<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-12676
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COASTCAST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3454926
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3025 EAST VICTORIA STREET 90221
RANCHO DOMINGUEZ, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 638-0595
-----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
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. [X]
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the New York Stock
Exchange on March 16, 1998 ($21.6875 per share): $171,116,000.
As of March 16, 1998, 8,959,050 shares of the Common Stock, no par value,
of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held June 22, 1998, are incorporated by reference into
Part III of this Report.
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COASTCAST CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
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PART I PAGE
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<C> <S> <C>
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
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PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 11
Item 6 Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8 Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 18
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PART III
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Item 10. Directors and Executive Officers of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management 19
Item 13. Certain Relationships and Related Transactions 19
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PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 19
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
Coastcast Corporation is one of the largest manufacturers in the world of
investment-cast titanium and stainless steel golf clubheads for high-quality,
premium-priced metal woods, irons and putters. The Company believes it has
manufactured more metal wood clubheads for high-quality, premium-priced golf
clubs than any other manufacturer. Over the last fifteen years, golf clubs with
perimeter-weighted heads have become increasingly popular among golfers because
such clubs are more forgiving to off-center hits than other types of clubs. The
investment-casting process has become the principal method for manufacturing
clubheads because it facilitates the use of perimeter weighting designs and
modern alloys and enhances manufacturing precision and uniformity.
Manufacturing precision is particularly important in the manufacture of an
oversized, thin-walled metal wood which can involve more than 200 separate
manufacturing steps to produce a clubhead that meets strict standards for size,
weight, strength and finish.
The Company also manufactures a variety of investment-cast orthopedic
implants and surgical tools used principally in replacement of hip and knee
joints in humans and small animals, which products accounted for less than 7% of
the Company's total sales for the year ended December 31, 1997.
RECENT DEVELOPMENTS
In the past two years, golf clubs with titanium alloy heads have increased
in popularity. The Company developed the capability of manufacturing titanium
clubheads and began shipping titanium clubheads at the end of 1995. Titanium
clubheads accounted for over 55% and approximately 50% of the Company's total
sales in 1996 and 1997, respectively.
BUSINESS STRATEGY - GOLF
The Company recognizes that golf club companies are critical to its success
and, accordingly, has designed its business strategy to engender customer
satisfaction in order to maintain its industry leadership position. The
Company's strategy consists of the following principal elements:
- MAINTAIN RELIABLE, HIGH-QUALITY MANUFACTURING. The Company believes
its manufacturing expertise, quality control, scheduling flexibility,
substantial production capacity and its ability to manufacture golf
clubheads using stainless steel or titanium alloys differentiate it
from others in the industry. The Company endeavors to respond
quickly to customers' orders and deliver high-quality clubheads on a
timely basis. This capability is particularly important to golf club
companies which can experience rapid growth from the increasing
popularity of a particular club or set of clubs.
- INTEGRATE OPERATIONS. The Company's operations are integrated, from
the computer-aided manufacture of some of the tooling used to produce
clubheads through foundry operations and finishing processes,
including painting.
- FOSTER CLOSE CUSTOMER RELATIONSHIPS. The Company believes that its
responsive service has been a significant element of its success.
The Company endeavors to be a value-added supplier by offering
consistently high levels of customer service and support.
The Company has a staff of 14 employees dedicated to sales and customer
service. The Company maintains its own internal laboratory for testing of
customers' products during the production process. The Company typically
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delivers finished products to its customers within 12 weeks from receipt of the
customer's order during peak production periods, within 8 to 10 weeks during
other periods and within several weeks or even several days if necessary to
accommodate a customer's need for more rapid delivery. With new products,
depending on their complexity, a longer turnaround period may be expected.
GOLF PRODUCTS
The Company's golf products are generally used in golf clubs targeted at
the high end of the market. These clubs must satisfy the requirements of
highly-skilled amateur and professional golfers, including touring
professionals. As such, golf clubs which incorporate clubheads manufactured by
the Company are sometimes referred to in the industry as "tour-driven" golf
clubs.
The Company's clubheads are included in a variety of leading metal woods,
irons and putters, some of which are listed below:
<TABLE>
<S> <C>
CALLAWAY ODYSSEY
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GREAT BIG BERTHA TITANIUM METAL WOODS DUAL FORCE BLADE PUTTERS
BIG BERTHA WARBIRD METAL WOODS DF ROSSIE MALLET PUTTERS
GREAT BIG BERTHA TUNGSTEN TITANIUM IRONS BLACKSPIN WEDGES
X12 BIG BERTHA IRONS
BIG BERTHA IRONS TAYLOR MADE
TOUR SERIES WEDGES -----------
BIG BERTHA BLADE PUTTERS TITANIUM BUBBLE 2 IRONS
S2H2 PUTTERS BURNER BUBBLE TITANIUM 2 METAL WOODS
BOBBY JONES PUTTER TITANIUM 2 FAIRWAY RAYLORS
TOUR WOODS
CLEVELAND BURNER BUBBLE 2 METAL WOODS
--------- BURNER TOUR IRONS
8T TOUR ACTION TITANIUM METAL WOODS LCG IRONS
TA3 IRONS
RTG WEDGES TITLEIST
588 WEDGES --------
691 WEDGES 975D/976R TITANIUM METAL WOODS
485 WEDGES STARSHIP METAL WOODS
DCI 962 IRONS
COBRA OVERSIZE PLUS IRONS
----- 962 "BLADE" IRONS
KING COBRA TOUR TITANIUM METALWOODS BOB VOKEY WEDGES
KING COBRA OFFSET TITANIUM METALWOODS
</TABLE>
GOLF PRODUCT CUSTOMERS
Over the past ten years, the Company has supplied investment-cast clubheads
for metal woods, irons and putters to a majority of the top golf companies which
produce high-quality, premium-priced golf clubs. Most golf club companies
source the three principal components of a golf club--the clubhead, shaft, and
grip--from independent suppliers which manufacture these components based on the
golf club companies' designs and specifications. The Company currently is a
major supplier of stainless steel and titanium clubheads to Callaway Golf
Company, which is the producer of the Big Bertha line of steel metal woods and
irons and the Great Big Bertha titanium metal woods and irons. In addition, the
Company is a supplier of investment-cast steel and titanium clubheads for
companies which market the Titleist, Odyssey, Taylor Made, Cleveland, Goldwin,
Wilson, Cobra and Daiwa brands of golf clubs.
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Substantially all of the clubheads manufactured by the Company are used in
high-quality, premium-priced golf clubs. The Company believes that a very
substantial portion of the clubheads manufactured by it are incorporated in
clubs sold in North America, although some of the Company's clubheads are
incorporated in clubs sold in parts of Asia, Europe and other parts of the
world. Historically, a limited number of golf club companies have held a very
substantial portion of the total market share for high-quality, premium-priced
golf clubs in North America. Currently, some of the more popular high-quality,
premium-priced clubs are Callaway metal woods and irons; Taylor Made metal woods
and irons; Titleist metal woods, irons and putters; Odyssey putters; Wilson
metal woods, irons and putters; and Cobra metal woods. Several of these golf
clubheads are marketed by customers of the Company. Callaway (including Odyssey
after its acquisition by Callaway in August 1997) accounted for 34%, 46% and 47%
of the Company's total sales in 1997, 1996 and 1995, respectively. Taylor Made
accounted for 23% and 18% of the Company's total sales in 1997 and 1996,
respectively. Tommy Armour, including Odyssey until its divestiture in August
1997, accounted for 15%, 13% and 10% of the Company's total sales in 1997, 1996
and 1995, respectively. Fortune Brands (formerly American Brands; Titleist and
Cobra) accounted for 12% and 13% of the Company's total sales in 1997 and 1995,
respectively.
A close working relationship typically exists between the Company and its
principal golf club customers, and sales and marketing activities are conducted
by a limited number of direct sales employees and senior executives of the
Company.
MANUFACTURING - GOLF
INVESTMENT-CASTING PROCESS. Investment-casting is a highly specialized
method of making metal products. It has become the principal method for the
manufacture of golf clubheads. Previously, woods were made of wood and irons
were produced by forging and machining. Greater flexibility in the shape and
weight distribution of clubheads is possible with the investment-casting
process. Investment-casting facilitates perimeter weighting and the use of
modern alloys. It also enhances manufacturing precision and uniformity. The
enhanced precision inherent in investment-casting is particularly important in
the manufacture of metal woods which can involve more than 200 separate
manufacturing steps.
The basic steps of investment-casting, in its simplest form, are as
follows:
- - Produce a metal die (sometimes called a wax mold) based on specifications
provided by the customer.
- - Inject wax into the die, producing a pattern the exact shape of the final
casting.
- - Surround (or "invest") the pattern with a ceramic material which is allowed
to dry to form a ceramic shell.
- - Remove the wax by heat, leaving a cavity in the ceramic shell in the shape
of the desired casting.
- - Pour molten metal into the cavity in the ceramic shell and allow it to
solidify.
- - Remove the ceramic material by mechanical and chemical action after the
metal solidifies and clean the casting.
- - Finish and inspect the casting.
METAL ALLOYS. Most clubheads manufactured by the Company are made of
titanium or stainless steel alloys. Titanium clubheads have similar tensile
strength as stainless steel with approximately one-half the weight of steel.
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Therefore, a larger oversized clubhead can be manufactured using titanium
without increasing clubhead weight. The Company's Gardena facility is devoted
to titanium operations.
POLISHING AND FINISHING. The Company conducts golf clubhead polishing and
finishing operations in its facilities in Mexicali, Mexico. Finishing of the
head for an iron or putter can require more than 50 separate steps and finishing
of a head for a metal wood can involve as many as 100 separate steps. Most of
the clubheads and substantially all of the metal woods manufactured by the
Company are finished by it to customer specifications, although some of such
clubheads--principally irons--are delivered to customers in an unfinished state.
The Company, to assist its customers, at times also polishes and finishes
limited quantities of investment-cast clubheads manufactured by other companies.
QUALITY CONTROL. The Company believes that its success as a leading
supplier of golf clubheads is largely attributable to its quality control
measures. The Company attempts to monitor every aspect of the engineering and
manufacturing process to assure the quality of the clubheads manufactured by the
Company. Particular attention is paid to the quality of raw materials
(principally wax, ceramic and metal alloys), gating techniques employed in
channeling the flow of molten metal in the ceramic shell in the casting process,
and rigorous inspection standards to assure compliance with the customers'
product specifications throughout the manufacturing process.
REGULATIONS. The Company uses hazardous substances and generates hazardous
waste in the ordinary course of its business. The Company is subject to various
federal, state, local and foreign environmental laws and regulations, including
those governing the use, discharge and disposal of hazardous materials.
Although the Company has not to date incurred any material liabilities under
environmental laws and regulations and believes that its operations are in
substantial compliance with applicable laws and regulations, environmental
liabilities could arise in the future that may adversely affect the Company's
business. See "Discontinued Operations" below.
COMPETITION - GOLF
The Company operates in a highly competitive environment. The Company
competes against a number of manufacturers of investment-cast titanium clubheads
for high-quality, premium-priced golf clubs, including but not limited to:
Selmet, Inc., Sturm Ruger, Inc., and Cast Alloys, Inc. The Company competes
principally against two significant U.S.-based manufacturers (Hitchner
Manufacturing Co., Inc. and Cast Alloys, Inc.) of investment-cast steel
clubheads. The Company also competes with several foreign manufacturers of
investment-cast steel clubheads, including Worldmark Services Ltd. (formerly
Fu-Sheng Industrial Co. Ltd.).
The Company believes that its position as a leading manufacturer of
titanium and steel clubheads for high-quality, premium-priced golf clubs is due
to its ability to produce quality clubheads in quantities sufficient to meet
rapidly growing demand for popular golf clubs, its experience and expertise in
manufacturing investment-cast golf clubheads, and its integrated manufacturing
operations.
Although price is a factor, the Company does not compete solely on price.
Quality and service are key success factors in the premium price golf clubhead
market. The Company seeks to provide better products and service to its
customers than its competitors in order to increase or retain market share.
Although the Company's foreign competitors (the principal ones of which are
located in Asia) are typically able to offer prices below the Company's prices,
the Company believes that it has some competitive advantages over foreign
manufacturers, including its ability to deliver clubheads more quickly to its
customers due to shorter shipping and lead times. Shipment of clubheads to the
United States from Asia usually requires at least two weeks by ocean freight.
In addition, the Company believes that its foreign competitors have not
demonstrated the same willingness and ability as the
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Company to commit sufficient resources to meet rapidly growing demand for
popular golf clubs in a timely manner. Further, the Company believes that
certain of its customers prefer products made in the United States.
The Company also competes against golf club companies that internally
produce clubheads for their clubs. The Company believes that one of the largest
dozen golf club companies, Karsten Manufacturing Co., which produces the Ping
brand of clubs, manufactures substantially all of the investment-cast steel
clubheads for use in its own clubs. The Company believes that this golf club
company produces clubheads for its own use only and does not currently compete
with the Company for the business of other golf club companies. However, in
1996, Karsten Manufacturing Co. purchased some steel golf clubheads for its Ping
brand from the Company.
The Company also faces potential competition from those golf club companies
that currently purchase golf clubheads from outside suppliers but may, in the
future, manufacture clubheads internally. If the Company's current customers
begin manufacturing clubheads internally, the Company's sales would be adversely
affected. The Company believes that as long as component suppliers, such as the
Company, provide high-quality component golf club parts at competitive prices
and reliably, it is unlikely that many golf club companies will commence their
own manufacturing.
The Company experiences indirect competition from golf club companies that
produce golf clubs with clubheads that are not investment-cast. For example,
some clubheads for woods are made of wood, some clubheads for irons are forged,
some clubheads for putters are machined, and some clubheads are made of graphite
or other composites. The Company believes that the investment-cast, metal
clubhead has a greater share of the market for clubheads for high-quality,
premium priced golf clubs than these alternate types of clubheads. In
particular, the metal wood has surpassed the wooden wood as the most popular
wood and the investment-cast iron has surpassed the forged iron as the most
popular type of iron. Graphite and other composite clubheads have been
available for several years, but to date have not become nearly as popular as
investment-cast clubheads.
EMPLOYEES
As of December 31, 1997, the Company employed 5,159 persons on a full-time
basis. Of these employees, 3,837 were employed by Coastcast Corporation, S.A.,
the Mexican subsidiary of the Company. The Company considers its employee
relations to be good.
The production and maintenance employees in the Gardena, California
facility are represented by the United Steelworkers of America. There were 453
such employees as of December 31, 1997. The collective bargaining agreement
for such employees was effective May 12, 1997, and will expire on May 11, 2000.
ORTHOPEDIC IMPLANTS
The Company also manufactures orthopedic implants and surgical tools used
principally for replacement of hip and knee joints in humans and small animals.
The Company believes that the engineering and manufacturing discipline required
to manufacture these products has contributed to the Company's ability to
manufacture golf products.
Approximately 70 of the Company's employees serve in the medical implant
and surgical tools operations. Such operations are conducted in the Rancho
Dominguez, California facility.
The Company believes that its principal competitors in this business are
Precision Castparts Corporation and PED Manufacturing.
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NEW MARKETS
The Company continues to explore marketing its steel, titanium, and other
alloy investment casting capabilities to potential customers in other commercial
and industrial businesses outside of the golf business. In 1997, the Company
continued its efforts in this area; however, at this early stage, the Company
cannot predict which product opportunities will result in profitable sales, and
whether volumes will be significant.
DISCONTINUED OPERATIONS
The Company historically manufactured investment-cast aerospace and other
industrial products in addition to golf clubheads and orthopedic implant
products. In October 1993, the Company announced its decision to discontinue
its aerospace business because of declining sales and operating losses on this
portion of its business. This business was essentially phased out by June 1994.
The net current assets of discontinued operations as of December 31, 1997 were
$911,000, principally consisting of the estimated net realizable value of the
Wallingford, Connecticut property including the related deferred tax asset.
In connection with the offering for sale of the Wallingford, Connecticut
property, the Company had an environmental assessment performed, which
identified the presence of certain chemicals associated with chlorinated
solvents in groundwater beneath a portion of the property. The Company is
continuing to conduct further investigations to determine the source and extent
of the contamination. The Company has recorded the net assets associated with
its discontinued operations at the estimated net realizable value. However,
since the precise source and extent of the contamination has not been identified
at this time, no assurances can be given that the proceeds to be realized upon
sale of this property less the cost of remediation will equal or exceed the
estimated net realizable value.
ITEM 2. PROPERTIES.
The Company's principal executive offices and one of two investment casting
manufacturing facilities are located in a 120,000 square foot leased facility in
Rancho Dominguez, California, a suburb of Los Angeles. The lease expires in
October, 2003 and the Company has a five-year extension option.
The Company owns a complex of plants in Gardena, California (which is
within approximately five miles of the Rancho Dominguez facilities), comprising
an aggregate of approximately 110,000 square feet. These facilities are
principally used for manufacturing titanium golf clubheads and tooling. In
October 1994, the Company purchased approximately two acres of land contiguous
to its Gardena facility. In April 1996, the Company purchased another
approximately two acres of land next to the land purchased in October 1994.
This land is available for future expansion if and when necessary.
Clubhead polishing and finishing operations are conducted in facilities
leased by the Company's subsidiary in Mexicali, Mexico under four lease
agreements, comprising an aggregate of approximately 141,000 square feet. Three
of the leases expire in December 1998, and the other lease expires in June 2001.
The Company intends to move some of its steel casting operations to a
186,000 square foot leased investment casting facility for steel products in
Tijuana, Mexico. The facility is currently under construction and is expected
to be operational in 1998. The Company has options to lease sites contiguous to
the property as needed for future growth.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to legal actions arising in the ordinary course of
business, none of which, individually or in the aggregate, in the opinion of
management, after consultation with counsel, will have a material adverse effect
on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Hans H. Buehler 65 Chairman of the Board
Richard W. Mora 57 President and Chief Executive Officer
Robert C. Bruning 55 Chief Financial Officer and Secretary
Jon A. Knartzer 52 Vice President, Operations
Ramon F. Ibarra 45 Vice President, Manufacturing
Kathleen H. Wainwright 33 Vice President, Sales
</TABLE>
Mr. Buehler is one of the founders of the Company and has been Chairman of
the Board since the Company's inception in 1980. Through December 31, 1997, he
was also the Chief Executive Officer. Prior to founding the Company, he was
President of the Rex Precision Products Division of Alco Standard Corporation, a
competitor of the Company that was acquired by the Company in 1987. Mr. Buehler
has more than 30 years of experience in the investment-casting business,
including more than 20 years of experience in the manufacture of golf clubheads.
Mr. Mora joined the Company in May 1995. Effective January 1, 1998, he
became the President and Chief Executive Officer of the Company. Prior to that
time, he served as President and Chief Operating Officer. From 1992 to 1995, he
was Chief Operating Officer of Pharmavite Corporation, a producer and marketer
of nutritional supplements. From 1971 to 1992, Mr. Mora worked for Bergen
Brunswig Corporation, starting as a member of the sales force and ending in the
position of Group Vice President.
Mr. Bruning joined the Company in May 1996. From 1989 to 1996, he was
Chief Financial Officer of Zacky Farms, Inc., a producer of poultry products.
From 1986 to 1988, Mr. Bruning was a partner at Coopers & Lybrand, LLP. Prior
to that time he worked for Arthur Andersen, LLP for 19 years, 10 of which he
served as a partner.
Mr. Knartzer joined the Company in November 1996. From 1995 to 1996, he
was Vice President of Operations of Enertech, a privately held manufacturer of
products for the nuclear power industry. From 1992 to 1995, he served as
Director of Operations for Accuride International, a manufacturer of precision
ball bearing equipment. Prior to that time, he held various management
positions in operations, engineering, and quality assurance.
Mr. Ibarra joined the Company in June 1981. Since 1989, he has served as
Vice President, Manufacturing of the golf operations of the Company. Prior to
such time, he served as the production manager for the Company with respect to
all phases of its business and as the plant manager at the facility located in
Rancho Dominguez, California.
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Ms. Wainwright joined the Company in 1988. Since November 1996 she has
served as Vice President, Sales. Prior to that time, she served the Company in
various capacities, including plant manager at the facility located in
Wallingford, Connecticut.
