c.               Deposit.  If Aksys places a purchase order upon Peak
and Aksys is unable to provide sufficient evidence in its ability to pay for
such purchase order, Peak may require and Aksys agrees to provide a deposit or
an irrevocable letter of credit to cover the material liability for any Aksys
purchase order.  Such ability to pay
will be Aksys current cash and cash equivalents plus its confirmed access to
equity funds in their aggregate in relation to the payment schedule required
based on the delivery dates of Products from said purchase orders.

 

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11.         Fulfillment.  Peak agrees provide fulfillment services to Aksys for the
Products.  The terms of Peak’s ePeak
Program Internet Commerce Agreement are attached hereto as Exhibit C and
incorporated herein by reference.

 

12.         WARRANTY.

 

a.               Basic Warranty.  Peak warrants that the Products are and
shall be free from defects in workmanship which exist or develop for a period
of 90 days from the date of installation or 
6 months from date of shipment thereof to Aksys or Aksys’s designated
distributor, whichever occurs first, provided that such defect developed under
normal and proper use within the operating parameter described in the
Specifications.

 

b.              Specification Warranty.  Peak warrants that the Products are
manufactured to mutually agreed upon specifications for a period of 90 days from
the date of installation or 6 months from date of shipment thereof to Aksys or
Aksys’s designated distributor, whichever occurs first.

 

c.               Limitation of Liability.  Aksys’s sole and exclusive remedy in the
event of a breach of the foregoing warranties shall be repair or, at Peak’s
sole discretion, replacement, including related shipping costs.  Aksys will bear financial responsibility for
all field service related warranty expenses.

 

d.              PEAK EXPRESSLY DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE AND MERCHANTABILITY.

 

13.         Intellectual Property.

 

a.               Ownership.  As between Aksys and Peak, Aksys shall own
all right, title and interest in and to Products and the Know-How, Improvements
and Patents related thereto.  No implied
rights or licenses are granted by this Agreement.  Aksys shall have the right to apply, in its own name and at its
own expense, for patent, copyright or other Intellectual Property rights in
such Know-How and Improvements and, if requested, Peak shall cooperate with
Aksys in any reasonable manner in obtaining such protection.  Peak agrees that all such Know-How and
Improvements shall be owned solely by Aksys, even though developed as a result
of this Agreement, and regardless of whether conceived, created or developed by
Aksys or Peak.

 

b.              License.  During the Term of this Agreement and limited to the scope and
purposes hereunder, Aksys grants to Peak a non-exclusive, royalty-free right

 

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and license under the Patents, Know-How and
Improvements to make the Products solely for delivery to Aksys or Aksys’
designee.

 

14.         Confidentiality.

 

a.               General Obligation.  All information provided by one party (the “Disclosing
Party”) to the other party (the “Recipient”) shall be governed by
this Section 15.

 

b.              Proprietary Information.  As used in this Agreement, the term “Proprietary
Information” shall mean all trade secrets or confidential or proprietary
information designated as such in writing by the Disclosing Party, whether by letter
or by the

c.

use of an appropriate proprietary stamp or
legend, prior to or at the time any such trade secret or confidential or
proprietary information is disclosed by the Disclosing Party to the
Recipient.  Notwithstanding the
foregoing, information which is orally or visually disclosed to the Recipient
by the Disclosing Party, or is disclosed in writing without an appropriate
letter, proprietary stamp or legend, shall constitute Proprietary Information
if the Disclosing Party, within thirty (30) days after such disclosure,
delivers to the Recipient a written document or documents describing such
Proprietary Information and referencing the place and date of such oral, visual
or written disclosure and the names of the employees or officers of the Recipient
to whom such disclosure was made.

 

d.              Disclosure.  The Recipient shall hold in confidence, and
shall not disclose to any person outside its organization, any Proprietary
Information, regardless of the termination of the Term of this Agreement.  The Recipient shall use such Proprietary
Information only for the purpose of developing the Product with the Disclosing
Party or fulfilling its future contractual requirements with the Disclosing
Party and shall not use or exploit such Proprietary Information for any other
purpose or for its own benefit or the benefit of another without the prior
written consent of the Disclosing Party. 
The Recipient shall disclose Proprietary Information received by it
under this Agreement only to persons within its organization who have a need to
know such Proprietary Information in the course of the performance of their
duties and who are bound to protect the confidentiality of such Proprietary
Information.

