-----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, U7+LCuaqycGnauaPkKNGIpRAqNPyKof6rkph5DK2bxQcNdxxsc6kTbYaOMp27pAv T5RILJaGGTJn9gZLbfXxfA== 0001095811-00-000821.txt : 20000331 0001095811-00-000821.hdr.sgml : 20000331 ACCESSION NUMBER: 0001095811-00-000821 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: SEC FILE NUMBER: 001-13795 FILM NUMBER: 586823 BUSINESS ADDRESS: STREET 1: 4695 MACARTHUR COURT CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9492601200 MAIL ADDRESS: STREET 1: 4695 MACARTHUR COURT CITY: NEWPORT BEACH STATE: CA ZIP: 92660 FORMER COMPANY: FORMER CONFORMED NAME: AEROCON INC DATE OF NAME CHANGE: 19720620 10-K 1 FORM 10-K PERIOD END DECEMBER 31, 1999 1 UNITED STATES 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, 1999 [ ] 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) (949) 260-1200 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class: Common Stock, $.10 par value ---------------------------- Securities registered pursuant to Section 12(g) of the Act: NONE 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 24, 2000, was 2,455,182. The aggregate market value of the voting stock of the registrant held by non-affiliates at March 24, 2000, was $8,923,200. 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, 1999
PART I PAGE NO. -------- Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 22 PART III Item 10. Directors and Executive Officers of the Registrant 23 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 Item 13. Certain Relationships and Related Transactions 31 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32 SIGNATURES 34
3 PART I ------ This Report contains forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward- looking statements and related assumptions contained in the entire Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business and economic conditions; and changes in government laws and regulations, including taxes. 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", or the "Registrant" in this Annual Report refer to American Vanguard Corporation and its consolidated subsidiaries. The Company conducts its business through its subsidiaries, AMVAC Chemical Corporation ("AMVAC"), GemChem, Inc. ("GemChem"), 2110 Davie Corporation ("DAVIE"), AMVAC Chemical UK Ltd., ("Chemical UK") and Quimica Amvac De Mexico S.A. de C.V. ("Quimica Amvac") (Refer to Export Operations). AMVAC - ----- AMVAC is a California corporation that traces its history from 1945. AMVAC 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, and granular forms. AMVAC's business is continually undergoing an evolutionary change. Years ago AMVAC considered itself a distributor-formulator, but today AMVAC primarily manufactures, and markets its own proprietary products or custom manufactures or formulates for others. In November 1998, AMVAC acquired the U.S. Dibrom(R) insecticide business from Valent USA Corporation ("Valent"), a wholly-owned subsidiary of Sumitomo Chemical Company, Limited. The purchase included all U.S. Environmental Protection Agency ("EPA") registration rights issued under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") and state registrations of the product line, an extensive data package, inventory, trademarks and all 1 4 product related intellectual property. AMVAC has manufactured and formulated Dibrom(R) since 1981 for Valent and formerly for Chevron, which had held the U.S. rights to Dibrom(R) prior to Valent. AMVAC has owned the international rights to the Dibrom(R) product line since 1991. In January 1997, AMVAC purchased the rights, title and interest to Vapam(R) (Metam Sodium), a soil fumigant, from Zeneca, Inc. The official closing was December 31, 1996. The purchase included inventories of Vapam(R), EPA registration rights issued under FIFRA and certain other assets. AMVAC has manufactured Metam Sodium at its Los Angeles facility since 1988. AMVAC pays Zeneca a royalty on all Metam Sodium sold by AMVAC in the United States, Canada and Mexico in accordance with the terms and conditions of a definitive agreement. AMVAC has attempted to position itself in niche markets. In addition to the product line acquisitions disclosed above, in 1993 AMVAC purchased from E.I. du Pont de Nemours & Company ("Du Pont")the rights, title and interest (including Du Pont's EPA registration rights) in Bidrin(R), an insecticide for cotton crops and in 1991 AMVAC purchased from Rhone-Poulenc AG Company its Napthalene Acetic Acid ("NAA") plant growth regulator product line including Rhone-Poulenc's EPA registration rights. The crop protection industry in general is cyclical in nature. The demand for AMVAC's products tends to be slightly seasonal. 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. ConAgra, Inc., Helena Chemical, and Tenkoz accounted for 29%, 12% and 11% respectively, of the Company's sales in 1999. ConAgra, Inc. and Tenkoz accounted for 29% and 12%, respectively, of the Company's sales in 1998. ConAgra, Inc. accounted for 29% of the Company's sales in 1997. ConAgra and Helena Chemical are distributors of the Company's products. Tenkoz is a buying cooperative of various companies/producers. COMPETITION ----------- AMVAC faces competition from many domestic and foreign manufacturers in its marketplaces. Competition in AMVAC'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 AMVAC. AMVAC's ability to compete depends on its ability to develop additional applications for its current products and expand its product lines and customer base. AMVAC competes principally on the basis of the quality of its products and the technical service and 2 5 support given to its customers. The inability of AMVAC to effectively compete in several of AMVAC's principal products would have a material adverse effect on AMVAC'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. As previously mentioned, the Company has attempted to position AMVAC in smaller niche markets which are abandoned by larger companies. 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 as is evidenced by AMVAC's successful acquisitions of Dibrom(R), Vapam(R), Bidrin(R) and NAA. AMVAC's proprietary product formulations are protected to the extent possible as trade secrets and, to a lesser extent, by patents and trademarks. Although AMVAC 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. AMVAC's products also receive protection afforded by the effect of FIFRA legislation that makes it unlawful to sell any crop protection products in the United States unless such crop protection products have first been registered by the EPA as well as under similar state laws. Substantially all of AMVAC'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 AMVAC'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 AMVAC. AMVAC, on its own behalf and in joint efforts with other suppliers, has, and is currently furnishing, certain required data relative to specific products. Under FIFRA, the federal government requires registrants to submit a wide range of scientific data to support U.S. registrations. This requirement has significantly increased AMVAC's operating expenses in such areas as testing and the production of new products. AMVAC expensed $2,241,100, $2,611,900 and $2,241,300 during 1999, 1998 and 1997 respectively, related to gathering this information. Because scientific analyses are constantly improving, it cannot be determined with certainty whether or not 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. AMVAC 3 6 expenses these costs on an incurred basis. See also PART I, Item 7 of this Annual Report for discussions pertaining to research and development expenses. RAW MATERIALS ------------- The Company utilizes numerous outside sources as well as internal sources to supply the various raw materials and components used by AMVAC 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 ------------- During 1999, AMVAC continued activities to address environmental concerns associated with its facility (Facility) in Commerce, California and the adjacent railroad right-of-way. In March 1997, the Facility was accepted into California Environmental Protection Agency's Department of Toxic Substances Control's (DTSC) Expedited Remedial Action Program (ERAP). The remaining environmental investigation and any remediation activities related to ten underground storage tanks at the Facility, which had been closed in 1995, will be addressed by AMVAC under ERAP. Soil characterization activities at other areas of the Facility, originally expected to commence in the second or third quarter of 1999, will most likely commence in the second or third quarter of 2000. These activities were not implemented in 1999 due to revisions in the site investigation plan, which have yet to be approved by the DTSC. Once approved, investigation and remediation activities are planned to be implemented in phases over the next two to three years. These activities are required at all facilities which currently have, or in the past had, hazardous waste storage permits. Because AMVAC previously held a hazardous waste management permit, AMVAC is subject to these requirements. AMVAC completed remedial activities associated with the adjacent railroad right-of way in 1998 and received DTSC approval in a letter dated June 26, 1998 (the Letter). However, due to elevated concentrations of arsenic left in place at depths from 11 to 45 feet below ground surface, DTSC requires that a land use covenant be recorded on the property prior to issuance of a site certification in accordance with Chapter 6.85 of the California Health and Safety Code, and that reviews be conducted by AMVAC every five years to evaluate whether the completed remediation remains protective of public health and the environment. The railroad right-of-way is jointly owned by the Union Pacific Railroad Company and the Burlington Northern and Santa Fe Railway Company, and is managed on behalf of both companies by the latter. AMVAC facilitated discussions between the railroads and the DTSC during 1999 in an effort to bring this issue to closure. The railroad companies are 4 7 now in direct communication with the DTSC to negotiate the language of the land use covenant. The Company is subject to numerous federal and state laws and governmental regulations concerning environmental matters and employee health and safety. The Company continually adapts its manufacturing process to the environmental control standards of the various regulatory agencies. The U.S. EPA and other federal and state agencies have the authority to promulgate regulations that could have an impact on the Company's operations. AMVAC expends substantial funds to minimize the discharge of materials in the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, AMVAC recovers raw materials and increases product yield 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. EMPLOYEES --------- As of March 24, 2000, the Company employed approximately 170 persons (not including temporary contract personnel). AMVAC, 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 1998 in Mexico to conduct business in Mexico and related areas. The new office operates under the name Quimica AMVAC De Mexico S.A. de C.V. and will market chemical products for agricultural and commercial uses. The Company opened an office in August 1994, in the United Kingdom to conduct business in the European chemical market. The office, operating under the name AMVAC Chemical UK Ltd., focuses on developing product registration and distributor networks for AMVAC's product lines throughout Europe. The office is located in Surrey, England, a city southwest of London. The operating results of this 5 8 operation were not material to the Company's total operating results for the years ended December 31, 1999, 1998 and 1997. The Company classifies as export sales all products bearing foreign labeling shipped to a foreign destination.