Each officer serves at the pleasure of the Board of Directors of the
Company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRINCIPAL MARKET AND PRICES
The common stock of the Company is listed on the New York Stock Exchange
under the symbol PAR. The following table sets forth the high and low sales
prices per share for the common stock of the Company as reported by the New York
Stock Exchange.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ----------- -------- --------
<S> <C> <C>
1996
First Quarter $ 20 1/4 $ 9 3/4
Second Quarter 27 5/8 17 7/8
Third Quarter 23 3/4 14 3/8
Fourth Quarter 18 3/4 13
1997
First Quarter 20 1/2 12 1/2
Second Quarter 14 3/8 9 3/4
Third Quarter 15 3/4 10 3/4
Fourth Quarter 17 7/16 13 1/8
</TABLE>
The approximate number of record holders of common stock of the Company as of
March 16, 1998 was 230.
DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to payment of dividends will be at the
discretion of the Company's Board of Directors and will depend on the Company's
results of operations, financial condition, contractual restrictions and other
factors deemed relevant by the Board of Directors.
STOCK REPURCHASE
On October 25, 1995, the Board of Directors authorized the Company to
purchase up to one million shares of Coastcast common stock from time to time in
the open market or negotiated transactions. The Company did not perform any such
transactions during the year ended December 31, 1997. As of December 31, 1997,
there were 596,400 shares remaining to be purchased under this authorization.
BUSINESS RISKS
CUSTOMER CONCENTRATION. The Company's sales have been and very likely will
continue to be concentrated among a small number of customers. Sales to as few
as four customers accounted for 84%, 84% and 76% of sales during the years ended
December 31, 1997, 1996 and 1995, respectively. Sales to the Company's top
customer, Callaway Golf Company (including Odyssey Golf after its acquisition in
August 1997) accounted for 34% of sales for the year ended December 31, 1997.
The Company has no long-term contracts with, and is not the exclusive
supplier to, any of its customers, which the Company believes is typical
industry practice. Although the Company is now a principal supplier of steel
and titanium clubheads to Callaway, there are other actual or potential sources
of supply to Callaway and the level of future
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orders is not known at this time. In the event Callaway increases purchases
from other suppliers, the Company could be adversely affected. Although the
Company believes that its relationships with its customers are good and its
prices are competitive, the loss of a significant customer or a substantial
decrease in the sales of golf clubs by a significant customer could have a
material adverse effect on the Company's business.
COMPETITION. The Company operates in a highly competitive market. All
of the Company's products are manufactured according to customers' designs
and specifications. Accordingly, the Company competes against other
independent domestic and foreign manufacturers which have the capability to
manufacture investment-cast clubheads. The Company also experiences indirect
competition from golf club companies that manufacture their own clubheads or
make golf clubs with clubheads that are not investment-cast or are made of
materials the Company is not currently capable of producing. Potential
competition also exists from those golf club companies that currently
purchase clubheads from the Company but may, in the future, manufacture
clubheads internally. The Company believes that it competes principally on
the basis of its ability to produce consistently high-quality golf clubheads
in quantities sufficient to meet rapidly growing demand for popular golf
clubs. Some of the Company's current and potential competitors may have
greater resources than the Company.
NEW PRODUCTS. The Company's historical success has been attributable,
in part, to its ability to supply clubheads for companies whose new products
rapidly attained a significant portion of the market for high-quality,
premium-priced golf clubs. In the future, the Company's success will depend
upon its continued ability to manufacture golf clubheads for such companies.
There are no assurances, however, of the Company's ability to do so. If a
golf club having a head not manufactured by the Company gains significant
market share from customers of the Company, the Company's business would be
adversely affected.
NEW MATERIALS AND PROCESSES. The Company's future success is also
dependent on continuing popularity of investment-cast clubheads. A
significant loss of market share to golf clubs with heads made by other
processes would have a material adverse impact on the Company's business.
Similarly, the Company's future success is also dependent on continuing
popularity of clubheads made of titanium or stainless steel alloys or other
metal alloys which the Company is capable of casting.
MANUFACTURING COST VARIATIONS. Consistent manufacture of high-quality
products requires constant care in the manufacture and maintenance of
tooling, monitoring of raw materials, and inspection for compliance with
product specifications throughout the manufacturing process.
Investment-casting is labor intensive, and numerous steps are required to
produce a finished product. Variations in manufacturing costs and yields
occur from time to time, especially with new products during the "learning
curve" phase of production and products which are more difficult to
manufacture such as titanium or oversized metal wood and iron golf clubheads.
The length and extent of these variations are difficult to predict.
DEPENDENCE ON POLISHING AND FINISHING PLANT IN MEXICO. A substantial
portion of the golf clubheads manufactured by the Company, and some clubheads
produced by other clubhead manufacturers, are polished and finished by the
Company. The polishing and finishing processes used by the Company are
highly labor intensive. The Company performs substantially all of these
processes in its facilities in Mexicali, Mexico pursuant to the "maquiladora"
duty-free program established by the Mexican and U.S. governments. Such
program enables the Company to take advantage of generally lower costs in
Mexico, without paying duty on inventory shipped into or out of Mexico or
paying certain Mexican taxes. The Company pays certain expenses of the Mexico
facility in Mexican currency and thus is subject to fluctuations in currency
value. The Company does not have any exchange rate hedging arrangements to
protect against fluctuations in currency value. The Company is also subject
to other customary risks of doing business outside the United States. There
can be no assurance that the Mexican government will continue the
"maquiladora" program or that the Company will continue to be able to take
advantage of the benefits of the program. The loss of these
12
<PAGE>
benefits could have an adverse effect on the Company's business. The Company
believes that the North American Free Trade Agreement has not had any adverse
effect on its Mexican operations.
HAZARDOUS WASTE. In the ordinary course of its manufacturing process, the
Company uses hazardous substances and generates hazardous waste. The Company
has no material liabilities as of December 31, 1997 under environmental laws and
regulations, and believes that its operations are in substantial compliance with
applicable laws and regulations. Nevertheless, no assurance can be given that
the Company will not encounter environmental problems or incur environmental
liabilities in the future which could adversely affect its business. See also
Item 1. Business - Discontinued Operations.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING. Sales of golf equipment are
dependent on discretionary spending by consumers, which may be adversely
affected by general economic conditions. A decrease in consumer spending on
premium-priced golf clubs could have an adverse effect on the Company's
business.
SEASONALITY; FLUCTUATIONS IN OPERATING RESULTS. The Company's customers
have historically built inventory in anticipation of purchases by golfers in
the spring and summer, the principal selling season for golf equipment. The
Company's operating results have been impacted by seasonal demand for golf
clubs, which generally results in higher sales in the second and third
quarters. The timing of large new product orders from customers and
fluctuations in demand due to a sudden increase or decrease in popularity of
specific golf clubs have contributed to quarterly or other periodic
fluctuations. No assurance can be given, however, that these factors will
mitigate the impact of seasonality in the future.
RELIANCE ON KEY PERSONNEL. The success of the Company is dependent upon
its senior management, and their ability to attract and retain qualified
personnel. The Company does not have any non-competition agreements with any of
its employees. There is no assurance that the Company will be able to retain
its existing senior management personnel or be able to attract additional
qualified personnel.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of common
stock of the Company in the public market or the perception that such sales
could occur may adversely affect prevailing market prices of such common stock.
FLUCTUATIONS IN CALLAWAY GOLF COMPANY SHARES. The Company's common stock
value has from time to time fluctuated somewhat in relation to the share value
of the Callaway Golf Company. The prevailing market price of the Company's
common stock could be adversely impacted by a substantial fluctuation in the
market price of Callaway common stock.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Income Data (1):
Sales $ 149,515 $ 148,257 $ 76,001 $ 90,590 $ 66,928
Gross Profit 28,533 33,826 12,914 22,746 16,722
Income from operations 17,776 24,454 5,941 15,317 10,998
Income from continuing operations
before class action lawsuit
settlement expense and income taxes 18,751 25,496 7,488 16,242 10,352
Class action lawsuit settlement expense -0- -0- 2,075 -0- -0-
Income from Continuing
Operations Data (2):
Income before income taxes 18,751 25,496 5,413 16,242 10,352
Income taxes (2) 7,875 10,430 2,114 6,420 4,180
Income from continuing operations (2) 10,876 15,066 3,299 9,822 6,172
Income from Continuing Operations Per Share--
Basic (2), (3) $ 1.24 $ 1.72 $ 0.36 $ 1.10 $ 0.85
------- ------- ------- ------- -------
Income from Continuing Operations Per Share--
Diluted (2), (3) $ 1.22 $ 1.67 $ 0.36 $ 1.08 $ 0.80
------- ------- ------- ------- -------
Weighted Average Shares Outstanding--Basic (3) 8,798 8,773 9,045 8,926 7,295
------- ------- ------- ------- -------
Weighted Average Shares Outstanding--Diluted (3) 8,924 9,038 9,099 9,113 7,747
------- ------- ------- ------- -------
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data (1):
Working Capital $ 56,795 $ 44,800 $ 34,788 $ 37,475 $ 22,031
Total Assets 90,025 76,100 58,908 56,821 38,608
Total debt, including
current portion -0- -0- -0- -0- -0-
Deferred compensation 1,614 438 -0- -0- -0-
Shareholders' equity 78,391 66,487 50,252 51,076 31,309
</TABLE>
(1) In October 1993, the Company announced its decision to discontinue its
aerospace business. See Note 2 of Notes to Consolidated Financial
Statements.
(2) The Company was taxed as an S corporation for federal and state income
tax purposes from 1983 until December 15, 1993. Income taxes, income from
continuing operations, and income from continuing operations per share
reflect the pro forma effect of income taxes for the year ended
December 31, 1993 as if the Company had been taxed as a C corporation.
(3) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE. For further discussion of earnings per
share and the impact of Statement No. 128, see Notes 1 and 12 of Notes
to Consolidated Financial Statements.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated operating results
expressed in thousands of dollars and as a percentage of sales.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1997 1996 1995
------ ------ ------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 149,515 100.0 $ 148,257 100.0 $ 76,001 100.0
Cost of sales 120,982 80.9 114,431 77.2 63,087 83.0
Gross Profit 28,533 19.1 33,826 22.8 12,914 17.0
Selling, general
and administrative 10,757 7.2 9,372 6.3 6,973 9.2
Income from continuing
operations 17,776 11.9 24,454 16.5 5,941 7.8
Other income, net 975 0.6 1,042 0.7 1,547 2.0
Class action lawsuit
settlement expense -0- 0.0 -0- 0.0 2,075 2.7
Income from continuing
operations before
income taxes 18,751 12.5 25,496 17.2 5,413 7.1
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Sales increased $1.2 million, or 1%, to $149.5 million for 1997 from
$148.3 million for 1996. Decreases in sales of titanium alloy and steel
alloy metal wood clubheads were more than offset by increases in sales of
titanium alloy iron clubheads, putter clubheads, and steel alloy iron
clubheads, and an increase in medical implant sales. Titanium clubhead sales
represented approximately 50% and over 55% of total sales for 1997 and 1996,
respectively. Sales to Callaway Golf Company, including sales to Odyssey Golf
after its acquisition by Callaway Golf Company in August 1997, represented
34% of total sales for 1997 compared to 46% in 1996. There is no assurance
that sales to Callaway will represent similar percentages of total sales in
the future.
Gross profit decreased $5.3 million, or 16%, to $28.5 million for 1997
from $33.8 million for 1996. The gross profit margin decreased to 19% in
1997 from 23% in 1996. The decrease in gross margin was due principally to a
change in the product mix from a preponderance of metal woods to irons and
putters.
Selling, general and administrative expense increased by $1.4 million,
or 15%, to $10.8 million for 1997 from $9.4 million for 1996. The increase
in selling, general and administrative expense was due primarily to increased
payroll and related expenses, expenses related to the supplemental executive
retirement program, and increased expenses associated with information
systems, partially offset by a decrease in legal expenses.
15
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales increased $72.3 million, or 95%, to $148.3 million for 1996 from
$76.0 million for 1995. The increase was primarily due to sales of titanium
alloy clubheads, which have significantly higher unit sales prices than
steel-alloy clubheads. Sales of titanium alloy clubheads more than offset a
decrease in sales of steel alloy clubheads. Titanium clubhead sales
represented over 55% and over 6% of total sales for 1996 and 1995,
respectively. For the year ended December 31, 1996, the majority of the
Company's titanium sales were metal wood clubheads. Sales to Callaway Golf
Company represented 46% of total sales for 1996 compared to 47% in 1995.
Gross profit increased $20.9 million, or 162%, to $33.8 million for 1996
from $12.9 million for 1995. The gross profit margin increased to 23% in
1996 from 17% in 1995. The increase in gross margin was primarily due to the
shift in production to titanium clubheads. Gross profit increased $4.5
million to $4.9 million in the fourth quarter 1996 from $0.4 million in the
fourth quarter 1995. The gross profit margin increased to 14% in the fourth
quarter 1996 from 3% in the fourth quarter 1995. The increase in gross
margins was primarily due to higher volume, mainly titanium, and the absence
of start-up costs of the titanium operations which were present in the fourth
quarter 1995. The gross margin for the fourth quarter 1996 was 9% lower than
the gross margin for the full year 1996, primarily due to seasonality of
product ordering and the increase in production costs related to the start-up
of new products.
Selling, general and administrative expense increased by $2.4 million,
or 34%, to $9.4 million for 1996 from $7.0 million for 1995 and decreased as
a percentage of sales to 6% in 1996 from 9% in 1995. The increase in
selling, general and administrative expense was due primarily to increased
management bonus, increased payroll and related expenses, and expenses
related to the supplemental executive retirement program.
Other income, principally interest income, was $1.0 million for 1996,
compared to $1.5 million for 1995. The decrease was due to lower cash
balances during most of 1996, coupled with lower average interest rates.
DISCONTINUED OPERATIONS
The plan adopted in October 1993 to phase out the aerospace business was
essentially completed by June 1994. The net current assets of discontinued
operations as of December 31, 1997 were $911,000, principally consisting of
the estimated net realizable value of the Wallingford, Connecticut property
including the related deferred tax asset.
In connection with the offering for sale of the Wallingford,
Connecticut property, the Company had an environmental assessment performed,
which identified the presence of certain chemicals associated with
chlorinated solvents in groundwater beneath a portion of the property. The
Company is continuing to conduct further investigations to determine the
source and extent of the contamination. The Company has recorded the net
assets associated with its discontinued operations at the estimated net
realizable value. However, since the precise source and extent of the
contamination has not been identified at this time, no assurances can be
given that the proceeds to be realized upon sale of this property less the
cost of remediation will equal or exceed the estimated net realizable value.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at December 31, 1997
was $28.2 million compared to $14.1 million on December 31, 1996, an increase
of $14.1 million. Net cash provided by operating activities was $17.3
million for the year ended December 31, 1997. Net income of $10.9 million,
depreciation and amortization of $2.8 million, a decrease in prepaid expenses
of $2.8 million, an increase in deferred compensation of $1.2 million were
partially offset by an increase in accounts receivable of $1.1 million.
Investing activities of $4.2 million consist primarily of $2.1 million of net
capital expenditures and the purchase of Company-owned cash surrender value
life
16
<PAGE>
insurance policies on certain key employees of $1.9 million. Net cash
provided by financing activities of $1.0 million consists mainly of proceeds
from exercise of stock options of $0.8 million including related tax benefits.
The Company maintains an unsecured revolving line of credit which allows
the Company to borrow up to $5 million and which had no outstanding balance
at December 31, 1997. This line of credit, which expires on February 1,
1999, bears interest at the bank's prime rate or LIBOR, plus 2%.
On October 25, 1995, the Board of Directors authorized the Company to
purchase up to one million shares of Coastcast common stock from time to time
in the open market or negotiated transactions. No such purchases were made
during the year ended December 31, 1997. As of December 31, 1997, there were
596,400 shares remaining to be purchased under this authorization.
The Company believes that its current cash position, the working capital
generated by future operations and the ability to borrow should be adequate
to meet its financing requirements for current operations and the foreseeable
future.
QUARTERLY INFORMATION AND SEASONALITY
Set forth below is certain unaudited quarterly financial information.
The earnings per share amounts for periods ended prior to December 31, 1997
have been restated as required to comply with Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE. For further discussion of
earnings per share and the impact of Statement No. 128, see the notes to the
consolidated financial statements. The Company believes that all other
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly, and in
accordance with generally accepted accounting principles, the selected
quarterly information when read in conjunction with the consolidated
financial statements included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------- -----------------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- --------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 29,001 $ 39,938 $ 43,935 $ 36,641 $ 29,344 $ 42,508 $ 41,495 $ 34,910
Gross profit 4,025 7,982 9,369 7,157 7,781 11,575 9,552 4,918
Income before taxes 2,013 4,907 6,449 5,382 5,963 8,627 8,112 2,794
Provision for income taxes 815 2,091 2,709 2,260 2,445 3,623 3,245 1,117
Net income 1,198 2,816 3,740 3,122 3,518 5,004 4,867 1,677
Net income per share--basic .14 .32 .43 .35 .40 .57 .55 .19
Net income per share--diluted .13 .32 .42 .35 .39 .55 .54 .19
</TABLE>
The Company's customers have historically built inventory in
anticipation of purchases by golfers in the spring and summer, the principal
selling season for golf equipment. The Company's operating results have been
impacted by seasonal demand for golf clubs, which generally results in higher
sales in the second and third quarters. The timing of large new product
orders from customers and fluctuations in demand due to a sudden increase or
decrease in popularity of specific golf clubs have contributed to quarterly
or other periodic fluctuations. No assurances can be given, however, that
these factors will mitigate the impact of seasonality.
17
<PAGE>
BACKLOG
As of December 31, 1997, the Company had a backlog of approximately
$52.2 million as compared to a backlog of approximately $28.5 million as of
December 31, 1996. The Company believes that its current backlog is
scheduled to be shipped in the ensuing four months. Although many of the
Company's customers release purchase orders months prior to the requested
delivery date, these orders are generally cancelable without penalty provided
that no production has commenced. If production has commenced, an order is
cancelable upon payment of the cost of production. Historically, the
Company's backlog generally has been the highest in the second and third
quarters due principally to seasonal factors. Backlog is not necessarily
indicative of future operating results.
YEAR 2000 CONVERSION
The Company has identified and evaluated changes to computer systems and
applications required to achieve a year 2000 date conversion with no
disruption to business operations. Maintenance or modification costs will be
expensed as incurred. The total cost of this effort is still being
evaluated, but is not expected to be material to the Company. The Company
plans to communicate with others with which it does significant business to
determine their year 2000 compliance readiness and the extent to which the
Company is vulnerable to any third party year 2000 issues.
FORWARD LOOKING INFORMATION
This report and other reports of the Company contain or may contain certain
forward-looking statements and information that are based on beliefs of, and
information currently available to, the Company's management as well as
estimates and assumptions made by the Company's management. When used, the
words "anticipate," "believe," "estimate," "expect," "future," "intend,"
"plan" and similar expressions as they relate to the Company or the Company's
management, are used to identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and
are subject to certain risks, uncertainties and assumptions relating to the
Company's operations and results of operations, competitive factors and
pricing pressures, shifts in market demand, the performance and needs of the
industries served by the Company, the costs of product development and other
risks and uncertainties, including, in addition to any uncertainties
specifically identified in the text surrounding such statements,
uncertainties with respect to changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances and conditions
and actions taken or omitted to be taken by third parties, including the
Company's stockholders, customers, suppliers, business partners, competitors,
and legislative, regulatory, judicial and other governmental authorities and
officials. Should one or more of these risks or uncertainties materialize,
or should the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended
or planned.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information, other than quarterly information, required by this item
is incorporated herein by reference to the consolidated financial statements
and supplementary data listed in Item 14 of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item with respect to directors is
incorporated herein by reference to the information contained under the
caption "Nomination and Election of Directors" in the Proxy Statement
relating to the Annual Meeting of Shareholders to be held on June 22, 1998,
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the year ended December 31, 1997. Information
with respect to executive officers is included in Part I of this Report. The
information required by this Item with respect to compliance with Section
16(a) of the Securities Exchange Act of 1934 is incorporated herein by
reference to the information contained under the caption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement
relating to the Annual Meeting of Shareholders to be held on June 22, 1998,
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the year ended December 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference to the information contained under the caption "Executive
Compensation and Other Information" in the Proxy Statement relating to the
Annual Meeting of Shareholders to be held on June 22, 1998, which will be
filed with the Securities and Exchange Commission no later than 120 days
after the close of the year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference to the information contained under the captions "Voting Securities
and Principal Shareholders" and "Stock Ownership of Management" in the Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June
22, 1998, which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a)(1) LIST OF FINANCIAL STATEMENTS
The consolidated financial statements listed in the accompanying Index to
Financial Statements and Schedules are filed as part of this Report.
