UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly report pursuant to section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 1996 Commission file number 0-13875
LANCER CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1591073
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
235 West Turbo, San Antonio, Texas 78216
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210)344-3071
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 14(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
Indicate the number of shares outstanding of each of the issuers of classes of
common stock, as of the latest practicable date.
Title Shares outstanding as of
April 25, 1996
Common stock, par value 3,874,234
$.01 per share
1
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
----------- -----------
March 31, December 31,
1996 1995
(Unaudited)
----------- -----------
Current assets:
<S> <C> <C>
Cash $ 160,059 $ 754,352
----------- -----------
Receivables:
Trade accounts and notes 18,386,032 14,431,531
Other 264,291 272,214
----------- -----------
18,650,323 14,703,745
----------- -----------
Less allowance for doubtful accounts (85,000) (85,000)
----------- -----------
Net receivables 18,565,323 14,618,745
Inventories (note 2) 21,694,535 20,031,758
---------- ----------
Prepaid expenses 227,054 146,776
Deferred income taxes 63,506 -
---------- ----------
Total current assets 40,710,477 35,551,631
---------- ----------
Property, plant and equipment, at cost:
Land 1,303,163 977,888
Buildings 9,474,507 7,950,514
Machinery and equipment 13,758,093 13,255,089
Tools and dies 8,332,577 7,927,246
Leaseholds, office equipment
and vehicles 5,604,550 4,969,712
Construction in progress - 1,361,906
---------- ----------
38,472,890 36,442,355
Less accumulated depreciation
and amortization (17,863,746) (17,242,089)
----------- -----------
Net property, plant and
equipment 20,609,144 19,200,266
---------- ----------
Long-term receivables
515,143 512,388
Intangibles and other assets,
at cost, less accumulated
amortization 2,696,560 2,679,578
--------- ---------
$64,531,324 $57,943,863
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
----------- ------------
March 31, December 31,
1996 1995
(Unaudited)
----------- ------------
Current liabilities:
<S> <C> <C>
Accounts payable $ 8,628,564 $ 5,645,063
Current installments of long-
term debt 1,476,995 1,448,093
Line of credit with bank (note 3) 8,000,000 7,000,000
Deferred revenue 1,052,581 815,901
Accrued expenses and other
liabilities 2,439,269 2,882,886
Income taxes payable 1,429,579 487,395
---------- ----------
Total current liabilities 23,026,988 18,279,338
---------- ----------
Deferred income taxes 966,116 996,409
Other long-term liabilities 730,000 700,000
Long-term debt, excluding
current installments (note 3) 5,048,157 5,397,574
Deferred license fees and other
revenue 2,155,600 1,505,600
---------- ----------
Total liabilities 31,926,861 26,878,921
---------- ----------
Shareholders' equity:
Common stock, $.01 par value:
10,000,000 shares authorized;
3,874,033 and 3,872,221 issued
and outstanding in 1996 and
1995, respectively 38,740 38,722
Additional paid-in capital 9,862,353 9,852,713
Cumulative translation adjustment 189,488 -
Retained earnings 22,513,882 21,173,507
---------- ----------
Total shareholders' equity 32,604,463 31,064,942
---------- ----------
$ 64,531,324 $ 57,943,863
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
------------------------
Three Months Ended
March 31, March 31,
1996 1995
------------------------
<S> <C> <C>
Net sales $ 23,452,265 $ 20,341,217
Cost of sales 17,842,396 16,472,973
---------- ----------
Gross profit 5,609,869 3,868,244
Selling, general and
administrative expenses 3,204,647 2,634,146
--------- ---------
Operating income 2,405,222 1,234,098
--------- ---------
Other income (expense):
Interest expense (428,909) (221,314)
Interest and other income, net 198,363 543,390
--------- ---------
(230,546) 322,076
--------- ---------
Income before income taxes 2,174,676 1,556,174
--------- ---------
Income taxes expense(benefit):
Current 864,594 713,373
Deferred (30,293) (126,375)
---------- ----------
834,301 586,998
---------- ----------
Net income $ 1,340,375 $ 969,176
============ ==========
Weighted average shares 4,009,064 3,979,602
============ ==========
Net earnings per share $ 0.33 $ 0.24
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
---------------------------
Three Months Ended
March 31, March 31,
1996 1995
---------------------------
Cash flow from operating activities:
<S> <C> <C>
Net income $ 1,340,375 $ 969,176
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 624,657 542,387
Loss on sale and disposal of assets 6,753
Changes in assets and liabilities:
Receivables (3,949,333) (3,620,838)
Refundable income taxes - 342,981
Prepaid expenses (80,278) (129,904)
Deferred income taxes (93,799) (126,375)
Inventories (1,662,777) 1,824,838
Other assets 169,506 215,904
Accounts payable 2,983,501 (32,061)
Accrued expenses and other liabilities (443,617) (112,323)
Income taxes payable 942,184 365,129
Deferred license fees and other revenue 886,680 -
Other long-term liabilities 30,000 60,000
------- -------
Net cash provided by operating activities 747,099 305,667
------- -------
Cash flow from investing activities:
Proceeds from sale of assets - 7,500
Acquisition of property, plant and equipment (2,030,535) (1,861,380)
---------- ----------
Net cash used in investing activities (2,030,535) (1,853,880)
---------- ----------
Cash flow from financing activities:
Net borrowings under line of credit agreements 1,000,000 500,000
Proceeds from issuance of long-term debt - 1,000,000
Retirement of long-term debt (320,515) (421,156)
Proceeds from exercise of stock options 9,658 -
------- ---------
Net cash provided by financing activities 689,143 1,078,844
------- ---------
Net decrease in cash (594,293) (469,369)
Cash at beginning of year 754,352 2,102,390
--------- -----------
Cash at end of period $ 160,059 $ 1,633,021
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
All adjustments (consisting of normal recurring adjustments) have been made
which are necessary for a fair presentation of financial position and results of
operations. All intercompany balances and transactions have been eliminated in
consolidation. It is suggested that the consolidated financial statements be
read in conjunction with the consolidated financial statements and notes thereto
included in the December 31, 1995 Annual Report on Form 10- K.
