<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
--------------------------
COMMISSION FILE NUMBER 1-12676
COASTCAST CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3454926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3025 EAST VICTORIA STREET, RANCHO DOMINGUEZ, CA 90221
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310)638-0595
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
At November 11, 1998 there were outstanding 7,989,404 shares of common stock,
no par value.
1
<PAGE>
COASTCAST CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and
December 31, 1997 3
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 1998 and 1997 4
Nine Months Ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION:
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- --------------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents $ 26,272,000 $ 28,187,000
Trade accounts receivable, net of allowance for doubtful
accounts of $6 00,000 at September 30, 1998 and $500,000
at December 31, 1997, respectively 10,212,000 12,893,000
Inventories (Note 2) 14,012,000 21,208,000
Prepaid expenses and other current assets 5,967,000 2,930,000
Deferred income taxes 1,597,000 1,597,000
------------- -------------
Total current assets 58,060,000 66,815,000
Property, plant and equipment, net 24,577,000 19,079,000
Other assets 6,988,000 4,131,000
------------- -------------
$ 89,625,000 $ 90,025,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,567,000 $ 4,986,000
Accrued liabilities 4,286,000 5,034,000
------------- -------------
Total current liabilities 8,853,000 10,020,000
Deferred compensation 2,701,000 1,614,000
------------- -------------
Total liabilities 11,554,000 11,634,000
------------- -------------
Commitments and contingencies
Shareholders' Equity:
Preferred stock, no par value, 2,000,000 shares authorized;
None issued and outstanding
Common stock, no par value, 20,000,000 shares authorized;
8,006,404 and 8,849,005 shares issued and outstanding as of
September 30, 1998 and December 31, 1997, respectively 30,366,000 39,233,000
Retained earnings 47,705,000 39,158,000
------------- --------------
Total shareholders' equity 78,071,000 78,391,000
------------- --------------
$ 89,625,000 $ 90,025,000
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Sales $31,627,000 $43,935,000
Cost of sales 28,480,000 34,566,000
----------- -----------
Gross profit 3,147,000 9,369,000
Selling, general and administrative expenses 2,373,000 3,125,000
----------- -----------
Income from operations 774,000 6,244,000
Other income, net 401,000 205,000
----------- -----------
Income before income taxes 1,175,000 6,449,000
Provision for income taxes 493,000 2,709,000
----------- -----------
Income from continuing operations 682,000 3,740,000
Loss from discontinued operations (net of income
Tax benefit of $113,000) (157,000) -
----------- -----------
Net income $ 525,000 $ 3,740,000
----------- -----------
----------- -----------
NET INCOME PER SHARE (Note 3)
Income from continuing operations per share - basic $ 0.08 $ 0.43
Discontinued operations per share - basic (0.02) -
----------- -----------
Net income per share - basic $0.06 $ 0.43
----------- -----------
Weighted average shares outstanding 8,657,080 8,794,334
----------- -----------
Income from continuing operations per share - diluted $0.08 $ 0.42
Discontinued operations per share - diluted (0.02) -
----------- -----------
Net income per share - diluted $ 0.06 $ 0.42
----------- -----------
----------- -----------
Weighted average shares outstanding - diluted 8,699,307 8,903,784
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Sales $ 120,536,000 $ 112,874,000
Cost of sales 98,160,000 91,498,000
------------- -------------
Gross profit 22,376,000 21,376,000
Selling, general and administrative expenses 8,555,000 8,587,000
------------- -------------
Income from operations 13,821,000 12,789,000
Other income, net 1,185,000 580,000
------------- -------------
Income before income taxes 15,006,000 13,369,000
Provision for income taxes 6,302,000 5,615,000
------------- -------------
Income from continuing operations 8,704,000 7,754,000
Loss from discontinued operations (net of income
Tax benefit of $113,000) (157,000) -
------------- -------------
Net income $ 8,547,000 $ 7,754,000
------------- -------------
------------- -------------
NET INCOME PER SHARE (Note 3)
Income from continuing operations per share - basic $ 0.99 $ 0.88
Discontinued operations per share - basic (0.02) -
------------- -------------
Net income per share - basic $ 0.97 $ 0.88
------------- -------------
------------- -------------
Weighted average shares outstanding 8,855,644 8,790,987
------------- -------------
------------- -------------
Income from continuing operations per share - diluted $ 0.96 $ 0.87