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULE
The financial statement schedule listed in the accompanying Index to
Financial Statements and Schedule are filed as part of this Report.
19
<PAGE>
(a)(3) LIST OF EXHIBITS
The exhibits listed in the accompanying Index to Exhibits are filed as part
of this Report.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of 1997.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 16, 1998 COASTCAST CORPORATION
By: /s/ RICHARD W. MORA
---------------------------------
Richard W. Mora, President and
Chief Executive Officer
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 on March 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ HANS H. BUEHLER
- ------------------------------------- Chairman of the Board and Director
Hans H. Buehler
/s/ RICHARD W. MORA President, Chief Executive Officer
- ------------------------------------- and Director (Principal Executive
Richard W. Mora Officer)
/s/ ROBERT C. BRUNING Chief Financial Officer and
- ------------------------------------- Secretary (Principal Financial
Robert C. Bruning and Accounting Officer)
/s/ GEORGE L. GRAZIADIO
- ------------------------------------ Director
George L. Graziadio
/s/ EDWIN A. LEVY
- ------------------------------------ Director
Edwin A. Levy
/s/ VERNON R. LOUCKS JR.
- ------------------------------------ Director
Vernon R. Loucks Jr.
/s/ LEE E. MIKLES
- ------------------------------------ Director
Lee E. Mikles
/s/ PAUL A. NOVELLY
- ------------------------------------ Director
Paul A. Novelly
</TABLE>
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE NUMBER
-----------
<S> <C>
Independent Auditors' Report 23
Consolidated Balance Sheets as of December 31, 1997 and 1996 24
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 25
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1996 and 1997 26
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28
SCHEDULES
Independent Auditors' Report 37
Schedule II--Valuation and Qualifying Accounts for the
years ended December 31, 1995, 1996 and 1997 38
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Coastcast Corporation:
We have audited the accompanying consolidated balance sheets of Coastcast
Corporation and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Coastcast Corporation and
subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Long Beach, California
February 3, 1998
23
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 28,187,000 $ 14,060,000
Trade accounts receivable, net of allowance for doubtful
accounts of $500,000 and $400,000 at December 31, 1997
and 1996, respectively (Note 1) 12,893,000 11,783,000
Inventories (Notes 1 and 3) 21,208,000 21,660,000
Prepaid expenses and other current assets 2,019,000 4,800,000
Deferred income taxes (Notes 1 and 8) 1,597,000 864,000
Net assets of discontinued operations (Note 2) 911,000 808,000
------------- -------------
Total current assets 66,815,000 53,975,000
Property, plant and equipment, net (Notes 1 and 4) 19,079,000 20,171,000
Other assets (Note 7) 4,131,000 1,954,000
------------- -------------
$ 90,025,000 $ 76,100,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,986,000 $ 5,043,000
Accrued liabilities (Note 6) 5,034,000 4,132,000
------------- -------------
Total current liabilities 10,020,000 9,175,000
Deferred compensation (Note 7) 1,614,000 438,000
------------- -------------
Total liabilities 11,634,000 9,613,000
Commitments and contingencies (Notes 2, 7 and 10)
Shareholders' Equity (Notes 1 and 11):
Preferred stock, no par value, 2,000,000 shares authorized;
none issued and outstanding
Common stock, no par value, 20,000,000 shares authorized;
8,849,005 and 8,777,890 shares issued and outstanding as of
December 31, 1997 and 1996, respectively 39,233,000 38,205,000
Retained earnings 39,158,000 28,282,000
------------- -------------
Total shareholders' equity 78,391,000 66,487,000
------------- -------------
$ 90,025,000 $ 76,100,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Sales (Notes 1 and 9) $ 149,515,000 $ 148,257,000 $ 76,001,000
Cost of sales 120,982,000 114,431,000 63,087,000
-------------- -------------- -------------
Gross profit 28,533,000 33,826,000 12,914,000
Selling, general and administrative 10,757,000 9,372,000 6,973,000
-------------- -------------- -------------
Income from operations 17,776,000 24,454,000 5,941,000
Other income, net 975,000 1,042,000 1,547,000
Class action lawsuit settlement expense - - 2,075,000
-------------- -------------- -------------
Income before income taxes 18,751,000 25,496,000 5,413,000
Provision for income taxes (Notes 1 and 8) 7,875,000 10,430,000 2,114,000
-------------- -------------- -------------
Net income $ 10,876,000 $ 15,066,000 $ 3,299,000
-------------- -------------- -------------
-------------- -------------- -------------
NET INCOME PER SHARE (Notes 1 and 12)
Net income per share -- basic $ 1.24 $ 1.72 $ 0.36
-------------- -------------- -------------
-------------- -------------- -------------
Weighted average shares outstanding 8,797,734 8,772,815 9,045,257
-------------- -------------- -------------
-------------- -------------- -------------
Net income per share -- diluted $ 1.22 $ 1.67 $ 0.36
-------------- -------------- -------------
-------------- -------------- -------------
Diluted weighted average shares outstanding 8,924,262 9,038,223 9,098,936
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 9,091,994 $ 41,159,000 $ 9,917,000 $ 51,076,000
Net income 3,299,000 3,299,000
Stock options exercised, including related
tax benefit (Note 11) 32,500 298,000 298,000
Repurchase of common stock (389,800) (4,421,000) (4,421,000)
--------- ------------- ------------ -------------
BALANCE AT DECEMBER 31, 1995 8,734,694 37,036,000 13,216,000 50,252,000
Net income 15,066,000 15,066,000
Stock options exercised, including related
tax benefit (Note 11) 56,996 834,000 834,000
Director compensatory stock options 269,000 269,000
Stock options granted to non-employee (Note 11) 269,000 269,000
Repurchase of common stock (13,800) (203,000) (203,000)
--------- ------------- ------------ -------------
BALANCE AT DECEMBER 31, 1996 8,777,890 38,205,000 28,282,000 66,487,000
Net income 10,876,000 10,876,000
Stock options exercised, including related
tax benefit (Note 11) 71,115 759,000 759,000
Director compensatory stock options 269,000 269,000
--------- ------------- ------------ -------------
BALANCE AT DECEMBER 31, 1997 8,849,005 $ 39,233,000 $ 39,158,000 $ 78,391,000
--------- ------------- ------------ -------------
--------- ------------- ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,876,000 $ 15,066,000 $ 3,299,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,838,000 2,479,000 1,862,000
Loss on disposal of machinery and equipment 305,000 79,000 21,000
Change in accrual for disposal of aerospace business (180,000) (214,000) (314,000)
Deferred compensation 1,176,000 438,000 -
Deferred income taxes (656,000) 479,000 258,000
Non-employee director compensatory stock options 269,000 269,000
Changes in operating assets and liabilities:
Trade accounts receivable (1,110,000) (4,585,000) (629,000)
Inventories 452,000 (14,049,000) (749,000)
Prepaid expenses and other current assets 2,781,000 (2,057,000) (1,657,000)
Accounts payable and accrued liabilities 845,000 519,000 2,906,000
------------- ------------- -----------
Net cash provided by (used in) operating activities 17,596,000 (1,576,000) 4,997,000
------------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales of short-term investments - 14,718,000 4,921,000
Purchase of property, plant and equipment (2,127,000) (7,653,000) (3,797,000)
Proceeds from disposal of machinery and equipment 76,000 138,000 41,000
Other assets (2,177,000) (1,704,000) 10,000
------------- ------------- -----------
Net cash (used in) provided by investing activities (4,228,000) 5,499,000 1,175,000
------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options granted to non-employee - 269,000 -
Proceeds from issuance of common stock upon exercise
of options, including related tax benefit 759,000 834,000 298,000
Repurchase of common stock - (203,000) (4,421,000)
------------- ------------- -----------
Net cash provided by (used in) financing activities 759,000 900,000 (4,123,000)
------------- ------------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,127,000 4,823,000 2,049,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 14,060,000 9,237,000 7,188,000
------------- ------------- -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 28,187,000 $ 14,060,000 $ 9,237,000
------------- ------------- -----------
------------- ------------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for income taxes: $ 5,544,000 $ 10,500,000 $ 2,700,000
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
27
<PAGE>
COASTCAST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of Coastcast Corporation (the "Company") and
its wholly owned subsidiary. All material intercompany transactions have
been eliminated in consolidation.
ORGANIZATION AND OPERATIONS--Coastcast Corporation is incorporated under
the laws of the State of California. The Company's principal business is the
production of investment-cast golf clubheads, and precision investment
castings and related engineering for the medical industry. The Company sells
its products to customers of varying strength and financial resources,
principally located in the United States. The Company's wholly owned
subsidiary is incorporated under the laws of the Mexican maquiladora program
and its principal activities are the grinding, polishing and finishing of
golf clubheads.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
DISCONTINUED OPERATIONS--The Company has historically manufactured
investment-cast aerospace and other industrial products in addition to golf
clubheads and orthopedic implant products. In October 1993, the Company
announced its decision to discontinue its aerospace business, and as of June
1994 had essentially phased out this business (See Note 2).
REVENUE RECOGNITION--Revenue is recognized when goods are shipped to the
customer.
CASH EQUIVALENTS--Cash equivalents consist of short-term investments
with original maturities of three months or less.
CONCENTRATION OF CREDIT RISK--The Company's financial instruments that
are exposed to credit risk consist primarily of accounts receivable. The
Company grants credit to substantially all of its customers, performs ongoing
credit evaluations of its customers' financial condition and maintains an
allowance for potential credit losses. See also Note 9.
INVENTORIES--Inventories are stated at the lower of cost (determined on
a first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated
at cost. Depreciation and amortization are provided using primarily
straight-line methods over the estimated useful lives of the related assets
as follows:
<TABLE>
<S> <C>
Machinery and equipment 7 years
Building and improvements 5-31 years
Furniture, fixtures and computers 3-7 years
Autos and trucks 5-7 years
</TABLE>
28
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of expected
future cash flows (undiscounted and without interest charges) is less than
the carrying amount of an asset, an impairment loss is recognized.
INCOME TAXES--Deferred tax assets and liabilities are recognized based
on differences between financial statement and tax basis of assets and
liabilities using presently enacted tax rates (see Note 8).
EARNINGS PER SHARE--In 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of stock options.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
presented have been restated to conform to the SFAS No. 128 requirements.
Basic net income per share is based on the weighted average number of shares
of common stock outstanding. Diluted net income per share is based on the
weighted average number of shares of common stock outstanding and dilutive
potential common equivalent shares from stock options (using the treasury
stock method).
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value because of the short maturities of these instruments.
ACCOUNTING PRONOUNCEMENTS--In June 1997, The Financial Accounting
Standards Board (FASB) issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, which requires companies to report comprehensive income and its
components as part of a full set of financial statements for fiscal years
beginning after December 15, 1997, with earlier adoption permitted. The
Company intends to adopt SFAS in 1998.
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which requires operating segment disclosures using the
"management approach" for fiscal years beginning after December 15, 1997,
with earlier adoption permitted. The Company intends to adopt SFAS No. 131 in
1998. The Company has not yet determined what its operating segments will be
under SFAS No. 131.
2. DISCONTINUED OPERATIONS
The plan adopted in October 1993 to phase out the aerospace business was
essentially completed by June 1994. The net current assets of discontinued
operations as of December 31, 1997 were $911,000, principally consisting of
the estimated net realizable value of the Wallingford, Connecticut property
including the related deferred tax asset.
In connection with the offering for sale of the Wallingford, Connecticut
property, the Company had an environmental assessment performed, which
identified the presence of certain chemicals associated with chlorinated
solvents in groundwater beneath a portion of the property. The Company is
continuing to conduct further investigations to determine the source and
extent of the contamination. The Company has recorded the net assets
associated with its discontinued operations at the estimated net realizable
value. However, since the precise source and extent of the contamination has
not been identified at this time, no assurances can be given that the
proceeds to be realized upon sale of this property less the cost of
remediation will equal or exceed the estimated net realizable value.
29
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Raw materials and supplies $ 7,578,000 $ 10,448,000
Tooling 540,000 294,000
Work-in-process 12,375,000 9,792,000
Finished goods 715,000 1,126,000
------------ -------------
$ 21,208,000 $ 21,660,000
------------ -------------
------------ -------------
</TABLE>
Included above are costs incurred for the production of tooling which
is subsequently sold to customers upon acceptance of the first production
unit.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land $ 2,186,000 $ 2,186,000
Buildings and improvements 7,436,000 7,376,000
Machinery and equipment 22,656,000 21,800,000
Autos and trucks 786,000 900,000
Furniture, fixtures and computers 2,669,000 2,160,000
------------ ------------
35,733,000 34,422,000
Less accumulated depreciation and amortization 16,654,000 14,251,000
------------ ------------
$ 19,079,000 $ 20,171,000
------------ ------------
------------ ------------
</TABLE>
Depreciation and amortization expense for 1997, 1996 and 1995 was
$2,838,000, $2,479,000 and $1,862,000, respectively.
5. SHORT-TERM BORROWINGS
The Company maintains an unsecured revolving line of credit which allows
the Company to borrow up to $5,000,000 and which had no outstanding balance
at December 31, 1997 and 1996. This line of credit, which expires on
February 1, 1999, bears interest at the bank's prime rate or LIBOR, plus 2%.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
30
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accrued payroll and related expenses $ 2,706,000 $ 2,222,000
Accrued vacation 1,000,000 834,000
Accrued insurance 434,000 782,000
Other accrued expenses 342,000 294,000
------------ ------------
$ 4,482,000 $ 4,132,000
------------ ------------
------------ ------------
</TABLE>
7. RETIREMENT PLANS
The Company has a defined benefit plan which covers substantially all
of its hourly union employees. The plan provides for a monthly benefit
payable for the participant's lifetime commencing the first day of the month
following the attainment of age sixty-five in an amount equal to $9.50 to
$10.85 multiplied by the participant's credited service.
The following table sets forth the plan's funded status:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation, including vested benefits of $1,713,000
and $1,578,000, respectively $ 1,778,000 $ 1,592,000
------------ ------------
------------ ------------
Projected benefit obligation $ 1,778,000 $ 1,592,000
Fair value of plan assets 2,187,000 1,883,000
------------ ------------
Plan assets in excess of projected benefit obligation 409,000 291,000
Unrecognized net gain (275,000) (106,000)
Unrecognized prior service costs 98,000 70,000
Unrecognized transition amount (147,000) (172,000)
------------ ------------
Prepaid pension cost $ 85,000 $ 83,000
------------ ------------
------------ ------------
Net pension cost included the following components:
Service cost $ 35,000 $ 31,000
Interest cost on projected benefit obligation 112,000 104,000
Actual return on plan assets (347,000) (159,000)
Net amortization and deferral 198,000 13,000
------------ ------------
Net period pension income $ (2,000) $ (11,000)
------------ ------------
------------ ------------
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7% in 1997 and 1996.
The expected long-term rate of return on assets was 7% for 1997 and 1996.
Effective January 1, 1996, the Company adopted a retirement savings plan
(the "401(k) Plan") pursuant to which all U.S. employees who satisfy the age
and service requirements under the plan and who are not covered by collective
bargaining agreements may defer compensation for income tax purposes under
section 401(k) of the Internal Revenue Code of 1986. Participants may
contribute up to 15% of their compensation up to the maximum permitted under
federal law. The Company is obligated to contribute annually an amount equal
to 25% of each participant's contribution up to 6% of that participant's
annual compensation. In accordance with the provisions of the 401(k) Plan,
the Company matched employee contributions in the amount of $78,000 and
$102,000 during 1997 and 1996, respectively.
31
<PAGE>
On September 1, 1996, the Company adopted a supplemental executive
retirement plan (the "SERP") for certain key employees. Benefits generally
accrue at a rate of 7% of final average salary per year of participation in
the plan, up to 10 years. In general, participants in the plan only become
fully vested with respect to their accrued benefits upon completion of 5
years of plan participation. To partially fund this plan, the Company
purchases whole-life insurance contracts on the related participants. The
cash surrender value of these policies is in an irrevocable rabbi trust and
is presented as an asset of the Company, in "other assets" in the
accompanying consolidated balance sheets. Deferred compensation expense under
the SERP was $1,176,000 and $438,000 in 1997 and 1996, respectively.
The Company does not provide any other post-retirement benefits to its
employees.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal $7,045,000 $ 8,319,000 $1,680,000
State 1,703,000 1,405,000 176,000
Foreign (73,000) 227,000 --
---------- ----------- ----------
8,675,000 9,951,000 1,856,000
---------- ----------- ----------
Deferred:
Federal (651,000) 258,000 210,000
State (149,000) 221,000 48,000
---------- ----------- ----------
(800,000) 479,000 258,000
---------- ----------- ----------
$7,875,000 $10,430,000 $2,114,000
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The actual provision on income before income taxes differs from the
statutory federal income tax rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Federal income taxes at the statutory rate $6,563,000 $ 8,924,000 $1,895,000
State income taxes, net of federal benefit 1,030,000 1,541,000 363,000
California investment tax credit (30,000) (349,000) (168,000)
Other items 312,000 314,000 24,000
---------- ----------- ----------
$7,875,000 $10,430,000 $2,114,000
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The tax effects of items comprising the Company's net deferred tax
asset are as follows:
32
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Allowance for doubtful accounts $ 213,000 $ 170,000
Deferred compensation 688,000 187,000
Accrued expenses 557,000 128,000
Inventory reserve 635,000 417,000
State income taxes 455,000 584,000
Depreciation (381,000) (303,000)
Other items (570,000) (319,000)
---------- ---------
$1,597,000 $ 864,000
---------- ---------
---------- ---------
</TABLE>
9. MAJOR CUSTOMERS
The Company derived 34%, 23%, 15% and 12% of sales from four top
customers in 1997; 46%, 18% and 13% of sales from three top customers in
1996; and 47%, 13% and 10% of sales from three top customers in 1995.
10. COMMITMENTS
OPERATING LEASES--The Company leases certain facilities under various
operating leases with terms ranging from five to ten years. The leases
contain renewal options for additional five year periods which have not been
included in the rental commitment schedule below. In general, these leases
provide for payment of property taxes, maintenance and insurance by the
Company and include rental increases based on the Consumer Price Index.
The future minimum lease payments required under these leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------
<S> <C>
1998 $ 1,414,000
1999 1,310,000
2000 1,324,000
2001 1,281,000
2002 1,157,000
Thereafter 4,575,000
-----------
$11,061,000
-----------
-----------
</TABLE>
Rent expense for 1997, 1996 and 1995 was approximately $1,106,000,
$1,355,000 and $1,273,000, respectively.
11. STOCK OPTION PLANS
Under the Company's 1996 Amended and Restated Employee Stock Option Plan
("1996 Employee Stock Option Plan"), a maximum of 1,950,000 shares of common
stock may be issued pursuant to exercise of options granted to officers and
key employees under the plan. Options may be granted under the plan at
prices which are equal to or
33
<PAGE>
greater than the fair market value of the shares at the date of grant. The
options become exercisable over a period of time as determined by the Board
of Directors or a committee of directors and generally expire ten years from
the date of grant or earlier following termination of employment. As of
December 31, 1997, an aggregate of 445,493 shares had been purchased pursuant
to exercise of options granted under the plan, options to purchase an
aggregate of 1,033,513 shares were outstanding (including options which were
then exercisable to purchase 408,659 shares), and 470,994 shares were
available for additional grants of options under the plan.