 

e.               Limitation on Obligations.  The obligations of the Recipient specified
in this Section 15 above shall not apply, and the Recipient shall have no
further obligations, with respect to any Proprietary Information to the extent
that such Proprietary Information: (i) is generally known to the public at the
time of disclosure or becomes generally known through no wrongful act on the
part of the Recipient; (ii) is in the Recipient’s possession at the time of
disclosure otherwise than as a result of Recipient’s breach of any legal
obligation; (iii) becomes known to the Recipient through disclosure by sources
other than the Disclosing Party having the legal right to disclose such
Proprietary Information;

 

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(iv) is independently developed by the
Recipient without reference to or reliance upon the Proprietary Information; or
(v) is required to be disclosed by the Recipient to comply with applicable laws
or governmental regulations, provided that the Recipient provides
prior written notice of such disclosure to the Disclosing Party and takes
reasonable and lawful actions to avoid and/or minimize the extent of such
disclosure.

 

f.                 Ownership of Proprietary
Information.  The Recipient agrees
that the Disclosing Party is and shall remain the exclusive owner of
Proprietary Information and all Intellectual Property rights embodied therein.

 

g.              Return of Documents.  The Recipient shall, upon the request of the
Disclosing Party, return to the Disclosing Party all drawings, documents and
other tangible manifestations of Proprietary Information received by the
Recipient pursuant to this Agreement (and all copies and reproductions
thereof): provided that the Recipient may keep one archival copy of the same.

 

15.         Indemnification.

 

a.               Indemnification.  Aksys shall indemnify, defend and hold
harmless Peak from and against any Losses arising out of or relating to a claim
brought by a third party against Peak only to the extent that such claim and
corresponding Losses are based upon allegations that (i) there exists a defect
in the design of any Products by Aksys (including a defect in any materials
provided to Peak by a third party), (ii) would constitute a breach of the terms
of this Agreement by Aksys, or (iii) the manufacture, sale or use of any
Product, in accordance with the Specifications and operating instructions
provided by Aksys, infringes a patent, copyright, trade secret or other
proprietary right of a third party. 
Peak shall indemnify, defend and hold harmless Aksys from and against
any Losses arising out of or relating to a claim brought by a third party
against Aksys only to the extent that such claim and corresponding Losses are
based upon allegations that (i) there is a defect in workmanship in any Product
or (ii) would constitute a breach of the terms of this Agreement by Peak, or
(iii) Peak’s gross negligence or intentional misconduct was the cause of the
third party’s damages.

 

b.              Indemnification Procedure.  A party claiming indemnification under this
Section 15 (an “Indemnified Party”) shall provide prompt written notice
to the other party (the “Indemnifying Party”) of any and all notices,
claims, demands, pleadings, and other facts or circumstances that may, in the
Indemnified Party’s reasonable judgment, be likely to result in a claim for
indemnification.  The Indemnified
Party’s failure to provide such prompt written notice shall reduce the
indemnification obligation of the Indemnifying Party to the extent that such
failure resulted in demonstrable prejudice to the Indemnifying Party.  The Indemnified

 

 

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Party shall promptly tender defense of any
litigation or other formal dispute to the Indemnifying Party, and the
Indemnifying Party shall select counsel of its choice, reasonably acceptable to
the Indemnified Party for such litigation or dispute.  The Indemnified Party shall cooperate completely with the
Indemnifying Party, including without limitation providing timely responses to
all discovery requests and providing expert and factual witnesses as necessary
or desirable.  The Indemnifying Party
shall have the sole authority to negotiate and settle such claims to the extent
of the applicable indemnification obligation.

 

c.               Insurance.  Each party shall maintain products and
general liability insurance in an amount not less than $5,000,000.  Any amounts paid under such insurance
policies by the either party’s insurer shall reduce the indemnification
obligation of the Indemnified Party with respect to a particular claim.

 

16.         Limitation of Liability.  Neither party shall be liable to the other
party for any consequential, incidental or punitive damages, including, but not
limited to, damage to property, for loss of use, loss of time, or loss of
profits or income.

 

17.         Integration.  This Agreement constitutes the complete and exclusive statement
of the terms of the agreement between Peak and Aksys and supersedes all prior
and contemporaneous agreements including purchase orders and undertakings of
Peak and Aksys with respect to the subject matter hereof.

 

18.         Second Sourcing.  Aksys shall notify Peak in the event that it
utilizes any source of contract manufacturing for the Products other than Peak.

 

19.         Term and Termination.

 

a.               Initial Term and Renewal Term.  Unless sooner terminated in accordance with
Section 19(b) or (c), the initial term of this Agreement shall be two (2) years
and thereafter this Agreement shall automatically renew for successive one year
periods (such initial term and renewal terms collectively referred to herein as
the “Term”).

 

b.              Termination For Convenience.  Aksys may terminate this Agreement at any
time by providing written notice of not less than one-hundred eighty (180) days
to Peak.  Peak may terminate this
Agreement at any time by providing written notice of not less than one-hundred
eighty (180) days to Aksys.

