Developement & Manufacturing Agreement

DEVELOPMENT AND MANUFACTURING AGREEMENT


This Agreement effective the 13th day of April, 1993, by and between LANCER CORPORATION, a Texas corporation, whose business address is 235 W. Turbo Street, San Antonio, Texas 78216 (hereinafter referred to as "LANCER") and PACKAGED ICE, INC., a Texas corporation, whose business address is P.O. Box 79233, Houston, Texas 77279-9233 (hereinafter referred to as "PACKAGED ICE").


WITNESSETH:


WHEREAS, LANCER has a continuous program to design, develop, and manufacture new systems, processes, apparatuses, articles, compositions of matter, and the like for various purposes related to LANCER's business.


WHEREAS, PACKAGED ICE is the owner of certain proprietary and confidential information with respect to an AUTOMATIC ICE BAGGER which includes, but is not limited to, the subject matter of U.S. Patent No. 5,109,651 and other pending U.S. and foreign patent applications (hereinafter referred to as the "LICENSED UNIT"); and


WHEREAS, the parties wish to mutually cooperate with respect to LANCER's becoming the exclusive manufacturer of the LICENSED UNIT for PACKAGED ICE.


NOW THEREFORE, in consideration of the rights and obligations herein set forth, the parties hereto agree as follows:


1. Development Phase. During the development phase, LANCER will produce up to five prototype LICENSED UNITS for testing and approval for PACKAGED ICE in accordance with the following terms and conditions:


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a. Simultaneously with the execution of this Agreement, PACKAGED ICE
will issue 16,077 shares of its common stock to LANCER, said
stock to be valued at $6.22 per share. The value of said 16,077
shares of common stock will be credited against the purchase
price of the first five hundred production units delivered to
PACKAGED ICE to reduce the cost of each of said units by Two
Hundred Dollars per unit.


b. PACKAGED ICE has provided Design and Performance Criteria, know-
how, and manufacturing drawings in the English language to LANCER
relating to the LICENSED UNIT (the Design Package); and LANCER
will produce a complete set of drawings for its new production
unit.


c. LANCER will use its reasonable best efforts to prototype and
deliver to PACKAGED ICE on or before October 1, 1993 at LANCER's
main office in San Antonio, Texas, up to a maximum of five
LICENSED UNITS which will be essentially identical to a
production unit, i.e. a production prototype. There will be no
charge to PACKAGED ICE for the first LICENSED UNIT delivered to
it;


d. After delivery of the first LICENSED UNIT, PACKAGED ICE may elect
to purchase up to four additional prototype LICENSED UNITS for
field testing. Upon receipt of PACKAGED ICE's written purchase
order, LANCER will manufacture and deliver the additional
prototype LICENSED UNITS to PACKAGED ICE. PACKAGED ICE shall pay
LANCER $5,000.00 each, f.o.b., LANCER's Plant in San Antonio,
Texas upon delivery of each additional LICENSED UNIT.


2. Manufacturing Phase. Upon completion of the filed testing, which is not to exceed ninety days, PACKAGED ICE shall issue its Purchase Order for a minimum of Thirty-Six Hundred LICENSED UNITS. If problems are found during the field test, the test period shall be extended for the time required to correct the problem.


Upon issuance of the Purchase Order, the Manufacturing Phase shall commence in accordance with the following terms and conditions:


a. The initial term of the manufacturing contract shall be the
earlier of three years or until the thirty-six hundred LICENSED
UNITS have been delivered.


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b. LANCER will commence production at a monthly rate of units in
accordance with the schedule to be provided by PACKAGED ICE an
attached hereto as Exhibit "B" and, will escalate to produce a
minimum of 1200 units during the first year.


c. LANCER will guarantee the price for the first nine months of
actual production at $5,000.00 per unit, bolted to a forkliftable
pallet and plastic wrapped. Additional packaging will require an
additional charge. Actual production will commence upon receipt
of the first purchase order.


d. All sales under this Agreement shall be f.o.b. LANCER's Plant,
San Antonio, Texas. The terms of payment shall be subject to
LANCER's policy on credit rating its customers. This rating may
be reviewed and changed from time to time, thereby changing the
terms of payments.


e. Prior to the end of the first nine months of actual production,
LANCER will provide PACKAGED ICE with a costed bill of material
depicting LANCER's manufacturing cost. The price for LICENSED
UNITS will be adjusted for units delivered subsequent to said
first nine month production period on the following formula:


Manufacturing Cost divided by 0.65.


On November 11th of each year, LANCER will provided PACKAGED ICE
with a new costed bill of material which will determine the price
beginning on January 1 of each subsequent year.


Any additional features or design changes may result in an
additional costs which will be made at the time such changes are
introduced.


Manufacturing Cost shall be defined as costs of production less
the cost of engineering, sales, G & A, interest, and profits.


f. PACKAGED ICE will take delivery of LICENSED UNITS within ten
calendar days following completion of manufacture. the LICENSED
UNITS will be delivered in lot sizes to PACKAGED ICE's
discretion.


LANCER will invoice for LICENSED UNITS upon completion of
manufacture, regardless of shipment date.


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3. Term. The Manufacturing Contract shall be automatically
renewed for subsequent three year periods upon expiration of a given
term provided that LAN ...