Net earnings per share are based on the weighted average number of common and
common equivalent (dilutive stock options) shares outstanding each period. Fully
diluted net earnings per share would not be different than net earnings per
share. On July 11, 1995, the Company effected a three-for-two stock split
accounted for as a dividend. Prior year weighted average shares outstanding and
prior year per share amounts have been restated accordingly.
2. Inventory Components
The Company uses the gross profit method to determine cost of sales and
inventory for interim periods. Inventory components are estimated based on
historical relationships as follows:
<TABLE>
<CAPTION>
------------ ------------
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Finished Goods $ 5,465,235 $4,558,742
Work in process 12,907,584 11,982,620
Raw material and supplies 3,321,716 3,490,396
------------ ------------
$ 21,694,535 $ 20,031,758
============ ============
</TABLE>
3. Long-term Debt and Line of Credit
On May 1, 1996, the Company replaced its prior $10.0 million working capital
revolving line of credit with a $12.0 million working capital revolving line of
credit (the "Credit Facility") from its primary lender. The terms of the
enhanced Credit Facility are substantially the same as the terms of the prior
line of credit, with the interest rate being based upon either the London
Interbank Offered Rates ("LIBOR") or upon, and fluctuating with, the lender's
prime rate. Under the Credit Facility, the Company will be able to borrow up to
a certain percentage of its eligible accounts receivable and inventory, provided
it maintains certain financial ratios and complies with certain covenants. The
Company is in compliance with all such convenants.
6
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison of the Three Months Ended March 31, 1996 and 1995
Net sales for the quarter ended March 31, 1996 increased by $3.1 million, or
15.3%, to $23.4 million from $20.3 million for the same period last year. This
increase reflects a general increase in demand for all domestic product lines
and higher volumes from international customers. International sales accounted
for 45.8% of the net sales for the quarter ended March 31, 1996, an increase of
57.9 %, from 29.0% for the same period last year.
Gross profit recognized for the first quarter of 1996 increased by $1.7 million,
or 45.0%, to $5.6 million from $3.9 million for the same quarter last year,
while gross margins (the percentage of net sales reflected by gross profit) for
the period increased to 23.9% from 19.0% for the same period in 1995. The
increases in gross profit and gross margins are primarily attributable to
reductions in manufacturing and overhead costs, the increase in net sales, and a
full quarter of combined operations for the Company and Glenn Pleass Holdings,
Pty. Ltd. ("GPH"), its wholly- owned Australian subsidiary acquired in December
1995.
Selling, general and administrative costs during the quarter ended March 31,
1996 increased by $0.6 million, or 21.7%, to $3.2 million from $2.6 million for
the same quarter last year. The increase reflects higher selling and engineering
expenses, and the full impact of including GPH expenses during the 1996 quarter.
Interest expense for the three months ended March 31, 1996 increased $208,000,
or 93.8%, to $429,000 from $221,000 for the same period last year, reflecting
higher average outstanding debt during 1996.
Interest and other income decreased by $345,000, or 63.5%, for the three months
ended March 31, 1996 to $198,000 as compared to $543,000 during the same period
in 1995, due primarily from lower commissions earned under a sales
representative agreement.
Income tax expense for the three months ended March 31, 1996 increased by
$247,000, or 42.1%, to $834,000 from $587,000 for the same period in 1995. This
increase was primarily due to increased pretax income.
