<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 4)*
COASTCAST CORP.
---------------------
(Name of Issuer)
SHARES OF COMMON STOCK, NO PAR VALUE
------------------------------------
(Title of Class of Securities)
19057T 10 8
(CUSIP Number)
JONATHAN P. VANNINI
-------------------
828 Irwin Drive
---------------
Hillsborough, CA 94010
-----------------------
(650) 347-1800
--------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
- with copies to -
Bernard J. Cassidy, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
October 16, 1998
-----------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Check the following box if a fee is being paid with the statement [_].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
- ---------------------
CUSIP NO. 19057T 10 8
- ---------------------
<TABLE>
<S> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
JONATHAN P. VANNINI
- ---------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [_]
- ---------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- ---------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_]
- ---------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
- ---------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
911,000
NUMBER OF -------------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 0
OWNED BY -------------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 911,000
PERSON -------------------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
0
- ---------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
911,000
- ---------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_]
- ---------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.06%
- ---------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ---------------------
CUSIP NO. 19057T 10 8
- ---------------------
ITEM 1. SECURITY AND ISSUER.
Securities acquired: Shares of common stock, no par value per
share ("Common Stock")
Issuer: Coastcast Corp.
3025 East Victoria Street
Rancho Dominguez, CA 90221
Tel. No. (310) 638-0595
ITEM 2. IDENTITY AND BACKGROUND.
This Schedule 13D is filed on behalf of Jonathan P. Vannini (the
"Purchaser").
The business address of the Purchaser is 828 Irwin Drive,
Hillsborough, California 94010. The Purchaser's principal business is
that of a private investor. The Purchaser is a citizen of the United
States.
The Purchaser has not during the past five years been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or been a party to a civil proceeding of a judicial or
an administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation
with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS.
Since the filing of the third amendment to the initial Schedule 13D
on August 17, 1998, the Purchaser has not engaged in any
transactions involving the Common Stock of Coastcast Corp. (the
"Issuer") as described below in Item 5. Purchaser acquired
beneficial ownership of his Common Stock of Coastcast through his
personal brokerage account at Smith Barney Inc. The source of funds
for the Purchaser's previous transactions was in part the
Purchaser's personal funds and in part margin credit extended to
Purchaser by Smith Barney Inc. through the Purchaser's personal
brokerage account, which is subject to the client agreement between
Purchaser and Shearson Lehman Brothers Inc., the predecessor-in-
interest of Smith Barney Inc., attached hereto under Item 7.
ITEM 4. PURPOSE OF TRANSACTION.
The Purchaser acquired shares of the Issuer's Common Stock as an
investment in order (a) to obtain an equity position in the Issuer
whose Common Stock the Purchaser believes to be presently undervalued,
and (b) to maximize the value of that investment. The Purchaser
believes that such undervaluation of the Issuer's Common Stock is in
part a result of certain policies and practices of the Issuer's
management, including without limitation the policies and practices
related to the compensation and stock options granted to the chairman
of the Issuer's board of directors.
The Purchaser has a present intention to influence control of the
Issuer. Pursuant to a stipulation and proposed order entered into on
October 2, 1998 by the Purchaser and Coastcast (the "Stipulation of
October 2, 1998") (attached hereto under Item 7), a special meeting
of the shareholders (the "Special Meeting") will be held at 10:00
a.m. on January 15, 1999 at a location in Los Angeles County to be
selected by Coastcast.
In the Stipulation of October 2, 1998, Coastcast represented
. that the amendments (the "Amendments") of Coastcast's 1996 Amended
and Restated Employee Stock Option Plan (the "Employee Plan") and
1995 Amended and Restated Non-Employee Director Stock Option Plan
(the "Director Plan") proposed by Coastcast management and
considered at the 1998 annual meeting of the Company's shareholders
have been rescinded by the Company's Board of Directors,
. that no options have been granted under either of the Amendments,
. that neither of the Amendments will be reinstated, and
. that any future amendments to the Employee Plan or the Director
Plan by the Coastcast Board of Directors that would authorize
grants of additional options to officers or directors of Coastcast
will be subject to future shareholder approval.
In exchange, Purchaser agreed
. that any issue regarding the revocation of the Amendments is now
moot,
. that shareholder approval of the revocation of the Amendments is
now unnecessary, and
. that shareholder approval of the revocation of the Amendments will
not be proposed or considered in connection with the Special
Meeting.
Accordingly, the Purchaser will no longer propose that the
shareholders consider and take action concerning the revocation of the
Amendments at the Special Meeting.
The Purchaser will propose that the following matters be considered
and voted upon at the Special Meeting:
1. The removal of the current board of seven directors;
2. The election of a new board of directors, for which Mr. Vannini
proposes four nominees, Mr. Jeffrey M. Cohen, Dr. James Malarnee,
Mr. John E. Rehfeld, and Mr. Jonathan P. Vannini, to serve
until the next annual meeting of the Company's shareholders and
until their successors have been elected and qualified;
3. The amendment of the Employee Plan so that stock options issued
thereunder may not be repriced without shareholder approval;
4. The amendment of the Director Plan so that stock options issued
thereunder may not be repriced without shareholder approval;
5. The authorization of an independent review by a nationally
recognized compensation consultant acceptable to Purchaser, of
the Company's Supplemental Executive Retirement Plan (the
"SERP") that (i) compares the SERP to retirement plans of
comparable companies and (ii) publishes by February 15, 1999
the results of that review;
6. The authorization of an independent review by a nationally
recognized compensation consultant acceptable to Purchaser, of
the Company's compensation practices that (i) compares those
practices to those of comparable companies and (ii) publishes
by February 15, 1999 the results of that review;
7. The repurchase by February 15, 1999 of any remaining shares of
the one million shares of the Company's common stock that the
Board of Directors authorized for repurchase on October 25, 1995,
together with the approval of the repurchase of an additional one
million shares of the Company's common stock, which repurchase
will be completed before April 15, 1999;
8. The approval of the reimbursement of Mr. Vannini for the fees and
expenses incurred in connection with the Special Meeting; and
9. Such other business as may properly come before the meeting or
any adjournment thereof.
At the time of the filing of the third amendment to the initial
Schedule 13D on August 17, 1998, the Purchaser believed in good faith
that he had been granted a Master of Business Administration from
Columbia University's Graduate School of Business (the "Columbia
Business School"). Since then, the Purchaser has reviewed his status
as an alumnus of the Columbia Business School with the school, and
on September 16, 1998, Professor Meyer Feldberg, the Dean of the
Columbia Business School, wrote a letter which states in its
entirety:
To whom it may concern;
Mr. Jonathan Patrick Vannini was a full-time graduate student in
good standing for four semesters: Autumn 1985; Spring 1986;
Autumn 1986; Spring 1987 at Columbia University's Graduate School
of Business. In May 1987 he completed all of the requirements to
be awarded a Master of Science in Business Administration.
Due to an oversight, Mr. Vannini was not initially given his
Master's degree. This issue has now been resolved, and Mr.
Vannini has been awarded his degree retroactively to May 1987.
Yours sincerely,
/s/ Meyer Feldberg
------------------
Professor Meyer Feldberg
Dean
At the time of the filing of the third amendment to the initial
Schedule 13D on August 17, 1998, the Purchaser believed in good faith
that he had been granted a Bachelor of Arts degree in Economics from
the University of California, Los Angeles ("UCLA"). Since then, the
Purchaser has been informed that he has not been granted a degree from
UCLA. Purchaser is currently cooperating with UCLA officials in a
review of his undergraduate records to determine whether UCLA will
grant his degree retroactively.
In response to Purchaser's inquiry, UCLA has reviewed Purchaser's
academic record and discovered an error had occurred in the posting of
transfer credits from the University of California, San Diego, which
Purchaser attended before transferring in 1980 to UCLA. UCLA
discovered that the transferred units should have totaled 76 units
rather than 56 units, and has made corrections to Mr Vannini's
transcript record to include the additional 20 units. As a result, as
of October 8, 1998, UCLA's review had established that Purchaser had
earned 172 of the 180 units required to graduate.
Purchaser continues to believe he completed all the requirements for
the Bachelor of Arts degree in Economics from UCLA. UCLA's review is
continuing, and UCLA is now examining whether its transcript record is
in error with respect to a 4-unit Geography course and a 4-unit
Economics course Purchaser took in 1980 and 1981, respectively.
Purchaser believes he successfully completed the requirements of each
of these courses, even though the UCLA transcript, corrected as of
October 9, 1998, does not indicate that Purchaser successfully
completed those requirements. Purchaser believes that upon completing
its review of the fully corrected records, UCLA will grant him the BA
degree retroactively.
The Purchaser reserves the right to acquire, or dispose of, additional
securities of the Issuer, to the extent
<PAGE>
- ---------------------
CUSIP NO. 19057T 10 8
- ---------------------
deemed advisable in light of his general investment and trading
policies, market conditions, or other factors. The Purchaser plans to
exercise influence in order to change the compensation and/or
membership of the present board of directors. The Purchaser plans to
exercise influence in order to persuade the Issuer to adopt a stock
repurchase program. The Purchaser plans to contact the Issuer and/or
other shareholders, as well as third parties regarding these and
other potential strategies to increase shareholder value.
Purchaser reserves the right to contact third parties to discuss
potential strategies to increase shareholder value, including, without
limitation, a tender offer for outstanding shares of the common stock
of the Issuer and/or an acquisition of the Issuer by a third party.
In September of 1998, Purchaser met with William B. Ruger and
William B. Ruger, Jr., senior executives of Sturm, Ruger & Co., Inc.,
a Delaware corporation engaged in precision metal investment casting.
Among other things, the parties discussed the investment casting
industry, the business prospects of that industry, and the
possibility of the acquisition of the Issuer, but did not agree to a
plan or proposal for such an acquisition or any similar business
combination.
Other than as described above, the Purchaser has no present plans or
proposals which would result in any of the following:
1) any extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer or any of its
subsidiaries;
2) any sale or transfer of a material amount of assets of the
Issuer or any of its subsidiaries;
3) any material change in the dividend policy of the Issuer;
4) any other material change in the Issuer's business or
corporate structure;
5) any change in the Issuer's charter, by-laws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of the Issuer by any person;
6) causing a class of securities of the Issuer to be delisted
from a national securities exchange or to cease to be authorized to be
quoted in an interdealer quotation system of a registered national
securities association;
7) causing a class of securities of the Issuer to become
eligible for termination of registration pursuant to Section 12(g)(4)
of the Act; or
8) any action similar to any of those enumerated above.
On August 13, 1998, Coastcast filed suit (COASTCAST CORPORATION v.
JONATHAN VANNINI) in the United States District Court for the
Central District of California against the Purchaser seeking
injunctive and declaratory relief for alleged violations of the
federal securities laws and the California Corporations Code.
On September 18, 1998, Coastcast filed its First Amended Complaint for
Injunctive Relief for Violation of Federal Securities Laws and for
Declaratory Relief in COASTCAST CORPORATION v. JONATHAN VANNINI, which
is attached hereto under Item 7.
On October 5, 1998, the Purchaser and Coastcast entered into a
Stipulation and Proposed Order Re Case Management Schedule in
COASTCAST CORPORATION v. JONATHAN VANNINI, which is attached hereto
under Item 7.
On October 5, 1998, the Purchaser filed Defendant's Answer and
Counterclaims to First Amended Complaint in COASTCAST CORPORATION v.
JONATHAN VANNINI, which is attached hereto under Item 7.
On August 14, 1998, the Purchaser filed a suit (JONATHAN VANNINI v.
COASTCAST CORPORATION) in the Superior Court of the State of
California, County of San Francisco against Coastcast Corporation
for injunctive and declaratory relief seeking to obtain (i) certain
shareholder records he demanded from Coastcast Corporation under
Section 1600 of the California Corporations Code (ii) the results of
the shareholder votes held at the Company's annual meeting of
shareholders on June 22 and July 8, 1998, including the results of the
shareholder votes on Proposals 2 and 3, which the Purchaser demanded
under Section 1509 of the California Corporations Code, and (iii) the
special meeting of the shareholders he demanded under Section 600 of
the California Corporations Code. On August 26, 1998, following
Coastcast's filing of a motion to transfer venue and a motion to
dismiss the suit, the Purchaser voluntarily dismissed the suit filed
in the County of San Francisco.
On August 14, 1998, the Purchaser filed a Non-Management Preliminary
Proxy Statement with the Securities and Exchange Commission ("SEC") on
Schedule 14A.
On August 29, 1998, the Purchaser filed an Amended Non-Management
Preliminary Proxy Statement with the SEC on Schedule 14A.
On October 16, 1998, the Purchaser filed an Amended Non-Management
Preliminary Proxy Statement with the SEC on Schedule 14A.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of August 11, 1998, and according to the Issuer's most
recent Quarterly Report on Form 10-Q, there were issued and
outstanding 9,054,204 shares of Common Stock. As of the date hereof,
the Purchaser has beneficial ownership of 911,000 such shares,
representing approximately 10.06% of the Common Stock of the Issuer.
<PAGE>
- ---------------------
CUSIP NO. 19057T 10 8
- ---------------------
(b) The Purchaser has the sole power to vote or to direct the
vote of and the sole power to dispose or to direct the disposition of
a total of 911,000 shares of Common Stock of the Issuer.
(c) The Purchaser has not engaged in any transactions involving
the Issuer's securities since the filing of the third amendment to
the initial Schedule 13D on August 17, 1998.
(d) Not Applicable.
(e) Not Applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Not Applicable.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
Attached hereto as "Exhibit 99.(C)" is the client agreement between
the Purchaser and Shearson Lehman Brothers Inc., the
predecessor-in-interest to Smith Barney Inc.
Attached hereto as "Exhibit 99.(D)" is the Stipulation and Proposed
Order Re Case Management Schedule in COASTCAST CORPORATION v.
JONATHAN VANNINI.
Attached hereto as "Exhibit 99.(E)" is the First Amended Complaint for
Injunctive Relief for Violation of Federal Securities Laws and for
Declaratory Relief in COASTCAST CORPORATION v. JONATHAN VANNINI.
Attached hereto as "Exhibit 99.(F)" is the Defendant's Answer and
Counterclaims to First Amended Complaint in COASTCAST CORPORATION v.
JONATHAN VANNINI.
SIGNATURE
---------
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: October 16, 1998
/s/ Jonathan P. Vannini
By:_____________________________
Jonathan P. Vannini
<PAGE>
EXHIBIT 99C
PLEASE READ CAREFULLY, SIGN AND RETURN
TO SHEARSON LEHMAN BROTHERS INC. SHEARSON
LEHMAN
Client Documentation Services BROTHERS
388 Greenwich Street, 24th Floor
New York, NY 10013-2396
CLIENT AGREEMENT
In consideration of Shearson Lehman Brothers Inc. ("Shearson") accepting my
account and agreeing to act as my broker, I agree to the following with respect
to any of my accounts with you for extensions of credit and the purchase and
sale of securities, put & call options, and other property. This agreement shall
not become effective until accepted by you in your New York office. Acceptance
may be evidenced by internal records maintained by you. Throughout this
agreement, "I," "me," "my," "we," and "us" refer to the client and all others
who are legally obligated on my accounts. "You" and "your" refer to Shearson,
its subsidiaries and parents and any and all divisions or other entities, their
officers, directors, agents and/or employees.
1. MY REPRESENTATIONS. I represent that I am of the age of majority according
to the laws of my place of residence. I further represent that I am not an
employee of any exchange or of a member firm of any exchange or of a member of
the National Association of Securities Dealers, Inc. ("NASD"), or of a bank,
trust company, or insurance company unless I have notified you to that effect.
If I become so employed, I agree to notify you promptly. I also represent that
no persons other than those signing this agreement have an interest in my
account.
2. DEFINITION OF "PROPERTY." The word "property" is used herein to mean
securities of all kinds, monies, options, commodities, and contracts for the
future delivery of, or otherwise relating to commodities or securities and all
other property usually and customarily dealt in by brokerage firms.
3. ORDERS, EXECUTIONS, DELIVERIES, SETTLEMENTS AND ORAL AUTHORIZATIONS. I
agree that, in giving orders to sell, all "short" sales orders will be
designated as "short" and all "long" sales orders will be designated as "long."
"Short sale" means any sale of a security not owned by the seller or any sale
that is consummated by delivery of a borrowed security. I also agree that you
may at your discretion immediately cover any short sales in my account. The
designation on a sale order as "long" is a representation on my part that I own
the security, and if the security is not in your possession at the time of the
contract for sale, I agree to deliver the security to you by settlement date.
In case of non-delivery of a security, you are authorized to purchase the
security to cover my position and charge any loss, commissions and fees to my
account. I agree that if you fail to receive payment for securities purchased
you may, without prior demand or notice, sell securities or other property held
by you in any of my accounts and any loss resulting therefrom will
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
<PAGE>
be charged to my account. By accepting my limit order for transactions in
securities in the NASDAQ or over-the-counter market, you undertake to monitor
the interdealer market and to seek to execute my order only if the inside bid
(in the case of a limit order to sell, the highest price at which a dealer is
being quoted as willing to buy securities) or the inside asked (in the case of
a limit order to buy, the lowest price at which a dealer is being quoted as
willing to sell securities) reaches my limit price. You reserve the right,
while my limit order remains unexecuted, to trade for your own market-maker
account at prices equal to or better than my limit order price and not to
execute my order against incoming orders from other customers. For example, if
the inside market is 10 bid, 10-1/4 asked and I place a limit order to sell
securities at 10-1/8, you will seek to execute my order only if the inside bid
reaches my limit price of 10-1/4 (exclusive of any markdown or commission
equivalent that you may charge in connection with the transaction) and, while
my order remains unexecuted, you may continue to sell securities for your
market-maker account at prices at or above 10-1/8. Unless I have directed that
the order be executed on a specified exchange or market and you have agreed to
such execution, you will, at your sole discretion and without prior
notification to me, execute any order to purchase or sell securities on the
over-the-counter market in any location or on any exchange, including a
foreign exchange where such security is traded, either on a principal or
agency basis. I agree that you shall incur no liability in acting upon oral
instructions given to you concerning my account.
4. OPTION POSITIONS. I agree not to enter into any purchase or sale of
equity, debt, foreign currency or index put & call options or Index
Participations without having read and fully understood the terms, conditions
and risks, as set forth in the Characteristics and Risks of Standardized Options
booklet and/or Index Participations booklet and applicable supplements which you
agree to furnish me prior to such transactions. I understand clients' short
option positions are assigned on a random selection method pursuant to an
automated system. All short option positions can be assigned at any time
including the day written.
5. NOTICE TO EXERCISE OPTIONS. If I purchase any listed option, I will notify
you of my intention to exercise such option no later than two hours before the
expiration time of the option (one hour in the case of an over-the-counter
option). Failure to give such notice will constitute an abandonment of the
option, in which event it may be exercised for my account if it would be
profitable do so. Except as required by the Options Clearing Corporation Rules
you have no obligation to exercise any option absent specific instructions from
me to that effect. If it would not be profitable for my account due to
commission expenses, it may be permitted to expire or, at your discretion, sold
or acquired by you for some equitable payment to me based on your expenses and
risk, without any liability or responsibility on your part to me.
6. IMPARTIAL LOTTERY ALLOCATION SYSTEM. When you hold on my behalf bonds or
preferred stocks in street or bearer form which are callable in part, I agree to
participate in the impartial lottery allocation system of the called securities
in accordance with the provisions of the New York Stock Exchange, Inc. ("NYSE")
rules. Further, I understand when the call is favorable,
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-2-
<PAGE>
no allocation will be made to any account in which you, your officers, or
employees have a financial interest until all other clients' positions in such
securities are satisfied on an impartial lottery basis.
7. RESTRICTIONS ON TRADING TERMINATION. I understand that you may in your
sole discretion prohibit or restrict trading of securities or substitution of
securities in any of my accounts. You have the right to terminate any of my
accounts (including multiple owner accounts) at any time by notice to me.
8. TRANSFER OF FUNDS BY WIRE. By giving you instructions to transfer funds by
wire from my accounts to any bank or other entity, I agree to provide you with
an accurate account number designating the account to receive such funds. I
acknowledge that the bank or other receiving entity may be under no obligation
to verify the identity of the beneficiary of the funds transfer and may rely
exclusively upon the account number provided by me. I agree to indemnify and
hold you harmless from and against all liabilities arising from the provision by
me of an inaccurate account number.