 

c.               Termination For Cause.  The Term of this Agreement shall terminate:
(i) automatically, if one of the parties fails to perform any material
obligations hereunder, and such material obligations remain uncured sixty (60)
days following the date that the other party delivers to the defaulting party
written notice describing such performance failures; (unless breach is for non
payment for Product in which case the cure period is 60 days plus interest at
18% 

 

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annualized) (ii) immediately upon notice by
either party if the other party shall file for liquidation, bankruptcy,
reorganization, compulsory composition, dissolution, or if the other party has
entered into liquidation, bankruptcy, reorganization, compulsory composition or
dissolution, or if the other party is generally not paying its debts as they
become due (unless such debts are the subject of a bona fide dispute) or (iii)
immediately upon notice if Peak is unable to maintain its ISO certification or
Peak’s FDA registration.

 

d.              Effect of Termination/Survival.  Upon expiration of the Term of this
Agreement or termination hereof, neither party shall have any obligations to
the other, except that the provisions set forth in Sections 1, 12 through 17,
19, 23 and 25 through 28 shall survive indefinitely.

 

e.               Transition.  Upon expiration of the Term of this
Agreement or termination hereof,

 

and for a period of six (6) months thereafter, Peak shall provide
reasonable cooperation and assistance (including without limitation knowledge
transfer, materials sourcing, transfer of unused materials and unfinished
inventory, and removal and shipping of Aksys-owned tooling and fixtures) to
transition production of the Products to a third party designated by
Aksys.  Peak may invoice Aksys for
actual charges incurred by Peak in rendering such transition services billed on
an hourly basis at Peak’s standard rates.

 

20.         Compliance with Laws.  Each party shall comply with all domestic
and foreign laws, rules, regulations and orders applicable to such party’s
performance under this Agreement.

 

21.         Assignment and Delegation.  This Agreement cannot be assigned nor is the
performance of the duties delegable by either party without the written consent
of the other party; provided, however, that this Agreement may
be assigned by either party to a purchaser of substantially all of such party’s
assets relating to the Products, or to a successor in interest by merger or
corporate reorganization.

 

22.         Governing Law.  This Agreement shall be construed to be
between merchants and shall be governed by the laws of the State of Colorado.

 

23.         Relationship of Parties.  The relationship of Aksys and Peak is that
of Aksys and seller/manufacturer, respectively, of goods.  Nothing in this Agreement is intended to, or
shall be deemed to, constitute a partnership, joint venture, agency, or a transfer
of any intellectual property of either party, and neither party hereto shall be
authorized to act in the name of the other or enter into any contract or other
agreement which binds the other.

 

24.         Enforceability.  If any of the provisions of this Agreement,
or portions thereof, are found to be invalid by any court of competent
jurisdiction the remainder of this Agreement shall 

 

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nevertheless remain in full force and effect.

 

25.         Force Majeure.  Peak shall use its commercially reasonable
best efforts to notify Aksys at least thirty (30) days in advance of any
planned holidays or shutdowns, but neither Aksys nor Peak shall be liable for
any failure to perform obligations under this Agreement if prevented so by a
cause beyond their control and without the fault or negligence of the defaulting
party.  Without limiting the generality
of the foregoing, such causes include acts of God, fires, floods, storms,
epidemics, earthquakes, riots, civil disobedience, wars or war operations, or
restraint of government.

 

26.         Amendment.  This Agreement may not be amended except in a written amendment
signed by each of the parties. 
Additional or different terms contained in purchase orders or order
acknowledgments or similar forms shall not be effective unless signed by both
parties with reference to this Agreement.

 

27.         Dispute Resolution. Consent to Arbitration
and Venue. Peak and Aksys agree that upon the written demand of either
party, whether made before or after the institution of any legal proceedings,
but prior to the rendering of any judgment in that proceeding, all disputes,
claims, and controversies between them (but excluding disputes, claims and
controversies in which a third party is a necessary party), arising from this
Agreement, including without limitation contract disputes and tort claims,
shall be arbitrated in the metropolitan area which is chosen by the defendant,
pursuant to the Commercial Rules of the American Arbitration Association by a
panel of three arbitrators.  All
expenses of such arbitration shall be borne equally by the parties.  Any arbitration decision shall be final and
not subject to appeal unless the parties mutually agree otherwise in writing
before a final decision by the panel of arbitrators.  Any arbitration order or award may be enforceable in an
appropriate court as provided herein. 
Each party shall select one arbitrator and those two arbitrators shall
select the third arbitrator to form the panel. 
Each party reserves the right, notwithstanding the foregoing, to seek
equitable relief in a court of competent jurisdiction in any appropriate state
or federal court.  The prevailing party
in any arbitration or court proceeding is entitled to be reimbursed for any and
all reasonable attorney’s fees, expert fees, and costs of suit from the losing
party.