1999 1998 1997 ---- ---- ---- Export Sales $5,399,400 $5,085,700 $6,646,000
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. GEMCHEM, INC. - ------------- GemChem is a California corporation incorporated in 1991 and purchased by the Company in 1994. GemChem is a national chemical distributor. GemChem, in addition to purchasing key raw materials for the Company, 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). 2110 DAVIE CORPORATION - ---------------------- DAVIE currently invests in real estate for corporate use only. See also PART I, Item 2 of this Annual Report. 6 9 ITEM 2 PROPERTIES - ------------------ The Company's corporate headquarters are located in Newport Beach, California. This facility is leased. See PART IV, Item 14, note 11 of this report for further information. AMVAC owns in fee approximately 152,000 square feet of improved land in Commerce, California, on which substantially all of its manufacturing facility and some of its warehouse facilities and offices are located. DAVIE owns in fee approximately 72,000 square feet of warehouse, office and laboratory space on approximately 118,000 square feet of land in Commerce, California, which is leased to AMVAC. AMVAC's manufacturing facilities are divided into five cost-centers; Vapam(R) (Metam Sodium), PCNB, granular products, small packaging, 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. AMVAC regularly adds chemical processing equipment to enhance its production capabilities. AMVAC believes its facilities are in good operating condition and are suitable and adequate for AMVAC'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 as well as 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 3 of the Notes to the Consolidated Financial Statements in PART IV, Item 14 of this Annual Report. AMVAC purchased unimproved land in Texas for possible future expansion. GemChem's, Chemical UK's and Quimica AMVAC'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. 7 10 ITEM 3 LEGAL PROCEEDINGS - ------------------------- DBCP LAWSUITS - ------------- A. CALIFORNIA MATTERS - --------------------- In February 1997, AMVAC was served with a complaint in an action filed in the San Francisco Superior Court entitled the Sultana Community Services District v. Shell Oil Co., et.al. The complaint alleges that the Sultana Community Services District's water supply was contaminated with Dibromochloropropane ("DBCP"). The complaint names as defendants AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company and Velsicol Chemical Corporation. Plaintiff has not produced documentation to support its claim for damages. Any damages proven may be significantly offset by the Plaintiff's receipt of a Government grant for a new well. It is currently not possible to predict the outcome or costs involved in the defense of this matter; however, in view of the grant received by the Plaintiff, it is anticipated that actual costs, if any, to AMVAC will not be material. B. HAWAII MATTERS - ----------------- AMVAC and the Company were served with complaints in February 1997. The actions were filed in the Circuit Court of the Second Circuit, State of Hawaii entitled Board of Water Supply of the County of Maui v. Shell Oil Co., et.al. The suit named as defendants the Company, AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and Brewer Environmental Industry, Inc. The Maui Pineapple Company was joined as a cross-defendant. The Compliant alleged that between two and four of the Board's wells had been contaminated with DBCP. On August 2, 1999, a global settlement was reached, which included the remediation of the existing contaminated wells in addition to the installation of filtration devices on other wells for the next forty years on the island of Maui. The cash settlement was three million dollars of which AMVAC's (and the Company's) portion was $500,000. [As to matters independent of indemnity issues, the Company recovered $400,000 from one of its insurers.] The settlement agreement obligates the defendants to pay for the ongoing operation and maintenance of the filtration devices for up to forty years. The annual costs of operation and maintenance per well is estimated to be approximately $69,000, to be adjusted annually by the consumer price index. The defendants are also obligated to pay between ninety and one-hundred percent for the cost of the installation of filtration devices on other wells that may exceed the defined maximum contaminant level in the next forty years. AMVAC's share of the ongoing operation and maintenance charges and installation of additional devices on other wells is seventeen and one-half percent. The obligations of the defendants under this agreement are secured by a twenty million dollar letter of credit obtained by Dow Chemical. AMVAC will pay seventeen and one-half percent of the annual cost of the letter of credit directly to Dow Chemical. 8 11 In October 1997, AMVAC was served with a Complaint(s) in which it was named as a Defendant, filed in the Circuit Court, First Circuit, State of Hawaii and in the Circuit Court of the Second Circuit, State of Hawaii (two identical suits) entitled Patrickson, et.al. v. Dole Food Co., et.al. alleging damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. Other named defendants are: Dole Food Co., Dole Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers Association of Hawaii, Shell Oil Company, Dow Chemical Company, Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit & Steamship, Standard Fruit Company De Costa Rica, Standard Fruit Company De Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading Corporation, and Del Monte Fresh Produce. The ten named Plaintiffs are citizens of four countries--Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a class action on behalf of other workers so exposed in these four countries. The defendants subsequently removed the case to the United States District Court in Hawaii. On March 8, 1999 the Judge in the U.S. District Court dismissed the case based on the defendant's agreement to pay any judgement that might be entered in the Plaintiff's nation of origin. The court order allows Plaintiffs to return to the United States if the foreign courts do not accept jurisdiction. Plaintiffs subsequently appealed to the Ninth Circuit Court of Appeal. As of December 31, 1999, the Plaintiffs had filed their opening brief on appeal and defendants had filed their response. The Plaintiffs filed their reply brief in February 2000. Oral arguments have not yet been scheduled in the Ninth Circuit. The Plaintiffs reported that they have filed suit in each of the four countries. None of the defendants have been served with these suits. No discovery has taken place on the individual claims of the Plaintiffs. However, AMVAC product did not reach two of the four countries involved. Without discovery, it is unknown if any Plaintiff was exposed to AMVAC DBCP and too early to provide any evaluation of the likelihood of an unfavorable outcome or range of possible loss. There may be statute of limitation defenses available to defendants. In order to proceed with the cases, the Plaintiffs must either litigate their claims in their native countries or convince the Ninth Circuit Court of Appeal to reverse the trial court on the motion to dismiss. AMVAC intends to contest the cases vigorously. In September 1999, AMVAC and the Company were served with complaints filed in the Circuit Court of the First Circuit of the State of Hawaii entitled Board of Water Supply of the City and County of Honolulu v. Shell Oil Company, et. al.. The complaint alleges that the Board of Water Supply of the City and County of Honolulu's ground water has been contaminated with DBCP, EDB, and TCP. The complaint names as defendants the Company, AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Petroleum Corporation, Del Monte Foods, Dole Foods, and Libby McNeil, Inc. The focus of the case was on TCP and not DBCP. The Company and AMVAC were not involved with TCP and EDB. The Company and AMVAC were dismissed from the action by Notice of Partial Dismissal Without Prejudice as to all Claims filed on February 29, 2000. 9 12 C. MISSISSIPPI MATTERS - ---------------------- In May 1996, AMVAC was served with five complaints in which it is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc., Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison County, First Judicial District of Mississippi. Each case alleged damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. These cases have been removed to U.S. District Court for the Southern District of Mississippi, Southern Division. The Federal Court granted defense motions to dismiss in each case pursuant to the doctrine of forum non conveniens. Between April and October 1998, the Plaintiffs filed notices of appeal in each of the cases. In December 1999, the Plaintiffs filed their brief for the appeal. The briefing is not yet complete and no hearing for oral argument has been scheduled. No discovery has taken place on the individual claims of these Plaintiffs. However, AMVAC product was not used in at least two of the countries involved. Without discovery, it is unknown whether any of the Plaintiffs were exposed to AMVAC's product or what statute of limitation defense may apply. AMVAC intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. D. LOUISIANA MATTERS - -------------------- In November 1999, AMVAC was served with three complaints filed in the 29th Judicial District Court for the Parish of St. Charles, State of Louisiana entitled Pedro Rodrigues et. al.. V. Amvac Chemical Corporation et. al.., Andres Puerto, et. al.. V. Amvac Chemical Corporation, et. al.. and Eduardo Soriano, et. al.. v. Amvac Chemical Corporation et. al.. Other named defendants are: Dow Chemical Company, Occidental Chemical Corporation, Shell Oil Company, Standard Fruit, Dole Food, Chiquita Brands, Tela Railroad Company, Compania Palma Tica, and Del Monte Fresh Produce. These suites were filed in 1996, they were not served until November 1999. The complaints allege personal injuries from alleged exposure to DBCP (punitive damages are also sought). The Plaintiffs are primarily from the countries of the Philippines, Costa Rica, Honduras, and Equador. In November 1999, the cases were removed to the United States District Court for the Eastern District of Louisiana. The Plaintiffs filed a motion to remand the cases back to the state court in December 1999, however, they subsequently withdrew their motion to remand in February 2000. These cases will in all likelihood move slowly due to pending resolution of various jurisdictional issues. No discovery has taken place on the individual claims of the Plaintiffs. It is unknown whether any of the Plaintiffs claim exposure to AMVAC's product and whether their claims are barred by applicable statutes of limitation. AMVAC intends to contest the 10 13 cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome or range of possible loss at this time. NAA DATA TRADE SECRET - --------------------- On November 1, 1996 AMVAC filed an action in U.S. District Court in Oregon against four defendants relating to their misuse of AMVAC's exclusive right associated with Naphthalene Acetic Acid ("NAA") (Amvac Chemical Corporation v. Termilind, Inc., et.al.). On November 1996, defendants Termilind and Inchema asserted counterclaims against AMVAC: violation of antitrust laws (Sherman Act section 2 and ORS 646.730), unfair competition, tortuous interference, defamation, and breach of contract. In January 1999, the court granted AMVAC's motion for partial summary judgement on AMVAC's claim for tortuous interference with prospective business relations finding that AMVAC had proved three of the five elements of the tort. In October 1999, AMVAC settled/concluded this litigation regarding its exclusive ownership of labels and registration with the EPA for NAA. For further information, refer to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission dated October 18, 1999. 11 14 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ No matters were submitted during the fourth quarter of 1999 to a vote of security holders, through the solicitation of proxies or otherwise. 12 15 PART II ------- ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ----------------------------------------------------------------------------- On January 27, 1998 the Company announced the listing of its $0.10 par value common stock ("Common Stock") on the American Stock Exchange under the ticker symbol AVD. The Company's Common Stock traded on The NASDAQ Stock Market under the symbol AMGD from March 3, 1987 through January 26, 1998. The following table sets forth the range of high and low sales prices as reported for the Company's Common Stock for the calendar quarters indicated.
Calendar 1999 HIGH LOW CLOSE ------------- ---- --- ----- First Quarter $ 8 $ 4 7/8 $ 4 7/8 Second Quarter 6 1/8 4 5/8 5 3/8 Third Quarter 7 5 5 Fourth Quarter 6 3/8 4 7/8 6 1/8 Calendar 1998 First Quarter $ 9 7/8 $ 6 3/8 $ 9 1/4 Second Quarter 9 1/2 6 9 3/8 Third Quarter 9 3/8 4 5/8 4 7/8 Fourth Quarter 6 5/8 4 1/2 5 7/8
The Company's share activity is reported in the Wall Street Journal and is listed as "AmVngrd". As of March 24, 2000, 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 March 16, 2000, the Company announced that the Board of Directors declared a cash dividend of $.13 per share as well as a 10% stock dividend. Both dividends will be distributed on April 14,2000 to shareholders of record at the close of business on March 31, 2000. The cash dividend will be paid on the number of shares outstanding prior to the 10% stock dividend. Shareholders entitled to fractional shares resulting from the 10% stock dividend will receive cash in lieu of such fractional share based on the closing price of the Company's stock on March 31, 2000. The Company distributed a cash dividend of $.06 per share on April 19, 1999 to shareholders of record at the close of business on April 8, 1999. The Company distributed a cash dividend $.07 per share on March 25, 1998 to shareholders of record at the close of business on March 13, 1998. 13 16 The Company distributed a cash dividend of $.06 per share on March 31, 1997 to shareholders of record at the close of business on March 20, 1997. The Company has issued a cash dividend in each of the last four years (1996, 1997, 1998 and 1999) as well as declaring on March 16,2000, as aforementioned, its fifth consecutive cash dividend. While there is no assurance as to future dividends because they depend on future earnings, capital requirements, and financial condition, the Company believes that its Board will be contemplating issuing cash dividends on a semi-annual basis beginning in 2001. The payment of dividends is subject to certain loan covenants described in note 3 to the Notes to Consolidated Financial Statements, which limit payments of cash dividends to a maximum of 25% of net income. 14 17 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES ITEM 6 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR WEIGHTED AVERAGE - --------------------------------------------------------------------------- NUMBER OF SHARES AND PER SHARE DATA) ------------------------------------