Under the Company's 1995 Amended and Restated Non-Employee Director Stock
Option Plan ("1995 Director Stock Option Plan"), a maximum of 200,000 shares
of common stock may be issued pursuant to exercise of options granted under
the plan to certain non-employee directors. Options are granted under the
plan at prices equal to the fair market value of the shares at the date of
grant. The options generally become exercisable over a three-year period of
time and expire at the earlier of one year after the optionee ceases to be a
director or ten years from the date of grant. As of December 31, 1997, no
shares had been purchased under the plan, options to purchase an aggregate of
150,000 shares were outstanding under the plan, including 86,667 shares as to
which such options were then exercisable, and 50,000 shares were available
for additional grants of options under the plan .
In April 1996, the Board of Directors granted to a non-employee options
to purchase 30,000 shares of common stock, all of which were outstanding as
of December 31, 1997, including 10,000 shares as to which such options were
then exercisable. These options were not issued under the foregoing option
plans.
In September 1997, the Board of Directors approved the repricing of all
employee stock options having exercise prices above the fair market value as
of the repricing date. A total of 591,783 shares were repriced.
The following summarizes the Company's stock option activity under all
arrangements for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
--------- --------
<S> <C> <C>
Balance, January 1, 1995 448,992 $13.66
Granted 431,500 8.00
Forfeited (41,600) 16.37
Exercised (32,500) 7.69
--------- --------
Balance, December 31, 1995 806,392 $10.73
Granted 689,698 16.81
Forfeited (147,635) 13.36
Exercised (56,996) 12.00
--------- --------
Balance, December 31, 1996 1,291,459 $14.48
Granted 63,540 15.50
Forfeited (70,371) 15.22
Exercised (71,115) 8.60
--------- --------
Balance, December 31, 1997 1,213,513 $13.57
--------- --------
--------- --------
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
34
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- ------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.00 - 10.00 153,342 6.5 $ 8.30 133,342 $ 8.05
10.25 - 12.50 163,167 7.3 10.87 57,713 10.96
13.13 - 13.81 184,321 8.9 13.61 54,214 13.59
14.12 - 14.12 592,683 7.6 14.12 210,057 14.12
14.62 - 30.00 120,000 8.3 21.19 50,000 21.92
----------- ----------- -------- ----------- --------
$4.00 - 30.00 1,213,513 7.7 $13.57 505,326 $12.87
----------- ----------- -------- ----------- --------
----------- ----------- -------- ----------- --------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for options granted
under its 1996 Employee Stock Option Plan or its 1995 Director Stock Option
Plan, except for stock options granted to directors on December 13, 1995,
which were subject to approval and subsequently approved by shareholders on
June 12, 1996. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income: As reported $10,876,000 $15,066,000 $3,299,000
Pro forma 8,749,000 14,460,000 3,179,000
Net income per share - basic: As reported $ 1.24 $ 1.72 $ .36
Pro forma $ .96 $ 1.59 $ .34
Net income per share - diluted: As reported $ 1.22 $ 1.67 $ .36
Pro forma $ .95 $ 1.54 $ .34
</TABLE>
The fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes option pricing model. The following
weighted-average assumptions were used in 1997, 1996 and 1995, respectively:
no dividend yield, expected volatility of 67.0%, 61.8% and 61.8%, risk-free
interest rate of 5.8%, 5.9% and 5.9%, and expected term of 4.6, 4.0 and 4.0
years. The weighted average fair value per share of options granted in 1997,
1996 and 1995 was $7.42, $8.25 and $5.40, respectively.
35
<PAGE>
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Numerator:
Net income $10,876,000 $15,066,000 $3,299,000
----------- ----------- ----------
Numerator for basic and diluted earnings per share--
income available to common stockholders 10,876,000 15,066,000 3,299,000
Denominator:
Denominator for basic earnings per share--
weighted-average shares 8,797,734 8,772,815 9,045,257
Effect of dilutive securities:
Stock options 126,528 265,408 53,679
----------- ----------- ----------
Dilutive potential common shares 126,528 265,408 53,679
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 8,924,262 9,038,223 9,098,936
----------- ----------- ----------
----------- ----------- ----------
Basic earnings per share $1.24 $1.72 $0.36
----------- ----------- ----------
----------- ----------- ----------
Diluted earnings per share $1.22 $1.67 $0.36
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Coastcast Corporation:
We have audited the consolidated financial statements of Coastcast
Corporation and subsidiary as of December 31, 1997 and 1996, and for each of
the three years in the period ended December 31, 1997, and have issued our
report thereon dated February 3, 1998; such report is included elsewhere in
this Annual Report on Form 10-K. Our audits also included the financial
statement schedule of Coastcast Corporation, listed in Item 14(a)(2). This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Long Beach, California
February 3, 1998
37
<PAGE>
COASTCAST CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(CHARGED)/
BALANCE AT CREDITED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -------------------------------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995 (300,000) (100,000) (400,000)
Year ended December 31, 1996 (400,000) (400,000)
Year ended December 31, 1997 (400,000) (100,000) (500,000)
</TABLE>
38
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
<C> <S> <C>
3.1.1 Articles of Incorporation of the Company, as amended (1)
3.1.2 Certificate of Amendment of Articles of Incorporation filed with the California
Secretary of State on December 6, 1993(1)
3.2 Bylaws of the Company (1)
4 Specimen Stock Certificate of the Company (1)
10.1* 1993 Amended and Restated Employee Stock Option Plan ("Employee Plan") (1)
10.2* 1996 Amended and Restated Employee Stock Option Plan ("Employee Plan") (6)
10.3* Non-Employee Director Stock Option Plan ("Director Plan"), together with form of
notice of grant and grant summary (1)
10.4* 1995 Amended and Restated Non-Employee Director Stock Option Plan ("Director
Plan"), together with form of notice of grant and grant summary (1)
10.5 Agreement. effective May 11, 1997, between the Company and United Steelworkers of 42
America
10.6 Lease Agreement, dated December 17, 1993, between Productos Recreativos, S.A. and
Parque Industrial Mexicali, S.A. de C.V. for the facilities known Mercurio #70 in
Mexicali, Mexico (2)
10.7 Lease Agreement, dated December 17, 1993, between Productos Recreativos, S.A. and
Parque Industrial Mexicali, S.A. de C.V. for the facilities known as Avenue Galaxia
50 in Mexicali, Mexico (2)
10.8 Lease Agreement, dated December 17, 1993, between Productos Recreativos, S.A. and
Parque Industrial Mexicali, S.A. de C.V. for the facilities known as Mercurio #30 in
Mexicali, Mexico (2)
10.9 Lease Agreement, dated January 22, 1996, between Coastcast Corporation, S.A. and
Parque Industrial Mexicali, S.A. de C.V. for the facilities known as Calle Marte #162
in Mexicali, Mexico (4)
10.10 Guaranty, dated November 1, 1988, by the Company for the leases of the Mexicali,
Mexico facilities (1)
10.11 Guaranty, dated January 23, 1996, by the Company for the lease, dated January 22,
1996 (4)
</TABLE>
39
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<TABLE>
<C> <S> <C>
10.12 Lease Agreement, dated August 21, 1997, between Coastcast Corporation, S.A.
and Inmobiliaria Y Fraccionadora Lomas, S.A. de C.V. for real estate in Tijuana,
Baja California, Mexico (7)
10.13 Lease Agreement, dated September 1, 1997, between the Company and Watson Land
Company for the facilities in Rancho Dominguez, California (7)
10.14 Assignment effective February 1, 1998 of Lease dated August 21, 1997, between 69
Coastcast Corporation, S.A. and Inmobiliaria Y Fraccionadora Lomas, S.A. de C.V.
to Coastcast Tijuana, S. de R.L. de C.V.
10.15 Form of Indemnification Agreement (1)
10.16 Revolving Line of Credit Note and Credit Agreement, effective December 23, 1997, 72
between the Company and Imperial Bank
10.17* Amended and Restated Coastcast Corporation Selected Employees Pension Plan, dated
October 1, 1987 (1)
10.18* Amendment to the Coastcast Corporation Selected Employees Pension Plan, effective 85
May 12, 1997
10.19* Coastcast Corporation 401(k) Retirement Plan, effective January 1, 1996 (4)
10.22 Coastcast Corporation S Corporation Termination, Tax Allocation and Indemnification
Agreement dated December 1, 1993, between the Company and certain Shareholders(1)
10.24* Coastcast Corporation Supplemental Executive Retirement Plan, effective September 1,
1996 (5)
10.25* First Amendment to Coastcast Corporation Supplemental Executive Retirement Plan,
effective September 1, 1996 (5)
10.26* Second Amendment to Coastcast Corporation Supplemental Executive Retirement Plan,
dated February 18, 1997 (6)
10.27* Trust Agreement by and between Coastcast Corporation and Imperial Trust Company,
dated September 1, 1996 (5)
21 Subsidiaries of the Company (4)
24 Consent of Independent Auditors 86
27.1 FDS
27.2 FDS
27.3 FDS
</TABLE>
- ----------------------
* Management contract or compensating plan or arrangement.
(1) Incorporated by reference to the exhibits to the Registration Statement
on Form S-1 (Registration No. 33-71294) filed on November 4, 1993, as
amended by Amendment No. 1 filed on November 17, 1993, Amendment No. 2
filed on December 1, 1993, and Amendment No. 3 filed on December 9, 1993.
40
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(2) Incorporated by reference to the exhibits to Form 10-K for the fiscal
year ended December 31, 1993.
(3) Incorporated by reference to the exhibits to Form 10-K for the fiscal
year ended December 31, 1994.
(4) Incorporated by reference to the exhibits to Form 10-K for the fiscal
year ended December 31, 1995.
(5) Incorporated by reference to the exhibits to Form 10-Q for the fiscal
quarter ended September 30, 1996.
(6) Incorporated by reference to the exhibits to Form 10-K for the fiscal
year ended December 31, 1996.
(7) Incorporated by reference to the exhibits to Form 10-Q for the fiscal
quarter ended September 30, 1997.
41
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EXHIBIT 10.5
COASTCAST CORPORATION
AND
UNITED STEELWORKERS OF AMERICA
LOCAL 2018
INDEX
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
AGREEMENT.....................................................................3
ARTICLE 1 Recognition........................................................3
ARTICLE 2 Union Security.....................................................3
ARTICLE 3 Check Off..........................................................4
ARTICLE 4 Management Rights..................................................5
ARTICLE 5 Wages..............................................................5
ARTICLE 6 Probationary Employees.............................................6
ARTICLE 7 Hours of Work......................................................7
ARTICLE 8 Shift Premium......................................................8
ARTICLE 9 Paid Rest Periods..................................................8
ARTICLE 10 Seniority..........................................................9
ARTICLE 11 Leaves of Absence.................................................12
ARTICLE 12 Safety and Health.................................................14
ARTICLE 13 Holidays..........................................................15
1
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ARTICLE 14 Vacations.........................................................16
ARTICLE 15 Group Health and Welfare Insurance................................18
ARTICLE 16 Pension Plan......................................................18
ARTICLE 17 Strikes and Lockouts..............................................18
ARTICLE 18 Grievance Procedure and Arbitration...............................19
ARTICLE 19 Bulletin Boards...................................................20
ARTICLE 20 Union Representation..............................................21
ARTICLE 21 Union Committee and Stewards......................................21
ARTICLE 22 Separability......................................................21
ARTICLE 23 Termination.......................................................22
ARTICLE 24 Waiver and Entire Agreement.......................................22
APPENDIX A Company Rules of Conduct..........................................23
APPENDIX B Section 1 Group & Job Classification and Starting Rates of Pay....26
SIGNATURE PAGE...............................................................27
</TABLE>
2
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AGREEMENT
THIS AGREEMENT is made and entered into this 12th Day of May 1997,
between COASTCAST CORPORATION, referred to hereinafter as the "Company", and
UNITED STEELWORKERS OF AMERICA, referred to hereinafter as the "Union".
ARTICLE 1 - RECOGNITION
The Company recognizes the Union as the sole collective bargaining agent
on all matters pertaining to wages, hours and conditions of employment for
all its production and maintenance employees employed by the Company at its
14831 Maple Avenue, Gardena, California 90247 plant. The agreement does not
cover office employees, engineers, technicians, salesmen, tool room/die shop
personnel and supervisors or foremen having the authority to hire or
discharge, or recommend such action.
There shall be no discrimination, interference, restraint, or coercion
by the Company or any of its agents or by the Union or any activity in the
Union, or any of its members because of sex, race, color, creed, qualified
handicapped, or Vietnam era veteran status.
ARTICLE 2 - UNION SECURITY
All present employees in the unit who are not members of the Union and
all employees who are hired hereinafter shall become and remain members in
good standing of the Union as a condition of employment on and after the 31st
day following the effective date of this agreement, or after completion of 60
days of employment, whichever is the later. All such employees shall remain
members in good standing during the life of this Agreement.
The above provisions shall be effective where, when and only to the
extent that they are consistent with and not in violation of state and
federal laws.
For the purpose of this Article, an employee shall be deemed to be a
member of the Union in good standing so long as they tender the periodic dues
and initiation fees uniformly required as a condition of acquiring and
maintaining membership.
The Union will indemnify, defend and hold the Employer harmless against
all claims, demands, suits or other forms of liability that shall arise out
of or by reason of action taken or not taken by the Employer an account of a
payroll deduction of Union dues.
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ARTICLE 3 - CHECK OFF
1. The Company will check off monthly dues, assessments and initiation
fees each as designated by the International Treasurer of the Union, as
membership dues in the Union, on the basis of individually signed check-off
authorization cards in forms agreed to by the Company and the Union.
2. At the time of employment the Company will suggest that each new
employee voluntarily execute an authorization for the check-off of the Union
dues in the form agreed upon. A copy of such authorization card for the
check-off of Union dues shall be forwarded to the Financial Secretary of the
Local Union along with the membership application of such employees.
3. New check-off authorization cards other than those provided for
above will be submitted to the Company through the Financial Secretary of the
local union at intervals no more frequent than once each month. On or before
the last day of each month the Union shall submit to the Company a summarized
list of cards transmitted in each month.
4. Deductions on the basis of authorization cards submitted to the
Company shall commence with respect to dues for the month in which the
Company receives such authorization card or in which such card becomes
effective, whichever is later. Dues for a given month shall be deducted from
the fourth payroll period of each month.
5. In cases of earnings insufficient to cover deduction of dues, the
dues shall be deducted from the next pay in which there are sufficient
earnings, or a double deduction may be made from the first part of the
following month, provided, however, that the accumulation of dues shall be
limited to two months. The International Secretary Treasurer of the Union
shall be provided with a list of those employees for whom double deduction
has been made.
6. The Union will be notified of the reason for non-transmission of
dues in case of inter-plant transfer, layoff, discharge, resignation, leave
of absence, sick leave, retirement, death or insufficient earnings.
7. Unless the Company is otherwise notified, the only Union membership
dues to be deducted for payment to the Union from the pay of the employee who
has furnished an authorization shall be the monthly Union dues. The Company
will deduct initiation fees when notified by notation on the lists referred
to in Paragraph 3 of the subsection and assessments as designated by the
International Secretary Treasurer. With respect to check-off authorization
cards submitted directly to the Company, the Company will deduct initiation
fees unless specifically requested not to do so by the International
Secretary Treasurer of the Union after such check-off authorization cards
have become effective. The International Secretary Treasurer of the Union
shall be provided with a list
4
<PAGE>
of those employees for whom initiation fees have been deducted under this
paragraph.
8. The provisions of this section shall be effective in accordance and
consistent with applicable provisions of federal law.
ARTICLE 4 - MANAGEMENT RIGHTS
1. All management rights, powers, authority, and functions, whether
heretofore or hereafter exercised, and regardless of the frequency or
infrequency of their exercise, shall remain vested exclusively in the
Company. It is expressly recognized that such rights, powers, authority and
functions include, but are not limited to, the full and exclusive control,
management, and operation of its business; the determination of the scope of
its activities, materials to be acquired, products to be produced, the
location of such production, and the methods pertaining thereto; the
determination of schedules of work, production schedules, and reasonable
standards of production; the right to establish or change job classifications
and descriptions, subject to the provisions of this Agreement, the right to
introduce new or improved procedures, machinery, or facilities; the right to
maintain order and efficiency; the determination of the number, size and
location of its plants, and the extent to which and the means and manner by
which, its plants or any part thereof shall be operated, relocated and shut
down; the right to make and enforce reasonable shop rules; the determination
of the number and the assignments of duties and personnel, and the direction
of the working force including, but not limited to, hiring, suspending,
discharging, laying-off, recalling, promoting, demoting, assigning, or
transferring of its employees.
It is the intention of the Company and the Union that the rights,
powers, authority, and functions referred to herein shall remain exclusively
vested in the Company, except insofar as specifically surrendered by the
express provisions of this Agreement, provided that the exercise of such
rights shall not conflict with the provisions of this Agreement.
2. The Company's operating regulations, basic rules of conduct, and
employees' responsibilities and other standards, as revised from time to
time, shall be made available to the employees or the Union upon request.
Appendix A to this Agreement outlines the Company Rules of Conduct.
Employees will be governed by such rules and regulations and all other orders
issued by the Company which are not in conflict with an express provision of
this Agreement.
ARTICLE 5 - WAGES
1. Job Rates: Set forth in Appendix B of this Agreement are the Job
Rates for each Labor Group.
2. Employee Classifications: All non-probationary employees on the
active payroll of
5
<PAGE>
the Company, shall be classified in accordance with the Schedule of Job
Classifications and Groups, as set forth in Appendix B of this Agreement, and
shall be paid in accordance with the provisions thereof. All new employees
shall be classified upon completion of 60 days.
3. The Company shall have the right to establish new job
classifications and to assign appropriate labor grades to such
classifications; and when changes in job content warrant, to change the labor
group of any existing classification, provided such an action shall not be
directed toward changing the labor grade of a job in which no substantial
change has occurred.
When the Company establishes a new job classification or changes the
labor group of an existing classification, it shall notify the Union in
writing within forty-eight (48) hours after any such action has been taken.
Such notification shall state the basis on which the labor group was
determined. The Union shall have the right within five (5) days of receipt
of such notice from the Company to file a grievance beginning at the third
step of the grievance procedure. In the event that the Company and the Union
are unable to resolve the grievance, it may be appealed to arbitration. The
Arbitrator's decision shall be limited to a determination of proper labor
grade.
4. Effective May 12, 1997, each non-probationary employee in the
bargaining unit who was on the Company's roster as of midnight, February 28,
1997, and who received less than $0.10 cents increase on March 1, 1997 as a
result of the minimum wage increase shall have his hourly wage rate
increased by three percent (3%).
Effective May 12, 1998, each non-probationary employee in the
bargaining unit who is on the Company's roster as of midnight, February 28,
1998, and who received less than $0.10 cents increase on March 1, 1998 as a
result of the minimum wage increase, shall have his hourly wage rate
increased by two and one half percent (2.5%).
Effective May 12, 1999, each non-probationary employee in the
bargaining unit who is on the Company's roster as of midnight, May 11, 1999,
shall have his hourly wage rate increased by two percent (2.0%).
ARTICLE 6 - PROBATIONARY EMPLOYEES
No employee shall have seniority rights until they have completed sixty
(60) calendar days of employment with the Company during which time they
shall be considered a probationary employee. Upon completion of this period,
seniority shall date from the time of the date of hire. Neither the
probationary employee or the Union may bring any grievance or arbitration
under the provisions of this Agreement concerning the discharge, discipline,
demotion, transfer, or work assignment of any probationary employee.
6
<PAGE>
ARTICLE 7-HOURS OF WORK
1. The normal hours of work shall be eight (8) per day and forty (40)
per week. The daily hours of work shall be consecutive except for such
rest period and lunch periods as may be provided in accordance with the
practice established in the Company, and as mutually agreed to.
2. The normal starting time of various shifts shall be as follows:
<TABLE>
<CAPTION>
<S> <C>
Day Shift 6:00 a.m. to 8:00 a.m.
Swing Shift 3:00 p.m. to 5:00 p.m.
Night Shift 11:00 p.m. to 1:00 a.m.
