-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ToxBqBissBWVG3PC3+6gK6fVBQP+VXMtuOy6E5pOIUdVwbeuHrchJ8HWUyFIY+at Q3JZlulo0j3I1VaR3XFltQ== 0000892569-96-000332.txt : 19960402 0000892569-96-000332.hdr.sgml : 19960402 ACCESSION NUMBER: 0000892569-96-000332 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN VANGUARD CORP CENTRAL INDEX KEY: 0000005981 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 952588080 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06354 FILM NUMBER: 96542268 BUSINESS ADDRESS: STREET 1: 4100 E WASHINGTON BLVD CITY: LOS ANGELES STATE: CA ZIP: 90023 BUSINESS PHONE: 2132643910 MAIL ADDRESS: STREET 1: 4100 E WASHINGTON BLVD CITY: LOS ANGELES STATE: CA ZIP: 90023 FORMER COMPANY: FORMER CONFORMED NAME: AEROCON INC DATE OF NAME CHANGE: 19720620 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1995 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-6354 AMERICAN VANGUARD CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-2588080 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 4695 MacArthur Court, Newport Beach, California 92660 - ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (714) 260-1200 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of each class: Common Stock, $.10 par value ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The number of shares of $.10 par value Common Stock outstanding as of March 22, 1996, was 2,522,079. The aggregate market value of the voting stock of the registrant held by non-affiliates at March 22, 1996, was $12,191,400. For purposes of this calculation, shares owned by executive officers, directors, and 5% stockholders known to the registrant have been deemed to be owned by affiliates. 2 AMERICAN VANGUARD CORPORATION ANNUAL REPORT ON FORM 10-K December 31, 1995
PART I PAGE NO. Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16 Item 6. Selected Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 18 Item 8. Financial Statements and Supplementary Data 26 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 27 PART III Item 10. Directors and Executive Officers of the Registrant 28 Item 11. Executive Compensation 30 Item 12. Security Ownership of Certain Beneficial Owners and Management 33 Item 13. Certain Relationships and Related Transactions 34 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 35 SIGNATURES 37
3 PART I ITEM 1 BUSINESS American Vanguard Corporation was incorporated under the laws of the State of Delaware in January 1969 and operates as a holding company. Unless the context otherwise requires, references to the "Company", the "Registrant" or "AMVAC" in this Annual Report refer to American Vanguard Corporation and its consolidated subsidiaries. The Company conducts its business through its wholly-owned subsidiaries, Amvac Chemical Corporation ("CHEMICAL"), GemChem, Inc. ("GemChem"), and 2110 Davie Corporation ("DAVIE"). GEMCHEM, INC. On March 31, 1994, the Company purchased all of the issued and outstanding stock of GemChem, Inc., a national chemical distributor. The purchase was effective January 15, 1994. GemChem, in addition to representing CHEMICAL as its domestic sales force, also sells into the pharmaceutical, cosmetic and nutritional markets. Prior to the acquisition, GemChem acted in the capacity as the domestic sales force for the Company (from September 1991). See also PART III, Item 13 of this Annual Report. 2110 DAVIE CORPORATION Effective September 30, 1989, the Company sold substantially all operating assets of DAVIE. In connection with the sale, DAVIE provided Buyer with a five year covenant not to compete in the business formerly conducted by DAVIE. Herbert A. Kraft, the Chairman and Chief Executive Officer of both the Company and DAVIE, entered into a consulting agreement with the Buyer providing an aggregate consideration of $6,000 per annum for a five year period ended September 1994. DAVIE currently invests in real estate for corporate use only. See also PART I, Item 2 of this Annual Report. CHEMICAL CHEMICAL is a California corporation that traces its history from 1945. CHEMICAL is a specialty chemical manufacturer that develops and markets products for agricultural and commercial uses. It manufactures and formulates chemicals for crops, human and animal health protection. These chemicals which include insecticides, fungicides, molluscicides, growth regulators, and soil fumigants, are marketed in liquid, powder, 1 4 and granular forms. CHEMICAL's business is continually undergoing an evolutionary change. Years ago CHEMICAL considered itself a distributor-formulator, but now primarily manufactures, distributes, and formulates its own labelled products or custom manufactures or formulates for others. In November of 1993, CHEMICAL purchased from E.I. du Pont de Nemours & Company ("Du Pont") the rights, title and interest in Bidrin(R), an insecticide for cotton crops, including Environmental Protection Agency ("EPA") registration rights issued under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"). The Company purchased Du Pont's inventory of Bidrin(R) at Du Pont's approximate cost, and will pay continuing royalties on all Bidrin(R) sold by the Company to customers in the United States through December 1997. In March of 1992, CHEMICAL concluded a transaction with Chevron Chemical Company ("Chevron") whereby CHEMICAL purchased the non-United States distribution and intellectual property rights (excluding, however, sales to Japan and to the home and residential markets) to Chevron's proprietary Dibrom(R) (1,2- dibromo-2,2-dichloroethyl dimethyl phosphate) agricultural chemical product line. In March of 1991, CHEMICAL acquired from Rhone-Poulenc AG Company its Naphthalene Acetic Acid ("NAA") plant growth regulator chemical product line (except for one product), including Rhone-Poulenc's EPA registration rights issued under FIFRA, for a nominal cash consideration and continuing royalties through March 1996. Prior to this acquisition, CHEMICAL had been a major supplier of these chemicals to Rhone-Poulenc. This product line includes Tre-Hold(R) brand Sprout Inhibitor A112, Tre- Hold(R) brand Sprout Inhibitor for Citrus, NAA-800(R) Plant Regulator, Amid Thin(R) W brand Plant Regulator, Fruitone(R) N, Technical Naphthaleneacetic acid Ethyl Ester, Technical Naphthalene Acetic Acid, and Technical Naphthaleneacetic Sodium Salt. In January of 1989, CHEMICAL purchased from Du Pont its Phosdrin(R) (an insecticide) product line and inventory for a price equal to the inventory at cost plus a royalty on sales through January 1994. In June 1994, the Company announced that it had proposed the voluntary cancellation of the registration and all uses of Phosdrin(R). As such, the Company agreed to immediately stop production of Phosdrin(R) for sale and distribution in the United States. On January 13, 1995, CHEMICAL and the EPA entered into an agreement concerning the domestic sale, distribution, use and eventual recall of Phosdrin(R). Under the terms of the agreement, existing Phosdrin(R) was allowed to be sold, distributed and used in the United States through November 30, 1995. Effective December 1, 1995, all United States registrations of Phosdrin(R) were canceled and could no longer be used. CHEMICAL 2 5 developed a recall program to remove Phosdrin(R) from the marketplace. The recall program is being conducted to the end user level and consists of financial reimbursement to the Company's distributors for returned, unopened containers. The last day CHEMICAL must, under the recall plan, accept returned Phosdrin(R) is July 27, 1996. The ultimate costs of the recall based upon the facts known today, are not expected to have a material adverse effect on the Company. In 1995, domestic sales of Phosdrin(R) were immaterial. They accounted for approximately 14% of the Company's total consolidated sales in 1994. The Company intends to continue to sell Phosdrin(R) for export, a market which accounted for approximately 2% of the Company's total consolidated sales in 1995 and 1994. Some of the other principal products produced by CHEMICAL are PCNB (Pentachloronitrobenzene), Dichlorvos (2,2- Dichlorovinyl dimethyl phosphate), Metam Sodium (Sodium N- methyldithiocarbamate), and various molluscicides. Domestically, CHEMICAL sells its products through the Company's wholly-owned subsidiary, GemChem, Inc., and by one employee marketing representative to distributors and dealers. These distributors are some of the largest in the Unites States. Foreign sales are conducted primarily through foreign distributors. See also PART I, Item 7 of this Annual Report for further discussions of product sales. The chemical industry in general is cyclical in nature. The demand for CHEMICAL's products tends to be slightly seasonal, with the heaviest usage generally being in the spring and late fall. Seasonal usage, however, does not necessarily follow calendar dates, but more closely follows varying growing seasonal patterns, weather conditions and weather related pressure from pests, and customer marketing programs and requirements. The Company does not believe that backlog is a significant factor in its business. The Company primarily sells its products on the basis of purchase orders, although it has entered into requirements contracts with certain customers. United Agri Products, Terra International, Inc., Valent U.S.A. Corporation and Ciba Geigy Corporation accounted for 24%, 14%, 11% and 10%, respectively, of the Company's sales in 1995. Sales to United Agri Products accounted for 27% of the Company's sales in 1994. United Agri Products, Helena Chemical Company, Terra International, Inc. and Valent U.S.A. Corporation accounted for 25%, 11%, 10% and 10%, respectively, of the Company's sales in 1993. United Agri Products, Terra International, Inc. and Helena Chemical Company are a part of the Company's distribution network and are not consumers of the Company's products. 3 6 COMPETITION CHEMICAL faces competition from many domestic and foreign manufacturers in its marketplaces. Competition in CHEMICAL'S marketplace is based primarily on efficacy, price, safety and ease of application. Many of such competitors are larger and have substantially greater financial and technical resources than CHEMICAL. CHEMICAL's ability to compete depends on its ability to develop additional applications for its current products and expand its customer base and product lines. CHEMICAL competes principally on the basis of the quality of its products and the technical service and support given to its customers. The inability of CHEMICAL to effectively compete in several of CHEMICAL's principal products would have a material adverse effect on CHEMICAL's results of operations. Generally, the treatment against pests of any kind is broad in scope, there being more than one way or one product for treatment, eradication, or suppression. The Company has attempted to position CHEMICAL in small niche markets in order to reduce the impact of competition. These markets are small by nature, require significant and intensive management input, ongoing product research, and are near product maturity. These types of markets tend not to attract larger chemical companies due to the smaller volume demand, and larger chemical companies have been divesting themselves of products that fall into such niches. CHEMICAL's proprietary product formulations are protected to the extent possible as trade secrets and, to a lesser extent, by patents and trademarks. Although CHEMICAL considers that, in the aggregate, its trademarks, licenses, and patents constitute a valuable asset, it does not regard its business as being materially dependent upon any single or several trademarks, licenses, or patents. CHEMICAL's products also receive protection afforded by the effect of FIFRA legislation that makes it unlawful to sell any pesticide in the United States unless such pesticide has first been registered by the EPA as well as under state laws of similar effect. Substantially all of CHEMICAL's products are subject to EPA registration and re- registration requirements and are conditionally registered in accordance with FIFRA. This licensing by EPA is based, among other things, on data demonstrating that the product will not cause unreasonable adverse effects on human health or the environment when it is used according to approved label directions. All states where any of CHEMICAL's products are used require a registration by that specific state before it can be marketed or used. State registrations are renewed annually, as appropriate. The EPA and state agencies have required, and may require in the future, that certain scientific data requirements be performed on registered products sold by CHEMICAL. CHEMICAL, on its own behalf and in joint efforts with other suppliers, has, 4 7 and is currently furnishing, certain required data relative to specific products. After repeated public pressure on federal and state governments to require FIFRA product registrants to supply new scientific data (such as toxicological and environmental fate tests), the government is requiring additional studies and the submission of more data. This has significantly increased CHEMICAL's operating expenses in such areas as testing and the production of new products. This regulation makes certain CHEMICAL products less vulnerable to direct competition but more vulnerable to inelastic demand because of significant cost increases. CHEMICAL expensed $3,717,400, $5,544,000 and $4,715,400 during 1995, 1994 and 1993, respectively, related to gathering this information. Based on facts known today, CHEMICAL estimates it will spend approximately $3,900,000 in 1996. Because scientific analyses are constantly improving, it cannot be determined with certainty whether or not material new or additional tests may be required by the regulatory authorities. Additionally, while FIFRA Good Laboratory Practice standards specify the minimum practices and procedures which must be followed in order to ensure the quality and integrity of data related to these tests submitted to the EPA, there can be no assurance the EPA will not request certain tests/studies be repeated. CHEMICAL expenses these costs on an incurred basis except for costs that pertained to PCNB (a new product the Company began producing in October 1990). Total PCNB study costs incurred and capitalized through September 1995 approximated $5,813,000. During 1995 and 1994, the Company capitalized $185,000 and $509,000, respectively, in costs relating to the PCNB study costs. Amortization of the PCNB study costs began in October 1990, and was provided by the units of production method over a period of five years through September 1995. See also PART I, Item 7 of this Annual Report for discussions pertaining to Research and Development Expenses. RAW MATERIALS The Company utilizes numerous firms as well as internal sources to supply the various raw materials and components used by CHEMICAL in manufacturing its products. Many of these materials are readily available from domestic sources. In those instances where there is a single source of supply or where the source is not domestic, the Company seeks to secure its supply by either long-term arrangements or advance purchases from its suppliers. The Company believes that it is considered to be a valued customer to such sole-source suppliers. ENVIRONMENTAL The Company is subject to numerous federal and state laws and governmental regulations concerning environmental 5 8 matters and employee health and safety. The Company continually adapts its manufacturing process to the environmental control standards of various regulatory agencies. CHEMICAL expends substantial funds to minimize the discharge of materials into the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, CHEMICAL recovers raw materials and increases product yield by recycling in order to partially offset increasing pollution abatement costs. The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. Federal and state authorities may seek fines and penalties for violation of the various laws and governmental regulations. As part of its continuing environmental program, except as disclosed in PART I, Item 3, Legal Proceedings, of this Annual Report, the Company has been able to comply with such proceedings and orders without any materially adverse effect on its business. The Company continues to make compliance with environmental requirements an important company policy. As environmental quality requirements and standards become stricter, the Company may have to incur additional substantial costs to maintain regulatory compliance. See also PART I, Item 3, Legal Proceedings, of this Annual Report. EMPLOYEES As of March 22, 1996, the Company employed approximately 180 persons. This figure includes approximately 20 temporary (full-time) individuals hired as contract personnel. CHEMICAL, on an ongoing basis, due to the seasonality of its business, uses temporary contract personnel to perform certain duties primarily related to packaging of its products. The Company believes it is cost beneficial to employ temporary contract personnel. None of the Company's employees are subject to a collective bargaining agreement. The Company believes it maintains positive relations with its employees. EXPORT OPERATIONS The Company opened an office in August 1994, in the United Kingdom to conduct business in the European chemical market. The new office, operating under the name AMVAC Chemical UK Ltd., focuses on developing product registration and distributor networks for CHEMICAL's product lines throughout 6 9 Europe. The office it located in Surrey, England, a city southwest of London. The operating results of this operation were not material to the Company's total operating results for the year ended December 31, 1995. The Company arranges most of its foreign sales through export/import brokers. The Company classifies as export sales all products bearing foreign labeling shipped to a foreign destination.
1995 1994 1993 ---- ---- ---- Export Sales $3,374,700 $3,812,500 $4,714,400
INSURANCE Management believes its facilities and equipment are adequately insured against loss from usual business risks. The Company has purchased claims made products liability insurance. There can be no assurance, however, that such products liability coverage insurance will continue to be available to the Company, or if available, that it will be provided at an economical cost to the Company. 7 10 ITEM 2 PROPERTIES The Company's corporate headquarters are located in Newport Beach, California. This facility is leased. See PART IV, Item 14, Note 12 of this report for further information. CHEMICAL owns in fee approximately 148,000 square feet of improved land in Commerce, California, on which substantially all of its offices and plant and some of its warehouse facilities are located. DAVIE owns in fee approximately 72,000 square feet of warehouse and office space on approximately 118,000 square feet of land in Commerce, California, which is leased to CHEMICAL. The Company occupies offices located with CHEMICAL's office and plant facilities in Commerce, California. CHEMICAL's manufacturing facilities are divided into five cost-centers; granular products, small packaging, Metam Sodium manufacturing, PCNB manufacturing, and the production and formulation of all other products. All production areas are designed to run on a continuous twenty-four hour per day basis. CHEMICAL regularly adds chemical processing equipment to enhance its production capabilities. CHEMICAL believes its facilities are in good operating condition and are suitable and adequate for CHEMICAL's foreseeable needs, have flexibility to change products, and can produce at greater rates as required. Facilities and equipment are insured against losses from fire and other usual business risks. The Company knows of no material defects in title to, or encumbrances on, any of its properties except that substantially all of the Company's assets are pledged as collateral under the Company's loan agreements with its primary lender. For further information, refer to Note 4 of the Notes to the Consolidated Financial Statements in PART IV, Item 14 of this Annual Report. CHEMICAL purchased unimproved land in Texas for possible future expansion. GemChem's facilities consist of administration and sales offices which are leased. The Company believes its properties to be suitable and adequate for its current purposes. 8 11 ITEM 3 LEGAL PROCEEDINGS DBCP LAWSUITS A. California Matters i) 1995 Settlement of Claims. In 1995 CHEMICAL has brought its participation in twenty-three similar lawsuits filed between January 1990 and December 1994 to an end. The Plaintiffs in each matter were primarily water districts and municipalities that alleged property damage resulting from, among other things, the fact that each plaintiff's water supply had been contaminated by DBCP. The settlement covered all the plaintiff's current and future 1,2 Dibromo-3-Chloropropane (hereinafter referred to as "DBCP") a pesticide, ethylene dibromide (hereinafter referred to as "EDB") a fumigant, and related claims. On February 15, 1995, the Superior Court of California in San Francisco County approved this settlement as having been made in "good faith". The effect of the Superior Court's approval is to bar claims, arising from these pleadings, against CHEMICAL by other defendants (and other tortfeasors) for equitable comparative contribution and/or partial or comparative indemnity. CHEMICAL's portion of the settlement was $905,000. As to matters independent of indemnity issues, the Company recovered $675,000 from two of its insurers. ii) Post Settlement Actions. Subsequent to the settlements discussed above, two additional suits alleging property damage resulting from DBCP contamination of water supply were filed in the San Francisco Superior Court and served on CHEMICAL: City of Madera v. Shell Oil Co., et. al., and Malaga County Water District v. Shell Oil Co., et. al. The City of Madera action also alleges contamination of the water supply with EDB. CHEMICAL has never marketed EDB. These suits name as defendants Shell Oil Company, the Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company, Velsicol Chemical Company and in the Madera action Great Lakes Chemical Corporation. Malaga has made a settlement demand of $1,344,000 for one of five wells at issue. As discovery is at the early stages no other settlement demands have been received. Defendants are operating under an open extension of time to file responsive pleadings. CHEMICAL has tendered the defense of these two cases to Columbia Casualty/CNA. That insurer has thus far accepted the defense under a reservation of rights in the Malaga action, but has yet to respond to the tender of defense for the Madera action. 9 12 B. Texas Matters i) The Carcamo Case. The Company was served with a third-party first amended complaint by Dow Chemical Company which sought indemnity and contribution from CHEMICAL, Del Monte tropical Fruit Company, Del Monte Fresh Produce, N.A., Dead Sea Bromine Co. Ltd., Ameribrom Inc., Saint Lucia Banana Growers Association, Saint Vincent Banana Growers Association, Dominica Banana Growers Association, and Program Nacional de Banano, for any liability Dow may have under a complaint filed by Jorge Colindres Carcamo, et al. vs. Shell, Dow, et al. (the "Carcamo Case"). The Carcamo Case was tried in the United States District Court for the Southern District of Texas, Houston Division, and is an action originally filed in a Texas state court by a purported class of citizens from Honduras, Costa Rica, Guatemala, Nicaragua, Panama, Philippines, Dominica, and the Ivory Coast. These plaintiffs were banana workers and allege that they were exposed to DBCP while applying the product in their native countries. Approximately 15,000 plaintiffs have been named in this and the other suits hereinafter mentioned. In an October 27, 1996 Court Order the third party action against CHEMICAL was dismissed without prejudice. The Order also dismissed the Plaintiff's consolidated cases concluding that these claims should be litigated in the foreign countries where the alleged injuries occurred subject to a number of conditions. One of the more significant conditions requires the Defendants and third party Defendants consent to the jurisdiction of the courts of each of the foreign countries. Under the Order the Defendants may proceed against CHEMICAL, in a court in the United States, for contribution and indemnity should plaintiffs in the underlying actions obtain a judgement against Defendants in any foreign forum. As of the filing of this report, no actions against CHEMICAL have been filed. ii) The Rodriguez Case. The Company was served with a third-party complaint on March 15, 1996 by Defendant Standard Fruit Company and Standard Steamship Company seeking indemnity and contribution from any liability it may have under a complaint entitled Ramon Rodriguez et. al. v. Shell Oil Company, et. al. (the "Rodriguez Case") filed in the District Court of Jim Hogg County, Texas. Also named as Third Party Defendants are Dead Sea Bromine Co., Ltd. and Bromine Compounds Ltd. The underlying case alleges injuries caused by Plaintiffs' exposure to DBCP when they applied that pesticide at farms located in Central America, Ecuador and the Philippines. The Company has made a demand upon certain insurers for indemnity from and a defense of the Rodriguez Case. No answer has yet been received from said insurers. 10 13 PHOSDRIN(R) LAWSUIT On September 21, 1995, CHEMICAL was served with a complaint filed in the Superior Court of King County, Washington on September 12, 1995 entitled Ricardo Ruiz Guzman, et. al. v. AMVAC Chemical Corporation, et. al.(the "Guzman Case"). The Complaint is for unspecified monetary damages based on Plaintiff farm worker's alleged injuries from their exposure to the pesticide Phosdrin(R) while working in several orchards in Central Washington State in 1993. Other Defendants named in the Guzman case include: Wilbur-Ellis Company, Alan Hilliker, and Ellis D. Wilker. The matter is currently pending in the United States District Court for the Eastern District of Washington and Defendant's Hilliker and Wilker have been dismissed from the action. CHEMICAL has made a demand against its insurers for indemnity and defense of the Guzman Case. The insurer Lexington Insurance Company has thus far accepted the defense under a reservations of rights letter. CHEMICAL has a self insured retention limit of $300,000 under its insurance policy. TRAIN DERAILMENTS A. July 14, 1991; Dunsmuir, California: In August 1992, the Company settled all personal and economic injury claims asserted in a class action lawsuit arising from the July 14, 1991 derailment of a rail tank car leased by CHEMICAL. The derailment, occurring about six miles north of Dunsmuir, California, involved the spill into the Upper Sacramento River of approximately 19,000 gallons of Metam Sodium, a soil fumigant manufactured by CHEMICAL which was being transported by Southern Pacific Transportation Company ("SP") along SP's tracks. The court, when finding that such settlement by CHEMICAL was in "good faith", also ordered that no other person or entity falling within the definition of the settlement class could proceed with claims against the Company. On March 14, 1995, the federal court approved the Consent Decree which the Company and the federal and state governments entered which settled litigation seeking to hold potentially responsible parties under various federal and state statutes responsible for the costs of studying and remediating the environmental consequences caused by the Sacramento Spill, and for damages to the Natural Resources. On January 5, 1996, the Court dismissed the California Sportfishing Protection Alliance's ("Alliance") appeal of a court's order dismissing their intervention. This Order finally resolves the action brought by the Alliance which was the only remaining issue arising from this incident. 11 14 B. February 1, 1996; Devore, California: On March 7, 1996, CHEMICAL was served with a Complaint in an action entitled Alvin Williams, Administrator of the Estate of Kevin Lewis Williams v. Burlington Northern Santa Fe Railway Company, et. al. (the "Williams Estate Case"). This case was filed on February 26, 1996 in the Superior Court of Los Angeles County and arose from Kevin Lewis Williams' death in a train derailment which occurred on Burlington Northern Santa Fe Railway Company tracks involving a tank car leased by GATX to Albright & Wilson Americas Corporation ("A&WA") which was transporting 158,000 pounds of Trimethyl Phosphite ("TMP") from A&WA's Charleston, South Carolina Facility to CHEMICAL's manufacturing facility in Los Angeles, California. The derailment, occurred on February 1, 1996 at approximately 4:14 a.m. about 6 miles north of Devore, California, adjacent to the intersection of Interstate 15 and State Highway 138. The derailment involved the engine and most of the railcars on the train resulting in a chemical fire that consumed all of the TMP in addition to the contents of railcars transporting an assortment of hazardous chemicals and other goods. The Estate alleges pecuniary loss to family members in the amount of $ 20,000,000 and prays for other unspecified monetary relief. Other Defendants presently named in the suit are: Burlington Northern Santa Fe Railway Company, The Atchison, Topeka & Santa Fe Railway Company, UNOCAL, Rohm & Haas, and Westinghouse Corporation. CHEMICAL is named in only one of the Estate's seven causes of action. The Company has made demand upon its insurers for indemnity from and defense of the Williams Estate Case. No answer has yet been received from the Company's insurers. RAILROAD SIDING: As a result of inspections and sampling conducted by the California Department of Toxic Substances Control ("DTSC") of the railroad located, in part, immediately adjacent to CHEMICAL's Commerce, California facility, CHEMICAL was directed to, and did, conduct sampling during 1993 to evaluate the nature and extent of pesticide contamination detected by DTSC on the railroad siding. Following its review of the sampling report prepared by CHEMICAL's independent consultant, DTSC directed that additional sampling be undertaken and CHEMICAL's independent consultant prepared a sampling plan for submittal to DTSC for prior approval as required. However, before additional sampling could be conducted, the Los Angeles county District Attorney's Office ("LADA"), at the request of DTSC, commenced an enforcement action in April 1994, against CHEMICAL, one of its officers, and two employees alleging felony illegal disposal of hazardous waste on the railroad siding. At the same time, DTSC demanded sums of money for alleged violations of certain compliance requirements related to CHEMICAL's management of hazardous waste at its 12 15 Commerce, California facility. Joint settlement negotiations were conducted with the DTSC and the LADA and were concluded with a settlement agreement which was entered with the Los Angeles Municipal Court in a Stipulated Sentencing Memorandum which provided as follows: (i) all felony charges against CHEMICAL and the three individuals were dismissed; (ii) CHEMICAL entered a plea of nolo contendere to one misdemeanor; (iii) CHEMICAL was placed on probation for approximately six (6) months commencing on or about September 23, 1994; (iv) CHEMICAL was ordered to pay, by March 22, 1995, the sum of $135,000 in fines and penalties, and civil restitution in the amount of $325,000; (v) CHEMICAL agreed to enter into a Consent Agreement and Order (the "First CAO") with DTSC to correct the alleged hazardous waste management compliance violations and to submit a new plan for closure of ten (10) underground storage tanks ("USTs") at the Commerce, California facility and (vi) CHEMICAL agreed to enter into a Consent Agreement and Order (the "Second CAO") with DTSC providing for CHEMICAL to further investigate and remediate the railroad siding. Pursuant to the settlement agreement, CHEMICAL entered into the First CAO effective on January 26, 1995, and on March 22, 1995, with the concurrence of the LADA, CHEMICAL withdrew its plea of nolo contendere to the one misdemeanor, entered a plea of not guilty which was accepted, and the court dismissed the complaint against CHEMICAL. CHEMICAL has substantially fulfilled the requirements of the First CAO and, in accordance therewith, submitted new plans for closure of ten (10) USTs located at the facility. During 1995, in accordance with the UST closure plan, CHEMICAL arranged for the removal and cleaning of residues within the tanks and completed the initial investigation of soils in the area of the tanks and their associated piping. CHEMICAL anticipates that additional UST related soil investigations will be completed by late 1996 and that remedial activities, if any, will commence by late 1996 or early 1997. CHEMICAL is currently in discussions with DTSC regarding the specific terms of the Second CAO which will address investigation and remediation of the railroad siding. CHEMICAL is in the process of completing all requirements for addressing investigation and remediation of the railroad siding under a new DTSC program created by California Senate Bill 923 known as the Expedited Remedial Action Program (ERAP). CHEMICAL anticipates that addressing the railroad siding under ERAP will result in a more rapid and cost-effective resolution of environmental conditions in the railroad siding area than could otherwise be expected if the area were addressed under other available DTSC site investigation and remediation programs. The potential future costs associated with the railroad siding investigation and remediation are currently unknown and cannot be reasonably determined until soil investigations will be completed by late 1996 or early 1997. 13 16 The Company has made claims against its insurance carriers and has expensed all costs incurred which now exceed its $100,000 self-insured retention. There can be no assurance the Company will prevail in its position. Various other legal actions, governmental proceedings, and claims are pending against the Company and its subsidiaries incidental to their businesses. 14 17 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 1995 to a vote of security holders, through the solicitation of proxies or otherwise. 15 18 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's $0.10 par value common stock ("Common Stock") trades on The NASDAQ Stock Market under the symbol AMGD. The following table sets forth the range of high and low sales prices as reported on NASDAQ's National Market System for the Company's Common Stock for the calendar quarters indicated.