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating revenues $ 69,212 $ 67,016 $ 67,701 $ 48,628 $ 55,402 ========= ========= ========= ========= ========= Operating income $ 6,878 $ 5,158 $ 4,785 $ 3,523 $ 5,971 ========= ========= ========= ========= ========= Income from operations before income tax expense $ 5,223 $ 3,263 $ 3,283 $ 2,611 $ 5,043 ========= ========= ========= ========= ========= Net income $ 3,236 $ 2,127 $ 2,025 $ 1,616 $ 3,124 ========= ========= ========= ========= ========= Basic and diluted net income per share $ 1.31 $ .85 $ .81 $ .65 $ 1.23 ========= ========= ========= ========= ========= Total assets $ 55,579 $ 58,847 $ 55,206 $ 48,028 $ 39,341 ========= ========= ========= ========= ========= Long-term debt and capital lease obligations, less current portion $ 4,889 $ 6,458 $ 3,980 $ 4,373 $ 5,540 ========= ========= ========= ========= ========= Stockholders' equity $ 25,969 $ 23,128 $ 21,260 $ 19,386 $ 18,005 ========= ========= ========= ========= ========= Weighted average number of shares 2,475,451 2,502,650 2,507,829 2,472,883 2,546,471 ========= ========= ========= ========= ========= Dividends per share of common stock $ .06 $ .07 $ .06 $ .06 $ -- ========= ========= ========= ========= =========
The selected consolidated financial data set forth above with respect to each of the calendar years in the five-year period ended December 31, 1999 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, 1999. See ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." - --------------------- On March 16, 2000, the Company announced that the Board of Directors declared a cash dividend of $.13 per share as well as a 10% stock dividend. Both dividends will be distributed on April 14, 2000 to shareholders of record at the close of business on March 31, 2000. The cash dividend will be paid on the number of shares outstanding prior to the 10% stock dividend. Shareholders entitled to fractional shares resulting from the 10% stock dividend will receive cash in lieu of such fractional share based on the closing price of the Company's stock on March 31, 2000. The Company distributed a cash dividend of $.06 per share on April 19, 1999 to shareholders of record at the close of business on April 8, 1999. 15 18 The Company distributed a cash dividend $.07 per share on March 25, 1998 to shareholders of record at the close of business on March 13, 1998. The Company distributed a cash dividend of $.06 per share on March 31, 1997 to shareholders of record at the close of business on March 20, 1997. 16 19 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATION ------------ RESULTS OF OPERATIONS - --------------------- 1999 COMPARED WITH 1998: - ------------------------ The Company reported net income of $3,235,500 or $1.31 per share in 1999 as compared to net income of $2,126,500 or $.85 per share in 1998. Net sales increased $2,196,100 or 3% to $69,211,700 for 1999 from $67,015,600 in 1998. Strong sales of the Company's insecticide product lines, in particular Bidrin(R) and Dibrom(R) accounted for the increase in sales (and served to more than offset a decline in sales of Company's fungicide and fumigant product lines). Gross profits increased $6,156,000 to $33,262,800 in 1999 from $27,106,800 in 1998. Gross profit margins improved to 48% in 1999 from 40% in 1998. The improved margin was due to the changes in the sales mix of the Company's products as well as the realization of improved raw material costs and the Company's continued efforts to improve variable costs of manufacturing. Operating expenses which are net of other income, increased by $3,268,500 to $26,284,600 in 1999 from $23,016,100 in 1998. The differences in operating expenses by specific departmental costs are as follows: o Selling expenses increased by $1,104,400 to $7,955,300 in 1999 from $6,850,900 in 1998. The increase was due to increases in (i) variable selling expenses that relate to the increased sales levels and product mix of sales, and (ii) expenses related to the Company's operations in Mexico (which were opened in late 1998). o General and administrative increased $2,360,600 to $8,020,200 in 1999 as compared to $5,659,600 in 1998. The increase was due to increases in (i) legal expenses, primarily attributable to legal actions (which were concluded) in which the Company was the Plaintiff, (ii) amortization of intangible assets in connection with the acquisition of an insecticide product in November 1998, (iii) depreciation expense related to the acquisition of a new computer system placed in service in October 1998, and (iv) increased payroll and payroll related costs. o Research and product development costs and regulatory registration expenses declined by $302,100 to $4,567,400 in 1999 from $4,869,500 in 1998 primarily due to a decline in costs incurred to generate scientific data related to the 17 20 registration and possible new uses of the Company's products. o Freight, delivery and warehousing costs remained virtually unchanged reflecting a modest increase of $8,400 in spite of the improvement in sales due primarily to the product mix of sales. The Company was part of a global settlement in a matter where the Plaintiffs alleged the contamination of water wells in Hawaii (Board of Water Supply of the County of Maui v. Shell Oil Co., et. al.). The Company's portion of the settlement was $500,000. The Company recovered $400,000 from one of its insurers (as to matters independent of indemnity issues). The net $100,000 of costs appear as separate line item titled "Settlement" on the Company's Consolidated Statements of Income for the year ended December 31, 1999. Interest costs were $1,666,700 in 1999 as compared to $1,900,000 in 1998. The average level of borrowing under the Company's line of credit agreement declined by $4,640,800 to $12,297,300 in 1999 from $16,938,100 in 1998. The average level of other long-term debt increased by $2,630,800 to $8,143,900 in 1999 from $5,513,100 in 1998, due primarily to the acquisition of a product line from a wholly-owned subsidiary of a large chemical company in November 1998. On a combined basis, the Company's average debt for 1999 was $20,441,200 as compared to $22,451,200, in 1998. Lower overall debt coupled with lower effective interest rates accounted for the lower interest costs. (See note 3 to the Consolidated Financial Statements.) Income tax expense increased by $850,400 to $1,987,000 in 1999 as compared to $1,136,600 in 1998. The Company's effective tax rate was 38% for 1999 as compared to the 35% effective tax rate for 1998. (See note 4 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. 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. 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. 18 21 1998 COMPARED WITH 1997: - ------------------------ The Company reported net income of $2,126,500 or $.85 per share in 1998 as compared to net income of $2,024,700 or $.81 per share in 1997. Net sales were $67,015,600 in 1998 as compared to $67,700,500 in 1997. Sales of the Company's agricultural product lines improved by approximately $177,000 in 1998 over 1997 while sales into the pharmaceutical, nutritional and other markets declined by approximately $862,000. This decline is in keeping with the Company's desire to focus its sales efforts on its core business, agricultural product lines. Gross profits declined by $278,100 to $27,106,800 in 1998 from $27,384,900 in 1997. Gross profit margins remained relatively unchanged at 40.4% in 1998 as compared to 40.5% in 1997. Operating expenses increased by $416,000 to $23,016,100 in 1998 from $22,600,100 (which includes settlement expense of $951,000, refer to general administrative and corporate expenses below) in 1997. The following is a discussion of operating expenses: o Selling and regulatory expenses increased by $123,700 to $7,882,100 in 1998 from $7,758,400 in 1997. Increases in payroll and payroll related items accounted for approximately $251,000 of the increase. Net changes in variable selling expenses accounted for the balance of the increase. o General, administrative and corporate costs declined by $520,000 to $5,692,100 in 1998 from $6,212,100 in 1997 The decline was attributable to the recognition of $777,300, which represents a portion of an award rendered in favor of the Company by neutral arbitrators in a binding action. This portion of the award was recorded as an offset to related professional/legal costs during 1998. (Note: Settlement Expenses of $951,000 are included in 1997 General and Administrative costs and are made up of professional/legal expenses.) General, administrative and corporate costs would have increased by $222,800 in 1998 as compared to 1997, primarily as a result of increases in legal fees and the acquisition and implementation of a new computer system. (See Year 2000 Compliance disclosure.) o Research and development costs, which include costs incurred to generate scientific data and other activities performed by the department, increased by $510,300 to $3,838,500 in 1998 as compared to $3,328,200 in 1997. Increased costs to generate scientific data related to the registration and possible new uses of the Company's products accounted for approximately $330,000 of the increase while increases in outside professional fees, payroll and payroll related items 19 22 accounted for the balance in increased research and development costs. o Freight, delivery and warehousing costs increased by $302,000 to $5,603,400 in 1998 as compared to $5,301,400 in 1997. Increased shipping costs of the Company's fumigant product line primarily accounted for the increase. The Company was awarded a settlement of $1,845,000 by neutral arbitrators in a binding action. A portion of this award, $777,300, was recorded as an offset to related professional/legal costs in 1998. The balance appears as a separate line item titled "Settlement" on the Company's Consolidated Statements of Income for the years ended December 31, 1998 and 1997. The 1997 amount represent professional/legal costs that relate to the 1998 settlement. Interest costs were $1,900,000 in 1998 as compared to $1,513,400 in 1997. The average level of borrowing under the Company's line of credit agreement increased by $3,649,500 to $16,938,100 in 1998 from $13,288,600 in 1997. The average level of long-term debt increased by $522,200 to $5,513,100 in 1998 from $4,990,900 in 1997. On a combined basis, the Company's average debt for 1998 was $22,451,200 as compared to $18,279,500, in 1997. The higher debt during 1998 accounted for the increase in interest costs. Income tax expense declined by $121,500 to $1,136,600 in 1998 as compared to $1,258,100 in 1997. The Company's effective tax rate was 35% for 1998 as compared to the 38% effective tax rate for 1997. See note 4 to the Consolidated Financial Statements for additional analysis of the changes in income tax expense. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash flow from operating activities was $3,318,000 for the year ended December 31, 1999. Inventories increased by $1,014,100 while there were declines in receivables, prepaid expenses, accounts payable and accrued expenses and deferred income taxes of $1,014,100, $5,000, $4,336,400 and $463,400, respectively. Non-cash depreciation and amortization was $3,215,000 for 1999. The Company invested $397,400 in capital expenditures in 1999. While the Company's capital expenditures were not significant in 1999, the Company is continually adapting its manufacturing processes to the environmental control standards of its various controlling agencies. As of December 31, 1999, the Company does not have any material commitments for future capital expenditures. The Company used $3,159,700 in cash in its financing activities. The Company's net borrowings under its fully-secured revolving line of credit increased by $100,000. The Company made payments 20 23 on its debt and capital lease obligations of $2,864,800, paid $149,600 in cash dividends, and purchased 42,400 shares of treasury stock for $245,300. The Company had $13,900,000 in availability under its fully-secured $24,000,000 line of credit as of December 31, 1999. 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. Because scientific analyses are constantly improving, it cannot be determined with any degree of certainty, whether or not material new or additional tests may be required. For further information, refer to PART I, Item 1, Business, Competition of the Annual Report. AMVAC is a manufacturer and formulator of chemicals for crops, human and animal health protection. This is a high risk industry with ever present industry-wide litigation. For discussions pertaining to the Company's litigation refer to PART I, Item 3, Legal Proceedings of this Annual Report. Management believes current financial resources (working capital and borrowing arrangements) and anticipated funds from operation will be adequate to meet total financial needs in 2000. Management is currently in negotiations with its bank regarding the renewal of its current revolving credit facility for another two year term and believes the facility will be renewed. 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. FOREIGN EXCHANGE - ---------------- Management does not believe that the fluctuation in the value of the dollar in relation to the currencies of its customers in the last three fiscal years has adversely affected the Company's ability to sell products at agreed upon prices. No assurance can be given, however, that adverse currency exchange rate fluctuations will not occur in the future. Should adverse currency exchange rate fluctuations occur in geographies where the Company sells/exports its products, management is not certain such fluctuations will materially impact the Company's operating results. 