DEVELOPMENT AND MANUFACTURING AGREEMENT

Exhibit 10.1 Development and Manufacturing Agreement with VML Technologies, Inc.

DEVELOPMENT AND MANUFACTURING AGREEMENT

THIS AGREEMENT is made on the                  day of                                    2005

(Effective Date)

BETWEEN

(1)

VML TECHNOLOGIES INC. (hereinafter "VML"), an Ontario corporation having principal office at 30 Dovedale Court, Scarborough, Ontario, Canada M1S 5A7.

(2)

Capacitive Deionization Technology SYSTEMS, INC. (hereinafter "CDT"), a Nevada corporation having a principal office at 13636 Neutron Road, Dallas, TX 75244.

WHEREAS

a.

CDT has technology and intellectual property for, among other things, capacitive deionization-based water treatment systems utilizing carbon aerogel material;

b.

The parties are also executing a Confidentiality Agreement dated today which will remain effective according to its terms ;

c.

VML is assisting CDT's research and development efforts to realize a cost-effective and scalable system for the manufacture of polymerized materials used in the production of carbon aerogel material;

d.

VML is producing for CDT polymerized material used in the production of carbon aerogel for assembly in CDT AQUACELLS;

e.

After the Scale-up Program is complete, VML will produce polymerized carbon veil on behalf of CDT on a larger scale using technology developed in whole or in part through VML's and CDT's research and development efforts;

f.

VML and CDT wish to enter into this Agreement to formally acknowledge the existing working relationship and to specify the Parties' objectives, rights and obligations associated with work being performed and to be performed;

1.

DEFINITIONS

1.1

Capitalized terms not otherwise defined for all purposes in this Agreement have the meanings specified as follows:

1.1.1  

"Direct Out-of-pocket Expenses" means expenses for materials, tools, instruments, fees, energy, travel, accommodation, etc. incurred as a result of or related to this Agreement. These expenses shall not include wages, rent or indirect utility (building heating, lighting, water) costs.

1.1.2  

"Milestone Date" means the date on which the Scale-up Program is completed. (September 30, 2005 - 1.1.5)

1.1.3  

"Parties" means CDT Systems, Inc. and VML Technologies Inc. or their permitted assigns. "A Party" means CDT Systems, VML Technologies Inc. or its permitted assign.

1.1.4  

"Product" means polymerized materials used in the production of carbon aerogel.

1.1.5  

"Scale-up Program" means research and manufacturing development work conducted on the VML premises pursuant to this Agreement with the goal of producing or realizing a logistically and financially viable system for manufacturing Product. The Scale-up Program shall be considered complete when the parties mutually agree that tooling and process development have reached the stage where VML can repeatedly produce 50 sheets of acceptable quality Product from one production cell. (September 30, 2005)

1.1.6  

"$" means US Dollars. All payments required by this Agreement shall be in US Dollars, unless the Parties otherwise agree.

2.

TECHNOLOGY

2.1

CDT acknowledges that any manufacturing process developments or enhancements discovered or made by the parties in the course of the Scale-Up Program will be available for a non-transferable license for use by VML on a royalty-free basis, but cannot be disclosed to others by VML or sublicensed by VML or used by VML on products which compete with the business of CDT, without written consent of CDT.

2.2

VML will make no claim of ownership, or rights to use, or other rights regarding formulas, designs, specifications or other manufacturing know-how provided by CDT, whether provided directly by CDT or provided indirectly through other parties. Except as set out in paragraph 2.1 above, VML will make no claim of ownership, or rights to use, or other rights regarding any formulas, designs, specifications or other manufacturing know-how discovered, developed or enhanced in the course of carrying out the work contemplated by this Agreement. The technology, and any manufacturing process developments or enhancements or process designs will be the property of CDT;

3.

TERM

3.1

This Agreement shall commence on the effective date set forth above and (subject to earlier termination according to the terms set out in this Agreement) shall expire two years from the Milestone Date. However, this Agreement may be extended upon written agreement of the parties.

4.

RIGHTS AND OBLIGATIONS OF SUPPLY

4.1

VML will provide polymerized Carbon Veil incorporating RF resin or S1 resin, which formulas will be provided to VML by CDT.

4.2

VML will not produce or release Product without CDT's prior approval.

4.3

Subject to tooling availability, the Parties will plan on production as follows: 2,250 sheets for the first month after the Milestone date; 3,750 sheets for the second month after the Milestone Date; 9,000 sheets per month for the third and fourth months; 15,000 sheets per month for the fifth and sixth months; and, thereafter, 30,000 sheets per month or more. CDT will provide a 90-day release schedule which will be updated monthly. No releases will be charged without CDT agreement.

4.4

VML will provide tooling to meet the Parties production timetable, subject to the prior approval of CDT which will pay for said tooling.

4.5

CDT will provide items noted in ATTACHMENT 1 Section (a), namely Carbon Veil, Resorcinol or S1 formula components and shipping cartons to VML's facility in Scarborough to meet the project timetable. VML will inventory all items and provide CDT with the inventory information upon request.

4.6

VML will supply items noted in ATTACHMENT 1, Section (b), namely Formaldehyde, Sodium Carbonate Monohydrate, RO water and other supplies approved by CDT to meet the project timetable. VML will invoice CDT for these items.

4.7

VML will supply at its own expense items noted in ATTACHMENT 1, Section (c).

4.8

VML will invoice CDT and CDT agrees to pay Vacuum Metallizing Limited's monthly plant overhead allocation charge (ATTACHMENT 1, Section (d) and ATTACHMENT 2).

4.9

VML is authorized to add a 20% overhead factor to invoice its submits to CDT, this factor to apply to ATTCHMENT 1 Section (a), (b) and (d) cost items.

4.10

CDT will provide one or more CDT employees who will have full access to the work and who will coordinate production with VML and assist in making suggestions to improve the process.

5.

SUBSTITUTION AND EXTENSION

5.1

In the event that CDT modifies its specifications for Product, this modification shall not change the rights and obligations of each Party in regard to the other Party under this Agreement. If CDT changes the material to be used in Product to the S-1 material, the Parties will attempt to negotiate a new agreement, similar to this Agreement, with regard to the new material.

6.

PERFORMANCE

6.1

Neither of the Parties warrants that the Scale-up Program will result in a commercially or technic