Calendar 1995 HIGH LOW ------------- ---- --- First Quarter 9 6 5/8 Second Quarter 8 6 3/4 Third Quarter 7 3/4 4 1/2 Fourth Quarter 6 3/4 4 1/2 Calendar 1994 ------------- First Quarter 16 1/2 14 1/2 Second Quarter 16 8 Third Quarter 10 7 1/2 Fourth Quarter 8 1/2 5 3/4
The Company's share activity is reported in the Wall Street Journal and is listed as "Am Vngrd". The Los Angeles Times reports the share activity as "A Vang". As of March 22, 1996, the number of shareholders of the Company's Common Stock was approximately 600, which includes beneficial owners with shares held in brokerage accounts under street name and nominees. On February 5, 1996, the Company announced that the Board of Directors declared a cash dividend of $.06 per share as well as a 10% stock dividend. Both dividends were distributed on March 15, 1996 to shareholders of record at the close of business on February 29, 1996. The cash dividend was paid on the number of shares outstanding prior to the 10% stock dividend. Shareholders entitled to fractional shares resulting from the 10% stock dividend received cash in lieu of such fractional share based on $9.50 per share, the closing price of the Company's stock on February 29, 1996. Prior to the declaration of these dividends, the Company had not declared any dividends since 1989. The resumption of dividends can only be considered if profitable operations continue. Certain loan covenants described in Note 4 to the Notes to Consolidated Financial Statements, limit payments of cash dividends to a maximum of 25% of net income. 16 19 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES ITEM 6 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR WEIGHTED AVERAGE NUMBER OF SHARES AND PER SHARE DATA)
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Operating revenues $ 55,402 $ 45,098 $ 45,478 $ 38,664 $ 29,334 ========= ========= ========= ========= ========= Operating income $ 5,971 $ 3,346 $ 4,160 $ 3,824 $ 1,866 ========= ========= ========= ========= ========= Income from operations before income tax expense $ 5,043 $ 1,465 $ 3,333 $ 2,965 $ 570 ========= ========= ========= ========= ========= Net income $ 3,124 $ 1,203 $ 2,225 $ 1,861 $ 340 ========= ========= ========= ========= ========= Net income per share(1) $ 1.23 $ .47 $ .89 $ .74 $ .14 ========= ========= ========= ========= ========= Total assets $ 39,341 $ 40,929 $ 36,025 $ 32,916 $ 31,784 ========= ========= ========= ========= ========= Long-term obligations $ 5,540 $ 3,695 $ 4,316 $ 5,348 $ 6,634 ========= ========= ========= ========= ========= Stockholders' equity $ 18,005 $ 15,143 $ 13,503 $ 11,278 $ 9,417 ========= ========= ========= ========= ========= Weighted average number of shares(2) 2,546,471 2,562,398 2,509,536 2,509,536 2,509,536 ========= ========= ========= ========= ========= Dividends declared per share of common stock(2) $ - $ - $ - $ - $ - ========= ========= ========= ========= =======
The selected consolidated financial data set forth above with respect to each of the calendar years in the five-year period ended December 31, 1995, have been derived from the Company's consolidated financial statements and are qualified in their entirety by reference to the more detailed consolidated financial statements and the independent certified public accountants' reports thereon which are included elsewhere in this Report on Form 10-K for the three years ended December 31, 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." - --------------------- (1) All per share amounts have been restated to reflect a 10% stock dividend (see footnote 2 below). (2) On February 5, 1996, the Company announced that the Board of Directors declared a cash dividend of $.06 per share as well as a 10% stock dividend. Both dividends were distributed on March 15, 1996 to shareholders of record at the close of business on February 29, 1996. The cash dividend was paid on the number of shares outstanding prior to the 10% stock dividend. Weighted average number of shares have been restated to reflect the 10% stock dividend. 17 20 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS 1995 COMPARED WITH 1994: The Company reported net income of $3,124,000 or $1.23 per share in 1995 as compared to net income of $1,202,700 or $.47 per share in 1994. (All per share amounts have been restated to give effect to a 10% stock dividend paid on March 15, 1996 to stockholders of record as of February 29, 1996.) The increase in net income in 1995 is attributable to a 22.8% increase in net sales which is primarily related to increases in volume of products sold and not to increases in prices, while operating expenses increased only 15.7%. Another significant factor is that there were no legal settlement costs incurred during 1995. The positive factors are mitigated to an extent by an increase in the effective income tax rate to 38% in 1995 from 17% in 1994. Net sales increased by $10,304,000 to $55,402,100 in 1995 as compared to $45,098,100 in 1994. CHEMICAL's sales increased by approximately $10,632,000 in 1995 as compared to 1994. $8,945,200 of this increase was due to an increase in the sales of Bidrin(R). In December 1994 the appropriate permitting was finally obtained and the Company began manufacturing Bidrin(R). The late start in manufacturing resulted in reduced sales of Bidrin(R) in 1994, however the latent demand was satisfied in the first half of 1995 resulting in strong Bidrin(R) sales in the first and second quarters of 1995. Sales of Bidrin(R) in the fourth quarter 1995 were significantly higher than the fourth quarter 1994. During 1995 CHEMICAL was also able to generate significant sales increases in its PCNB products of $4,187,900 to $12,002,100 as compared to $7,814,200 in 1994 and Naled products of $3,541,600 to $6,393,900 from $2,852,300 in 1994. However, these increases were substantially offset by a decrease in the sales of Phosdrin(R) in the amount of $6,755,900 to $413,000 in 1995 from $7,169,000 in 1994. As a result of agreements reached with the Environmental Protection Agency ("EPA") during 1994, the Company agreed to phaseout the domestic distribution, sale and use of Phosdrin(R). Although the effective date of the cessation of Phosdrin(R) use domestically was November 30, 1995, domestic sales of Phosdrin(R) began to drop off significantly beginning in July 1994. Essentially all of the Phosdrin(R) sales in 1995 were export sales. The remaining change in CHEMICAL's sales was attributable to less significant changes in the sales mix of CHEMICAL's products. GemChem's sales (after elimination of intercompany sales) declined from approximately $4,700,000 in 1994 to approximately $4,200,000 in 1995 reflecting competition in GemChem's non-ag markets. 18 21 Gross profits increased by $4,928,600 to $24,660,400 in 1995 as compared to $19,731,800. The increase in 1995 is a result of the higher volume of sales in 1995. The gross profit percentage increased to 44.5% in 1995 from 43.8% in 1994. While the phaseout of Phosdrin(R), a very profitable product, had a negative impact on gross profit in 1995, the overall gross profit percentage increased as the sales volume increased proportionately higher than cost of sales. Operating expenses increased by $2,533,800 to $18,689,400 in 1995 from $16,155,600 in 1994. The following is a discussion of operating expenses: Selling and Regulatory: Selling and regulatory expenses increased by $2,190,200 to $6,772,900 in 1995 from $4,582,700 in 1994. The increase in selling and regulatory expenses is primarily attributable to an increase in variable selling costs. Due to the significant increase in Bidrin(R) sales in 1995, related Bidrin(R) rebates and royalties increased by approximately $1,360,000. Rebates and royalties on NAA products increased approximately $943,500 in 1995 primarily as a result of agreements with distributors to promote the Company's products in the market. Expenses of GemChem increased approximately $334,000 in 1995. Product liability insurance, which varies directly with sales levels, also increased approximately $160,000 in 1995 as a result of the increased sales volume. The only significant decrease in selling and regulatory costs was attributable to a $647,000 decline in Phosdrin(R) related rebates which was a result of the phase out of Phosdrin(R). Research and Development: Research and development costs, which include costs incurred to generate scientific data and other activities performed in the department, decreased by $1,365,100 to $4,846,400 in 1995 from $6,211,500 in 1994. Costs incurred to generate scientific data decreased by $1,826,600 to $3,717,400 in 1995 as compared to $5,544,000 in 1994. The largest reduction in scientific data generation was in connection with Phosdrin(R). Due to the phase out of Phosdrin(R) as discussed above, data generation costs with respect to Phosdrin(R) decreased approximately $1,236,000 in 1995 to approximately $54,000. The NAA, DDVP and PCNB product groups also experienced significant declines in scientific data generation of approximately $301,000, $239,000 and $196,000, respectively, in 1995 due to the maturation of the products and of the related research studies being conducted. Bidrin(R), which is a relatively recent addition to CHEMICAL's product line, was the only major product group 19 22 to experience an increase in scientific data generation in 1995. Bidrin(R) scientific data generation costs increased approximately $212,000 in 1995. In 1994 the Company received a benefit of $350,000 as a result of an unrelated chemical company paying the Company for the right to cite and rely upon data developed by the Company. The Company did not receive any benefits of this kind in 1995. Freight, Delivery and Warehousing: Freight, delivery and warehousing costs increased by $447,600 to $3,008,300 in 1995 from $2,560,700 in 1994. The increase in costs is primarily due to increased freight costs as a result of the higher sales at CHEMICAL and additions to shipping department personnel to handle the additional demand. General, Administrative and Corporate: General, administrative and corporate costs increased by $1,261,100 to $4,061,800 in 1995 from $2,800,700 in 1994. The increase was primarily attributable to environmental consulting projects and legal fees which accounted for approximately $913,700. Additionally, the Company elected to provide for the remaining expected costs in connection with the phase out of Phosdrin(R) in the amount of $175,000. Interest costs were $935,400 in 1995 as compared to $978,200 in 1994. The average level of short-term borrowing decreased by $313,900 to $6,526,200 in 1995 from $6,840,100 in 1994. The average level of long-term debt declined by $1,552,400 to $3,816,600 in 1995 from $5,369,000 in 1994. The reduction in the average debt and the change in effective interest rates accounted for the decrease in interest costs in 1995. Income tax expense increased by $1,657,200 to $1,919,000 in 1995 as compared to $261,800 in 1994. Higher pre-tax income combined with lower tax credits are the reason for the increased income tax expense. See Note 5 to the Consolidated Financial Statements for additional analysis of the changes in income tax expense. Weather patterns can have an impact on the Company's operations. Weather conditions influence pest population by impacting gestation cycles for particular pests and the effectiveness of some of the Company's products, among other factors. The Company manufactures and formulates chemicals for crops, human and animal health protection. The end user of some of the Company's products may, because of weather patterns, delay or intermittently disrupt field work during the planting season which may result in a reduction of the use of some of the Company's products. 20 23 Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company's performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as good an indicator as full-year comparisons. 1994 COMPARED WITH 1993: The Company reported net income of $1,202,700 or $.47 per share in 1994 as compared to net income of $2,225,100 or $.89 per share in 1993. Significant factors adversely affecting net income in 1994 include provisions for settlements of legal matters in the amount of $1,140,000 (Refer to PART I, Item 3 of this Annual Report), a reduction in gross profits from 1993 of approximately $1,407,000 and an increase in interest expense of approximately $144,000. Partially offsetting these negative factors were a decrease in operating expenses of approximately $823,000 as well as a decrease in income tax expense of approximately $847,000. Net sales declined by $379,400 to $45,098,100 in 1994 as compared to $45,477,500. CHEMICAL's sales declined by approximately $5,122,000 in 1994 as compared to 1993. This decline was primarily due to a reduction in the sales of Bidrin(R). In November 1993, CHEMICAL purchased from Du Pont, the rights, title and interest in Bidrin(R), an insecticide for cotton crops. Concurrently with the purchase of the rights to Bidrin(R), CHEMICAL purchased Du Pont's existing inventory at Du Pont's approximate cost and sold that inventory in 1993. CHEMICAL did not begin manufacturing Bidrin(R) until December 1994, when the required permitting was granted. As a result, product delivered in 1994 was significantly less than in 1993. The decline in CHEMICAL's sales was essentially offset by an increase in sales as a result of the Company's acquisition of GemChem in mid January 1994. GemChem's sales (in 1994, after it was acquired by the Company) were approximately $4,700,000. The remaining change in sales was attributable to changes in the sales mix of the Company's products. Gross profits declined by $1,406,700 to $19,731,800 in 1994 as compared to $21,138,500 in 1993. This represents a decline in the gross profit margin of approximately 2.7%. This decline was primarily due to the impact of GemChem sales on consolidated gross profit. GemChem, in addition to being the exclusive sales agent for the Company, is also a distributor of various pharmaceutical and nutritional supplement products. The gross profit margin for the distribution of GemChem's products was approximately 15% compared to the gross profit margin of approximately 47% for the Company's manufactured products. 21 24 Operating expenses declined by $822,900 to $16,155,600 in 1994 from the $16,978,500 reported in 1993. The following is a discussion of operating expenses: Selling and Regulatory: Selling and Regulatory expenses decreased by $1,666,000 to $4,582,700 in 1994 from $6,248,700 in 1993. The decrease in selling and regulatory expenses is primarily attributable to a decrease in variable selling costs. Significant reductions in Bidrin(R) rebates and royalties of approximately $724,000 occurred as a result of the lower sales of Bidrin(R) in 1994. Additionally, a royalty contract related to sales of Phosdrin(R) expired at the end of 1993 eliminating royalties of approximately $499,000 incurred in 1993. Other reductions in rebates as a result of changes in the sales mix amounted to approximately $283,000. Research and Development: Research and development costs, which include costs incurred to generate scientific data and other activities performed in the department, increased by $527,800 to $6,211,500 in 1994 from $5,683,700 in 1993. Costs incurred to generate scientific data increased by $826,600 to $5,544,000 in 1994 as compared to $4,715,400 in 1993. The most significant increases in scientific data generation related to the Bidrin(R) and Napthalene Acetic Acid product groups which accounted for an increase in costs of approximately $1,500,000 while a gradual curtailment of costs related to the DDVP product group resulted in a reduction in costs in 1994 of approximately $778,000. The Company did receive a benefit of $350,000 in 1994 as a result of an unrelated chemical company paying the Company for the right to cite and rely upon data developed by the Company. Freight, Delivery and Warehousing: Freight, delivery and warehousing costs decreased by $132,800 to $2,560,700 in 1994 from $2,693,500 in 1993. These costs decreased primarily as a result of decreased freight costs due to lower sales at CHEMICAL. General, Administrative and Corporate: General, administrative and corporate costs increased by $464,700 to $2,800,700 in 1994 from $2,336,000 in 1993. The increase was primarily attributable to an increase in legal costs. (Refer to PART I, Item 3 for a discussion of legal proceedings.) 22 25 Interest costs were $978,200 in 1994 as compared to $833,900 in 1993. The average level of short-term borrowing increased by $429,800 to $6,840,100 in 1994 from $6,410,300 in 1993. The average level of long-term debt declined by $819,800 to $5,369,000 in 1994 from $6,188,800 in 1993. The lower average debt for 1994 as compared to 1993, was not sufficient to offset higher effective interest rates which accounted for the increase in interest costs. Income tax expense decreased by $846,500 to $261,800 in 1994 as compared to $1,108,300 in 1993. See Note 5 to the Consolidated Financial Statements for an analysis of the changes in income tax expense. LIQUIDITY AND CAPITAL RESOURCES Working capital was $15,694,500 as of December 31, 1995 reflecting an $11,021,800 improvement over working capital of $4,672,700 as of December 31, 1994. Current assets were $722,300 higher at December 31, 1995 than at December 31, 1994. While trade receivables were $2,505,900 higher at December 31, 1995 due to the greater sales volume at CHEMICAL, the increase was substantially offset by the payment in 1995 of a $2,075,000 legal settlement receivable recorded at December 31, 1994 related to the DBCP settlement (Refer to PART I, Item 3, Legal Proceedings and Note 7 of the Notes to the Consolidated Financial Statements of this annual report for additional information). Also offsetting the increase in trade receivables was a decrease in other receivables of $425,500 which was primarily attributable to the receipt of $350,000 related to the sale of rights to the use of scientific data generated by the Company. Inventories increased $1,051,700 in 1995 over 1994. The higher inventory level is attributable to a planned build-up of certain of the Company's finished products in anticipation of meeting future sales demands. Prepaid expenses decreased $348,700 in 1995 which was primarily due to the expense recognition of royalties paid in advance. Current liabilities decreased $10,299,500 in 1995 over 1994. The Company paid down the Company's fully-secured line of credit from $8,000,000 at December 31, 1994 to $3,900,000 at December 31, 1995. Additionally, in September 1995, the Company renewed and amended its line of credit agreement with its bank, one of the terms of which was the extension of the expiration date to July 31, 1997. As such, the balance of $3,900,000 under the line of credit agreement at December 31, 1995 has been classified as a long-term liability. The line of credit agreement, which has a borrowing limit of $10,500,000, had $6,600,000 of available credit at December 31, 1995. Another significant reduction in current liabilities as of December 31, 1994 was the payment during 1995 of a legal settlement in the 23 26 amount of $3,366,900 related to the DBCP lawsuits (Refer to PART I, Item 3, Legal Proceedings and Note 7 of the Notes to the Consolidated Financial Statements of this annual report for additional information). The effects of the above noted decreases were offset by an increase in income taxes payable of $693,300 and a net increase in accounts payable and other accrued expenses of $313,200. The Company invested $755,000 in capital expenditures in 1995. These expenditures improve and/or maintain the existing capacity of the Company's manufacturing facility, and address the Company's continual effort to adapt its manufacturing processes to the environmental control standards of its various controlling agencies. The Company also invested $226,500 in deferred charges in 1995, most of which relate to EPA study costs. The capitalized balance of deferred charges as of December 31, 1995 are not material. The Company recognized $3,415,300 of depreciation and amortization expense in 1995. As of December 31, 1995, the Company does not have any material commitments for future capital expenditures. As part of the renewal and amendment of the Company's credit facility, as discussed above, the Company increased its term loan availability to a maximum of $5,250,000 to be paid in monthly installments through December 1, 2000. The Company borrowed an additional $3,702,300 in December 1995 which increased the existing term loan to the maximum amount allowed as of December 31, 1995. The Company made principal payments on its long-term debt of $1,797,800 during 1995. There has been constant public pressure upon the federal and state governments to require FIFRA product registrants to supply new scientific data (such as toxicological and environmental fate tests), which has resulted in government action requiring additional studies and the submission of more data. Based on facts known today, the Company estimates it will spend approximately $3,900,000 in 1996 on these studies. Because scientific analyses are constantly improving, it cannot be determined with certainty whether or not material new or additional tests may be required. Additionally, while FIFRA Good Laboratory Practice standards specify the minimum practices and procedures which must be followed in order to ensure the quality and integrity of data related to these tests submitted to the EPA, there can be no assurance the EPA will not request certain tests/studies be repeated. For further information, refer to PART I, Item 1, Business, Competition of this Annual Report. CHEMICAL is a manufacturer and formulator of chemicals for crops, human and animal health protection. For discussions pertaining to the Company's litigation refer to PART I, Item 3, Legal Proceedings of this Annual Report. 24 27 Management believes current financial resources (working capital and borrowing arrangements) and anticipated funds from operations will be adequate to meet total financial needs in 1996. Management also continues to believe, to improve its working capital position and maintain flexibility in financing interim needs, it is prudent to explore alternate sources of financing. The Company, as previously disclosed, is required to supply studies and the submission of data to federal and state governmental agencies. Because scientific analyses are constantly improving, it cannot be determined with certainty whether or not additional tests that may be material will be required. Although management does not currently foresee any critical liquidity problems, should material new or additional tests be required during 1996, anticipated funds from operations may not be adequate to meet total financial needs in 1996. Management believes that inflation has not had a significant impact on the Company's costs and prices during the past three years. New Accounting Standards Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of" ("SFAS No. 121") issued by the Financial Accounting Standards Board ("FASB") is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Company does not expect adoption to have a material effect on its financial position or results of operations. Statements of Financial Accounting Standards No. 123, "Accounting for the Stock-Based Compensation" ("SFAS No. 123") issued by the FASB is effective for specific transactions entered into after December 15, 1995, while the disclosure requirements of SFAS No. 123 are effective for financial statements for fiscal years beginning no later than December 15, 1995. The new standard establishes a fair value method of accounting for stock- based compensation plans and for transactions in which an entity acquires goods or services from non-employees in exchange for equity instruments. The Company does not expect adoption to have a material effect on its financial position or results of operations. At the present time, the Company has not determined if it will change its accounting policy for stock based compensation or only provide the required financial statement disclosures. As such, the impact on the Company's financial position and results of operations is currently unknown. 25 28 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------ ------------------------------------------- The Financial Statements and Supplementary Data are listed at PART IV, Item 14, Exhibits, Financial Statement Schedules, and Reports on Form 8-K in this report. 26 29 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 27 30 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- -------------------------------------------------- The following persons are the current Directors and Executive Officers of Registrant:
Name of Director/Officer Age Capacity Herbert A. Kraft 72 Co-Chairman Glenn A. Wintemute 71 Co-Chairman Eric G. Wintemute 40 Director, President and Chief Executive Officer James A. Barry 45 Director, Vice President, Chief Financial Officer, Treasurer and Assistant Secretary Glenn E. Mallory 86 Director and Corporate Secretary Henry L. Scott 77 Director Jesse E. Stephenson 72 Director
Herbert A. Kraft has served as Co-Chairman of the Board since July 1994. Mr. Kraft served as Chairman of the Board and Chief Executive Officer from 1969 to July 1994. Glenn A. Wintemute has served as Co-Chairman of the Board since July 1994. Mr. Wintemute served as President of the Company and all operating subsidiaries since 1984 and was elected a director in 1971. He served as President of CHEMICAL from 1963 to July 1994. Eric G. Wintemute has served as a director since June 1994. Mr. Wintemute has also served as President and Chief Executive Officer since July 1994. He was appointed Executive Vice President and Chief Operating Officer of the Company in January 1994, upon the Company's acquisition of GemChem, Inc. He co-founded GemChem, Inc., a national chemical distributor, in 1991 and served as its President. Mr. Wintemute was previously employed by CHEMICAL from 1977 to 1982. From 1982 to 1991, Mr. Wintemute worked with R. W. Greeff & Co., Inc., a former distributor of certain of CHEMICAL's products. During his tenure with R. W. Greeff & Co., Inc., he served as Vice President and 28 31 Director. He is the son of the Company's Co-Chairman, Glenn A. Wintemute. James A. Barry has served as a director since June 1994. Mr. Barry was appointed Treasurer in July 1994. He has served as Chief Financial Officer of the Company since 1987, and as Vice President and Assistant Secretary since 1990. From 1990 to July 1994, he also served as Assistant Treasurer. Glenn E. Mallory has served as a director of the Company since 1971 and its Secretary since 1976. Mr. Mallory served as Treasurer from 1976 to July 1994. He also served as Vice President of CHEMICAL from 1970 to September 1993. Henry L. Scott has served as a director of the Company since 1983. He has been a practicing certified public accountant since 1951. Mr. Scott serves on the board of directors of Royal American Printing Machine Company, Beverly Hills Medical Group and several privately held companies. Jesse E. Stephenson has served as director of the Company since 1977 (except for a 10-month period following March 1992). He was the General Manager of a wholly-owned subsidiary of the Company, from 1968 to 1978. Mr. Stephenson is retired and is a private investor. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors, and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. The Company believes that during 1995 all reports required to be filed under Section 16(a) by its executive officers, directors, and greater than ten percent beneficial owners were timely filed. 29 32 ITEM 11 EXECUTIVE COMPENSATION The following table sets forth the aggregate cash and other compensation for services rendered for the years ended December 31, 1995, 1994, and 1993 paid or awarded by the Corporation and its subsidiaries to the Corporation's Chief Executive Officer and each of the four most highly compensated executive officers of the Corporation, whose aggregate remuneration exceeded $100,000 (the "named executive officers"). 30 33 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ---------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ------------------- ------ ------- (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER RE- SECURITIES ALL NAME ANNUAL STRICTED UNDERLYING OTHER AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION POSITION YEAR ($) ($) ($)1 ($) (#) ($) ($) -------- ---- ------- ------- -------- --------- ---------- -------- ------ Eric G. Wintemute(2) 1995 172,000 - - - - - 4,993(6) President and 1994 140,771 - (-) - 30,000(4) - 4,990(6) Chief Executive Officer James A. Barry(3) 1995 122,751 - - - 5,000(5) - 4,070(6) Vice President, CFO 1994 103,009 - - - - - 3,245(6) and Treasurer Herbert A. Kraft(7) 1995 - - - - - - 254,086(7) Co-Chairman 1994 142,008 - - - - - 131,857(7) 1993 265,976 - - - - - 4,827(4) Glenn A. Wintemute(7) 1995 - - - - - - 254,086(7) Co-Chairman 1994 141,171 - - - - - 131,857(7) 1993 264,476 - - - - - 4,827(4)
- -------- (1) No executive officer enjoys perquisites that exceed the lesser of $50,000, or 10% of such officer's salary. (2) Mr. Eric G. Wintemute joined the Company in January 1994. (3) Amounts prior to 1994 were not required to be reported. (4) Represents options to purchase Common Stock of the Company issued to Eric Wintemute in connection with the acquisition of GemChem, Inc., by the Company during 1994. The options issued to Mr. Wintemute represent approximately 43% of the total options issued by the Company in 1994. The exercise price of the options is $10.00 per share and the options vest one-fourth on January 15, 1995, 1996, 1997 and 1998 and all options expire on April 15, 1998. (5) Represents options to purchase Common Stock of the Company. The options issued to Mr. Barry represent approximately 13% of the total options issued by the Company in 1995. (6) These amounts represent the Company's contribution to the Company's Retirement Savings Plan, a qualified plan under Internal Revenue Code Section 401 (k). (7) Messrs. Kraft and Wintemute retired from the Company as active employees in July 1994 and subsequently entered into consulting agreements with the Company to provide specified services through July 1999. All other compensation (column (I)) includes $127,164 paid to each individual under his consulting agreement and $4,693 on behalf of each individual as a retirement savings plan contribution as described in (6) above for 1994. Amounts for 1995 represent payments paid to each individual under his consulting agreement. 31 34 Compensation Committee Interlocks and Insider Participation The Compensation Committee of the Board consists of Messrs. Herbert A. Kraft, Jesse E. Stephenson and James A. Barry. The executive compensation philosophy of the Company is aimed at (i) attracting and retaining qualified executives; (ii) motivating performance to achieve specific strategic objectives of the Company; and (iii) aligning the interest of senior management with the long-term interest of the Company's shareholders. 32 35 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - ------- ----------------------------------------------- AND MANAGEMENT -------------- To the knowledge of Registrant, the ownership of Registrant's outstanding Common Stock as of March 22, 1996, by persons who are directors, beneficial owners of 5% or more of the outstanding Common Stock and by all directors and officers as a group is set forth below. Unless otherwise indicated Registrant believes that each of the persons set forth below has the sole power to vote and to dispose of the shares listed opposite his name.