Discontinued operations per share - diluted (0.02) -
------------- -------------
Net income per share - diluted $ 0.94 $ 0.87
------------- -------------
------------- -------------
Weighted average shares outstanding - diluted 9,109,636 8,912,481
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,547,000 $ 7,754,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,392,000 2,117,000
Loss on disposal of machinery and equipment 785,000 156,000
Deferred compensation 1,087,000 954,000
Deferred income taxes 299,000 42,000
Non-employee director compensatory stock options 202,000 202,000
Changes in operating assets and liabilities:
Trade accounts receivable 2,681,000 (3,347,000)
Inventories 7,196,000 (53,000)
Prepaid expenses and other current assets (3,948,000) 2,954,000
Accounts payable and accrued liabilities (1,868,000) 2,428,000
------------- -------------
Net cash provided by operating activities 17,373,000 13,207,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (7,930,000) (1,627,000)
Proceeds from disposal of machinery and equipment 568,000 52,000
Other assets (2,857,000) (2,112,000)
------------- -------------
Net cash used in investing activities (10,219,000) (3,687,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit 3,190,000 206,000
Repurchase of common stock (12,259,000) -
------------- -------------
Net cash used in financing activities (9,069,000) 206,000
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,915,000) 9,726,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 28,187,000 14,060,000
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,272,000 $ 23,786,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
COASTCAST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30, 1998, the
related condensed consolidated statements of income for the three and nine
months and cash flows for the nine months ended September 30, 1998 and 1997
have been prepared by Coastcast Corporation (the "Company") without audit.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) have been made which are necessary to present fairly the
financial position, results of operations and cash flows of the Company at
September 30, 1998 and for the periods then ended.
Although the Company believes that the disclosure in the condensed
consolidated financial statements is adequate for a fair presentation
thereof, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. The December 31,
1997 audited statements were included in the Company's annual report on Form
10-K under the Securities Exchange Act of 1934 for the year ended December
31, 1997. These condensed consolidated financial statements should be read
in conjunction with the audited financial statements and notes thereto
contained in that annual report.
Certain reclassifications were made to 1997 balances to conform to the 1998
presentation.
The results of operations for the periods ended September 30, 1998 are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
<S> <C> <C>
Raw materials and supplies $ 5,972,000 $ 7,578,000
Tooling 421,000 540,000
Work-in-process 6,866,000 12,375,000
Finished goods 753,000 715,000
----------- -----------
$14,012,000 $21,208,000
----------- -----------
----------- -----------
</TABLE>
7
<PAGE>
3. DISCONTINUED OPERATIONS
The plan adopted in October 1993 to phase out the aerospace business was
esssentially completed by June 1994, except for the sale of the Wallingford,
Connecticut property. In connection with the offering for sale of this
property, the Company had an environmental assessment performed, which
identified the presence of certain chemicals associated with chlorinated
solvents in groundwater beneath a portion of the property. The Company has
conducted investigations to determine the source and extent of the
contamination. In addition, the Company determined that the certain of the
contaminates were present prior to its ownership and entered into a
remediation cost sharing agreement with the previous owner of the property.
In August 1998, the Company sold the Wallingford, Connecticut property which
stipulates that the Company and the previous owner bear the liability to
remediate the property. The Company incurred a loss on sale of the property.
The loss on sale of the property plus the Company's share of the estimated
remediation costs were not adequately covered by the original reserve. As a
result, the Company reported a $157,000 loss from discontinued operations,
net of income tax benefit, as shown on the condensed consolidated statements
of income.
4. EARNINGS PER SHARE
Basic net income per share is based on the weighted average number of shares
of common stock outstanding. Diluted net income per share is based on the
weighted average number of shares of common stock outstanding and dilutive
potential common equivalent shares from stock options (using the treasury
stock method).