Net income for the three months ended March 31, 1996 increased by $371,000, or
38.3%, to $1,340,000 ($0.33 per share) from $969,000 ($0.24 per share) for the
same period in 1995. This increase was primarily due to the reduction in
manufacturing and overhead costs and the increase in net sales.
Liquidity and Capital Resources
Cash from Operations for the three months ended March 31, 1996 was $747,000
compared to $306,000 for the same period in the prior year. Cash provided by
operations during the first three months of 1996, along with cash on hand and $1
million in new borrowings, was used to acquire additional machinery and
equipment and tools and dies for $1.6 million, and to repay long- term debt of
$321,000.
The Company renewed and increased its Credit Facility to $12.0 million from
$10.0 million as of May 1, 1996. The terms of the Credit Facility are
substantially the same as the previous facility established during 1995.
Borrowings under the Credit Facility are based upon certain percentages of the
Company's outstanding receivables and inventories. Advances bear interest based
upon either the three-month LIBOR plus a pre-determined percentage spread, or
upon, and fluctuating with, the lender's prime rate. As of March 31, 1996, the
Company had outstanding borrowings of $8.0 million under the Credit Facility and
the blended interest rate was 7.79%.
7
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
The Company is a party to various lawsuits and claims generally incidental to
its business. In the opinion of management and independent legal counsel, the
ultimate disposition of these matters is not expected to have a significant
adverse effect on the Company's financial position or results of operations.
Item 5 - Other Information
Effective May 1, 1996, the Company formed two wholly-owned subsidiaries. The
subsidiaries, Lancer Capital Corporation, as the General Partner, and Lancer
Investment Corporation, as the Limited Partner, established a limited
partnership into which the Company transferred substantially all of its U.S.
domestic assets. The limited partnership, Lancer Partnership, Ltd., has retained
substantially all of the Company's domestic employees and all of its management
team. As such, the limited partnership has become the operating entity for the
Company's domestic manufacturing, marketing, sales and product development
activities. Management believes that the formation of such an entity will
facilitate administrative operations and reduce expenses.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10.25 Ninth Amendment to Loan Agreement and Loan Documents,
dated April 1, 1996
10.26 Tenth Amendment to Loan Agreement and Loan Documents,
dated May 1, 1996
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fiscal quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANCER CORPORATION
(Registrant)
May 14, 1996
By:/s/ George F.Schroeder
George F. Schroeder
President and CEO
May 14, 1996 By:/s/ John P. Herbots
John P. Herbots
Chief Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Balance Sheets and Consolidated Statements of Income found on pages
2, 3 and 4 of the Company's 10-Q for the year-to-date, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 160
<SECURITIES> 0
<RECEIVABLES> 18650
<ALLOWANCES> (85)
<INVENTORY> 21695
<CURRENT-ASSETS> 40710
<PP&E> 38473
<DEPRECIATION> (17864)
<TOTAL-ASSETS> 64531
<CURRENT-LIABILITIES> 23027
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 32566
<TOTAL-LIABILITY-AND-EQUITY> 64531
<SALES> 23452
<TOTAL-REVENUES> 23651
<CGS> 17842
<TOTAL-COSTS> 21047
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429
<INCOME-PRETAX> 2174
<INCOME-TAX> 834
<INCOME-CONTINUING> 1340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1340
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
177790.1
NINTH AMENDMENT TO LOAN AGREEMENT
AND LOAN DOCUMENTS
This Ninth Amendment to Loan Agreement and Loan Documents
(the "Agreement") is among LANCER CORPORATION, a Texas
corporation (the "Borrower"), LANCER INTERNATIONAL SALES, INC., a
Texas corporation ("Lancer International"), LANCER LIMITED
("Lancer Limited") and FIRST INTERSTATE BANK OF TEXAS, N.A. (the
"Lender").