Amount and Nature Office Name and Address of Beneficial Percent (if any) Beneficial Owner Ownership(1) of Class - -------- ---------------- ----------- -------- Co-Chairman Glenn A. Wintemute 769,985(2) 30.5% 4695 MacArthur Court Newport Beach, CA 92660 Co-Chairman Herbert A. Kraft 639,883(3) 25.4% 4695 MacArthur Court Newport Beach, CA 92660 Goldsmith & Harris et al. 153,560(4) 6.1% 80 Pine Street New York, NY 10005 Director Jesse E. Stephenson 53,350(5) 2.1% 4695 MacArthur Court Newport Beach, CA 92660 Director, Eric G. Wintemute 53,303(6) 2.1% President 4695 MacArthur Court & CEO Newport Beach, CA 92660 Director Henry L. Scott 4,070 --(8) 4695 MacArthur Court Newport Beach, CA 92660 Director, James A. Barry 1,833(7) --(8) Vice President, 4695 MacArthur Court CFO & Treasurer Newport Beach, CA 92660 Directors and Officers 1,522,424 59.9% as a group(7)
- --------------------- (1) Record and Beneficial. (2) This figure includes 22,220 common shares owned by Mr. Wintemute's children for which Mr. Wintemute is a trustee and disclaims beneficial ownership. (3) Mr. Kraft owns all of his shares with his spouse in a family trust, except as to 1,430 shares held in an Individual Retirement Account. (4) The Company has relied on information reported on a Statement on Schedule 13D dated August 21, 1992, filed by Goldsmith & Harris et al. with the Securities and Exchange Commission, and has adjusted for the 10% stock dividend issued March 15, 1996. (5) Mr. Stephenson holds all of his shares in a family trust. (6) This figure includes 16,500 shares Common Stock Mr. Wintemute is entitled to acquire pursuant to stock options exercisable within sixty days of March 22, 1996. (7) This figure represents shares Common Stock Mr. Barry is entitled to acquire pursuant to stock options exercisable within sixty days of March 22, 1996. (8) Under 1% of class. 33 36 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ---------------------------------------------- In September 1991, the Company entered into an agreement with GemChem to represent the Company as its sales representative. No director, officer or significant shareholder of the Company had any direct or indirect relationship with or interest in GemChem; however, Eric G. Wintemute, the son of the Company's then President Glenn A. Wintemute, owned an approximate one-third equity interest in GemChem. The Company purchased approximately $3,600,000 and $3,200,000 in 1993 and 1992, respectively, of raw materials from GemChem. During the years ended December 31, 1993, and 1992, the Company expensed $1,586,400 and $1,386,400, respectively, in commissions earned by GemChem. No commissions were owed GemChem as of December 31, 1993. The Company believes that the commissions paid to GemChem for sales of products were no less favorable to the Company than would have been available from unrelated parties. In March 1994, the Company concluded the purchase of all the issued and outstanding stock of GemChem. The purchase was effective January 15, 1994. The aggregate purchase price consisted of 50,000 unregistered shares of the Company's common stock and approximately $592,000 in two year notes with interest at prime plus .75%. The total purchase price was valued at $1,029,500. See also Note 11 of the Notes to the Consolidated Financial Statements in PART IV, Item 14 of this Annual Report. In connection with their retirement from the Company as active employees in July 1994, Messrs. Herbert A. Kraft and Glenn A. Wintemute entered into written consulting agreements with the Company effective July 14, 1994. Pursuant to the consulting agreements, Messrs. Kraft and Wintemute will perform management and financial consulting services for the Company as assigned by the Board of Directors or the Chief Executive Officer for the five year term of the agreement, ending on July 14, 1999. The agreement provides that neither Messrs. Kraft or Wintemute will be required to expend more than 400 hours in any twelve month period or forty hours in any one month period. Under the agreement, Messrs. Kraft and Wintemute each received $287,500 for the year ended July 14, 1995. They will also, under the agreement, each receive $243,750 for the year ending July 14, 1996, $200,000 for the year ending July 14, 1997, $156,250 for the year ending July 14, 1998 and $112,500 for the year ending July 14, 1999. In the event of death or disability prior to July 14, 1999, such payments will continue to be paid to the individual or his estate, as applicable. The agreements also provide for continuation of medical and dental insurance benefits until the expiration of the term of the agreements. 34 37 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Index to Consolidated Financial Statements and Supplementary Data: DESCRIPTION
PAGE NO. Report of Independent Certified Public Accountants 38 Financial Statements: Consolidated Balance Sheets as of December 31, 1995 and 1994 39 Consolidated Statements of Income for the Years Ended December 31, 1995, 1994, and 1993 41 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995, 1994, and 1993 42 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993 43 Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements 45 (2) Financial Statement Schedules:
All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. 35 38 (3) Exhibits: The exhibits listed on the accompanying Index To Exhibits, page 59, are filed as part of this annual report. (b) Reports on Form 8-K were filed during the quarter ended December 31, 1995. None. 36 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, American Vanguard Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 28th day of March, 1996. AMERICAN VANGUARD CORPORATION (Registrant) /s/ Eric G. Wintemute /s/ James A. Barry - -------------------------------- -------------------------------- By: ERIC G. WINTEMUTE By: JAMES A. BARRY President, Vice President, Chief Executive Officer Chief Financial Officer, and Director Treasurer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Herbert A. Kraft /s/ Glenn A. Wintemute - -------------------------------- --------------------------- HERBERT A. KRAFT GLENN A. WINTEMUTE Co-Chairman Co-Chairman March 28, 1996 March 28, 1996 /s/ Glenn E. Mallory /s/ Henry L. Scott - -------------------------------- --------------------------- GLENN E. MALLORY HENRY L. SCOTT Corporate Secretary and Director Director March 28, 1996 March 28, 1996 /s/ Jesse E. Stephenson - -------------------------------- JESSE E. STEPHENSON Director March 28, 1996 37 40 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders American Vanguard Corporation We have audited the accompanying consolidated balance sheets of American Vanguard Corporation and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Vanguard Corporation and their subsidiaries at December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Los Angeles, California March 4, 1996 38 41 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994
ASSETS (NOTE 4) 1995 1994 ---- ---- Current assets: Cash $ 331,600 $ 317,700 Receivables: Trade 15,228,300 12,722,400 Legal settlements (note 7) 195,000 2,270,000 Other 62,700 488,200 ---------- ---------- 15,486,000 15,480,600 ---------- ---------- Inventories: Finished products 6,001,600 5,544,100 Raw materials 2,268,000 1,673,800 ---------- ---------- 8,269,600 7,217,900 ---------- ---------- Prepaid expenses 581,000 929,700 ---------- ---------- Total current assets 24,668,200 23,945,900 Property, plant and equipment, at cost, less accumulated depreciation of $14,079,900 in 1995 and $11,968,900 in 1994 (notes 1,3,4, and 6) 13,680,400 15,024,100 Land held for development 210,800 210,800 Costs in excess of net assets acquired, net of accumulated amortization of $165,900 in 1995 and $132,500 in 1994 (note 11) 442,100 475,500 Deferred charges, net of accumulated amortization of $6,035,600 in 1995 and $4,866,700 in 1994 (note 2) 57,900 1,001,100 Other assets 281,600 271,300 ---------- ---------- $39,341,000 $40,928,700 ========== ==========
(CONTINUED) 39 42 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 ---- ---- Current liabilities: Note payable to bank (note 4) $ - $ 8,000,000 Current installments of long-term debt (note 3) 1,265,600 1,205,300 Accounts payable 2,810,800 2,891,600 Accrued expenses 3,486,200 3,092,200 Income taxes payable 1,366,300 672,500 Legal settlements payable (note 7) 44,700 3,411,600 ---------- ---------- Total current liabilities 8,973,600 19,273,200 Note payable to bank (note 4) 3,900,000 - Long-term debt, excluding current installments (note 3) 5,539,500 3,695,300 Deferred income taxes (note 5) 2,922,500 2,817,300 ---------- ---------- Total liabilities 21,335,600 25,785,800 ---------- ---------- Commitments and contingent liabilities (notes 3, 4, 6, 7, 10 and 12) Stockholders' equity: (note 13) Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued - - Common stock, $.10 par value per share; authorized 10,000,000 shares; issued 2,331,371 shares 233,100 233,100 Additional paid-in capital 1,688,200 1,688,200 Retained earnings 16,345,600 13,221,600 ---------- ---------- 18,266,900 15,142,900 Less treasury stock, 38,500 shares at cost 261,500 - ---------- -------- Total stockholders' equity 18,005,400 15,142,900 ---------- ---------- $39,341,000 $40,928,700 ========== ==========
See summary of significant accounting policies and notes to consolidated financial statements. 40 43 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ---- ---- ---- Net sales (note 9) $ 55,402,100 $ 45,098,100 $ 45,477,500 Cost of sales 30,741,700 25,366,300 24,339,000 ------------ ------------ ------------ Gross profit 24,660,400 19,731,800 21,138,500 Operating expenses 18,689,400 16,155,600 16,978,500 Legal settlement expenses (note 7) -- 230,000 -- ------------ ------------ ------------ Operating income 5,971,000 3,346,200 4,160,000 Interest expense (935,400) (978,200) (833,900) Interest income 7,400 6,500 7,300 Other settlement expenses (note 7) -- (910,000) -- ------------ ------------ ------------ Income from operations before income tax expense 5,043,000 1,464,500 3,333,400 Income tax expense (note 5) 1,919,000 261,800 1,108,300 ------------ ------------ ------------ Net income $ 3,124,000 $ 1,202,700 $ 2,225,100 ============ ============ ============ Per share information: Net income $ 1.23 $ .47 $ .89 ============ ============ ============ Weighted average number of shares 2,546,471 2,562,398 2,509,536 ============ ============ ============
See summary of significant accounting policies and notes to consolidated financial statements. 41 44 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK TOTAL ------- --------- ---------- ---------- ---------- Balance, January 1, 1993 $228,100 $1,255,700 $ 9,793,800 $ -- $ 11,277,600 Net income -- -- 2,225,100 -- 2,225,100 -------- ---------- ----------- --------- ------------ Balance, December 31, 1993 228,100 1,255,700 12,018,900 -- 13,502,700 Common stock issued in connection with acquisition of GemChem, Inc. 5,000 432,500 -- -- 437,500 (note 11) Net income -- -- 1,202,700 -- 1,202,700 -------- ---------- ----------- --------- ------------ Balance, December 31, 1994 233,100 1,688,200 13,221,600 -- 15,142,900 Net income -- -- 3,124,000 -- 3,124,000 Treasury stock acquired -- -- -- (261,500) (261,500) -------- ---------- ----------- --------- ------------ Balance, December 31, 1995 $233,100 $1,688,200 $16,345,600 $(261,500) $ 18,005,400 ======== ========== =========== ========= ============
See summary of significant accounting policies and notes to consolidated financial statements. 42 45 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
INCREASE (DECREASE) IN CASH 1995 1994 1993 ---- ---- ---- Cash flows from operating activities: Net income $ 3,124,000 $ 1,202,700 $ 2,225,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 2,098,700 2,012,000 1,983,800 Amortization of intangible assets and deferred charges 1,316,600 1,485,800 1,504,200 Increase in allowance for related party receivable -- -- 115,000 Changes in assets and liabilities associated with operations: Increase in receivables (5,400) (4,621,500) (4,208,700) Increase in inventories (1,051,700) (1,785,100) (124,700) Decrease (increase) in prepaid expenses 348,700 (66,400) (462,400) Increase (decrease) in accounts payable (80,800) 833,100 (247,000) Increase (decrease) in other payables and accrued expenses (2,279,100) 2,896,800 351,900 Increase (decrease) in deferred income taxes 105,200 (221,500) (115,800) ----------- ----------- ----------- Net cash provided by operating activities 3,576,200 1,735,900 1,021,400 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (755,000) (939,200) (1,053,200) Decrease in marketable securities -- -- 49,700 Additions to deferred charges (226,500) (520,900) (414,400) Net increase in other noncurrent assets (123,800) (4,100) (87,000) ----------- ----------- ----------- Net cash used in investing activities (1,105,300) (1,464,200) (1,504,900) ----------- ----------- -----------
(Continued) 43 46 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
INCREASE (DECREASE) IN CASH 1995 1994 1993 ---- ---- ---- Cash flows from financing activities: Net borrowings under line of credit agreement $(4,100,000) $ 400,000 $ 2,200,000 Proceeds from issuance of long-term debt 3,702,300 592,000 -- Principal payments on long-term debt (1,797,800) (1,236,800) (1,521,700) Acquisition of treasury stock (261,500) -- -- ----------- ----------- ----------- Net cash provided by (used in) financing activities (2,457,000) (244,800) 678,300 ----------- ----------- ----------- Net increase in cash 13,900 26,900 194,800 Cash at beginning of year 317,700 290,800 96,000 ----------- ----------- ----------- Cash at end of year $ 331,600 $ 317,700 $ 290,800 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 1,011,100 $ 993,100 $ 795,200 Income taxes 1,119,800 940,800 818,000 =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During 1993, capital lease obligations of $216,200 were incurred when the Company entered into leases for new property, plant, and equipment. During 1994, in connection with the acquisition of GemChem, Inc. (see note 11), as part of the purchase price, the Company issued 50,000 shares of its common stock with a fair value of $437,500. See summary of significant accounting policies and notes to consolidated financial statements. 44 47 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DECEMBER 31, 1995 AND 1994 Description of Business and Basis of Consolidation The Company is primarily a specialty chemical manufacturer that develops and markets safe and effective products for agricultural and commercial uses. The Company manufacturers and formulates chemicals for crops, human and animal protection. One of the Company's subsidiaries, GemChem, Inc. (see note 11), is the Company's exclusive sales agent and is also a distributor of various pharmaceutical and nutritional supplement products. The consolidated financial statements include the accounts of American Vanguard Corporation ("Company") and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company's performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as good an indicator as full-year comparisons. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Intangible Assets Intangible assets resulting from the business acquisition (see Note 11), consists of cost in excess of net assets (goodwill) acquired. Goodwill is being amortized on a straight-line basis over the period of an expected benefit of 15 years. Management has a policy to review goodwill and other productive assets at each quarterly balance sheet date for possible impairment. This policy includes recognizing write-downs if it is probable that measurable undiscounted future cash flows and/or the aggregate net cash flows of an asset, as measured by current revenues and costs (exclusive of depreciation) over the asset's remaining depreciable life, are not sufficient to recover the net book value of an asset. Revenue Recognition Sales are recognized upon shipment of products or transfer of title to the customer. Depreciation Depreciation of property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Fair Value of Long-term Debt The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. 45 48 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES Income Taxes Income taxes have been provided using the asset and liability method in accordance with Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 employs an asset and liability approach in accounting for income taxes, the objective of which, is to recognize the amount of current and deferred taxes at the date of the financial statements using the provisions of the tax laws then in effect. Per Share Information Earnings per share amounts are computed based on the weighted average number of shares of common stock. Common stock equivalents, which consisted of options to purchase the Company's common stock, were anti-dilutive in 1995 and 1994. There were no common stock equivalents outstanding during 1993. Earnings per share have been restated to reflect a 10% common stock dividend payable March 15, 1996 to common stockholders of record as of February 29, 1996. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses at the date that the financial statements are prepared. Actual results could differ from those estimates. New Accounting Pronouncements Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121") issued by the Financial Accounting Standards Board ("FASB") is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Company does not expect adoption to have a material effect on its financial position or results of operations. Statements of Financial Accounting Standards No. 123, "Accounting for the Stock-Based Compensation" ("SFAS No. 123") issued by the FASB is effective for specific transactions entered into after December 15, 1995, while the disclosure requirements of SFAS No. 123 are effective for financial statements for fiscal years beginning no later than December 15, 1995. The new standard establishes a fair value method of accounting for stock-based compensation plans and for transactions in which an entity acquires goods or services from non-employees in exchange for equity instruments. The Company does not expect adoption to have a material effect on its financial position or results of operations. At the present time, the Company has not determined if it will change its accounting policy for stock based compensation or only provide the required financial statement disclosures. As such, the impact on the Company's financial position and results of operations is currently unknown. Reclassifications Certain prior years' amounts have been reclassified to conform to the current year's presentation. 46 49 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 (1) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1995 and 1994 consists of the following:
ESTIMATED 1995 1994 USEFUL LIVES ---- ---- ------------ Land $ 2,319,800 $ 2,319,800 Buildings and improvements 3,539,900 3,450,500 10 to 30 years Machinery and equipment 19,998,800 19,911,200 3 to 10 years Office furniture and fixtures 971,800 819,200 3 to 10 years Automotive equipment 105,000 103,600 3 to 6 years Construction in progress 825,000 388,700 ---------- ---------- 27,760,300 26,993,000 Less accumulated depreciation 14,079,900 11,968,900 ---------- ---------- $13,680,400 $15,024,100 =========== ===========
(2) DEFERRED CHARGES During 1995 and 1994, the Company capitalized $185,000 and $509,000, respectively, in deferred charges relating to certain Environmental Protection Agency study costs for a new product the Company began producing in October 1990. Amortization of these costs began in October 1990, and was provided by the units of production method over a period of five years through September 1995. Total study costs incurred and capitalized through September 1995 for this product approximated $5,812,500. 47 50 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (3) LONG-TERM DEBT Long-term debt of the Company at December 31, 1995 and 1994 is summarized as follows (fair values approximate reported carrying amounts):
1995 1994 ---- ---- Note payable, secured by certain real property, renewed and amended in September 1995, principal increased to $5,250,000, payable in 60 fixed monthly installments of $87,500 commencing January 1, 1996, plus interest at prime plus .5% (prime was 8.5% at December 31, 1995), with remaining unpaid principal due December 1, 2000 $ 5,250,000 $ 2,476,300 Note payable, secured by certain real property, amended in December 1995, payable in 85 fixed monthly installments of $13,335, plus interest at prime plus 1% with remaining unpaid principal due February 1, 1997 1,439,900 1,599,900 Note payable, secured by certain real property, payable in 60 fixed monthly installments of $1,700, principal and interest - 10,900 Notes payable to three individuals in connection with the acquisition of the common stock of GemChem, Inc., collateralized by the common stock of GemChem, Inc., interest payable monthly at prime plus .75% with principal due by March 31, 1996. - 592,000 Obligations under capitalized leases (see note 6) 115,200 221,500 ---------- ---------- 6,805,100 4,900,600 Less current installments 1,265,600 1,205,300 ---------- ---------- $ 5,539,500 $ 3,695,300 ========== ==========
Approximate principal payments on long-term debt mature as follows: 1996 $1,265,600 1997 2,377,800 1998 1,061,700 1999 1,050,000 2000 1,050,000 ---------- $6,805,100 ==========
(4) NOTE PAYABLE TO BANK Under a credit agreement with a bank, the Company may borrow up to $10,500,000. The note bears interest at a rate of prime plus .25% (prime was 8.5% at December 31, 1995 and 1994). Additionally, the Company, at its option, may pay a fixed rate offered by the bank for terms not less than 30 nor more than 180 days and provided that any such period of time does not extend beyond the expiration date of the credit agreement. Substantially all of the Company's assets not otherwise 48 51 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED specifically pledged as collateral on existing loans and capital leases are pledged as collateral under the credit agreement. The note payable expires on July 31, 1997. The Company had $6,600,000 available under this credit agreement as of December 31, 1995. The credit agreement, among other financial covenants, limits payments of cash dividends to a maximum of 25% of net income. The Company was in compliance with the financial covenants as of December 31, 1995. The balance outstanding at December 31, 1995 and 1994 was $3,900,000 and $8,000,000. The average amount outstanding during the years ended December 31, 1995 and 1994 was $6,526,200 and $6,840,100. The weighted average interest rate during the years ended December 31, 1995 and 1994 was 9.1% and 7.25%. (5) INCOME TAXES The components of income tax expense are:
1995 1994 1993 ---- ---- ---- Current: Federal $ 1,255,400 $ 490,000 $ 931,700 State 539,800 (16,800) 373,500 Other, primarily foreign 18,600 10,100 -- Deferred: Federal 242,300 (138,500) (145,300) State (137,100) (83,000) (51,600) ----------- ----------- ----------- $ 1,919,000 $ 261,800 $ 1,108,300 =========== =========== ===========
Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to income before income tax expense as a result of the following:
1995 1994 1993 ---- ---- ---- Computed tax provision at statutory Federal rates $ 1,714,600 $ 497,900 $ 1,133,200 Increase (decrease) in taxes resulting from: State taxes, net of Federal income tax benefit 300,600 30,400 204,600 Refund of prior year State income taxes from utilization of net operating loss carryforward -- (145,900) -- Nondeductible expenses 33,000 68,600 -- Other 18,600 10,100 13,300 Benefit of research and development and alternative minimum tax credits (147,800) (199,300) (242,800) ----------- ----------- ----------- $ 1,919,000 $ 261,800 $ 1,108,300 =========== =========== ===========
49 52 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the deferred tax liability at December 31, 1995 and 1994 relate to the following:
1995 1994 ---- ---- Plant and equipment, principally due to differences in depreciation and capitalized interest $ 3,405,300 $ 2,750,400 Deferred charges capitalized -- 380,600 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 (150,300) (147,300) State income taxes (153,600) (15,700) Vacation pay accrual (92,400) (86,900) Accrual for product recall costs (70,200) -- Tax credits benefit (primarily research and development) -- (56,900) Other (16,300) (6,900) ----------- ----------- Net deferred income tax liability $ 2,922,500 $ 2,817,300 =========== ===========
The Company believes it is more likely than not that the deferred tax assets above will be realized in the normal course of business. (6) LEASES The Company leases certain manufacturing equipment, and office furniture, fixtures and equipment under long-term capital lease agreements. Property, plant and equipment include the following leased property under capital leases by major classes: Machinery and equipment $241,800 Office furniture and fixtures 204,300 -------- 446,100 Less accumulated depreciation 146,200 $299,900 ========
50 53 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following is a schedule of future minimum lease payments for capital leases as of December 31, 1995: Year ending December 31: 1996 $ 63,800 1997 51,300 1998 11,900 -------- Total minimum lease payments 127,000 Less amount representing interest 11,800 Present value of net minimum lease payments $115,200 ========
(7) LITIGATION AND ENVIRONMENTAL DBCP LAWSUITS A. California Matters i) 1995 Settlement of Claims. In 1995 CHEMICAL has brought its participation in twenty-three similar lawsuits filed between January 1990 and December 1994 to an end. The Plaintiffs in each matter were primarily water districts and municipalities that alleged property damage resulting from, among other things, the fact that each plaintiff's water supply had been contaminated by DBCP. The settlement covered all the plaintiff's current and future 1,2 Dibromo-3-Chloropropane (hereinafter referred to as "DBCP") a pesticide, ethylene dibromide (hereinafter referred to as "EDB") a fumigant, and related claims. On February 15, 1995, the Superior Court of California in San Francisco County approved this settlement as having been made in "good faith". The effect of the Superior Court's approval is to bar claims, arising from these pleadings, against CHEMICAL by other defendants (and other tortfeasors) for equitable comparative contribution and/or partial or comparative indemnity. CHEMICAL's portion of the settlement was $905,000. As to matters independent of indemnity issues, the Company recovered $675,000 from two of its insurers. ii) Post Settlement Actions. Subsequent to the settlements discussed above, two additional suits alleging property damage resulting from DBCP contamination of water supply were filed in the San Francisco Superior Court and served on CHEMICAL: City of Madera v. Shell Oil Co., et. al., and Malaga County Water District v. Shell Oil Co., et. al. The City of Madera action also alleges contamination of the water supply with EDB. CHEMICAL has never marketed EDB. These suits name as defendants Shell Oil Company, the Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company, Velsicol Chemical Company and in the Madera action Great Lakes Chemical Corporation. Malaga has made a settlement 51 54 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED demand of $1,344,000 for one of five wells at issue. As discovery is at the early stages no other settlement demands have been received. Defendants are operating under an open extension of time to file responsive pleadings. CHEMICAL has tendered the defense of these two cases to Columbia Casualty/CNA. That insurer has thus far accepted the defense under a reservation of rights in the Malaga action, but has yet to respond to the tender of defense for the Madera action. B. Texas Matters i) The Carcamo Case. The Company was served with a third-party first amended complaint by Dow Chemical Company which sought indemnity and contribution from CHEMICAL, Del Monte tropical Fruit Company, Del Monte Fresh Produce, N.A., Dead Sea Bromine Co. Ltd., Ameribrom Inc., Saint Lucia Banana Growers Association, Saint Vincent Banana Growers Association, Dominica Banana Growers Association, and Program Nacional de Banano, for any liability Dow may have under a complaint filed by Jorge Colindres Carcamo, et al. vs. Shell, Dow, et al. (the "Carcamo Case"). The Carcamo Case was tried in the United States District Court for the Southern District of Texas, Houston Division, and is an action originally filed in a Texas state court by a purported class of citizens from Honduras, Costa Rica, Guatemala, Nicaragua, Panama, Philippines, Dominica, and the Ivory Coast. These plaintiffs were banana workers and allege that they were exposed to DBCP while applying the product in their native countries. Approximately 15,000 plaintiffs have been named in this and the other suits hereinafter mentioned. In an October 27, 1996 Court Order the third party action against CHEMICAL was dismissed without prejudice. The Order also dismissed the Plaintiff's consolidated cases concluding that these claims should be litigated in the foreign countries where the alleged injuries occurred subject to a number of conditions. One of the more significant conditions requires the Defendants and third party Defendants consent to the jurisdiction of the courts of each of the foreign countries. Under the Order the Defendants may proceed against CHEMICAL, in a court in the United States, for contribution and indemnity should plaintiffs in the underlying actions obtain a judgement against Defendants in any foreign forum. As of the filing of this report, no actions against CHEMICAL have been filed. ii) The Rodriguez Case. The Company was served with a third-party complaint on March 15, 1996 by Defendant Standard Fruit Company and Standard Steamship Company seeking indemnity and contribution from any liability it may have under a complaint entitled Ramon Rodriguez et. al. v. Shell Oil Company, et. al. (the "Rodriguez Case") filed in the District Court of Jim Hogg County, Texas. Also named as Third Party Defendants are Dead Sea Bromine Co., Ltd. and Bromine Compounds Ltd. The underlying case alleges injuries caused by Plaintiffs' exposure to DBCP when they applied that pesticide at farms located in Central America, Ecuador and the Philippines. The Company has made a demand upon certain insurers 52 55 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED for indemnity from and a defense of the Rodriguez Case. No answer has yet been received from said insurers. PHOSDRIN(R) LAWSUIT On September 21, 1995, CHEMICAL was served with a complaint filed in the Superior Court of King County, Washington on September 12, 1995 entitled Ricardo Ruiz Guzman, et. al. v. AMVAC Chemical Corporation, et. al.