8
<PAGE>
COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales decreased 28.0% to $31.6 million and increased 6.7% to $120.5 million
for the three months and nine months ended September 30, 1998, respectively,
from $43.9 million and $112.9 million for the three months and nine months
ended September 30, 1997, respectively. The decrease in sales in the quarter
was primarily due to a decrease in sales volume of titanium metalwood and
iron clubheads. The increase in sales for the nine months ended September
30, 1998 was mainly due to increased sales volume in steel and titanium iron
clubheads.
Gross profit decreased 67.0% to $3.1 million and increased 4.7% to $22.4
million for the three months and nine months ended September 30, 1998,
respectively, from $9.4 million and $21.4 million for the three months and
nine months ended September 30, 1997. Gross profit margins decreased to
10.0% and 18.6% for the three months and nine months ended September 30, 1998
respectively, from 21.3% and 18.9% for the comparable prior year periods, due
principally to a slow down in the sales of titanium clubheads coupled with
higher than expected costs during the start-up phase of three new innovative
product lines.
Selling, general and administrative expense decreased $.8 million, or 24.1%,
to $2.4 million for the three months ended September 30, 1998, from $3.1
million for the comparable prior year period. The decrease was due primarily
to a decrease in management compensation, partially offset by an increase in
legal expenses in connection with a proxy contest initiated by a shareholder
which was resolved in early November 1998.
DISCONTINUED OPERATIONS
The plan adopted in October 1993 to phase out the aerospace business was
essentially completed by June 1994, except for the sale of the Wallingford,
Connecticut property. In connection with the offering for sale of this
property, the Company had an environmental assessment performed, which
identified the presence of certain chemicals associated with chlorinated
solvents in groundwater beneath a portion of the property. The Company has
conducted investigations to determine the source and extent of the
contamination. In addition, the Company determined that the certain of the
contaminates were present prior to its ownership and entered into a
remediation cost sharing agreement with the previous owner of the property.
In August 1998, the Company sold the Wallingford, Connecticut property which
stipulates that the Company and the previous owner bear the liability to
remediate the property. The Company incurred a loss on the sale of the
property. The loss on sale of the property plus the Company's share of the
estimated remediation costs were not adequately covered by the original
reserve. As a result, the Company reported a $157,000 loss from discontinued
operations, net of income tax benefit, as shown on the condensed consolidated
statements of income.
9
<PAGE>
YEAR 2000 CONVERSION
The Company has identified and evaluated changes to its computer systems and
applications required to achieve a year 2000 date conversion with no
disruption to business operations. Maintenance or modification costs will be
expensed as incurred. The total cost of this effort is still being evaluated,
but is not expected to be material to the Company. The Company has
communicated with others with which it does significant business to determine
their year 2000 compliance readiness and the extent to which the Company is
vulnerable to any third party year 2000 issues. So far, these inquiries have
not revealed any circumstances that would cause a significant disruption to
business operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at September 30, 1998 was
$26.3 million compared to $28.2 million on December 31, 1997, an decrease of
$1.9 million. Net cash provided by operating activities was $17.4 million
for the nine months ended September 30, 1998. The net cash provided by
operating activities consisted of net income of $8.5 million, a decrease in
inventories of $7.2 million, a decrease in accounts receivables of $2.7
million, depreciation and amortization of $2.4 million, and an increase in
deferred compensation of $1.1 million, partially offset by an increase in
prepaid expenses and other current assets of $3.9 million and a decrease in
accounts payables and accrued liabilities of $1.9 million. Net cash used in
investing activities of $10.2 million consisted mainly of $7.9 million of net
capital expenditures and an increase in cash value of life insurance of $2.6
million for the nine months ended September 30, 1998. Net cash used by
financing activities of $9.1 million consisted mainly of the repurchase of
company common stock of $12.3 million offset by proceeds from exercise of
stock options of $3.2 million.
On October 25, 1995, the Board of Directors authorized the Company to
purchase up to one million shares of Coastcast common stock from time to time
in the open market or negotiated transactions. Under this authorization, the
Company purchased 122,400 shares at a cost of $1.4 million during the quarter
ended September 30, 1998. As of September 30, 1998, there were 474,000
shares remaining to be purchased under this authorization. In addition, in
August 1998, the Board of Directors authorized the repurchase of a block of
925,400 shares in a privately negotiated transaction at a cost of $10.9
million.