R E C I T A L S
WHEREAS, the Borrower and the Lender entered into a Loan
Agreement dated July 24, 1991 (the "Original Loan Agreement"),
the terms and provisions of which Original Loan Agreement are
incorporated in this Agreement by this reference for all
purposes;
WHEREAS, the Borrower and the Lender amended the Original
Loan Agreement in an Amendment to Loan Agreement and Loan
Documents (the "First Amendment") dated effective May 15, 1992,
in a Second Amendment to Loan Agreement and Loan Documents dated
effective May 15, 1993 (the "Second Amendment"), in a Third
Amendment to Loan Agreement and Loan Documents dated effective
April 8, 1994 (the "Third Amendment"), in a Fourth Amendment to
Loan Agreement and Loan Documents dated effective July 29, 1994
(the "Fourth Amendment"), in a Fifth Amendment to Loan Agreement
and Loan Documents dated effective November 8, 1994 (the "Fifth
Amendment"), in a Sixth Amendment to Loan Agreement and Loan
Documents dated effective June 30, 1995 (the "Sixth Amendment"),
in a Seventh Amendment to Loan Agreement and Loan Documents dated
effective August 1, 1995 (the "Seventh Amendment") and most
recently in an Eighth Amendment to Loan Agreement and Loan
Documents dated effective December 29, 1995 (the "Eighth
Amendment"), the terms and provisions of which First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth
Amendment, Sixth Amendment, Seventh Amendment and Eighth
Amendment are incorporated into this Agreement by this reference
for all purposes (all subsequent references to the Original Loan
Agreement, as modified by the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth
Amendment and this Agreement being collectively referred to
herein as the "Loan Agreement");
WHEREAS, the Loan Agreement concerns all of the Loans from
the Lender to the Borrower, including specifically, an existing
Revolving Note in the principal sum of $10,000,000.00;
WHEREAS, the Loans are secured by the Collateral described
in the Loan Documents, which Loan Documents include, without
limitation, a Security Agreement dated July 24, 1991, executed by
the Borrower in favor of the Lender, which covers, in part, the
Borrower's Inventory and Accounts, and a Security Agreement dated
effective May 15, 1992, executed by Lancer International in favor
of the Lender, which covers, in part, Lancer International's
Inventory and Accounts;
WHEREAS, the Borrower has requested that the Lender increase
the $10,000,000.00 Revolving Note to $12,000,000.00, all in
accordance with the terms stated in this Agreement;
WHEREAS, the Borrower and the Lender desire, as evidenced by
this Agreement, to make certain amendments to the Loan Agreement
and to ratify the continued force and effect of the Loan
Documents;
NOW, THEREFORE, in consideration of the financial
accommodations extended to the Borrower by the Lender and other
good and valuable consideration, the receipt and sufficiency of
which are acknowledged by the undersigned, the Borrower, the
Subsidiaries and the Lender agree as follows:
1. The first sentence of Section 1.1 of the Original Loan
Agreement is restated as follows:
1.1. Description of the Loans. Subject to the
terms and conditions of this Agreement and in reliance
upon the representations and warranties made by the
Borrower, the Lender agrees (a) to make available to
the Borrower (i) a $12,000.000.00 revolving credit as
evidenced by a revolving promissory note (the
"Revolving Note") in substantially the form attached
hereto as Exhibit "A" and (ii) a $5,000,000.00 term
credit as evidenced by a promissory note (the "Term
Note") in the form attached hereto as Exhibit "E", and
(b) to make available to Nueva Distribuidora Lancermex
S.A. de C.V. a $2,500,000.00 term credit as evidenced
by a promissory note (the "Lancermex Note") in
substantially the form attached hereto as Exhibit "F".
2. The following Section 1.2 of the Original Loan
Agreement is restated as follows:
1.2 Borrowing Base under the Revolving Note.
Advances on the Revolving Note will be limited to an
amount equal to the lesser of (a) the sum of (i) eighty
percent (80%) of the Borrower's Eligible Accounts and
(ii) thirty-five percent (35%) of the Borrower's
Inventory, or (b) $12,000,000.00 (the "Borrowing
Base"); provided; however, for purposes of calculating
the Borrowing Base only, the amount included within the
Borrower's Inventory shall not exceed $20,000,000.00
and the amount of foreign Accounts included within the
Borrower's Eligible Accounts shall not exceed
$3,125,000.00 (excluding from this foreign Account
"cap" the Insured Accounts as defined in the last
parenthetical phrase of the following sentence). As
used in the prior sentence, the term "Eligible
Accounts" shall mean all Accounts, except for (i)
Accounts owed by Subsidiaries or Affiliates of the
Borrower, (ii) contra Accounts, (iii) domestic Accounts
which remain unpaid after ninety (90) days from the
date of invoice, (iv) those Accounts owed by any
Account Debtor if more than twenty-five percent (25%)
of such Account Debtor's Account remains unpaid after
ninety (90) days from the date of invoice (excluding
from the prior exception Accounts owed by Coca Cola USA
and Coca Cola Foods and those from any foreign Account
Debtors that are Coca Cola bottlers or entities in
which Coca Cola has at least a twenty-five percent
ownership stake to the extent the Accounts of such
foreign Account Debtors are not more than sixty days
past due from a maximum due date of one hundred eighty
days from the date of invoice), (v) Accounts owed by
any Account Debtor other than Coca-Cola to the extent
such Account Debtor's Account exceeds ten percent (10%)
of all Accounts, (vi) Accounts of the U.S. government
and its agencies which are subject to the Assignment of
Claims Act, (vii) Accounts from any foreign Account
Debtor to the extent such foreign Account Debtor's
Account exceeds $1,200,000.00, (viii) and Accounts from
foreign Account Debtors that are not Coca-Cola bottlers
or entities in which Coca-Cola has at least a twenty-
five percent (25%) ownership stake (excluding from this
last exception only those specific foreign Accounts
secured by letters of credit acceptable to the Lender
and those insured under the First Interstate Foreign
Assurance Export Program or other comparable program
approved in advance and in writing by the Lender, which
specific foreign Accounts are sometimes referred to
herein as the "Insured Accounts"). Upon request by the
Lender, and in any event within forty-five (45) days
after the end of each calendar month, the Borrower
shall furnish the Lender with a Borrowing Base
Certificate substantially in the form of Exhibit "B".