(the "Guzman Case"). The Complaint is for unspecified monetary damages based on Plaintiff farm worker's alleged injuries from their exposure to the pesticide Phosdrin(R) while working in several orchards in Central Washington State in 1993. Other Defendants named in the Guzman case include: Wilbur-Ellis Company, Alan Hilliker, and Ellis D. Wilker. The matter is currently pending in the United States District Court for the Eastern District of Washington and Defendant's Hilliker and Wilker have been dismissed from the action. CHEMICAL has made a demand against its insurers for indemnity and defense of the Guzman Case. The insurer Lexington Insurance Company has thus far accepted the defense under a reservations of rights letter. CHEMICAL has a self insured retention limit of $300,000 under its insurance policy. TRAIN DERAILMENTS A. July 14, 1991; Dunsmuir, California: In August 1992, the Company settled all personal and economic injury claims asserted in a class action lawsuit arising from the July 14, 1991 derailment of a rail tank car leased by CHEMICAL. The derailment, occurring about six miles north of Dunsmuir, California, involved the spill into the Upper Sacramento River of approximately 19,000 gallons of Metam Sodium, a soil fumigant manufactured by CHEMICAL which was being transported by Southern Pacific Transportation Company ("SP") along SP's tracks. The court, when finding that such settlement by CHEMICAL was in "good faith", also ordered that no other person or entity falling within the definition of the settlement class could proceed with claims against the Company. On March 14, 1995, the federal court approved the Consent Decree which the Company and the federal and state governments entered which settled litigation seeking to hold potentially responsible parties under various federal and state statutes responsible for the costs of studying and remediating the environmental consequences caused by the Sacramento Spill, and for damages to the Natural Resources. On January 5, 1996, the Court dismissed the California Sportfishing Protection Alliance's ("Alliance") appeal of a court's order dismissing their intervention. This Order finally resolves the action brought by the Alliance which was the only remaining issue arising from this incident. B. February 1, 1996; Devore, California: On March 7, 1996, CHEMICAL was served with a Complaint in an action entitled Alvin Williams, Administrator of the Estate of Kevin Lewis Williams v. Burlington Northern Santa Fe Railway Company, et. al. 53 56 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (the "Williams Estate Case"). This case was filed on February 26, 1996 in the Superior Court of Los Angeles County and arose from Kevin Lewis Williams' death in a train derailment which occurred on Burlington Northern Santa Fe Railway Company tracks involving a tank car leased by GATX to Albright & Wilson Americas Corporation ("A&WA") which was transporting 158,000 pounds of Trimethyl Phosphite ("TMP") from A&WA's Charleston, South Carolina Facility to CHEMICAL's manufacturing facility in Los Angeles, California. The derailment, occurred on February 1, 1996 at approximately 4:14 a.m. about 6 miles north of Devore, California, adjacent to the intersection of Interstate 15 and State Highway 138. The derailment involved the engine and most of the railcars on the train resulting in a chemical fire that consumed all of the TMP in addition to the contents of railcars transporting an assortment of hazardous chemicals and other goods. The Estate alleges pecuniary loss to family members in the amount of $ 20,000,000 and prays for other unspecified monetary relief. Other Defendants presently named in the suit are: Burlington Northern Santa Fe Railway Company, The Atchison, Topeka & Santa Fe Railway Company, UNOCAL, Rohm & Haas, and Westinghouse Corporation. CHEMICAL is named in only one of the Estate's seven causes of action. The Company has made demand upon its insurers for indemnity from and defense of the Williams Estate Case. No answer has yet been received from the Company's insurers. RAILROAD SIDING: As a result of inspections and sampling conducted by the California Department of Toxic Substances Control ("DTSC") of the railroad located, in part, immediately adjacent to CHEMICAL's Commerce, California facility, CHEMICAL was directed to, and did, conduct sampling during 1993 to evaluate the nature and extent of pesticide contamination detected by DTSC on the railroad siding. Following its review of the sampling report prepared by CHEMICAL's independent consultant, DTSC directed that additional sampling be undertaken and CHEMICAL's independent consultant prepared a sampling plan for submittal to DTSC for prior approval as required. However, before additional sampling could be conducted, the Los Angeles county District Attorney's Office ("LADA"), at the request of DTSC, commenced an enforcement action in April 1994, against CHEMICAL, one of its officers, and two employees alleging felony illegal disposal of hazardous waste on the railroad siding. At the same time, DTSC demanded sums of money for alleged violations of certain compliance requirements related to CHEMICAL's management of hazardous waste at its Commerce, California facility. Joint settlement negotiations were conducted with the DTSC and the LADA and were concluded with a settlement agreement which was entered with the Los Angeles Municipal Court in a Stipulated Sentencing Memorandum which provided as follows: (i) all felony charges against CHEMICAL and the three individuals were dismissed; (ii) CHEMICAL entered a plea of nolo contendere to one misdemeanor; (iii) CHEMICAL was placed on probation for approximately six (6) months commencing on or about September 23, 1994; (iv) CHEMICAL was ordered to pay, by March 22, 1995, the sum of $135,000 in fines and penalties, and civil restitution in the amount of $325,000; (v) CHEMICAL agreed to enter into a Consent Agreement and Order (the "First CAO") with DTSC to correct the alleged hazardous waste management compliance violations and to submit a new plan for closure of ten (10) underground storage tanks ("USTs") at the 54 57 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Commerce, California facility and (vi) CHEMICAL agreed to enter into a Consent Agreement and Order (the "Second CAO") with DTSC providing for CHEMICAL to further investigate and remediate the railroad siding. Pursuant to the settlement agreement, CHEMICAL entered into the First CAO effective on January 26, 1995, and on March 22, 1995, with the concurrence of the LADA, CHEMICAL withdrew its plea of nolo contendere to the one misdemeanor, entered a plea of not guilty which was accepted, and the court dismissed the complaint against CHEMICAL. CHEMICAL has substantially fulfilled the requirements of the First CAO and, in accordance therewith, submitted new plans for closure of ten (10) USTs located at the facility. During 1995, in accordance with the UST closure plan, CHEMICAL arranged for the removal and cleaning of residues within the tanks and completed the initial investigation of soils in the area of the tanks and their associated piping. CHEMICAL anticipates that additional UST related soil investigations will be completed by late 1996 and that remedial activities, if any, will commence by late 1996 or early 1997. CHEMICAL is currently in discussions with DTSC regarding the specific terms of the Second CAO which will address investigation and remediation of the railroad siding. CHEMICAL is in the process of completing all requirements for addressing investigation and remediation of the railroad siding under a new DTSC program created by California Senate Bill 923 known as the Expedited Remedial Action Program (ERAP). CHEMICAL anticipates that addressing the railroad siding under ERAP will result in a more rapid and cost-effective resolution of environmental conditions in the railroad siding area than could otherwise be expected if the area were addressed under other available DTSC site investigation and remediation programs. The potential future costs associated with the railroad siding investigation and remediation are currently unknown and cannot be reasonably determined until soil investigations will be completed by late 1996 or early 1997. The Company has made claims against its insurance carriers and has expensed all costs incurred which now exceed its $100,000 self-insured retention. There can be no assurance the Company will prevail in its position. Various other legal actions, governmental proceedings, and claims are pending against the Company and its subsidiaries incidental to their businesses. While the ultimate results of the pending matters described above cannot be determined, management does not expect, based upon the facts known today, that they will have a material adverse effect on the Company's results of operations or financial condition. 55 58 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (8) EMPLOYEE DEFERRED COMPENSATION PLAN The Company maintains a deferred compensation plan (Plan) for all eligible employees. The Plan calls for each eligible employee, at the employee's election, to participate in an income deferral arrangement under Internal Revenue Code Section 401(k) whereby the Company will match the first $5.00 of weekly employee contributions. The Plan also permits employees to contribute an additional 15% of their salaries of which the Company will match 50% of the first 6% of the additional contribution. The Company's contributions to the Plan amounted to approximately $175,100, $154,000 and $118,200 in 1995, 1994 and 1993, respectively. (9) MAJOR CUSTOMERS AND EXPORT SALES The Company had sales to four major customers that accounted for 24%, 14%, 11%, and 10% of the Company's sales in 1995. In 1994 there were sales to one major customer that accounted for 27% of the Company's sales. In 1993, there were sales to four major customers that accounted for 25%, 11%, 10%, and 10% of the Company's sales. Export sales were $3,374,700, $3,812,500 and $4,714,400 for 1995, 1994, and 1993. (10) ROYALTIES The Company has various royalty agreements in place extending through June 2001, some of which relate to the Company's acquisition of certain products. Royalty expenses were $786,800, $91,600 and $1,129,900 for 1995, 1994, and 1993. (11) ACQUISITION OF GEMCHEM, INC. In September 1991, the Company entered into an agreement with GemChem, Inc. ("GemChem"), a related party, to represent the Company as its sales representative. Eric G. Wintemute, the son of the Company's former President, Glenn A. Wintemute, owned an approximate one-third equity interest in GemChem. The Company purchased approximately $3,600,000 in 1993 of raw materials from GemChem. During the year ended December 31, 1993 the Company expensed $1,586,400 in commissions earned by GemChem. The Company believes that the commissions paid to GemChem for sales of products were no less favorable to the Company than would have been available from unrelated parties. Effective January 15, 1994, the Company purchased all of the issued and outstanding stock of GemChem. The results of operations of GemChem have been included in the consolidated results of operations since the effective date of the purchase. The aggregate purchase price consisted of 50,000 unregistered shares of the Company's common stock and approximately $592,000 in two year notes with interest at prime plus .75%. The Company has valued the 50,000 shares at $437,500. All assets acquired were valued at book value, which approximated fair market value, resulting in an allocation to cost in excess of net assets acquired of $437,500 which is being amortized over 15 years. The 56 59 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED results of operations of GemChem are not material in relation to the Company. (12) Commitments In July 1994, the Company entered into consulting agreements with two former employees who are the current Co-Chairmen of the Company's Board of Directors. The agreements expire in July 1999 and provide for total remuneration of $1,000,000 over the five year period to be paid to each former employee. As part of the acquisition of GemChem, the Company entered into employment agreements with GemChem's former three officers and shareholders. The employment agreements commenced January 15, 1994 and expire January 14, 1998. The agreements provide for aggregate salaries of $390,000 per year. Annual increases shall be determined by the Board of Directors or its designee but shall not be less than the increase in an agreed upon cost of living index. The employment agreements with the former officers and shareholders of GemChem also provide for the issuance of stock options to purchase an aggregate of 70,000 shares of the Company's common stock. The options are exercisable at the rate of 25% per year commencing January 15, 1995. The exercise price is $10.00 per share. Unexercised options expire on April 15, 1998. All options were anti-dilutive in 1995. Amounts to be paid under the aforementioned consulting and employment agreements are summarized as follows:
Year ending December 31, 1996 $ 837,400 1997 749,900 1998 288,600 1999 121,900 ---------- $1,997,800 ==========
In July 1995, the Company entered into a noncancellable operating sublease for its corporate headquarters expiring in October 1999. The lease contains a provision to pass through to the Company the Company's pro rata share of the building's operating expenses commencing July 1, 1996 in excess of the amount passed through to the sublandlord during the first year of the sublease. Rent expense for the year ended December 31, 1995 was $49,400. There was no rent expense in 1994 and 1993. Future minimum lease payments under the terms of the sublease are as follows:
Year ending December 31, 1996 $149,400 1997 149,400 1998 149,400 1999 124,500 -------- $572,700 ========
57 60 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (13) Research and Development Research and development expenses were $3,717,400, $5,544,000 and $4,715,400 for the years ended December 31, 1995, 1994 and 1993, respectively. (14) Subsequent Event On February 5, 1996, the Company announced that the Board of Directors declared a cash dividend of $.06 per share as well as a 10% stock dividend. Both dividends were distributed on March 15, 1996 to shareholders of record at the close of business on February 29, 1996. The cash dividend was paid on the number of shares outstanding prior to the 10% stock dividend. Weighted average number of shares have been restated to reflect the 10% stock dividend. 58 61 INDEX TO EXHIBITS ITEM 14(a)3
Page Sequentially Numbered ------------ 2.1 Purchase and Sales Agreement dated November 15, 1993, between Amvac Chemical Corporation and E.I. du Pont de Nemours and Company.(4) -- 3.1 Certificate of Incorporation of Registrant.(1) -- 3.2 Bylaws of Registrant (as amended as of January 14, 1993).(3) -- 4.1 Specimen Certificate of Common Stock.(2) -- 10.1 Indemnification Agreement dated January 6, 1993 between Registrant and each of its officers and directors.(3) -- 10.2 Line of Credit Agreement dated June 18, 1991, related amendments one through eight between the Registrant and Sanwa Bank California and related Security Agreement.(3) -- 10.3 Line of Credit Agreement dated April 30, 1993, and related amendments, between the Registrant and Sanwa Bank California and related Security Agreement.(5) -- 10.4 Line of Credit Agreement dated April 14, 1994, and related amendments, between the Registrant and Sanwa Bank California and related Security Agreement.(6) -- 10.5 Employment Agreement between American Vanguard Corporation and Eric G. Wintemute.(6) -- 10.6 Employment Agreement between American Vanguard Corporation and Alfred J. Moskal.(6) --
59 62 10.7 Employment Agreement between American Vanguard Corporation and Robert F. Gilbane.(6) -- 10.8 Agreement and General Release between American Vanguard Corporation and Herbert A. Kraft.(6) -- 10.9 Agreement and General Release between American Vanguard Corporation and Glenn A. Wintemute.(6) -- 10.10 American Vanguard Corporation 1994 Stock Incentive Plan (7) -- 10.11 Amended and Restated Credit Agreement dated September 12, 1995, and related documents between the Registrant and Sanwa Bank California. -- 21. List of Subsidiaries of Registrant. -- 27. Financial Data Schedule --
- ---------------------- (1) Incorporated by reference as an Exhibit to Registrant's Form 10 Registration Statement No. 2-85599 filed June 13, 1972. (2) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed June 13, 1972. (3) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 30, 1993. (4) Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated November 23, 1993. (5) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 30, 1994. (6) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 30, 1995. (7) Incorporated by reference as Appendix A to Registrant's Proxy Material filed June 3, 1995. 60 EX-10.11 2 AMENDED AND RESTATED CREDIT AGREEMENT 1 Exhibit 10.11 AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement") is made and dated as of the 12 day of September, 1995, by and between SANWA BANK CALIFORNIA, a California banking corporation (the "Lender"), and AMVAC CHEMICAL CORPORATION, a California corporation (the "Borrower"). RECITALS A. The Borrower and the Lender are party to that certain Line of Credit Agreement dated April 14, 1994 (as amended, the "Existing Revolving Credit Agreement"). B. The Borrower and the Lender are party to that certain Construction Loan Agreement (Commercial/Industrial Development) dated January 29, 1990 (as amended, the "Existing Term Loan Agreement"). The outstanding principal balance under the Existing Term Loan Agreement is approximately $1,857,200.00. C. The obligations of the Borrower under the Existing Revolving Credit Agreement and the Existing Term Loan Agreement are secured by (i) certain real property located at 4100 Washington Boulevard, City of Commerce, California, pursuant to that certain Deed of Trust (Construction)/Assignment of Leases and Rents dated January 29, 1990 by and among the Borrower, as Trustor, First Bancorp, a California corporation, as Trustee, and the Lender, as Beneficiary, which Deed of Trust was recorded in the official records in Los Angeles County, California as Instrument No. 90-190419 at 4:21 p.m. on February 2, 1990, and (ii) certain personal property pursuant to various security agreements. D. The obligations of the Borrower under the Existing Revolving Credit Agreement and under the Existing Term Loan Agreement are guaranteed by American Vanguard and GemChem (as such terms and other capitalized terms not otherwise defined herein are defined in Paragraph 10 below) and the obligations of such Guarantors are secured by certain personal property of each such Guarantor pursuant to various security agreements. E. The Borrower has requested an increase in the term loan to an amount not to exceed $5,250,000.00 and has requested an increase in its revolving line of credit. F. On the terms and subject to the conditions set forth below, the Borrower and the Lender have agreed to consolidate the Existing Revolving Credit Agreement and the Existing Term Loan Agreement into this Agreement, and have agreed the Lender will provide additional term loans to Borrower for capital expenditures. NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: AGREEMENT 1. Loan Facilities. 1(a) Revolving Loans. On the terms and subject to the conditions set forth herein, the Lender agrees that any Revolving Loan outstanding under the Existing Revolving Credit Agreement on the Closing Date shall be deemed to be a Revolving Loan hereunder. In addition, 2 the Lender agrees that it shall from time to time up to and including the Revolving Loan Maturity Date, make loans (each, a "Revolving Loan" and collectively, the "Revolving Loans") to the Borrower in aggregate amounts not to exceed at any one time outstanding the Revolving Credit Limit minus the aggregate amount of all Outstanding Letters of Credit and all unpaid L/C Drawings. Any revolving loan outstanding under the Existing Revolving Credit Agreement on the Closing Date together with revolving loans made pursuant to the preceding sentence are herein referred to individually as a "Revolving Loan" and collectively as the "Revolving Loans". Amounts borrowed hereunder and repaid may be reborrowed as provided herein, it being agreed and understood that the credit facility evidenced by this Paragraph I (a) is a revolving credit facility. 1(b) Term Loan. On the terms and subject to the conditions set forth herein, the Lender agrees that any term loan outstanding under the Existing Term Loan Agreement on the Closing Date shall be deemed to be a term loan hereunder. In addition, the Lender agrees that it shall from time to time from the Closing Date to December 31, 1995 make term loans to the Borrower in amounts which, together with the outstanding balance of the Term Loan from time to time, do not exceed $5,250,000.00. Any term loan outstanding under the Existing Term Loan Agreement on the Closing Date together with term loans made pursuant to the preceding sentence are herein collectively referred to as the "Term Loan". 1(c) Calculation of Interest. The Borrower shall pay interest on Loans outstanding hereunder from the date disbursed to but not including the date of payment at a rate per annum equal to: (1) with respect to Revolving Loans, at the option of the Borrower, either (x) the Reference Rate as in effect from time to time during the applicable calculation period plus 0.25%, or (y) the Fixed Rate quoted by the Lender for an Interest Period plus 2.25%, and (2) with respect to the Term Loan, at the option of the Borrower, either (x) the Reference Rate as in effect from time to time during the applicable calculation period plus 0.5%, or (y) the Fixed Rate quoted by the Lender for an Interest Period plus 2.50%. 1(d) Payment of Interest. Interest accruing on Reference Rate Loans outstanding hereunder shall be payable monthly, in arrears, for each month on or before the first Business Day of the next succeeding month and on the maturity date of such Loan in the amount of interest then accrued but unpaid. Interest accruing on each Fixed Rate Loan outstanding hereunder shall be payable on the last day of the Interest Period relating thereto; provided, that with respect to each Fixed Rate Loan with an Interest Period longer than 3 months, interest shall be payable on the last day of each 3-month period after the commencement of such Interest Period and on the last day of such Interest Period. 1(e) Payment of Principal. The Borrower shall pay the principal amount of each Revolving Loan advanced hereunder on the Revolving Loan Maturity Date. From the Closing Date through December 31, 1995, the Borrower shall pay principal on the Term Loan in monthly installments of $77,380.00 on or before the first Business Day of each month, commencing September 1, 1995. On the first Business Day of January, 1996 and on or before the first Business Day of each month thereafter through the Term Loan Maturity Date, the Borrower shall pay principal on the Term Loan in monthly installments in an amount equal to (i) the outstanding principal balance of the Term Loan at the close of business on December 31, 1995 divided by (ii) sixty (60). The Lender shall notify the Borrower of the amount of the principal payments to be made by the Borrower on the Term Loan beginning on the first Business Day of January, 1996 by sending the Borrower a Notice Regarding Term Loan Principal Payments substantially in the form of Exhibit C attached hereto. The outstanding principal balance of the Term Loan shall be repaid in full on the Term Loan Maturity Date. 1(f) Mandatory Prepayment of Principal. On the effective date of any public offering of securities of American Vanguard or the Borrower, the Borrower shall prepay the Loans in an 2 3 amount equal to the proceeds of such public offering, net of underwriting discounts and commissions and other reasonable costs associated therewith. Any such prepayment shall be applied to the Term Loan in payment of the required monthly installments of principal in the inverse order of maturity, and after the Term Loan has been repaid in full, shall next be applied to the Revolving Loan. 1(g) Prepayments. The Borrower may prepay Revolving Loans which are Reference Rate Loans hereunder in whole or in part at any time. The Borrower may, from time to time with one (1) day prior notice (by telephone, confirmed in writing promptly thereafter, telex or telecopier) received by the Lender, voluntarily prepay the Term Loan. Any such prepayment shall be in integral multiples of $100,000.00 and in a minimum amount of $100,000.00. Any such prepayment shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment and any additional amounts as may be required to be paid under the provisions of Paragraph 1(h) hereof. Once prepaid, the Term Loan may not be reborrowed. 1(h) Special Provisions Regarding Fixed Rate Loans. (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NO PREPAYMENT SHALL BE MADE ON ANY FIXED RATE LOAN EXCEPT ON A DAY WHICH IS THE LAST DAY OF THE INTEREST PERIOD RELATING THERETO. IF THE WHOLE OR ANY PART OF ANY FIXED RATE LOAN IS PREPAID BY REASON OF ACCELERATION OR OTHERWISE, THE BORROWER SHALL, UPON THE LENDER'S REQUEST, PROMPTLY PAY TO AND INDEMNIFY THE LENDER FOR ALL COSTS AND ANY LOSS (INCLUDING INTEREST) ACTUALLY INCURRED BY THE LENDER AND ANY LOSS (INCLUDING LOSS OF PROFIT RESULTING FROM THE RE-EMPLOYMENT OF FUNDS) SUSTAINED BY THE LENDER AS A CONSEQUENCE OF SUCH PREPAYMENT. (2) During any period of time in which any Fixed Rate Loan is outstanding, the Borrower shall, upon the Lender's request, promptly pay to and reimburse the Lender for all costs incurred and payments made by the Lender by reason of any future assessment, reserve, deposit or similar requirements or any surcharge, tax or fee imposed upon the Lender or as a result of the Lender's compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Lender in quoting and determining the Fixed Rate. (3) In the event that the Lender shall at any time determine that the accrual of interest on the basis of the Fixed Rate (a) is infeasible because the Lender is unable to determine the Fixed Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Loan and for a period of time approximately equal to the relevant Interest Period; or (b) is or has become unlawful or infeasible by reason of the Lender's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Lender shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Fixed Rate Loan shall be deemed to be a Reference Rate Loan and interest shall thereupon immediately accrue at the Reference Rate plus the applicable percentage. 1(i) Requirements of Law; Increased Costs. In the event that any applicable law, order, regulation, treaty or directive issued by any central bank or other governmental authority, agency or instrumentality or any governmental or judicial interpretation or application thereof, or compliance by the Lender with any request or directive (whether or not having the force of law) issued by any central bank or other governmental authority, agency or instrumentality: (1) Does or shall subject the Lender to any tax of any kind whatsoever with respect to this Agreement or any Loans made hereunder, or change the basis of taxation of 3 4 payments to the Lender of principal, fee, interest or any other amount payable hereunder (except for change in the rate of tax on the overall net income of the Lender); (2) Does or shall impose, modify or hold applicable any reserve, capital requirement, special deposit, compulsory loan or similar requirements against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Lender which are not otherwise included in the determination of interest payable on the Obligations; or (3) Does or shall impose on the Lender any other condition; and the result of any of the foregoing is to increase the cost to the Lender of making, renewing or maintaining any Loan or to reduce any amount receivable in respect thereof or the rate of return on the capital of the Lender or any corporation controlling the Lender, then, in any such case, the Borrower shall promptly pay to the Lender, upon its written demand, any additional amounts necessary to compensate the Lender for such additional cost or reduced amounts receivable or rate of return as determined by the Lender with respect to this Agreement or Loans made hereunder. If the Lender becomes entitled to claim any additional amounts pursuant to this Paragraph 1(i), it shall promptly notify the Borrower of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence containing the calculation thereof in reasonable detail submitted by the Lender to the Borrower shall be conclusive in the absence of manifest error. The provisions hereof shall survive the termination of this Agreement and payment of the outstanding Loans and all other amounts payable hereunder. 2. Letter of Credit Facility. 2(a) Pre-Existing Letters of Credit. On the terms and subject to the conditions set forth in the Existing Revolving Credit Agreement, the Lender has issued certain letters of credit for the account of the Borrower which letters of credit are Outstanding at the date of this Agreement and which letters of credit are described more particularly on Exhibit J attached hereto (the "Pre-Existing Letters of Credit"). On the Closing Date, such Pre-Existing Letters of Credit shall constitute "Letters of Credit" under, and for all purposes of, the Loan Documents. 2(b) Issuance of New Letters of Credit. On the terms and subject to the conditions set forth herein, the Lender shall from time to time from and after the Closing Date, issue its letters of credit (a "New Letter of Credit" and, collectively, the "New Letters of Credit") for the account of the Borrower in an amount which when added to: (1) The aggregate amount of other Outstanding Letters of Credit at the proposed issuance date will not exceed the Letter of Credit Sublimit; and (2) The aggregate amount of Revolving Loans outstanding hereunder and the aggregate amount of other Outstanding Letters of Credit and unpaid L/C Drawings will not exceed the Revolving Credit Limit. Each New Letter of Credit shall be requested by the Borrower at least three Business Days prior to the proposed issuance date by delivery to the Lender of a duly executed Letter of Credit Application accompanied by all other documents, instruments and agreements as the Lender may require. In no event may the term of any Letter of Credit (including the right of any beneficiary to require renewals) extend beyond the Revolving Loan Maturity Date. 2(c) Repayment of L/C Drawings. Any drawing under any Letter of Credit (a "L/C Drawing") shall be payable in full by the Borrower, without demand upon or notice to the 4 5 Borrower, on the date of such L/C Drawing and, if not paid on such date, shall be deemed to be a Revolving Loan hereunder and shall accrue interest as provided herein. 2(d) Absolute Obligation to Repay. The Borrower's obligation to repay L/C Drawings shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had, against the Lender or any other Person, including, without limitation, any set-off, counterclaim or defense based upon or arising out of: (1) Any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (2) Any amendment or waiver of or any consent to departure from the terms of any Letter of Credit; (3) The existence of any claim, setoff, defense or other right which the Borrower or any other Person may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting); (4) Any allegation that any demand, statement or any other document presented under any Letter of Credit is forged, fraudulent, invalid or insufficient in any respect, or that any statement therein is untrue or inaccurate in any respect whatsoever or that variations in punctuation, capitalization, spelling or format were contained in the drafts or any statements presented in connection with any L/C Drawing; (5) Any payment by the Lender under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit, or any payment made by the Lender under any Letter of Credit to any Person purporting to be a trustee in Bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any insolvency proceeding; (6) Any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations of the Borrower in respect of any Letter of Credit; or (7) Any other circumstance of happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any Guarantor. Nothing contained herein shall constitute a waiver of any rights of the Borrower against the Lender arising out of the gross negligence or willful misconduct of the Lender in connection with any Letter of Credit. 2(e) Uniform Customs and Practice. The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in a Letter of Credit) apply to the Letters of Credit. 3. Miscellaneous Provisions. 3(a) Use of Proceeds. The proceeds of all Loans shall be utilized to retire all outstanding indebtedness under the Existing Revolving Credit Agreement and under the Existing 5 6 Term Loan Agreement and by the Borrower for capital expenditures and working capital purposes. 3(b) Request For Loans; Making of Loans. If the Borrower desires to borrow a Reference Rate Loan hereunder, the Borrower shall deliver a Loan Request no later than 2:00 p.m. (Los Angeles time), on the proposed funding date. If the Borrower desires to borrower a Fixed Rate Loan hereunder, the Borrower shall deliver a Loan Request no later than 2:00 p.m. (Los Angeles time) two Business Days prior to the proposed funding date. Any Loan advanced by the Lender hereunder shall be conclusively presumed to have been made to and for the Borrower's benefit if advanced in accordance with the Borrower's instructions or deposited into a checking account of the Borrower maintained with the Lender. 3(c) Roll-overs. The Borrower may, by giving notice in accordance with the provisions of Paragraph 3(b) above, roll-over all or any part of any Fixed Rate Loan so that such Fixed Rate Loan continues to be outstanding as a Fixed Rate Loan. If the Borrower shall not have repaid a Fixed Rate Loan or effected a roll-over in accordance with this Paragraph 3(c), it shall be deemed to have elected to roll-over such Fixed Rate Loan into a Reference Rate Loan to be made on the last day of the Interest Period of the Fixed Rate Loan so rolled-over. 3(d) Notes. The obligation of the Borrower to repay the Revolving Loans shall be evidenced by a note payable to the order of the Lender in the form of that attached hereto as Exhibit A (the "Revolving Note"). The obligation of the Borrower to repay the Term Loan shall be evidenced by a note payable to the order of the Lender in the form of that attached hereto as Exhibit B (the "Term Note", and together with the Revolving Note, the "Notes"). The Lender is hereby authorized to record the date and amount of each advance made by the Lender and each payment of principal made by the Borrower, on the schedules annexed to and constituting a part of the applicable Note (or by any analogous method the Lender may elect consistent with its customary practices) and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded absent manifest error. The failure of the Lender to make any such notation shall not affect in any manner or to any extent the Borrower's Obligations hereunder. 3(e) Nature and Place of Payments. All payments made on account of the Obligations shall be made by the Borrower, without setoff or counterclaim, in lawful money of the United States of America in immediately available funds, free and clear of and without deduction for any taxes, fees or other charges of any nature whatsoever imposed by any taxing authority and must be received by the Lender by 2:00 p.m. (Los Angeles time) on the day of payment, it being expressly agreed and understood that if a payment is received after 2:00 p.m. (Los Angeles time) by the Lender, such payment will be considered to have been made by the Borrower on the next succeeding Business Day and interest thereon shall be payable by the Borrower at the then applicable rate. All payments on account of the Obligations shall be made to the Lender through its office located at 601 South Figueroa Street, W8-12, Los Angeles, California 90017. If any payment required to be made by the Borrower hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. 3(f) Post-Default Interest. Notwithstanding anything to the contrary contained herein, on any date that there shall have occurred and be continuing an Event of Default, any and all Obligations outstanding may, at the option of the Lender, bear interest at a per annum rate equal to three percent (3%) above the Reference Rate. 3(g) Late Fee. If any payment of principal or interest, or any portion thereof, under this Agreement is not paid within ten (10) calendar days after it is due, a late payment charge 6 7 equal to five percent (5%) of such past due payment may be assessed and shall be paid immediately. 3(h) Computations. All computations of interest and fees payable hereunder shall be based upon a year of 360 days for the actual number of days elapsed. 3(i) Fees. On the date of the execution of this Agreement, the Borrower shall pay to the Lender a non-refundable commitment fee in the amount of $100,000.00. 3(j) Amendment and Restatement of Existing Revolving Credit Agreement and Existing Term Loan Agreement. On the Closing Date, (1) each of the Existing Revolving Credit Agreement and the Existing Term Loan Agreement shall be deemed to have been amended and restated in its entirety by this Agreement, and (2) the Advances (as defined in the Existing Revolving Credit Agreement) and the term loans under the Existing Term Loan Agreement shall be restated as Loans hereunder. To the extent such Advances and such loans do not include all costs, expenses and fees owing under the Existing Revolving Credit Agreement and the Existing Term Loan Agreement and the related documentation (including, without limitation, attorneys' fees), Borrower promises to pay all such costs, expenses and fees on or before the Closing Date. 3(k) Collateral Documents; Additional Documents. As collateral security for the Obligations, the Borrower shall execute and deliver to the Lender: (1) a Deed of Trust and Assignment of Leases and Rents substantially in the form of that attached hereto as Exhibit F hereto (the "Deed of Trust"), pursuant to which the Borrower shall grant to the Lender a first priority security interest in and lien upon the Real Property, (2) an amended and restated security agreement in the form of that attached hereto as Exhibit E (the "Security Agreement"), pursuant to which the Borrower shall pledge, assign and grant to the Lender a first priority security interest in and lien upon the personal property Collateral, and (3) such UCC-1 financing statements as the Lender may require. The Borrower further agrees to execute and deliver and to cause to be executed and delivered to the Lender from time to time such confirmatory and supplementary security agreements, financing statements, consents of and notices to third parties and such other documents, instruments, title endorsements and agreements as the Lender may reasonably request which are in the Lender's judgment necessary or desirable to obtain for the Lender the benefit of the Guaranties (including any collateral pledged in connection therewith), the Deed of Trust, the Security Agreement and the Collateral (the Deed of Trust, the Security Agreement, the UCC-1 financing statements referred to in subparagraph (3) above, and such additional documents, instruments and agreements being referred to herein as the "Security Documents"). 