</TABLE>
Any employee who is required to come to work prior to the hours set
fourth or to remain at work after the hours set forth, as part of his regular
shift, shall be paid time and a half their regular rate for the actual hours
that they worked prior to or after the regular shift hours set forth above.
Any employee who is late punching-in for work will be charged in tenths of an
hour.
3. The normal work week will be the calendar week beginning at 12:01
a.m. Monday.
4. a. Hours worked in excess of eight (8) in any one day or forty (40)
in any one week shall be paid for at the premium rate of one and one-half
(1-1/2) times the regular rate, including shift differentials.
b. The provisions of 4a shall not apply in those instances when a
majority of the employees in any department, during peak season or seasonal
periods, shall agree to work a less than five (5) day week but more than eight
(8) hours on any one day. In such an event, overtime premium rates will be
paid only for those hours in that week in excess of forty (40) at one and
one-half (1-1/2) times the regular rate.
c. The provisions of 4a shall not apply in any situation where any
individual employee because of absence during any work day that week seeks to
and is granted the opportunity to work more than eight (8) hours on any other
day during that week. In such an event, overtime will only be paid at time
and a half for any hours worked in excess of forty (40) during that week.
d. With the exception of 4b and 4c, any employee who is not given
the opportunity to receive two (2) consecutive days off each week shall
receive time and a half pay for the day they work which causes their failure
to receive two (2) consecutive days off.
7
<PAGE>
5. Hours worked on the seventh (7th) consecutive day which began on the
normal work week (refer to Section 3 under this article) shall be paid at the
rate of two (2) times the regular rate. Hours worked on the sixth (6th)
consecutive day of the normal work week (refer to Section 3 under this
article) shall be paid at the rate of one and one half (1-1/2) times the
regular rate. Saturday and Sunday shall not be overtime days as such.
6. Time lost by an employee due to their own reasons, shall not be
considered as time worked for the purpose of computing overtime pay on the
sixth and/or seventh consecutive day. In computing days worked, holidays
herein mentioned and absence for the following reason will be considered as
days worked and paid for as such: The first day injured while working for
the Company.
7. Employees are expected to work overtime when production requires.
Employees will not unreasonably refuse to work overtime but when the facts
are known to the Company in advance, employees shall be given notice as
follows: Two (2) hours notice for required daily overtime, two (2) days
notice for required weekly overtime. The Company has the discretion of
selecting personnel for overtime work in accordance with production
requirements. Whenever possible, the Company will distribute overtime among
all employees qualified to perform the work in question by rotating employees
starting the rotation in order of seniority.
8. Whenever employees report for work at their regular specified times,
or are called in to work by the Company, they shall be guaranteed four (4)
hours work or four hours pay at their regular straight time rate of pay,
unless they absent themselves from work of their own volition or refuse other
work assignment.
9. The provisions of 4a and 8 shall not apply in any instance wherein,
through no fault of the Employer, an emergency situation arises through an
Act of God.
ARTICLE 8-SHIFT PREMIUM
All employees who work on the second shift shall receive an additional
twenty five cents ($0.25) per hour for all hours worked. All employees who
work on the third shift shall receive an additional forty five cents ($0.45)
per hour for all hours worked.
ARTICLE 9-PAID REST PERIODS
The employee shall have a 10 minute rest period in the first half of
each work day and a 10 minute rest period in the second half of each work
day. The time set aside for the rest period shall be at the sole discretion
of the Company and may be changed from time to time.
8
<PAGE>
ARTICLE 10-SENIORITY
1. Recognition of Seniority: The parties recognize the principal of
seniority in promotional opportunities and in employment security. In
furtherance of this recognition it is agreed that in the promotion of
employees and in the increase or decrease of the working force, will be
governed in accordance with the application of seniority as outlined in
paragraph 3a, b, c, d, of this Article.
2. Definition: Seniority shall consist of an Employee's length of
continuous service from the employee's date of most recent hire or re-hire,
whichever is later, with the plants covered by this Agreement. One seniority
list is maintained at the Gardena plant.
3. Application of Seniority: In all cases of promotion, demotion,
reduction, or recall, the following factors shall be considered:
a. Ability and skill to perform the work in question.
b. Physical fitness.
c. Work record.
d. Seniority (by classification in cases of reductions and
increases of work force). When it is determined that factors (a), (b), and
(c) above are substantially equal, then length of continuous service shall
prevail.
4. Probationary Employees: New employees of the Company shall be
considered probationary employees until they have been in the employ of the
Company for sixty (60) consecutive calendar days. Upon the completion of
such sixty (60) calendar day period they shall cease to be probationary
employees, shall be entered upon the seniority list and shall have seniority
from the date of their last hiring by the Company. For the purpose of
seniority, employees who are hired on the same calendar day shall establish
their seniority dates in order of employee identification number (clock
number) assignment. The Company expressly reserves the right to reject any
new employee at anytime prior to the completion of his probationary period.
There shall be no seniority among probationary employees and there shall be
no responsibility for the re-employment or recall of probationary employees
who have been discharged or laid off during their probationary period.
5. Promotions:
a. When the Company fills job openings by promotion in a production
department, the following procedure will be used and employees will be
considered in the following manner:
9
<PAGE>
1. Job openings will be posted plant-wide and may be bid by any
employee who has completed his probationary period. The job opening and
successful bidder will be determined by application of the provisions of
Section 3 (Application of Seniority) of this Article, with first preference
given to bidders within the Department first, then plant where opening
exists, and last preference to all other bidders.
2. If after a reasonable time, not exceeding (60) days worked on
the job, a promoted employee fails to perform satisfactorily the duties of
the position to which the employee has been promoted, the Company shall have
exclusive right to remove such employee from such position and return the
employee to the employee's former job classification and shift.
b. All permanent job openings and newly created jobs which occur
within a production department shall be posted for a period of three (3) days
excluding Saturdays, Sundays, and Holidays. Any employee who wishes to apply
for such job opening will sign the bid form provided by the Company. All
employees will be given full consideration for such jobs in accordance with
Section 5(a)1, and (2) above, before the Company seeks applications to fill
such openings from other sources. The name of the successful bidder will be
posted throughout the plant.
6. Reduction in the Work Force: When the Company determines a
reduction of the working force within a job classification in a department
within a plant is necessary, those employees who are effected shall be
entitled to displace other employees in accordance with the principal of
seniority and the following procedures:
a. Probationary employees in the job classification in which the
reduction occurs will be the first to be laid off.
b. Then, in the event employees who have established seniority with
the Company are to be affected by the reduction, those employees having the
least amount of seniority in the affected job classification will be reduced.
c. Any employee selected for reduction under Paragraph 6(b) above,
shall be entitled to displace the least senior employee in the same
classification in Gardena provided he or she is qualified to perform the job
without training. An employee who is laid off from his/her job
classification may bump the least senior employee in a previously held
classification if the job is relatively the same as that previously held.
d. The Union and the employees who will be affected will be
notified as far in advance as possible of any curtailment in operations
requiring a reduction in the working force.
e. Seniority provisions will not apply in cases of temporary
layoff. A temporary layoff
10
<PAGE>
is determined as a layoff not exceeding three (3) working days from day
of occurrence.
7. Recall: When the work force is again increased, employees reduced
from job classifications will be recalled to their previously held job
classifications in order of seniority.
8. Seniority Lists: The Local Union shall be provided with an
up-to-date seniority list upon request, not to exceed 4 times per year.
9. Shift Preference: It is the intent of the Company to place senior
employees within a job classification and department on shifts of their
preference; therefore, shift assignments will be made by the Company in
accordance with production requirements and as openings occur in the
following manner:
a. Permanent Shift Assignments: When it is necessary to permanently
transfer employees between shifts, the Company shall apply the principle of
seniority to employees in the same classification and in the same department
from which transfers are being made. The following procedure shall apply
within the department when openings exist:
1. Employees who have on file a valid shift transfer request (limited
to one request every six months) shall first be transferred in order of
seniority.
2. The Company shall then ask for volunteers who shall be transferred
in order of seniority.
3. If the vacancies cannot be filled in accordance with 1 and 2 above,
employees shall then be transferred in accordance with skills and ability to
perform the required job.
10. Transfer Out of the Bargaining Unit: Employees promoted or
transferred out of a bargaining unit will retain such seniority as acquired
prior to such promotion or transfer.
11. Department Transfers: Senior employees within a job classification
will be given preferential consideration, in accordance with production
requirements, for a transfer to other departments by completing a request for
department change and filing such request with the Personnel Department. A
copy of such request will then be given to the Union.
12. An employee shall lose all continuous service and department
seniority if the employee:
a. Quits
11
<PAGE>
b. Is discharged for just cause.
c. Is absent for three consecutive working days while regularly
employed without notifying the Company.
d. Does not return to work when called while laid off within
seventy-two (72) hours of either: a telephone call where contact is made with
the employee, or receipt of written notice by certified mail to return to
work. It is the responsibility of each employee to keep the Company advised
of his correct mailing address at all times.
e. Overstays a leave of absence or accepts other employment while
absent on leave.
f. While on layoff does not contact the Company at three (3) month
intervals.
g. While on sick leave does not contact the Company at three (3)
month intervals.
h. Layoff or absence for any reason for a period of six (6) months
by an employee of less than 5 years, or twelve months by an employee of more
than 5 years.
ARTICLE 11 - LEAVES OF ABSENCE
1. Authorized Leaves of Absence without pay, but with seniority
accumulation uninterrupted, will be granted to employees who have established
seniority with the Company in accordance with the provisions of this Article.
2. Medical Leaves.
a. Non-Occupational Illness or Injury and Maternity Leaves. The
company will grant leave of absence for medical reasons to employees who have
six months seniority. Such leaves will be granted for up to a maximum of
seven (7) months upon presentation of medical evidence satisfactory to the
Company. Where applicable, employees will be entitled to leaves of absence
in accordance with the Family and Medical Leave Act of 1993 and the Americans
with Disabilities Act of 1990.
b. Occupational Injury Leaves.
1. Employees absent because of any industrial injury sustained in
the employment of the Company shall accrue continuous service and
departmental seniority for up to one (1) year from the last day worked.
12
<PAGE>
2. Any employee injured while on duty and leaving work with approval of
the Company shall receive full pay for lost time in going to and returning
from the doctor on the day they receive such injury, and if instructed by the
doctor not to work the remainder of the shift. If a separate person is
required for transportation to the clinic, that person would be paid. Company
will pay for a maximum of (3) three follow-up visits or a total of six (6)
hours where it is a Company approved clinic or doctor and the individual
can't be scheduled through the Company during non-working hours.
c. Return to Work. Before returning to work from Medical Leaves of
Absence, employees must present to the Personnel Department a written
statement from their doctor attesting to their fitness to return to work
satisfactory to the Company.
3. Personal Leaves. Employees upon written application may be granted up
to thirty (30) calendar days Leave of Absence for personal reasons when, in
the judgment of the Company, good and compelling reasons exist and business
operations permit. Such leaves may be extended at the option of the Company.
4. Union Business Leaves.
a. Upon written request by the International Union, the Company
will grant, if operating conditions permit, and reasonable notice has been
provided, leaves up to two (2) weeks to the Bargaining Committee Chairman,
for the purpose of attending Union district conferences of International
Union conventions.
b. Absences from work of all other Bargaining Unit employees who
are Local Union Officers, or who are required to perform official Union
business will be excused, if operating conditions permit, provided request
for such absence is received by the Company's Personnel Department as much in
advance of such absence as is possible.
5. Seniority Accumulation. Employees who are granted authorized Leaves
of Absence under the provision of this Article shall continue to accumulate
seniority while on such leaves and shall be reinstated to the active payroll
upon conclusion of their Leaves of Absence in accordance with the provisions
of Article 10, Seniority.
13
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ARTICLE 12 - SAFETY AND HEALTH
1. The Company will provide all required safety equipment and personal
protective gear to employees as required by departmental operations. Safety
shoes will be provided for all individuals assigned to the Casting
Department, Shell Department, and Caustic Wash-Out areas. All other employees
desiring to purchase safety shoes may do so through payroll deduction. If an
individual does not desire to purchase safety shoes, they will be provided
with "Clip-On" toes guards a no expense.
2. The Company reserves the right to implement a Drug and Alcohol
testing policy designed to provide a drug free work-place in accordance with
Federal Law and Regulations. Employees will be provided with a detailed
policy and will be required to comply with the provisions of the same as a
condition of employment.
3. The Company's Drug and Alcohol testing policy will include screening
for the use of controlled substances and/or alcohol by testing of blood,
urine, and/or other body fluids under the following circumstances:
a. All applicants for employment will provide urine specimens for
laboratory testing at the time of any pre-employment physical examination,
or, if no pre-employment physical is required, at a time designated by the
Company.
b. Current employees who are involved in an industrial accident, as
defined in the Safety Policy, and who are reasonably suspected of using or
being under the influence of controlled substances and/or alcohol, will be
required to provide samples of blood, urine, and/or other body fluids for
laboratory testing as soon as possible after the accident.
c. Current employees who are reasonably suspected of using or being
under the influence of controlled substances and/or alcohol during working
hours will be required to provide samples of blood, urine, and/or other body
fluids for laboratory testing as soon as possible after the reasonable
suspicion arises.
14
<PAGE>
ARTICLE 13 - HOLIDAYS
1. The following holidays will be paid for at the employee's basic
straight-time hourly rate of pay (eight hours) when not worked, subject to
all the provisions of this Article:
New Year's Day Labor Day Memorial Day
Thanksgiving Good Friday Christmas Day
Independence Day 1 Floating Holiday
* The Floating Holiday shall be observed in each year on a day selected by the
Company. The Company will advise the Union in each year of the selection at
least thirty (30) days before the selected day.
2. It is the intent of this Article to pay holiday pay for time not
worked only to employees who have been in the employ of the Company for at
least sixty (60) days or more prior to the observed holiday.
3. To be eligible for holiday pay, when not worked, an employee must
have worked the scheduled work day of the plant immediately prior and
immediately following such holiday, unless absent as a result of a verified
illness or injury that lasts no longer than two (2) calendar weeks, unless
such absence is for a good and sufficient reason, acceptable to Management.
4. Any employee who works on any of the above holidays shall be paid
their overtime rate of time and one-half their regular straight-time hourly
rate of pay for all work performed on the holiday, plus the eight (8) hours'
holiday pay.
5. Any employee who is scheduled by the Company to performs work on a
holiday, who agrees to report, and fails to report, shall not receive pay for
the unworked holiday, unless their failure to report is for a reason clearly
beyond control of the employee.
6. Should one of the above-enumerated holidays occur during the regularly
scheduled vacation period of an employee, the employee shall receive an extra
day's pay computed at the employee's basic hourly rate of pay.
7. Should one of the above-mentioned holidays occur on a Saturday or on
a Sunday, the Company retains the right to observe said holidays on either
the Friday immediately preceding the holiday or on the Monday immediately
following the holiday, or an additional day's pay (eight hours) may be paid
to the employee at his basic straight-time hourly rate of pay without
specifically
15
<PAGE>
observing said holiday.
8. An employee who is not on the active payroll of the Company
(including Leave of Absence or Layoff) at the time the holiday occurs, shall
not receive holiday pay for such holiday unless the absence commenced in the
calendar week in which the holiday falls.
ARTICLE 14 - VACATIONS
1. After completion of six (6) months of full time continuous
employment. Employees will earn paid vacation as follows:
<TABLE>
<CAPTION>
Length of Service Vacation Accrual Rate
----------------- ---------------------
<S> <C>
a. Less than six (6) months. Accrual Rate: -0- hrs. No vacation time accrues.
b. More than six (6) months but Accrual Rate: 0.219 hrs. per day. Equal to one
less than one (1) year. week (40 hours) by the end of the 1st year.
c. More than one (1) year but Accrual Rate: 0.219 hrs. per day. Equal to two
less than seven (7) years. weeks (80 hours) by the end of each full year of
continuous employment.
d. More than seven (7) years. Accrual Rate: 0.329 hrs. per day. Equal to three
weeks (120 hours) by the end of each full year
of continuous employment
</TABLE>
2. Employees whose length of service from their hire date, as defined in
paragraph 6 of this Article, was greater than seven (7) years as of July 21,
1987, and who have had no break in service since July 21, 1987, as defined in
paragraph 6 of this Article, will be eligible to accrue vacation at a rate of
0.438 hours per day, equal to four weeks (160 hours) by the end of each full
year of continuous service after 15 years.
3. Vacation pay will be computed by multiplying each employee's basic
straight-time hourly rate by all vacation hours requested. Vacation pay will
be paid to the eligible employee on the last regularly scheduled pay period
immediately prior to the scheduled vacation.
4. The Company reserves the exclusive right to close the plant for an
annual vacation period to permit all eligible employees to take their
vacations at the same time. In the event the Company elects to close the
plant for vacation purposes, the Company agrees to give the employees at
least thirty (30) day written notice in advance of such closing. In the event
the Company elects not
16
<PAGE>
to close the plant for annual vacation, it is understood and agreed that
vacation time off shall, insofar as possible, be granted at the time most
desired by the employee; however, final right to allotment of vacation
periods is reserved exclusively by management in order to ensure the orderly
operation of the plant. Any individual entitled to vacation time may take up
to the number of days he/she has accrued. Individuals requesting vacation
must do so by completing the necessary form at the Personnel office not later
than two weeks prior to the beginning of the vacation.
5. Time not worked but paid for, in accordance with this Agreement, shall
be included in vacation pay computation.
6. An employees' period of service shall be determined by the employee's
first employment in the Company and shall be presumed to have been continuous
unless interrupted by resignation or discharge. In cases of re-employment
after an interruption of service continuity, such employee's period of
service shall begin as of the date of last re-employment.
7. In the event it is mutually agreeable to both the employee and the
Company, the employee may work their vacation time, providing they receive
their vacation pay in addition to regular compensation for time worked.
8. It is agreed that the intent of this section is to provide full
vacation to eligible employees who have earned vacation by consistently
working. Accordingly, vacation will not be earned or accrued for the entire
period of a personal leave of absence or a non-job related injury or illness
disability for more than two (2) weeks. In the case of a job related injury
or illness disability, vacation will not be earned or accrued after the
fourth (4th) week of absence. It is understood that an employee who has not
been on a leave of absence for a period of more than two (2) weeks is
considered to be consistently working.
9. Notwithstanding the accrual rates set forth in paragraph 1 of this
Article, no employee shall accrue more than the number of vacation hours
normally accrued during one and a half years. Accordingly, employees will
cease to accrue vacation after accrual has reached the maximum accrual as
indicated below until such time as he or she is paid for vacation:
Annual Accrual Maximum Accrual
-------------- ---------------
2 Weeks (80 Hours) 3 Weeks (120 Hours)
3 Weeks (120 Hours) 4 & 1/2 Weeks (180 Hours)
4 Weeks (160 Hours) 6 Weeks (240 Hours)
17
<PAGE>
ARTICLE 15 - GROUP HEALTH AND WELFARE INSURANCE
The Company shall maintain medical and hospitalization insurance
benefits for its employees who have completed their probationary period.
The cost of the insurance to the employee will be as follows:
<TABLE>
<S> <C>
Employee only 0.00
Employee and Dependents 1/3 of the cost to the company of
dependent coverage. Effective
10/1/96 the cost for dependent
coverage is $14.36 per week.
</TABLE>
It is agreed that in the event that a mandated National Health Insurance
Plan is enacted, this article may be open for negotiation upon the written
notification by registered mail of one party to the other of the desire to do
so.
The Company shall administer a voluntary dental plan for its employees
who have completed their probationary period. Employees will pay the full cost
of coverage for themselves and for their dependents through payroll deduction.
ARTICLE 16 - PENSION PLAN
The Company shall provide a Pension Plan for all eligible employees.
Employees who may have earned a greater amount under the old plan will have
that greater amount secured. The plan shall provide a monthly benefit after
vesting as listed below for each year of accredited service up to 35 years.