21 24 INFLATION - --------- Management believes inflation has not had a significant impact on the Company's operations during the past three years. YEAR 2000 COMPLIANCE - -------------------- Computers, software and other equipment utilizing microprocessors that use only two digits to identify a year in a date field may be unable to process certain date-based information at or after the year 2000. This is commonly referred to as the "Year 2000 issue", and the Company is addressing this issue on several different fronts. The Company elected, as disclosed in prior filings, to install a new Enterprise Resource Planning Manufacturing software system, the decision of which was not driven by Year 2000 compliance. The new software system is Year 2000 compliant. The installation of this system was completed, for the most part, in 1999. The Company established a separate team to coordinate solutions to the Year 2000 issue for the Company's other internal data processing systems with a goal of having all of its internal systems Year 2000 compliant. The Company requested Year 2000 compliance certification from each of its major vendors and suppliers for their hardware and software products and for their internal business applications and processes. The Company has not experienced any interruption of its sources of required materials. The Company's costs incurred in connection with the Year 2000 compliance program were not material to its financial condition or results of operations for the year ended December 31, 1999. The Company has not yet been adversely affected nor does it believe that its business will be, on a going forward basis, adversely affected by the Year 2000 issue in any material respect. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------ The Company's management believes that fluctuations in interest rates and currency exchange rates in the near term would not materially affect the Company's consolidated operating results, financial position or cash flows as the Company has limited risks related to interest rate and currency exchange fluctuations. 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. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ----------------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. 22 25 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 76 Co-Chairman Glenn A. Wintemute 75 Co-Chairman Eric G. Wintemute 44 Director, President and Chief Executive Officer James A. Barry 49 Director, Senior Vice President, Chief Financial Officer, Treasurer and Secretary Jay R. Harris 65 Director John B. Miles 56 Director Jesse E. Stephenson 76 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 AMVAC 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. He co- founded GemChem, a national chemical distributor, in 1991 and served as its President. Mr. Wintemute was previously employed by AMVAC from 1977 to 1982. From 1982 to 1991, Mr. Wintemute worked with R. W. Greeff & Co., Inc., a former distributor of certain of AMVAC's products. During his tenure with R. W. Greeff & Co., Inc., he served as Vice President and Director. He is the son of the Company's Co-Chairman, Glenn A. Wintemute. 23 26 James A. Barry has served as a director of the Company since 1994. Mr. Barry was appointed Senior Vice President in February 1998 and Secretary in August 1998. He has served as Treasurer since July 1994 and as Chief Financial Officer of the Company and all operating subsidiaries since 1987. He also served as Vice President from 1990 through January 1998 and as Assistant Secretary from June 1990 to July 1998. From 1990 to July 1994, he also served as Assistant Treasurer. Jay R. Harris was appointed a director in March 2000. Mr. Harris is President and Founder of Goldsmith & Harris, a broker dealer providing investment research to institutional and professional investors. He has held this position since 1982, the year Goldsmith & Harris (or its predecessors) was founded. Mr. Harris is also a professional investor. John B. Miles has served as a director since March 1999. Mr. Miles is a Partner with the law firm McDermott Will & Emery and has held the position of Partner since 1987. Prior to 1987, Mr. Miles was a Partner with Kadison Pfaelzer Woodward Quinn & Rossi. Mr. Miles has previously served on boards of directors for public and private corporations. 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 Calhart Corporation, then a wholly-owned subsidiary of the Company, from 1968 to 1978. Mr. Stephenson is retired and is a private investor. 24 27 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. Based solely on the Company's review of the copies of such forms received by the Company, or representations obtained from certain reporting persons, the Company believes that during the year ended December 31, 1999 all filing requirements applicable to its officers, directors, and greater than ten percent beneficial stockholders were complied with except that Mr. Eric G. Wintemute did not timely file a Form 4 or 5 with respect to certain options (not yet exercised) which total 50,000 shares granted to Mr. Wintemute in 1999. Mr. David. B. Cassidy did not timely file a Form 4 or 5 with respect to certain options (not yet exercised) which total 30,000 shares granted to Mr. Cassidy in 1996. Mr. Glen D. Johnson did not timely file a Form 3 or 5 (after joining the Company in February 1999) with respect to joining, as an officer, of one of the Company's wholly-owned subsidiaries and with respect to certain options (not yet exercised) which total 30,000 shares granted to Mr. Johnson in 1999. Additionally, Mr. John B. Miles did not timely file a Form 3 as a director and a Form 4 for director stock options for 2,500 shares in 1999. Messrs. Wintemute, Cassidy, Johnson and Miles' required filings have all been filed as of the filing of this Annual Report. 25 28 ITEM 11 EXECUTIVE COMPENSATION - ------------------------------- The following table sets forth the aggregate cash and other compensation for services rendered for the years ended December 31, 1999, 1998, and 1997 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 $100,000 (the "named executive officers"). 26 29 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION(1) AWARDS PAYOUTS ------------------- ------ ------- (a) (b) (c) (d) (e) (f) (g) (h) (i) OTHER RE- SECURITIES ALL NAME ANNUAL STRICTED UNDERLYING OTHER AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION POSITION YEAR ($) ($) ($) ($) (#) ($) ($) -------- ---- ------- ---- ---- --------- ----- -------- --- Eric G. Wintemute 1999 328,550 - - - 50,000(2) - 5,082(4) President and 1998 284,177 - - - - - 5,359(4) Chief Executive Officer 1997 244,244 - - - - - 4,723(4) James A. Barry 1999 148,000 - - - - - 4,700(4) Senior V.P., CFO & 1998 152,275 - - - - - 4,803(4) Secretary/Treasurer 1997 134,819 - - - - - 4,608(4) David B. Cassidy 1999 188,885 - - - - - 5,130(4) Executive Vice 1998 194,010 - - - - - 5,086(4) President (AMVAC) 1997 175,414 - - - - - 562(4) Glen D. Johnson(3) 1999 153,654 - - - 30,000(5) - 2,110(4) Sr. Vice President 1998 - - - - - - - (AMVAC) 1997 - - - - - - - Herbert A. Kraft(7) 1999 - - - - - - 108,173(6) Co-Chairman 1998 - - - - - - 138,101(6) 1997 - - - - - - 180,168(6) Glenn A. Wintemute(7) 1999 - - - - - - 106,491(6) Co-Chairman 1998 - - - - - - 138,223(6) 1997 - - - - - - 195,192(6)
- ------------------- (1) No executive officer enjoys perquisites that exceed the lesser of $50,000, or 10% of such officer's salary. (2) Represents options to purchase Common Stock of the Company in accordance with the terms and conditions of Mr. Wintemute's Employment Agreement. (3) Mr. Johnson joined AMVAC Chemical Corporation as Senior Vice President in February, 1999. (4) These amounts represent the Company's contribution to the Company's Retirement Savings Plan, a qualified plan under Internal Revenue Code Section 401(k). (5) Represents options to purchase Common Stock of the Company in accordance with the terms and conditions of Mr. Johnson's Employment Agreement. (6) Amounts represent payments received by each individual (during calendar year) under his consulting agreement. (7) Messrs. Kraft and Wintemute retired from the Company as active employees in July 1994. The Company entered into consulting agreements with Messrs. Kraft and Wintemute in July 1994. In 1996 the consulting agreements were extended for an additional year and now expire in July 2000. 27 30 Compensation Committee Interlocks and Insider Participation ----------------------------------------------------------- The Compensation Committee of the Board for the year ended December 31, 1999, consisted of Messrs. Herbert A. Kraft, John B. Miles and Jesse E. Stephenson. 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. 28 31 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------- To the knowledge of the Registrant, the ownership of the Registrant's outstanding Common Stock as of March 24, 2000, 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 the 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 Herbert A. Kraft 590,295(2) 24.1% 4695 MacArthur Court Newport Beach, CA 92660 Co-Chairman Glenn A. Wintemute 569,961(3) 23.3% 4695 MacArthur Court Newport Beach, CA 92660 Goldsmith & Harris et. al. 137,521(4) 5.6% 80 Pine Street New York, NY 10005 Director Jay R. Harris 86,443 3.5% 4695 MacArthur Court Newport Beach, CA 92660 Director, Eric G. Wintemute 61,903(5) 2.5% President 4695 MacArthur Court & CEO Newport Beach, CA 92660 Director Jesse E. Stephenson 33,850(6) 1.4% 4695 MacArthur Court Newport Beach, CA 92660 Executive Vice David B. Cassidy 40,000(7) 1.6% President (AMVAC) 4695 MacArthur Court Newport Beach, CA 92660 Senior Vice President Glen D. Johnson 10,000(8) --(10) (AMVAC) 4695 MacArthur Court Newport Beach, CA 92660 Director John B. Miles 2,500(9) --(10) 4695 MacArthur Court Newport Beach, CA 92660 Director, James A. Barry -- --(10) Sr. V.P.,CFO & 4695 MacArthur Court Secretary/Treasurer Newport Beach, CA 92660 Directors and Officers as a group(12) 1,386,027 55.3%
- ------------------- Refer to footnotes on next page. 29 32 ITEM 12 - Continued Footnotes - --------------------- (1) Record and Beneficial. (2) 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. (3) This figure includes 23,220 shares of Common Stock owned by Mr. G. A. Wintemute's minor children for which Mr. Wintemute is a trustee and disclaims beneficial ownership. (4) This figure does not include the 86,443 shares beneficially owned by Jay R. Harris. Mr. Harris is a control person of Goldsmith & Harris. (5) This figure includes 20,000 shares of Common Stock Mr. Wintemute is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this report as well as 2,000 shares of Common Stock owned by Mr. Wintemute's minor children for which Mr. Wintemute is a trustee and disclaims beneficial ownership. (6) Mr. Stephenson holds all of his shares in a family trust. This figure includes 5,500 shares of Common Stock Mr. Stephenson is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (7) This figure includes 30,000 shares of Common Stock Mr. Cassidy is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (8) This figure represents 10,000 shares of Common Stock Mr. Johnson is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (9) This figure includes 2,500 shares of Common Stock Mr. Miles is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (10) Under 1% of class. 30 33 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- 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 perform management and financial consulting services for the Company as assigned by the Board of Directors or the Chief Executive Officer. The agreements originally were to expire on July 14, 1999. In 1996, the agreements were extended for an additional year now scheduled to expire July 14, 2000. The agreements provide 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 agreements, Messrs. Kraft and Wintemute each received $287,500 for the year ended July 14, 1995, $243,750 for the year ended July 14, 1996, $200,000 for the year ended July 14, 1997, $156,250 for the year ended July 14, 1998 and $112,500 for the year ended July 14, 1999. They will also, under the agreements, each receive $100,000 for the year ending July 14, 2000. In the event of death or disability prior to July 14, 2000, 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. See note 11 of the Notes to the Consolidated Financial Statements in PART IV, Item 14 of this Annual Report. 31 34 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 35 Financial Statements: Consolidated Balance Sheets as of December 31, 1999 and 1998 36 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998, and 1997 38 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998, and 1997 39 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997 40 Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements 42
(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. (3) Exhibits: The exhibits listed on the accompanying Index To Exhibits, page 58 are filed as part of this annual report. 32 35 (b) Reports on Form 8-K were filed during the quarter ended December 31, 1999: Date of the Report: October 25, 1999 Item Reported: 5. Other Events. Description: On October 18, 1999, American Vanguard Corporation issued a press release announcing that Amvac Chemical Corporation, a wholly-owned subsidiary of American Vanguard Corporation, resolved certain litigation regarding its exclusive ownership of labels and registrations with the Environmental Protection Agency for naphthalene acetic acid. 33 36 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. AMERICAN VANGUARD CORPORATION (Registrant) /s/ Eric G. Wintemute /s/ James A. Barry - ----------------------------- ------------------- By: ERIC G. WINTEMUTE By: JAMES A. BARRY President, Senior Vice President, Chief Executive Officer Chief Financial Officer, and Director Secretary/Treasurer and March 29, 2000 Director March 29, 2000 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 29, 2000 March 29, 2000 /s/ John Miles /s/ Jesse E. Stephenson - -------------------- ----------------------- JOHN B. MILES JESSE E. STEPHENSON Director Director March 29, 2000 March 29, 2000 /s/ Jay Harris - -------------------- JAY R. HARRIS Director March 29, 2000 34 37 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, 1999 and 1998 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP --------------------------- BDO SEIDMAN, LLP Los Angeles, California February 28, 2000 35 38 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
ASSETS (NOTE 3) 1999 1998 --------------- ---- ---- Current assets: Cash $ 550,200 $ 767,000 Receivables: Trade 15,119,800 17,786,700 Other 833,200 852,900 ----------- ----------- 15,953,000 18,639,600 ----------- ----------- Inventories: Finished products 14,258,700 13,127,700 Raw materials 2,491,200 2,608,100 ----------- ----------- 16,749,900 15,735,800 ----------- ----------- Prepaid expenses 819,600 814,600 ----------- ----------- Total current assets 34,072,700 35,957,000 Property, plant and equipment, at cost, less accumulated depreciation of $23,545,600 in 1999 and $21,086,300 in 1998 (notes 1,2,3, and 5) 10,514,200 12,576,300 Land held for development 210,800 210,800 Intangible assets, net of accumulated amortization of $1,553,300 in 1999 and $858,300 in 1998 (note 10) 10,086,400 9,325,100 Other assets 695,200 777,800 ----------- ----------- $55,579,300 $58,847,000 =========== ===========