9. TRANSFER OF EXCESS FUNDS; EXCHANGE RATE FLUCTUATIONS. You may transfer
excess funds between any of my accounts (including commodity accounts) for any
reason not in conflict with the Commodity Exchange Act or any other applicable
law. If any transactions are effected on an exchange in which a foreign
currency is used, any profit or loss as a result of a fluctuation in the
exchange rate will be charged or credited to my account.
10. TEMPORARY INVESTMENT OF FREE CREDIT BALANCES; BOND PRINCIPAL AND INTEREST
PAYMENTS. I authorize, but do not require, you to automatically invest on a
periodic basis the free credit balances in my accounts, including interest and
dividends paid to me, in mutually selected money market funds or, in the absence
of such selection, in money market funds of your designation. You are not
required to remit interest or dividends to me on a daily basis. With respect to
bond principal and interest payments, you may credit my account with principal
and interest due on the payment dates and are entitled to recover any such
payments from me if the same are not actually received by you from the trustee
or paying agent. With respect to debits arising from bond principal and
interest payments or any other debits, you may redeem my money market fund
shares, without notice, to the extent necessary to satisfy any debits arising in
any of my accounts. I acknowledge that interest will not be paid to me on credit
balances in any of my accounts unless specifically agreed to by you in writing.
11. FEES AND CHARGES. I understand that you may impose various service charges
and other fees relating to my account as well as charge commissions and other
fees for execution of transactions to purchase and sell securities, put & call
options or other property, and I agree to pay such charges, commissions and fees
at your then prevailing rates. I also understand that such charges, commissions
and fees may be changed from time to time without notice to me and I agree to be
bound thereby. I may be subject to an administrative fee on any of my accounts
which produce
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-3-
<PAGE>
insufficient commission revenue for any calendar year and you will notify me
prior to applying this fee. I agree to pay a late charge, to the extent
permitted by law, if I purchase securities on a cash basis and fail to pay for
such securities by settlement date. Any late charge you may impose will be at
the maximum rate of interest set forth in your disclosure statement and may be
charged from the settlement date to the date of payment.
12. ACCURACY OF REPORTS; COMMUNICATIONS. Confirmation of orders and statements
of my accounts shall be conclusive, if not objected to in writing within ten
days after mailing by you to me. In the event I fail to receive a confirmation
within ten days from the date of a transaction in my account, I agree to notify
you immediately in writing. Communications mailed to me at the address
specified by me shall, until you have received notice in writing from me of a
different address, be deemed to have been personally delivered to me and I agree
to waive all claims resulting from failure to receive such communications.
13. INTRODUCED ACCOUNTS. If my account has been introduced to you, and is
carried by you only as a clearing broker, I agree that you are not responsible
for the conduct of the introducing broker and your only responsibilities to me
relate to the execution, clearing and bookkeeping of transactions in my
accounts.
14. SECURITY INTEREST. As security for the payment of all liabilities or
indebtedness presently outstanding or to be incurred under this or any other
agreement between us, and for all liabilities or indebtedness I may have to you
now or in the future, I grant you a security interest in any and all property
belonging to me or in which I may have an interest, held by you or carried in
any of my accounts including individual, multiple owner or commodity accounts.
All property shall be subject to such security interest as collateral for the
discharge of my obligations to you, wherever or however arising and without
regard to whether or not you have made loans with respect to such property. You
are hereby authorized to sell and/or purchase any and all property in any of my
accounts or to liquidate any open commodity futures or forward contracts in any
of my accounts without notice in order to satisfy such obligations. In
enforcing your security interest, you shall have the discretion to determine
which property is to be sold and the order in which it is to be sold and shall
have all the rights and remedies available to a secured party under the New York
Uniform Commercial Code. Without your prior written consent, I will not cause
or allow any of the collateral held in my account, whether now owned or
hereafter acquired, to be or become subject to any liens, security interests,
mortgages or encumbrances of any nature other than your security interest.
15. LIQUIDATION OF COLLATERAL OR ACCOUNT. You may sell any or all property
held in any of my accounts and cancel any open orders for the purchase or sale
of any property without notice in the event of my death or whenever in your
discretion, you consider it necessary for your protection. In such events you
also may borrow or buy-in all property required to make delivery against any
sale, including a short sale, effected for me. Such sale or purchase may be
public or private and may be made without advertising or notice to me and in
such manner as you may in your
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-4-
<PAGE>
discretion determine. No demands, calls, lenders or notices which you may make
or give in any one or more instances shall invalidate the foregoing waiver on
my part. At any such sale you may purchase the property free of any right of
redemption and I shall be liable for any deficiency in my accounts.
16. LOANS. From time to time you may, at your discretion, make loans to me for
any purpose, including the purpose of purchasing, carrying or trading in
securities ("Margin Loans") or for a purpose other than purchasing, carrying or
trading in securities ("Express Credit Loans"). Pursuant to Regulation T,
Margin Loans will be made in a Margin Account and Express Credit Loans will be
made in a nonsecurities credit account ("Express Credit Account"). The minimum
and maximum amount of any particular loan may be established by you in your
discretion regardless of the amount of collateral delivered to you and you may
change such minimum and maximum amounts from time to time.
17. EXPRESS CREDIT. I agree not to use the proceeds of any Express Credit Loan
to purchase, carry or trade in securities. I also agree not to use Express
Credit Loan proceeds directly or indirectly to repay other debt that I incur for
the purpose of purchasing, carrying or trading securities.
18. PAYMENT OF LOANS ON DEMAND. I agree to pay ON DEMAND any balance owing
with respect to any of my accounts, including interest and commissions and any
costs of collection (including attorneys' fees, if incurred by you). I
understand that you may demand full payment of the balance due in my accounts
plus any interest charges accrued thereon, at your sole option, at any time
without cause and whether or not such demand is made for your protection. I
understand that all loans made are not for any specific term or duration but are
due and payable at your discretion upon a demand for payment made to me. I
agree that all payments received for my accounts including interest, dividends,
premiums, principal or other payments may be applied by you to any balances due
in my accounts.
19. MAINTENANCE OF COLLATERAL. I understand that the properties in my Margin
Account and/or Express Credit Account may be carried as general loans and may be
pledged or hypothecated by you separately or in common with other properties.
The pledge or hypothecation by you may secure your indebtedness, equal to or
greater than the amount owed to you by me. I agree to deposit additional
collateral, as you may in your discretion require from time to time, in the form
of cash or securities in accordance with the rules and regulations of the
Federal Reserve Board, the NYSE, the American Stock Exchange, Inc. ("AMEX"),
other national securities exchanges, associations or regulatory agencies under
whose jurisdiction you are subject and your own minimum house margin maintenance
requirements. In the event I no longer maintain a debit balance or an
indebtedness to you, it is understood that you will fully segregate all
securities in my accounts in your safekeeping or control (directly or through a
clearing house) and/or deliver them to me upon my request.
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-5-
<PAGE>
20. INTEREST CHARGES AND PAYMENTS. I agree to pay interest, to the extent not
prohibited by the laws of the State of New York, upon all amounts advanced and
other balances due in my accounts in accordance with your usual custom, which
may include the compounding of interest. Your custom, which may change from
time to time, is set forth in your disclosure statement, which by this reference
is herein specifically incorporated. By entering into any transactions with you
after I receive your disclosure statement, I acknowledge that I have read and
agreed to its terms for all past and future transactions in my account. I
understand that interest on all debit balances shall be payable ON DEMAND and
that in the absence of any demand interest shall be due on the first business
day of each interest period. My daily net debit balance will include accrued
interest I have not paid from prior interest periods, if any. I understand that
to the extent permitted by applicable law you may charge me interest on the
unpaid interest previously added to my debit balance; that is, you may charge me
compound interest. Payments of interest and principal and all other payments
made by me under this agreement shall be made to your main office in New York,
New York. You may, in your discretion, not deem any check or other remittance
to constitute payment until it has been paid by the drawee and the funds
representing such payment have become available to you.
21. CREDIT AND BUSINESS CONDUCT INFORMATION AND INVESTIGATION. I authorize you
at your discretion to obtain reports and to provide information to others
concerning my credit standing and my business conduct. You may ask credit
reporting agencies for consumer reports of my credit history. Upon my request
you will inform me whether you have obtained any such consumer reports and if
you have, you will inform me of the name and address of the consumer reporting
agency that furnished reports to you.
22. JOINT ACCOUNTS.
a. If this is a Joint Account, we agree that each of us shall have the
authority on behalf of the account to buy, sell (including short sales), and
otherwise deal in, through you as brokers, securities, options or other property
on margin or otherwise; to receive for the account, confirmations, statements
and communications of every kind; to receive for the account and to dispose of
money, securities and other property; to make, terminate, or modify for the
account, agreements relating to these matters or waive any of the provisions of
such agreements; and generally to deal with you as if each of us alone were the
account owner, all without notice to the other account owners. We agree that
notice to any account owner shall be deemed to be notice to all account owners.
Each account owner shall be jointly and severally liable for this account.
b. You may follow the instructions of any of us concerning this account
and make deliveries to any of us, of any or all securities or other property in
this account, and make payments to any of us, of any or all monies in this
account as any of us may order and direct, even if such deliveries and/or
payments shall be made to one of us personally or to third parties. You shall
be under no obligation to inquire into the purpose of any such demand for
delivery of securities,
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-6-
<PAGE>
property, or payment of monies, and you shall not be bound to see to the
application or disposition of the said securities, property and/or monies so
delivered or paid to any of us. Notwithstanding the foregoing, you are
authorized, in your discretion, to require joint action by the joint tenants
with respect to any matter concerning the joint account. Including the giving
or cancellation of orders and the withdrawal of monies, securities or other
property.
c. In the event of the death of any of us, the survivor(s) shall
immediately give you written notice thereof, and you may, before or after
receiving such notice, take such proceedings, require such documents, retain
such portion of the accounts, and/or restrict transactions in the account as you
may deem advisable to protect you against any tax liability, penalty or loss
under any present or future laws or otherwise. The estate of any of us who
shall have died shall be liable and each survivor will be liable, jointly and
severally, to you for any debt or loss in this account resulting from the
completion of transactions initiated prior to your receipt of a written notice
of such death or incurred in the liquidation of the account or the adjustment of
the interests of the respective parties.
d. Any taxes or other expenses becoming a lien against or being payable
out of the account as the result of the death of any of us, or through the
exercise by his or her estate or representatives of any rights in the account
shall be chargeable against the interest of the survivor(s) as well as against
the interest of the estate of the decedent. This provision shall not release
the decedent's estate from any liability provided for in this agreement.
e. DESIGNATION OF TENANCY (This paragraph "22(e)" is not applicable in
the State of Texas, where form no. 3882 "Texas Joint Account Supplement..." must
be executed and returned with this agreement to you.). You may presume that it
is the express intention of us to create an estate or account as joint tenants
with rights of survivorship, and not as tenants-in-common, unless otherwise
provided by striking this paragraph and executing a separate Tenancy-in-Common
form and returning it to you. In the event of the death of either or any of us,
the entire interest in the joint account shall be vested in the survivor(s) on
the same terms and conditions as therefore held, without in any manner releasing
the decedent's estate from the liability.
23. ARBITRATION.
. ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO A JURY TRIAL.
. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT
FROM COURT PROCEEDINGS.
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-7-
<PAGE>
. THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
. THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
Any controversy: (1) arising out of or relating to any of my accounts
maintained individually or jointly with any other party, in any capacity, with
you; or (2) relating to my transactions or accounts with any of your predecessor
firms by merger, acquisition or other business combination from the inception of
such accounts; or (3) with respect to transactions of any kind executed by,
through or with you, your officers, directors, agents and/or employees; or (4)
with respect to this agreement or any other agreements entered into with you
relating to my accounts, or the branch thereof, shall be resolved by arbitration
conducted only at the NYSE, NASD, or AMEX or any self-regulatory organizations
("SRO") subject to the jurisdiction of the Securities and Exchange Commission
and pursuant to the arbitration procedures then in effect of any such exchange
or SRO as I may elect. If I do not make such election by registered mail
addressed to you at your main office within 5 days after demand by you that I
make such election, then you will have the right to elect the arbitration
tribunal of your choice. Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
24. GOVERNING LAW AND APPLICABLE REGULATIONS. This agreement, including the
arbitration provisions contained herein, shall be governed by the laws of the
State of New York without giving effect to the choice of law or conflict of laws
provisions thereof. All transactions for my accounts shall be subject to the
regulations of all applicable federal, state and self-regulatory agencies
including but not limited to the Securities and Exchange Commission, the various
securities and commodity exchanges, the Municipal Securities Rulemaking Board,
the NASD, the Board of Governors of the Federal Reserve System and the
constitution, rules and customs of the exchange or market (and its clearing
house, if any) where executed. Actual deliveries are intended on all
transactions. I agree not to exceed the exercise limits and/or position limits
set by the option exchanges, for my own account, acting alone or in concert with
others.
25. BINDING EFFECT. This agreement and its terms shall be binding upon my
heirs, executors, successors, administrators, assigns, committee and/or
conservators ("successors"). In the event of my death, incompetency, or
disability, whether or not any successors of my estate and property shall have
qualified or been appointed, you may continue to operate as though I were alive
and competent and you may liquidate my account as described in Paragraph 15
above without prior notice to or demand upon my successors. This agreement
shall inure to the benefit of your assigns and successors, by merger,
consolidation or otherwise (and you may transfer my accounts to any such
successors and assigns at your discretion).
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-8-
<PAGE>
26. WAIVER NOT IMPLIED. Your failure to insist at any time upon strict
compliance with this agreement or with any of its terms or any continued course
of such conduct on your part shall not constitute or be considered a waiver by
you of any of your rights.
27. SEVERABILITY. If any provision of this agreement is or becomes
inconsistent with any applicable present or future law, rule or regulation, that
provision will be deemed rescinded or modified in order to comply with the
relevant law, rule or regulation. All other provisions of this agreement will
continue and remain in full force and effect.
28. NO ORAL MODIFICATION; AFFECT ON PRIOR AGREEMENTS. No modification of this
agreement shall be effective unless in writing and executed by you and me. This
agreement is not subject to any oral modification; the signing of this agreement
supersedes any prior Customer's or Client's Agreement (except those governing
transactions in my commodity accounts) made with you or any of your predecessors
or assignors. To the extent this agreement is inconsistent with any other
agreement governing my account, the provisions of this agreement shall govern.
Tax Certification: Under penalties of perjury, I certify that the number shown
below on this form is my correct taxpayer identification number or if not, then
the number I have entered below per instructions is my correct taxpayer
identification number, and that I am not subject to backup withholding because:
(a) I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all interest or
dividends, or (b) the IRS has notified me that I am no longer subject to backup
withholding (see below), or (c) I am exempt from backup withholding (see below).
NOTE: You must cross out (b) above if you are currently subject to backup
withholding because of under reporting interest or dividends on your tax return.
For Those Exempt From Backup Withholding (see instructions), write the word
"Exempt" here: _______________.
Unless I strike this paragraph and initial the same, you are hereby specifically
authorized to lend, either separately or with other securities, to either
yourself as broker or to others, any securities held by you on margin or as
collateral for an Express Credit Loan for my/our accounts or as collateral
therefor. This agreement shall continue until signed notice or revocation is
received by or from me and, in case of such revocation, it shall continue in
effect as to transactions entered into prior thereto. By signing this agreement
I acknowledge that my securities may be loaned to you or loaned out to others.
I understand that if I decline to accept this provision, you may refuse to
extend margin or other loans in relation to my accounts.
John P. Vannini
NOTICE: Any person, whether married, unmarried or separated, may apply for a
separate account.
NOTICE: By signing this agreement, I acknowledge receipt of a copy of this
agreement.
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-9-
<PAGE>
CAUTION TO CLIENT: IT IS IMPORTANT THAT YOU THOROUGHLY READ THIS AGREEMENT
BEFORE YOU SIGN IT.
NOTICE: This agreement contains a pre-dispute arbitration clause, which is
located on this page at paragraph 23.
Client's Signature X /s/ Jonathan P. Vannini
- ----------------------------------------------------------------
Date
THE REVERSE SIDE OF THIS AGREEMENT MUST
3025 (8/91) BE SIGNED BY ALL ACCOUNT OWNERS
-10-
<PAGE>
EXHIBIT 99D
KEVIN S. ROSEN (Bar No. 133304)
WILLIAM E. THOMSON (Bar No. 187912)
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Telephone: (213) 229-7000
Fax: (213) 229-7520
JULIA J. RIDER (Bar No. 067277)
ADRIANNE J. BROWNSTEIN (Bar No. 150227)
JEFFER, MANGELS, BUTLER & MARMARO LLP
2121 Avenue of the Stars, Tenth Floor
Los Angeles, California 90067-5010
Telephone: (310) 203-8080
Fax: (310) 203-0567
Attorneys for Plaintiff
COASTCAST CORPORATION
DAVID J. BERGER (Bar No. 147645)
JARED L. KOPEL (Bar No. 126817)
SUSAN BOWER (Bar No. 173244)
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300
Fax: (650) 493-6811
Attorneys for Defendant
JONATHAN VANNINI
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
COASTCAST CORPORATION, a California ) CASE NO. 98-6625 WMB (Mcx)
corporation, )
) STIPULATION AND ORDER RE
Plaintiff ) CASE MANAGEMENT SCHEDULE
)
v. ) DATE: [No Hearing Required]
) TIME:
JONATHAN VANNINI, an individual, ) PLACE: Courtroom 9
) Hon. William M. Byrne, Jr.
Defendant. )
)
_______________________________________)
<PAGE>
The parties to this stipulation ("Stipulation") are plaintiff Coastcast
Corporation ("Coastcast") and defendant Jonathan Vannini ("Vannini"):
WHEREAS, on or about August 13, 1998, Coastcast filed the above-captioned
action against Vannini;
WHEREAS, on or about September 10, 1998, Vannini filed a motion to dismiss
Coastcast's complaint;
WHEREAS, on or about September 18, 1998, Coastcast filed a First Amended
Complaint;
WHEREAS, on or about September 23, 1998, a hearing was held before the
Honorable Magistrate Judge James McMahon, during which Magistrate Judge McMahon
ruled that Coastcast was entitled to proceed with the discovery it had requested
and that Vannini was not entitled to conduct the discovery he sought;
WHEREAS, counsel for Vannini stated his intention to file a motion to
dismiss with respect to Coastcast's First Amended Complaint by September 28,
1998;
WHEREAS, in lieu of Vannini proceeding with his motion to dismiss and
Coastcast filing additional motions in response, including a motion for Rule 11
sanctions with respect to any such motion to dismiss and a motion to permit
discovery to proceed, the parties have agreed to a case management schedule in
an attempt to avoid unnecessary motion practice and the unnecessary incurring of
attorneys' fees; and
WHEREAS, nothing in this Stipulation shall prevent either party from filing
any motions, seeking any relief and/or taking any other steps in connection with
this litigation not inconsistent with the provisions of this Stipulation that
said party deems necessary or warranted.
NOW, THEREFORE, IT IS HEREBY STIPULATED by and between the parties, by and
through their counsel of record herein, as follows:
1. A special meeting of shareholders of Coastcast ("Special Meeting")
will be called by Coastcast on behalf of Vannini to be held on January 15, 1999,
commencing at
///
-1-
<PAGE>
10:00 a.m. Pacific Standard Time, at a location in Los Angeles County to be
selected by Coastcast.
DISCOVERY
---------
2. In exchange for Coastcast's agreement to hold a Special Meeting,
Vannini agrees not to file a motion to dismiss Coastcast's First Amended
Complaint and to cooperate with Coastcast's taking of the discovery ordered by
Magistrate Judge McMahon on September 23, 1998, a true and correct copy of which
Order is attached hereto as Exhibit "A" and incorporated herein by this
reference. In that regard, the following discovery shall take place:
a. Vannini shall respond to Coastcast's previously propounded document
requests and interrogatories by no later than October 2, 1998;
b. Coastcast shall take the depositions of Vannini, John E. Rehfeld,
James K. Malernee, Jr., Jeffrey Mark Cohen, Jeffrey Gendel, University of
California, Los Angeles, Columbia University and Salomon Smith Barney, Inc.
between October 1 and October 23, 1998. If for any reason any of the third party
deponents are unable to be deposed during this time-period, then the depositions
may proceed at such other later date as is convenient for the deponents. Counsel
shall cooperate in good faith in the scheduling of these depositions.
c. Upon the execution of this Stipulation, Vannini agrees immediately
to advise the University of California, Los Angeles, Columbia University and
Salomon Smith Barney, Inc. in writing, with a copy to Coastcast's counsel, that
his previous letters advising them not to comply with Coastcast's subpoenas are
withdrawn and that there is no discovery stay in place.