<TABLE>
<S> <C>
Effective May 12, 1997 $10.40 @ month
Effective May 12, 1998 $10.60 @ month
Effective May 12, 1999 $10.85 @ month
</TABLE>
ARTICLE 17 - STRIKE AND LOCKOUTS
1. During the term of this Agreement, neither the Union, its officers,
agents, members, nor any employee of the Company, will authorize, instigate,
aid, condone, participate in, or engage in a strike, work stoppage, slowdown,
boycott, picket line, sympathy strike, or other interruption, or interference
of work or any impeding of production or business of the Company, regardless
of
18
<PAGE>
whether there is a claim by the Union of a breach of this Agreement or of
state or federal law by the Company be discharged or otherwise disciplined;
provided; in such case the only arbitrable issue will be whether the
employee or employees so discharged or disciplined in fact engaged in the
prohibitive conduct.
2. In the event of occurrence of a wildcat or unauthorized strike, the
Union shall immediately:
a. Notify the employees that such wildcat strike is unauthorized;
b. Promptly order its members to return to work;
c. Do whatever it can to prevent or stop such unauthorized acts.
3. During the term of this Agreement, the Company shall not cause,
permit or engage in any lockout of its employees.
ARTICLE 18 - GRIEVANCE PROCEDURE & ARBITRATION
The purpose of this Article is to provide an efficient and orderly
method for the settlement of disputes between the Company and the Union over
the interpretation, meaning, application, compliance or claimed violation of
any of the provisions of this Agreement.
STEP 1: The aggrieved employee within three working days, or when the
employee should reasonably have been aware of the event, will orally present
the dispute to their immediate supervisor. The employee shall have the right
to seek the assistance of a Union committee person. Upon request, an employee
shall have the right to have a union committee person present during any
investigatory meeting which may lead to discipline.
STEP 2: If the grievance is not settled in Step 1, the grievance shall
be reduced to writing by the employee or the Union within five (5) working
days from the time of the occurrence which gave rise to the dispute. The
Company's Personnel Manager, a Union Committeeman, the Union's Business
Representative/Agent shall meet to resolve the dispute.
STEP 3: If the grievance is not settled in Step 2 within five (5)
working days it shall be referred for settlement meeting to the Company's
Personnel Manager, a Union Committeeman who may represent the local union,
and the International Representative. The request for a settlement meeting
must be made in writing to the Company's Personnel Manager within 5 working
days after the receipt of the Company's answer.
19
<PAGE>
STEP 4: If the grievance has not been mutually resolved in Step 3 it
may be appealed to arbitration by written notice by the Union to the Company
within five (5) working days following the settlement meeting and the receipt
of the Company's answer.
Time Limitations: The time limitations set forth in this Article are of
the essence to this Agreement. No grievance shall be accepted by the Company
unless submitted or appealed within the time limits set forth in this
Article. If the grievance is not timely submitted at any of the steps above,
it shall be waived.
Arbitration: If the Company or the Union chooses to arbitrate as set
forth in this Article, The American Arbitration Association shall be asked to
submit a list of at least nine (9) arbitrators from whom the company and the
Union will choose to hear the dispute. The function of the Arbitrator shall
be of judicial nature and not have the power to add to, ignore or modify any
of the terms and conditions of this contract. The decision of the Arbitrator
shall not go beyond what is necessary for the interpretation and application
of this contract or the obligations of the parties under this contract to the
specific grievance under arbitration. No decision shall decide issues not
directly involved in the case.
The Arbitrator's decision shall be binding upon the parties. The
parties shall equally divide and pay the fees and expenses of the Arbitrator.
Grievances regarding only alleged improper discharge must be filed in writing
with the Personnel Manager within five (5) working days after the discharge
at which time it shall begin at Step Two (2) of the grievance procedure.
Other grievances shall follow the steps outlined above.
The parties intend that this grievance and arbitration Article shall be
the exclusive means by which disputes are resolved in all matters arising out
os this Agreement or any matter arising from an employee's employment with the
Company including, but not limited to, claims that the employee has been
discriminated against on the ground of age, sex, race, religion, national
origin, medical condition, handicap, sexual preference or any claim of
sexual harassment or any claim under the Americans With Disabilities Act, as
long as it does not infringe upon the employee's individual rights.
ARTICLE 19 - BULLETIN BOARDS
The Company shall provide space for a bulletin board in each plant for
posting of Union notices and general information pertaining to the activities
of the Union as are approved by the Company.
20
<PAGE>
ARTICLE 20-UNION REPRESENTATIVES
The authorized representatives of the Union (Local Business Agent and/or
United Steelworkers of America Staff Representative) shall have the privilege
of appearing upon the Company property during the regular working hours in
order to meet with the Company's Director of Personnel in his/her office.
The authorized representatives of the Union will be granted access to such
other areas of the Company's premises and for such purposes and at such times
as the Director of Personnel may approve in advance of such visits. Such
access or approval will not be unreasonably denied.
Except as provided in this Article, non-employee representatives or
agents of the Union may not enter upon the Company's premises at any time.
ARTICLE 21-UNION COMMITTEE AND STEWARDS
It is agreed that a committee of six (6) employees shall be selected by
the members of the Union and shall be known as the Union Committee or
Stewards. Said Committee may meet with the Company at times fixed by mutual
interest and to settle differences concerning the meaning, application or
interpretation of this Agreement. The Company shall not be required to
recognize any employee as Steward unless the Union has informed the Company,
in writing of the employee's name, department and designation as a Steward.
The Committee Chairman at Gardena, may be permitted to visit other
departments for the purpose of conducting Union business, providing he
receives permission from his supervisor or the supervisor of the department
that he visits. Neither the Committee Chair nor any steward may conduct
Union business during any employee's working time.
Except as necessary to attend a grievance step as set forth in Article
18, a Union committee member or steward shall not be compensated by the
Company for his Union activities and shall perform such duties during times
when he is not scheduled to work for the Company.
ARTICLE 22-SEPARABILITY
Every clause of the Agreement shall be deemed separable from every other
clause of the Agreement and in the event that any clause or clauses shall be
finally determined to be in violation of any law by judgement or decree of
any court of competent jurisdiction then any such clause or clauses only, to
the extent only that any may be in violation, shall be deemed unenforceable
without impairing the validity and enforceability of the rest of the
Agreement.
21
<PAGE>
ARTICLE 23-TERMINATION
This Agreement shall continue in full force and effect until midnight
May 11, 2000, and shall thereafter be renewed automatically for further
periods of one (1) year each, unless sixty (60) days prior to the expiration
date of this Agreement or any renewal thereof, notice in writing by
registered mail is given by either party to the other of a desire to
terminate this Agreement, or any renewal thereof, and upon the mailing of
such timely notice, this Agreement or any renewal thereof, shall terminate at
its expiration date.
ARTICLE 24-WAIVER AND ENTIRE AGREEMENT
The parties acknowledge that during the negotiations resulting in this
Agreement, each had the unlimited right and opportunity to make demands and
proposals with respect to any and all subjects or matters not removed by law
from the area of collective bargaining and that the understandings and
agreements arrived at by the parties after exercise of that right and
opportunity are set forth in this Agreement. Therefore, the Company and the
Union each voluntarily and unqualifiedly waives the right, and each agrees
that the other shall not be obligated, to bargain collectively with respect
to any subject or matter referred to or covered in this Agreement even though
such subject or matter may not have been within the knowledge or
contemplation by either or both of the parties at the time that they
negotiated or signed this Agreement. All rights and duties of both parties
are specifically expressed in this Agreement and such expression is
all-inclusive. Any benefit existing prior to this Agreement is negated
unless specifically incorporated into this Agreement. This does not apply to
written policies the Company has presently in effect and not in conflict with
the collective bargaining agreement.
22
<PAGE>
APPENDIX A
COMPANY RULES OF CONDUCT
It is essential that all rules of good conduct be observed to maintain good
working relations among all. Violations may result in disciplinary action.
I. Violation of any of the following rules or conduct may result in
discharge without prior warning:
a. Fighting on Company property.
b. Gambling on Company property.
c. Immoral or indecent conduct.
d. Stealing from the Company or fellow employees.
e. Refusal to carry out work assignments.
f. Falsification or misuse of Company records.
g. Knowingly punching the time card of another employee.
h. Reporting for work under the influence of alcohol or narcotics,
or using, possessing or selling intoxicating beverages or illegal
narcotics on Company property.
i. Willful damage to company property or that of another employee.
j. Possession of firearms or other harmful weapons on Company
property.
k. Use of abusive language toward fellow employees or supervisors.
l. Two wage garnishments within a twelve (12) month period.
m. Deliberate or repeated negligence in reporting production
quantities, operation or work performed, and other reports.
n. Performing personal work during working hours.
23
<PAGE>
2. Violations of any of the following rules of conduct may result in
written warning, disciplinary layoff, or discharge:
a. Violations of Safety Rules.
b. Quitting work early without permission of your supervisor.
c. Misuse or tampering with fire protection or safety equipment.
d. Excessive tardiness or absences from work.
e. Absence from assigned work station without permission.
f. Failure to punch your time card.
g. Failure to report to your supervisor any damage you may have
caused to Company's or co-worker's property.
h. Horseplay.
i. Coercion or intimidation of another employee.
j. Malicious or idle gossip detrimental to the Company or its
employees.
k. Creating or contributing to unsanitary working conditions.
l. Unauthorized solicitations for any purpose during working hours
on Company property; unauthorized distribution of literature in
working hours.
m. Deliberate ridicule of your fellow employee's race, color,
religion and/or disability.
n. Failure to achieve or sustain minimum quality and quantity
standards.
o. Discarding litter on Company premises or parking lot.
p. Parking on "reserved" or "no parking" areas; blocking exits,
fire hydrants, etc.
q. Negligence contributing to the damage to tools, equipment, or
other property of the Company or fellow employees.
24
<PAGE>
r. Working another job while employed full time with Coastcast
Corp. is prohibited without the express permission of the Company.
s. Failure to report to supervisor or personnel department on
absenteeism or excessive tardiness.
25
<PAGE>
APPENDIX B
SECTION I -- GROUP AND JOB CLASSIFICATIONS AND STARTING RATES OF PAY:
GROUP I
Cone Assembler Inspector
Dewax Operator Janitor
Deburrer Wax Set Up Person
Finishing Machine Operator Wax Base Runner
Grinder Wax Preparer
Injector Wax Painter
Shell Dipper B
Starting Rate of Pay: 12/4/96: $4.75; 3/1/97: $5.00; 9/1/97: $5.15;
3/1/98: $5.75
GROUP II
Caustic Wash Out Heat Treat Operator
Knock-Out Operator Shell Dipper A
High Pressure Wash-Out Straightener
Cut-Off Trainee Shell Robot Operator
Forklift Operator Truck Driver
Foundry Helper Vacuum Furnace Op Trainee
Foundry Welder Welder
Starting Rate of Pay: 5/12/97: $5.40; 9/1/97: $5.50 3/1/98: $6.10
GROUP III
Melter Maintenance Electrician B
Vacuum Furnace Operator Maintenance Mechanic B
Cut-Off Operator
Starting Rate of Pay: 5/12/97: $7.00
GROUP IV
Maintenance Mechanic A Senior Vacuum Furnace Operator
Maintenance Electrician A
Starting Rate of Pay: 5/12/97: $9.00
26
<PAGE>
Executed by the parties the day and year first above written:
<TABLE>
<S> <C>
UNITED STEELWORKERS OF AMERICA COASTCAST CORPORATION
AFL-CIO/CLC
/s/ George F. Becker /s/ Richard W. Mora
- ------------------------------------- --------------------------------------
George F. Becker Richard W. Mora
International President President & COO
/s/ Leo W. Gerard /s/ Jon Kuartzer
- ------------------------------------- --------------------------------------
Leo W. Gerard, International Jon Kuartzer
Secretary/Treasurer Vice-President of Operations
/s/ Richard H. Davis /s/ Robert C. Brunning
- ------------------------------------- --------------------------------------
Richard H. Davis, International Robert C. Brunning
Vice-President, Administration Chief Financial Officer
/s/ Leon Lynch /s/ Roberto Roman
- ------------------------------------- --------------------------------------
Leon Lynch, International Roberto Roman
Vice President, Human Affairs Director of Human Resources
/s/ Jack R. Golden
- -------------------------------------
Jack R. Golden, Director, District 12
/s/ Wayne A. Clary
- -------------------------------------
Wayne A. Clary, Sub-District Director
/s/ James Jaurnett
- -------------------------------------
James Jaurnett, Business Representative
/s/ Jose L. Valencia
- -------------------------------------
Jose L. Valencia, Committee Member
/s/ Javier Vera
- -------------------------------------
Javier Vera, Committee Member
/s/ Rafael Macias
- -------------------------------------
Rafael Macias, Committee Member
/s/ Obdulia Diaz
- -------------------------------------
Obdulia Diaz, Committee Member
/s/ Florencio Bermudez
- -------------------------------------
Florencio Bermudez, Committee Member
</TABLE>
27
<PAGE>
EXHIBIT 10.14
AGREEMENT entered by and between COASTCAST CORPORATION, S.A., represented by
MR. RICHARD MORA, hereinafter referred to as ASSIGNOR, and COASTCAST TIJUANA,
S. DE R.L. DE C.V., represented by MR. RAMON IBARRA FRANCO, to be known as
ASSIGNEE, and which is formalized in accordance with the following
Antecedents and Clauses:
ANTECEDENTS:
I. On August 20, nineteen hundred and ninety seven, COASTCAST CORPORATION,
S.A., as LESSEE, entered into a Lease Agreement with INMOBILIARIA Y
FRACCIONADORA LOMAS, S.A. DE C.V., as LESSOR, executed a Lease Agreement over
a piece of land known as Lot "F", with an area of 30,614.15, square meters,
located on Calle Cucapah, Parque Industrial El Lago, Tijuana, Baja
California, over which an Industrial Building of nearly 185,907, square feet
is under construction. A copy of the Lease Agreement as Exhibit "A", is
attached hereto to form a part hereof.
II. Under the terms of Clause 13, of the Lease Agreement mentioned above,
LESSOR authorized LESSEE to assign in whole or in part the rights and
obligations derived from the Lease Agreement, or sublease the rented property
without previous notice to LESSOR, if ASSIGNEE was a subsidiary or affiliate
of COASCAST CORPORATION, S.A.
III. It is the desire of ASSIGNOR, to assign as of February first, nineteen
hundred and ninety eight, the rights and obligations derived from the Lease
Agreement referred to in Antecedent I above, that includes provided for in the
Agreement referred to in the aforementioned Antecedents to ASSIGNEE, so that
the latter may assume the character as LESSEE, as of the first of February
nineteen hundred and ninety eight, and consequently, the only one obligated
under the terms of such Agreement.
IV. As a consequence of the foregoing, ASSIGNOR has notified INMOBLIARIA Y
FRACCIONADORA LOMAS, S.A. DE C.V., its intention to assign the rights and
obligations derived or that could be derived from the Lease Agreement referred
in the previously
<PAGE>
2
mentioned Antecedents. Copy of the notification is attached hereto to form a
part hereof as Exhibit "B".
Pursuant to the above, the parties agree as follows:
CLAUSES:
FIRST: ASSIGNOR assigns to ASSIGNEE, without limitation whatsoever and with
effects beginning from February first, nineteen hundred and ninety eight, the
rights and obligations derived from the Lease Agreement referred to in
Antecedent I above, attached hereto to form a part hereof as Exhibit "A".
ASSIGNOR, assigns, without cost or any consideration, to LESSEE, every and
any right, over service, telephone systems and telephone lines, presently
installed in the property object of Agreement mentioned above.
SECOND: It is perfectly understood that by means of this Agreement, ASSIGNEE,
COASTCAST TIJUANA, S. DE R.L. DE C.V., as of February first, nineteen hundred
and ninety eight, will assume the character as LESSEE and therefor, the
rights and obligations derived from the aforementioned Lease Agreement. In
consequence, ASSIGNEE exonerates ASSIGNOR as of February first, nineteen
hundred and ninety eight, of all and any obligations and responsibilities
from such Lease Agreement and that originated after January thirty first
nineteen hundred and ninety eight. ASSIGNOR exonerates and will maintain
COASTCAST TIJUANA, S. DE R.L. DE C.V., free from any action, claim or demand
of any kind for failure of compliance of Lease Agreement referred to in the
aforementioned Antecedents, and which obligations originated before January
thirty first nineteen hundred and ninety eight.
THIRD: ASSIGNEE, in this act, accepts to assume, as of February first,
nineteen hundred and ninety eight, the terms and conditions stipulated in the
Lease Agreement, that as Exhibit "A", is attached to this Agreement in whose
contents are here reproduced as of inserted to the letter, and is obligated
to compliance of all and each of the Clauses.
FOURTH: ASSIGNEE agrees in due time, to arrange for all public services,
water, electricity, telephone and other services that give service to the
property leased, object of this assignment, and so that such public services
agreements are put in ASSIGNEE's name.
<PAGE>
3
ASSIGNOR agrees on its part, to help ASSIGNEE in all necessary procedures for
the execution of that set forth in this Clause.
FIFTH: Each and every of the Covenants of the Lease Agreement will continue
in force in the terms thereof.
SIXTH: For everything pertaining to the interpretation and compliance of
this Agreement, the parties hereby expressly submit themselves to the
jurisdiction of the Civil Courts of the City of Tijuana, Baja California,
waiving any other jurisdiction which might be applicable by reason of their
present or future domiciles or otherwise.
IN WITNESS WHEREOF this document is signed in triplicate, in the City of
Tijuana, Baja California, on the first of February nineteen hundred and
ninety eight.
ASSIGNOR ASSIGNEE
/s/ Richard Mora /s/ Ramon Ibarra Franco
--------------------------- -----------------------------
COASTCAST CORPORATION, S.A. COASTCAST TIJUANA, S. DE R.L.
represented by Mr. Richard Mora DE C.V., represented by
Mr. Ramon Ibarra Franco
WITNESS WITNESS
/s/ [illegible] /s/ [illegible]
--------------------------- -----------------------------
[illegible] [illegible]
<PAGE>
EXHIBIT 10.16
[LETTERHEAD]
January 26, 1998
Mr. Norman Fujitaki
Corporate Controller
Coastcast Corporation
14831 Maple Avenue
Gardena, CA 90247
Dear Mr. Fujitaki:
It is with great pleasure that we extend to you Imperial Bank's commitment to
make available to Coastcast Corporation the following credit accommodation,
effective as of December 23, 1997:
TYPE: Unsecured Revolving Line of Credit
AMOUNT: $5,000,000.00
MATURITY: 364 days from date of documentation
PURPOSE: Fund cash flow timing differences
INTEREST RATE: Prime or LIBOR plus 200 basis points
FEES: $250.00 for documentation
This loan commitment will be subject to a Credit Agreement to be drawn by the
Bank containing covenants satisfactory to Bank and agreed to by Coastcast
Corporation.
If the terms of this commitment meet with your approval, please sign and
return a copy of this letter. This offer expires thirty (30) days from the
date hereof unless accepted by your return of the enclosed copy signed by an
authorized officer or unless extended by the Bank in writing.
Sincerely,
/s/ Donald D. Douthwright /s/ Brougham J. Morris
Donald D. Douthwright Brougham J. Morris
Regional Vice President Senior Vice President
Accepted and agreed to on ___________________ , 1998
Coastcast Corporation
By: /s/ Robert C. Bruning
--------------------------------
Title: CFO
--------------------------------
<PAGE>
[LOGO]
IMPERIAL BANK
Member FDIC
NOTE
$5,000,000.00 INGLEWOOD, California, FEBRUARY 2, 1998
On FEBRUARY 1, 1999, and as hereinafter provided, for value received,
the undersigned promises to pay to IMPERIAL BANK ("Bank") a California banking
corporation, or order, at its LOS ANGELES AIRPORT REGIONAL office, the
principal sum of $5,000,000.00 (Maximum) or such sums up to the maximum if so
stated, as the Bank may now or hereafter advance to or for the benefit of the
undersigned in accordance with the terms hereof, together with interest from
date of disbursement or N/A, whichever is later, on the unpaid principal
balance / / at the rate of % per year /X/ at the rate of 0.000*% per year
in excess of the rate of interest which Bank has announced as its prime
lending rate (the "Prime Rate"), which shall vary concurrently with any
change in such Prime Rate, or $250.00, whichever is greater. Interest shall
be computed at the above rate on the basis of the actual number of days
during which the principal balance is outstanding, divided by 360, which
shall, for interest computation purposes, be considered one year.