(CONTINUED) 36 39 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 ----------- ----------- Current liabilities: Current installments of long-term debt (note 2) $ 3,022,200 $ 3,118,500 Note payable to bank (note 3) 10,100,000 -- Accounts payable 2,946,300 6,448,400 Accrued expenses 4,541,400 3,599,700 Accrued royalty obligation-current portion (note 10) 1,112,300 1,600,000 Income taxes payable 1,064,200 1,379,900 ----------- ----------- Total current liabilities 22,786,400 16,146,500 Long-term debt, excluding current installments (note 2) 5,145,600 6,457,800 Note payable to bank (note 3) -- 10,000,000 Accrued royalty obligation, excluding current portion (note 10) -- 1,074,300 Minority interest in subsidiary company 101,700 -- Deferred income taxes (note 4) 1,576,700 2,040,100 ----------- ----------- Total liabilities 29,610,400 35,718,700 ----------- ----------- Commitments and contingent liabilities (notes 2, 3, 5, 6, 9 and 11) Stockholders' equity: (note 14) 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 2,564,182 shares in 1999 and 1998 256,400 256,400 Additional paid-in capital 3,879,000 3,879,000 Retained earnings 22,520,200 19,434,300 ----------- ----------- 26,655,600 23,569,700 Less treasury stock, at cost, 114,000 shares in 1999 and 71,600 shares in 1998 686,700 441,400 ----------- ----------- Total stockholders' equity 25,968,900 23,128,300 ----------- ----------- $55,579,300 $58,847,000 =========== ===========
See summary of significant accounting policies and notes to consolidated financial statements. 37 40 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ------------ ------------ ------------ Net sales (note 8) $ 69,211,700 $ 67,015,600 $ 67,700,500 Cost of sales 35,948,900 39,908,800 40,315,600 ------------ ------------ ------------ Gross profit 33,262,800 27,106,800 27,384,900 Settlement (income)/expense (note 13) 100,000 (1,067,700) 951,000 Operating expenses (note 12) 26,284,600 23,016,100 21,649,100 ------------ ------------ ------------ Operating income 6,878,200 5,158,400 4,784,800 Interest expense 1,666,700 1,900,000 1,513,400 Interest income (11,000) (4,700) (11,400) ------------ ------------ ------------ Income before income tax expense 5,222,500 3,263,100 3,282,800 Income tax expense (note 4) 1,987,000 1,136,600 1,258,100 ------------ ------------ ------------ Net income $ 3,235,500 $ 2,126,500 $ 2,024,700 ============ ============ ============ Per share information: Basic and diluted net income per share $ 1.31 $ .85 $ .81 ============ ============ ============ Weighted average number of shares 2,475,451 2,502,650 2,507,829 ============ ============ ============
See summary of significant accounting policies and notes to consolidated financial statements. 38 41 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK TOTAL -------- ---------- ------------ --------- ------------ Balance, January 1, 1997 $256,400 $3,879,000 $15,609,000 $(358,900) $19,385,500 Cash dividends on common stock ($.06 per share) -- -- (150,400) -- (150,400) Net income -- -- 2,024,700 -- 2,024,700 -------- ---------- ------------ --------- ------------ Balance, December 31, 1997 256,400 3,879,000 17,483,300 (358,900) 21,259,800 Cash dividends on common stock ($.07 per share) -- -- (175,500) -- (175,500) Treasury stock acquired -- -- -- (82,500) (82,500) Net income -- -- 2,126,500 -- 2,126,500 -------- ---------- ------------ --------- ------------ Balance, December 31, 1998 256,400 3,879,000 19,434,300 (441,400) 23,128,300 Cash dividends on common stock ($.06 per share) -- -- (149,600) -- (149,600) Treasury stock acquired -- -- -- (245,300) (245,300) Net income -- -- 3,235,500 -- 3,235,500 -------- ---------- ------------ --------- ------------ Balance, December 31, 1999 $256,400 $3,879,000 $ 22,520,200 $(686,700) $ 25,968,900 ======== ========== ============ ========= ============
See summary of significant accounting policies and notes to consolidated financial statements. 39 42 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INCREASE (DECREASE) IN CASH 1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 3,235,500 $ 2,126,500 $ 2,024,700 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of property, plant and equipment 2,459,500 2,555,500 2,256,900 Amortization of other assets 755,300 505,400 475,700 Loss on abandoned projects -- 231,400 -- Changes in assets and liabilities associated with operations: (Increase) decrease in receivables 2,686,600 3,046,400 (4,957,300) Increase in inventories (1,014,100) (2,797,900) (1,587,600) Decrease (increase) in prepaid expenses (5,000) 221,000 (382,000) Increase (decrease) in accounts payable (3,502,100) 2,663,100 782,900 Increase (decrease) in other payables and accrued expenses (834,300) (721,000) (2,036,400) Decrease in deferred income taxes (463,400) (606,400) (49,100) ----------- ----------- ----------- Net cash provided by (used in)operating activities 3,318,000 7,224,000 (3,472,200) ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (397,400) (828,100) (2,768,400) Additions to intangible assets -- (538,500) (33,100) Net (increase) decrease in other noncurrent assets 22,300 (249,200) (68,000) ----------- ----------- ----------- Net cash used in investing activities (375,100) (1,615,800) (2,869,500) ----------- ----------- -----------
(Continued) 40 43 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
INCREASE (DECREASE) IN CASH 1999 1998 1997 ----------- ----------- ----------- Cash flows from financing activities: Net borrowings (repayments) under line of credit agreement $ 100,000 $(4,100,000) $ 7,100,000 Increase in long-term debt(note 10) -- -- 1,884,800 Payments on debt and capital lease obligations (2,864,800) (1,229,800) (2,378,500) Acquisition of treasury stock (245,300) (82,500) -- Payment of cash dividends (149,600) (175,500) (150,400) ----------- ----------- ----------- Net cash provided by (used in) financing activities (3,159,700) (5,587,800) 6,455,900 ----------- ----------- ----------- Net increase (decrease) in cash (216,800) 20,400 114,200 Cash at beginning of year 767,000 746,600 632,400 ----------- ----------- ----------- Cash at end of year $ 550,200 $ 767,000 $ 746,600 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 1,374,900 $ 1,804,200 $ 1,562,800 Income taxes 2,738,800 914,800 1,721,000 =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: - --------------------------------------------------------------------- In October 1999, the Company entered into an Exclusive License Agreement which granted the Company exclusive ownership of labels and registrations of an established product line and issued a note payable in the amount of $1,456,300. (See Note 10). In November 1998, the Company completed the acquisition of an established product line from a subsidiary of a large chemical company (See note 10). In connection with the acquisition, the Company recorded product acquisition costs of $5,203,900. The Company financed $1,237,500 during the year ended December 31, 1998, under a capitalized lease for computer related software and equipment. See summary of significant accounting policies and notes to consolidated financial statements. 41 44 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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., procures certain raw materials used in the Company's manufacturing operations 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. The Company operates within a single operating segment. 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. Long-lived Assets - ----------------- Intangible assets resulting from business acquisitions (see note 10), consist of cost in excess of net assets (goodwill) acquired and other intangible assets, including customer lists, product registrations, trademarks and contracts. These intangible assets are being amortized on a straight-line basis over the period of an expected benefit, usually 15 years. Management has a policy to review intangible assets and 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 or amortization) 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. 42 45 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED 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 Financial Instruments - ----------------------------------- The carrying values of cash, receivables and accounts payable approximate their fair values because of the short maturity of these instruments. The fair value of the Company's long-term debt and note payable to bank 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. Such fair value approximates the respective carrying values of the Company's long-term debt and note payable to bank. 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". The asset and liability method requires the recognition of deferred tax assets and liabilities for future tax consequences of temporary differences between the financial statement bases and tax bases of assets and liabilities at the date of the financial statements using the provisions of the tax laws then in effect. Per Share Information - --------------------- Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share ("EPS") requires dual presentation of basic EPS and diluted EPS on the face of all income statements. Basic EPS is computed as net income divided by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution that could occur if securities or other contracts, which, for the Company, consists of options to purchase shares of the Company's common stock are exercised. These options were anti-dilutive in 1999, 1998 and 1997 and as such, dilutive EPS amounts are the same as basic EPS for all periods presented. No prior year EPS amounts have been restated as a result of SFAS 128. Accounting Estimates - -------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and 43 46 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED 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. Reclassifications - ----------------- Certain prior years' amounts have been reclassified to conform to the current year's presentation. Recent Accounting Pronouncements - -------------------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for fiscal years beginning after June 15, 2000. The Company is required to and will adopt SFAS No. 133 in the first quarter of fiscal 2001. The Company does not expect adoption to have a significant effect on its consolidated results of operations or financial position. 44 47 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (1) PROPERTY, PLANT AND EQUIPMENT - -------------------------------------- Property, plant and equipment at December 31, 1999 and 1998 consists of the following:
ESTIMATED 1999 1998 USEFUL LIVES ----------- ----------- -------------- Land $ 2,382,600 $ 2,382,600 Buildings and improvements 4,727,300 4,708,600 10 to 30 years Machinery and equipment 23,825,700 23,384,900 3 to 10 years Office furniture, fixtures and equipment 2,467,900 2,393,800 3 to 10 years Automotive equipment 136,900 105,000 3 to 6 years Construction in progress 519,400 687,700 ----------- ----------- 34,059,800 33,662,600 Less accumulated depreciation 23,545,600 21,086,300 ----------- ----------- $10,514,200 $12,576,300 =========== ===========
(2) LONG-TERM DEBT - ----------------------- Long-term debt of the Company at December 31, 1999 and 1998 is summarized as follows:
1999 1998 ---------- ---------- Note payable, secured by certain real property, payable in monthly installments of $87,500 plus interest at prime plus .5% (prime was 8.50% at December 31, 1999), with remaining unpaid principal due December 1, 2000 $1,050,000 $2,012,500 Note payable, secured by certain real property, payable in monthly installments of $6,125, plus interest at prime with remaining unpaid principal due October 15, 2004 1,684,400 1,757,900 Note payable, secured by certain real property, payable in monthly principal and interest installments of $923 with remaining unpaid principal due July 1, 2001, interest rate at 8.00% 83,400 87,700 Obligations under product acquisition agreements (see note 10) 4,546,600 4,666,200 Obligations under capitalized leases (see note 5) 803,400 1,052,000 ---------- ---------- 8,167,800 9,576,300 Less current installments 3,022,200 3,118,500 ---------- ---------- $5,145,600 $6,457,800 ========== ==========
45 48 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Approximate principal payments on long-term debt mature as follows: 2000 $3,022,200 2001 2,632,300 2002 684,500 2003 266,800 2004 245,200 Thereafter 1,316,800 ---------- $8,167,800 ========== (3) NOTE PAYABLE TO BANK - ----------------------------- Under a credit agreement with a bank as amended in May 1998, the Company may borrow up to $24,000,000. The note bears interest at a rate of prime plus .25% (prime was 8.50% at December 31, 1999), which is payable monthly. Additionally, the Company, at its option, may pay a fixed rate of interest 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 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, 2000. The Company has had a long-term relationship with its lead commercial lender that dates back more than fifteen years. The lender has historically renewed the Company's revolving credit facility for two year terms. The Company is currently in negotiations with the bank to renew the revolving credit facility for another two year term and believes the facility will be renewed. The Company had $13,900,000 available under this credit agreement as of December 31, 1999. 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, 1999. The balance outstanding at December 31, 1999 and 1998 was $10,100,000 and $10,000,000 respectively. The average amount outstanding during the years ended December 31, 1999 and 1998 was $12,297,300 and $16,938,100. The weighted average interest rate during the years ended December 31, 1999 and 1998 was 7.29% and 8.02%. (4) INCOME TAXES - --------------------- The components of income tax expense are:
1999 1998 1997 ----------- ----------- ----------- Current: Federal $ 2,236,100 $ 1,493,200 $ 997,800 State 212,400 249,800 197,600 Other, primarily foreign -- -- 8,200 Deferred: Federal (435,300) (524,300) (20,700) State (26,200) (82,100) 75,200 ----------- ----------- ----------- $ 1,987,000 $ 1,136,600 $ 1,258,100 =========== =========== ===========
46 49 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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:
1999 1998 1997 ----------- ----------- ----------- Computed tax provision at statutory Federal rates $ 1,775,700 $ 1,109,500 $ 1,116,200 Increase (decrease) in taxes resulting from: State taxes, net of Federal income tax benefit 203,700 25,800 180,800 Nondeductible expenses 32,100 37,600 35,900 Other -- -- 8,200 Benefit of tax credits (24,500) (36,300) (83,000) ----------- ----------- ----------- $ 1,987,000 $ 1,136,600 $ 1,258,100 =========== =========== ===========
