Contract Manufacturing Agreement

Exhibit 10.14


Contract Manufacturing Agreement


This Contract Manufacturing Agreement ("Agreement") is made as of February 28, 2001 (the "Effective Date") between Peak Industries, Inc., 4300 Road 18, Longmont, CO 80504 ("Peak") and Aksys, Ltd., Two Marriott 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) Supply Obligations. During the Term, (a) Peak shall manufacture the
Products in accordance with the terms and conditions set forth in this
Agreement and the Specifications, and (b) Peak shall manufacture all of
Aksys's requirements for Products as provided in Section 5 (a) except as
provided below in Section 5(b).


2) Design and Specifications.


a) Specifications. The "Specifications" shall mean all of the following:
(i) the preliminary drawings and specifications for the Products will
be mutually agreed upon and controlled in the Peak Manufacturing and
Quality System (PMQS), and all revisions thereof delivered in writing
by Aksys to Peak and accepted by Peak; (ii) manufacturing procedures
and quality plans for the specific assembly in accordance with Section
2(c); and (iii) all prototypes made by Peak and approved by Aksys for
production.


b) Design Changes. Peak and Aksys will mutually review and accept changes
in Specifications by releasing such changes in the PMQS. Peak reserves
the right to re-quote prices in the event of Aksys changes to the
Specifications.


c) Testing and Quality. Aksys and Peak will establish testing procedures
mutually agreed upon by Peak and Aksys. Peak will evaluate and
incorporate Aksys test procedures into its PMQS. Aksys and Peak will
agree on Non Recurring Engineering fees to compensate appropriate
activities. Peak agrees that Aksys's representatives may have access
to the area 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 purposes of quality
inspection and verification of manufacturing procedures to
Specifications.


d) Quality Requirements.


i) Aksys shall maintain the "Design History File" and perform all
necessary "Design Verification and Validation."


ii) Aksys shall be responsible for identifying any components
requiring lot traceability. These requirements will be released
into the PMQS as a customer specification.


iii) Peak shall maintain an approved vendor list (AVL) which shall
serve as a record of acceptable suppliers. Any suppliers
selected, evaluated and approved by Aksys or their representative
shall be noted as a customer approved supplier on the AVL. All
suppliers selected by Peak shall be either approved or certified
according to the PMQS.


iv) Peak will perform process validation where results cannot be
verified by subsequent inspection or test. Any additional
validation will be specified by Aksys. Aksys will provide
specifications for and


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will obtain any necessary regulatory approvals of printed
materials, including labels manuals, artwork and copy.


v) Aksys will investigate and handle complaints from end-users. Peak
shall cooperate with Aksys's investigations, including providing
manufacturing-related records as they relate to the
investigation. Aksys will reimburse Peak for all reasonable costs
and expenses in cooperation of such investigation.


vi) 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.


vii) Aksys is responsible for all installation and start up activities
of the Product.


3) Tools and Fixtures. Aksys shall be responsible for purchasing all tooling
and fixtures that are required for production of the Products (including
any tooling and fixtures required due to a change to the Specifications)
and which Peak does not own as of the Effective Date. All such tooling and
fixtures shall be held by Peak in trust for Aksys's exclusive use in
accordance with manufacturing and testing procedures established for
Aksys's products only. Such tooling and fixtures shall be owned by Aksys
and identified to Peak's lenders, creditors, shareholders and other third
parties as Aksys assets consigned to 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.