The Lender may determine and redetermine the Borrowing
Base as often as daily. Each determination of the
Borrowing Base shall be made by the Lender in its sole
discretion and as a matter of its own judgment.
3. Exhibits "A" and "B" attached to the Loan Agreement are
replaced by Exhibits "A" and "B" attached to this Agreement.
4. The Borrower reaffirms the representations and
warranties contained in Section 3 of the Loan Agreement and
confirms that said representations and warranties are true and
correct as of the effective date of this Agreement.
5. The Borrower ratifies, affirms, acknowledges and agrees
that the Loan Documents, and each and every document and
instrument which secures payment of the Loans, represent the
valid, enforceable, and collectible obligations of the parties
thereto and further acknowledge that there are no existing
claims, defenses, whether personal or otherwise, or rights of set-
off whatsoever with respect to any of the instruments or
documents described specifically or by reference in this
Agreement, and the Borrower further acknowledges and represents
that no event has occurred and no condition exists which would
constitute a Default under the Loan Agreement either with or
without notice or lapse of time.
6. The Loan Documents and all other documents and
instruments executed in connection with the Loans shall be
governed and construed according to the laws of the State of
Texas from time to time in effect, except to the extent United
States federal law preempts Texas law.
7. This Agreement shall be binding upon and inure to the
benefit of the Lender, the Borrower and the Subsidiaries and
their respective heirs, successors and assigns.
8. Agreement for Binding Arbitration. The parties agree to
be bound by the terms and provisions of the current Arbitration
Program of First Interstate Bank of Texas, N.A., which is
incorporated by reference herein and is acknowledged as received
by the parties, pursuant to which any and all disputes shall be
resolved by mandatory binding arbitration upon the request of
either party.
EXECUTED in multiple counterparts effective as of April 1,
1996.
LANCER CORPORATION, a Texas
corporation
By: /s/ John P. Herbots
Name: John P. Herbots
Title: Vice President Finance
LANCER INTERNATIONAL SALES, INC.,
a Texas corporation
By: /s/ John P. Herbots
Name: John P. Herbots
Title: Vice President Finance
LANCER LIMITED
By: /s/ George F. Schroeder
Name: George F. Schroeder
Title: President
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ Scott Adams
Name: Scott Adams
Title: Assistant Vice President
1093-39
BORROWING BASE CERTIFICATE
The undersigned, the __________________ of LANCER
CORPORATION, a Texas corporation (the "Borrower") hereby
certifies pursuant to the Loan Agreement dated July 24, 1991, as
amended by instruments dated effective May 15, 1992, May 15,
1993, April 8, 1994, July 29, 1994, November 8, 1994, June 30,
1995, August 1, 1995, December 29, 1995, and April 1, 1996,
respectively, between the Borrower, Lancer International Sales,
Inc., Lancer Limited and FIRST INTERSTATE BANK OF TEXAS, N.A.
(the "Lender"), that:
(a) The representations and warranties contained in the
Agreement are correct as of the date hereof (except to the extent
that such representations and warranties relate solely to an
earlier date);
(b) No event has occurred and is continuing, or will result
from any requested advance from the Lender, which constitutes a
breach of the Agreement;
(c) Cash Flow Coverage Ratio: __________
(not less than 1.50);
(d) Working Capital: $_________
(not less than $9,500,00.00);
(e) Debt to Net Worth Ratio: __________
(not greater than 1.30);
(f) Minimum Net Worth: $_________
(not less than $21,000,000.00);
(g) The total amount of the requested advance is
$________________.
Calculation of Borrowing Base:
Domestic Accounts: $________________
Foreign Accounts: $________________
Total Accounts: $________________
Eligible Foreign Accounts
(not to exceed $3,125,000,
exclusive of the Insured
Accounts): $________________
Eligible Domestic Accounts: $________________
Total Eligible Accounts: $________________
(i) Eighty percent (80%) of
Eligible Accounts: $_________
Inventory $_______________
(ii) Thirty-five percent (35%) of
Inventory (not to
exceed $7,000,000.00) $_________
Borrowing Base (Sum of (i) and
(ii): $_____________
Unpaid principal balance of Revolving Note: $(___________)
Amount Available: $_____________
The financial information contained in this Borrowing Base
Certificate is based upon the Borrower's results as of
______________, 199___, which is the date of the most recent
information available.