3. Vannini shall have until October 5, 1998 to answer Coastcast's First
Amended Complaint.
CORRECTED DISCLOSURES AND BRIEFING SCHEDULE
-------------------------------------------
4. By no later than October 26, 1998, Vannini shall provide Coastcast
with copies of his amended proxy materials and amended Schedule 13D, along with
any amended press releases or other corrective information which he intends to
disseminate to the Coastcast
-2-
<PAGE>
shareholders, or any of them, in connection with the Special Meeting
(collectively, the "Disclosure Documents"). If Vannini provides the Disclosure
Documents to Coastcast before the above-referenced discovery is completed,
including the resolution of any motions arising from any disputes with respect
to the foregoing discovery, then Coastcast shall have three court days after the
completion of said discovery to object in writing to the Disclosure Document(s)
provided. If discovery, including the resolution of any motions arising from any
disputes with respect to the foregoing discovery, is completed by the time that
Vannini provides the Disclosure Documents to Coastcast, then Coastcast shall
have three court days from the date of receipt to object in writing to the
Disclosure Document(s) provided.
5. Vannini and Coastcast shall meet and confer within two court days of
Vannini's receipt of Coastcast's objections to the Disclosure Documents in an
attempt to work out amicably the dispute with respect to the same. If the
parties are able to work out their dispute informally, then Vannini shall have
three court days from the date the agreement is reached to make all agreed-upon
corrections.
6. If the parties are not able to work out their dispute informally, or
if Vannini's corrections do not satisfy Coastcast, Coastcast shall have five
court days from (a) the date the parties determine they are not able to work out
their differences, or (b) the date Vannini provides his corrected Disclosure
Documents to Coastcast, to file a motion for preliminary injunction and/or any
other applicable relief. The motion shall be heard on the first Monday after
one week has elapsed (or the earliest possible date thereafter that is
convenient for the Court), with Vannini's opposition being due five days after
the motion is filed and Coastcast's reply being due two court days before the
hearing.
7. If Vannini is required by the Court to make additional changes to any
of his Disclosure Documents, he shall have one week to do so unless otherwise
ordered by the Court. Coastcast will be allowed at least fifteen days to
prepare, file and clear with the SEC relevant proxy materials for the Special
Meeting after (a) all changes to Vannini's Disclosure Documents required by the
Court have been made by Vannini and, if applicable, filed with the SEC, or (b)
the Court has found Vannini's Disclosure Documents to be adequate. None of the
-3-
<PAGE>
foregoing shall be construed as precluding the Court from issuing any other
injunctive relief as may be appropriate under applicable law.
SPECIAL MEETING
---------------
8. The record date for the Special Meeting will be a date selected by
Coastcast which complies with applicable California law, the bylaws of
Coastcast, the rules of the New York Stock Exchange, and any requirements of the
SEC.
9. Notice of the Special Meeting will be given to the shareholders of
Coastcast by Coastcast no later than December 15, 1998. Vannini agrees that he
will not (a) provide any notice of the Special Meeting, (b) issue a press
release regarding the Special Meeting (except as otherwise agreed to in writing
by the parties), (c) make any statements to the media regarding the timing of
the Special Meeting prior to official notice of the Special Meeting having been
given by Coastcast, or (d) otherwise advise Coastcast's shareholders about the
Special Meeting prior to official notice of the Special Meeting having been
given by Coastcast, except insofar as he attaches this Stipulation to any of his
filings with the SEC. Nothing herein shall preclude either party from seeking
the Court's intervention regarding the timing of notice of the Special Meeting.
10. Coastcast will cause Vannini to be provided with a shareholders' list
concurrently with its provision of notice of the Special Meeting to Coastcast's
shareholders.
11. Coastcast represents that the amendments of Coastcast's employee stock
option plan ("Employee Plan") and non-employee director stock option plan
("Director Plan") which were approved by the shareholders at the 1998 annual
meeting of shareholders (collectively, the "Amendments") have been rescinded by
Coastcast's Board of Directors. Coastcast represents that no options have been
granted under either of the Amendments. Coastcast agrees that neither of the
Amendments will be reinstated. Coastcast further agrees that any future
amendments to the Employee Plan or the Director Plan by the Board of Directors
that would authorize grants of additional options to officers or directors of
Coastcast will be subject to future shareholder approval.
-4-
<PAGE>
12. In exchange for Coastcast's representations and agreements as set
forth in paragraph 10, above, Vannini agrees that any issue regarding the
revocation of the Amendments is moot and that shareholder approval of the
revocation of the Amendments is unnecessary. Vannini further agrees that
shareholder approval of revocation of the Amendments will not be proposed and/or
considered in connection with the Special Meeting.
13. Coastcast further represents that options to purchase not more than
372,500 shares of common stock of Coastcast have been granted to Hans Buehler
during the last three years. Vannini agrees that disclosures in his proxy
materials with respect to the options granted to Mr. Buehler will be corrected
in the time-frame set forth in this Stipulation.
IT IS SO STIPULATED.
DATED: October 1, 1998 GIBSON, DUNN & CRUTCHER LLP
-- and --
JEFFER, MANGELS, BUTLER & MARMARO LLP
By: /s/ Kevin S. Rosen
------------------------
KEVIN S. ROSEN
Attorneys for Plaintiff
COASTCAST CORPORATION
DATED: October 2, 1998 WILSON, SONSINI GOODRICH & ROSATI
Professional Corporation
By: /s/ David J. Berger
-------------------------
DAVID J. BERGER
Attorneys for Defendant
JONATHAN VANNINI
ORDER
-----
For good cause shown, the foregoing Stipulation shall be the Order of this
Court.
IT IS SO ORDERED.
DATED: _____________, 1998 __________________________________________
THE HON. WILLIAM M. BYRNE, JR.
-5-
<PAGE>
EXHIBIT 99E
KEVIN S. ROSEN (Bar No. 133304)
WILLIAM E. THOMSON (Bar No. 187912)
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Telephone: (213) 229-7000
Fax: (213) 229-7520
JULIA J. RIDER (Bar No. 067277)
ADRIANNE J. BROWNSTEIN (Bar No. 150227)
JEFFER, MANGELS, BUTLER & MARMARO LLP
2121 Avenue of the Stars, Tenth Floor
Los Angeles, California 90067-5010
Telephone: (310) 203-8080
Fax: (310) 203-0567
Attorneys for Plaintiff
COASTCAST CORPORATION
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
COASTCAST CORPORATION, a ) CASE NO. 98-6625 WMB (Mcx)
California corporation, )
) FIRST AMENDED COMPLAINT FOR
Plaintiff, ) INJUNCTIVE RELIEF FOR VIOLATION
) OF FEDERAL SECURITIES LAWS AND
vs. ) FOR DECLARATORY RELIEF
)
JONATHAN VANNINI, an )
individual, )
)
Defendant. )
)
_____________________________)
/ / /
/ / /
/ / /
/ / /
/ / /
<PAGE>
Plaintiff Coastcast Corporation ("Coastcast"), for its First Amended
Complaint, alleges as follows:
INTRODUCTION
------------
1. This lawsuit arises from defendant Jonathan Vannini's ("Vannini")
rampant violations of the federal securities laws in his quest to wrest control
of Coastcast from its Board of Directors (the "Board") to benefit himself.
2. Vannini is carrying out his scheme through the filing of materially
misleading statements under Sections 13 and Section 14(a) of the Securities
Exchange Act of 1934 (the "Exchange Act") (15 U.S.C.(S)(S) 78m and 78n) and the
public dissemination of materially misleading statements that amount to proxy
solicitations encouraging Coastcast shareholders to oust the current members of
the Board at a special shareholders meeting and allow Vannini and his hand-
picked slate of directors to take over management of Coastcast.
3. Vannini's quest to obtain control of Coastcast and enrich himself at
the expense of Coastcast's shareholders began in or about June 1998, when
Vannini began buying large amounts of Coastcast stock on an almost daily basis.
In total, Vannini has invested nearly $15 million in Coastcast stock - - which
Coastcast is informed and believes represents the majority of Vannini's assets.
4. While Vannini claims that he is simply a long-term investor in
Coastcast stock, and that he bought his shares with his personal funds, the
facts call the accuracy of this statement into question. Coastcast stock is
inherently speculative;
-2-
<PAGE>
Coastcast is not a high-growth company. Generally, sophisticated investors like
Vannini do not put large amounts of their investment assets into a single
speculative stock for long-term investments. Thus, while Vannini states in
various filings with the Securities and Exchange Commission ("SEC") that he has
no "present" plans or proposals to sell Coastcast or otherwise benefit himself
personally at the expense of the shareholders, this contention is suspect.
5. Coastcast's suspicions as to Vannini's motives are heightened by the
fact that Vannini has misrepresented his educational background in press
releases and numerous filings with the SEC under penalty of perjury. While
Vannini claims that he holds a BA in Economics from the University of
California, Los Angeles ("UCLA") and an MBA from Columbia University, such
claims are contradicted by the records maintained by UCLA and Columbia.
6. According to UCLA, Vannini attended UCLA for nearly two years but did
-------
not receive any degree. A true and correct copy of a declaration by a UCLA
- ----------------------
employee which attests to this fact, accompanied by Vannini's transcript, is
attached hereto as Exhibit "A" and incorporated herein by this reference.
7. As for Columbia University, Vannini's "academic certification"
similarly indicates that he attended but did not receive a degree from that
university. A true and correct copy of Vannini's Columbia "academic
certification" is attached hereto as Exhibit "B" and incorporated herein by this
reference. In addition, the Columbia Business School Alumni Directory indicates
that Vannini neither graduated nor obtained a degree, and the Columbia Alumni
Website does not list Vannini at all.
-3-
<PAGE>
JURISDICTION AND VENUE
----------------------
8. This Court has subject matter jurisdiction of this action pursuant to
Section 27 of the Exchange Act (15 U.S.C. (S) 78aa) and 28 U.S.C. (S) 1331.
9. Venue is proper in this District pursuant to 28 U.S.C. (S) 1391(b) (2)
in that a substantial part of the events giving rise to the claims herein
occurred within this District.
THE PARTIES
-----------
10. Coastcast is a corporation organized and existing under the laws of
the state of California with its principal place of business in Los Angeles
County, California.
11. Vannini is an individual residing in San Mateo County, California.
FACTUAL BACKGROUND
------------------
A. Vannini's Materially Misleading 13D Filings.
-------------------------------------------
12. On or about July 10, 1998, Vannini filed a Schedule 13D (the "Schedule
13D") with the SEC, in which he disclosed a purported investment of
approximately $9.9 million in shares of Coastcast common stock, allegedly
representing beneficial ownership of 600,000 shares, or approximately 6.6% of
the outstanding shares. A true and correct copy of Vannini's Schedule 13D is
attached hereto as Exhibit "C" and incorporated herein by this reference.
13. Vannini subsequently filed with the SEC an amendment to the Schedule
13D ("Amendment No. 1"), dated July 24, 1998, in which he disclosed a further
purported investment of
-4-
<PAGE>
approximately $3,534,060 in shares of Coastcast common stock. Together with the
previous investment, this allegedly constituted beneficial ownership of 891,000
shares, or approximately 9.9% of the outstanding shares. A true and correct copy
of Amendment No. 1 is attached hereto as Exhibit "D" and incorporated herein by
this reference.
14. In a second amendment to the Schedule 13D ("Amendment No. 2"), dated
July 31, 1998, Vannini disclosed a further purported investment of $220,000 in
shares of Coastcast common stock, bringing his total alleged beneficial
ownership to 911,000 shares, or approximately 10.12% of the outstanding shares.
Vannini also stated that he had called a special meeting of Coastcast's
shareholders to be held on September 22, 1998, and set forth his alleged agenda
for the purported special meeting. One of the items on Vannini's alleged agenda
was "to elect a board of seven directors," yet Vannini failed, in contravention
of SEC Rules, to state also that he would be seeking to remove the Board and to
disclose his proposed nominees. A true and correct copy of Amendment No. 2 is
attached hereto as Exhibit "E" and incorporated herein by this reference.
15. Vannini unsuccessfully attempted to correct these omissions in a third
amendment to the Schedule 13D ("Amendment No. 3"), dated August 14, 1998. In
Amendment No. 3, Vannini purported to set forth his proposed nominees to
Coastcast's board of directors but still failed to disclose that he would also
be seeking to remove the Board. A true and correct copy of Amendment No. 3 is
attached hereto as Exhibit "F" and incorporated herein by this reference.
-5-
<PAGE>
B. Vannini's Materially Misleading Public Statements.
-------------------------------------------------
16. Vannini's rapid accumulation of Coastcast stock and his misleading 13D
filings were accompanied by Vannini's de facto proxy solicitation efforts.
Vannini elected to wage his proxy battle in the press and directly to individual
shareholders such as Jeff Gendel, by issuing public statements about his
purported special shareholders' meeting and by otherwise communicating with
Coastcast shareholders in a manner designed to lead to the procurement of
Coastcast shareholder proxies. Vannini's public statements include at least the
following:
a. On July 21, 1998, Federal Filings Newswires quoted Vannini as
saying that he "plans to contact Coastcast and other shareholders to discuss"
his plans "to persuade Coastcast Corp. to adopt a stock buyback program, as well
as to seek changes in the company's board of directors."
b. On the same day, July 21, 1998, the Los Angeles Times reported
that Vannini said he wants to "push for a stock buyback," change Coastcast's
executive pay practices and shake up its board.
c. In another article published by Federal Filings Newswires on July
27, 1998, Vannini is quoted as saying that the Board should "start behaving in a
pro-shareholder-oriented way" by spending millions of its cash "on a massive
buyback program."
d. On July 28, 1998, Federal Filings Newswires quoted Vannini as
saying that "[t]he current board of directors and [Coastcast chairman] Hans
Buehler cannot be allowed to stand"
///
-6-
<PAGE>
and accused them of failing to "realiz[e] their responsibilities in running a
public company."
e. In an August 3, 1998, Dow Jones News Service article, Dow Jones
reported that Vannini had called a special meeting of Coastcast shareholders for
September 22, 1998, and noted that Vannini claims that Coastcast's shares are
undervalued.
f. On August 4, 1998, the Wall Street Journal noted that Vannini had
called for a special meeting and that Vannini "thinks the best investment for
Coastcast's cash would be its own stock" (which is not surprising since such a
repurchase could boost the value of Mr. Vannini's own shares by increasing the
average price of Coastcast's remaining outstanding shares).
g. On August 13, 1998, before he even filed preliminary proxy
------
materials with the SEC, Vannini - - in violation of the securities laws - -
issued a press release in which he announced that he was proposing a new slate
of directors to replace four of the current seven directors, and that the new
directors "would be committed to enhancing shareholder value and initiating
responsible corporate governance policies". The clear implication of Vannini's
statements was that the current Board did not subscribe to such policies.
Vannini also stated that he "supported the election" of Hans Buehler
(Coastcast's Chairman), Richard Mora (Coastcast's Chief Executive Officer) and
Vernon Loucks Jr. - - who are presently on the Board - - thereby giving the
false impression that these individuals supported Vannini.
h. On August 27, 1998, Vannini issued a press release which, while
praising Coastcast's initiation of a stock
-7-
<PAGE>
repurchase program, commented: "I urge Coastcast to complete a significant stock
purchase program in short order and immediately take other steps necessary to
improve the value of the shareholders' investment, such as eliminating excessive
executive compensation and eliminating the board's ability to reprice stock
options without shareholder approval."
17. Coastcast is informed and believes and based thereon alleges that
Vannini has and will continue to make material misstatements of fact and will
omit material facts in his proposed and actual communications with shareholders
unless enjoined from doing so.
C. Vannini's Materially Misleading Proxy Materials.
-----------------------------------------------
18. In addition to his informal proxy solicitation efforts, when
challenged by Coastcast, Vannini also undertook the preliminary steps necessary
to formalize the proxy solicitation process. In that regard, on or about August
14, 1998, Vannini filed preliminary proxy materials with the SEC, pursuant to
Section 14 of the Exchange Act and Rule 14 promulgated thereunder, and on August
28 filed an amendment thereto. A true and correct copy of these preliminary
proxy materials, as amended, is attached hereto as Exhibit "G".
19. Vannini's preliminary proxy materials violate Section 14(a) and Rule
14a and are a blatant attempt to mislead Coastcast shareholders in that they
contain numerous material misrepresentations and omit material facts. Among
other things, as set forth in more detail below, Vannini has lied about his
educational background and has omitted material information relating to his
purchases of Coastcast stock and the background
-8-
<PAGE>
and qualifications of himself and his proposed nominees to Coastcast's board.
D. Vannini's Bad Faith Litigation Tactics.
--------------------------------------
20. On August 13, 1998, Coastcast was forced by Vannini's campaign of
misinformation as perpetuated in his statements to the press, his communications
with shareholders, and his SEC filings to file suit against him. Included in
Coastcast's complaint were claims for injunctive relief arising from Vannini's
violations of Sections 13(d) and 14(a) of the Exchange Act, as well as a claim
seeking a declaration that Vannini was not entitled to demand a special meeting
of shareholders or to obtain shareholder information.
21. Vannini filed a complaint in San Francisco Superior Court the next
day, seeking, among other things, an order compelling Coastcast to call a
special meeting of shareholders and providing Vannini with the requested
shareholder information. Vannini also provided notice of his intent to seek an
ex parte order granting him all the relief sought in his complaint.
- --------
22. Vannini's complaint and ex parte application had numerous procedural
--------
and substantive deficiencies. Among other things, the complaint was brought in
the wrong county, a Federal action covering the same claims was already pending,
and Vannini - - who was not a shareholder of record as defined by California law
- - - was not entitled to the shareholder meeting and shareholder documents which
---
he sought. The most egregious of these defects - - i.e., the fact that Vannini
had filed his complaint in the wrong county - - was brought to the attention of
-9-
<PAGE>
counsel for Vannini by letter along with a request that the San Francisco action
be withdrawn. Vannini, however, did not withdraw his application and dismiss
his lawsuit until after Coastcast had expended substantial sums to defeat his
-----
meritless action.
E. Vannini's Refusal To Answer Coastcast's Questions
-------------------------------------------------
Regarding The Source Of His Funds And His
------------------------------------------
Educational Background.
----------------------
23. As noted above, one of the reasons that Coastcast had refused to
accede to Vannini's purported demands for shareholder information and for a
special meeting of shareholders was because he was only a beneficial owner of
shares, not a "shareholder of record" as defined by the California Corporations
Code. Rather than having Vannini's alleged shares of Coastcast stock
transferred into his name, Vannini dealt with this issue by having the actual
"shareholder of record" request information and a meeting on his behalf. For
example, on August 28, 1998, Cede & Co., at the request of Vannini, purported to
call a special meeting of shareholders for October 26, 1998. On or about that
date, Cede & Co., again on Vannini's behalf, also requested the shareholder
information which Vannini himself had initially requested.
24. Vannini's failure to transfer his purportedly beneficially owned
shares into his name raised the issue of whether Vannini could not do so because
those shares were subject to a margin loan or some other interest. Accordingly,
on September 3, 1998, Coastcast, through its counsel, asked Smith Barney, Inc.,
the holder of Vannini's alleged shares, whether his
-10-
<PAGE>
firm or anyone else had or claimed any interest in Vannini's shares.
25. Vannini's counsel refused to permit Smith Barney to answer Coastcast's
question, and, even more significantly, refused to answer Coastcast's question
himself. Even though it would have been a very simple matter for Vannini's
counsel to answer "yes" or "no" to Coastcast's question and provide documentary
proof of such answer, they instead stated that they "reject[ed] any allegation
or insinuation that Mr. Vannini has failed to make proper disclosure in his
Schedule 13D filings."
26. Coastcast thereafter subpoenaed Smith Barney. In response, Vannini
hurriedly filed a motion to dismiss, and instructed Smith Barney not to provide
any responsive documents on the alleged grounds that discovery in this action
was stayed.
27. Coastcast's counsel then asked two more of Vannini's counsel, orally
and in writing, whether Vannini's Coastcast shares were subject to a margin loan
or some other third party interest. Again, Vannini's counsel refused to answer
this very simple question. Vannini's counsel's failure to answer this question,
and concurrent efforts to stay discovery, lead to a reasonable inference that
Vannini's shares are in fact subject to some third party interest - - which
third party interest was not disclosed in Vannini's numerous SEC filings despite
the requirement that it be so disclosed.