3(l) Guaranties. As additional credit support for the Obligations, the Borrower shall cause each of American Vanguard, GemChem and 2110 Davie to execute and deliver to the Lender: (1) a credit guaranty in the form of that attached hereto as Exhibit G (a "Guaranty" and, collectively, the "Guaranties"), (2) a security agreement in the form of that attached hereto as Exhibit H (a "Subsidiary Security Agreement" and, collectively, the "Subsidiary Security Agreements"), pursuant to which such Subsidiary shall pledge, assign and grant to the Lender a first priority perfected security interest in and Lien upon such Subsidiary's personal property, and (3) such UCC-1 financing statements as the Lender may request. 4. Conditions to Making Loans. 4(a) First Loan. As conditions precedent to the obligation of the Lender to make the first Loan hereunder (including restatements of loans outstanding under the Existing Revolving Credit Agreement and the Existing Term Loan Agreement): 7 8 (1) The Borrower shall have delivered or shall have had delivered to the Lender, in form and substance satisfactory to the Lender and its counsel, each of the following: (i) A duly executed copy of this Agreement; (ii) A duly executed copy of the other Loan Documents; (iii) A duly executed copy of the Deed of Trust in recordable form; (iv) A title insurance policy with respect to the Real Property, including such affirmative coverages as the Lender may request; (v) Such credit applications, financial statements, authorizations and such information concerning the Borrower and its business, operations and condition (financial and otherwise) as the Lender may reasonably request; (vi) Certified copies of resolutions of the Boards of Directors of the Borrower and each Guarantor, approving the execution and delivery of the Loan Documents to which such entity is a party; (vii) A certificate of the Secretary or an Assistant Secretary of the Borrower and each Guarantor, certifying the names and true signatures of the officers of the Borrower and such Guarantor, as applicable, authorized to sign the Loan Documents to which such entity is a party; and (viii) Acknowledgment copies of all UCC-1 financing statements filed with respect to the Collateral and the collateral for the Guaranties accompanied by a search report showing such financing statements as duly filed and evidencing that the security interest of the Lender in the Collateral and the collateral for the Guaranties is prior to all other security interests of record. (2) Borrower shall pay the $100,000.00 fee referred to in Paragraph 3(i) above. (3) All acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings or registrations) required to be done and performed and to have happened precedent to the execution, delivery and performance of the Loan Documents and to constitute the same legal, valid and binding obligations, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in due and strict compliance with all applicable laws. (4) All documentation, including, without limitation, documentation for corporate and legal proceedings in connection with the transactions contemplated by the Loan Documents shall be satisfactory in form and substance to the Lender and its counsel. 4(b) Ongoing Loans. As conditions precedent to the Lender's obligation to make any Loan or issue any Letter of Credit hereunder, including the first Loan, at and as of the proposed funding date thereof: (1) There shall have been delivered to the Lender a Loan Request therefor; (2) The representations and warranties contained in the Loan Documents shall be accurate and complete in all respects as if made on and as of such date; 8 9 (3) There shall not have occurred an Event of Default or Potential Default; and (4) Following the making of such Loan or the issuance of such Letter of Credit, the aggregate principal amount of the Revolving Loans outstanding, the aggregate principal amount of the Term Loan outstanding and the Outstanding Letters of Credit will not exceed the limitations of Paragraphs 1(a), 1(b) or 2(b) above, respectively. By delivering a Loan Request or a request for the issuance of a New Letter of Credit to the Lender hereunder, the Borrower shall be deemed to have represented and warranted the accuracy and completeness of the statements set forth in subparagraphs (b)(2) through (b)(4) above. 5. Representations and Warranties of the Borrower. As an inducement to the Lender to enter into this Agreement and to make Loans and issue Letters of Credit as provided herein, the Borrower represents and warrants to the Lender that: 5(a) Financial Condition. The financial statements, dated the Statement Date and the Interim Date, copies of which have heretofore been furnished to the Lender, are complete and correct and present fairly in accordance with GAAP the financial condition of American Vanguard and its consolidated Subsidiaries at such dates and the consolidated and consolidating results of their operations and cash flows for the fiscal periods then ended. 5(b) No Change. Since the Statement Date there has been no material adverse change in the business, operations, assets or financial or other condition of American Vanguard, the Borrower or American Vanguard and its consolidated Subsidiaries taken as a whole. Since the Statement Date, neither American Vanguard nor the Borrower has entered into, incurred or assumed any long-term debt, mortgages, material leases or oral or written commitments, nor commenced any significant project, nor made any purchase or acquisition of any significant property. 5(c) Corporate Existence; Compliance with Law. The Borrower: (1) is duly organized, validly existing and in good standing as a corporation under the laws of the State of California and is qualified to do business in each jurisdiction where its ownership of property or conduct of business requires such qualification and where failure to qualify would have a material adverse effect on the Borrower or its property and/or business or on the ability of the Borrower to pay and perform the Obligations, (2) has the corporate power and authority and the legal right to own and operate its property and to conduct business in the manner in which it does and proposes so to do, and (3) is in compliance with all Requirements of Law and Contractual Obligations. 5(d) Corporate Power; Authorization; Enforceable Obligations. The Borrower has the corporate power and authority and the legal right to execute, deliver and perform the Loan Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents. The Loan Documents have been duly executed and delivered on behalf of the Borrower and constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and the effect of equitable principles whether applied in an action at law or a suit in equity. 5(e) No Legal Bar. The execution, delivery and performance of the Loan Documents, the borrowings hereunder and the use of the proceeds thereof, will not violate any Requirement 9 10 of Law or any Contractual Obligation of the Borrower or create or result in the creation of any Lien on any assets of the Borrower other than in favor of the Lender pursuant to the Security Documents. 5(f) No Material Litigation. Except as disclosed in the most recent Form 10-K or Form 10-Q filed by American Vanguard, there is no material litigation, investigation or proceeding (including, without limitation, Environmental Claims) of or before any arbitrator or Governmental Authority pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of such parties' properties or revenues. 5(g) Taxes. The Borrower and each of its Subsidiaries have filed or caused to be filed all tax returns that are required to be filed and have paid all taxes shown to be due and payable on said returns or on any assessments made against them or any of their property other than taxes which are being contested in good faith by appropriate proceedings and as to which the Borrower or the applicable Subsidiary has established adequate reserves in conformity with GAAP. 5(h) Investment Company Act. The Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 5(i) Subsidiaries. Attached hereto as Exhibit I is an accurate and complete list of all presently existing active Subsidiaries of American Vanguard, their respective jurisdictions of incorporation and qualification and the percentage of their capital stock owned by American Vanguard, the Borrower or other Subsidiaries of American Vanguard. All of the issued and outstanding shares of capital stock of the Borrower and each such Subsidiary have been duly authorized and issued and are fully paid and non-assessable. 5(j) Federal Reserve Board Regulations. Neither the Borrower nor any of its Subsidiaries is engaged or will engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of such terms under Regulation U. No part of the proceeds of any Loan issued hereunder will be used for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of the Board of Governors of the Federal Reserve System. 5(k) ERISA. (1) No Prohibited Transactions, Accumulated Funding Deficiencies, withdrawals from Multiemployer Plans or Reportable Events have occurred with respect to any Plans or Multiemployer Plans that, in the aggregate, could subject the Borrower to any tax, penalty or other liability where such tax, penalty or liability is not covered in full, for the benefit of the Borrower, by insurance; (2) no notice of intent to terminate a Plan has been filed, nor has any Plan been terminated under Section 4041 of ERISA, nor has the PBGC instituted proceedings to terminate, or appoint a trustee to administer, a Plan, and no event has occurred or condition exists which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (3) the present value of all benefit liabilities (as defined in section 4001(a)(16) of ERISA) under all Plans (based on the actuarial assumptions used to fund the Plans) does not exceed the assets of the Plans; and (4) the execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents and the use of the proceeds of the Loans will not involve any Prohibited Transactions. 5(l) Assets. Each of American Vanguard and the Borrower has good and marketable title to all property and assets reflected in the financial statements referred to in Paragraph 5(a) above, except property and assets sold or otherwise disposed of in the ordinary course of business subsequent to the respective dates thereof and except for property and assets specifically 10 11 pledged as collateral for capitalized lease obligations. Neither the Borrower nor any of its Subsidiaries has outstanding Liens on any of its properties or assets nor are there any security agreements to which the Borrower or any of its Subsidiaries is a party, or title retention agreements, whether in the form of leases or otherwise, of any personal property except as reflected in the financial statements referred to in Paragraph 5(a) above or as permitted under Paragraph 7(a) below. 5(m) Securities Acts. The Borrower has not issued any unregistered securities in violation of the registration requirements of Section 5 of the Securities Act of 1933, as amended, or any other law, and is not violating any rule, regulation or requirement under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended. The Borrower is not required to qualify an indenture under the Trust Indenture Act of 1939, as amended, in connection with its execution and delivery of the Notes. 5(n) Consents, etc. No consent, approval, authorization of, or registration, declaration or filing with any governmental authority is required on the part of the Borrower in connection with the execution and delivery of the Loan Documents or the performance of or compliance with the terms, provisions and conditions hereof or thereof. 5(o) Environmental Compliance. The operations of the Borrower comply, and during the term of this Agreement will at all times comply, in all respects with all Environmental Laws; the Borrower has obtained licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for its ordinary operations, all such Environmental Permits are in good standing, and the Borrower is in compliance with all material terms and conditions of such Environmental Permits; neither the Borrower nor any of its present properties or operations are subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Agreement, with respect to any property of the Borrower that would reasonably be expected to give rise to Environmental Claims; provided, however, that with respect to property leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower. In addition (i) the Borrower does not have or maintain any underground storage tanks which are not properly registered or permitted under applicable Environmental Laws or which are leaking or disposing of Hazardous Materials offsite, and (ii) the Borrower has notified all of its employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws. 6. Affirmative Covenants. The Borrower hereby covenants and agrees with the Lender that, as long as any Obligations remain unpaid or the Lender has any obligation to make Loans and issue Letters of Credit hereunder, the Borrower shall: 6(a) Financial Statements. Furnish or cause to be furnished to the Lender: (1) Within ninety (90) days after the last day of each fiscal year of American Vanguard, the Form 10-K of American Vanguard as filed with the SEC, together with consolidated and consolidating statements of income and statements of cash flows for such year and balance sheets as of the end of such year presented fairly in accordance with GAAP and accompanied by an unqualified report of a firm of independent certified public accountants acceptable to the Lender and including therewith a copy of the management letter from such certified public accountants; 11 12 (2) Within sixty (60) days after the last day of each fiscal quarter of American Vanguard except for fiscal quarters ending in December, the Form 10-Q of American Vanguard as filed with the SEC, together with consolidated and consolidating statements of income and cash flows for such fiscal quarter and balance sheets as of the end of such fiscal quarter of American Vanguard, accompanied in each case by a certificate of the chief financial officer of American Vanguard stating that such financial statements are presented fairly in accordance with GAAP; and (3) Not later than the last day of the following calendar month except the months of January, February, March, June, September and December, consolidated and consolidating statements of income and cash flows of American Vanguard for such month and balance sheets of American Vanguard as of the end of such month accompanied by a certificate of the chief financial officer of American Vanguard stating that such financial statements are presented fairly in accordance with GAAP; and (4) Concurrently with the delivery of the financial statements referred to in subparagraphs (1), (2) and (3) above, a compliance certificate in the form of that attached hereto as Exhibit D (a "Compliance Certificate") of the chief financial officer of the Borrower, demonstrating in detail satisfactory to the Lender the Borrower's compliance with the financial covenants set forth in Paragraphs 7(j) and 7(k) below at and as of the date of such financial statements. 6(b) Certificates; Reports; Other Information. Furnish or cause to be furnished to the Lender: (1) Not later than the last day of the following calendar month, an accounts receivable and accounts payable aging report for the immediately preceding month, in form and substance satisfactory to the Lender; and (2) Promptly, such additional financial and other information, including, without limitation, financial statements of the Borrower, any Guarantor or any other Affiliate, as the Lender may from time to time reasonably request, including, without limitation, such information as is necessary for the Lender to sell, assign or otherwise transfer all or portions of, and participations in, the Lender's interest in the Loans hereunder. 6(c) Payment of Indebtedness. Pay, discharge or otherwise satisfy at or before maturity or before it becomes delinquent, defaulted or accelerated, as the case may be, all its Indebtedness (including taxes), except Indebtedness being contested in good faith and for which provision is made to the satisfaction of the Lender for the payment thereof in the event the Borrower is found to be obligated to pay such Indebtedness and which Indebtedness is thereupon promptly paid by the Borrower. 6(d) Maintenance of Existence and Properties; Compliance. Maintain its corporate existence and maintain all rights, privileges, licenses, approvals, franchises, properties and assets necessary or desirable in the normal conduct of its business, and comply with all Contractual Obligations and Requirements of Law. Any violation of a Requirement of Law shall be corrected within thirty days of the earlier of receipt of a citation or knowledge of such violation by the Borrower. 6(e) Inspection of Property; Books and Records: Discussions. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities, and permit representatives of the Lender (at no cost or expense to the Borrower unless there shall have occurred and be continuing an Event of Default) to visit and inspect any of its 12 13 properties and examine, audit and make abstracts from and copies of any of its books and records at any reasonable time and as often as may reasonably be desired by the Lender, and to discuss the business, operations, properties and financial and other condition of the Borrower and any of its Subsidiaries with officers and employees of such parties, and with their independent certified public accountants. 6(f) Notices. Give prompt written notice to the Lender of: (1) The occurrence of any Potential Default or Event of Default; (2) The use of any fictitious trade style, indicating the trade style and state(s) of its use; (3) Any litigation or proceeding affecting American Vanguard or any of its Subsidiaries which could have a material adverse effect on the business, operations, property, or financial or other condition of American Vanguard, the Borrower or the Borrower and its Subsidiaries taken as a whole; and (4) A material adverse change in the business, operations, property or financial or other condition of American Vanguard, the Borrower or the Borrower and its Subsidiaries take as a whole. 6(g) Expenses. Pay all reasonable out-of-pocket expenses of the Lender (including fees and disbursements of counsel) incident to: (1) the preparation and negotiation of the Loan Documents and the closing of the credit facility evidenced thereby in any amount in excess of $10,000.00, (2) the administration of the credit facility evidenced by the Loan Documents, including, without limitation, expenses incurred by the Lender in connection with periodic inspections and audits conducted on behalf of the Lender pursuant to Paragraph 6(e) above, (3) the protection of the rights of the Lender under the Loan Documents, including obtaining and maintaining a security interest in any collateral for the Obligations, and (4) the enforcement of payment of the Obligations, whether by judicial proceedings or otherwise, and before as well as after judgment including, without limitation, in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving the Borrower or a "workout" of the Obligations. The obligations of the Borrower under this Paragraph 6(g) shall be effective and enforceable whether or not any Loan is made hereunder and shall survive payment of all other Obligations. 6(h) Loan Documents. Comply with and observe all terms and conditions of the Loan Documents. 6(i) Insurance. Obtain and maintain insurance with responsible companies in such amounts and against such risks as are usually carried by corporations engaged in similar businesses similarly situated, including, without limitation, product liability insurance with a coverage amount of not less than $10,000,000.00, and furnish the Lender on request full information as to all such insurance. The Lender shall be named as loss payee and an additional insured on all policies of insurance maintained as required hereunder. 6(j) Environmental Compliance. (1) Conduct its operations and keep and maintain the Property in compliance with all Environmental Laws. (2) Give prompt written notice to the Lender, but in no event later than 10 days after becoming aware, of the following: (i) any enforcement, cleanup, removal or other 13 14 governmental or regulatory actions instituted, completed or threatened against the Borrower or any of its affiliates or any of their respective properties pursuant to any applicable Environmental Laws, (ii) all other Environmental Claims, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of the property of the Borrower or its affiliates that could reasonably be anticipated to cause such property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws. (3) Upon the written request of the Lender, the Borrower shall submit to the Lender, at the Borrower's sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice required pursuant to this Section. (4) At all times indemnify and hold harmless the Lender from and against any and all liability arising out of any Environmental Claims. 6(k) ERISA. Furnish to the Lender: (1) Promptly and in any event within ten (10) days after the Borrower knows or has reason to know of the occurrence of a Reportable Event with respect to a Plan with regard to which notice must be provided to the PBGC, a copy of such materials required to be filed with the PBGC with respect to such Reportable Event and in each such case a statement of the chief financial officer of the Borrower setting forth details as to such Reportable Event and the action which the Borrower proposes to take with respect thereto; (2) Promptly and in any event within ten (10) days after the Borrower knows or has reason to know of any condition existing with respect to a Plan which presents a material risk of termination of the Plan, imposition of an excise tax, requirement to provide security to the Plan or incurrence of other liability by the Borrower or any ERISA Affiliate, a statement of the chief financial officer of the Borrower describing such condition; (3) At least ten (10) days prior to the filing by any plan administrator of a Plan of a notice of intent to terminate such Plan, a copy of such notice; (4) Promptly and in no event more than ten (10) days after the filing thereof with the Secretary of the Treasury, a copy of any application by the Borrower or an ERISA Affiliate for a waiver of the minimum funding standard under section 412 of the Code; (5) Promptly and in any event within ten (10) days after the Borrower knows or has reason to know of any event or condition which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, a statement of the chief financial officer of the Borrower describing such event or condition; (6) Promptly and in no event more than ten (10) days after receipt thereof by the Borrower or any ERISA Affiliate, a copy of each notice received by the Borrower or an ERISA Affiliate concerning the imposition of any withdrawal liability under section 4202 of ERISA; and (7) Promptly after receipt thereof a copy of any notice the Borrower or any ERISA Affiliate may receive from the PBGC or the Internal Revenue Service with respect to any Plan or Multiemployer Plan; provided, however, that this subparagraph shall not apply to notices of general application promulgated by the PGBC or the Internal Revenue Service. 14 15 7. Negative Covenants. The Borrower hereby agrees that, as long as any Obligations remain unpaid or the Lender has any obligation to make Loans or issue Letters of Credit hereunder, the Borrower shall not, directly or indirectly: 7(a) Liens. Create, incur, assume or suffer to exist, any Lien upon the Collateral except Liens in favor of the Lender or create, incur, assume or suffer to exist any Lien upon any of its other property and assets except: (1) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent or which remain payable without penalty, or the validity of which are contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof, provided the Borrower shall have set aside on its books and shall maintain adequate reserves for the payment of same in conformity with GAAP; (2) Liens, deposits or pledges made to secure statutory obligations, surety or appeal bonds, or bonds for the release of attachments or for stay of execution, or to secure the performance of bids, tenders, contracts (other than for the payment of borrowed money), leases or for purposes of like general nature in the ordinary course of the Borrower's business; and (3) Purchase money security interests for property, conditional sale agreements, or other title retention agreements; provided, however, that no such security interest or agreement shall extend to any property other than the property acquired in connection with the grant of such security interest; and (4) Other Liens securing Indebtedness permitted under Paragraph 7(b)(5) below. 7(b) Indebtedness. Create, incur, assume or suffer to exist, or otherwise become or be liable, or cause any Subsidiary to create, incur, assume or suffer to exist, or otherwise become or be liable, in respect of any indebtedness except: (1) The Obligations; (2) Indebtedness reflected in the financial statements referred to in Paragraph 5(a) above; (3) Trade debt incurred in the ordinary course of business; (4) Indebtedness secured by Liens permitted under Paragraph 7(a)(1), (2) and (3) above; and (5) Other Indebtedness in an aggregate amount of not more than $250,000.00 at any time outstanding. 7(c) Consolidation and Merger. Liquidate or dissolve or enter into any consolidation, merger, partnership, joint venture, syndicate or other combination. 7(d) Acquisitions. Purchase or acquire or incur liability for the purchase or acquisition of any or all of the assets or business of any person, firm or corporation, other than in the normal course of business as presently conducted and other than purchases and acquisitions permitted pursuant to Paragraph 7(k) below. 7(e) Payment of Dividends. Declare or pay any dividends upon its shares of stock now or hereafter outstanding or make any distribution of assets to its stockholders as such, whether in 15 16 cash, property or securities, except (1) in any fiscal year dividends of up to twenty-five percent (25%) of American Vanguard's Net Profit After Tax for the preceding fiscal year, and (2) dividends payable in shares of capital stock and cash in lieu of fractional shares or in options, warrants or other rights to purchase shares of capital stock. 7(f) Purchase or Retirement of Stock. Acquire, purchase, redeem or retire any shares of its capital stock now or hereafter outstanding. 7(g) Investments; Advances. Make or commit to make any advance, loan or extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person, except (1) advances, loans and extensions of credit made in the ordinary course of business of the Borrower as conducted on the date of this Agreement, and (2) loans up to an aggregate amount not exceeding $35,000.00 in any fiscal year. 7(h) Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of any of its assets (other than obsolete or worn out property), whether now owned or hereafter acquired, other than in the ordinary course of business as presently conducted and at fair market value. 7(i) ERISA. (1) Terminate or withdraw from any Plan so as to result in any material liability to the PBGC; (2) Engage in or permit any person to engage in any Prohibited Transaction involving any Plan which would subject the Borrower to any Material tax, penalty or other liability; (3) Incur or suffer to exist any material Accumulated Funding Deficiency, whether or not waived, involving any Plan; (4) Allow or suffer to exist any event or condition which presents a risk of incurring a material liability to the PBGC; (5) Amend any Plan so as to require the posting of security under section 401(a)(29) of the Code; or (6) Fail to make payments required under section 412(m) of the Code and section 302(e) of ERISA which would subject the Borrower to any material tax, penalty or other liability. 70(j) Financial Covenants. Permit: (1) At any time: (i) The Effective Tangible Net Worth of American Vanguard to be less than $12,000,000.00 plus seventy-five percent (75%) of the net income of American Vanguard and its consolidated Subsidiaries for each fiscal quarter beginning with the fiscal quarter ended in June 1995 (with no reduction for any net loss in any fiscal quarter); or (ii) The Debt to Effective Tangible Net Worth ratio of American Vanguard to be greater than 2.25:1.00. (2) At the last day of any fiscal quarter: 16 17 (i) The Cash Flow Coverage Ratio of American Vanguard to be less than 2.50:1.00; or (ii) The Interest Coverage Ratio of American Vanguard to be less than 2.50:1.00. 7(k) Capital Expenditures. Make any fixed capital expenditure (including any capital expenditure of American Vanguard and any subsidiary thereof) or any commitment therefor, including, without limitation, incurring liability for uses which, in accordance with GAAP, would be reported as capital leases, or purchase any real or personal property in an aggregate amount exceeding $2,000,000.00 in any one fiscal year; provided, that in addition to the $2,000,000.00 allowance per fiscal year, capital expenditures in an amount up to an aggregate amount equal to Term Loans made pursuant to Paragraph 1(b) above, excluding the amounts outstanding under the Existing Term Loan Agreement deemed to be a Term Loan hereunder, may be made from the date of this Agreement through December 31, 1995. 8. Events of Default. Upon the occurrence of any of the following events (an "Event of Default"): 8(a) The Borrower shall fail to pay any principal or interest on the Loans on the date when due or fail to pay within five days of the date when due any other Obligation under the Loan Documents; or 8(b) Any representation or warranty made by the Borrower in any Loan Document or in connection with any Loan Document shall be inaccurate or incomplete in any respect on or as of the date made; or 8(c) The Borrower shall fail to maintain its corporate existence or shall default in the observance or performance of any covenant or agreement contained in Paragraph 6(d) or Paragraph 7 above or in the Security Agreement, or 8(d) The Borrower shall fail to observe or perform any other term or provision contained in the Loan Documents and such failure shall continue for thirty (30) days following notice thereof given by the Lender; or 8(e) The Borrower shall default in any payment of principal or interest on any Indebtedness (other than the Obligations) or any other event shall occur, the effect of which is to permit such Indebtedness to be declared or otherwise to become due prior to its stated maturity; or 8(f) (1) The Borrower or any of its Subsidiaries or any Guarantor, shall commence any case, proceeding or other action (i) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries or any Guarantor shall make a general assignment for the benefit of its creditors; or (2) there shall be commenced against the Borrower or any of its Subsidiaries or any Guarantor, any case, proceeding or other action of a nature referred to in clause (1) above which (i) results in the entry of an order for relief or any such adjudication or appointment, or (ii) remains undismissed, undischarged or unbonded for a period of thirty (30) days; or (3) there shall be commenced against the Borrower or any of its 17 18 Subsidiaries or any Guarantor, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within thirty (30) days from the entry thereof; or (4) the Borrower or any of its Subsidiaries or any Guarantor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in (other than in connection with a final settlement), any of the acts set forth in clause (1), (2) or (3) above; or (5) the Borrower or any of its Subsidiaries or any Guarantor shall generally not, or shall be unable to, or shall admit in writing its inability to pay its debts as they become due; or 8(g) (1) Any Reportable Event or a Prohibited Transaction shall occur with respect to any Plan; or (2) a notice of intent to terminate a Plan under section 4041 of ERISA shall be filed; or (3) a notice shall be received by the plan administrator of a Plan that the PBGC has instituted proceedings to terminate a Plan or appoint a trustee to administer a Plan; or (4) any other event or condition shall exist which might, in the opinion of the Lender, constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; or (5) the Borrower or any ERISA Affiliate shall withdraw from a Multiemployer Plan under circumstances which the Lender determines could have a material adverse effect on the financial condition of the Borrower; or 8(h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries or any Guarantor and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within fifteen (I 5) days from the entry thereof or in any event later than five days prior to the date of any proposed sale thereunder; or 8(i) The Borrower shall voluntarily suspend the transaction of business for more than five days in any calendar year; or 8(j) Any Guarantor shall fail to observe or comply with any term or condition of its Guaranty or shall attempt to rescind or revoke its Guaranty, with respect to future transactions or otherwise; THEN, automatically upon the occurrence of an Event of Default under Paragraph 8(f) above, and at the option of the Lender upon the occurrence of any other Event of Default, the Lender's obligation to make Loans and issue Letters of Credit shall terminate and the Obligations shall be and become due and payable, without demand upon or presentment to the Borrower, which are expressly waived by the Borrower, and the Lender may immediately exercise all rights, powers and remedies available to it at law, in equity or otherwise, including, without limitation, under the Security Documents and the Guaranties. 9. Miscellaneous Provisions. 9(a) No Assignment. The Borrower may not assign its rights or obligations under this Agreement without the prior written consent of the Lender. Subject to the foregoing, all provisions contained in this Agreement and the other Loan Documents shall inure to the benefit of the Lender, its successors and assigns, and shall be binding upon the Borrower, its successors and assigns. 