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability at December 31, 1999 and 1998 relate to the following:
1999 1998 ----------- ----------- Plant and equipment, principally due to differences in depreciation and capitalized interest $ 1,735,200 $ 2,019,600 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 (415,900) (387,800) State income taxes (56,100) (57,000) Vacation pay accrual (106,800) (105,500) Imputed interest on royalty obligation 157,900 139,900 Discount on accounts receivable 307,600 453,300 Other (45,200) (22,400) ----------- ----------- Net deferred income tax liability $ 1,576,700 $ 2,040,100 =========== ===========
The Company believes it is more likely than not that the deferred tax assets above will be realized in the normal course of business. 47 50 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (5) LEASES - --------------- The Company leases certain manufacturing equipment, and office furniture, fixtures and equipment under long-term capital lease agreements. Property, plant and equipment at December 31, 1999 include the following leased property under capital leases by major classes: Machinery and equipment $ 47,300 Office furniture, fixtures and equipment 1,237,500 ---------- 1,284,800 Less accumulated depreciation 333,700 ---------- $ 951,100 ========== The following is a schedule of future minimum lease payments for capital leases as of December 31, 1999 Year ending December 31: 2000 $ 312,700 2001 340,000 2002 250,800 --------- Total minimum lease payments 903,500 Less amount representing interest (100,100) --------- Present value of net minimum lease payments $ 803,400 =========
48 51 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (6) LITIGATION AND ENVIRONMENTAL - ------------------------------------- DBCP LAWSUITS ------------- A. CALIFORNIA MATTERS --------------------- In February 1997, AMVAC was served with a complaint in an action filed in the San Francisco Superior Court entitled the Sultana Community Services District v. Shell Oil Co., et.al. The complaint alleges that the Sultana Community Services District's water supply was contaminated with Dibromochloropropane ("DBCP"). The complaint names as defendants AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company and Velsicol Chemical Corporation. Plaintiff has not produced documentation to support its claim for damages. Any damages proven may be significantly offset by the Plaintiff's receipt of a Government grant for a new well. It is currently not possible to predict the outcome or costs involved in the defense of this matter; however, in view of the grant received by the Plaintiff, it is anticipated that actual costs, if any, to AMVAC will not be material. B. HAWAII MATTERS ----------------- AMVAC and the Company were served with complaints in February 1997. The actions were filed in the Circuit Court of the Second Circuit, State of Hawaii entitled Board of Water Supply of the County of Maui v. Shell Oil Co., et.al. The suit named as defendants the Company, AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and Brewer Environmental Industry, Inc. The Maui Pineapple Company was joined as a cross-defendant. The Compliant alleged that between two and four of the Board's wells had been contaminated with DBCP. On August 2, 1999, a global settlement was reached, which included the remediation of the existing contaminated wells in addition to the installation of filtration devices on other wells for the next forty years on the island of Maui. The cash settlement was three million dollars of which AMVAC's (and the Company's) portion was $500,000. [As to matters independent of indemnity issues, the Company recovered $400,000 from one of its insurers.] The settlement agreement obligates the defendants to pay for the ongoing operation and maintenance of the filtration devices for up to forty years. The annual costs of operation and maintenance per well is estimated to be approximately $69,000, to be adjusted annually by the consumer price index. The defendants are also obligated to pay between ninety and one-hundred percent for the cost of the installation of 49 52 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED filtration devices on other wells that may exceed the defined maximum contaminant level in the next forty years. AMVAC's share of the ongoing operation and maintenance charges and installation of additional devices on other wells is seventeen and one-half percent. The obligations of the defendants under this agreement are secured by a twenty million dollar letter of credit obtained by Dow Chemical. AMVAC will pay seventeen and one-half percent of the annual cost of the letter of credit directly to Dow Chemical. In October 1997, AMVAC was served with a Complaint(s) in which it was named as a Defendant, filed in the Circuit Court, First Circuit, State of Hawaii and in the Circuit Court of the Second Circuit, State of Hawaii (two identical suits) entitled Patrickson, et.al. v. Dole Food Co., et.al. alleging damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. Other named defendants are: Dole Food Co., Dole Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers Association of Hawaii, Shell Oil Company, Dow Chemical Company, Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit & Steamship, Standard Fruit Company De Costa Rica, Standard Fruit Company De Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading Corporation, and Del Monte Fresh Produce. The ten named Plaintiffs are citizens of four countries--Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a class action on behalf of other workers so exposed in these four countries. The defendants subsequently removed the case to the United States District Court in Hawaii. On March 8, 1999 the Judge in the U.S. District Court dismissed the case based on the defendant's agreement to pay any judgement that might be entered in the Plaintiff's nation of origin. The court order allows Plaintiffs to return to the United States if the foreign courts do not accept jurisdiction. Plaintiffs subsequently appealed to the Ninth Circuit Court of Appeal. As of December 31, 1999, the Plaintiffs had filed their opening brief on appeal and defendants had filed their response. The Plaintiffs filed their reply brief in February 2000. Oral arguments have not yet been scheduled in the Ninth Circuit. The Plaintiffs reported that they have filed suit in each of the four countries. None of the defendants have been served with these suits. No discovery has taken place on the individual claims of the Plaintiffs. However, AMVAC product did not reach two of the four countries involved. Without discovery, it is unknown if any Plaintiff was exposed to AMVAC DBCP and too early to provide any evaluation of the likelihood of an unfavorable outcome or range of possible loss. There may be statute of limitation defenses available to defendants. In order to proceed with the cases, the Plaintiffs must either litigate their claims in their native countries or convince the Ninth Circuit Court of Appeal to 50 53 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED reverse the trial court on the motion to dismiss. AMVAC intends to contest the cases vigorously. In September 1999, AMVAC and the Company were served with complaints filed in the Circuit Court of the First Circuit of the State of Hawaii entitled Board of Water Supply of the City and County of Honolulu v. Shell Oil Company, et. al. The complaint alleges that the Board of Water Supply of the City and County of Honolulu's ground water has been contaminated with DBCP, EDB, and TCP. The complaint names as defendants the Company, AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Petroleum Corporation, Del Monte Foods, Dole Foods, and Libby McNeil, Inc. The focus of the case was on TCP and not DBCP. The Company and AMVAC were not involved with TCP and EDB. The Company and AMVAC were dismissed from the action by Notice of Partial Dismissal Without Prejudice as to all Claims filed on February 29, 2000. C. MISSISSIPPI MATTERS ---------------------- In May 1996, AMVAC was served with five complaints in which it is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc., Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison County, First Judicial District of Mississippi. Each case alleged damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. These cases have been removed to U.S. District Court for the Southern District of Mississippi, Southern Division. The Federal Court granted defense motions to dismiss in each case pursuant to the doctrine of forum non conveniens. Between April and October 1998, the Plaintiffs filed notices of appeal in each of the cases. In December 1999, the Plaintiffs filed their brief for the appeal. The briefing is not yet complete and no hearing for oral argument has been scheduled. No discovery has taken place on the individual claims of these Plaintiffs. However, AMVAC product was not used in at least two of the countries involved. Without discovery, it is unknown whether any of the Plaintiffs were exposed to AMVAC's product or what statute of limitation defense may apply. AMVAC intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. 51 54 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED D. LOUISIANA MATTERS -------------------- In November 1999, AMVAC was served with three complaints filed in the 29th Judicial District Court for the Parish of St. Charles, State of Louisiana entitled Pedro Rodrigues et. al. V. Amvac Chemical Corporation et. al., Andres Puerto, et. al. V. Amvac Chemical Corporation, et. al. and Eduardo Soriano, et. al. v. Amvac Chemical Corporation et. al. Other named defendants are: Dow Chemical Company, Occidental Chemical Corporation, Shell Oil Company, Standard Fruit, Dole Food, Chiquita Brands, Tela Railroad Company, Compania Palma Tica, and Del Monte Fresh Produce. These suites were filed in 1996, they were not served until November 1999. The complaints allege personal injuries from alleged exposure to DBCP (punitive damages are also sought). The Plaintiffs are primarily from the countries of the Philippines, Costa Rica, Honduras, and Equador. In November 1999, the cases were removed to the United States District Court for the Eastern District of Louisiana. The Plaintiffs filed a motion to remand the cases back to the state court in December 1999, however, they subsequently withdrew their motion to remand in February 2000. These cases will in all likelihood move slowly due to pending resolution of various jurisdictional issues. No discovery has taken place on the individual claims of the Plaintiffs. It is unknown whether any of the Plaintiffs claim exposure to AMVAC's product and whether their claims are barred by applicable statutes of limitation. AMVAC intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome or range of possible loss at this time. NAA DATA TRADE SECRET --------------------- On November 1, 1996 AMVAC filed an action in U.S. District Court in Oregon against four defendants relating to their misuse of AMVAC's exclusive right associated with Naphthalene Acetic Acid ("NAA") (Amvac Chemical Corporation v. Termilind, Inc., et.al.). On November 1996, defendants Termilind and Inchema asserted counterclaims against AMVAC: violation of antitrust laws (Sherman Act section 2 and ORS 646.730), unfair competition, tortuous interference, defamation, and breach of contract. In January 1999, the court granted AMVAC's motion for partial summary judgement on AMVAC's claim for tortuous interference with prospective business relations finding that AMVAC had proved three of the five elements of the tort. In October 1999, AMVAC settled/concluded this litigation regarding its exclusive ownership of labels and registrations with the Environmental Protection Agency ("EPA") for NAA. In connection with this settlement, the Company acquired labels and registrations of this established product line. (See Note 10). 52 55 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ENVIRONMENTAL ------------- During 1999, AMVAC continued activities to address environmental concerns associated with its facility (Facility) in Commerce, California and the adjacent railroad right-of-way. In March 1997, the Facility was accepted into California Environmental Protection Agency's Department of Toxic Substances Control's (DTSC) Expedited Remedial Action Program (ERAP). The remaining environmental investigation and any remediation activities related to ten underground storage tanks at the Facility, which had been closed in 1995, will be addressed by AMVAC under ERAP. Soil characterization activities at other areas of the Facility, originally expected to commence in the second or third quarter of 1999, will most likely commence in the second or third quarter of 2000. These activities were not implemented in 1999 due to revisions in the site investigation plan, which have yet to be approved by the DTSC. Once approved, investigation and remediation activities are planned to be implemented in phases over the next two to three years. These activities are required at all facilities which currently have, or in the past had, hazardous waste storage permits. Because AMVAC previously held a hazardous waste management permit, AMVAC is subject to these requirements. AMVAC completed remedial activities associated with the adjacent railroad right-of way in 1998 and received DTSC approval in a letter dated June 26, 1998 (the Letter). However, due to elevated concentrations of arsenic left in place at depths from 11 to 45 feet below ground surface, DTSC requires that a land use covenant be recorded on the property prior to issuance of a site certification in accordance with Chapter 6.85 of the California Health and Safety Code, and that reviews be conducted by AMVAC every five years to evaluate whether the completed remediation remains protective of public health and the environment. The railroad right-of-way is jointly owned by the Union Pacific Railroad Company and the Burlington Northern and Santa Fe Railway Company, and is managed on behalf of both companies by the latter. AMVAC facilitated discussions between the railroads and the DTSC during 1999 in an effort to bring this issue to closure. The railroad companies are now in direct communication with the DTSC to negotiate the language of the land use covenant. The Company is subject to numerous federal and state laws and governmental regulations concerning environmental matters and employee health and safety. The Company continually adapts its manufacturing process to the environmental control standards of the various regulatory agencies. The U. S. EPA and other federal and state 53 56 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED agencies have the authority to promulgate regulations that could have an impact on the Company's operations. AMVAC expends substantial funds to minimize the discharge of materials in the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, AMVAC recovers raw materials and increases product yield 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 above, the Company has been able to comply with such proceedings and orders without any materially adverse effect on its business. (7) 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 $250,000, $215,400 and $195,100 in 1999, 1998 and 1997. (8) MAJOR CUSTOMERS AND EXPORT SALES - ----------------------------------------- In 1999 there were three companies that accounted for 29%, 12% and 11% of the Company's consolidated sales. In 1998, there were two major customers that accounted for 29% and 12% of the Company's consolidated sales. In 1997, there were sales to a major customer that accounted for 29% of the Company's consolidated sales. These companies are distributors or buying cooperatives. Export sales were $5,399,400, $5,085,700 and $6,646,000 for 1999, 1998 and 1997. 