28. This inference is supported by the fact that Vannini lied about his
educational background in his various filings with the SEC. In or about early
September 1998, Coastcast learned that Vannini might not have the degrees from
-11-
<PAGE>
UCLA and Columbia which he represented under penalty of perjury that he held.
In an effort to discern the truth, Coastcast served subpoenas on UCLA and
Columbia.
29. As with the margin loan issue, Vannini's counsel instructed those
universities not to respond to the subpoenas on the alleged grounds that
discovery was stayed in this action. Also as with the margin loan issue,
Vannini's counsel refused to confirm informally that Vannini actually had the
degrees he claimed to have.
30. During a September 15, 1998 conference call with the Court, in
response to a question by the Court, Vannini's counsel represented that Vannini
did in fact have degrees from UCLA and Columbia (although he professed not to be
sure what types of degrees or when those degrees were obtained).
31. After that conference call, with the approval of Vannini's counsel and
the Court, Coastcast's counsel inspected the documents which had been produced
by UCLA despite Vannini's instruction to UCLA not to do so. Those documents
showed that, in contrast to what Vannini's counsel told the Court, Vannini had
attended UCLA for only approximately two years and had not received a degree.
Coastcast confirmed its interpretation of these documents with a UCLA employee,
who thereafter signed a declaration attesting to this fact.
32. While Coastcast has not yet received the subpoenaed documents from
Columbia, it expects to find the same thing. As with UCLA, the summary
"academic certificate" informally provided by Columbia reflects that Vannini did
not receive a degree. Moreover, the Columbia Alumni Directory
-12-
<PAGE>
reflects the same thing and Vannini is not even listed on the Columbia Alumni
Website.
FIRST CLAIM FOR RELIEF
----------------------
(INJUNCTIVE RELIEF FOR VIOLATION OF
SECTION 13(d) OF THE EXCHANGE ACT (15 U.S.C. (S) 78m)
AND REGULATIONS PROMULGATED THEREUNDER)
33. Coastcast realleges and incorporates by reference the allegations
contained in paragraphs 1 through 32, above.
34. Vannini's conduct as alleged above violates Section 13(d) of the
Exchange Act and regulations promulgated thereunder in that, among other things:
a. Vannini did not disclose whether he purchased his Coastcast
shares with borrowed funds, despite the fact that the Form 13D requires such
disclosure. Instead, he only vaguely stated that he had purchased the Coastcast
shares with "personal funds". In fact, however, Coastcast is informed and
believes and based thereon alleges that Vannini either obtained at least a
portion of his shares on margin or otherwise received loans or advances
facilitating their purchase. Coastcast's belief is based on two facts: one, that
his counsel has refused to respond to Coastcast's informal inquiries regarding
whether Vannini's shares are subject to some third party interest while
concurrently acting to block all discovery; and two, that Vannini did not take
any steps to transfer the shares of stock he alleged to beneficially own into
his own name once he was advised that only "shareholders of record" had the
rights he was purporting to exercise.
-13-
<PAGE>
b. Vannini similarly failed to disclose whether he has any
"contracts, arrangements, understandings, or relationships" with respect to
Coastcast securities, as required by Form 13D, stating only that the part of the
Schedule 13D which requires such disclosure is "not applicable". For the same
reasons set forth above, Coastcast is informed and believes and thereon alleges
that such "contracts, arrangements, understandings, or relationships" exist and
that Vannini is refusing to disclose such agreements to hide the identities of
his financial backers and thereby shield his true purpose in accumulating
Coastcast stock and seeking to take control.
c. Vannini stated that the purpose of his acquisition of Coastcast
shares is to influence control of Coastcast in order to cause a wide array of
changes, including the use of that influence to "persuade [Coastcast] to adopt a
stock repurchase program" and alter the compensation of members of the Board.
Yet Vannini failed to disclose in the Schedule what resources he plans to
utilize to effect these changes. Nor did Vannini disclose what other changes he
planned to implement at Coastcast, despite the fact that he stated obliquely
that he would consider "other potential strategies to increase shareholder
value". Moreover, Vannini's stated intentions do not make sense and appear
calculated to mislead: investors simply do not invest large portions of their
assets in a single speculative stock just to increase the value of shares which
they did not own in the first place. Clearly, Vannini must have a different
intention - - i.e., a merger, divestiture of assets, or simply to
-14-
<PAGE>
leverage a favorable stock repurchase for his (or his group's) benefit - - that
he is failing to disclose.
d. Vannini did not affirmatively indicate whether he was acting on
behalf of a group of investors, despite the fact that the SEC's Form 13D
requires such an indication. Coastcast is informed and believes and based
thereon alleges that Vannini is in fact acting on behalf of a group of
investors, including, but not limited to, his proposed nominees to the Coastcast
board. Coastcast is informed and believes and based thereon alleges that the
group's common purpose is to artificially inflate the price of Coastcast stock
for the group's own benefit. In addition to the facts detailed above,
Coastcast's belief is based on the fact that one of Vannini's proposed nominees
to the Coastcast board, John Rehfeld, has been sued at least three times for
artificially inflating the stock of companies with which he was involved, thus
raising the possibility that he might be attempting the same thing with respect
to Coastcast. Moreover, given Coastcast's understanding of Vannini's financial
condition, based on conversations with Vannini, Coastcast believes that Vannini
does not have the wherewithal to achieve his plan without financial backing.
e. Vannini failed to disclose where and how he purchased his shares
of Coastcast stock, despite the fact that such disclosure is required under Item
5 of Form 13D.
35. In addition, as set forth below, Vannini attempted to mislead the
public - - and in fact outright lied - - in his Schedule 13D and the amendments
thereto:
///
-15-
<PAGE>
a. Vannini stated that he holds a BA in Economics from UCLA. This
is not true. According to the UCLA registrar, Vannini did not have sufficient
units to graduate and did not obtain a degree.
b. Vannini stated that he holds an MBA from Columbia University.
This also is not true. While Vannini's transcript reflects that he attended
Columbia University for a brief period of time, it also reflects that he did not
obtain a degree. Columbia's Alumni Directory similarly indicates that Vannini
did not graduate or obtain a degree, and Vannini is not even listed on the
Columbia Alumni Website.
c. Despite purporting to call a special meeting of shareholders for
September 22, 1998, Vannini failed to disclose that as he was not a shareholder
of record, that he could not as a matter of law call a special meeting and that
therefore his purported call was void and of no force or effect. Vannini's
failure to disclose this fact is designed to mislead Coastcast's shareholders.
d. Vannini included the revocation of amendments of two stock option
plans as matters to be voted on at the alleged September 22, 1998 meeting.
However, as Vannini well knew, these amendments had already been rescinded by
the Board and could not be reinstated without shareholder approval. Coastcast
believes that Vannini has included these amendments as agenda items solely for
the purpose of providing a false and misleading platform for criticism of
director and officer compensation and to mislead shareholders into believing
that improprieties exist with respect to such compensation.
-16-
<PAGE>
36. Unless Vannini is preliminarily and permanently enjoined from
continuing to violate Section 13(d), the regulations promulgated thereunder, and
the Bylaws and is instead required to comply with the requirements set forth
therein, Coastcast will suffer great and irreparable injury in that, among other
things, Coastcast's actual and prospective shareholders will not receive the
complete and truthful information to which they are entitled and may base their
decisions on the false and misleading information which Vannini has disseminated
and continues to disseminate. In addition, Coastcast and the Board will be
forced to squander time, effort and financial resources in responding to
Vannini's campaign to unseat the Board, all of which fail to comply with
applicable legal requirements. Finally, Vannini's continued dissemination of
materially misleading statements regarding Coastcast and the Board will cause
irreparable damage to Coastcast's relationships with its customers by causing
them to question the competence and integrity of Coastcast's management.
37. There is no threat of irreparable harm to Vannini from such an
injunction because Vannini can suffer no cognizable harm from having to conform
his conduct to existing legal requirements.
38. Entry of an injunction as prayed for herein is in the best interest of
the public because it will benefit Coastcast's public shareholders by preventing
Vannini from forcing Coastcast and the Board to waste time, effort and financial
resources in responding to Vannini's improper conduct,
///
-17-
<PAGE>
and instead will require Vannini to conform his conduct to comply with
applicable legal requirements.
SECOND CLAIM FOR RELIEF
-----------------------
(INJUNCTIVE RELIEF FOR VIOLATION OF
SECTION 14(a) OF THE EXCHANGE ACT (15 U.S.C. (S) 78n)
AND REGULATIONS PROMULGATED THEREUNDER)
39. Coastcast realleges and incorporates by reference the allegations
contained in paragraphs 1 through 38, above.
40. Vannini's actions alleged above constitute solicitations to security
holders within the meaning of SEC Rule 14a-1(l), promulgated pursuant to Section
14(a) of the Exchange Act. Vannini has a duty under Section 14(a) of the
Exchange Act and the regulations promulgated thereunder to disclose all material
facts in his proxy materials, press releases, news articles and other materials
he has caused or will cause to be publicly disseminated to Coastcast
shareholders and to refrain from making, in those materials, material
misrepresentations and omitting to state material facts necessary in order to
make the statements made, in light of the circumstances under which they are
made, not misleading. Vannini is violating that duty.
41. As alleged above, Vannini's proxy materials, press releases, news
articles and other materials described above contain statements that are
materially false and misleading and omit to state material facts necessary to
make the statements made, in light of the circumstances under which they are
made, not misleading, including the following:
///
-18-
<PAGE>
a. Vannini represents that he holds a B.A. in Economics from UCLA
and an MBA from Columbia. Coastcast is informed and believes and based thereon
alleges that these representations are false and that Vannini did not receive
degrees from these universities.
b. Vannini represents that he acquired his shares of stock in
Coastcast with his personal funds. However, despite repeated chances to do so,
Vannini has refused to confirm that he did not purchase the stocks on margin or
otherwise obtain assistance from other sources in financing the purchases - -
thus leading to the reasonable deduction that he in fact obtained such
assistance.
c. Vannini claims that his purpose in accumulating Coastcast stock
and attempting to seize control is to increase shareholder value. Vannini also
claims that he is acting alone in his efforts to do so. Coastcast is informed
and believes and based thereon alleges that Vannini is a member of a group
consisting of, among others, his proposed nominees to the board, and that his
failure to disclose this fact is a material omission.
d. Vannini has similarly failed to disclose whether he has any
"contracts, arrangements, understandings or relationships" with respect to
Coastcast securities, including any such arrangements or understandings with his
nominees to the Coastcast board. It belies reason that Vannini and his nominees
do not have at least some agreement or understanding - - including, at the
least, an indemnification agreement - - Vannini's failure of which to disclose
is a material omission.
-19-
<PAGE>
e. Vannini has represented that he intends to ask the shareholders
not only to elect his slate of three candidates and himself to the Board but
also to elect three persons who are presently Board members, Messrs. Buehler,
Mora and Loucks. However, in contravention of SEC Rule 14a-4, Vannini has
failed to obtain the consent of these individuals to serve on the board he
proposes. Notwithstanding his failure to even contact the existing board
members to inquire as to whether they would support him and serve on a board of
his choosing, Vannini's public pronouncements and preliminary proxy materials
give the impression that Messrs Buehler, Mora and Loucks do, in fact, support
him and are thus misleading.
f. Vannini has included two agenda items which are moot. He
purports to seek a shareholder vote on two amendments to stock option plans for
employees and for non-employee directors, which the Board has rescinded. The
Board has publicly announced the rescission and has noted that options cannot be
granted under similar future amendments without submitting the amendments to
shareholders for approval. This is because the applicable rules of the New York
Stock Exchange would require shareholder approval. Vannini has failed to advise
the shareholders that there is no need for a shareholder vote to revoke these
already rescinded amendments.
g. Vannini includes a prominent statement that "A VOTE FOR THE
VANNINI NOMINEES WILL PROVIDE YOU - AS THE OWNERS OF COASTCAST - WITH AT LEAST
FOUR REPRESENTATIVES ON THE COASTCAST BOARD WHO ARE COMMITTED TO MAXIMIZING
SHAREHOLDER VALUE." This statement violates Rule 14a-9 because it
-20-
<PAGE>
indirectly impugns the character and integrity of the members of the current
Board by implying that they are not committed to maximizing shareholder value
without providing any factual support for such an implication.
h. Vannini falsely claims that Coastcast granted Hans Buehler, its
Chairman, 500,000 options in the past three years when, in fact, Coastcast has
granted Mr. Buehler only 372,500 options.
i. Vannini erroneously implies that Coastcast has improperly denied
Vannini certain rights to which he is entitled as a shareholder. In fact, those
rights are granted only to a shareholder of record, which Vannini is not. These
statements are evidently intended to prejudice the Coastcast shareholders
against management by insinuating that Coastcast has failed to honor Vannini's
demands without any right to do so.
j. Vannini's proposed proxy card violates the proxy rules in that,
among other things, no means are specified for withholding the vote from any one
or more of the proposed nominees. In addition, the card, does not contain a
statement as to how the proxy will be voted in the election of directors if
cumulative voting is invoked.
k. Vannini fails to advise the shareholders that removal of the
directors which he seeks requires the vote of a majority of the outstanding
shares and that, therefore, a failure to vote on that item will be the same as a
vote against the matter.
l. With respect to proxies, Vannini fails to state whether he
intends to request cumulative voting in
-21-
<PAGE>
connection with the election of directors and whether, if cumulative voting is
requested by another shareholder, how he will vote the proxies granted under his
solicitation.
m. Vannini also fails to disclose what his purpose is as to the
various changes he proposes for resolution at the special shareholders' meeting
he has demanded, whether it be merger, divestiture of assets or simply
leveraging a favorable stock repurchase for his own benefit.
n. Vannini further states that he "voluntarily dismissed [his San
Francisco action] but may pursue other legal action", which is wholly
misleading. Vannini fails to state that he dismissed his San Francisco action
in the face of a motion filed by Coastcast which challenged the validity of
Vannini's lawsuit and which requested sanctions against Vannini and his counsel.
Vannini also failed to disclose that the court indicated that it would have
denied Vannini's request to hold a special meeting of shareholders on September
22, 1998 (which alleged meeting Vannini announced to the public before filing
any proxy materials).
42. Moreover, Vannini has purported to set forth the alleged background of
his proposed nominees to Coastcast's board (including Vannini) but has omitted
material information relevant to those candidates' integrity and ability to
manage Coastcast, including:
a. That Vannini had tax liens assessed against him in the amount of
$1,248,899.94, which were, significantly, released just before Vannini commenced
his purchases of Coastcast stock in April 1998.
-22-
<PAGE>
b. That Vannini had another tax lien against him in the amount of
$424,846.06, which was released in October 1996.
c. That Vannini had various lawsuits filed against him arising out
of his failure to re-pay student loans.
d. That Vannini's nominee, John Rehfeld, abruptly resigned from
"Proxima Corporation" at a time when the company was forecasting heavy losses.
e. That Mr. Rehfeld has recently been sued by shareholders of
Proxima Corporation and Wonderware Corporation (where he was, until March 1998,
a director) for artificially inflating the stock of the respective companies.
43. Unless Vannini is preliminarily and permanently enjoined from
continuing to violate Section 14(a) and the regulations promulgated thereunder,
and is instead required to comply with the requirements set forth therein,
Coastcast's shareholders will suffer great and irreparable injury in that, among
other things, they may base their votes at any future shareholders' meeting
(including the alleged shareholders, meeting that Vannini has purported to call)
on Vannini's false and misleading information and the free exercise of their
voting rights will thus be frustrated. In addition, Coastcast and the Board
will be forced to squander time, effort and financial resources in responding to
Vannini's unlawful solicitations of Coastcast shareholders for their votes and
in responding to Vannini's campaign to unseat the Board. Finally, Vannini's
continued dissemination of materially misleading statements about the Board and
its management of Coastcast will cause irreparable damage to Coastcast's
relationships with its customers by causing
-23-
<PAGE>
them to question the competence and integrity of Coastcast's management.
44. There is no threat of irreparable harm to Vannini from such an
injunction, because Vannini can suffer no cognizable harm from having to conform
his conduct to existing legal requirements.
45. Entry of an injunction as prayed for herein is in the best interest of
the public because it will benefit Coastcast's public shareholders by preventing
Vannini from forcing Coastcast and the Board to waste time, effort and financial
resources in responding to Vannini's improper conduct, and instead will require
Vannini to conform his conduct to comply with applicable legal requirements.
THIRD CLAIM FOR RELIEF
----------------------
(DECLARATORY RELIEF)
46. Coastcast realleges and incorporates by reference the allegations
contained in paragraphs 1 through 45, above.
47. An actual controversy has arisen and now exists relating to the
parties' respective rights and duties in that Coastcast contends that no special
meeting of shareholders can be held until such time as the Court has decided (a)
whether the issues identified by Vannini as agenda items are appropriate issues
for discussion and a shareholder vote; (b) what additional and corrective
disclosures Vannini will have to make; (c) what Vannini will be permitted to
include in the proxy materials; and (d) what Coastcast's obligations are to its
shareholders with respect to the conduct of the meeting. Coastcast is informed
and
-24-
<PAGE>
believes and on that basis alleges that Vannini will dispute those contentions.
48. Coastcast desires a judicial determination of its rights and duties
under the applicable law and a declaration that Vannini is not entitled to have
a special meeting of shareholders in the same time frame and with the same
agenda as presented in Vannini's preliminary proxy materials.
49. A judicial declaration is necessary and appropriate at this time in
order that Coastcast may ascertain its rights and duties and determine whether
and under what conditions it is required to comply with Vannini's demands.
PRAYER
------
WHEREFORE, Coastcast demands judgment as follows:
A. For a preliminary and permanent injunction that orders Vannini:
1. to refrain from distributing proxy materials filed by Vannini on
or about August 28, 1998 ("the Proxy Materials") to Coastcast's shareholders or
otherwise taking any steps to solicit any proxies, consents, or authorizations
with respect to the Proxy Materials;
2. to correct the various misstatements in Vannini's Schedule 13D,
Proxy Materials, press releases, and other statements to the shareholders, as
well as to make all necessary disclosures in those same documents, as set forth
herein;
3. to refrain from all proxy solicitation and stock acquisition
activities until 15 days after Vannini's
-25-
<PAGE>
corrected Schedule 13D and Proxy Materials are filed with the SEC and Vannini
has issued a corrective press release;
4. to refrain from exercising any proxies obtained by virtue of
Vannini's illegal proxy solicitation activities;
5. to refrain from preparing, filing or disseminating any
information, notice, statement, report, form, schedule, proxy statement, form of
proxy, notice of meeting, letter, memorandum or other document or communication
of any kind to any shareholder which is reasonably calculated to influence the
vote of a shareholder with respect to any corporate action, or which is
otherwise reasonably calculated to result in the procurement, withholding or
revocation of a proxy, which contains any statement which, at the time and in
the light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or misleading, or
necessary to correct any statement in any earlier communication with respect to
the solicitation of a proxy for the same meeting or subject matter which has
become false or misleading.
B. For a declaration that (a) the issues regarding amendments to the
stock option plans identified by Vannini as agenda items are not appropriate
issues for discussion and a shareholder vote; and (b) that Coastcast does not
have to call a special meeting of shareholders until Vannini makes the
additional disclosures referred to herein and excludes from his proxy materials
all false and misleading information.
-26-
<PAGE>
C. For such other and further relief as the Court may deem just and
proper.
DATED: September 18, 1998 GIBSON, DUNN & CRUTCHER LLP
KEVIN S. ROSEN
WILLIAM E. THOMSON
- and -
JEFFER, MANGELS, BUTLER & MARMARO LLP
JULIA J. RIDER
ADRIANNE J. BROWNSTEIN
By: /s/ Julia J. Rider
-------------------------
JULIA J. RIDER
Attorneys for Plaintiff
COASTCAST CORPORATION
-27-
<PAGE>
EXHIBIT 99F
DAVID J. BERGER, State Bar # 147645
JARED L. KOPEL, State Bar # 126817
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 565-5100
Attorneys for Defendant/Counterclaimant
JONATHAN VANNINI
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
COASTCAST CORPORATION, a ) Case No. 98-6625 WMB
California corporation, ) (Mcx)
)
Plaintiff, ) DEFENDANT'S ANSWER AND
) COUNTERCLAIMS TO FIRST
vs. ) AMENDED COMPLAINT
)
JONATHAN VANNINI, an )
individual, )
)
Defendant. )
______________________________ )
JONATHAN VANNINI, an )
individual, )
)
Counterclaimant, )
)
vs. )
)
COASTCAST CORPORATION, a )
California corporation, and )
HANS BUEHLER, and individual, )
)
Counterdefendants. )
_________________________________)
<PAGE>
ANSWER AND COUNTERCLAIMS FOR INJUNCTIVE AND OTHER RELIEF UNDER FOR VIOLATION OF
- -------------------------------------------------------------------------------
FEDERAL SECURITIES LAWS
-----------------------
Jonathan Vannini ("Vannini") answers the allegations of the first amended
complaint ("Complaint") of Coastcast Corporation ("Coastcast") as follows:
INTRODUCTION
------------
1. Vannini admits that Coastcast purports to bring this action, and
denies the remaining allegations made in paragraph 1 of the Complaint.