EXECUTED effective as of _______________, 1996.
LANCER CORPORATION,
a Texas corporation
By: /s/ George F. Schroeder
Name: George F. Schroeder
Title: President
181930.1
TENTH AMENDMENT TO LOAN AGREEMENT
AND LOAN DOCUMENTS
This Tenth Amendment to Loan Agreement and Loan Documents
(the "Agreement") is among LANCER CORPORATION, a Texas
corporation (the "Borrower"), LANCER INTERNATIONAL SALES, INC., a
Texas corporation ("Lancer International"), LANCER LIMITED
("Lancer Limited"), LANCER PARTNERSHIP, LTD., a Texas limited
partnership (the "Partnership") and FIRST INTERSTATE BANK OF
TEXAS, N.A. (the "Lender").
R E C I T A L S
WHEREAS, the Borrower and the Lender entered into a Loan
Agreement dated July 24, 1991 (the "Original Loan Agreement"),
the terms and provisions of which Original Loan Agreement are
incorporated in this Agreement by this reference for all
purposes;
WHEREAS, the Borrower and the Lender amended the Original
Loan Agreement in an Amendment to Loan Agreement and Loan
Documents (the "First Amendment") dated effective May 15, 1992,
in a Second Amendment to Loan Agreement and Loan Documents dated
effective May 15, 1993 (the "Second Amendment"), in a Third
Amendment to Loan Agreement and Loan Documents dated effective
April 8, 1994 (the "Third Amendment"), in a Fourth Amendment to
Loan Agreement and Loan Documents dated effective July 29, 1994
(the "Fourth Amendment"), in a Fifth Amendment to Loan Agreement
and Loan Documents dated effective November 8, 1994 (the "Fifth
Amendment"), in a Sixth Amendment to Loan Agreement and Loan
Documents dated effective June 30, 1995 (the "Sixth Amendment"),
in a Seventh Amendment to Loan Agreement and Loan Documents dated
effective August 1, 1995 (the "Seventh Amendment"), in an Eighth
Amendment to Loan Agreement and Loan Documents dated effective
December 29, 1995 (the "Eighth Amendment"), and most recently in
a Ninth Amendment to Loan Agreement and Loan Documents dated
effective April 1, 1996 (the "Ninth Amendment") the terms and
provisions of which First Amendment, Second Amendment, Third
Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment,
Seventh Amendment, Eighth Amendment and Ninth Amendment are
incorporated into this Agreement by this reference for all
purposes (all subsequent references to the Original Loan
Agreement, as modified by the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth
Amendment, the Ninth Amendment and this Agreement being
collectively referred to herein as the "Loan Agreement");
WHEREAS, the Loan Agreement concerns all of the Loans from
the Lender to the Borrower, including specifically, an existing
Revolving Note in the principal sum of $12,000,000.00 and a Term
Note in the original principal sum of $5,000,000.00;
WHEREAS, the Loans are secured by the Collateral described
in the Loan Documents, which Loan Documents include, without
limitation, a Security Agreement dated July 24, 1991, executed by
the Borrower in favor of the Lender, which covers, in part, the
Borrower's Inventory and Accounts, a Security Agreement dated
effective May 15, 1992, executed by Lancer International in favor
of the Lender, which covers, in part, Lancer International's
Inventory and Accounts and a Security Agreement dated December
29, 1995, executed by the Borrower in favor of the Lender, which
covers, in part, the Borrower's Equipment;
WHEREAS, pursuant to an Exchange Agreement dated on or about
May 1, 1996 between the Borrower and the Partnership, the
Borrower agreed to transfer to the Partnership substantially all
Assets (as defined in the Exchange Agreement) of the Borrower;
WHEREAS, pursuant to a General Assignment dated on or about
May 1, 1996 from the Borrower to the Partnership, the Partnership
agreed to assume all obligations of the Borrower with respect to
the Assets, which obligations include, without limitation, the
Borrower's obligations with respect to the Loans;
WHEREAS, the Lender has agreed to consent to the Borrower's
assignment and transfer of the Assets to the Partnership upon the
terms stated in this Agreement;
WHEREAS, the Borrower, the Partnership and the Lender
desire, as evidenced by this Agreement, to make certain
amendments to the Loan Agreement and to ratify the continued
force and effect of the Loan Documents;
NOW, THEREFORE, in consideration of the financial
accommodations extended to the Borrower and the Partnership by
the Lender and other good and valuable consideration, the receipt
and sufficiency of which are acknowledged by the undersigned, the
Partnership, the Borrower, the Subsidiaries and the Lender agree
as follows:
1. The Lender consents to the Borrower's assignment and
transfer of all Assets subject to the Loan Documents to the
Partnership. The Partnership assumes all obligations of the
Borrower under the Loan Agreement, including without limitation,
the obligation to repay the Loans to the full extent of the
Borrower's obligation to do so. Nothing herein shall release the
Borrower from any of the Borrower's obligations under the Loan
Agreement or the Loan Documents. All references in the Loan
Documents, including without limitation, the Loan Agreement,
which refer to the Borrower shall be deemed to refer to the
Borrower and the Partnership from this date forward, except as
the context may otherwise require.