Interest shall be payable /X/ monthly / / quarterly / / included with
principal / / in addition to principal / /, beginning FEBRUARY 26, 1998, and
if not so paid shall become a part of the principal. All payments shall be
applied first to any late charges owing, then to interest and the remainder,
if any, to principal. / / (If checked), Principal shall be payable in
installments of $ , or more, each Installment on the day of
each , beginning . Advances not to exceed any
unpaid balance owing at any one time equal to the maximum amount specified
above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of
principal or interest when due, or in the performance or observance, when
due, of any item, covenant or condition of any deed of trust, security
agreement or other agreement (including amendments or extensions thereof)
securing or pertaining to this note, at the option of the holder hereof and
without notice or demand, the entire balance of principal and accrued
interest then remaining unpaid shall (a) become immediately due and payable,
and (b) thereafter bear interest, until paid in full, at the increased rate
of 5% per year in excess of the rate provided for above, as it may vary from
time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days,
Obligor agrees to pay Bank a late charge in the amount of 5% of the payment
so due and unpaid, in addition to the payment, but nothing in this paragraph
is to be construed as any obligation on the part of the holder of this note
to accept payment of any payment past due or less than the total unpaid
principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorneys fees incurred by
the holder hereof on account of such collection, plus interest at the rate
applicable to the principal, whether or not suit is filed hereon. Each
Obligor shall be jointly and severally liable hereon and consents to
renewals, replacements and extensions of time for payment hereof, before, at
or after maturity; consents to the acceptance, release or substitution of
security for this note; and waives demand and protest and the right to assert
any statute of limitations. Any married person who signs this note agrees that
recourse may be had against separate property for any obligations hereunder.
The indebtedness evidenced hereby shall be payable in lawful money of the
United States. In any action brought under or arising out of this note, each
Obligor, including successor(s) or assign(s) hereby consents to the
application of California law, to the jurisdiction of any competent court
within the State of California, and to service of process by any means
authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder
hereof in exercising any right hereunder, or under any deed of trust,
security agreement or other agreement, shall not operate as a waiver of such
right, or of any other right, under this note or any deed of trust,
security agreement or other agreement in connection herewith.
*SEE LIBOR ADDENDUM TO NOTE ATTACHED HERETO AND MADE A PART HEREOF BY THIS
REFERENCE.
COASTCAST CORPORATION
- ------------------------------------- ----------------------------------
By: /s/ Robert C. Bruning
- ------------------------------------- ----------------------------------
- ------------------------------------- ----------------------------------
<PAGE>
[LOGO]
IMPERIAL BANK LIBOR ADDENDUM
MEMBER FDIC TO NOTE
This Libor Addendum ("Addendum") is dated as of FEBRUARY 2, 1998, and is
by and between COASTCAST CORPORATION ("Borrower") and Imperial Bank ("BANK").
This Addendum amends and supplements the Note to which it is attached (the
"Note") and forms a part of and is incorporated into the Note.
In the event of any inconsistency between the terms herein and the terms
of the Note, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meanings set forth in the Note.
1. ADVANCES.
1.1 PRIME LOANS. Advances permitted pursuant to the terms of the Note
or this Addendum which bear interest in relation to Bank's Prime Rate shall
be referred to herein as "Prime Loans" and each such advance shall be a
"Prime Loan." Each Prime Loan shall bear interest at an annual rate equal to
the sum of 0.000% plus the Bank's Prime Rate. "Prime Rate" shall mean the
rate of interest publicly announced by Bank from time to time in Inglewood,
California, as its prime rate for lending. The Prime Rate is not intended to
be the lowest rate of interest charged by the Bank in connection with
extensions of credit to borrowers.
1.2 LIBOR LOANS. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to the Libor Rate shall be
referred to herein as "Libor Loans" and each such advance shall be a "Libor
Loan." Each Libor Loan shall bear interest at the Libor Rate, as defined
below. A Libor Loan shall be in the minimum amount of FIVE HUNDRED DOLLARS
($500,000.00) or such greater amount which is an integral multiple of Fifty
Thousand Dollars ($50,000). No Libor Loan shall be made after the last
Business Day that is at least THREE (3) MONTHS prior to the Maturity Date
described in the Note.
2. INTEREST ON LIBOR LOANS.
2.1 RATE OF INTEREST. Each Libor Loan shall bear interest on the unpaid
principal amount thereof from the Loan Date through the date paid (whether
by acceleration or otherwise) at a rate equal to the sum of 2.000% per annum
plus the Libor Rate for the Interest Period.
(a) "Loan Date" shall mean the date on which (i) a Libor Loan is
made, a Libor Loan is continued, or a Prime Loan is converted to a Libor Loan.
(b) "Interest Period" shall mean a period of ONE (1) MONTH,
commencing on the applicable Loan Date, as selected by Borrower pursuant to
Section 2.2; PROVIDED, HOWEVER, that Borrower may not select an Interest
Period that would otherwise extend beyond the Maturity Date of the Loan.
Borrower may also select a twelve (12) month Interest Period if and when Bank
notifies Borrower that such Interest Period is available, as determined by
Bank in its sole discretion.
(c) "Libor Rate" shall mean, for the applicable Interest Period
for a Libor Loan, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) equal to (i) the Libor Base Rate for such Interest Period
divided by (ii) 1.00 minus the Reserve Requirement Rate (expressed as a
decimal fraction) for such Interest Period.
(d) "Libor Base Rate" shall mean with respect to any Interest
Period, the rate equal to the arithmetic mean (rounded upwards, if necessary,
to the nearest 1/16 of 1%) of:
(i) the offered rates per annum for deposits in U.S. Dollars
for a period equal to such Interest Period which appears at 11:00 a.m.,
London time, on the Reuters Screen LIBOR Page on the Business Day that
is two (2) Business Days before the first day of such Interest Period,
in each case if at least four (4) such offered rates appear on such
page, or
(ii) if clause (i) is inapplicable, (x) the offered rate per
annum for deposits in U.S. Dollars for a period equal to such Interest
Period which appears as of 11:00 a.m., London time on the Telerate
Monitor on Telerate Screen 3750 on the Business Day which is two (2)
Business Days before the first day of such Interest Period; or (y) if
clause (x) above is inapplicable, the arithmetic mean (rounded upwards,
if necessary, to the nearest 1/16 of 1%) of the interest rates per annum
offered by at least three (3) prime banks selected by Bank at
approximately 11:00 a.m. London time, on the Business Day which is two
(2) Business Days before such date for deposits in U.S. Dollars to prime
banks in the London interbank market, in each case for a period equal to
such Interest Period in an amount equal to the amount to which the Libor
Rate applies.
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<PAGE>
(e) "Business Day" means any day on which Bank is open for
business in the State of California.
(f) "Reuters Screen LIBOR Page" means the display designated as
page LIBOR on the Reuters Monitor Money Rates Service or such other page as
may replace the LIBOR page on that service for the purpose of displaying
London interbank offered rates of major banks.
(g) "Reserve Requirement Rate" means, for any Interest Period, the
aggregate of the rates, effective as of the Business Day which is two (2)
Business Days before the first day of the Interest Period, at which:
(i) reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System; and
(ii) any additional reserves are required to be maintained by
Bank by reason of any Regulatory Change against (x) any category of
liabilities which includes deposits by reference to which the Libor Rate
is to be determined as provided in the definition of "Libor Base Rate;"
or (y) any category of extensions of credit or other assets which
include Libor Loans.
(h) "Regulatory Change" means, with respect to Bank, any change on
or after the date of the Note and this Addendum in any Governmental
Regulation, including the introduction of any new Governmental Regulation or
the rescission of any existing Governmental Regulation.
(i) "Governmental Regulation" means any (i) United States
Federal, state or foreign law or regulation (including without limitation
Regulation D); and (ii) the adoption or making of any interpretation,
application, directive or request applying to a class of lenders, including
Bank, of or under any United States Federal, state, or any foreign law or
regulation (whether or not having the force of law) by any court or by any
governmental, central banking, monetary or taxing authority charged with the
interpretation or administration of such law or regulation.
2.2 DETERMINATION OF INTEREST RATES. Subject to the terms and condition
of the Note and this Addendum, Borrower, at its option, may request an
advance in the form of a Libor Loan, a continuation of a Libor Loan, or a
conversion of a Prime Loan into a Libor Loan, only upon delivery to Bank of
an irrevocable written notice received by Bank at least three (3) Business
Days prior to the requested Loan Date, specifying (i) the principal amount of
such Libor Loan, (ii) the requested Loan Date, and (iii) the selected
Interest Period. Upon receiving such notice, Bank shall determine (which
determination shall be in accordance with Section 2.1 and shall, absent
manifest error, be final, conclusive and binding upon all parties hereto) the
Libor Rate applicable to such Libor Loan two (2) Business Days prior to the
Loan Date, and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to Borrower. If Borrower shall fail to notify Bank of
its selected Interest Period for a Libor Loan (including the continuation of
an existing Libor Loan or the conversion of a Prime Loan into a Libor Loan),
the Borrower shall be deemed to have selected an Interest Period of three (3)
months.
2.3 COMPUTATION OF INTEREST AND FEES. All computations of interest and
fees payable pursuant to the Note shall be calculated on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed
(less the date of repayment).
2.4 RECORDATION BY BANK. Bank is hereby authorized to record the Loan
Date, the applicable Interest Period, the principal amount, and the interest
rate of each Libor Loan made (or continued or converted) by Bank, and the
date and amount of each payment or prepayment of principal thereof, in Bank's
records. Any such recordation shall constitute PRIMA FACIE evidence of the
accuracy of the information recorded; PROVIDED that the failure to make any
such recordation shall not in any way affect the Borrower's obligations
hereunder.
3. CONVERSION TO PRIME LOANS.
3.1 ELECTION BY BORROWER. Subject to all the terms and conditions of
this Addendum, Borrower may elect from time to time to convert a Libor Loan
to a Prime Loan by giving Bank at least three (3) Business Days' prior
irrevocable notice of such election, and any such conversion of a Libor Loan
shall be made on the last day of the Interest Period with respect thereto.
3.2 FAILURE OF NOTICE BY BORROWER. If Borrower otherwise fails to give
notice specifying its requests with respect to any Libor Loans that are
scheduled to become due, such failure shall be deemed, in the absence of any
notice from Borrower to the contrary, to be notice of a requested advance in
the form of a Prime Loan in a principal amount equal to the amount of said
Libor Loan.
4. PREPAYMENTS.
4.1 VOLUNTARY PREPAYMENT BY BORROWER. Subject to the terms and
conditions of the Note and this Addendum, Borrower may, upon at least three
(3) Business Days' irrevocable notice to Bank as provided herein, at any time
and from time to time on any Business Day prepay any Prime Loan or Libor Loan
in whole or in part, without penalty or premium, other than customary actual
"Breakage Fees" and "Prepayment Costs" as defined below, resulting from
prepayment of any Libor Loan prior to the expiration of the Interest Period
relating thereto. The notice of prepayment shall specify the date and amount
of the prepayment, and the Loan to which the
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<PAGE>
prepayment applies. Each partial prepayment of a Libor Loan shall be in an
amount not less than Fifty Thousand Dollars ($50,000) or such greater amount
which is an integral multiple of Fifty Thousand Dollars ($50,000), PROVIDED,
that unless a Libor Loan is prepaid in full, no prepayment shall be made if,
after giving effect to such prepayment, the aggregate principal amount of
Libor Loans having the same Interest Period shall be less than FIVE HUNDRED
($500,000.00). Notice of prepayment having been delivered as aforesaid, the
principal amount of the prepayment specified in such notice shall become due
and payable on the prepayment date set forth in such notice. All payments of
principal under this Section 4 shall be accompanied by accrued but unpaid
interest on the amount being prepaid through the date of such prepayment.
4.2 BREAKAGE FEES. If for any reason (including voluntary or mandatory
prepayment, voluntary or mandatory conversion of a Libor Loan into a Prime
Loan, or acceleration), Bank receives all or part of the principal amount of
a Libor Loan prior to the last day of the Interest Period for such Loan,
Borrower shall immediately notify Borrower's account officer at Bank and, on
demand by Bank, pay Bank the Breakage Fees, defined as the amount (if any)
by which (i) the additional interest which would have been payable on the
amount so received had it not been received until the last day of such
Interest Period exceeds (ii) the interest which would have been recoverable
by Bank (without regard to whether Bank actually so invests said funds) by
placing the amount so received on deposit in the certificate of deposit
markets or the offshore currency interbank markets or United States Treasury
investment products, as the case may be, for a period starting on the date on
which it was so received and ending on the last day of such Interest Period
at the interest rate determined by Bank in its reasonable discretion. Bank's
determination as to such amount shall be conclusive and final, absent
manifest error.
4.3 PREPAYMENT COSTS. Borrower shall pay to Bank, upon the demand of
Bank, such other amount or amounts as shall be sufficient (in the sole good
faith opinion of Bank) to compensate it for any loss, costs or expense
incurred by it as a result of any prepayment by Borrower (including voluntary
or mandatory prepayment, voluntary or mandatory conversion of a Libor Loan
into a Prime Loan, or prepayment due to acceleration) of all or part of the
principal amount of a Libor Loan prior to the last day of the Interest Period
for such Loan (including without limitation any failure by Borrower to
borrow a Libor Loan on the Loan Date for such borrowing specified in the
relevant notice of borrowing hereunder). Such costs shall include, without
limitation, any interest or fees payable by Bank to lenders of funds obtained
by it in order to make or maintain its loans based on the London interbank
eurodollar market. Bank's determination as to such costs shall be conclusive
and final, absent manifest error.
5. REMEDIES UPON EVENTS OF DEFAULT.
5.1 CONVERSION TO PRIME LOANS. If any Event of Default has occurred and
is continuing under the Note or this Addendum, then in addition to all other
remedies available to Bank under the Note, at the option of Bank and without
demand or notice, all Libor Loans then outstanding shall be automatically
converted to Prime Loans on the last day of each respective Interest Period
for each Libor Loan.
5.2 INDEMNITY. Borrower agrees to pay and indemnify Bank for, and to
hold Bank harmless from, any and all cost, loss or expense (including without
limitation any such cost, loss or expense arising from interest or fees
payable by Bank to lenders of funds obtained by it in order to maintain its
Libor Loans hereunder, or in its reemployment of funds obtained in connection
with the making or maintaining of Libor Loans) which Bank may sustain or
incur as a consequence of any default by Borrower in connection with or
related to: (a) payment of the principal amount of or interest on Libor
Loans, (b) making a borrowing or conversion of a Libor Loan after Borrower
has given a notice thereof in accordance with this Addendum, or (c) making a
prepayment of a Libor Loan after Borrower has given a notice thereof in
accordance with this Addendum, or any prepayment (whether optional or
mandatory) of any Libor Loan prior to the end of the applicable Interest
Period for such Loan.
6. ADDITIONAL PROVISIONS REGARDING LIBOR LOANS.
6.1 LIBOR RATE TAXES. All payments of principal, interest, fees, costs,
expenses and all other amounts payable to Borrower pursuant to the Note and
this Addendum shall be made free and clear of and without reduction by reason
of all present and future income, stamp and other taxes or other charges
whatsoever imposed, assessed, levied or collected by any national government
or any political subdivision or taxing authority thereof or any organization
of which it is a member (excluding (i) any taxes imposed on or measured by
the overall net income or gross receipts of Bank by any such entity, and (ii)
any taxes which would have been imposed even if no provisions for Libor Loans
had appeared in this Addendum) (collectively, "Libor Taxes").
If any Libor Taxes are required to be withheld from any amounts
payable to Bank, Borrower shall pay such additional amounts as may be
necessary so as to yield to Bank a net amount equal to the total amount of the
payments provided for in this Addendum or under the Note which Bank would
have received if such amounts had not been subject to Libor Taxes.
If any Libor Taxes are payable directly by Borrower, they shall be
paid by Borrower prior to the date on which penalties attach for failure to
timely pay such Libor Taxes. Within forty five (45) days after the date on
which payment of any such Libor Taxes is due pursuant to applicable law,
Borrower will furnish Bank the original receipt for the full payment of such
Libor Taxes or, if such is not available, evidence of such payment
satisfactory in form and substance to Bank. Borrower shall indemnify and hold
Bank harmless against, and will reimburse to Bank, upon demand, any
incremental taxes, interest or penalties that may become payable by Bank as a
result of any failure by Borrower to pay any Libor Taxes when due.
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<PAGE>
6.2 INABILITY TO DETERMINE FAIR INTEREST RATE. If at any time Bank, in
its sole and absolute discretion, determines that: (i) the amount of the
Libor Loans for periods equal to the corresponding Interest Periods are not
available to Bank in the offshore currency interbank markets, (ii) the
Libor Rate does not accurately reflect the cost to Bank of lending the Libor
Loan, or (iii) by reason of any changes arising after the date of the Note
affecting the London interbank eurodollar market, adequate and fair means do
not exist for ascertaining the applicable interest rate on the basis provided
for in Sections 2.1 and 2.2 above, then Bank shall promptly give notice
thereof to Borrower. Upon the giving of such notice, Bank's obligation to
make Libor Loans shall terminate, unless Bank and the Borrower agree in
writing to a different interest rate applicable to Libor Loans, or until such
time as Bank notifies Borrower that the circumstances giving rise to Bank's
notice no longer exist. While such circumstances continue to exist, (x) any
requested Libor Loan shall be treated as a request for a Prime Loan, (y) any
Prime Loan that was to have been converted to a Libor Loan shall be continued
as a Prime Loan, and (z) any outstanding Libor Loan shall be converted
retroactively, on the first day of the then current Interest Period with
respect thereto, to a Prime Loan.
6.3 ILLEGALITY OR IMPRACTICABILITY. If (i) due to any Governmental
Regulation it shall become unlawful for Bank to continue to fund or maintain
any Libor Loans, or to perform its obligations hereunder, or (ii) due to any
contingency occurring after the date of the Note which has a material adverse
effect on the London interbank eurodollar market, it has become impracticable
for Bank to continue to fund or maintain any Libor Loans, or to perform its
obligations hereunder, then Bank shall promptly give notice thereof to
Borrower. Upon the giving of such notice, Bank's obligation to make Libor
Loans shall terminate, and in such event, (x) any requested Libor Loan shall
be treated as a request for a Prime Loan, (y) any Prime Loan that was to have
been converted to a Libor Loan shall be continued as a Prime Loan, and (z)
any outstanding Libor Loan shall be converted retroactively, on the first day
of the then current Interest Period with respect thereto, to a Prime Loan.
6.4 GOVERNMENTAL REGULATIONS; INCREASED COSTS. Borrower shall pay to
Bank, within 15 days after demand by Bank, from time to time such amounts as
Bank may determine to be necessary to compensate it for any increased costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any Libor Loans to Borrower (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:
(a) imposes a new tax or changes the basis of taxation of any
amounts payable to Bank under the Note or this Addendum in respect of any
Libor Loans (other than changes which affect taxes measured by or imposed on
the overall net income of Bank by the jurisdiction in which such Bank has its
principal office); or
(b) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits or other liabilities with or for the account of Bank (including any
Libor Loans or any deposits referred to in the definition of Libor Base
Rate); or
(c) imposes any other condition affecting the Note (or any of such
extensions of credit or liabilities); or
(d) imposes or modifies a Governmental Regulation regarding capital
adequacy which has or would have the effect of reducing the rate of return on
capital of Bank or any person or entity controlling Bank ("Parent") as a
consequence of its obligations hereunder to a level below that which Bank (or
its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by
an amount deemed by Bank to be material.
Bank will notify Borrower of any event occurring after the date of the
Note which will entitle Bank to Additional Costs pursuant to this Section 6.4
as promptly as practicable after it obtains knowledge thereof and determines
to request such compensation. Bank will furnish Borrower with a statement
setting forth the basis and amount of each request by Bank for Additional
Costs under this Section 6.4. Determinations and allocations by Bank for
purposes of this Section 6.4 of the effect of any Regulatory Change on its
costs of maintaining its obligations to make Libor Loans or of making or
maintaining Libor Loans or on amounts receivable by it in respect of Libor
Loans, and of the additional amounts required to compensate Bank in respect
of any Additional Costs, shall be conclusive and final, absent manifest error.