2. Vannini denies the allegations made in paragraph 2 of the Complaint.
3. Vannini admits that from time to time he has purchased Coastcast
stock, and that the amount of the investment was approximately $15 million. The
phrase "quest to obtain control" is vague and ambiguous, and subject to multiple
interpretations and therefore Vannini cannot respond to that allegation. Vannini
has made filings with the Securities and Exchange Commission, which speak for
themselves as to his objectives for Coastcast. Except as expressly admitted,
Vannini denies each allegation made in paragraph 3 of the Complaint.
4. Vannini admits that he claims to be a long-term investor in Coastcast
stock. Vannini avers that his SEC filings speak for themselves. Except as
expressly admitted and averred, Vannini denies each allegation made in paragraph
4 of the Complaint because Vannini lacks knowledge or information sufficient to
form a belief as to the truth of the allegations made in paragraph 4 of the
Complaint. Paragraph 4 also contains numerous statements of opinion to which
Vannini is not required to respond.
2
<PAGE>
5. Vannini denies that he does not hold an MBA from Columbia University.
Vannini admits that he does not hold a degree from UCLA, but avers that such is
not material. Except as expressly admitted or averred, Vannini denies the
allegations contained in paragraph 5 of the Complaint.
6. Vannini avers that Kathleen Parent's Declaration, Pl.'s Ex. A, speaks
for itself, and therefore no response is required.
7. Vannini lacks information or knowledge concerning the following:
(1)the Columbia Business School Alumni Directory; and (2) Columbia Alumni
Website. The information in the directory and the website speak for themselves.
The reference to an "academic certification" is vague and ambiguous, and
therefore Vannini cannot respond to the allegation. Vannini asserts that he has
received a letter from the Dean of the Columbia University Graduate School of
Business, dated Sept. 16, 1998, which stated that Vannini has been awarded his
degree retroactive to 1987.
JURISDICTION AND VENUE
----------------------
8. Vannini admits that Coastcast purports to bring this action and to
invoke the Court's jurisdiction pursuant to 15 U.S.C. (S) 78aa and 28 U.S.C. (S)
1331.
9. Vannini admits that Coastcast asserts that venue is proper under 28
U.S.C. (S) 1391(b)(2).
THE PARTIES
-----------
10. Vannini admits the allegations in paragraph 10 of the first amended
complaint.
11. Vannini admits the allegations in paragraph 11 of the first amended
complaint.
3
<PAGE>
FACTUAL BACKGROUND
------------------
A. Vannini's Allegedly Materially Misleading 13D Filing
----------------------------------------------------
12. Vannini admits that he filed a Schedule 13D on or about July 17, 1998
and avers that the filing speaks for itself, and therefore, no response to
paragraph 12 of the first amended complaint is required.
13. Vannini admits that he filed a Schedule 13D amendment no. 1, dated
July 29, 1998 and avers that the form speaks for itself, and therefore no
response is required to paragraph 13 of the first amended complaint.
14. Vannini admits that he filed a Schedule 13D amendment no. 2, dated
August 3, 1998. The filing speaks for itself, and therefore, no response is
required. Vannini avers that plaintiff's allegation that "Vannini failed, in
contravention of SEC rules," First Am. Compl. (P)14, is a legal conclusion, and
therefore, except as expressly admitted, no response is required to the
allegations in paragraph 14.
15. Vannini admits that he filed a Schedule 13D amendment no. 3, dated
August 14, 1998. Vannini avers that the filing speaks for itself. Except as
expressly admitted or averred, Vannini denies the allegations in paragraph 15.
B. Vannini's Allegedly Materially Misleading Public
------------------------------------------------
Statements
----------
16. Vannini denies every allegation in paragraph 16 of the first amended
complaint.
(a) Vannini lacks information and knowledge sufficient to form a
belief as to the truth of allegations in paragraph
4
<PAGE>
16(a), and therefore, Vannini denies the allegations made in that paragraph.
Vannini also asserts that the article cited in this subparagraph was not in law
or in fact part of any "de facto" proxy solicitation and, upon information and
belief, asserts that the article merely summarized the Schedule 13D that had
been filed with the SEC on July 17, 1998.
(b) Vannini lacks information and knowledge sufficient to form a
belief as to the truth of allegations in paragraph 16(b), and therefore, Vannini
denies the allegations made in that paragraph. Vannini also asserts that the
article cited in this subparagraph was not in law or in fact part of any "de
facto" proxy solicitation.
(c) Vannini lacks information and knowledge sufficient to form a
belief as to the truth of allegations in paragraph 16(c), and therefore, Vannini
denies the allegations made in that paragraph. Vannini also asserts that the
article cited in this subparagraph was not in law or in fact part of any "de
facto" proxy solicitation.
(d) Vannini lacks information and knowledge sufficient to form a
belief as to the truth of allegations in paragraph 16(d), and therefore, Vannini
denies the allegations made in that paragraph. Vannini also asserts that the
article cited in this subparagraph was not in law or in fact part of any "de
facto" proxy solicitation.
(e) Vannini lacks information and knowledge sufficient to form a
belief as to the truth of allegations in paragraph 16(e), and therefore, Vannini
denies the allegations made in that paragraph. Vannini also asserts that the
article cited in the
5
<PAGE>
subparagraph was not in law or in fact part of any "de facto" proxy
solicitation, and, upon information and belief, asserts that the article merely
summarized the contents of a Schedule 13D amendment filed on August 3, 1998.
(f) Vannini lacks information and knowledge sufficient to form a
belief as to the truth of allegations in paragraph 16(f), and therefore, Vannini
denies the allegations made in that paragraph. Vannini also asserts that the
article cited in this subparagraph was not in law or in fact part of any "de
facto" proxy solicitation, and, upon information and belief, asserts that the
article merely summarized the contents of a Schedule 13D amendment filed on
August 3, 1998.
(g) Vannini avers that the allegations in paragraph 16(g) consist of
conclusions of law and seek to characterize Section 13 of the Securities
Exchange Act, which statute speaks for itself, and therefore, no response is
required. Vannini admits that he issued a press release on the evening of August
13, 1998, after trading in the markets had closed for the day, and that the
release speaks for itself, and merely summarized the contents of a preliminary
proxy statement on Schedule 14A filed with the SEC on the morning of August 14,
1998. Vannini asserts that the press release was not in law or in fact part of a
"de facto" proxy solicitation, and denies all other allegations with respect to
the release.
(h) Vannini admits that he issued a press release on August 27, 1998.
Vannini avers that the press release speaks for itself, and therefore, except as
expressly admitted or averred, no response to paragraph 16(h) is required.
Vannini asserts that the
6
<PAGE>
release was not in law or in fact part of a "de facto" proxy solicitation.
17. Vannini lacks knowledge or information as to what Coastcast's beliefs
actually are, and therefore, Vannini denies the allegations made in paragraph
17. Vannini denies that he has made or will make material misstatements of fact
or omit material facts in actual or future communications with Coastcast
shareholders. Additionally, paragraph 17 consists of a legal conclusion.
Accordingly, beyond that expressly admitted or denied, no response is required.
C. Vannini's Alleged Materially Misleading Proxy Material
------------------------------------------------------
18. Vannini admits that on or about August 14, 1998, he filed preliminary
proxy materials with the SEC. Vannini also admits that on August 28, 1998, he
filed an amendment to those proxy materials. Except as expressly admitted,
Vannini denies the allegations in paragraph 18.
19. Vannini denies each and every allegation in paragraph 19.
D. Vannini's Alleged Bad Faith Litigation Tactics
----------------------------------------------
20. Vannini admits that Coastcast's complaint, filed on August 13, 1998,
contained claims for injunctive and declaratory relief, based on purported
violations of the federal securities laws. Except as expressly admitted, Vannini
denies each and every allegation contained in paragraph 20.
21. Vannini admits the allegations in paragraph 21.
22. Vannini avers that paragraph 22 consists of legal conclusions and
characterizations of federal and state law, and
7
<PAGE>
therefore, no response is required. Vannini is without information or knowledge
concerning the amount Coastcast expended in state court litigation, and
therefore, denies that particular allegation in paragraph 22. Except as
expressly admitted, Vannini denies each and every allegation of paragraph 22.
E. Vannini's Alleged Refusal to Answer Coastcast's
------------------------------------------------
Questions Regarding The Source of His Funds And His
---------------------------------------------------
Educational Background
----------------------
23. Vannini avers that paragraph 23 consists of legal conclusions and
characterizes the California Corporations Code, and to that extent, no response
is required. Vannini admits that on August 28, 1998, Cede & Co. executed a
letter calling for a special shareholders' meeting to be held on October 26,
1998. Beyond that expressly averred or admitted, Vannini denies the allegations
in paragraph 23.
24. Vannini admits that the plaintiff made inquiries of Smith Barney, Inc.
but beyond that, Vannini lacks information or knowledge sufficient to form a
belief concerning the truth of the allegations in paragraph 24, and therefore,
except for that expressly admitted, Vannini denies the allegations in paragraph
24.
25. Vannini admits that he and his counsel advised Smith Barney not to
divulge confidential client information and also advised Smith Barney concerning
the automatic stay in discovery applicable under the Private Securities
Litigation Reform Act ("Reform Act"). Vannini admits that he and his attorney
denied that Vannini had failed to make proper disclosures. Beyond that expressly
admitted, Vannini lacks information or belief concerning
8
<PAGE>
the ease or difficulty of answering Coastcast's questions, and therefore, denies
this particular allegation in paragraph 25. Except as expressly admitted,
Vannini denies each and every allegation in paragraph 25.
26. Vannini admits that he filed a motion to dismiss Coastcast's
complaint, and that through his counsel advised Smith Barney of the automatic
stay in discovery applicable under the Reform Act. Except as expressly admitted,
Vannini denies each and every allegation of paragraph 26.
27. Vannini admits that counsel to Coastcast and counsel to Vannini had
discussions concerning Coastcast's request for information, but denies the
characterization of those discussions contained in paragraph 27. Vannini lacks
information or knowledge concerning the simplicity or difficulty of Coastcast's
questions, and on that basis, Vannini denies the allegations in paragraph 27.
Except as expressly admitted, Vannini denies each and every allegation of
paragraph 27.
28. Vannini admits that Coastcast served subpoenas on UCLA and Columbia,
but Vannini lacks information or knowledge concerning the motivations for
Coastcast's doing so. Except as expressly admitted, Vannini denies each and
every allegation in paragraph 28.
29. Vannini admits that Vannini's counsel advised UCLA and Columbia of the
applicability of the automatic stay in discovery under the Reform Act. Vannini
denies the characterization of discussions between counsel for Coastcast and
counsel for Vannini contained in paragraph 29. Except as expressly admitted,
Vannini denies each and every allegation contained in paragraph 29.
9
<PAGE>
30. Vannini admits that his counsel had a conference call with the Court
on or about November 15, 1998, but denies the characterization of the statements
contained in paragraph 30.
31. Vannini admits that Coastcast asserts that it had inspected documents
produced by UCLA. Vannini lacks information or knowledge sufficient to form a
belief concerning the truth of the allegations in paragraph 31, and on that
basis, except to the extent expressly admitted, Vannini denies the allegations
in paragraph 31.
32. Vannini lacks knowledge or information sufficient to form a belief
concerning the truth of allegations made in paragraph 32, and on that basis,
Vannini denies the allegations in paragraph 32.
FIRST CLAIM FOR RELIEF
----------------------
(INJUNCTIVE RELIEF FOR VIOLATIONS OF
SECTION 13(d) OF THE EXCHANGE ACT (15 U.S.C. (S) 78m)
AND REGULATIONS PROMULGATED THEREUNDER
33. Vannini admits that Coastcast purports in this paragraph to reallege
and incorporate by reference the allegations contained in paragraphs 1 through
32 above. Vannini realleges and incorporates by reference his responses to
paragraphs 1 through 32 above. Except as expressly admitted, Vannini denies each
and every allegation contained in paragraph 33.
34. Vannini avers that paragraph 34, along with its subparagraphs, consist
of legal conclusions and characterizations of Section 13(d) of The Exchange Act,
which statute speaks for itself, and therefore, no response is required to these
legal conclusions. Coastcast purports to describe or cite statements or
10
<PAGE>
disclosures by Vannini. Vannini asserts that these statements and disclosures
speak for themselves, and denies the inferences, conclusions and
characterizations concerning these statements and disclosures contained in
paragraph 34. Vannini lacks sufficient knowledge and information to respond to
the allegation contained in paragraph 34(d) that John Rehfield has been sued,
and therefore denies that allegation. Vannini denies each and every allegation
that his statements and disclosures were materially false and misleading, or
failed to conform to SEC rules or disclosure requirements. In particular,
Vannini denies that he is acting on behalf of a group of investors, that he has
undisclosed financial backers, or that he has failed to disclose adequately his
intent or purpose in acquiring Coastcast stock.
35. Vannini responds to the allegations in paragraph 35 as follows:
(a) Vannini admits that he does not have as of this date an
undergraduate degree from UCLA.
(b) Vannini denies that he does not hold a degree from Columbia
University. Vannini lacks information or knowledge concerning Columbia's website
or its alumni directory, and therefore, to the extent not expressly admitted,
Vannini denies the allegations in paragraph 35(b).
(c) Vannini avers that paragraph 34(c) consists of legal conclusions
and characterizations of state and federal law, and therefore, no response is
required. Except as expressly admitted, Vannini denies each and every allegation
in paragraph 35(c).
11
<PAGE>
(d) Vannini admits that he included revocation of amendments to two
stock option plans as matters to be considered at a special shareholders'
meeting. The second sentence contains a conclusion of law as to whether the
amendments could not be reinstated without shareholder approval, and therefore
Vannini is not required to respond to this allegation. Vannini lacks information
or knowledge sufficient to form a belief as to whether Coastcast actually
believes what, in paragraph 35(d), it claims to believe, and on that basis,
Vannini denies each and every allegation in paragraph 34(d) that he has not
expressly admitted.
36. Vannini denies each and every allegation contained in paragraph 36.
37. Vannini denies each and every allegation in paragraph 37.
38. Vannini denies each and every allegation contained in paragraph 38.
SECOND CLAIM FOR RELIEF
-----------------------
(INJUNCTIVE RELIEF FOR VIOLATIONS OF
SECTION 14(a) OF THE EXCHANGE ACT (15 U.S.C. (S) 78n)
AND REGULATIONS PROMULGATED THEREUNDER
39. Vannini admits that Coastcast purports to reallege and incorporate by
reference the allegations contained in paragraphs 1 through 38 above. Vannini
realleges and incorporates by reference his responses to paragraphs 1 through 38
above. Except as expressly admitted, Vannini denies each and every allegation of
paragraph 39.
40. Vannini avers that paragraph 40 consists of legal conclusions and
characterizations of Section 14(a) of The Exchange
12
<PAGE>
Act, and therefore, no response is required to these allegations. Except as
expressly admitted, Vannini denies each and every allegation of paragraph 40.
41. Vannini responds to the allegations in paragraph 41 as follows:
(a) Vannini admits that he has represented that he received degrees
from UCLA and Columbia University. Vannini lacks information or knowledge
sufficient to form a basis of belief concerning whether Coastcast is informed or
believes that Vannini's representations were false, and on that basis, Vannini
denies the allegations in paragraph 41(a), to the extent that he has not
expressly admitted those allegations.
(b) Vannini admits that he has represented that he acquired Coastcast
stock with his personal funds. Vannini lacks information or knowledge sufficient
to form a basis of any belief concerning the deduction plaintiff claims, and on
that basis, Vannini denies the allegations in paragraph 41(b), to the extent
that he has not expressly admitted those allegations.
(c) Vannini admits that he is seeking to increase shareholder value.
Vannini lacks information or knowledge sufficient to form the basis of a belief
concerning whether Coastcast is informed or believes what it claims in paragraph
41(c), and on that basis, Vannini denies the allegations in paragraph 41(c), to
the extent that he has not expressly admitted those allegations.
(d) Vannini denies the allegations in paragraph 41(d).
(e) Coastcast purports to characterize a representation by Vannini
concerning the election of directors. Such
13
<PAGE>
representation speaks for itself, and Vannini denies Coastcast's
characterization of that representation. Vannini denies each and every
allegation contained in paragraph 41(e).
(f) Vannini admits including the two agenda items referred to in
paragraph 41(f) for a shareholder vote. The statement that those items are moot
is a conclusion of law to which no response is required, and that basis, Vannini
denies the allegation. Vannini also lacks information or knowledge sufficient to
form a basis for belief concerning the legal effect, if any, of Coastcast's
public announcements, the applicable rules of the New York Stock Exchange, and
the need to inform shareholders concerning a vote on the two agenda items. On
that basis, Vannini denies the allegations concerning Coastcast's purported
public statements, applicable stock exchange rules, and the need to inform
shareholders. Except as expressly admitted, Vannini denies each and every
allegation in paragraph 41(f).
(g) Vannini admits that his proxy materials include the alleged
statement, but denies Coastcast's characterization of that statement. Except as
expressly admitted, Vannini denies each and every allegation contained in
paragraph 41(g).
(h) Vannini lacks information or knowledge sufficient to form a basis
for belief concerning the truth of the allegation made in paragraph 41(h), and
on that basis, Vannini denies the allegation.
(i) Vannini avers that "shareholder of record" is a legal conclusion
and characterization of state and federal law, and therefore, Vannini is not
required to respond to that
14
<PAGE>
allegation. Except as expressly admitted, Vannini denies each and every
allegation contained in paragraph 41(i).
(j) Vannini denies each and every allegation contained in paragraph
41(j) that Vannini has violated the proxy rules. Vannini admits that Coastcast
purports to describe Vannini's proposed proxy card which speaks for itself, and
denies Coastcast's characterization of that card. Except as expressly admitted,
Vannini denies each and every allegation contained in paragraph 41(j).
(k) Vannini avers that the allegation made in paragraph 41(k)
concerning a vote on the removal of directors is a legal conclusion, and
therefore, Vannini need not respond to paragraph 41(k). Except as expressly
admitted, Vannini denies each and every allegation contained in paragraph 41(k).
(l) Vannini admits that Coastcast purports to characterize Vannini's
disclosures in his preliminary proxy statement, which speaks for itself, and on
that basis, denies the allegations in paragraph 41(l).
(m) Vannini admits that Coastcast purports to characterize Vannini's
disclosures in his preliminary proxy statement, which speaks for itself, and on
that basis, denies the allegations contained in paragraph 41(m).
(n) Vannini avers that the allegations in paragraph 41(n) consist of
legal conclusions and characterizations of California law, and therefore,
Vannini is not required to respond to these allegations. Except as expressly
admitted, Vannini denies each and every allegation contained in paragraph 41(n).
15
<PAGE>
42. Vannini avers that allegations of materiality in paragraph 42 are
conclusions of law, and therefore, Vannini is not required to respond to those
allegations. Vannini denies each and every allegation of paragraph 42 to the
extent it asserts that the description of the background of Vannini's nominees
for election to Coastcast's Board of Directors omitted material information.
(a) Vannini admits that certain tax liens were assessed and released
against him. Vannini lacks information or knowledge sufficient to form the basis
of any belief concerning the significance of the release of such liens, and on
that basis, Vannini denies the allegations in paragraph 42(a), except to the
extent that he has expressly admitted them.
(b) Vannini admits the allegation made in paragraph 42(b).
(c) Vannini admits that lawsuits were filed against him related to
student loans, and further asserts that these suits are no longer pending.
(d) Vannini lacks information or knowledge sufficient to form any
basis of belief concerning the truth of allegations made in paragraph 42(d), and
on that basis, Vannini denies the allegations.
(e) Vannini lacks information or knowledge sufficient to form any
basis of belief concerning the truth of allegations made in paragraph 42(e), and
on that basis, Vannini denies the allegations.