9(b) Amendment; No Waiver. Neither this Agreement nor any of the other Loan Documents may be amended or terms or provisions hereof or thereof waived unless such amendment or waiver is in writing and signed by the Lender and the Borrower. It is expressly agreed and understood that the failure by the Lender to elect to accelerate amounts outstanding hereunder and/or to terminate the obligation of the Lender to make Loans hereunder shall not constitute an amendment or waiver of any term or provision of the Loan Documents. No delay 18 19 or failure by the Lender to exercise any right, power or remedy shall constitute a waiver thereof by the Lender, and no single or partial exercise by the Lender of any right, power or remedy shall preclude other or further exercise thereof or any exercise of any other rights, powers or remedies. 9(c) Cumulative Rights. The rights, powers and remedies of the Lender hereunder and under the other Loan Documents are cumulative and in addition to all rights, power and remedies provided under any and all agreements between the Borrower and the Lender relating hereto, at law, in equity or otherwise. 9(d) Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof and thereof. 9(e) Survival. All representations, warranties, covenants and agreements contained on the part of the Borrower contained in the Loan Documents shall survive the termination of this Agreement and shall be effective until the Obligations are paid and performed in full or longer as expressly provided herein. 9(f) Notices. All notices, consents, requests and demands to or upon the respective parties under the Loan Documents shall be in writing, and shall be deemed to have been given or made when delivered in person to those Persons listed on the signature pages hereof or when deposited in the United States mail, postage prepaid, or, in the case of telegraphic notice or the overnight courier service, when delivered to the telegraph company or overnight courier service, or in the case of telex or telecopy notice, when sent, verification received, in each case addressed as set forth on the signature pages hereof, or to such other address as either party may designate by notice to the other in accordance with the terms of this Paragraph 9(f). 9(g) Governing Law. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the laws of the State of California, without giving effect to choice of law rules. 9(h) Transfers. The Borrower acknowledges that the Lender may elect to sell, assign and otherwise transfer to other Persons (each, a "Transferee") all or portions of, and participations in, the Lender's interest in Loans and Letters of Credit outstanding (and its commitment to make Loans and issue Letters of Credit) hereunder from time to time and expressly agrees that the holder of any Loans or Letters of Credit or interest therein (or commitment to make Loans or issue or participate in Letters of Credit hereunder) shall be a "Lender" hereunder, including, without limitation, with respect to the provisions of Paragraph 1(i) above; provided, however, that in no event shall the Borrower have any obligation to communicate or otherwise deal with any Transferee, it being expressly agreed and understood that no such transfer shall relieve the Lender of any of its agreements and obligations hereunder. For purposes of this Paragraph 9(h), the Lender may disclose to a potential or actual Transferee any and all information supplied to Lender by or on behalf of the Borrower. The Borrower agrees to execute and deliver to the Lender such documents, instruments and agreements, including, without limitation, amendments to the Loan Documents, deemed necessary or desirable by the Lender to effect such transfers. 9(i) Counterparts. This Agreement and the other Loan Documents may be executed in any number of counterparts, all of which together shall constitute one agreement. 9(j) Accounting Terms and Financial Reporting. All accounting terms not otherwise defined herein are used with the meanings given such terms under GAAP. All financial requirements to be maintained by the Borrower and all financial reporting required to be made by the Borrower pursuant to this Agreement shall be based on the consolidated financial statements 19 20 of the Borrower's parent corporation, American Vanguard Corporation, and all such financial requirements are to be measured at the end of each month. 9(k) Authorization to Disclose. The Borrower hereby authorizes the Lender to disclose to the Guarantors any and all information concerning the Borrower, its business, properties and condition (financial or otherwise) now or hereafter in the Lender's possession or within its control to the extent deemed necessary or desirable by the Lender. 9(l) Disputed Claims Arbitration. In the event a claim or controversy arises concerning the interpretation or enforcement of any of the terms of the Loan Documents, the Lender and the Borrower agree that such claim or controversy shall be settled by final, binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, which rules are hereby incorporated by reference. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Depositions may be taken and other discovery may be obtained during such arbitration proceedings to the same extent as authorized in civil judicial proceedings. The unsuccessful party shall pay the costs of conducting the arbitration. The arbitrator shall not have the power or authority to award punitive damages for or against either party to this Agreement. No provision of, or the exercise of any rights under, this subparagraph (l), shall limit the right of any party to exercise self help remedies such as setoff, to foreclose against any real or personal property Collateral, or to obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any arbitration. At the Lender's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power or sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for judicial relief or pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration. 9(m) Set Off. The Lender may exercise its right of set-off against the Obligations to the same extent as if the Obligations were unsecured. 10. Definitions. For purposes of this Agreement, the terms set forth below shall have the following meanings: "Accumulated Funding Deficiency" shall mean a funding deficiency described in section 302 of ERISA. "Affiliate" shall mean, as to any corporation, any other corporation directly or indirectly controlling, controlled by or under direct or indirect common control with, such corporation. "Control" as used herein means the power to direct the management and policies of such corporation. "Agreement" shall mean this Agreement, as the same may be amended, extended or replaced from time to time. "American Vanguard" shall mean American Vanguard Corporation, a Delaware corporation, the sole shareholder of the Borrower. "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banks in Los Angeles, California are authorized or obligated to close their regular banking business. 20 21 "Cash Flow Coverage Ratio" shall mean the ratio of Cash Flow for the four-quarter period ending on the last day of the applicable fiscal quarter to the Current Portion of Long-Tenn Debt as of the last day of such fiscal quarter. "Cash Flow" shall mean the sum of net income plus any non-cash expenses (such as depreciation and amortization) deducted in arriving at net income and minus any non-cash revenues included in the determination of net income. "Closing Date" shall mean the date as of which all conditions set forth in Paragraph 4 above shall have been fully satisfied. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations issued thereunder as from time to time in effect. "Collateral" shall mean the personal property (tangible and intangible) and fixtures which are covered by the Security Agreement and the Real Property. "Commonly Controlled Entity" of a Person shall mean a Person, whether or not incorporated, which is under common control with such Person within the meaning of Section 414(c) of the Internal Revenue Code. "Compliance Certificate" shall have the meaning given such term in Paragraph 6(a)(4) above. "Contractual Obligation" as to any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Current Liability" shall have the meaning given such term in accordance with GAAP. "Current Portion of Long-Term Debt" shall mean that portion of long-term debt which is required to be shown as a Current Liability on the balance sheet in accordance with generally accepted accounting principles. "Debt" shall mean, for any Person, all Indebtedness minus Subordinated Debt. "Deed of Trust" shall have the meaning given such term in Paragraph 3(k) above. "EBITDA" shall mean net income before interest, taxes, depreciation and amortization, each determined in accordance with GAAP. "Effective Tangible Net Worth" shall mean, for any Person, stated net worth plus Subordinated Debt minus all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organization expenses and similar intangible items) and amounts due from stockholders and Affiliates. "Environmental Claims" shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environmental or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (i) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden 21 22 or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Materials at, in, or from property owned, operated or controlled by the Borrower, or (ii) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requested, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code. "Environmental Permits" shall have the meaning given such term in Paragraph 5(o) above. "ERISA"shall mean the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations issued thereunder as from time to time in effect. "ERISA Affiliate" shall mean each trade or business, including the Borrower, whether or not incorporated, which together with the Borrower would be treated as a single employer under section 4001 of ERISA. "Event of Default" shall have the meaning given such term in Paragraph 8 above. "Existing Revolving Credit Agreement" shall have the meaning given such term in the Recitals hereto. "Existing Term Loan Agreement" shall have the meaning given such term in the Recitals hereto. "Fixed Rate" shall mean the rate which the Lender determines, in its sole and absolute discretion, to be equal to the Lender's cost of acquiring funds in an amount approximately equal to the amount of the relevant Loan, and for a period of time approximately equal to the relevant Interest Period. Such cost of funds shall be adjusted for any and all assessments, surcharges and reserve requirements pertaining to the borrowing or purchase of such funds by the Lender. "Fixed Rate Loan" shall mean any Loan bearing interest with reference to a Fixed Rate. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "GemChem" shall mean GemChem, Inc., a California corporation and a wholly-owned Subsidiary of American Vanguard. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantors" shall mean, severally, each of American Vanguard, GemChem, and 2110 Davie. 22 23 "Guaranty" shall have the meaning given such term in Paragraph 3(1) above. "Hazardous Materials" shall mean all those substances which are regulated by, or which may form the basis of liability under any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. "Indebtedness"of any Person shall mean all items of indebtedness which, in accordance with GAAP, would be included in determining liabilities as shown on the liability side of a statement of condition of such Person as of the date as of which indebtedness is to be determined, including, without limitation, all obligations for money borrowed and capitalized lease obligations, and shall also include the face amount of all outstanding letters of credit and all indebtedness and liabilities of others assumed or guarantied by such Person or in respect of which such Person is secondarily or contingently liable (other than by endorsement of instruments in the course of collection) whether by reason of any agreement to acquire such indebtedness or to supply or advance sums or otherwise. "Interest Period" shall mean such period of time as the Lender may quote and offer, provided that the Interest Period shall be for a minimum of at least 30 days and not exceed a maximum of 180 days, and provided further that any Interest Period with respect to a Revolving Loan shall not extend beyond the Revolving Loan Maturity Date and any Interest Period with respect to a Term Loan shall not extend beyond the Term Loan Maturity Date. "Interim Date" shall mean June 30, 1995. "Interest Coverage Ratio" shall mean the ratio of EBITDA to interest expense, in each case for the applicable fiscal quarter. "L/C Drawing" shall have the meaning given such term in Paragraph 2(c) above. "Letter of Credit" shall mean a New Letter of Credit or a Pre-Existing Letter of Credit. "Letter of Credit Application" shall mean an application for the issuance of a New Letter of Credit in form satisfactory to the Lender. "Letter of Credit Sublimit" shall mean $450,000.00, as such amount may be increased or decreased by written agreement of the Lender and the Borrower. "Lien" shall mean any security interest, mortgage, pledge, lien, claim on property, charge or encumbrance (including any conditional sale or other title retention agreement), any lease in the nature thereof, and the filing of or agreement to give any financial statement under the Uniform Commercial Code of any jurisdiction. "Loan Documents" shall mean this Agreement, the Notes, the Guaranties, the Security Documents and each other document, instrument and agreement executed by the Borrower or any Guarantor in connection herewith or therewith, as any of the same may be amended, extended or replaced from time to time. "Loan Request" shall mean a request for a Loan in form satisfactory to the Lender. "Loans" shall mean the Revolving Loans and the Term Loan. 23 24 "Multiemployer Plan" shall mean a Plan described in section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is required to contribute on behalf of any of its employees. "Net Profit After Tax" shall mean for any period, determined in accordance with GAAP, the sum of net income (or net loss) for such period less all accrued taxes on or measured by income to the extent included in the determination of such net income (or loss); provided, however, that net income (or loss) shall be computed for these purposes without giving effect to extraordinary losses or extraordinary gains. "New Letter of Credit" shall have the meaning given such term in Paragraph 2(b) above. "Notes" shall have the meaning given such term in Paragraph 3(d) above. "Obligations" shall mean any and all debts, obligations and liabilities of the Borrower to the Lender arising out of or related to the Loan Documents, whether principal, interest, fees or otherwise, whether now existing or hereafter arising, whether voluntary or involuntary, whether or not jointly owed with others, whether direct or indirect, absolute or contingent, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, whether or not from time to time decreased or extinguished and later increased, created or incurred and whether or not extended, modified, rearranged, restructured, refinanced or replaced, including without limitation, modifications to interest rates or other payment terms of such debts, obligations or liabilities. "Outstanding" shall mean with respect to Letters of Credit, any Letter of Credit which has not been cancelled, expired unutilized or fully drawn upon. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereto. "Person" shall mean any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, government or any department or agency of any government. "Plan" shall mean any plan (other than a Multiemployer Plan) subject to Title IV of ERISA maintained for employees of the Borrower or any ERISA Affiliate (and any such plan no longer maintained by the Borrower or any of its ERISA Affiliates to which the Borrower or any of its ERISA Affiliates has made or was required to make any contributions during the five years preceding the date on which such plan ceased to be maintained). "Potential Default" shall mean an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Pre-Existing Letters of Credit" shall have the meaning given such term in Paragraph 2(a) above. "Prohibited Transaction" shall mean any transaction described in section 406 of ERISA which is not exempt by reason of section 408 of ERISA or the transitional rules set forth in section 414(c) of ERISA and any transaction described in section 4975(c)(1) of the Code which is not exempt by reason of section 4975(c)(2) or section 4975(d) of the Code, or the transitional rules of section 2003(c) of ERISA. "Property" shall mean, collectively and severally, any and all real property, including all improvements and fixtures thereon, owned or occupied by the Borrower. 24 25 "Real Property" shall mean the real property described in the Deed of Trust. "Reference Rate" shall mean the fluctuating per annum rate which is quoted, published or announced from time to time by the Lender in Los Angeles, California as its "Reference Rate" and as to which loans may be made by the Lender at, below or above such "Reference Rate," with such rate to be adjusted concurrently with any change in the "Reference Rate". "Reference Rate Loans" shall mean any Loan bearing interest with reference to the Reference Rate. "Reportable Event" shall mean any of the events set forth in section 4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan described in section 4063 of ERISA, a cessation of operations described in section 4068(f) of ERISA, an amendment to a Plan necessitating the posting of security under section 401(a)(29) of the Code, or a failure to make a payment required by section 412(m) of the Code and section 302(e) of ERISA when due. "Requirements of Law" shall mean as to any Person the Certificate of Incorporation and ByLaws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or a final and binding determination of an arbitrator or a determination of a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Revolving Credit Limit" shall mean $10,500,000.00. "Revolving Loan" shall have the meaning given such term in Paragraph 1(a) above. "Revolving Loan Maturity Date" shall mean the earlier of: (a) July 31, 1997, and (b) the date the Lender terminates its obligation to make further Loans hereunder pursuant to Paragraph 8 above. "Revolving Note" shall have the meaning given such term in Paragraph 3(d) above. "Security Agreement" shall have the meaning given such term in Paragraph 3(k) above. "Security Documents" shall have the meaning given such term in Paragraph 3(k) above. "Statement Date" shall mean December 31, 1994. "Subordinated Debt" shall mean, for any Person, Indebtedness of such Person and its Subsidiaries subordinated to the Obligations pursuant to written subordination agreements satisfactory in form and substance to the Lender. "Subsidiary" shall mean any corporation more than fifty percent (50%) of the stock of which having by the terms thereof ordinary voting power to elect the board of directors, managers or trustees of the corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) shall, at the time as of which any determination is being made, be owned, either directly or through Subsidiaries. "Term Loan" shall have the meaning given such term in Paragraph 1(b) above. "Term Loan Maturity Date" shall mean the earlier of: (a) January 1, 2001 and (b) the date the Lender terminates its obligations to make further Loans hereunder pursuant to Paragraph 8 above. 25 26 "Term Note" shall have the meaning given such term in Paragraph 3(d) above. "Transferee" shall have the meaning given such term in Paragraph 9(h) above. "2110 Davie" shall mean 2110 Davie Corporation, a California corporation and a wholly-owned subsidiary of American Vanguard. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. AMVAC CHEMICAL CORPORATION, a California corporation, as the Borrower By: /s/ JAMES A. BARRY --------------------------------- Name: James A. Barry --------------------------------- Title: Vice President, CFO --------------------------------- Address: 4100 East Washington Boulevard Los Angeles, California 90023 SANWA BANK CALIFORNIA, as the Lender By: /s/ JOSEPH C. ARCO --------------------------------- Name: Joseph C. Arco --------------------------------- Title: V.P. --------------------------------- Address: 601 South Figueroa St. W8-12 Los Angeles, California 90017 26 27 REVOLVING NOTE $10,500,000.00 September 12, 1995 FOR VALUE RECEIVED, the undersigned, AMVAC CHEMICAL CORPORATION, a California corporation (the "Borrower"), hereby promises to pay to the order of SANWA BANK CALIFORNIA (the "Lender"), at its office at 601 South Figueroa Street, W8-12, Los Angeles, California 90017 (or such other place as the Lender may direct from time to time), in lawful money of the United States and in immediately available funds, the principal amount of Revolving Loans advanced to the Borrower under that certain Amended and Restated Revolving Credit Agreement dated as of September 12, 1995 by and between the Borrower and the Lender (as such Agreement may be amended from time to time, the "Credit Agreement") together with interest thereon computed in accordance with the Credit Agreement, on the dates required pursuant to the Credit Agreement. Capitalized terms used herein without definition have the meanings assigned thereto in the Credit Agreement. This Revolving Note is the "Revolving Note" referred to in the Credit Agreement. Reference is hereby made to the Credit Agreement and the other Loan Documents, including, without limitation, the Security Agreement, the Deed of Trust and the Guaranties, for rights and obligations of payment and prepayment, events of default and the right of the Lender to accelerate the maturity hereof upon the occurrence of such events. The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Revolving Note. The Borrower agrees to pay all collection expenses, court costs and reasonable attorneys' fees and disbursements (whether or not litigation is commenced) which may be incurred in connection with the collection or enforcement of this Revolving Note. This Revolving Note shall be governed by and construed in accordance with the laws of the State of California, without giving effect to choice of law rules, AMVAC CHEMICAL CORPORATION, a California corporation By: /s/ JAMES A. BARRY --------------------------------- Name: James A. Barry --------------------------------- Title: Vice President, CFO --------------------------------- 28 AMENDED AND RESTATED SECURITY AGREEMENT THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Security Agreement") is made and dated this 12 day of September, 1995 by and between SANWA BANK CALIFORNIA, a California corporation with a state banking license ("Secured Party"), and AMVAC CHEMICAL CORPORATION, a California corporation ("Debtor"). RECITALS A. Secured Party has agreed to extend credit to Debtor from time to time on the terms and subject to the conditions set forth in that certain Amended and Restated Credit Agreement dated as of September 12, 1995 (the "Credit Agreement," and with capitalized terms not otherwise defined herein used with the meanings given such terms in the Credit Agreement) and the other Loan Documents. B. This Security Agreement amends and restates all security agreements executed by Debtor granting a security interest in personal property of the Debtor to secure the obligations of the Debtor under the Existing Revolving Credit Agreement and/or under the Existing Term Loan Agreement. C. To induce Secured Party to enter into the Loan Documents and to extend such credit, Debtor has agreed to pledge and to grant to Secured Party a security interest in and lien upon certain property of Debtor described more particularly herein. NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor hereby agrees as follows: AGREEMENT 1 . Grant of Security Interest. Debtor hereby pledges and grants to Secured Party a security interest in the property described in Paragraph 2 below (collectively and severally, the "Collateral") to secure payment and performance of the obligations described in Paragraph 3 below (collectively and severally, the "Obligations"). 2. Collateral. The Collateral shall consist of all right, title and interest of Debtor, now existing or hereafter arising, in under and to: (a) Equipment. All goods and equipment ("Equipment") now owned or hereafter acquired by the Debtor or in which the Debtor now has or may hereafter acquire any interest including, but not limited to, all machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description and all additions, accessions, improvements, replacements and substitutions thereto and thereof. 1 29 (b) Inventory. All inventory ("Inventory") now owned or hereafter acquired by the Debtor including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Debtor's custody or possession, together with all returns on accounts. (c) Accounts and Contract Rights. All accounts and contract rights now owned or hereafter created or acquired by the Debtor, including but not limited to, all receivables and all rights and benefits due to the Debtor under any contract or agreement. (d) General Intangibles. All general intangibles now owned or hereafter created or acquired by the Debtor, including but not limited to, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. (e) Chattel Paper and Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Debtor. (f) Monies and Other Property in Possession. All monies, and property of the Debtor now or hereafter in the possession of the Secured Party or the Secured Party's agents, or any one of them, including, but not limited to, all deposit accounts, certificates of deposit, stocks, bonds, indentures, warrants, options and other negotiable and non-negotiable securities and instruments, together with all stock rights, rights to subscribe, liquidating dividends, cash dividends, payments, dividends paid in stock, new securities or other property to which the Debtor may become entitled to receive on account of such property. The Secured Party's security interest in the Collateral shall be a continuing lien and shall include all proceeds and products of the Collateral including but not limited to, the proceeds of any insurance thereon. 3. Obligations. The Obligations secured by this Security Agreement shall consist of any and all debts, obligations and liabilities of Debtor to Secured Party arising out of or related to the Loan Documents, whether principal, interest, fees or otherwise, whether now existing or hereafter arising, whether voluntary or involuntary, whether or not jointly owed with others, whether direct or indirect, absolute or contingent, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, whether or not from time to time decreased or extinguished and later increased, created or incurred and whether or not extended, modified, rearranged, restructured, refinanced or replaced, including without limitation, modifications to interest rates or other payment terms of such debts, obligations or liabilities. 4. Representations and Warranties. In addition to any representations and warranties of Debtor set forth in the Loan Documents, which are incorporated herein by this reference, Debtor hereby represents and warrants that: (a) Debtor is the sole owner of and has good and marketable title to the Collateral (or, in the case of after-acquired Collateral, at the time the Debtor acquires rights in the Collateral, will be the sole owner thereof and have good and marketable title thereto). 2 30 (b) Except for security interests in favor of Secured Party, no person has (or, in the case of after-acquired Collateral, at the time Debtor acquires rights therein, will have) any right, title, claim or interest (by way of security interest or other lien or charge) in, against or to the Collateral. (c) All information heretofore, herein or hereafter supplied to Secured Party by or on behalf of Debtor with respect to the Collateral is accurate and complete. (d) Debtor has delivered to Secured Party all instruments, documents, chattel paper and other items of Collateral in which a security interest is or may be perfected by possession, the certificate of title with respect to each motor vehicle, if any, included in the Collateral, together with such other writings with respect thereto as Secured Party shall request. (e) Each account, contract right, item of chattel paper, instrument or any other right to the payment of money constituting Collateral is genuine and enforceable in accordance with its terms against the party obligated to pay the same (an "Account Debtor"), which terms have not been modified or waived in any respect or to any extent. (f) Any amount represented by Debtor to Secured Party as owing by any Account Debtor is the correct amount actually and unconditionally owing by such Account Debtor. (g) No Account Debtor has any defense, set off, claim or counterclaim against Debtor which can be asserted against Secured Party, whether in any proceeding to enforce Secured Party's rights in the Collateral, or otherwise. 5. Covenants and Agreements of Debtor. In addition to all covenants and agreements of Debtor set forth in the Loan Documents, which are incorporated herein by this reference, Debtor hereby agrees: (a) To do all acts that may be necessary to maintain, preserve and protect the Collateral; (b) Not to use or permit any Collateral to be used unlawfully or in violation of any provision of this Security Agreement, any other agreement with Secured Party related hereto or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (c) To pay promptly when due all taxes, assessments, charges, encumbrances and liens now or hereafter imposed upon or affecting any Collateral; (d) To appear in and defend any action or proceeding which may affect its title to or Secured Party's interest in the Collateral; (e) Not to surrender or lose possession of (other than to Secured Party), sell, encumber, lease, rent, or otherwise dispose of or transfer any Collateral or right or interest 3 31 therein except as hereinafter provided, and to keep the Collateral free of all levies and security interests or other liens or charges except those approved in writing by Secured Party (provided that, unless an Event of Default shall occur, Debtor may, in the ordinary course of business, sell or lease any Collateral consisting of inventory); (f) To comply with all laws, regulations and ordinances relating to the possession, operation, maintenance and control of the Collateral; (g) That such care as Secured Party gives to the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral when in Secured Party's possession; (h) To account fully for and promptly deliver to Secured Party, in the form received, all documents, chattel paper, instruments and agreements constituting Collateral hereunder and all proceeds of the Collateral received, all endorsed to Secured Party or in blank, as requested by Secured Party, and accompanied by such stock powers as appropriate and until so delivered all such documents, instruments, agreements and proceeds shall be held by Debtor in trust for Secured Party, separate from all other property of Debtor and identified as the property of Secured Party; (i) To keep separate, accurate and complete records of the Collateral and to provide Secured Party with such records and such other reports and information relating to the Collateral as Secured Party may request from time to time; (j) To procure, execute and deliver from time to time any endorsements, notifications, registrations, assignments, financing statements, certificates of title, ship mortgages, aircraft mortgages, copyright mortgages, assignments or mortgages of patents, mortgages of mask works, mortgages for filing pursuant to the Interstate Commerce Act, and other writings deemed necessary or appropriate by Secured Party to perfect, maintain and protect its security interest in the Collateral hereunder and the priority thereof; (k) To take such other actions as Secured Party may request to protect the value of the Collateral and of Secured Party's security interest in the Collateral, including, without limitation, provision of assurances from third parties regarding Secured Party's access to, right to foreclose on or sell, Collateral and right to realize the practical benefits of such foreclosure or sale; (l) To reimburse Secured Party upon demand for any costs and expenses, including, without limitation, attorneys' fees and disbursements, Secured Party may incur while exercising any right, power or remedy provided by this Security Agreement or by law, all of which costs and expenses are included in the Obligations; (m) To give Secured Party thirty (30) days prior written notice of any change in Debtor's residence or chief place of business or legal name or trade name(s) or style(s) set forth in the penultimate paragraph of this Security Agreement; 4 32 (n) To keep the records concerning the Collateral and to keep the Collateral at the location(s) referred to in Paragraph 16 below and not to remove such records from such locations) without the prior written consent of the Secured Party; (o) If Secured Party gives value to enable Debtor to acquire rights in or the use of any Collateral, to use such value for such purpose; (p) To keep the Collateral in good condition and repair and not to cause or permit any waste or unusual or unreasonable depreciation of the Collateral; (q) At any reasonable time, upon demand by Secured Party, to exhibit to and allow inspection by Secured Party (or persons designated by Secured Party) of the Collateral; and (r) To insure the Collateral, with Secured Party named as loss payee, in form and amounts, with companies, and against risks and liabilities satisfactory to Secured Party, and Debtor hereby assigns the policies to Secured Party, agrees to deliver them to Secured Party at its request, and agrees that Secured Party may make any claim thereunder, cancel the insurance on default by Debtor, collect and receive payment of and endorse any instrument in payment of loss or return premium or other refund or return, and apply such amounts received, at Secured Party's election, to replacement of Collateral or to the Obligations. 