The Company has no long-term debt. The Company believes that its current
cash position, anticipated working capital generated from future operations
and the ability to borrow should be adequate to meet its financing
requirements for the foreseeable future.
10
<PAGE>
COASTCAST CORPORATION
PART II. OTHER INFORMATION
Item 5. Other Information
1. The following business risks, as disclosed in Part II, Item 5 "Market for
Registrant's Common Equity and Related Stockholder Matters" on Form 10-K for
the fiscal year ended December 31, 1997, are hereby incorporated by
reference as though set forth fully herein:
Customer concentration
Competition
New products
New materials and processes
Manufacturing cost variations
Dependence on polishing and finishing plant in Mexico
Hazardous waste
Dependence on discretionary consumer spending
Seasonality; fluctuations in operating results
Reliance on key personnel
Shares eligible for future sale
Fluctuations in Callaway Golf Company shares.
2. On November 9, 1998, the Company and Jonathan Vannini announced as part
of an overall settlement between them that Mr. Vannini had withdrawn his
demand for a special meeting of shareholders of the Company and that the
litigation between them had been settled. Copies of the joint press release
of the Company and Mr. Vannini dated November 9, 1998 and the Agreement
dated November 6, 1998 between the Company and Mr. Vannini are included
as exhibits to this report, and such press release is incorporated herein
by this reference as though fully set forth herein.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<S> <C>
3.1.1 Articles of Incorporation of the Company, as amended (1)
3.1.2 Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on December
6, 1993 (1)
3.2 Bylaws of the Company (1)
10.1 Agreement dated November 6, 1998 between the Company and
Jonathan Vannini
10.2 Agreement dated November 6, 1998 between the Company and
Richard W. Mora
11 Statement re: computation of per share earnings
27 Financial data schedule
99.1 Pages 11-13 of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 (incorporated by reference to such
Form 10-K filed with the Commission)
99.2 Press release dated November 9, 1998
</TABLE>
(b) Reports on Form 8-K:
None
- -----------
(1) Incorporated by reference to the exhibits to the Registration Statement
on Form S-1 (Registration No. 33-71294) filed on November 17, 1993,
Amendment No. 2 filed on December 1, 1993, and Amendment No. 3 filed on
December 9, 1993
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COASTCAST CORPORATION
November 11, 1998 By /s/ Robert C. Bruning
----------------- ----------------------
Dated Robert C. Bruning
Chief Financial Officer (Duly Authorized and
Principal Financial Officer)
13
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of November 6, 1998
by and between Jonathan P. Vannini ("Mr. Vannini") and Coastcast Corporation,
a California corporation (the "Company"), and shall become effective subject
to and in accordance with Section 6.11 hereof.
RECITALS:
A. Mr. Vannini is the beneficial owner of 911,000 shares of common
stock, no par value, of the Company (the "Shares"). As used herein, the term
"beneficial owner" shall have the meaning set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
B. Mr. Vannini has demanded a special meeting of shareholders of the
Company (the "Special Meeting") and commenced steps looking toward the
solicitation of proxies to be voted at such meeting.
C. Litigation is pending between the parties in the United States
District Court in Los Angeles, California, entitled COASTCAST CORPORATION V.
VANNINI (CASE NO. 98-6625-WMB (Mcx), including certain counterclaims by Mr.
Vannini against the Company and Hans Buehler (the "Litigation").
D. In consideration of the representations and covenants of the Company
set forth herein, Mr. Vannini has agreed to withdraw his demand for a Special
Meeting; abandon all efforts to acquire shares of stock of the Company,
solicit proxies or affect control of the Company; settle the Litigation; and
release certain claims; on the terms and conditions hereinafter set forth.
E. In consideration of the representations and covenants of Mr. Vannini
set forth herein, the Company has agreed to make certain covenants; settle
the Litigation; and release certain claims; on the terms and conditions
hereinafter set forth.