43. Vannini denies each and every allegation contained in paragraph 43.
16
<PAGE>
44. Vannini denies each and every allegation contained in paragraph 44.
45. Vannini admits that Coastcast seeks and injunction. Except as
expressly admitted, Vannini denies each and every allegation in paragraph 45.
THIRD CLAIM FOR DECLARATORY RELIEF
----------------------------------
(DECLARATORY RELIEF)
46. Vannini admits that Coastcast purports to reallege and incorporate by
reference the allegations in paragraphs 1 through 45 above. Vannini realleges
and incorporates by reference his responses to paragraphs 1 through 45 above.
Except as expressly admitted, Vannini denies each and every allegation contained
in paragraph 46.
47. Vannini admits that Coastcast asserts that there exists a controversy
relating to the parties' respective rights and duties as set forth in paragraph
47. Vannini avers that the remaining allegations in paragraph 47 are legal
conclusions or characterizations of federal and state law, and no response to
these allegations is required. Except as expressly admitted, Vannini denies each
and every allegation contained in paragraph 47.
48. Vannini admits that Coastcast asserts that it desires a judicial
determination of what it perceives are rights and duties under applicable law,
and that it seeks the declaration set forth in paragraph 48. Except as expressly
admitted, Vannini denies each and every allegation contained in paragraph 48.
49. Vannini avers that the allegation in paragraph 49 consists of a legal
conclusion, and therefore, Vannini need not
17
<PAGE>
respond to paragraph 49. Except as expressly admitted, Vannini denies each and
every allegation contained in paragraph 49.
AFFIRMATIVE DEFENSES
--------------------
First Affirmative Defense
-------------------------
The Complaint fails to state a claim upon which relief can be granted.
Second Affirmative Defense
--------------------------
The Complaint violates Section 21D(b)(1) of The Private Securities
Litigation Reform Act of 1995, 15 U.S.C. (S) 78uD(b)(1), because the allegations
are not plead with sufficient particularity.
Third Affirmative Defense
-------------------------
The Complaint violates Rule 9(b) of the Federal Rules of Civil Procedure
because the allegations are not plead with sufficient particularity.
Fourth Affirmative Defense
--------------------------
The complaint fails to set forth or show the equitable prerequisites to
injunctive relief.
Fifth Affirmative Defense
-------------------------
This action is barred in whole or in part by the equitable doctrine of
unclean hands.
Sixth Affirmative Defense
-------------------------
Many, if not all, of the claims and allegations are moot, and therefore
should be dismissed.
COUNTERCLAIMS
-------------
50. Pursuant to Rule 13(a) of the Federal Rules of Civil Procedure, and
without waiving any defenses set forth in his Answers and Defenses, Jonathan
Vannini ("Vannini") makes the
18
<PAGE>
following counterclaims against counter defendant Coastcast Corporation
("Coastcast").
51. Vannini makes these allegations based upon information and belief and
investigation of counsel, including a review of documents filed by Coastcast
with the SEC, press releases issued by Coastcast, representations by counsel to
Coastcast, as well as articles and information available through the media.
JURISDICTION & VENUE
--------------------
52. This Court has jurisdiction over these counterclaims under the
principle of ancillary jurisdiction because the claims arise out of the same
transaction or occurrence as the claims in Coastcast's complaint. 28 U.S.C. (S)
1367(a). Jurisdiction also exists under Section 27 of the Securities and
Exchange Act of 1934 as amended, 15 U.S.C. (S) 78aa ("Exchange Act"), 28 U.S.C.
(S)(S) 1331 and 1337. The counterclaims arise under Section 10(b) of the
Exchange Act, 15 U.S.C. (S) 78j, and Rule 10b-5 promulgated thereunder, 17
C.F.R. (S) 240.10b-5; under Section 14 of the Exchange Act, 15 U.S.C. (S)(S) 78n
and the rules and regulations promulgated thereunder; under Section 20A of the
Exchange Act, 15 U.S.C.(S) 78tA; and under California Corporations Code Sections
25401 and 25402.
53. Venue for these counterclaims is proper in the United States District
Court for the Central District of California, pursuant to 28 U.S.C. (S) 1391 and
principles of ancillary venue.
THE PARTIES
-----------
54. Jonathan Vannini is domiciled in and a resident of Hillsborough,
California. He is a private investor and beneficial
19
<PAGE>
owner of 911,000 shares of Coastcast's common stock. These shares are held in an
account at Salomon Smith Barney, Inc. ("SSB").
55. Coastcast is a California corporation. Its principal executive offices
are located at 3205 East Victoria Street, Rancho Dominguez, California.
56. Coastcast manufactures, markets and sells golf clubheads and a variety
of investment-cast orthopedic implants and surgical tools. Coastcast conducted
an initial public offering of common stock in December 1993 at $16 per share.
The common stock of Coastcast is listed for trading on the New York Stock
Exchange. The closing price of Coastcast's common stock on October 2, 1998 was
$8 1/2 per share, a more than 40% decline from the initial offering price,
representing the degree to which the current Board of Directors has mismanaged
the Company. Indeed, on October 5, 1998, the stock price traded below $8 per
share.
57. Hans Buehler was one of the founders of Coastcast and has been the
Chairman of the Board of Directors of Coastcast since the Company's inception
since 1980. Through December 31, 1997, he was also the Chief Executive Officer
of Coastcast. Buehler still effectively controls Coastcast and determines
management policy.
58. Coastcast has paid excessive compensation in the form of stock options
and other benefits while providing shareholders with a negative cumulative
return on investment since the Company's initial public offering in December
1993. In particular, Coastcast has paid Hans Buehler the chairman of its Board
of Directors, millions of dollars in cash and by Coastcast's own admission at
least 372,500 options on the Company's stock during the past three years, even
though Buehler owned more than 14% of the Company's
20
<PAGE>
stock and did not need incentives in the form of additional equity. In addition,
nearly 300,000 options were repriced in late 1997 to ensure that they would be
"in the money" although the stock price had barely risen above the offering
price at this point, and has since fallen by more than 40% below the offering
price.
VANNINI'S STOCK PURCHASES
-------------------------
59. Starting in September 1997, Vannini began purchasing Coastcast stock
because he believed that Coastcast was a fundamentally sound company whose stock
price had been depressed because of poor management practices. As of January 30,
1998, Vannini held approximately 125,000 shares, and as of June 22, 1998, he
held approximately 300,000 shares. Vannini purchased approximately 300,000
shares of Coastcast stock between June 22, 1998 and July 17, 1998. In purchasing
Coastcast stock, Vannini relied on the integrity of the marketplace to ensure
that the stock price accurately reflected the information provided by Coastcast
to the market. On or about July 17, 1998, Vannini filed a Schedule 13D with the
SEC. The Schedule 13D disclosed that, among other things, Vannini was the
beneficial owner of 600,000 shares of Coastcast common stock, amounting to
approximately 6.6% of the outstanding shares, and that the source of the funds
to purchase the stock was Vannini's personal funds.
60. The Schedule 13D disclosed that Vannini had acquired the Coastcast
shares as an investment in order (a) to obtain an equity position in the issuer
whose common stock Vannini believed was presently undervalued; and (b) to
maximize the value of that investment. The Schedule 13D stated that Vannini
believed that the
21
<PAGE>
undervaluation of Coastcast stock was in part the result of certain policies and
practices of the Company's management, including without limitation the policies
and practices related to the compensation and stock options granted to the
chairman of the board of directors. The Schedule 13D stated that Vannini had the
present intention to influence control of the Company, and that he reserved the
right to acquire, or dispose of, additional securities of the Company. The
Schedule 13D further stated that Vannini planned to exercise influence in order
to change the compensation and/or membership of the present board of directors;
to exercise influence in order to persuade the Company to adopt a stock
repurchase program; and to contact the Company and/or shareholders regarding
these and other potential strategies to increase shareholder value.
61. From on or about July 23, 1998 through July 29, 1998, Vannini acquired
additional shares of Coastcast common stock. Vannini relied on the integrity of
the marketplace to ensure that the stock price accurately reflected the
information that Coastcast disseminated into the market. On July 29, 1998,
Vannini filed Amendment No. 1 to the Schedule 13D with the SEC. The Amendment
disclosed that Vannini was the beneficial owner of 891,000 shares of Coastcast
stock, which amounted to approximately 9.9% of the outstanding shares. The
Amendment No. 1 contained the same disclosure concerning Vannini's effort to
exert influence and control over Coastcast as the initial Schedule 13D.
22
<PAGE>
COASTCAST'S FALSE AND MISLEADING STATEMENTS
--------------------------------------------
CONCERNING THE ANNUAL SHAREHOLDERS MEETING
------------------------------------------
62. Coastcast's annual meeting of shareholder was scheduled to take place
on June 22, 1998. At that meeting, the Company's shareholders were supposed to
vote on four proposals. The first proposal was to elect seven directors to serve
one-year terms ("Proposal 1"). The second proposal sought shareholder approval
to amend the 1996 employee stock option plan to reserve 500,000 additional
shares for use as options ("Proposal 2"). The third proposal sought shareholder
approval to amend the 1995 non-employee director stock option plan to reserve
200,000 additional shares and to increase to 20,000 from 10,000 the number of
shares subject to options annually granted to each director ("Proposal 3"). The
fourth proposal sought approval of Deloitte & Touche LLP as the Company's
outside auditors ("Proposal 4").
63. Proposals 2 and 3 would have substantially enriched the amount of
equity granted to Coastcast's officers and directors, despite the gross under
performance of Coastcast's stock and the lack of shareholder return on
investment.
64. On June 23, 1998, Coastcast issued a press release announcing the
"adjournment" of the annual shareholders meeting following election of directors
and the approval of the auditors, but before voting on Proposals 2 and 3. The
release stated that the annual meeting was being adjourned until July 8, 1998
"to allow more time for shareholders to vote on amendments" to the stock option
plans "because a substantial number of shares had not been voted on these
matters."
23
<PAGE>
65. The release was materially false and misleading, because in fact a
substantial number of shares had been voted and a quorum was present. The only
reason that the Company adjourned the shareholders meeting was because at least
one of the proposals to amend the stock option plans would have been defeated
had the vote actually been conducted.
66. Since July, Vannini requested that Coastcast provide the results of
the proxy tabulation on Proposals 2 and 3 as of June 22, 1998. Coastcast
continually rejected these requests. Finally, in a letter dated August 28, 1998,
Robert Goon, counsel for Coastcast, admitted that based on the proxy tabulation
as of June 22, 1998, "had the amendments of the two stock option plans been
voted on by the shareholders on June 22 . . . the amendment of the non-employee
directors stock option plan [Proposal 3] would not have been approved."
FAILURE TO DISCLOSE PROXY SOLICITOR
-----------------------------------
67. SEC rules require that a company provide notice to shareholders
concerning the use of a solicitor to obtain proxies. In particular, Item 4(a)(3)
of Schedule 14A requires that if a solicitation is to be made by specially
engaged employees or paid solicitors, the proxy must state the material features
of any contract or arrangement for such solicitation and identify the parties;
and the anticipated cost thereof.
68. Coastcast's Upon information and belief, Coastcast obtained a proxy
solicitor in an effort to obtain sufficient shareholder votes to ensure approval
of Proposals 2 and 3 at the July 8, 1998 shareholder meeting.
24
<PAGE>
69. The use of a proxy solicitor required Coastcast to disseminate a new
proxy solicitation to shareholders in connection with the July 8, 1998 meeting,
in order to satisfy the requirements of Item 4(a)(3) of Schedule 14A. In fact,
in violation of SEC proxy rules, Coastcast did not disseminate to its
shareholders a new proxy solicitation in connection with the July 8, 1998
meeting disclosing that a proxy solicitor had been obtained for the purpose of
obtaining sufficient votes to approve Proposals 2 and 3.
70. On July 21, 1998, Coastcast issued a release announcing the approval
by shareholders at the July 8, 1998 meeting of Proposals 2 and 3. The release
also stated that the Board of Directors had decided not to implement either
Proposal because of shareholder opposition, but left open the possibility that
the Proposals could be implemented in the future.
71. On August 6, 1998, Coastcast announced that the Board of Directors had
voted to rescind Proposals 2 and 3. Coastcast has entered into a Stipulation
with Vannini that has been filed with the Court providing that Coastcast will
not revive either amendment to the stock option plans without shareholder
approval. Coastcast would not have agreed to rescind Proposals 2 and 3 and
promise not to revive them without shareholder approval had not it been for the
opposition of Vannini and other shareholders.
VANNINI'S DISCUSSIONS WITH COASTCAST
------------------------------------
72. As discussed above, Vannini held approximately 300,000 shares of
Coastcast common stock at the time of the June 22, 1998 shareholders meeting.
Vannini believed that Proposals 2 and 3 were not in the best interests of
shareholders and provided unjustified
25
<PAGE>
compensation to the Company's directors. Vannini believed that Coastcast was
still a fundamentally sound company whose stock was undervalued because of poor
management practices, and decided to purchase additional stock given that the
stock was now trading in the $17-$18 per share range, compared to a trading
range in the $20's earlier in the year. Vannini, however, believed that as a
major shareholder he had the right and responsibility to seek changes in
management practices that he believed were not in the shareholders' best
interest. On July 1, 1998, Vannini wrote a letter to Coastcast and its Board of
Directors assailing the "adjournment" of the annual shareholders meeting and
requesting that Coastcast publish the results of the shareholders' vote on
Proposals 2 and 3. The letter also requested that Coastcast eliminate the
excessive compensation in the form of cash and options that was being provided
to Buehler and other directors. Coastcast failed to take any action in response
to that request.
73. On July 22, 1998, Vannini wrote a letter to Coastcast and its Board of
Directors stating that the Company should take measures to increase its stock
price, which had now dropped to $15 per share, which meant that the cumulative
return to shareholders since the initial public offering was negative. Noting
that Coastcast had approximately $35 million in cash on its balance sheet and
could, by the admission of the Company's Chief Financial Officer, prudently
operate with $5 million in cash, the letter recommended that the Company
implement a stock repurchase program to increase shareholder value. The letter
specifically stated that Vannini did not intend to offer his own Coastcast
common stock for sale in connection with this repurchase.
26
<PAGE>
74. On or about July 30, 1998, Vannini met with certain of Coastcast's
officers and directors to discuss his proposals for the Company. At that
meeting, Vannini reiterated his proposals for a stock repurchase program and a
reduction in the compensation being provided to Buehler and other directors.
Coastcast indicated at this meeting that it would not accept Vannini's
proposals.
75. On July 31, 1998, Vannini, through his counsel, sent a letter to
Buehler calling a special meeting of Coastcast shareholders to be held on
September 22, 1998. Vannini proposed, among other things, that the special
meeting elect a new Board of Directors who would serve until the next annual
meeting of shareholders.
76. In a separate letter sent to Buehler through counsel on July 31, 1998,
Vannini demanded that Coastcast make available to him for inspection and copying
the Company's shareholders' records and the voting record for Proposals 2 and 3
at the June 22, 1998 shareholder meeting.
77. The Company rejected these demand letters on the ground that Vannini
was not a "shareholder of record" and therefore was not entitled to make these
demands under California law.
78. On August 3, 1998, Vannini filed with the SEC Amendment No. 2 to the
Schedule 13D, disclosing that he had made an additional investment of $220,000
in shares of Coastcast common stock. Vannini purchased this stock in reliance on
the integrity of the market to ensure that the stock price accurately reflected
the information that Coastcast had disseminated to the market. Together with his
prior investment, Amendment No. 2 reported that Vannini held beneficial
ownership of 911,000 shares of Coastcast
27
<PAGE>
common stock, which constituted approximately 10.12% of the outstanding shares.
Amendment No. 2 repeated the disclosures in the prior filings on Schedule 13D
concerning Vannini's intention to exercise influence and control over Coastcast.
The Amendment No. 2 also disclosed that Vannini had called for a special meeting
of shareholders and described the business that would be conducted at the
special meeting.
VANNINI'S FILING ON SCHEDULE 14A
--------------------------------
79. On August 14, 1998, Vannini filed a Non-management Preliminary Proxy
Statement with the SEC on Schedule 14A ("Proxy"). The Proxy proposed a new slate
of directors to replace four of the seven current directors of Coastcast at a
special meeting of the shareholders proposed for September 22, 1998. The Proxy
provided information concerning the identities and background of Vannini's
proposed nominees for the Board of Directors. The Proxy further stated Vannini's
belief that the election of his proposed nominees, and the adoption of the other
proposals set forth in the Proxy, represented the best means for Coastcast
shareholders to support a focused effort to improve shareholder value.
80. On August 14, 1998, Vannini filed Amendment No. 3 to his Schedule 13D,
which disclosed that he had filed a Preliminary Proxy Statement on Schedule 14A,
and summarized its contents.
DEMAND LETTERS BY CEDE & CO.
----------------------------
81. Vannini did not agree with Coastcast that he could not call a special
meeting of shareholders or demand the Company's shareholder list because he was
not a "shareholder of record." Nonetheless, in order to address Coastcast's
objections, on August
28
<PAGE>
21, 1998, Cede & Co. ("Cede"), at the request of SSB and on behalf of Vannini,
signed two written demand letters which were transmitted to Coastcast by counsel
to Vannini. Cede is the nominee of Depository Trust Company ("DTC"), which is
the shareholder of record of most of the outstanding shares of common stock in
the United States, held in "street name." The shares held by SSB on behalf of
Vannini are held in an account at DTC.
82. One letter from Cede demanded the right pursuant to California
Corporations Code Section 1600 to inspect and copy Coastcast's shareholder
records. The other letter called a special meeting of shareholders to be held on
September 22, 1998.
COASTCAST'S MISLEADING STATEMENT ON STOCK REPURCHASE PROGRAM
------------------------------------------------------------
83. As a result of the demand letters from Cede, Coastcast's management
realized that it was inevitable that the Company would be required to hold a
special shareholders' meeting. Coastcast's management also realized that
Vannini's proposal for a stock repurchase program was a sound idea and would be
attractive to shareholders, and therefore would increase the likelihood that
Vannini would succeed in electing his nominees to the Board of Directors.
84. Accordingly, in an effort to undermine and oppose Vannini's efforts to
attract shareholder support at the anticipated special shareholders' meeting,
Coastcast management decided to issue a public announcement stating that it had
initiated a stock repurchase program. This release was a de facto proxy
solicitation, because it was plainly intended as a communication with Coastcast
shareholders that would lead to the
29
<PAGE>
procurement of proxies in support of Coastcast's present Board of Directors and
in opposition to Vannini's nominees.
85. Therefore, on August 26, 1998, Coastcast issued a press release
touting the fact that it had initiated a stock repurchase program. The number of
shares that supposedly would be repurchased was far short of the 2 million
shares that Vannini had proposed for a stock repurchase program.
86. Coastcast's August 26 release stated that the Board of Directors had
authorized the purchase of 925,400 shares of its common stock from an
institutional investor. This statement was materially false and misleading
because it failed to disclose the true reason that Coastcast had purchased stock
from this investor.
87. The institutional investor in question is a firm managed by Jeffrey
Gendel, who has a history of shareholder activism. Gendel is the sole general
partner of the firm. Gendel's firm held slightly under 10% of the outstanding
Coastcast common stock. Coastcast believed that Gendel was unhappy with
management practices, including the excessive compensation provided to the
Directors. Coastcast's management was afraid that Gendel, given his history of
shareholder activism, might support Vannini's nominees for election to the
Board. It was for that reason that Coastcast decided to offer to purchase all of
---
the shares managed by Gendel, and not the shares held by any other investor. In
addition, Coastcast paid a premium over the market price for the shares held by
Gendel's firm, which thus constituted "greenmail" by Coastcast. These material
facts were omitted from the August 26, 1998 press release.
30
<PAGE>
88. The August 26, 1998 press release also stated that Coastcast "has
prior approval to purchase an additional 560,000 shares of stock, which it is
actively pursuing in the open market." This statement was materially false and
misleading, because, upon information and belief, Coastcast has not been
"actively pursuing" the repurchase of 560,000 shares in the open market. On
October 25, 1995, the Board of Directors had authorized the purchase of up to
one million shares of common stock from time to time in the open market or
negotiated transactions. The 560,000 shares referred to in the August 26, 1998
release was merely the number of shares remaining from the 1995 authorization.
Upon information and belief, Coastcast has not repurchased shares in an amount
close to 560,000 shares, even though the stock price has fallen since August 26,
which would make the proposed repurchase less expensive to the Company than at
the time of the release.