This Addendum is executed as of the date first written above.
BORROWER BANK
Coastcast Corporation , IMPERIAL BANK,
- ----------------------------------
a California corporation a California banking corporation
--------------------------------
By /s/ Robert C. Bruning By /s/ Brougham Morris
------------------------------- --------------------------------------
Its CFO Brougham Morris, Senior Vice President
------------------------------- Its
-----------------------------------
By ,
-------------------------------
Its
-------------------------------
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<PAGE>
[LOGO]
CREDIT AGREEMENT
This Credit Agreement ("Agreement") is made by and between Coastcast
Corporation, a California corporation ("Borrower") and Imperial Bank, a
California banking corporation ("Bank").
In consideration of mutual covenants and conditions hereof, the parties
hereto agree as follows:
1. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1.01 EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and
existing and in good standing under the laws of the State of California,
without limit as to the duration of its existence and is authorized and in
good standing to do business in the State of California; Borrower has powers
and adequate authority, rights and franchises to own its property and to carry
on its business as now conducted, and is duly qualified and in good standing
in each State in which the character of the properties owned by it therein or
the conduct of its business makes such qualification necessary; and Borrower
has the power and adequate authority to make and carry out this Agreement.
Borrower has no investment in any other business entity.
1.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval
of any governmental body or other regulatory authority; are not in
contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, as the case may
be, and this Agreement is the valid, binding and legally enforceable
obligation of Borrower in accordance with its terms, subject only to
bankruptcy, insolvency or similar laws affecting creditors rights generally.
1.03 NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any
of its property may be bound or affected, and do not cause any lien, charge
or other encumbrance to be created or imposed upon any such property by
reason thereof.
1.04 LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower which if determined adversely to
Borrower or its interest would have a material adverse effect on the
financial condition of Borrower, and Borrower is not in default with respect
to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
1.05 FINANCIAL CONDITION. The balance sheet of Borrower as of
September 30, 1997, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower
to Bank in connection with this request for credit are true and correct, and
said balance sheet truly presents the financial condition of Borrower as of
the date thereof, and has been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date,
there have been no material adverse changes in the financial condition or
business of Borrower. Borrower has no knowledge of any liabilities,
contingent or otherwise, at such date not reflected in said balance sheet,
and Borrower has not entered into any special commitments or substantial
contracts which are not reflected in said balance sheet, other than in the
ordinary and normal course of its business, which may have a materially
adverse effect upon its financial condition, operations or business as now
conducted.
1.06 TITLE TO ASSETS. Borrower has good title to its assets, and the
same are not subject to any liens or encumbrances other than those permitted
by Section 3.03 hereof.
1.07 TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
<PAGE>
1.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license
rights of others.
1.09 REGULATION U. None of the proceeds of any loan from the Bank to
Borrower shall be used to purchase or carry margin stock (as defined within
Regulation U of the Board of Governors of the Federal Reserve system).
2. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, it will, unless Bank shall otherwise
consent in writing:
2.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2.02 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against
fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses and/or in the exercise of good
business judgment.
2.03 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes,
assessments and governmental charges upon or against it or any of its
properties, and all its other liabilities at any time existing, except to the
extent and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (segregated to
the extent required by generally accepted accounting practice)
deemed by it adequate with respect thereto.
All financial information referenced herein shall be interpreted and
prepared in accordance with generally accepted accounting
principals applied on a basis consistent with previous years.
2.04 CURRENT ASSETS TO CURRENT LIABILITIES. Borrower shall maintain a
ratio of current assets to current liabilities of not less than 3.00 to 1.00.
2.05 DEBT TO TANGIBLE NET WORTH. Borrower shall maintain a ratio of
total liabilities to tangible net worth (tangible net worth shall be defined
as the excess of all assets, excluding any value for goodwill, trademarks,
patents, copyrights, leaseholds, organization expense, other similar
intangible items, and all amounts due from officers, stockholders and
affiliates, over its liabilities less subordinated debt) of not more than
1.00 to 1.00.
2.06 PROFITABLE OPERATIONS. Borrower shall maintain profitable
operations at fiscal year end.
2.07 OUT-OF-DEBT PERIOD. The unpaid balance of the loan made to Borrower
under this Agreement shall be zero for a 30 consecutive day period prior to
each anniversary date of this Agreement.
2.08 RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's
Page 2 of 7
<PAGE>
representatives to have access to, and to examine its properties, books and
records at all reasonable times and upon reasonable notice during normal
business hours; and furnish Bank:
a. QUARTERLY FINANCIAL STATEMENT. As soon as available, and in
any event within forty-five (45) days after the close of each
quarter of each fiscal year of Borrower, commencing with the
quarter next ending, a balance sheet, profit and loss statement,
Statement of Cash Flows, and reconciliation of Borrower's capital
account as of the close of such period and covering operations for
the portion of Borrower's fiscal year ending on the last day of
such period, all in reasonable detail accompanied by Form 10-Q,
prepared in accordance with generally accepted accounting
principles on a basis consistently maintained by Borrower and
certified by an appropriate officer of Borrower, subject, however,
to year-end audit adjustments.
b. ANNUAL FINANCIAL STATEMENT. As soon as available, and in any
event within one hundred and twenty (120) days after the end of
each fiscal year of Borrower, deliver to Bank, the same
consolidated financial statements as otherwise provided quarterly,
all in reasonable detail accompanied by Form 10-K, submitted on an
"Unqualified" basis by an independent certified public accountant
selected by Borrower but acceptable to Bank.
c. COMPLIANCE CERTIFICATE. Promptly after the receipt of any
quarterly or annual financial statements of Borrower, a
certificate of chief financial officer of Borrower, stating that
Borrower has performed and observed each and every covenant
contained in this Agreement to be performed by it and that no
event has occurred and no condition then exists which constitutes
an event of default hereunder or would constitute such an event of
default upon the lapse of time or upon the giving of notice and
the lapse of time specified herein; or, if any such event has
occurred or any such condition exists, specifying the nature
thereof;
d. AUDIT REPORTS. Promptly after the receipt thereof by Borrower,
copies of any detailed audit reports submitted to Borrower by
independent accountants in connection with each annual or interim
audit of the accounts of Borrower made by such accountants.
e. OTHER REPORTS AND STATEMENTS. Promptly after the same are
available, copies of all such proxy statements, financial statements
and reports as Borrower shall send to its stockholders, if any, and
copies of all reports which Borrower may file with the Securities
and Exchange Commission or any governmental authority at any time
substituted therefor.
f. OTHER INFORMATION. Such other information relating to the
affairs of Borrower as the Bank reasonably may request form time to
time;
2.09 NOTICE OF DEFAULT. Promptly notify Bank in writing of the
occurrence of any Event of Default hereunder or any event which upon notice
and lapse of time would be an Event of Default.
2.10 OPERATING ACCOUNTS. Maintain most operating accounts with Bank
during the term of any loans from Bank to Borrower. Borrower shall maintain,
or cause to be maintained, on deposit with Imperial Bank, non-interest
bearing demand deposit balances sufficient to compensate Bank for all services
provided by Bank. Balances shall be calculated after reduction for the
reserve requirement of the Federal Reserve Board and uncollected funds. Any
deficiencies shall be charged directly to the Borrower on a monthly basis.
2.11 ATTORNEY'S FEES. Pay promptly to Bank without demand after notice,
with interest thereon from the date of expenditure at the rate applicable to
any loans from Bank to Borrower, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or compromising any such loan
after the occurrence of an Event of Default, whether or not suit is filed.
If suit is brought to enforce any provision of this Agreement, the prevailing
party shall be entitled to recover its reasonable attorneys' fees and court
costs in addition to any other remedy or recovery awarded by the court.
Page 3 of 7
<PAGE>
2.12 DOCUMENTATION FEE. A documentation fee of $250.00 shall be due
upon execution of this Agreement.
3. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, it will
not, without Bank's written consent:
3.01 TYPE OF BUSINESS. Make any substantial change in the character of
its business.
3.02 OUTSIDE INDEBTEDNESS. Other than in the ordinary course of
business and consistent with past practices, create, incur, assume or permit
to exist any indebtedness for borrowed moneys, other than loans from Bank,
except obligations now existing as shown in the financial statement dated
September 30, 1997, excluding those obligations being refinanced by Bank.
3.03 LIENS AND ENCUMBRANCES. Other than in the ordinary course of
business which includes obtaining collaboration agreements with corporate
partners, and consistent with past practices, create, incur, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now
owned and given as security in connection with this agreement, other than
liens for taxes not delinquent and liens in Bank's favor, except for those
already existing as of September 30, 1997.
3.04 LOANS, INVESTMENT, SECONDARY LIABILITIES. Make any loans or
advances to any person or other entity other than in the ordinary and normal
course of its business and consistent with past practices or make any
investment in the securities of any person or other entity inconsistent with
company investment guidelines; or guarantee or otherwise become liable upon
the obligation of any person or other entity, except by endorsement of
negotiable instruments for deposit or collection in the ordinary and normal
course of its business an consistent with past practices. The foregoing will
not restrict Borrower from issuing guarantees or otherwise becoming obligated
to its landlords for security deposits.
3.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION.
Liquidate, dissolve, merge or consolidate, or commence any proceedings
therefor; or sell any assets except in the ordinary course of its business
consistent with past practices; or except in the ordinary course of business,
sell, lease assign or transfer any substantial part of its business or fixed
assets, or any property or other assets necessary for the continuance of its
business as now conducted, including without limitation the selling of any
dividends, property or other asset accompanies by the leasing back of the
same.
4. EVENTS OF DEFAULT
The occurrence of any of the following events (each an "Event of
Default") shall, at Bank's option, terminate Bank's commitment to lend and
make all sums of principal and interest then remaining unpaid on all of
Borrower's indebtedness to Bank immediately due and payable, all without
demand, presentment or notice, all of which are hereby expressly waived:
4.01 FAILURE TO PAY. Failure to pay any installment of principal or
interest on any indebtedness of Borrower to Bank within 10 days of due date.
4.02 BREACH OF COVENANT. Failure to perform any other term or condition
of this Agreement binding upon Borrower within 20 days of notice from Bank.
4.03 BREACH OF WARRANTY. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or
misleading in any respect.
Page 4 of 7
<PAGE>
4.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent;
or admit its inability to pay its debts as they mature; or make an assignment
for the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
4.05 JUDGMENTS, ATTACHMENTS. Any money judgment greater than $100,000,
writ or warrant of attachment, or similar process shall be entered or filed
against Borrower or any of its assets and shall remain unvacated, unbonded or
unstayed for a period later than five days prior to the date of any proposed
sale thereunder.
4.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors, if not terminated within 60 days, shall be
instituted by or against Borrower and, if instituted against it, shall be
consented to.
5. MISCELLANEOUS PROVISIONS
5.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of Bank or any holder of any note issued by Borrower to Bank, in the exercise
of any power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege. All rights and remedies existing under this Agreement or
any note issued in connection with a loan that Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
5.02 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or
banker's lien.
5.03 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.
5.04 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California, to the
jurisdiction of whose courts the parties hereby agree to submit.
5.05 OFFSET. In addition to and not in limitation of all rights of
offset that Bank or other holder of any note issued by Borrower in favor of
Bank may have under applicable law, Bank or other holder of such notes shall,
upon the occurrence of any Event of Default or any event which with the
passage of time or notice would constitute such an Event of Default, have the
right to appropriate and apply to the payment of the outstanding balance
owing under any such note any and all balances, credits, deposits, accounts
or monies of Borrower then or thereafter with Bank or other holder, within
ten (10) days after the Event of Default, and notice of the occurrence of any
Event of Default by Bank to Borrower.
5.06 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
5.07 TIME OF THE ESSENCE. Time is hereby declared to be of the essence
of this Agreement and of every part hereof.
5.08 ACCOUNTING. All accounting terms shall have the meanings applied
under generally accepted accounting principles unless otherwise specified.
5.09 MODIFICATION. This Agreement may be modified only by a writing
signed by both parties hereto.
Page 5 of 7
<PAGE>
5.10 JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal
property; or (ii) the appointment of a receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties
arising out of or relating to this Credit Agreement, any General Security
Agreement executed by Borrower in favor of Bank or any Note executed by
Borrower in favor of Bank (collectively, in this Section 5.11, the
"Agreement") which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "CLAIM DATE" (defined as the date on which
a party subject to this Agreement gives written notice to all other parties
that a controversy, dispute or claim exists), will be settled by a reference
proceeding in California in accordance with the provisions of Section 638 ET
SEQ. of the California Code of Civil Procedure, or their successor section
("CCP"), which shall constitute the exclusive remedy for the settlement of
any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court in the County where the Real
Property, if any, is located or San Diego County if none (the "COURT"). The
referee shall be a retired Judge of the Court selected by mutual agreement of
the parties, and if they cannot so agree within forty-five (45) days after
the Claim Date, the referee shall be promptly selected by the Presiding Judge
of the Court (or his representative). The referee shall be appointed to sit
as a temporary judge, with all of the powers for a temporary judge, as
authorized by law, and upon selection should take and subscribe to the oath
of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory
challenge pursuant to CCP Section 170.6. The referee shall (a) be requested
to set the matter for hearing within sixty (60) days after the date of
selection of the referee and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90)
days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP Section
644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute
or claim, by filing a petition for a hearing and/or trial. All discovery
permitted by this Section 5.11 shall be completed no later than fifteen (15)
days before the first hearing date established by the referee. The referee
may extend such period in the event of a party's refusal to provide requested
discovery for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days
written notice, and request for production or inspection of documents shall
be responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Section 5.11, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of
the reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter except
that when any party so requests, a court reporter will be used at any hearing
conducted before the referee. The party making such a request shall have the
obligation to arrange for and pay for the court reporter. The costs of the
court reporter at the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be
empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will
be binding upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the claims of
the parties that are the subject of the reference. The parties hereto
expressly reserve the right to contest or appeal from the final judgment or
any appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of
Page 6 of 7
<PAGE>
fact, conclusions of laws, a written statement of decision, and the right to
move for a new trial or a different judgment, which new trial, if granted, is
also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise by determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the
Court, in accordance with the California Arbitration Act, Section 1280
through Section 1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding.
This Agreement is executed on behalf of the parties by duly authorized
representatives as of February 2, 1998.
IMPERIAL BANK ("BANK")
By: /s/ Brougham J. Morris
---------------------------
Brougham J. Morris,
Senior Vice President
COASTCAST CORPORATION ("BORROWER")
By: /s/ Robert C. Bruning
---------------------------
Robert C. Bruning,
Chief Financial Officer
Page 7 of 7
<PAGE>
EXHIBIT 10.18
AMENDMENT TO
THE COASTCAST CORPORATION
SELECTED EMPLOYEES PENSION PLAN
This Amendment to The Coastcast Corporation Selected Employees Pension
Plan (the "Plan"), which plan was originally adopted effective January 1,
1989, made pursuant to the right to amend reserved in Section 14.1 of the
Plan, amends and modifies the Plan, effective May 12, 1997, as follows:
1. Effective May 12, 1997, Sections 5.1(f) and (g) of the Plan are
hereby amended and new subsections (h), (i) and (j) are hereby added to the
end thereof to read as follows:
(f) $9.50 for Severances occurring on or after December 4, 1990 but
before December 4, 1991;
(g) $10.00 for Severances occurring on or after December 4, 1991;
(h) solely with respect to Participants employed in an Eligible
Classification on or after May 12, 1997 but before May 12, 1998, $10.40 for
Severances occurring on or after May 12, 1997 but before May 12, 1998;
(i) solely with respect to Participants employed in an Eligible
Classification on or after May 12, 1998 but before May 12, 1999, $10.60 for
Severances occurring on or after May 12, 1998 but before May 12, 1999; and
(j) solely with respect to Participants employed in an Eligible
Classification on or after May 12, 1999, $10.85 for Severances occurring on
or after May 12, 1999.
2. Except as amended above the Plan shall continue in full force and
effect without any changes.
IN WITNESS WHEREOF, the Company by its duly authorized officer, has
caused this Amendment to be executed this 14 day of October, 1997.
COASTCAST CORPORATION
By: /s/ Richard W. Mora
------------------------------
Richard W. Mora, President and
Chief Operating Officer
<PAGE>
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-77540 of Coastcast Corporation on Form S-8 of our reports, dated February
3, 1998, appearing in this Annual Report on Form 10-K of Coastcast
Corporation for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Long Beach, California
March 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FOR THE YEAR ENDED DECEMBER 31, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 28,187
<SECURITIES> 0
<RECEIVABLES> 13,393
<ALLOWANCES> 500
<INVENTORY> 21,208
<CURRENT-ASSETS> 66,815
<PP&E> 35,733
<DEPRECIATION> 16,654
<TOTAL-ASSETS> 90,025
<CURRENT-LIABILITIES> 10,020
<BONDS> 0
0
0
<COMMON> 39,233
<OTHER-SE> 39,158
<TOTAL-LIABILITY-AND-EQUITY> 90,025
<SALES> 149,515
<TOTAL-REVENUES> 149,515
<CGS> 120,982
<TOTAL-COSTS> 120,982
<OTHER-EXPENSES> 10,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,751
<INCOME-TAX> 7,875
<INCOME-CONTINUING> 10,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,876
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.22
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FOR THE YEAR ENDED DECEMBER 31, 1996 AND QUARTERLY PERIODS ENDED JUNE 30, 1996
AND SEPTEMBER 30, 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 APR-01-1996 JUL-01-1996
<PERIOD-END> DEC-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 14,060 10,534 16,639
<SECURITIES> 0 4,630 2,554
<RECEIVABLES> 12,183 19,048 12,924
<ALLOWANCES> 400 400 400
<INVENTORY> 21,660 16,231 18,720
<CURRENT-ASSETS> 53,975 54,484 55,241
<PP&E> 34,422 32,543 33,947
<DEPRECIATION> 14,251 13,722 14,296
<TOTAL-ASSETS> 76,100 73,610 76,844
<CURRENT-LIABILITIES> 9,175 13,902 12,259
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 38,205 37,970 37,869
<OTHER-SE> 28,282 21,738 26,605
<TOTAL-LIABILITY-AND-EQUITY> 76,100 73,610 76,844
<SALES> 148,257 71,852 113,347
<TOTAL-REVENUES> 148,257 71,852 113,347
<CGS> 114,431 52,496 84,439
<TOTAL-COSTS> 114,431 52,496 84,439
<OTHER-EXPENSES> 9,372 5,374 7,052
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 25,496 14,590 22,702
<INCOME-TAX> 10,430 6,068 9,313
<INCOME-CONTINUING> 15,066 8,522 13,389
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 15,066 8,522 13,389
<EPS-PRIMARY> 1.72 .97 1.53
<EPS-DILUTED> 1.67 .94 1.48
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30,
1997
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 7,895 13,913 23,786
<SECURITIES> 0 0 0
<RECEIVABLES> 13,170 18,321 15,530
<ALLOWANCES> 400 400 400
<INVENTORY> 29,900 26,703 21,713
<CURRENT-ASSETS> 55,826 61,611 64,203
<PP&E> 34,779 35,362 35,582
<DEPRECIATION> 14,828 15,531 16,109
<TOTAL-ASSETS> 77,766 83,458 87,742
<CURRENT-LIABILITIES> 9,067 11,550 11,701
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 38,478 38,545 38,613
<OTHER-SE> 29,480 32,296 36,036
<TOTAL-LIABILITY-AND-EQUITY> 77,766 83,458 87,742
<SALES> 29,001 68,939 112,874
<TOTAL-REVENUES> 29,001 68,939 112,874
<CGS> 24,976 56,932 91,498
<TOTAL-COSTS> 24,976 56,932 91,498
<OTHER-EXPENSES> 2,184 5,462 8,587
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 2,013 6,920 13,369
<INCOME-TAX> 815 2,906 5,615
<INCOME-CONTINUING> 1,198 4,014 7,754
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,198 4,014 7,754
<EPS-PRIMARY> .14 .46 .88
<EPS-DILUTED> .13 .45 .87
</TABLE>