AGREEMENTS:
SECTION 1. REPRESENTATIONS AND COVENANTS OF THE COMPANY. The Company
hereby represents to Mr. Vannini and, during the term and subject to all of
the provisions hereof, hereby covenants as follows:
SECTION 1.1 STOCK OPTION REPRICING. The Company's employee stock
option plan and non-employee director stock option plan have been amended by
the board of directors of the Company to prohibit repricing of outstanding
stock options without shareholder approval. No modification or withdrawal of
such amendment will be made without shareholder approval.
SECTION 1.2 COMPENSATION OF CHAIRMAN. Hans Buehler, the Chairman of
the Board of the Company, has resumed the position and duties of Chief
Executive Officer of the Company. The annual salary rate of Hans Buehler has
been voluntarily reduced by him by 20%. No increase will be made in the
salary rate of Mr. Buehler until at least one year from the date hereof.
<PAGE>
SECTION 1.3 RELINQUISHMENT OF SERP BENEFITS. Hans Buehler has
voluntarily relinquished all of his benefits under the Company's supplemental
executive retirement plan (the "SERP"). Such benefits will not be restored
without shareholder approval.
SECTION 1.4 CURTAILMENT OF SERP. Hans Buehler has recommended to the
board of directors of the Company curtailment or modification of the SERP to
reduce costs to the Company. A detailed proposal regarding any future SERP
or other benefits will be presented to the board of directors for evaluation
and possible implementation.
SECTION 1.5 ELECTION OF DIRECTORS. The authorized number of directors
provided by the bylaws of the Company is seven and there are currently seven
directors. In the event of a vacancy on the board of directors prior to the
1999 annual meeting of shareholders of the Company and upon the effectiveness
of this Agreement pursuant to Section 6.11 hereof, Mr. Vannini will be
elected forthwith by the board of directors to fill such vacancy and to serve
as a director of the Company until the next annual meeting of shareholders
and until his successor is elected and qualifies. Thereafter, Mr. Vannini
will be included on the slate of director-nominees of the board of directors
for election at the 1999 annual meeting of shareholders and at each
subsequent annual meeting of shareholders during the term of this Agreement
for as long as Mr. Vannini beneficially owns not less than 8% of the
outstanding common stock of the Company (as adjusted for any issuances of
shares after the date hereof). In addition to Mr. Vannini, the slate of
director-nominees of the board of directors for election at the 1999 annual
meeting of shareholders and at each subsequent annual meeting of shareholders
during the term of this Agreement for as long as Mr. Vannini beneficially
owns not less than 8% of the outstanding common stock of the Company (as
adjusted for any issuances of shares after the date hereof) shall include one
person selected by the board of directors subject to the approval of Mr.
Vannini (the "Vannini-approved director"), which approval will not
unreasonably be withheld. If the Vannini-approved director ceases to be a
director after his or her election as a director and prior to an annual
meeting of shareholders at which directors are to be elected, the person
elected to fill the resulting vacancy on the board of directors shall be
selected by the board of directors subject to the approval of Mr. Vannini,
which approval will not unreasonably be withheld.
SECTION 1.6 STOCK REPURCHASE PROGRAM. The Company has been authorized
by the board of directors to repurchase 457,000 shares of its outstanding
common stock in addition to shares which have already been repurchased by the
Company. The Company will continue to repurchase shares of its stock at such
times and such prices as management and the board of directors deem
advantageous and prudent.
SECTION 1.7 REIMBURSEMENT OF EXPENSES. Upon the effectiveness of this
Agreement, the Company will reimburse Mr. Vannini the sum of $400,000 for a
portion of his expenses in connection with the Litigation and the Special
Meeting.
SECTION 2. REPRESENTATIONS AND COVENANTS OF MR. VANNINI. Mr. Vannini
hereby represents to, and covenants with, the Company as follows:
2
<PAGE>
SECTION 2.1 OWNERSHIP OF SHARES. Mr. Vannini represents and warrants
that he beneficially owns all of the Shares free and clear of interests of
others except for a lien held by Smith Barney, Inc. for margin credit
extended to Mr. Vannini.
SECTION 2.2 ABANDONMENT OF SPECIAL MEETING AND PROXY SOLICITATION.