89. The announcement that the Company was "actively pursuing" a stock
repurchase program was a materially false and misleading statement disseminated
solely to convince Coastcast shareholders that the Company was at least in part
adopting Vannini's proposals to increase shareholder value, in order to induce
shareholders to support the present management at the anticipated special
shareholders' meeting.
BUEHLER'S RETIREMENT PROGRAM
----------------------------
90. Upon information and belief, Coastcast has provided Buehler with
lavish retirement benefits that have not been disclosed to Coastcast shareholder
or the investing public.
31
<PAGE>
91. Under this program, approximately $5 million in cash has been used
over the last three years in connection with Buehler's retirement plan. This
amount constitutes an astounding 13.5% of the Company's after-tax profit, an
enormous percentage to be dedicated to the retirement benefits for one
individual. The funds have been used to purchase an insurance contract. The
interest paid out on the insurance contract is used to help fund Buehler's
retirement program.
92. This retirement program for Buehler is not adequately disclosed in the
Company's public disclosures. For example, the funding of the retirement program
is not included as an operating expense, which would reduce the Company's
reported earnings. Instead, the Company includes the funding of the retirement
program in the category "other assets."
93. The financial statements included in Coastcast's Annual Report on Form
10-K for the year ended December 31, 1997 report that this line item was
approximately $4.1 million. Buried in a footnote in the financial statements is
a reference to the fact that the Company had adopted a supplemental executive
retirement program for certain key employees, and that to partially fund the
plan, the Company purchases whole-life insurance contracts on the related
participants. The footnote further stated that the cash surrender value of these
policies is in an irrevocable trust and is presented as an asset of the Company
in the "other assets" category. The footnote stated that deferred compensation
expense under the supplemental executive retirement plan was $1,176,000 and
$438,000 in 1997 and 1996, respectively.
32
<PAGE>
94. This footnote, which few shareholders or even professional analysts
would read and/or understand, did not provide adequate disclosure of the nature
and amount of the lavish retirement benefits being conferred on Buehler. Indeed,
the entire purpose of including the funding for the retirement program in the
"other asset" category, and burying any disclosure in a footnote was to conceal
the true nature and amount of cash being set aside for Buehler's retirement.
There was also no disclosure that Company intends to spend $2 million per year
for the next two to three years funding Buehler's retirement program, which will
constitute 13% to 15% of the Company's expected after-tax profits.
95. The financial statements released for the quarter ended June 30, 1998,
disclosed that the "other assets" category had increased to approximately $5.4
million, from $4.1 million as of December 31, 1997. In fact, the Company spent
approximately $1.2 million in the first six months of 1988 on the Buehler's
retirement program. There has been no disclosure of that fact in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
96. Similarly, the Company's Proxy Statement disseminated in connection
failed to disclose the true amount and nature of the compensation being provided
to Buehler. Item 8 of Schedule 14A requires disclosure of the information
required by Item 402 of Regulation S-K if action is to be taken with respect to
the election of directors or any bonus, profit sharing or other compensation
plan, contract or arrangement in which any director, nominee for election of
director, or executive officer of the registrant will participate. Coastcast's
definitive proxy
33
<PAGE>
dissemination to shareholders in connection with the 1998 annual shareholders
meeting failed to conform to the requirements of Item 402 of Regulation S-K, and
therefore failed to conform to the requirements of Item 8 of Schedule 14A,
because it failed to disclose that approximately $5 million in cash has been set
aside to help fund Buehler's retirement program. The proxy merely disclosed that
at the time of adoption of the Supplemental Executive Retirement Plan, the Board
of Directors credited Buehler with 10 years participation in the plan such that
he currently is vested in the maximum benefits under the Plan. There was no
disclosure that approximately $5 million had already been used to help fund
Buehler's retirement benefits. The proxy also included a table which indicated
that a director or officer with average annual compensation of $500,000 credited
with 10 years participation would receive approximate annual retirement benefits
of $350,000 for retirement at age 65, expressed as a single life annuity, which
would be payable under the plan. The proxy stated that Buehler's average annual
salary was $500,000. The misleading impression conveyed by the disclosure was
that the retirement benefits would be generated in the future, not that $5
million had been already set aside, and that these funds were currently
generating retirement benefits. The proxy also conveyed the misleading
impression that the amount of cash required to fund the retirement benefit for
Buehler was $350,000, not that $2 million per year was being used to fund the
program, and that the Company anticipated spending another $ 4 million to $6
million to fund Buehler's retirement plan. The proxy statement also omitted
disclose that Coastcast has formulated the intent and budgeted the
34
<PAGE>
expenditure of $20 million over ten years to fund the retirement plans of five
--------------------------
senior officers and directors. For all of these reasons, the disclosure in the
proxy disseminated to shareholders in connection with the June 22, 1998 annual
meeting was materially false and misleading.
COASTCAST'S FALSE AND MISLEADING STATEMENTS CONCERNING ITS
----------------------------------------------------------
FINANCIAL OUTLOOK AND BUEHLER'S MASSIVE INSIDER TRADING
-------------------------------------------------------
97. Coastcast sales have been and continue to be concentrated among a
small number of customers. Sales to as few as four customers accounted for 84%
of sales during the year ended December 31, 1997. Sales to Coastcast's top
customer, Callaway Golf Company, accounted for 34% of sales for the year ended
December 31, 1997.
98. In addition, Coastcast's backlog of orders comprises a huge percentage
of its quarterly sales. This is particularly true in the spring and early
summer, because Coastcast's customers have historically built inventory in
anticipation of purchases by golfers in the spring and summer, the principal
selling season for golf equipment. Thus historically, Coastcast's backlog has
been the highest in the second and third fiscal quarters, those ending in March
and in June.
99. Because backlog comprises such a huge percentage of expected sales
over the next one to two quarters, the Company's management at any moment has
extremely good visibility concerning likely sales and earnings during the next
two quarters. Because backlog is normally is the highest in the March and June
quarters, the Company's management in this period has very good visibility
concerning likely sales during the September quarter, which in
35
<PAGE>
1996 and 1997 were the highest period of sales. For example, during 1997, the
Company had sales of approximately $29 million in the first quarter,
approximately $39.9 million in the second quarter, approximately $43.9 million
during the third (September quarter), and approximately $36.6 million during the
fourth quarter.
100. In late 1997 and early 1998, it became apparent to Coastcast's
management that the sales and earnings outlook for the second half of 1998 was
dismal, for a variety of reasons. Management and Buehler regularly receive
internal reports containing sales and earnings information and projections.
These reports include reports from sales personnel indicating likely purchase
orders from customers during the next quarter and the coming year; sales and
earnings projections prepared by the sales, marketing and finance departments in
connection with the preparation of the annual budget, which are updated on a
quarterly basis; reports analyzing backlog of orders, including how trends in
the backlog and how the backlog will likely be transformed into actual sales and
earnings; expenses and capital budgets and reports, including the cost of
building and renovating capital facilities; reports indicating current and
likely gross and operating margins; manufacturing schedules which indicate
manufacturing requirements versus likely customer demand; and analysis of sales,
orders and profits on a month to date, quarter to date and year to date versus
internal projections. Based on these reports, it was becoming increasingly
obvious in late 1997 and early 1998 that results for the coming year would be
below market estimates. First, these reports indicated that the growing
36
<PAGE>
economic problems in Asia would eventually reduce the demand for golf products,
and therefore reduce the demand for Coastcast's golf clubheads. Second, cost
overruns at Coastcast's new facility in Tijuana, Mexico, would begin to erode
profit margins, and therefore reduce reporting earnings. Third, Coastcast had
been informed by its major customers that the customers would be introducing new
products later in 1998, which would mean that they would draw down on their
inventories of the older products that would be discontinued. This development
would substantially reduce the customers' purchases of the older products from
Coastcast. In addition, Coastcast had lost the Callaway titanium wood business
competitors at the end of 1996. These sales accounted for more than 30% of
Coastcast's total sales in 1996 and were reduced to almost zero in 1997, causing
a severe dent in Coastcast's ability to meet market expectations for sales and
earnings.
101. As a result of these adverse developments, Buehler devised a plan to
artificially increase the price of Coastcast's stock over the next few months
while he sold a substantial portion of his Coastcast stock at artificially
inflated prices. Through this scheme, Buehler would avoid a huge decline in the
value of his Coastcast stockholding once the adverse business developments
became apparent to the market, and the stock price dropped.
PLAN TO "STUFF THE CHANNEL"
- ---------------------------
102. Buehler's plan to inflate Coastcast's stock price had two components.
The first was to have Coastcast "stuff the channel," i.e., to induce its major
customers to take more product than they actually required during the next
quarter. In particular, Coastcast induced Callaway and other customers to
37
<PAGE>
purchase higher margin products, such as Titleist's "975" Titanium Driver and
Callaway's X-12 Stainless Irons, through the use of extended payment terms,
discounted pricing and other methods. The effect of this effort was to
artificially increase Coastcast's reported sales in the near-term, while causing
sales and earnings to be lower than they otherwise would be later in the year.
103. SEC rules require companies to disclose publicly their backlog once
each year, in the Annual Report on Form 10-K. Coastcast's Annual Report on Form
10-K for the year ended December 31, 1997 reported that backlog as of December
31, 1997 was approximately $52.2 million. This amount was much greater than the
backlog of $28.5 million as of December 31, 1996. Yet the substantial increase
in backlog from year-end 1996 to year-end 1997 was not justified by much higher
sales, which were approximately $149.5 million in 1997, only slightly greater
than the approximately $148.2 million in sales for 1996. Thus the near doubling
in backlog from December 31, 1996 to December 31, 1997 was totally out of
proportion to the meager increase in sales from year to year.
104. In addition, as discussed above, Coastcast's backlog is historically
the highest in the March and June quarters. Yet, as discussed above, the backlog
swelled enormously at the end of the December 1997 quarter. Indeed, the backlog
of $52.2 million as of December 31, 1997 was substantially greater than sales of
$45.3 million for the quarter ended March 31, 1998. By contrast, the backlog of
$28.5 million as of December 31, 1996 was roughly equal to sales of $29 million
for the first quarter of 1997.
38
<PAGE>
105. A sign that the Coastcast was "stuffing the channel" in order to
artificially increase sales in the March 1998 is also revealed by the Company's
financial statements. For the quarter ended March 31, 1998, the Company reported
accounts receivable, net of allowances for bad debt, of $17.985 million, a
nearly 50% increase over the amount of $12.983 million as of December 31, 1997.
By contrast, accounts receivable increased by about only 20% during the first
quarter of 1997. The increase in receivables reflected extended payment terms
granted to customers during the December 1997 quarter and March 1998 quarter in
order to induce customers to take more product than they otherwise would have
purchased.
106. For the quarter ended December 31, 1997, Coastcast reported earnings
of $0.35 per share, which was an 86% increase over the fourth quarter of 1996,
although sales of $36.6 million for the December 31, 1997 quarter were only
slightly greater than the $34.9 million in sales for the year-earlier quarter.
The earnings for the December 31, 1997 quarter were substantially greater than
market estimates. This increase in earnings was caused by "stuffing the channel"
with higher margin products, as described above.
107. For the quarter ended March 31, 1998, Coastcast reported sales of
approximately $45.321 million, compared to sales of approximately $29 million
during the year-earlier period. Net income for the quarter ended March 31, 1998
was $4 million, or $0.44 per share, compared to $1.198 million, or $0.13, per
share, for the year-earlier period. Because Coastcast was "stuffing the channel"
with higher margin products, the gross margin for the
39
<PAGE>
March 31, 1998 quarter was 21.3%, compared to 13,9% for the year-earlier
quarter. The results for the first quarter for sales, earnings and gross margin
exceeded market expectations.
108. In 1996 and 1997 the sales for the first quarter were the lowest of
any quarter of the year. Thus the apparently strong sales during the first
quarter of 1998, the huge backlog reported as of December 31, 1997, and the
higher-than-expected gross margin for the first quarter of 1998 all led
investors to believe that Coastcast would have an exceptionally good year. The
market did not know that Coastcast's management, under the direction of Buehler,
had deliberately "stuffed the channel" in order to make the first quarter of
1998 artificially inflated so that he could proceed with his plan to sell a
substantial portion of his Coastcast stockholdings.
EFFORT TO MISLEAD ANALYSTS
- --------------------------
109. A second component of Buehler's plan was to mislead securities
analysts concerning the outlook for 1998. Securities analysts are employed by
brokerage firms to analyze companies. A securities analyst will follow certain
companies, and write reports that discuss the present business condition and
future prospects of those companies. These reports will contain estimates of
sales and earnings for the current quarter, the remaining quarters in the fiscal
year, and the current fiscal year. These reports are provided to the brokerage
firm's sales force, and are the basis of investment recommendations provided by
the sales force to the firm's clients. The reports are also publicly
disseminated. The analysis and earnings predictions of the analysts are thus
reflected in the price of a company's stock.
40
<PAGE>
110. Coastcast is followed by only several analysts. Therefore the
evaluation and earnings predictions of these analysts have a substantial impact
on the market price of Coastcast stock.
111. Securities analysts are heavily dependent on the information that they
receive from a company's management in evaluating the company's business
prospects and formulating an earnings model that will generate earnings
predictions. First, the analysts depend on the accuracy of a company's published
information, such as in Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, and other publicly disseminated information. Analysts also talk regularly
to the management of a corporation, and obtain information concerning current
and future business conditions. Analysts often will provide draft analyst
reports to a company's management, to make sure that the analyst has not made a
serious factual error and to make sure that the assumptions underlying the
earnings predictions are not erroneous.
112. This custom and practice applied to Coastcast. In particular, Buehler
regularly communicated with analysts, and gave the analysts his personal outlook
on Coastcast's present and future business condition. Buehler advised the
securities analysts on whether their earnings predictions were accurate or
inaccurate. Buehler engaged in this practice knowing that any inaccurate
information provided to the analysts would in turn be conveyed to the public,
and be reflected in Coastcast's stock price.
113. Thus in the Spring of 1998, Coastcast's management, under the
direction of Buehler and with Buehler's participation, advised analysts and led
analysts to believe that the outlook for
41
<PAGE>
1998 was good, when in fact Buehler and the rest of management knew that the
outlook for 1998 was poor, and the results for the first quarter of 1998 were
being artificially inflated by "channel stuffing."
114. One of the firms covering Coastcast is The Seidler Companies
("Seidler"). In a report dated February 6, 1998, Robert C. Marvin, an analyst at
Seidler, stated that "[C]oastcast reported fourth quarter earnings of $0.35 per
share, an 86% increase over the fourth quarter of last year and 25% better than
our estimate. While most of the year-over-year improvement came in the form of
margins, sales were much stronger than we had anticipated." The report estimated
that earnings per share for 1998 would be $1.54. The report stated that "[W]e
continue to rate the stock a BUY, our highest rating."
115. This report was based on conversations and other communications
between the analyst and Coastcast's management, including Buehler. Coastcast's
management, under the direction and with the participation of Buehler,
intentionally provided the analyst with misleading information concerning the
current and future business condition of Coastcast. In particular, Coastcast's
management did not disclose to the analyst that the sales for the last quarter
of 1997 and the first quarter of 1998 were being artificially inflated by
"channel stuffing" in order to allow Buehler to sell Coastcast stock at
artificially inflated prices. Coastcast's management did not disclose to the
analyst that in fact management believed that sales for the September quarter,
traditionally the best quarter, would be far below expectations because the
Company had robbed sales from that quarter in order to
42
<PAGE>
improve results for the December 1997 quarter and the March and June 1988
quarters. Coastcast's management led the analyst to believe that the prediction
of earnings per share of $0.45 for the September quarter and $1.54 for all of
1998 were reasonable estimates, when management knew or was reckless in not
knowing that such estimates had no reasonable basis. As a result, the Seidler
report conveyed false and misleading information about Coastcast's business
outlook and expected earnings to the market, which was reflected in the price of
Coastcast stock.
116. One of the major firms to cover Coastcast is CIBC Oppenheimer
("Oppenheimer"). Oppenheimer issued a report dated April 20, 1998. This report,
prepared by Steven Eisenberg, was based on and derived form information obtained
from Coastcast management, including conversations with Coastcast's management.
117. The Oppenheimer report stated that Coastcast reported first quarter
earnings per share of $0.44, up considerably from $0.13 a year ago and well
ahead of the Street consensus estimate of $0.32. The report stated that
"[B]etter than expected sales, a favorable product mix and increased gross
margins all contributed to the solid results." The report further stated that
"[W]e have raised our 1998 EPS forecast by $0.12 to $1.67 to reflect the better
than anticipated first quarter. We are also introducing an initial 1999 EPS
estimate of $1.92." The report further stated that "[A] price target of $24-$25
would be appropriate at historical valuation levels based on projected 1999
results."
118. The Oppenheimer report stated that "[S]ales of $45.3 million outpaced
our $41.5 million forecast and were up 56% versus year-ago period. Sales were
driven by solid OEM [original
43
<PAGE>
equipment manufacturer] orders on higher profit models . . . The gross margin
for the quarter of 21.3% exceeded our 18.1% forecast . . . This improvement was
due primarily to the high sales volume and favorable product mix, which enabled
the company to recognize more efficiencies. We expect the full year 1998 gross
margin to approximate 21%." The Oppenheimer report further stated that
"[C]oastcast's financial position remains solid. . . We have raised our 1998 EPS
forecast from $1.55 to $1.67 to reflect the strong first quarter. Looking ahead
to 1999, we project sales of roughly $187.4 million, representing a 10%
increase. We also expect increases in the gross profit margin and operating
margin, as they should approximate 22.6% and 15.6%, respectively. These margin
improvements should be fueled by a continued good product mix and increased
efficiencies from the Tijuana facility, which will be fully operational in
1999." The report projected that earnings per share for the June 30, 1998
quarter would be $.40 and that earnings per share for the September 30, 1998
quarter would be $0.45.
119. This report was based on false and misleading information provided to
Eisenberg by Coastcast's management, with the knowledge and at the direction of
Buehler. Coastcast did not disclose to the analyst that the apparently strong
results for the December 1997 and March 1998 quarters were the result of
deliberately "stuffing the channel" in order to artificially inflate the price
of Coastcast stock, in order to permit Buehler to sell his stock at artificially
inflated prices. Coastcast's management did not disclose to the analyst that
sales for the September quarter, traditionally the best quarter of the year,
44
<PAGE>
would be far below market estimates because the Company was robbing sales from
that quarter in order to artificially inflate sales for the December 1997, and
the March and June 1998 quarters by "stuffing the channel." Coastcast's
management, under the direction and with the knowledge of Buehler, made
statements to the analyst that led him to believe that his earnings estimates
for the September 1998 quarter, for all of 1998 and 1998 were reasonable, when
in fact Coastcast's management knew or was reckless in not knowing that those
estimates had no reasonable basis.
120. Coastcast' management did not disclose to the Seidler and Oppenheimer
analysts, and indeed affirmatively concealed, that the economic crisis in Asia
was increasingly hurting the outlook for sales; that the Company's major
customers had excess inventory of Coastcast products, and therefore would reduce
sales in the coming quarters; that start-up costs for the new Tijuana facility
would be greater than anticipated; that new product introductions by major
customers would cause those customers to draw down on their inventories; and
that the Company expected gross and operating margins to shrink in the coming
quarters.
EFFECT ON STOCK PRICE
- ---------------------
121. The effort directed by Buehler to increase Coastcast's stock price had
the desired effect. The market was deceived by the artificially inflated results
for the December 1997 and March 1998 quarters, and by the false and misleading
statements given to the analysts which were in turn conveyed to the public and
reflected in the stock price.
45
<PAGE>
122. As of December 31, 1997, Coastcast's stock price traded at around $13
per share. However, during the first half of 1998, the stock increased in price.
As a result of the Seidler report, the stock price increased in February 1998 to
over $20. As a result of the release of the results for the March 1998 quarter
and the Oppenheimer report, the stock price increased to $25, its highest price
in two years. The stock price declined from that peak, but still traded in the
$18 to $22 range in May 1998.
BUEHLER'S STOCK SALES
- ---------------------
123. After taking steps to artificially increase the stock price, Buehler
began a massive sale of his stockholdings in Coastcast. Buehler directed sales
of stock held by Golden Band LP ("Golden Band"), a partnership controlled by
Buehler and his wife. The Coastcast stock held by Golden Band was controlled by
Buehler, who was the beneficial owner of the shares. Buehler had control and
power over the sale and disposition of Coastcast stock held by Golden Band.
Buehler directed the sale of Coastcast stock held by Golden Band based on
material, nonpublic information, which was that the supposedly "strong" sales
and earnings for the December 1997 and March 1998 quarters were a mirage.