2. The first sentence of Section 1.1 of the Original Loan
Agreement is restated as follows:
1.1. Description of the Loans. Subject to the
terms and conditions of this Agreement and in reliance
upon the representations and warranties made by the
Borrower and the Partnership, the Lender agrees (a) to
make available to the Partnership (i) a $12,000.000.00
revolving credit as evidenced by a revolving promissory
note (the "Revolving Note") in substantially the form
attached hereto as Exhibit "A" and (ii) a $4,643,125.68
term credit as evidenced by a promissory note (the
"Term Note") in the form attached hereto as Exhibit
"E", and (b) to make available to Nueva Distribuidora
Lancermex S.A. de C.V. a $2,500,000.00 term credit as
evidenced by a promissory note (the "Lancermex Note")
in substantially the form attached hereto as Exhibit
"F".
3. The following Section 1.2 of the Original Loan
Agreement is restated as follows:
1.2 Borrowing Base under the Revolving Note.
Advances on the Revolving Note will be limited to an
amount equal to the lesser of (a) the sum of (i) eighty
percent (80%) of the Partnership's Eligible Accounts
and (ii) thirty-five percent (35%) of the Partnership's
Inventory, or (b) $12,000,000.00 (the "Borrowing
Base"); provided; however, for purposes of calculating
the Borrowing Base only, the amount included within the
Partnership's Inventory shall not exceed $20,000,000.00
and the amount of foreign Accounts included within the
Partnership's Eligible Accounts shall not exceed
$3,125,000.00 (excluding from this foreign Account
"cap" the Insured Accounts as defined in the last
parenthetical phrase of the following sentence). As
used in the prior sentence, the term "Eligible
Accounts" shall mean all Accounts, except for (i)
Accounts owed by Subsidiaries or Affiliates of the
Partnership or the Borrower, (ii) contra Accounts,
(iii) domestic Accounts which remain unpaid after
ninety (90) days from the date of invoice, (iv) those
Accounts owed by any Account Debtor if more than twenty-
five percent (25%) of such Account Debtor's Account
remains unpaid after ninety (90) days from the date of
invoice (excluding from the prior exception Accounts
owed by Coca Cola USA and Coca Cola Foods and those
from any foreign Account Debtors that are Coca Cola
bottlers or entities in which Coca Cola has at least a
twenty-five percent ownership stake to the extent the
Accounts of such foreign Account Debtors are not more
than sixty days past due from a maximum due date of one
hundred eighty days from the date of invoice), (v)
Accounts owed by any Account Debtor other than Coca-
Cola to the extent such Account Debtor's Account
exceeds ten percent (10%) of all Accounts, (vi)
Accounts of the U.S. government and its agencies which
are subject to the Assignment of Claims Act, (vii)
Accounts from any foreign Account Debtor to the extent
such foreign Account Debtor's Account exceeds
$1,200,000.00, (viii) and Accounts from foreign Account
Debtors that are not Coca-Cola bottlers or entities in
which Coca-Cola has at least a twenty-five percent
(25%) ownership stake (excluding from this last
exception only those specific foreign Accounts
secured by letters of credit acceptable to the Lender
and those insured under the First Interstate Foreign
Assurance Export Program or other comparable program
approved in advance and in writing by the Lender, which
specific foreign Accounts are sometimes referred to
herein as the "Insured Accounts"). Upon request by the
Lender, and in any event within forty-five (45) days
after the end of each calendar month, the Partnership
shall furnish the Lender with a Borrowing Base
Certificate substantially in the form of Exhibit "B".
The Lender may determine and redetermine the Borrowing
Base as often as daily. Each determination of the
Borrowing Base shall be made by the Lender in its sole
discretion and as a matter of its own judgment.
4. Exhibits "A", "B" and "E" attached to the Loan
Agreement are replaced by Exhibits "A", and "B" and "E" attached
to this Agreement.
5. The Borrower reaffirms the representations and
warranties contained in Section 3 of the Loan Agreement and the
Borrower and the Partnership confirm that said representations
and warranties are true and correct as of the effective date of
this Agreement.