54 57 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (9) ROYALTIES - ------------------ The Company has various royalty agreements in place extending through December 2003, some of which relate to the Company's acquisition of certain products. Royalty expenses were $ 109,400, $149,700 and $426,700 for 1999, 1998 and 1997. (10) BUSINESS ACQUISITIONS - ------------------------------ In October 1999, the Company settled litigation regarding its exclusive ownership of labels and registrations of an established product line (see Note 6). In connection with this settlement, the Company entered into an Exclusive License Agreement which granted the Company's ownership of the labels and EPA registrations. The Agreement calls for the Company to make payments of $1,700,000. As a result of the acquisition, the Company has recorded acquisition costs of $1,456,300 (as discounted for imputed interest at 8.75%) as an intangible asset in the 1999 consolidated financial statements. Under the Agreements, the Company will make payments of $400,000 per year for the years ending December 31, 2000, 2001 and 2002, and $250,000 per year for the next two years. In November 1998, the Company completed the acquisition of a product line from a wholly-owned subsidiary of a large chemical company. The Company acquired all of the seller's existing product as of November 2, 1998 for an agreed upon value of $2,907,000 as well as all U.S. EPA and state registrations, an extensive data package, trademarks and all product related intellectual property. The purchase price was $6,000,000, (in addition to the cost of inventory acquired) subject to certain reductions if the product registrations and uses with the EPA (and similar state agencies) are restricted or canceled. The agreement also calls for royalty payments at an agreed upon per unit price for all product sold in the U.S. during the calendar years 2002, 2003 and 2004. As a result of the acquisition, the Company has recorded new product line acquisition costs of approximately $5,203,900 (as discounted for imputed interest at 8.5%) as an intangible asset in the 1998 consolidated financial statements and inventory costs of $2,907,000. Under the acquisition agreement, all payments are due in 1999 except for $3,500,000, of which, $1,500,000 is due on December 31, 2000, and $2,000,000 on December 31, 2001. (11) 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 originally were set to expire in July 1999 and provided for total remuneration of $1,000,000 over the five year 55 58 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED period to be paid to each former employee. In 1996, the consulting agreements were extended for an additional year through July 2000 with additional remuneration of $100,000 to be paid to each former employee. The Company has entered into an employment agreement with an officer which commenced January 15, 1999 and expires January 15, 2003. The employment agreement provides for fixed minimum salary levels for each year of the agreement through January 15, 2002. The annual increase for the year ending January 15, 2003 shall not be less than the increase in an agreed upon cost of living index. The Company also entered into an employment agreement with an officer of one of its subsidiaries. The employment agreement commenced January 1, 1999 and expires December 31, 2001. The employment agreement provides for an annual salary of $170,000. Annual increases are at the discretion of the Board of Directors but shall not be less than the increase in an agreed upon cost of living index. Amounts to be paid under the aforementioned consulting and employment agreements are summarized as follows: Year ending December 31, 2000 $ 656,700 2001 593,000 2002 418,000 2003 17,400 ---------- $1,685,100 ========== In November 1999, the Company entered into an operating lease for its corporate headquarters expiring in October 2004. The lease contains a provision to pass through to the Company the Company's pro rata share of the building's operating expenses. Rent expense for the years ended December 31, 1999, 1998 and 1997 was $198,654, $137,400 and $131,800. Future minimum lease payments under the terms of the lease are as follows: Year ending December 31, 2000 $ 276,700 2001 280,400 2002 302,500 2003 321,000 2004 267,500 ---------- $1,448,100 ========== 56 59 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (12) RESEARCH AND DEVELOPMENT - --------------------------------- Research and development expenses were $2,241,100, $2,611,900 and $2,241,300 for the years ended December 31, 1999, 1998 and 1997. (13) SETTLEMENT(S) - ---------------------- The Company was part of a global settlement in a matter where the Plaintiffs alleged the contamination of water wells in Hawaii. The Company's portion of the settlement was $500,000. The Company recovered $400,000 from one of its insurers resulting in a net expense of $100,000. The Company was awarded a settlement of $1,845,000 by neutral arbitrators in a binding action. A portion of this award, $777,300, was recorded as an offset to related professional/legal costs in 1998. The balance appears as a separate line item titled "Settlement" on the Company's Consolidated Statements of Income for the years ended December 31, 1998 and 1997. The 1997 amount represents professional/legal costs that relate to the 1998 settlement. (14) STOCK OPTIONS - ---------------------- At December 31, 1999, the Company had stock options outstanding for 177,000 shares of the Company's stock of which 80,000 shares represents grants during 1999. These options were issued to various employees and consultants and were granted with exercise prices at fair market value which ranged from $4.88 to $10.75. The remaining lives of these options at December 31, 1999 range from one month to seven years. If compensation cost for stock-based compensation had been determined based on the fair market value of the stock options on their dates of grant in accordance with SFAS 123, the Company's net income would not have substantially differed from the reported amounts. (15) SUBSEQUENT EVENT - UNAUDITED - ------------------------------------- On March 16, 2000, the Company announced that the Board of Directors declared a cash dividend of $.13 per share as well as a 10% stock dividend. Both dividends will be distributed on April 14, 2000 to shareholders of record at the close of business on March 31, 2000. The cash dividend will be paid on the number of shares outstanding prior to the 10% stock dividend. Shareholders entitled to fractional shares resulting from the 10% stock dividend will receive cash in lieu of such fractional share based on the closing price of the Company's stock on March 31, 2000. 57 60 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) -- 10.7 Employment Agreement between American Vanguard Corporation and Robert F. Gilbane.(6) --
58 61 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.(8) -- 10.12 Employment Agreement between American Vanguard Corporation and Eric G. Wintemute 62 21. List of Subsidiaries of Registrant. 75 27. Financial Data Schedule 76
- ---------------------- (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. (8) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 28, 1996. 59 EX-10.12 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.12 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made effective as of the 15th day of January, 1999 by and between AMERICAN VANGUARD CORPORATION, a Delaware corporation ("American Vanguard") (referred to herein as "Employer"), and ERIC G. WINTEMUTE ("Employee"). TERMS AND CONDITIONS In consideration of the foregoing and of the mutual covenants contained herein and other valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to serve as an employee of Employer, during the Term of Employment, as defined in Section 2. 2. Term of Employment. The Term of Employment-of the Employee shall commence on January 15, 1999, and continued until January 15, 2003 (the "Term of Employment"). 3. Duties of Employee. (a) Employee shall serve as President and Chief Executive Officer of American Vanguard and AMVAC. Employee shall perform such duties, services and responsibilities as are consistent with such positions. Employee's duties, services and responsibilities will be determined by Employer's Board of Directors ("Board of Directors") and will be performed under the overall supervision of, and consistent with, the policies of the Board of Directors. (b) During the Term of Employment, Employee shall devote such time, attention, skill, energy and efforts as may be necessary for the faithful performance of his duties hereunder. The foregoing shall not be construed to prohibit Employee from devoting reasonable periods of time during normal business hours to activities involving educational, charitable, professional or other similar types of organizations, and membership on the board of directors of other organizations so long as such organization or business is not a "Competing Enterprise" (as defined in Section 7(c) below). -1- 2 4. Compensation. (a) In consideration of the performance by Employee of Employee's obligations hereunder during the Term of Employment, Employer will pay Employee a minimum salary (the "Salary") at an annual rate as follows: January 15, 1999 - 2000 $330,000 January 15, 2000 - 2001 $374,000 January 15, 2001 - 2002 $418,000 January 15, 2002 - 2003 2002 Salary plus a percentage increase equal to the percentage increase in the Consumer Price Index - All Urban Consumers - Los Angeles - Anaheim - Riverside (1982-84=100) for calendar year 2002 Such salary shall be payable in accordance with the normal payroll practices of Employer then in effect. The Salary, and any other form of compensation paid to Employee hereunder, during the Term of Employment, shall be subject to all applicable taxes required to be withheld by Employer pursuant to federal, state and local law. Employee shall be solely responsible for income taxes imposed on Employee by reasons of any cash or noncash compensation and benefits provided hereunder. (b) During the Term of Employment, Employee shall be reimbursed for reasonable travel and other business-related expenses incurred in the furtherance of the business of Employer, other than expenses incurred by Employee in travelling between any residence of Employee and Employer's headquarters facility. Reimbursement of approved expenses shall be made by Employer upon submission by Employee of a statement itemizing the expenses incurred or such other verification as Employer may reasonably request. 5. Employee Benefits. (a) In addition to the payment of Salary as described above, during the Term of Employment Employee shall be entitled to all rights and benefits for which Employee may be eligible under any bonus, participation or additional compensation plans, pension or profit-sharing plans, group life, medical, health, dental and/or disability insurance, automobile allowance or other -2- 3 benefits Employer may, in its sole discretion, provide for Employee or its employees generally. (b) During the Term of Employment, Employee shall be entitled to four business weeks of vacation time each year without loss of compensation. In the event that Employee is unable to take the total amount of vacation time authorized herein during any year, he shall be deemed to have waived the entitlement for that year. (c) If Employee should die during the Term of Employment, Employer agrees to pay the designated beneficiary any amounts (including Salary) and continue any benefits due Employee under this Agreement for a period of twelve (12) months after the date of death. (d) Employer hereby grants Employee, as of April 1, 1999, the right and option to purchase, at the time or times and on other terms and conditions as hereinafter set forth, 50,000 shares of common stock of Employer (the "Option Shares"), for the exercise price equal to the closing trading price on the AMEX on April 1, 1999 (the "Options"). (i) Subject to the provisions hereof, (a) 10,000 Option Shares shall become exercisable on April 1, 1999, (b) 10,000 Option Shares shall become exercisable on first anniversary of this Agreement, (c) 10,000 Option Shares shall become exercisable on second anniversary of this Agreement, (d) 10,000 Option Shares shall become exercisable on third anniversary of this Agreement and (e) the remaining 10,000 Option Shares shall become exercisable on the fourth anniversary of this Agreement. All Option exercise privileges shall be cumulative, so that any Option that has become exercisable, but that has not been exercised, shall remain exercisable throughout the balance of the option period, regardless of the additional exercise privileges becoming available during such exercise period. (ii) If Employee is terminated for "Cause" [as defined in Section 6(c) below] or if that Agreement is terminated pursuant to its Section 6 (a) (v) or Section 6 (a) (vi) , all Options vested at such time must be exercised within ninety (90) days after Employee ceases to be an employee of Employer and Employee shall have no rights to any other options described in this Agreement. If Employee is terminated without Cause, Employee shall have the right to exercise his Options in accordance with the terms of subsection (d) above. If Employee dies or suffers a "Disability" (as defined in the Agreement), Employee, or his beneficiary, shall have the right to exercise -3- 4 all Options vested at the time of such event and all Options which become vested within 12 months of such event but shall have no right to any other Options. Notwithstanding any other terms of this Option, all options granted hereunder if not exercised shall expire on January 15, 2008. (iii) The Option granted hereunder may be exercised in whole or in part, and may be exercised in part from time to time, except that no exercise may be for less than 100 Option Shares. Exercise shall be accomplished by delivery to Employer of a timely written notice of election to exercise, specifying the number of full Option Shares to be purchased, which shall be delivered to the principal office of Employer accompanied by payment of the purchase price for the Option Shares with respect to which the Option is exercised. The purchase price of the Option Shares shall be paid in cash, certified check, bank cashier's check or wire transfer or a combination of any of the above methods of payment. As soon as practicable after each exercise of the option and compliance by Employee with all applicable conditions, Employer shall mail or cause to be mailed to Employee, at the address specified by Employee in the notice, a stock certificate or certificates registered in the name of the Employee for the number of shares of common stock which Employee shall be entitled to receive upon such exercise under the provisions of this Agreement. (iv) The Option and the rights and privileges associated therewith shall not be transferred, assigned, pledged or hypothecated by Employee otherwise than will or by the laws of descent and distribution. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Option, or any right or privilege conferred thereby, contrary to the provisions of this Agreement, or upon any attempted sale under the rights and privileges conferred hereby, the Option including all rights and privileges thereunder shall immediately become null and void. (v) The Options shall have antidilution protection and the vesting of all Options hereunder shall accelerate upon a "change of control," of Employer (acquisition of more than 50% of Employer's common stock by a person or persons acting as a group). (vi) It is anticipated that a new option plan (or an amendment to the existing plan) will be adopted by the Employer. At such time, the Options under this Agreement, if requested by Employee, will be converted to options under the new option plan. -4- 5 6. Termination. (a) Except as otherwise provided in this Agreement herein and subject to the provisions of Section 6(e) hereof, this Agreement shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of Employee's death; (ii) the close of business on the day on which Employer delivers to Employee a written notice of Employer's election to terminate his employment for "Cause" (as hereinafter defined); (iii) the close of business on the day on which Employer shall have delivered to Employee a written notice of Employer's election to terminate his employment, which notice shall be delivered not less than 120 days after Employee suffers any physical or mental disability that would prevent him from substantially performing his duties under the Agreement ("Disability"); (iv) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of Employee hereunder and such termination is not for death, cause or Disability; (v) the close of business on a date mutually agreed to in writing by Employer and Employee which is prior to the end of the Term of Employment; or (vi) the close of business on a date not later than thirty (30) days after delivery of written notice by Employee to Employer terminating this Agreement. (b) Any purported termination by Employer or by Employee pursuant to Section 6(a) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of this Agreement under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such "Notice of Termination". -5- 6 (c) For purposes of this Agreement, termination of employment for "Cause" shall mean termination based on: (i) the intentional and continued failure of Employee to substantially perform his duties pursuant to this Agreement after a written demand by Employer identifying the manner in which it believes Employee has not substantially performed his duties; (ii) a determination by Employer's Board of Directors that a material breach of this Agreement by Employee has occurred; (iii) conviction in a criminal proceeding against Employee involving a felony; (iv) a determination by Employer's Board of Directors that Employee has committed fraud, embezzlement, theft or business conduct against Employer or conduct involving a third party, any of which significantly impairs the reputation of, or harms, Employer, its subsidiaries or affiliates; (v) a determination by Employer's Board of Directors that Employee has inflicted intentional wrongful damage to property of Employer; or (vi) a determination by Employer's Board of Directors that Employee has breached his fiduciary obligation to Employer or its subsidiaries. (d) For purposes of this Agreement, the term "Disability" shall mean the good faith determination by a majority of the Board of Directors of Employer that Employee's physical or mental condition effectively prevents Employee from fulfilling his responsibilities on a consistent basis for at least 120 days. In arriving at such good faith determination the Board of Directors shall review the current and future requirements of Employee's position and the then operational state and needs of Employer's business and shall have the right but not the obligation to seek opinions from medical professionals, including Employee's physician (with whom Employee hereby grants his approval for the Board to contact in making its determination). The parties agree that determination of Employee's disability by the Board shall be conclusive. (e) If this Agreement terminates because of Employee's death or Disability, Employer will continue to pay Employee an amount equal to Employee's Salary for a period of one (1) year -6- 7 after the date of termination. If this Agreement is (i) terminated by the mutual consent of the parties, (ii) voluntarily terminated by Employee, or (iii) terminated by Employer for Cause, Employer shall pay Employee any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If this Agreement is terminated by Employer without Cause, Employer shall pay Employee an amount equal to Employee's Salary for the remaining term of this Agreement in accordance with Employer's normal payroll schedule. -7- 8 7. Employee Covenants. (a) Employee, during the term of this Agreement and thereafter, will not, directly or indirectly (without Employer's prior written consent) , use for himself, or use for or disclose to any party other than Employer or any subsidiary or affiliate of Employer, any secret or confidential information or data regarding the business of Employer or its subsidiaries and affiliates or any secret or confidential information or data regarding the costs, uses, methods, applications, customers (including their names and buying habits or practices) , trade accounts or suppliers (and pertinent information respecting transactions and prospective transactions therewith) of products made, produced or sold by Employer or any of its subsidiaries or affiliates, or regarding its marketing methods and related data or any secret or confidential apparatus, process, system, manufacturing or other method at any time used, developed or investigated by or for Employer or any of its subsidiaries or affiliates, whether or not invented, developed, acquired, discovered or investigated by Employee. At the termination of Employee's employment or at any other time Employer may request, Employee shall promptly deliver to Employer all memoranda, notes, records, plats, sketches, plans or other documents made, compiled by, delivered to, or otherwise acquired by, Employee concerning costs, uses, methods, designs, applications, purchasers or suppliers of products made or sold by Employer or any subsidiary or affiliate of Employer or any secret or confidential product, apparatus or process manufactured, used, developed, acquired or investigated by Employer or any subsidiary or affiliate of Employer. (b) Employee agrees that any and all inventions, discoveries, improvements, processes, methods, designs, patents, copyrights and trademarks made,, developed, discovered or acquired by him during the Term of Employment, solely or jointly with others or otherwise and which relate to the business of Employer and all knowledge possessed by Employee relating thereto (collectively, the "Inventions") shall be fully and promptly disclosed to the Board of Directors and to such person or persons as the Board of Directors shall direct and shall be the sole and absolute property of Employer and Employer will be the sole and absolute owner thereof. Employee agrees that he will at all times keep all of the same secret from everyone except Employer and such persons as the Board of Directors may from time to time direct. Employee shall, as requested by Employer, at any time and from time to time, whether prior to or after the expiration of the Term of Employment, execute and deliver to Employer any -8- 9 instruments deemed necessary by Employer to effect disclosure and assignment of the Inventions to Employer or its designees and any patent applications (United States or foreign) and renewals with respect thereto, including any other instruments deemed necessary by Employer for the prosecution of patent applications or the acquisition of letters patent. Employer hereby notifies Employee that this Section 7(b) shall not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code. (c) By and in consideration of Employer's entering into this Agreement and the Salary and benefits to be provided by Employer hereunder, and further in consideration of Employee's exposure to the proprietary information of Employer, manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity engaged in a business in the United States which is in competition with any of the businesses of Employer or any of its subsidiaries or affiliates (i) as of the date of commencement of this Agreement, or (ii) during the Term of Employment. The prohibition of this clause (c) shall not be deemed to prevent Employee from owning less that 5% of any class of securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. (d) During the term of this Agreement and for a period of four (4) years thereafter, Employee shall not use any information obtained as a result of his employment with Employer to interfere with Employer's relationship with, or endeavor to entice away from Employer, any person who at any time during the term of this Agreement was an employee or customer of Employer or otherwise had a material business relationship with Employer. Notwithstanding the foregoing provisions, nothing in this agreement is intended to be and shall ever be construed as an agreement by Employee to refrain from fairly competing after the termination of this agreement and using publicly accessible information to solicit customers or other persons who had a material business relationship with Employer. (e) Employee agrees that any breach of the terms of this Section 7 would result in irreparable injury and damage to Employer for which Employer would have no adequate remedy at law; Employee therefore also agrees that in the event of said breach or any threat of breach, Employer shall be entitled to an -9- 10 immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by Employee and/or any and all persons and/or entities acting for and/or with Employee, without having to prove damages, in addition to any other remedies to which Employer may be entitled at law or in equity; provided, however, that the prevailing party in any such action brought by Employer pursuant to this Section 7(e) will be entitled to recover from the other party all costs and expenses, including reasonable attorney's fees and costs, incurred by the prevailing party in connection with such action. The terms of this paragraph shall not prevent Employer from pursuing other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from Employee. The provisions of this Section 7 shall survive any termination of this Agreement, and the existence of any claim or cause of action by Employee against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of the covenants and agreements of this Section 7. 8. Indemnification. Employer agrees to indemnify Employee as an officer and/or director, as applicable, of Employer to the fullest extent permitted under applicable California corporate law. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, addressed to the party to whom it is directed at the address set forth below: If to Employer: American Vanguard Corporation 4695 MacArthur Court, Suite 1250 Newport Beach, California 92660 If to Employee: Eric G. Wintemute 19001 Antioch Drive Irvine, California 92612 -10- 11 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger) and assigns. Notwithstanding the provisions or the immediately preceding sentence, Employee shall not assign all or any portion of this Agreement without the prior written consent of Employer. 11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, written or oral, between them as to such subject matter. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provisions or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without reference to the principles of conflict of laws. 14. Attorney's Fees. In the event of default hereunder, the defaulting party shall be liable to the nondefaulting party for all expenses and costs incurred by the nondefaulting party in protecting or enforcing its rights hereunder, including, but not limited to, reasonable attorney's fees. 15. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 16. Headings. The headings contained herein are solely for the purpose of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. -11 12 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] -12- 13 IN WITNESS WHEREOF, Employer has caused this Agreement to be executed by the authority of its Board of Directors, and Employee has hereunto set his hand, the day and year first above written. EMPLOYER: AMERICAN VANGUARD CORPORATION By: /s/ Herbert A. Kraft ---------------------------------- Herbert A. Kraft EMPLOYEE: /s/ Eric G. Wintemute ---------------------------------- Eric G. Wintemute -13- EX-21 3 SUBSIDIARIES 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 AMVAC. 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) AMVAC Chemical UK Ltd.* Surrey, England Agrosevicios Amvac, SA de CV Mexico Quimica Amvac de Mexico SA de CV Mexico 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 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 550,200 0 15,953,000 0 16,749,900 34,072,700 34,059,800 23,545,600 55,579,300 22,786,400 18,267,800 0 0 256,400 25,712,500 55,579,300 69,211,700 69,211,700 35,948,900 35,948,900 26,384,600 0 1,655,700 5,222,500 1,987,000 3,235,500 0 0 0 3,235,500 1.31 1.31
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