Promptly following the effectiveness of this Agreement, Mr. Vannini shall
take all such action as may be necessary and appropriate to cause to be
canceled and withdrawn all demands made by him, or on his behalf in respect
of the Shares, pertaining to a special meeting of shareholders of the Company
and inspection or delivery of shareholder records of the Company, and
terminate or cause to be terminated all efforts to solicit proxies for such
special meeting. Mr. Vannini will not, directly or indirectly, acquire
beneficial ownership of additional shares or any other securities of the
Company (collectively "Securities") which would result in him beneficially
owning more than 20% of the outstanding shares. Any additional Securities
acquired by Mr. Vannini will constitute Shares subject to the provisions of
this Agreement.
SECTION 2.3 VOTING OF SHARES. In connection with every future meeting
of shareholders of the Company during the term of this Agreement, Mr. Vannini
shall take all such action as may be necessary and appropriate so that all
shares of the Company owned beneficially, directly or indirectly, by him are
voted for and against each proposal or nominee for director in the same
proportion as the votes cast by holders of shares other than Mr. Vannini.
During the term of this Agreement, Mr. Vannini shall not contest any proxies
received by the Company with respect to, or submit, any proposal for vote of
shareholders at any annual or other meeting of shareholders of the Company.
SECTION 2.4 NO SOLICITATION OF PROXIES. During the term of this
Agreement, Mr. Vannini shall not directly or indirectly solicit proxies or
written consents or become a "participant" in a "solicitation" with respect
to any matter or with respect to any "election contest" relating to the
election of directors of the Company (as such terms are defined in
Regulation 14A under the Exchange Act), except to the extent that Mr. Vannini
may be deemed a participant in any solicitation by the board of directors of
the Company.
SECTION 2.5 NO PARTICIPATION IN GROUP. During the term of this
Agreement, and except as otherwise provided in this Agreement, Mr. Vannini
shall not directly or indirectly join, or assist or encourage in any respect
the formation of, a partnership, syndicate or other group (within the meaning
of the Exchange Act and Rule 13d-5 thereunder), or otherwise act in concert
with any other person, to affect control of the Company or to acquire, hold,
vote or dispose of Securities.
SECTION 2.6 TRANSFERS OF SHARES. During the term of this Agreement,
and except as otherwise provided in this Agreement, Mr. Vannini shall not
directly or indirectly sell or otherwise transfer in any manner any shares of
the Company (or enter into agreements or undertakings with respect to any of
the foregoing) except for sales in the open market or in privately negotiated
transactions to persons who do not, and will not as the result of any such
sale, own more than 5% of the outstanding shares of the Company. This
provision shall not restrict the right of Smith Barney, Inc. to exercise its
rights in respect of any Shares in which it may hold a security interest;
provided that any sale or transfer of any such Shares by Smith Barney, Inc.
is
3
<PAGE>
made independently by it solely in the exercise of its rights as secured
party and creditor. This provision shall also not restrict the right of Mr.
Vannini to tender any or all of the Shares in response to a tender offer made
in compliance with Section 14(d)(1) of the Exchange Act.
SECTION 2.7 SALE OR CONTROL OF THE COMPANY. During the term of this
Agreement, Mr. Vannini shall not (i) propose any business combination or
similar transaction with, or a change of control of, the Company to anyone
other than the board of directors of the Company, (ii) make or propose a
tender offer for Securities, (iii) otherwise act to seek control or influence
the management, board of directors, policies or affairs of the Company (other
than in his capacity as a director of the Company), or (iv) solicit or
encourage any person (other than the board of directors of the Company) to do
any of the foregoing. Mr. Vannini will promptly disclose to the board of
directors of the Company any proposals that he receives regarding the sale or
control of the Company.
SECTION 2.8 NO DERIVATIVE SUITS. Mr. Vannini shall not directly or
indirectly initiate, join in, assist or encourage in any respect any
shareholder derivative suit against any of the officers or directors of the
Company relating to any matter, cause or thing whatsoever from the beginning
of time to the date of this Agreement.
SECTION 2.9 ACTIONS OF CONTROLLED PERSONS. Mr. Vannini will cause each
person over whom he may have control or share control to observe the
foregoing provisions of Section 2 of this Agreement as if they were bound
thereby.