 

28.         Financial Disclosure:   Peak agrees to provide Aksys with annual
audited financial statements audited by a Certified Public Accounting
Firm.  Unaudited financial statements
can be requested by Aksys within 30 days of official quarter-end close.

 

 

[SIGNATURE PAGE
FOLLOWS]

 

13

 

IN WITNESS WHEREOF, the
authorized representatives signing below have entered into this Contract
Manufacturing Agreement on behalf of the parties as of the Effective Date.

 

 

	
  Peak Industries, Inc.

  	
  Aksys, Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ Scott Hendrickson

  	
   

  	
  By:

  	
   /s/ Thomas F. Scully

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  VP Finance

  	
   

  	
  Title:

  	
  Senior VP
  Manufacturing & Operations

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  March 11,
  2003

  	
   

  	
  Date:

  	
  March 24,
  2003

  	
   

  	 

														

 

14

 

Exhibit A

 

Design and Specifications

 

Peak is in
possession of complete design specifications, bills of materials and drawings
for the Products to be manufactured under the Agreement. Design changes will be
managed in compliance with Section 3, Document Control and Process.EXHIBIT
10.72

 

MEMORANDUM OF REBORROWING OF PRINCIPAL

 

This Memorandum of
Reborrowing of Principal (“Memorandum”) is entered into as of the 10th day of
March, 2003, by and between DSI Toys, Inc. (“DSI”), a Texas corporation, and
MVII, LLC (“MVII”), a California limited liability company.

 

RECITALS

 

A.                                   A
Promissory Note dated January 7, 2000, in the original principal amount of
$5,000,000.00 (the “Original Principal”) was executed by DSI payable to the
order of MVII (the “MVII Note”). The current principal balance of the MVII Note
is $4,650,000.00.

 

B.                                     DSI
desires to reborrow up to $350,000.00 of the Original Principal that has been
paid on the MVII Note.  MVII desires to
re-loan such amount to DSI.

 

C.                                     The
Loan and Security Agreement dated February 2, 1999, as amended from time to
time, (the “Loan Agreement”) by and between DSI and Sunrock Capital Corp., a
Delaware corporation (“Sunrock”) sets forth, in Section 9.9(c), that “Borrower
shall be permitted to reborrow principal amounts paid on the MVII Note from time
to time, provided, that, the outstanding principal amount of the
MVII Note shall not exceed the original principal amount of the MVII Note; provided,
further,  that, the stated interest rate of such indebtedness
shall not be increased, the frequency of payments shall not be increased and
the principal amount of the MVII Note, as increased from time to time, shall be
payable no more frequently than monthly or in amounts greater than the amounts
permitted by clause (ii) (B) above. 
Borrower shall promptly provide written notice to Lender of an increase
in the outstanding principal amount of the MVII Note pursuant to the authority
granted in this Section 9.9(c).”

 

NOW, THEREFORE, in consideration of the premises
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:

 

1.                                       As
of March 10, 2003, DSI shall reborrow from MVII, and MVII shall re-loan to DSI,
a sum up to $350,000.00 (the “Reborrowed Amount”), representing DSI’s
reborrowing of a portion of the Original Principal that was previously paid by
DSI to MVII in accordance with the MVII Note. The Reborrowed Amount is loaned
pursuant to all the terms and obligations set forth in the MVII Note, and shall
be added to the existing principal balance of the MVII Note.

 

2.                                       The
parties acknowledge that the Reborrowed Amount is subject to the terms and
conditions of the MVII Note, as well as all the terms and conditions of that
certain Subordination 

 

 

Agreement dated January
7, 2000, by and among E. Thomas Martin, MVII and Sunrock, together with any and
all amendments thereto.

 

3.                                       DSI
represents and warrants to MVII that all conditions to DSI’s right to borrow
the Reborrowed Amount, including but not limited to those set forth in the Loan
Agreement, have been satisfied.

 

4.                                       The
parties agree that they will execute such other instruments and documents as
are or may become necessary to carry out the intent and purpose of this
Memorandum, and/or to evidence DSI’s indebtedness to MVII for the Reborrowed
Amount.

 

IN WITNESS WHEREOF, this Memorandum has been duly
executed in triplicate originals as of the day and date first written
hereinabove.

 

 

	
   

  	
  DSI TOYS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ ROBERT L. WEISGARBER

  	
   

  
	
   

  	
   

  	
  Robert L. Weisgarber

  
	
   

  	
   

  	
  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MVII, LLC

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ JOSEPH S. WHITAKER

  	
   

  
	
   

  	
   

  	
  E. Thomas Martin

  
	
   

  	
   

  	
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
  Acknowledged
  this 21st day of March, 2003.

  	
   

  
	
   

  	
   

  
	
   

  	
  SUNROCK CAPITAL CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ JOHN ERWIN

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
    John Erwin

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
    E. V. P.

  	
   

  
						

 

2

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