4) Forecasts.


a) Generally. Aksys agrees to provide Peak a six (6) month rolling
forecast of Aksys's reasonably anticipated cumulative quantity of the
Product for such six-month period. Aksys agrees to update the forecast
monthly and provide it to Peak each month. Peak is authorized to
purchase materials for the first thirteen weeks of the forecast (the
"Rolling 13 Week Firm Forecast") after the product has officially been
launched into the marketplace. Pre-launch purchasing quantities will
be provided by Aksys.


b) Long Lead Time Items. Peak may request from Aksys written
authorization to purchase certain long lead time items for Peak
inventory, safety-stock and manufacturing requirements ("Special
Inventory"). Upon termination or cancellation of this Agreement, Aksys
shall purchase from Peak, at Peak's actual cost, any unused Special
Inventory not to exceed the amount that has been specifically agreed
to in writing by Aksys.


c) Deposit. Aksys agrees to provide a one-time cash deposit in an amount
equal to Peak's cost for the materials required to produce the number
of Product units specified in the initial Rolling 13 Week Firm
Forecast. Such deposit shall be applied as a credit against each
subsequent invoice. No deposit shall be required for any order other
than the initial deposit described herein.


5) Orders and Fulfillment.


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a) Purchase Order. Aksys shall issue written purchase order releases (PO
releases) for its Product requirements. Peak shall accept and fulfill
all such PO releases to the extent that the Product quantity ordered
by Aksys for delivery in any one week period does not exceed the
delivery forecast for such week in the Rolling 13 Week Firm Forecast
provided by Aksys at least [thirteen (13) weeks] prior to such week;
provided, however, that Peak shall make all reasonable efforts and
afford first priority to production for Aksys to accept and fulfill PO
releases that exceed such forecasts. Aksys shall provide a required
delivery date for each PO release based on a thirty (30) day lead time
or as otherwise mutually agreed between Aksys and Peak.


b) Exclusivity; Inability to Supply. During the Term and for so long as
Peak continues to timely supply Aksys' requirements for the Products,
Aksys shall not have the Products made by any third party; provided,
however, that nothing in this Agreement shall be deemed to preclude
Aksys from manufacturing the Products itself. Peak shall provide
immediate written notice to Aksys if Peak reasonably anticipates that
it may be unable to meet Aksys' requirements specified in the then-
current Rolling 13 Week Firm Forecast (or thereafter), and in such
event Aksys shall be entitled to have Products made by other third
parties, and may thereafter allocate, in Aksys's sole discretion, its
Product requirements among Peak and such third parties. Exclusivity is
predicated upon Peak's maintenance of ISO 9002 certification and FDA
registration during the term of the agreement. Loss of either of these
certifications will result in forfeiture of exclusivity until
certification is reestablished.


c) Order Cancellation. Aksys may cancel any PO release or any Rolling 13
Week Firm Forecast, provided that in such event, Aksys shall pay Peak
for Products and any inventory affected by the cancellation as
follows, not to exceed to purchase price for such order: (i) 100% of
Peak's price to Aksys for all finished Products in Peak's possession,
(ii) 110% of the cost of all inventory in Peak's possession procured
for Aksys confirmed purchase orders and not returnable to the vendor
or usable for other customers, whether in raw form or work in process,
(iii) 100% of the cost of inventory on order and not cancelable, (iv)
any vendor cancellation charges incurred with respect to inventory
accepted for cancellation or return by the vendor, and (v) actual
costs to Peak of labor incurred by Peak related to work in process for
Aksys's canceled PO releases. Upon such payment all such inventory
and work in progress shall become the sole property of Aksys.


d) Order Changes. Peak will make commercially reasonable efforts to
accommodate changes to Aksys confirmed purchase orders. Peak will move
out purchase order dates to accommodate changes, but in no event will
the move out exceed thirty (30) days. Purchase orders moved out
greater than 30 days may be invoiced at full value upon completion.


e) Part Change Orders. Aksys agrees to purchase from Peak, at Peak's
actual cost, any inventory purchased by Peak in reliance on Aksys's
Rolling 13 Week Firm Forecast, 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 and shipping if applicable.


6) 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 PO release, all
Product deliveries shall be shipped F.O.B. factory to the destination
specified by Aksys for delivery, and Peak shall insure such shipments
against any loss or damage to the goods caused during shipment.


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7) Payment.


a) Invoice. Peak will invoice at the time of shipment of Products.
Payment is due at Peak on or within twenty (20) calendar days from the
date that such invoice is received by Aksys.


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 ...