6. Authorized Action by Secured Party. Debtor hereby agrees that from time to time, without presentment, notice or demand, and without affecting or impairing in any way the rights of Secured Party with respect to the Collateral, the obligations of the Debtor hereunder or the Obligations, Secured Party may, but shall not be obligated to and shall incur no liability to Debtor or any third party for failure to take any action which Debtor is obligated by this Security Agreement to do and to exercise such rights and powers as Debtor might exercise with respect to the Collateral, and Debtor hereby irrevocably appoints Secured Party as its attorney-in-fact to exercise such rights and powers, including without limitation, to: (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) insure, process and preserve the Collateral; (d) transfer the Collateral to its own or its nominee's name; (e) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; and (f) notify any Account Debtor on any Collateral to make payment directly to Secured Party. 7. Default and Remedies. Upon the occurrence of an Event of Default, Secured Party may, at its option, and without notice to or demand on Debtor and in addition to all rights and remedies available to Secured Party under the Loan Documents, at law, in equity or otherwise, do any one or more of the following: (a) Foreclose or otherwise enforce Secured Party's security interest in any manner permitted by law, or provided for in this Security Agreement. 5 33 (b) Sell, lease or otherwise dispose of any Collateral at one or more public or private sales at Secured Party's place of business or any other place or places, including, without limitation, any broker's board or securities exchange, whether or not such Collateral is present at the place of sale, for cash or credit or future delivery, on such terms and in such manner as Secured Party may determine. (c) Recover from Debtor all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred or paid by Secured Party in exercising any right, power or remedy provided by this Security Agreement. (d) Require Debtor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party. (e) Enter onto property where any Collateral is located and take possession thereof with or without judicial process. (f) Prior to the disposition of the Collateral, store, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent Secured Party deems appropriate and in connection with such preparation and disposition, without charge, use any trademark, tradename, copyright, patent or technical process used by Debtor. (g) Debtor shall be given five (5) business days' prior notice of the time and place of any public sale or of the time after which any private sale or other intended disposition of Collateral is to be made, which notice Debtor hereby agrees shall be deemed reasonable notice thereof. (h) Upon any sale or other disposition pursuant to this Security Agreement, Secured Party shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral or portion thereof so sold or disposed of. Each purchaser at any such sale or other disposition (including Secured Party) shall hold the Collateral free from any claim or right of whatever kind, including any equity or right of redemption of Debtor and Debtor specifically waives (to the extent permitted by law) all rights of redemption, stay or appraisal which it has or may have under any rule of law or statute now existing or hereafter adopted. 8. Cumulative Rights. The rights, powers and remedies of Secured Party under this Security Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statute or rule of law, the Loan Documents or any other agreement, all of which rights, powers and remedies shall be cumulative and may be exercised successively or concurrently without impairing Secured Party's security interest in the Collateral. 9. Waiver. Any waiver, forbearance or failure or delay by Secured Party in exercising any right, power or remedy shall not preclude the further exercise thereof, and every right, power or remedy of Secured Party shall continue in full force and effect until such right, power or remedy is specifically waived in a writing executed by Secured Party. Debtor waives any right to require Secured Party to proceed against any person or to exhaust any Collateral or to pursue any remedy in Secured Party's power. 6 34 10. Setoff, Debtor agrees that Secured Party may exercise its rights of setoff with respect to the Obligations in the same manner as if the Obligations were unsecured. 11. Binding Upon Successors. All rights of Secured Party under this Security Agreement shall inure to the benefit of its successors and assigns, and all obligations of Debtor shall bind its heirs, executors, administrators, successors and assigns. 12. Entire Agreement; Severability. This Security Agreement contains the entire security agreement between Secured Party and Debtor. If any of the provisions of this Security Agreement shall be held invalid or unenforceable, this Security Agreement shall be construed as if not containing those provisions and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 13. References. The singular includes the plural. If more than one executes this Security Agreement, the term Debtor shall be deemed to refer to each of the undersigned Debtors as well as to all of them, and their obligations and agreements hereunder shall be joint and several. If any of the undersigned is a married person, recourse may be had against his or her separate property for the Obligations. 14. Choice of Law. This Security Agreement shall be construed in accordance with and governed by the laws of the State of California, without giving effect to choice of law rules, and, where applicable and except as otherwise defined herein, terms used herein shall have the meanings given them in the Uniform Commercial Code of such state. 15. Amendment. This Security Agreement may not be amended or modified except by a writing signed by each of the parties hereto. 16. Place of Business; Location of Records and Collateral. Debtor represents that Schedule A attached hereto accurately and completely sets forth: (a) its chief place of business; (b) all trade name(s) or style(s) used by Debtor; and (c) all locations where Debtor's records concerning the Collateral are located; and (d) all locations where Collateral is located. 17. Addresses for Notices. All demands, notices and other communications to Debtor or Secured Party provided for hereunder shall be given as provided in the Credit Agreement. 7 35 EXECUTED this 12 day of September, 1995. DEBTOR: AMVAC CHEMICAL CORPORATION, a California corporation By: /s/ JAMES A. BARRY ------------------------------------------ Name: James A. Barry --------------------------------------- Title: Vice President CFO --------------------------------------- SECURED PARTY: SANWA BANK CALIFORNIA, a California corporation with a state banking license By: /s/ JOSEPH C. ARCO ------------------------------------------ Name: Joseph C. Arco --------------------------------------- Title: V.P. --------------------------------------- 8 36 AMENDED AND RESTATED SECURITY AGREEMENT THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Security Agreement") is made and dated this 12 day of September, 1995 by and between SANWA BANK CALIFORNIA, a California corporation with a state banking license ("Secured Party"), and AMERICAN VANGUARD CORPORATION, a Delaware corporation ("Debtor"). RECITALS A. Pursuant to that certain Amended and Restated Credit Agreement, dated as of even date herewith (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement" and with capitalized terms not otherwise defined herein used with the same meaning as in the Credit Agreement), SANWA BANK CALIFORNIA agreed to extend credit to AMVAC CHEMICAL CORPORATION ("Borrower") in the aggregate principal amount of $15,750,000.00. B. Debtor is a wholly-owned subsidiary of Borrower and will benefit from the credit extended to Borrower by Secured Party. As a condition precedent to Secured Party's obligation to extend such credit to Borrower, Debtor was required to execute and deliver that certain Credit Guaranty dated as of even date herewith (as amended, modified or supplemented from time to time, the "Guaranty") pursuant to which Debtor has guaranteed all indebtedness of Borrower to Secured Party under the Credit Agreement and the other Loan Documents. As a condition precedent to Secured Party's obligation to extend credit to Borrower pursuant to the Credit Agreement, Debtor also is required to execute and deliver and this Security Agreement. C. This Security Agreement amends and restates all security agreements executed by Debtor in favor of Secured Party granting a security interest in personal property of the Debtor to secure the obligations of Debtor under the Guaranty or any other guaranty of indebtedness owed by Borrower to Secured Party under the Existing Revolving Credit Agreement and/or under the Existing Term Loan Agreement. NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor hereby agrees as follows: AGREEMENT 1. Grant of Security Interest. Debtor hereby pledges and grants to Secured Party a security interest in the property described in Paragraph 2 below (collectively and severally, the "Collateral") to secure payment and performance of the obligations described in Paragraph 3 below (collectively and severally, the "Obligations"). 1 37 2. Collateral. The Collateral shall consist of all right, title and interest of Debtor, now existing or hereafter arising, in under and to: (a) Equipment. All goods and equipment ("Equipment") now owned or hereafter acquired by the Debtor or in which the Debtor now has or may hereafter acquire any interest including, but not limited to, all machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description and all additions, accessions, improvements, replacements and substitutions thereto and thereof. (b) Inventory. All inventory ("Inventory") now owned or hereafter acquired by the Debtor including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Debtor's custody or possession, together with all returns on accounts. (c) Accounts and Contract Rights. All accounts and contract rights now owned or hereafter created or acquired by the Debtor, including but not limited to, all receivables and all rights and benefits due to the Debtor under any contract or agreement. (d) General Intangibles. All general intangibles now owned or hereafter created or acquired by the Debtor, including but not limited to, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. (e) Chattel Paper and Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Debtor. (f) Monies and Other Property in Possession. All monies and property of the Debtor now or hereafter in the possession of the Secured Party or the Secured Party's agents, or any one of them, including, but not limited to, all deposit accounts, certificates of deposit, stocks, bonds, indentures, warrants, options and other negotiable and non-negotiable securities and instruments, together with all stock rights, rights to subscribe, liquidating dividends, cash dividends, payments, dividends paid in stock, new securities or other property to which the Debtor may become entitled to receive on account of such property. The Secured Party's security interest in the Collateral shall be a continuing lien and shall include all proceeds and products of the Collateral including but not limited to, the proceeds of any insurance thereon. 3. Obligations. The Obligations secured by this Security Agreement shall consist of any and all debts, obligations and liabilities of Debtor to Secured Party arising out of or related to the Guaranty, whether principal, interest, fees or otherwise, whether now existing or hereafter arising, whether voluntary or involuntary, whether or not jointly owed with others, whether direct or indirect, absolute or contingent, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, whether or not from time to time decreased or extinguished and later increased, created or incurred and whether or not extended, modified, rearranged, restructured, refinanced or replaced, including without limitation, modifications to interest rates or other payment terms of such debts, obligations or liabilities. 2 38 4. Representations and Warranties. In addition to any representations and warranties of Debtor set forth in the Guaranty, which are incorporated herein by this reference, Debtor hereby represents and warrants that: (a) Debtor is the sole owner of and has good and marketable title to the Collateral (or, in the case of after-acquired Collateral, at the time the Debtor acquires rights in the Collateral, will be the sole owner thereof and have good and marketable title thereto). (b) Except for security interests in favor of Secured Party, no person has (or, in the case of after-acquired Collateral, at the time Debtor acquires rights therein, will have) any right, title, claim or interest (by way of security interest or other lien or charge) in, against or to the Collateral. (c) All information heretofore, herein or hereafter supplied to Secured Party by or on behalf of Debtor with respect to the Collateral is accurate and complete. (d) Debtor has delivered to Secured Party all instruments, documents, chattel paper and other items of Collateral in which a security interest is or may be perfected by possession, the certificate of title with respect to each motor vehicle, if any, included in the Collateral, together with such other writings with respect thereto as Secured Party shall request. (e) Each account, contract right, item of chattel paper, instrument or any other right to the payment of money constituting Collateral is genuine and enforceable in accordance with its terms against the party obligated to pay the same (an "Account Debtor"), which terms have not been modified or waived in any respect or to any extent. (f) Any amount represented by Debtor to Secured Party as owing by any Account Debtor is the correct amount actually and unconditionally owing by such Account Debtor. (g) No Account Debtor has any defense, set off, claim or counterclaim against Debtor which can be asserted against Secured Party, whether in any proceeding to enforce Secured Party's rights in the Collateral, or otherwise. 5. Covenants and Agreements of Debtor. In addition to all covenants and agreements of Debtor set forth in the Guaranty, which are incorporated herein by this reference, Debtor hereby agrees: (a) To do all acts that may be necessary to maintain, preserve and protect the Collateral; (b) Not to use or permit any Collateral to be used unlawfully or in violation of any provision of this Security Agreement, any other agreement with Secured Party related hereto or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; 3 39 (c) To pay promptly when due all taxes, assessments, charges, encumbrances and liens now or hereafter imposed upon or affecting any Collateral; (d) To appear in and defend any action or proceeding which may affect its title to or Secured Party's interest in the Collateral; (e) Not to surrender or lose possession of (other than to Secured Party), sell, encumber, lease, rent, or otherwise dispose of or transfer any Collateral or right or interest therein except as hereinafter provided, and to keep the Collateral free of all levies and security interests or other liens or charges except those approved in writing by Secured Party (provided that, unless an Event of Default shall occur, Debtor may, in the ordinary course of business, sell or lease any Collateral consisting of inventory); (f) To comply with all laws, regulations and ordinances relating to the possession, operation, maintenance and control of the Collateral; (g) That such care as Secured Party gives to the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral when in Secured Party's possession; (h) To account fully for and promptly deliver to Secured Party, in the form received, all documents, chattel paper, instruments and agreements constituting Collateral hereunder and all proceeds of the Collateral received, all endorsed to Secured Party or in blank, as requested by Secured Party, and accompanied by such stock powers as appropriate and until so delivered all such documents, instruments, agreements and proceeds shall be held by Debtor in trust for Secured Party, separate from all other property of Debtor and identified as the property of Secured Party; (i) To keep separate, accurate and complete records of the Collateral and to provide Secured Party with such records and such other reports and information relating to the Collateral as Secured Party may request from time to time; (j) To procure, execute and deliver from time to time any endorsements, notifications, registrations, assignments, financing statements, certificates of title, ship mortgages, aircraft mortgages, copyright mortgages, assignments or mortgages of patents, mortgages of mask works, mortgages for filing pursuant to the Interstate Commerce Act, and other writings deemed necessary or appropriate by Secured Party to perfect, maintain and protect its security interest in the Collateral hereunder and the priority thereof; (k) To take such other actions as Secured Party may request to protect the value of the Collateral and of Secured Party's security interest in the Collateral, including, without limitation, provision of assurances from third parties regarding Secured Party's access to, right to foreclose on or sell, Collateral and right to realize the practical benefits of such foreclosure or sale; 4 40 (l) To reimburse Secured Party upon demand for any costs and expenses, including, without limitation, attorneys' fees and disbursements, Secured Party may incur while exercising any right, power or remedy provided by this Security Agreement or by law, all of which costs and expenses are included in the Obligations; (m) To give Secured Party thirty (30) days prior written notice of any change in Debtor's residence or chief place of business or legal name or trade name(s) or style(s) set forth in Paragraph 16 below; (n) To keep the records concerning the Collateral and to keep the Collateral at the location(s) referred to in Paragraph 16 below and not to remove such records from such location(s) without the prior written consent of Secured Party; (o) If Secured Party gives value to enable Debtor to acquire rights in or the use of any Collateral, to use such value for such purpose; (p) To keep the Collateral in good condition and repair and not to cause or permit any waste or unusual or unreasonable depreciation of the Collateral; (q) At any reasonable time, upon demand by Secured Party, to exhibit to and allow inspection by Secured Party (or persons designated by Secured Party) of the Collateral; and (r) To insure the Collateral, with Secured Party named as loss payee, in form and amounts, with companies, and against risks and liabilities satisfactory to Secured Party, and Debtor hereby assigns the policies to Secured Party, agrees to deliver them to Secured Party at its request, and agrees that Secured Party may make any claim thereunder, cancel the insurance on default by Debtor, collect and receive payment of and endorse any instrument in payment of loss or return premium or other refund or return, and apply such amounts received, at Secured Party's election, to replacement of Collateral or to the Obligations. 6. Authorized Action by Secured Party. Debtor hereby agrees that from time to time, without presentment, notice or demand, and without affecting or impairing in any way the rights of Secured Party with respect to the Collateral, the obligations of the Debtor hereunder or the Obligations, Secured Party may, but shall not be obligated to and shall incur no liability to Debtor or any third party for failure to take any action which Debtor is obligated by this Security Agreement to do and to exercise such rights and powers as Debtor might exercise with respect to the Collateral, and Debtor hereby irrevocably appoints Secured Party as its attorney-in-fact to exercise such rights and powers, including without limitation, to: (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) insure, process and preserve the Collateral; (d) transfer the Collateral to its own or its nominee's name; (e) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; and (f) notify any Account Debtor on any Collateral to make payment directly to Secured Party. 5 41 7. Default and Remedies. Upon the occurrence of an Event of Default, Secured Party may, at its option, and without notice to or demand on Debtor and in addition to all rights and remedies available to Secured Party under the Guaranty and the other Loan Documents, at law, in equity or otherwise, do any one or more of the following: (a) Foreclose or otherwise enforce Secured Party's security interest in any manner permitted by law, or provided for in this Security Agreement. (b) Sell, lease or otherwise dispose of any Collateral at one or more public or private sales at Secured Party's place of business or any other place or places, including, without limitation, any broker's board or securities exchange, whether or not such Collateral is present at the place of sale, for cash or credit or future delivery, on such terms and in such manner as Secured Party may determine. (c) Recover from Debtor all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred or paid by Secured Party in exercising any right, power or remedy provided by this Security Agreement. (d) Require Debtor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party. (e) Enter onto property where any Collateral is located and take possession thereof with or without judicial process. (f) Prior to the disposition of the Collateral, store, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent Secured Party deems appropriate and in connection with such preparation and disposition, without charge, use any trademark, tradename, copyright, patent or technical process used by Debtor. (g) Debtor shall be given five (5) business days' prior notice of the time and place of any public sale or of the time after which any private sale or other intended disposition of Collateral is to be made, which notice Debtor hereby agrees shall be deemed reasonable notice thereof. (h) Upon any sale or other disposition pursuant to this Security Agreement, Secured Party shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral or portion thereof so sold or disposed of. Each purchaser at any such sale or other disposition (including Secured Party) shall hold the Collateral free from any claim or right of whatever kind, including any equity or right of redemption of Debtor and Debtor specifically waives (to the extent permitted by law) all rights of redemption, stay or appraisal which it has or may have under any rule of law or statute now existing or hereafter adopted. 8. Cumulative Rights. The rights, powers and remedies of Secured Party under this Security Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statute or rule of law, the Guaranty, the other Loan Documents or any other agreement, all of which rights, powers and remedies shall be cumulative and may be 6 42 exercised successively or concurrently without impairing Secured Party's security interest in the Collateral. 9. Waiver. Any waiver, forbearance, failure or delay by Secured Party in exercising any right, power or remedy shall not preclude the further exercise thereof, and every right, power or remedy of Secured Party shall continue in full force and effect until such right, power or remedy is specifically waived in a writing executed by Secured Party. Debtor waives any right to require Secured Party to proceed against any person or to exhaust any Collateral or to pursue any remedy in Secured Party's power. 10. Setoff, Debtor agrees that Secured Party may exercise its rights of setoff with respect to the Obligations in the same manner as if the Obligations were unsecured. 11. Binding Upon Successors. All rights of Secured Party under this Security Agreement shall inure to the benefit of its successors and assigns, and all obligations of Debtor shall bind its heirs, executors, administrators, successors and assigns. 12. Entire Agreement; Severability. This Security Agreement contains the entire security agreement between Secured Party and Debtor. If any of the provisions of this Security Agreement shall be held invalid or unenforceable, this Security Agreement shall be construed as if not containing those provisions and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 13. References. The singular includes the plural. If more than one executes this Security Agreement, the term Debtor shall be deemed to refer to each of the undersigned Debtors as well as to all of them, and their obligations and agreements hereunder shall be joint and several. If any of the undersigned is a married person, recourse may be had against his or her separate property for the Obligations. 14. Choice of Law. This Security Agreement shall be construed in accordance with and governed by the laws of the State of California, without giving effect to choice of law rules, and, where applicable and except as otherwise defined herein, terms used herein shall have the meanings given them in the Uniform Commercial Code of such state. 15. Amendment. This Security Agreement may not be amended or modified except by a writing signed by each of the parties hereto. 16. Place of Business; Location of Records and Collateral. Debtor represents that Schedule A attached hereto accurately and completely sets forth: (a) its chief place of business; (b) all trade name(s) or style(s) used by Debtor; and (c) all locations where Debtor's records concerning the Collateral are located; and (d) all locations where Collateral is located. 17. Notices. All notices, consents, requests and demands to or upon the respective parties under this Security Agreement shall be in writing and shall be deemed to have been given or made when delivered in person to those Persons listed on the signature pages hereof or when deposited in the United States mail, postage prepaid, or, in the case of telegraphic notice or 7 43 overnight courier service, when delivered to the telegraph company or overnight courier service, or in the case of telex or telecopy notice, when sent, verification received, in each case addressed as set forth on the signature pages hereof, or to such other address as either party may designate by notice to the other given in accordance with this Paragraph 17. EXECUTED this 12 day of September, 1995. DEBTOR: AMERICAN VANGUARD CORPORATION, a Delaware corporation By: /s/ JAMES A. BARRY --------------------------------------- Name: James A. Barry --------------------------------------- Title: Vice President, CFO --------------------------------------- Address: 2110 Davie Avenue City of Commerce, California 90040 SECURED PARTY: SANWA BANK CALIFORNIA, a California corporation with a state banking license By: /s/ JOSEPH C. ARCO --------------------------------------- Name: Joseph C. Arco --------------------------------------- Title: V.P. --------------------------------------- Address: 601 South Figueroa Street Los Angeles, California 90017 8 44 AMENDED AND RESTATED SECURITY AGREEMENT THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Security Agreement") is made and dated this 12 day of September, 1995 by and between SANWA BANK CALIFORNIA, a California corporation with a state banking license ("Secured Party"), and 2110 DAVIE CORPORATION, a California corporation ("Debtor"). RECITALS A. Pursuant to that certain Amended and Restated Credit Agreement, dated as of even date herewith (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement" and with capitalized terms not otherwise defined herein used with the same meaning as in the Credit Agreement), SANWA BANK CALIFORNIA agreed to extend credit to AMVAC CHEMICAL CORPORATION ("Borrower") in the aggregate principal amount of $15,750,000.00. B. Borrower is an affiliate of Debtor and will benefit from the credit extended to Borrower by Secured Party. As a condition precedent to Secured Party's obligation to extend such credit to Borrower, Debtor was required to execute and deliver that certain Credit Guaranty dated as of even date herewith (as amended, modified or supplemented from time to time, the "Guaranty") pursuant to which Debtor has guaranteed all indebtedness of Borrower to Secured Party under the Credit Agreement and the other Loan Documents. As a condition precedent to Secured Party's obligation to extend credit to Borrower pursuant to the Credit Agreement, Debtor also is required to execute and deliver and this Security Agreement. C. This Security Agreement amends and restates all security agreements executed by Debtor in favor of Secured Party granting a security interest in personal property of the Debtor to secure the obligations of Debtor under the Guaranty or any other guaranty of indebtedness owed by Borrower to Secured Party under the Existing Revolving Credit Agreement and/or under the Existing Term Loan Agreement. NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor hereby agrees as follows: AGREEMENT 1. Grant of Security Interest. Debtor hereby pledges and grants to Secured Party a security interest in the property described in Paragraph 2 below (collectively and severally, the "Collateral") to secure payment and performance of the obligations described in Paragraph 3 below (collectively and severally, the "Obligations"). 1 45 2. Collateral. The Collateral shall consist of all right, title and interest of Debtor, now existing or hereafter arising, in under and to: (a) Equipment. All goods and equipment ("Equipment") now owned or hereafter acquired by the Debtor or in which the Debtor now has or may hereafter acquire any interest including, but not limited to, all machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description and all additions, accessions, improvements, replacements and substitutions thereto and thereof. (b) Inventory. All inventory ("Inventory") now owned or hereafter acquired by the Debtor including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Debtor's custody or possession, together with all returns on accounts. (c) Accounts and Contract Rights. All accounts and contract rights now owned or hereafter created or acquired by the Debtor, including but not limited to, all receivables and all rights and benefits due to the Debtor under any contract or agreement. (d) General Intangibles. All general intangibles now owned or hereafter created or acquired by the Debtor, including but not limited to, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. (e) Chattel Paper and Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Debtor. (f) Monies and Other Property in Possession. All monies and property of the Debtor now or hereafter in the possession of the Secured Party or the Secured Party's agents, or any one of them, including, but not limited to, all deposit accounts, certificates of deposit, stocks, bonds, indentures, warrants, options and other negotiable and non-negotiable securities and instruments, together with all stock rights, rights to subscribe, liquidating dividends, cash dividends, payments, dividends paid in stock, new securities or other property to which the Debtor may become entitled to receive on account of such property. The Secured Party's security interest in the Collateral shall be a continuing lien and shall include all proceeds and products of the Collateral including but not limited to, the proceeds of any insurance thereon. 3. Obligations. The Obligations secured by this Security Agreement shall consist of any and all debts, obligations and liabilities of Debtor to Secured Party arising out of or related to the Guaranty, whether principal, interest, fees or otherwise, whether now existing or hereafter arising, whether voluntary or involuntary, whether or not jointly owed with others, whether direct or indirect, absolute or contingent, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, whether or not from time to time decreased or extinguished and later increased, created or incurred and whether or not extended, modified, rearranged, restructured, refinanced or replaced, including without limitation, modifications to interest rates or other payment terms of such debts, obligations or liabilities. 2 46 4. Representations and Warranties. In addition to any representations and warranties of Debtor set forth in the Guaranty, which are incorporated herein by this reference, Debtor hereby represents and warrants that: (a) Debtor is the sole owner of and has good and marketable title to the Collateral (or, in the case of after-acquired Collateral, at the time the Debtor acquires rights in the Collateral, will be the sole owner thereof and have good and marketable title thereto). (b) Except for security interests in favor of Secured Party, no person has (or, in the case of after-acquired Collateral, at the time Debtor acquires rights therein, will have) any right, title, claim or interest (by way of security interest or other lien or charge) in, against or to the Collateral. (c) All information heretofore, herein or hereafter supplied to Secured Party by or on behalf of Debtor with respect to the Collateral is accurate and complete. (d) Debtor has delivered to Secured Party all instruments, documents, chattel paper and other items of Collateral in which a security interest is or may be perfected by possession, the certificate of title with respect to each motor vehicle, if any, included in the Collateral, together with such other writings with respect thereto as Secured Party shall request. (e) Each account, contract right, item of chattel paper, instrument or any other right to the payment of money constituting Collateral is genuine and enforceable in accordance with its terms against the party obligated to pay the same (an "Account Debtor"), which terms have not been modified or waived in any respect or to any extent. (f) Any amount represented by Debtor to Secured Party as owing by any Account Debtor is the correct amount actually and unconditionally owing by such Account Debtor. (g) No Account Debtor has any defense, set off, claim or counterclaim against Debtor which can be asserted against Secured Party, whether in any proceeding to enforce Secured Party's rights in the Collateral, or otherwise. 