6. The Borrower and the Partnership ratify, affirm,
acknowledge and agree that the Loan Documents, and each and every
document and instrument which secures payment of the Loans,
represent the valid, enforceable, and collectible obligations of
the parties thereto and further acknowledge that there are no
existing claims, defenses, whether personal or otherwise, or
rights of set-off whatsoever with respect to any of the
instruments or documents described specifically or by reference
in this Agreement, and the Borrower and the Partnership further
acknowledge and represent that no event has occurred and no
condition exists which would constitute a Default under the Loan
Agreement either with or without notice or lapse of time.
7. The Loan Documents and all other documents and
instruments executed in connection with the Loans shall be
governed and construed according to the laws of the State of
Texas from time to time in effect, except to the extent United
States federal law preempts Texas law.
8. This Agreement shall be binding upon and inure to the
benefit of the Lender, the Partnership, the Borrower and the
Subsidiaries and their respective heirs, successors and assigns.
9. Agreement for Binding Arbitration. The parties agree to
be bound by the terms and provisions of the current Arbitration
Program of First Interstate Bank of Texas, N.A., which is
incorporated by reference herein and is acknowledged as received
by the parties, pursuant to which any and all disputes shall be
resolved by mandatory binding arbitration upon the request of
either party.
EXECUTED in multiple counterparts effective as of May 1,1996.
LANCER CORPORATION, a Texas
corporation
By: /s/ John P. Herbots
John P. Herbots,
Vice President - Finance,
Treasurer and Secretary
LANCER PARTNERSHIP, LTD., a Texas
limited partnership
By: Lancer Capital Corporation,
a Delaware corporation,
General Partner
By: /s/ John P. Herbots
John P. Herbots, Vice
President Finance and
Administration, Chief
Financial Officer,
Secretary and Treasurer
LANCER INTERNATIONAL SALES, INC.,
a Texas corporation
By: /s/ George F. Schroeder
Name: George F. Schroeder
Title: President
LANCER LIMITED
By: /s/ George F. Schroeder
Name: George F. Schroeder
Title: President
FIRST INTERSTATE BANK OF TEXAS,N.A.
By: /s/ Scott Adams
Name: Scott Adams
Title: Assistant Vice President
1093-39
BORROWING BASE CERTIFICATE
The undersigned, the __________________ of LANCER
PARTNERSHIP, LTD., a Texas limited partnership (the
"Partnership") and the ________________________ of LANCER
CORPORATION, a Texas corporation (the "Borrower") hereby certify
pursuant to the Loan Agreement dated July 24, 1991, as amended by
instruments dated effective May 15, 1992, May 15, 1993, April 8,
1994, July 29, 1994, November 8, 1994, June 30, 1995, August 1,
1995, December 29, 1995, April 1, 1996 and May 1, 1996,
respectively, between the Partnership, the Borrower, Lancer
International Sales, Inc., Lancer Limited and FIRST INTERSTATE
BANK OF TEXAS, N.A. (the "Lender"), that:
(a) The representations and warranties contained in the
Agreement are correct as of the date hereof (except to the extent
that such representations and warranties relate solely to an
earlier date);
(b) No event has occurred and is continuing, or will result
from any requested advance from the Lender, which constitutes a
breach of the Agreement;
(c) Cash Flow Coverage Ratio: __________
(not less than 1.50);
(d) Working Capital: $_________
(not less than $9,500,00.00);
(e) Debt to Net Worth Ratio: __________
(not greater than 1.30);
(f) Minimum Net Worth: $_________
(not less than $21,000,000.00);
(g) The total amount of the requested advance is
$________________.
Calculation of Borrowing Base:
Domestic Accounts: $________________
Foreign Accounts: $________________
Total Accounts: $________________
Eligible Foreign Accounts
(not to exceed $3,125,000,
exclusive of the Insured
Accounts): $________________
Eligible Domestic Accounts: $________________
Total Eligible Accounts: $________________
(i) Eighty percent (80%) of
Eligible Accounts: $_________
Inventory $_______________
(ii) Thirty-five percent (35%) of
Inventory (not to
exceed $7,000,000.00) $_________
Borrowing Base (Sum of (i) and
(ii): $_____________
Unpaid principal balance of Revolving Note: $(___________)
Amount Available: $_____________
The financial information contained in this Borrowing Base
Certificate is based upon operating results as of ______________,
199___, which is the date of the most recent information
available.
EXECUTED effective as of _____________, 199__.
LANCER PARTNERSHIP, LTD.,
a Texas limited partnership
By: Lancer Capital Corporation,
a Delaware corporation,
General Partner
By: /s/ John P. Herbots
John P. Herbots, Vice
President Finance and
Administration, Chief
Financial Officer,
Secretary and Treasurer
LANCER CORPORATION, a Texas
corporation
By: /s/ John P. Herbots
John P. Herbots,
Vice President - Finance,
Treasurer and Secretary
1093-39