Buehler knew that the results for these quarters had been artificially induced
by "stuffing the channel," inducing major customers to purchase more product
than they needed for the immediate future through extended payment terms,
discounted pricing and other measures, and that this meant that sales for the
rest of 1998 would fall far short of market expectations. Buehler knew that the
outlook for the rest of 1998 was exceedingly poor, because of the information
provided to him in his capacity of chairman of the Board of Directors and the
46
<PAGE>
dominant person at Coastcast. Buehler knew that the economic crisis in Asia was
hurting sales efforts and would reduce sales in the coming quarters. Buehler
knew that OEM customers had excessive inventory because of Coastcast's "channel
stuffing" and would be reducing purchases for the September quarter. Buehler
knew that efforts to produce a new club head for the new Callaway Big Bertha
line would be reducing operating margins. Buehler knew that manufacturing
inefficiencies and start-up costs at the Tijuana facility would also reduce
operating margins. Buehler knew that because of all of these factors,
Coastcast's results in the coming quarters would fall well below market
estimates, and that the stock price would decline sharply. Buehler actually used
this information in formulating an intent to sell massive quantities of
Coastcast stock, and the information was the cause of his stock sales.
124. Buehler's stock sales through Golden band are as follows:
Date Shares Price Value
- ---- ------ ----- -----
3/5/98 47,600 $18.13-18.50 $1,881,250
3/6/98 52,400 $18 $943,200
4/27/98 41,300 $20.81-20.88 $861,609
4/28/98 10,100 $21.13 $213,413
4/29/98 20,000 $21.13 $422,600
4/30/98 10,000 $21.75-22.13 $218,320
5/1/98 20,000 $21.75-21.81 $435,318
5/5/98 15,000 $22.63 $339,450
5/6/98 15,000 $22.25-22.31 $333,924
5/7/98 38,000 $22.63-22.31 $860,360
47
<PAGE>
5/8/98 7,000 $22.50-22.63 $157,630
5/11/98 2000 $21.75 $43,500
5/12/98 7000 $21-21.56 $148,130
5/13/98 18,100 $19.38-19.50 $351,390
5/14/98 60,200 $19.13-19.25 $1,153,954
------- ----------
Total 363,700 $8,364,048
125. These stock sales represented nearly 50% of the stock held by Golden
Band, and approximately one-third of the entire Coastcast stock held, directly
or indirectly, by Buehler.
126. These stock sales were contemporaneous with purchases of Coastcast
stock by Vannini. Thus, Buehler, in selling stock on the basis of and in actual
use of material nonpublic information concerning Coastcast's deteriorating
business outlook, failed to disclose to Vannini such information. In this
manner, Buehler intentionally and/or recklessly, defrauded Vannini in connection
with Buehler's sales and Vannini's purchases of Coastcast stock.
RELATIONSHIP WITH GRUBER, MCBAINE
- ---------------------------------
127. Upon information and belief, Buehler maintains a business relationship
with Gruber, McBaine ("Gruber"), an institutional investors which holds
Coastcast stock. Buehler has provided Gruber material nonpublic information
concerning Coastcast's business and earnings outlook, on which information
Gruber has executed trades.
THE TRUTH ABOUT COASTCAST IS REVEALED
- -------------------------------------
128. Shortly following these massive stock sales by Buehler, Coastcast
began to reveal the true facts about its business
48
<PAGE>
condition. First, on July 15, 1998, Coastcast publicly announced its results for
the quarter ended June 30, 1998. The Company reported that sales for the quarter
were approximately $43.5 million, and earnings per share were $0.42 on a diluted
basis. Commenting on the quarter, Richard Mora, the Company's President, stated
that "the company was pleased with the continued growth in sales and
profitability." Mora also stated that "[W]ith a product mix that was essentially
unchanged from that of the first quarter, we benefitted from strong demand among
our customers and an ongoing program of cost containment. The build-out of our
new 186,000-square foot foundry in Tijuana, Mexico is on schedule and -- with
the foundry equipment now in the process of being installed -- the facility is
expected to be operational by year end." These statements were materially false
and misleading, because there was not strong demand for Coastcast's products,
and in fact, demand was declining and the Company's management knew or was
reckless in not knowing that sales and earnings for the September 1998 quarter,
which was already half-completed, would be substantially lower than market
estimates and information previously disseminated by Coastcast; that Coastcast
was having problems with cost containment, and that gross and operating margins
were shrinking and would continue to shrink; and that the new facility in
Tijuana would have excessive start-up costs and inefficiencies, and that the
decline in demand for products would mean that the facility would not be used to
full capacity, and therefore would substantially increase overhead and reduce
profits.
49
<PAGE>
129. However, while publicly proclaiming that all was well with Coastcast,
management was gradually revealing the truth about its business condition and
business outlook to selected analysts. On July 15, 1998, Oppenheimer issued a
report that "[F]or the balance of 1998, management expects to see diminished
orders stemming from high OEM inventories, particularly for titanium golf
clubheads. As a result, we are lowering our third and fourth quarter EPS
estimates by $0.09 and $0.07 to $0.36 and $0.31, respectively. Our new 1998 EPS
full-year forecast is $1.53, down from $1.67." The information in this report
was based on discussions and communications with Coastcast's management, and was
based on information provided by management.
130. Given that Coastcast's management has good visibility as to at least
the next one to two quarters, for the reasons discussed above, Coastcast's
management had known much earlier than July 1998 that earnings for the September
1998 quarter would be below market estimates. Indeed, for all the reasons
discussed above, Coastcast's management had known that because it was inducing
its customers to take more product than they needed in order to artificially
inflate the results for the December 1997 and March 1998 quarters, Coastcast's
management had known at least since the beginning of 1988 that results for the
September 1988 quarter would likely fall below market expectations.
131 The information provided to Oppenheimer in July 1998 did not reveal
anything close to the entire truth about Coastcast's true business condition,
which declining rapidly. Coastcast's management, including Buehler, knew that it
would look suspicious if the true deterioration in the Company's business
condition was
50
<PAGE>
revealed immediately after Buehler's stock sales. Therefore, management waited
until the September 1988 quarter was nearly concluded before it disclosed what
it had known for months, and indeed, since the beginning of the year -- that the
sales for the second half of the year would be disastrous. Even then, Coastcast
did not disclose the information in a public release, but began leaking the
information selectively to analysts. On September 4, 1998, Oppenheimer issued
another report about Coastcast. This report stated that the analyst had recently
met with Coastcast's management, and that as a result of those discussions, "we
are lowering our estimates for the third and fourth quarters of 1998, as well as
for full-year 1999." The report stated that Oppenheimer had cut $10.1 million
from its third-and-fourth quarter revenue assumptions. The report stated that
"[W]e also have lowered our profit margin assumptions to account for some
manufacturing inefficiencies, start-up costs and a product mix hampered by a
higher percentage of lower margin irons."
132. The report stated that Oppenheimer's new 1998 and 1999 EPS estimates
were now $1.28 and $1.83, down from $1.53 and $1.77, respectively. The report
further stated that estimates for sales in the September 1998 quarter had been
reduced from $38 million to $30 million. Moreover, the report stated that the
earnings estimates had been sharply reduced, from $0.36 to $0.19 in the
September 1998 quarter, and from $0.31 to $0.21 for the December 1998 quarter.
The report stated that the reduced earnings estimates were the result of reduced
profit margins that were caused by "higher margin wood sales' slumping, more
rework and higher scrappage (result of new club head production) and start-up
51
<PAGE>
costs for the new Tijuana manufacturing facility." The information provided to
Oppenheimer on September 4, 1998, directly contradicted the information that
Coastcast had disclosed publicly in its July 15, 1998 press release.
133. As discussed above, the Oppenheimer report in April 1998 had
predicted, based on information from management, that earnings per share in the
September 1998 quarter would be $0.45. Just slightly more than four months
later, management was indicating that earnings per share for the quarter would
be only $0.19, a nearly 60% reduction. It is not possible that management would
suddenly in late August become aware of excessive OEM inventories, the economic
problems in Asia, slumping sales of higher margin products and higher start-up
costs for its manufacturing facilities, given the fact that because of its
sizeable backlog relative to sales, Coastcast has extremely good visibility of
future sales over the next one to two quarters. This information had been known
since the he beginning of 1998, and was certainly was known at the time of
Buehler's stock sales and at the time of the July 15, 1998 release.
134. The reduced expectations for the September 1998 quarter, the December
1998 quarter and 1999 have had a catastrophic effect on the stock price. From
the peak of $25 in April, Coastcast's stock price has fallen steadily, and
closed at $8 1/2 on October 2, 1998, a nearly 65% drop in the stock price, which
---
far exceeds the overall recent drop in the stock market. Indeed, on October 5,
1998, Coastcast's stock price fell below $8 per share. As a result of his
insider stock sales based on material nonpublic
52
<PAGE>
information, Buehler avoided losses of millions of dollars on his Coastcast
stockholding.
135. Because of the drop in Coastcast stock price, Vannini has suffered a
loss of approximately $6 million on his investment in Coastcast stock.
FIRST COUNTERCLAIM
------------------
(VIOLATIONS BY COASTCAST OF SECTION 14(a)OF THE EXCHANGE
ACT, 15 U.S.C. (S) 78n(a) AND RULES 14a-3 AND 14a-9)
136. Vannini realleges and incorporates by reference each and every
allegation of the Counterclaims contained in paragraphs 1 through 135 above,
inclusive, which are made on information and belief.
137. Vannini is informed and believes, and on that basis alleges, that
Coastcast knowingly, willfully and intentionally engaged in a scheme and plan to
defraud Coastcast shareholders. Coastcast conducted this scheme and plan through
the use of the mails and instrumentalities of interstate commerce in connection
with its proxy solicitation for the June 22, 1998 annual shareholders meeting,
and its efforts to communicate with Coastcast shareholders in order to procure
their proxies in opposition to Vannini in anticipation of the special
shareholders' meeting. In connection with Coastcast's proxy solicitations,
Coastcast has made false or misleading statements; failed to disclose material
facts required by the securities laws of the United States, and the rules
promulgated thereunder, rendering those statements misleading; and failed to
include the information required by Schedule 14A.
53
<PAGE>
138. As discussed above, Coastcast made false and misleading statements
concerning the reasons for "adjourning" the June 22, 1998 shareholders' meeting;
failed to disclose that it had obtained a proxy solicitor in connection with the
July 8, 1998 shareholders' meeting; failed to adequately disclose Buehler's
retirement program; and made false and misleading statements concerning a
purported stock repurchase program in effort to procure proxies from Coastcast
shareholders in opposition to Vannini.
139. Unless Coastcast is preliminarily and permanently enjoined from
continuing to violate Section 14(a), and the regulations promulgated thereunder,
its continued dissemination of materially misleading statements will cause
irreparable harm to Vannini's efforts to communicate with Coastcast shareholders
and obtain the proxies of Coastcast shareholders in connection with the special
shareholders' meeting.
140. The injunctive relief requested would serve the public interest. It
will benefit Coastcast's public shareholders and the market as a whole by
requiring Coastcast to conform its conduct to comply with federal securities
laws, rules and regulations, and prevent Coastcast from disseminating false and
misleading information to shareholders and the public.
SECOND COUNTERCLAIM
-------------------
(VIOLATIONS BY COASTCAST AND BUEHLER OF SECTION 10(b) OF THE
EXCHANGE ACT, 15 U.S.C.78j(b),AND RULE 10b-5 THEREUNDER)
141. Vannini realleges and incorporates by reference each and every
allegations of the Counterclaims contained in paragraphs 1 through 140,
inclusive, which are made on information and belief.
54
<PAGE>
142. Coastcast and Buehler, directly and indirectly, by the use of the
means and instrumentality of interstate commerce and by the mails, and through
the facility of a national stock exchange, have used and employed, and continue
to use and employ, in connection with the purchase and sale of Coastcast stock,
which is a security registered on a national securities exchange, manipulative
and deceptive devices and contrivances in violation of the rules and regulations
promulgated by the SEC.
143. In furtherance of this illegal conduct, Coastcast and Buehler, have
directly and indirectly, by the use of means and instrumentalities of interstate
commerce, and by the mails, and through the facility of a national securities
exchange, employed and continue to employ devices, schemes and artifices to
defraud; have made and continue to make untrue statements of material fact and
have omitted and continue to omit to state material facts necessary in order to
make the statements made, in the light of the circumstances under which they
were made, not misleading; and have engaged and continue to engage, in acts,
practices and courses of business which operate, have operated and continue to
operate as a fraud and deceit upon persons, including Vannini.
144. As part of the scheme, and as discussed above, Coastcast and Buehler,
directly and indirectly, have made materially false and misleading statements
concerning, among other things, the reasons for the adjournment of the June 22,
1998 meeting; the business plans and business outlook of Coastcast; the
financial results and financial statements of Coastcast; the funding of
Buehler's retirement plan by Coastcast; and statements to analysts concerning
Coastcast's business condition and business outlook.
55
<PAGE>
145. As a result of these materially false and misleading statements, the
market price of Coastcast stock became artificially inflated in value starting
no later than January 1, 1998 and continuing to the present.
146. Vannini purchased Coastcast stock during this period in reliance of
the integrity of the market to efficiently and accurately establish the true
price of Coastcast based on the information disseminated into the market about
Coastcast. Vannini also relied in good faith on each and every one Coastcast's
statements, and believed Coastcast was making true and accurate public
statements. Vannini did not know, and had no reason to know, that Coastcast's
public statements were materially false and misleading, and had artificially
inflated the value of Coastcast stock.
147. The stock purchased by Vannini was artificially and fraudulently
inflated in value by the materially false and misleading statements made by
Coastcast and Buehler, and as a result, Vannini has been damaged.
148. Buehler also violated Section 10(b) and Rule 10b-5 by selling and
directing the sale of Coastcast stock which he controlled while he was in
possession of material nonpublic information concerning the adverse business
outlook of Coastcast; the fact that Coastcast's financial results for the
December 1997 and March 1998 quarters had been artificially inflated; that
Coastcast's stock price was likely to decline as the truth about Coastcast's
business condition was revealed; and that analysts had been given false and
misleading information about Coastcast which they in turn conveyed to the
public. Buehler actually used such
56
<PAGE>
information in formulating the intent to trade, and the information caused the
trades.
149. Vannini was on the other side of some or all of Buehler's stock sales,
and therefore Buehler sold stock to Vannini while omitting to state material
facts necessary to make the statements made, in the light of the circumstances
under which they were made, not misleading.
150. Unless preliminarily and permanently enjoined, Coastcast and Buehler
will continue to violate Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, to the detriment of Vannini, Coastcast's shareholders and the
investing public.
THIRD COUNTERCLAIM
------------------
(FOR VIOLATION BY BUEHLER OF SECTION 20A OF THE EXCHANGE
ACT, 15 U.S.C. (S)20tA)
151. Vannini realleges and incorporates by reference each and every
allegation of the Counterclaims contained in paragraphs 1 through 150,
inclusive, which are made on information and belief.
152. As discussed above, Buehler has sold and directed the sale of
Coastcast stock while in possession of material, nonpublic information and is
therefore liable to Vannini, a person who contemporaneously with the sales that
are the subject of the violation, purchased Coastcast stock.
FOURTH COUNTERCLAIM
-------------------
(FOR VIOLATIONS BY BUEHLER OF CALIFORNIA
CORPORATIONS CODE (S) 25401)
153. Vannini realleges and incorporates by reference each and every
allegation of the Counterclaims contained in paragraphs 1 through 152,
inclusive, which are made on information and belief.
57
<PAGE>
154. As discussed above, Buehler has offered to sell and sold Coastcast
stock by means of written and oral communications that included untrue
statements of material facts and omitted to state material facts necessary to
make the statements not misleading.
155. As a result of the foregoing, Buehler has violated Section 25401 of
the California Corporations Code.
FIFTH COUNTERCLAIM
------------------
(FOR VIOLATION BY BUEHLER OF CALIFORNIA
CORPORATIONS CODE (S) 25402)
156. Vannini realleges and incorporates here by reference each and every
allegation of paragraphs 1 through 155 of the Counterclaims, which are made on
information and belief.
157. Buehler was an insider of Coastcast, and sold Coastcast stock at a
time when he knew material information about Coastcast gained from his
relationship which would significantly affect the market price of Coastcast
stock and which was not generally available to the public, and which he knew was
not intended to be so available, and which he knew was not possessed by the
persons buying such stock from him.
158. As a result of the forgoing, Buehler violation Section 25402 of the
California Corporations Code.
PRAYER FOR RELIEF
-----------------
WHEREFORE, Vannini prays for relief as follows:
A. For judgment dismissing Coastcast's Complaint with prejudice.
B. For costs of suit and reasonable attorneys' fees, as allowed by law.
58
<PAGE>
C. For such other and further relief as this Court deems just and proper.
WHEREFORE, Vannini further requests:
A. A preliminary and permanent injunction that orders Coastcast and its
officers, agents, directors, servants, employees, and attorneys, and those
persons and entities in active concert of participation with it,
1. to refrain from violating Section 14(a) of the Exchange Act, and
the rules and regulations promulgated thereunder, including by making or
disseminating any further public statements relating to the special
shareholders' meeting, the stock repurchase program or any of the other matters
mentioned in Section 14(a) filings or public statements;
2. to refrain from distributing proxy materials to Coastcast
shareholders or otherwise taking any steps to solicit any proxies, consents or
authorizations with respect to proxy materials, unless Coastcast corrects all of
its previously materially false and misleading statements;
3. requiring Coastcast to correct the various misstatements in its
press releases, SEC filings and other statements to the shareholders and the
public;
4. to refrain from exercising any proxies obtained by virtue of
misleading statements and illegal proxy solicitation activities;
5. to refrain from violating Section 10(b) of the Exchange Act and
Rule 10b-5 thereunder, including making materially untrue statements of fact,
and omitting to state material facts which are necessary to make the statements
made, in
59
<PAGE>
light of the circumstances under which they are made, not misleading.
B. An Order requiring Coastcast to compensate Vannini fully for all
damages inflicted on him and which he has suffered as a result of purchasing
Coastcast stock at prices artificially inflated by Coastcast's materially false
and misleading statements, in an amount to be determined at trial.
C. An Order requiring Buehler to compensate Vannini fully for purchasing
stock sold by Buehler while Buehler was in possession of material nonpublic
information, which was not disclosed to and was not known by Vannini;
D. An Order requiring Buehler to refrain from purchasing or selling
securities of Coastcast while he is in possession of material nonpublic
information about Coastcast which is not publicly available
E. For such other and further relief as the Court may deem just and
proper.
DATED: October 5, 1998 WILSON SONSINI GOODRICH & ROSATI
By: /s/ Jared L. Kopel
----------------------------
Jared L. Kopel
Attorneys for Defendant and
Counterclaimant
JONATHAN VANNINI
60
<PAGE>
CERTIFICATE OF SERVICE BY FACSIMILE AND OVERNIGHT COURIER
---------------------------------------------------------
I, Rita Gee, declare:
I am employed in Santa Clara County, the county in which the mailing
described below occurs. My business address is 650 Page Mill Road, Palo Alto,
California 94304-1050.
I am readily familiar with Wilson, Sonsini, Goodrich & Rosati's practice
for collection and processing of documents for facsimile transmittal and
correspondence for overnight delivery. In the ordinary course of business,
documents would be transmitted via facsimile, and correspondence would be
deposited this date with an overnight courier service for next day delivery on
the parties listed below.
On this date, I served DEFENDANT'S ANSWER AND COUNTERCLAIMS TO FIRST
AMENDED COMPLAINT on the persons listed below, by consigning the documents to a
facsimile operator and placing the document described above in envelopes
addressed as indicated below, which I sealed. I placed the envelopes for
consignment to an overnight courier service for delivery the next day following
ordinary business practices at Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California 94304-1050.
KEVIN ROSEN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE (46TH FLOOR RECEPTION)
LOS ANGELES, CA 90071-3197
JULIA J. RIDER, ESQ.
JEFFER, MANGELS, BUTLER & MARMARO LLP
2121 AVENUE OF THE STARS, TENTH FLOOR
LOS ANGELES, CA 90067-5010
61
<PAGE>
SCOTT A. FINK, ESQ.
GIBSON, DUNN & CRUTCHER
ONE MONTGOMERY STREET, TELESIS TOWER
SAN FRANCISCO, CA 94104-4505
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct. Executed at Palo Alto,
California on October 5, 1998.
/s/ Rita Gee
------------------------------
RITA GEE
62