5. Covenants and Agreements of Debtor. In addition to all covenants and agreements of Debtor set forth in the Guaranty, which are incorporated herein by this reference, Debtor hereby agrees: (a) To do all acts that may be necessary to maintain, preserve and protect the Collateral; (b) Not to use or permit any Collateral to be used unlawfully or in violation of any provision of this Security Agreement, any other agreement with Secured Party related hereto or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; 3 47 (c) To pay promptly when due all taxes, assessments, charges, encumbrances and liens now or hereafter imposed upon or affecting any Collateral; (d) To appear in and defend any action or proceeding which may affect its title to or Secured Party's interest in the Collateral; (e) Not to surrender or lose possession of (other than to Secured Party), sell, encumber, lease, rent, or otherwise dispose of or transfer any Collateral or right or interest therein except as hereinafter provided, and to keep the Collateral free of all levies and security interests or other liens or charges except those approved in writing by Secured Party (provided that, unless an Event of Default shall occur, Debtor may, in the ordinary course of business, sell or lease any Collateral consisting of inventory); (f) To comply with all laws, regulations and ordinances relating to the possession, operation, maintenance and control of the Collateral; (g) That such care as Secured Party gives to the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral when in Secured Party's possession; (h) To account fully for and promptly deliver to Secured Party, in the form received, all documents, chattel paper, instruments and agreements constituting Collateral hereunder and all proceeds of the Collateral received, all endorsed to Secured Party or in blank, as requested by Secured Party, and accompanied by such stock powers as appropriate and until so delivered all such documents, instruments, agreements and proceeds shall be held by Debtor in trust for Secured Party, separate from all other property of Debtor and identified as the property of Secured Party; (i) To keep separate, accurate and complete records of the Collateral and to provide Secured Party with such records and such other reports and information relating to the Collateral as Secured Party may request from time to time; (j) To procure, execute and deliver from time to time any endorsements, notifications, registrations, assignments, financing statements, certificates of title, ship mortgages, aircraft mortgages, copyright mortgages, assignments or mortgages of patents, mortgages of mask works, mortgages for filing pursuant to the Interstate Commerce Act, and other writings deemed necessary or appropriate by Secured Party to perfect, maintain and protect its security interest in the Collateral hereunder and the priority thereof; (k) To take such other actions as Secured Party may request to protect the value of the Collateral and of Secured Party's security interest in the Collateral, including, without limitation, provision of assurances from third parties regarding Secured Party's access to, right to foreclose on or sell, Collateral and right to realize the practical benefits of such foreclosure or sale; 4 48 (l) To reimburse Secured Party upon demand for any costs and expenses, including, without limitation, attorneys' fees and disbursements, Secured Party may incur while exercising any right, power or remedy provided by this Security Agreement or by law, all of which costs and expenses are included in the Obligations; (m) To give Secured Party thirty (30) days prior written notice of any change in Debtor's residence or chief place of business or legal name or trade name(s) or style(s) set forth in Paragraph 16 below; (n) To keep the records concerning the Collateral and to keep the Collateral at the location(s) referred to in Paragraph 16 below and not to remove such records from such location(s) without the prior written consent of Secured Party; (o) If Secured Party gives value to enable Debtor to acquire rights in or the use of any Collateral, to use such value for such purpose; (p) To keep the Collateral in good condition and repair and not to cause or permit any waste or unusual or unreasonable depreciation of the Collateral; (q) At any reasonable time, upon demand by Secured Party, to exhibit to and allow inspection by Secured Party (or persons designated by Secured Party) of the Collateral; and (r) To insure the Collateral, with Secured Party named as loss payee, in form and amounts, with companies, and against risks and liabilities satisfactory to Secured Party, and Debtor hereby assigns the policies to Secured Party, agrees to deliver them to Secured Party at its request, and agrees that Secured Party may make any claim thereunder, cancel the insurance on default by Debtor, collect and receive payment of and endorse any instrument in payment of loss or return premium or other refund or return, and apply such amounts received, at Secured Party's election, to replacement of Collateral or to the Obligations. 6. Authorized Action by Secured Party. Debtor hereby agrees that from time to time, without presentment, notice or demand, and without affecting or impairing in any way the rights of Secured Party with respect to the Collateral, the obligations of the Debtor hereunder or the Obligations, Secured Party may, but shall not be obligated to and shall incur no liability to Debtor or any third party for failure to take any action which Debtor is obligated by this Security Agreement to do and to exercise such rights and powers as Debtor might exercise with respect to the Collateral, and Debtor hereby irrevocably appoints Secured Party as its attorney-in-fact to exercise such rights and powers, including without limitation, to: (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) insure, process and preserve the Collateral; (d) transfer the Collateral to its own or its nominee's name; (e) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; and (f) notify any Account Debtor on any Collateral to make payment directly to Secured Party. 5 49 7. Default and Remedies. Upon the occurrence of an Event of Default, Secured Party may, at its option, and without notice to or demand on Debtor and in addition to all rights and remedies available to Secured Party under the Guaranty and the other Loan Documents, at law, in equity or otherwise, do any one or more of the following: (a) Foreclose or otherwise enforce Secured Party's security interest in any manner permitted by law, or provided for in this Security Agreement. (b) Sell, lease or otherwise dispose of any Collateral at one or more public or private sales at Secured Party's place of business or any other place or places, including, without limitation, any broker's board or securities exchange, whether or not such Collateral is present at the place of sale, for cash or credit or future delivery, on such terms and in such manner as Secured Party may determine. (c) Recover from Debtor all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred or paid by Secured Party in exercising any right, power or remedy provided by this Security Agreement. (d) Require Debtor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party. (e) Enter onto property where any Collateral is located and take possession thereof with or without judicial process. (f) Prior to the disposition of the Collateral, store, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent Secured Party deems appropriate and in connection with such preparation and disposition, without charge, use any trademark, tradename, copyright, patent or technical process used by Debtor. (g) Debtor shall be given five (5) business days' prior notice of the time and place of any public sale or of the time after which any private sale or other intended disposition of Collateral is to be made, which notice Debtor hereby agrees shall be deemed reasonable notice thereof. (h) Upon any sale or other disposition pursuant to this Security Agreement, Secured Party shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral or portion thereof so sold or disposed of. Each purchaser at any such sale or other disposition (including Secured Party) shall hold the Collateral free from any claim or right of whatever kind, including any equity or right of redemption of Debtor and Debtor specifically waives (to the extent permitted by law) all rights of redemption, stay or appraisal which it has or may have under any rule of law or statute now existing or hereafter adopted. 8. Cumulative Rights. The rights, powers and remedies of Secured Party under this Security Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statute or rule of law, the Guaranty, the other Loan Documents or any other agreement, all of which rights, powers and remedies shall be cumulative and may be 6 50 exercised successively or concurrently without impairing Secured Party's security interest in the Collateral. 9. Waiver. Any waiver, forbearance, failure or delay by Secured Party in exercising any right, power or remedy shall not preclude the further exercise thereof, and every right, power or remedy of Secured Party shall continue in full force and effect until such right, power or remedy is specifically waived in a writing executed by Secured Party. Debtor waives any right to require Secured Party to proceed against any person or to exhaust any Collateral or to pursue any remedy in Secured Party's power. 10. Setoff. Debtor agrees that Secured Party may exercise its rights of setoff with respect to the Obligations in the same manner as if the Obligations were unsecured. 11. Binding Upon Successors. All rights of Secured Party under this Security Agreement shall inure to the benefit of its successors and assigns, and all obligations of Debtor shall bind its heirs, executors, administrators, successors and assigns. 12. Entire Agreement; Severability. This Security Agreement contains the entire security agreement between Secured Party and Debtor. If any of the provisions of this Security Agreement shall be held invalid or unenforceable, this Security Agreement shall be construed as if not containing those provisions and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 13. References. The singular includes the plural. If more than one executes this Security Agreement, the term Debtor shall be deemed to refer to each of the undersigned Debtors as well as to all of them, and their obligations and agreements hereunder shall be joint and several. If any of the undersigned is a married person, recourse may be had against his or her separate property for the Obligations. 14. Choice of Law. This Security Agreement shall be construed in accordance with and governed by the laws of the State of California, without giving effect to choice of law rules, and, where applicable and except as otherwise defined herein, terms used herein shall have the meanings given them in the Uniform Commercial Code of such state. 15. Amendment. This Security Agreement may not be amended or modified except by a writing signed by each of the parties hereto. 16. Place of Business; Location of Records and Collateral. Debtor represents that Schedule A attached hereto accurately and completely sets forth: (a) its chief place of business; (b) all trade name(s) or style(s), used by Debtor; and (c) all locations where Debtor's records concerning the Collateral are located; and (d) all locations where Collateral is located. 17. Notices. All notices, consents, requests and demands to or upon the respective parties under this Security Agreement shall be in writing and shall be deemed to have been given or made when delivered in person to those Persons listed on the signature pages hereof or when deposited in the United States mail, postage prepaid, or, in the case of telegraphic notice or 7 51 overnight courier service, when delivered to the telegraph company or overnight courier service, or in the case of telex or telecopy notice, when sent, verification received, in each case addressed as set forth on the signature pages hereof, or to such other address as either party may designate by notice to the other given in accordance with this Paragraph 17. EXECUTED this 12 day of September, 1995. DEBTOR: 2110 DAVIE CORPORATION, a California corporation By: /s/ JAMES A. BARRY ------------------------------ Name: James A. Barry ----------------------------- Title: Vice President/CFO ---------------------------- Address: 2110 Davie Street City of Commerce, California 90040 SECURED PARTY: SANWA BANK CALIFORNIA, a California corporation with a state banking license By: /s/ JOSEPH C. ARCO ------------------------------ Name: Joseph C. Arco ----------------------------- Title: V.P. ---------------------------- Address: 601 South Figueroa Street Los Angeles, California 90017 8 52 AMENDED AND RESTATED SECURITY AGREEMENT THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Security Agreement") is made and dated this 12 day of September, 1995 by and between SANWA BANK CALIFORNIA, a California corporation with a state banking license ("Secured Party"), and GEMCHEM, INC., a California corporation ("Debtor"). RECITALS A. Pursuant to that certain Amended and Restated Credit Agreement, dated as of even date herewith (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement" and with capitalized terms not otherwise defined herein used with the same meaning as in the Credit Agreement), SANWA BANK CALIFORNIA agreed to extend credit to AMVAC CHEMICAL CORPORATION ("Borrower") in the aggregate principal amount of $15,750,000.00. B. Borrower is an affiliate of Debtor and will benefit from the credit extended to Borrower by Secured Party. As a condition precedent to Secured Party's obligation to extend such credit to Borrower, Debtor was required to execute and deliver that certain Credit Guaranty dated as of even date herewith (as amended, modified or supplemented from time to time, the "Guaranty") pursuant to which Debtor has guaranteed all indebtedness of Borrower to Secured Party under the Credit Agreement and the other Loan Documents. As a condition precedent to Secured Party's obligation to extend credit to Borrower pursuant to the Credit Agreement, Debtor also is required to execute and deliver and this Security Agreement. C. This Security Agreement amends and restates all security agreements executed by Debtor in favor of Secured Party granting a security interest in personal property of the Debtor to secure the obligations of Debtor under the Guaranty or any other guaranty of indebtedness owed by Borrower to Secured Party under the Existing Revolving Credit Agreement and/or under the Existing Tenn Loan Agreement. NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor hereby agrees as follows: AGREEMENT 1. Grant of Security Interest. Debtor hereby pledges and grants to Secured Party a security interest in the property described in Paragraph 2 below (collectively and severally, the "Collateral") to secure payment and performance of the obligations described in Paragraph 3 below (collectively and severally, the "Obligations"). 1 53 2. Collateral. The Collateral shall consist of all right, title and interest of Debtor, now existing or hereafter arising, in under and to: (a) Equipment. All goods and equipment ("Equipment") now owned or hereafter acquired by the Debtor or in which the Debtor now has or may hereafter acquire any interest including, but not limited to, all machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description and all additions, accessions, improvements, replacements and substitutions thereto and thereof (b) Inventory. All inventory ("Inventory") now owned or hereafter acquired by the Debtor including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Debtor's custody or possession, together with all returns on accounts. (c) Accounts and Contract Rights. All accounts and contract rights now owned or hereafter created or acquired by the Debtor, including but not limited to, all receivables and all rights and benefits due to the Debtor under any contract or agreement. (d) General Intangibles. All general intangibles now owned or hereafter created or acquired by the Debtor, including but not limited to, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. (e) Chattel Paper and Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Debtor. (f) Monies and Other Property in Possession. All monies and property of the Debtor now or hereafter in the possession of the Secured Party or the Secured Party's agents, or any one of them, including, but not limited to, all deposit accounts, certificates of deposit, stocks, bonds, indentures, warrants, options and other negotiable and non-negotiable securities and instruments, together with all stock rights, rights to subscribe, liquidating dividends, cash dividends, payments, dividends paid in stock, new securities or other property to which the Debtor may become entitled to receive on account of such property. The Secured Party's security interest in the Collateral shall be a continuing lien and shall include all proceeds and products of the Collateral including but not limited to, the proceeds of any insurance thereon. 3. Obligations. The Obligations secured by this Security Agreement shall consist of any and all debts, obligations and liabilities of Debtor to Secured Party arising out of or related to the Guaranty, whether principal, interest, fees or otherwise, whether now existing or hereafter arising, whether voluntary or involuntary, whether or not jointly owed with others, whether direct or indirect, absolute or contingent, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, whether or not from time to time decreased or extinguished and later increased, created or incurred and whether or not extended, modified, rearranged, restructured, refinanced or replaced, including without limitation, modifications to interest rates or other payment terms of such debts, obligations or liabilities. 2 54 4. Representations and Warranties. In addition to any representations and warranties of Debtor set forth in the Guaranty, which are incorporated herein by this reference, Debtor hereby represents and warrants that: (a) Debtor is the sole owner of and has good and marketable title to the Collateral (or, in the case of after-acquired Collateral, at the time the Debtor acquires rights in the Collateral, will be the sole owner thereof and have good and marketable title thereto). (b) Except for security interests in favor of Secured Party, no person has (or, in the case of after-acquired Collateral, at the time Debtor acquires rights therein, will have) any right, title, claim or interest (by way of security interest or other lien or charge) in, against or to the Collateral. (c) All information heretofore, herein or hereafter supplied to Secured Party by or on behalf of Debtor with respect to the Collateral is accurate and complete. (d) Debtor has delivered to Secured Party all instruments, documents, chattel paper and other items of Collateral in which a security interest is or may be perfected by possession, the certificate of title with respect to each motor vehicle, if any, included in the Collateral, together with such other writings with respect thereto as Secured Party shall request. (e) Each account, contract right, item of chattel paper, instrument or any other right to the payment of money constituting Collateral is genuine and enforceable in accordance with its terms against the party obligated to pay the same (an "Account Debtor"), which terms have not been modified or waived in any respect or to any extent. (f) Any amount represented by Debtor to Secured Party as owing by any Account Debtor is the correct amount actually and unconditionally owing by such Account Debtor. (g) No Account Debtor has any defense, set off, claim or counterclaim against Debtor which can be asserted against Secured Party, whether in any proceeding to enforce Secured Party's rights in the Collateral, or otherwise. 5. Covenants and Agreements of Debtor. In addition to all covenants and agreements of Debtor set forth in the Guaranty, which are incorporated herein by this reference, Debtor hereby agrees: (a) To do all acts that may be necessary to maintain, preserve and protect the Collateral; (b) Not to use or permit any Collateral to be used unlawfully or in violation of any provision of this Security Agreement, any other agreement with Secured Party related hereto or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; 3 55 (c) To pay promptly when due all taxes, assessments, charges, encumbrances and liens now or hereafter imposed upon or affecting any Collateral; (d) To appear in and defend any action or proceeding which may affect its title to or Secured Party's interest in the Collateral; (e) Not to surrender or lose possession of (other than to Secured Party), sell, encumber, lease, rent, or otherwise dispose of or transfer any Collateral or right or interest therein except as hereinafter provided, and to keep the Collateral free of all levies and security interests or other liens or charges except those approved in writing by Secured Party (provided that, unless an Event of Default shall occur, Debtor may, in the ordinary course of business, sell or lease any Collateral consisting of inventory); (f) To comply with all laws, regulations and ordinances relating to the possession, operation, maintenance and control of the Collateral; (g) That such care as Secured Party gives to the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral when in Secured Party's possession; (h) To account fully for and promptly deliver to Secured Party, in the form received, all documents, chattel paper, instruments and agreements constituting Collateral hereunder and all proceeds of the Collateral received, all endorsed to Secured Party or in blank, as requested by Secured Party, and accompanied by such stock powers as appropriate and until so delivered all such documents, instruments, agreements and proceeds shall be held by Debtor in trust for Secured Party, separate from all other property of Debtor and identified as the property of Secured Party; (i) To keep separate, accurate and complete records of the Collateral and to provide Secured Party with such records and such other reports and information relating to the Collateral as Secured Party may request from time to time; (j) To procure, execute and deliver from time to time any endorsements, notifications, registrations, assignments, financing statements, certificates of title, ship mortgages, aircraft mortgages, copyright mortgages, assignments or mortgages of patents, mortgages of mask works, mortgages for filing pursuant to the Interstate Commerce Act, and other writings deemed necessary or appropriate by Secured Party to perfect, maintain and protect its security interest in the Collateral hereunder and the priority thereof; (k) To take such other actions as Secured Party may request to protect the value of the Collateral and of Secured Party's security interest in the Collateral, including, without limitation, provision of assurances from third parties regarding Secured Party's access to, right to foreclose on or sell, Collateral and right to realize the practical benefits of such foreclosure or sale; (l) To reimburse Secured Party upon demand for any costs and expenses, including, without limitation, attorneys' fees and disbursements, Secured Party may incur while 4 56 exercising any right, power or remedy provided by this Security Agreement or by law, all of which costs and expenses are included in the Obligations; (m) To give Secured Party thirty (30) days prior written notice of any change in Debtor's residence or chief place of business or legal name or trade name(s) or style(s) set forth in Paragraph 16 below; (n) To keep the records concerning the Collateral and to keep the Collateral at the location(s) referred to in Paragraph 16 below and not to remove such records from such location(s) without the prior written consent of Secured Party; (o) If Secured Party gives value to enable Debtor to acquire rights in or the use of any Collateral, to use such value for such purpose; (p) To keep the Collateral in good condition and repair and not to cause or permit any waste or unusual or unreasonable depreciation of the Collateral; (q) At any reasonable time, upon demand by Secured Party, to exhibit to and allow inspection by Secured Party (or persons designated by Secured Party) of the Collateral; and (r) To insure the Collateral, with Secured Party named as loss payee, in form and amounts, with companies, and against risks and liabilities satisfactory to Secured Party, and Debtor hereby assigns the policies to Secured Party, agrees to deliver them to Secured Party at its request, and agrees that Secured Party may make any claim thereunder, cancel the insurance on default by Debtor, collect and receive payment of and endorse any instrument in payment of loss or return premium or other refund or return, and apply such amounts received, at Secured Party's election, to replacement of Collateral or to the Obligations. 6. Authorized Action by Secured Party. Debtor hereby agrees that from time to time, without presentment, notice or demand, and without affecting or impairing in any way the rights of Secured Party with respect to the Collateral, the obligations of the Debtor hereunder or the Obligations, Secured Party may, but shall not be obligated to and shall incur no liability to Debtor or any third party for failure to take any action which Debtor is obligated by this Security Agreement to do and to exercise such rights and powers as Debtor might exercise with respect to the Collateral, and Debtor hereby irrevocably appoints Secured Party as its attorney-in-fact to exercise such rights and powers, including without limitation, to: (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) insure, process and preserve the Collateral; (d) transfer the Collateral to its own or its nominee's name; (e) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; and (f) notify any Account Debtor on any Collateral to make payment directly to Secured Party. 5 57 7. Default and Remedies. Upon the occurrence of an Event of Default, Secured Party may, at its option, and without notice to or demand on Debtor and in addition to all rights and remedies available to Secured Party under the Guaranty and the other Loan Documents, at law, in equity or otherwise, do any one or more of the following: (a) Foreclose or otherwise enforce Secured Party's security interest in any manner permitted by law, or provided for in this Security Agreement. (b) Sell, lease or otherwise dispose of any Collateral at one or more public or private sales at Secured Party's place of business or any other place or places, including, without limitation, any broker's board or securities exchange, whether or not such Collateral is present at the place of sale, for cash or credit or future delivery, on such terms and in such manner as Secured Party may determine. (c) Recover from Debtor all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred or paid by Secured Party in exercising any right, power or remedy provided by this Security Agreement. (d) Require Debtor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party. (e) Enter onto property where any Collateral is located and take possession thereof with or without judicial process. (f) Prior to the disposition of the Collateral, store, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent Secured Party deems appropriate and in connection with such preparation and disposition, without charge, use any trademark, tradename, copyright, patent or technical process used by Debtor. (g) Debtor shall be given five (5) business days' prior notice of the time and place of any public sale or of the time after which any private sale or other intended disposition of Collateral is to be made, which notice Debtor hereby agrees shall be deemed reasonable notice thereof. (h) Upon any sale or other disposition pursuant to this Security Agreement, Secured Party shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral or portion thereof so sold or disposed of. Each purchaser at any such sale or other disposition (including Secured Party) shall hold the Collateral free from any claim or right of whatever kind, including any equity or right of redemption of Debtor and Debtor specifically waives (to the extent permitted by law) all rights of redemption, stay or appraisal which it has or may have under any rule of law or statute now existing or hereafter adopted. 8. Cumulative Rights. The rights, powers and remedies of Secured Party under this Security Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statute or rule of law, the Guaranty, the other Loan Documents or any other agreement, all of which rights, powers and remedies shall be cumulative and may be 6 58 exercised successively or concurrently without impairing Secured Party's security interest in the Collateral. 9. Waiver. Any waiver, forbearance, failure or delay by Secured Party in exercising any right, power or remedy shall not preclude the further exercise thereof, and every right, power or remedy of Secured Party shall continue in full force and effect until such right, power or remedy is specifically waived in a writing executed by Secured Party. Debtor waives any right to require Secured Party to proceed against any person or to exhaust any Collateral or to pursue any remedy in Secured Party's power. 10. Setoff. Debtor agrees that Secured Party may exercise its rights of setoff with respect to the Obligations in the same manner as if the Obligations were unsecured. 11. Binding Upon Successors. All rights of Secured Party under this Security Agreement shall inure to the benefit of its successors and assigns, and all obligations of Debtor shall bind its heirs, executors, administrators, successors and assigns. 12. Entire Agreement; Severability. This Security Agreement contains the entire security agreement between Secured Party and Debtor. If any of the provisions of this Security Agreement shall be held invalid or unenforceable, this Security Agreement shall be construed as if not containing those provisions and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 13. References. The singular includes the plural. If more than one executes this Security Agreement, the term Debtor shall be deemed to refer to each of the undersigned Debtors as well as to all of them, and their obligations and agreements hereunder shall be joint and several. If any of the undersigned is a married person, recourse may be had against his or her separate property for the Obligations. 14. Choice of Law. This Security Agreement shall be construed in accordance with and governed by the laws of the State of California, without giving effect to choice of law rules, and, where applicable and except as otherwise defined herein, terms used herein shall have the meanings given them in the Uniform Commercial Code of such state. 15. Amendment. This Security Agreement may not be amended or modified except by a writing signed by each of the parties hereto. 16. Place of Business; Location of Records and Collateral. Debtor represents that Schedule A attached hereto accurately and completely sets forth: (a) its chief place of business; (b) all trade name(s) or style(s) used by Debtor; and (c) all locations where Debtor's records concerning the Collateral are located; and (d) all locations where Collateral is located. 17. Notices. All notices, consents, requests and demands to or upon the respective parties under this Security Agreement shall be in writing and shall be deemed to have been given or made when delivered in person to those Persons listed on the signature pages hereof or when deposited in the United States mail, postage prepaid, or, in the case of telegraphic notice or 7 59 overnight courier service, when delivered to the telegraph company or overnight courier service, or in the case of telex or telecopy notice, when sent, verification received, in each case addressed as set forth on the signature pages hereof, or to such other address as either party may designate by notice to the other given in accordance with this Paragraph 17. EXECUTED this 12 day of September, 1995. DEBTOR: GEMCHEM, INC., a California corporation By: /s/ JAMES A. BARRY ------------------------------------ Name: James A. Barry ------------------------------------ Title: Vice President, CFO ------------------------------------ Address: 1151 Dove Street, Suite 115 Newport Beach, California 92660 SECURED PARTY: SANWA BANK CALIFORNIA, a California corporation with a state banking license By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ Address: 601 South Figueroa Street Los Angeles, California 90017 8 60 TERM NOTE Up to $5,250,000.00 September 12, 1995 FOR VALUE RECEIVED, the undersigned, AMVAC CHEMICAL CORPORATION, a California corporation (the "Borrower"), hereby promises to pay to the order of SANWA BANK CALIFORNIA (the "Lender"), at its office at 601 South Figueroa Street, W8-12, Los Angeles, California 90017 (or such other place as the Lender may direct from time to time), in lawful money of the United States and in immediately available funds, the principal amount advanced to the Borrower under that certain Amended and Restated Credit Agreement dated as of September 12, 1995 by and between the Borrower and the Lender (as such agreement may be amended from time to time, the "Credit Agreement"), together with interest thereon computed in accordance with the Credit Agreement, on the dates required pursuant to the Credit Agreement. Capitalized terms used herein without definition have the meanings assigned thereto in the Credit Agreement. This Term Note is the "Term Note" referred to in the Credit Agreement. Reference is hereby made to the Credit Agreement and the other Loan Documents, including, without limitation, the Security Agreement, the Deed of Trust and the Guaranties, for rights and obligations of payment and prepayment, events of default and the right of the Lender to accelerate the maturity hereof upon the occurrence of such events. The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Term Note. The Borrower agrees to pay all collection expenses, court costs and reasonable attorneys' fees and disbursements (whether or not litigation is commenced) which may be incurred in connection with the collection or enforcement of this Term Note. This Term Note shall be governed by and construed in accordance with the laws of the State of California, without giving effect to choice of law rules. AMVAC CHEMICAL CORPORATION, a California corporation By: /s/ JAMES A. BARRY ----------------------------------- Name: James A. Barry ----------------------------------- Title: Vice President, CFO ----------------------------------- EX-21 3 LIST OF SUBSIDIARIES OF REGISTRANT 1 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES EXHIBIT 21 LISTING OF SUBSIDIARIES Subsidiaries of the Company and the jurisdiction in which each company was incorporated are listed below. Unless otherwise indicated parenthetically, 100% of the voting securities of each subsidiary are owned by the Company. All companies indicated with an asterisk (*) are subsidiaries of CHEMICAL. All of the following subsidiaries are included in the Company's consolidated financial statements: AMVAC Chemical Corporation California GemChem, Inc. California 2110 Davie Corporation California (formerly ABSCO Distributing) Environmental Mediation, Inc. (51%) California Calhart Corporation California Manufacturers Mirror & Glass Co., Inc. California Todagco (80%)* California American Vanguard Corporation of Imperial Valley (90%)* California AMVAC Ag-Chem* California AMVAC Chemical Corporation-Nevada* Nevada EX-27 4 FINANCIAL DATA SCHEDULE
5 1 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 331600 0 15486000 0 8269600 24668200 27760300 14079900 39341000 8973600 10705100 0 0 233100 17772300 39341000 55402100 55402100 30741100 30741100 18689400 0 928000 5043000 1919000 3124000 0 0 0 3124000 1.23 1.23
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