SECTION 3. DISMISSAL OF LITIGATION AND RELEASES.
SECTION 3.1 DISMISSAL OF LITIGATION. Forthwith following the
effectiveness of this Agreement, Mr. Vannini and the Company will dismiss
with prejudice the Litigation and all claims subject thereto, including,
without limitation, the counterclaim and claims for costs, expenses and
attorneys' fees.
SECTION 3.2 RELEASE BY THE COMPANY. Upon the effectiveness of this
Agreement, the Company hereby forever releases and discharges Mr. Vannini and
his representatives, employees, attorneys, advisors, successors and assigns
and all persons acting in concert with any such person from all manner of
claims, actions, causes of action or suits, at law or in equity, which the
Company now has or hereafter can, shall or may have by reason of any matter,
cause or thing whatsoever from the beginning of time to the date of this
Agreement, arising out of, in connection with, or in any way related to Mr.
Vannini's acquisition or ownership of shares of the Company, demand for a
special meeting of shareholders of the Company, solicitation of proxies in
connection therewith, or which are the subject of the Company's claims in the
Litigation, whether or not they were pleaded in the Litigation, excepting
only any action, cause of action or suit arising by virtue of an undertaking,
covenant, promise or representation contained in this Agreement.
SECTION 3.3 RELEASE BY MR. VANNINI. Upon the effectiveness of this
Agreement, Mr. Vannini hereby forever releases and discharges Hans Buehler
and his representatives, employees, attorneys, advisors, successors and
assigns and all persons acting in concert with any such person and the
Company and its present and former directors, officers, representatives,
4
<PAGE>
employees, attorneys, advisors, parents, subsidiaries, affiliated companies,
predecessors, successors and assigns and all persons acting in concert with
any such person from all manner of claims, actions, causes of action or
suits, at law or in equity, which Mr. Vannini now has or hereafter can, shall
or may have by reason of any matter, cause or thing whatsoever from the
beginning of time to the date of this Agreement, arising out of, in
connection with, or in any way related to Mr. Vannini's acquisition or
ownership of shares of the Company, demand for a special meeting of
shareholders of the Company, solicitation of proxies in connection therewith,
or which are the subject of Mr. Vannini's claims in the Litigation, whether
or not they were pleaded in the Litigation, excepting only any action, cause
of action or suit arising by virtue of an undertaking, covenant, promise or
representation contained in this Agreement.
SECTION 3.4 RELEASE OF UNKNOWN CLAIMS. Each of the parties hereby
waives the benefits of California Civil Code Section 1542 which provides as
follows:
Section 1542. CERTAIN CLAIMS NOT AFFECTED BY GENERAL RELEASE. A
general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
SECTION 4. TERM OF AGREEMENT. The term of this Agreement will end on the
earlier to occur of (i) August 31, 2000 and (ii) the date of the Company's
disclosure to its shareholders of commencement of a "going private"
transaction subject to Rule 13e-3 under the Exchange Act.
SECTION 5. PUBLICITY. Promptly following the effectiveness of this
Agreement, the parties shall issue a joint press release in the form of Annex
1 attached hereto. Thereafter, neither party shall make any public
disclosure or statement concerning the matters referred to herein (including,
but not limited to, confidential information produced in the Litigation),
except that (i) Mr. Vannini shall file a copy of this Agreement as an exhibit
to his statement on Schedule 13D, filed with the Securities and Exchange
Commission and shall make such disclosures as his counsel may advise are
required by law in his preliminary proxy statements and other documents filed
with the Securities and Exchange Commission, (ii) the Company shall file a
copy of this Agreement as an exhibit to a report on Form 8A or 10-Q with the
Securities and Exchange Commission and shall make such disclosures as its
counsel may advise are required by law in its proxy statements and reports
filed under the Securities Act of 1933, as amended, of the Exchange Act, and
(iii) nothing herein shall be construed to prevent either of the parties from
making any other disclosures as may be required by law.
SECTION 6. MISCELLANEOUS.
SECTION 6.1 INJUNCTIONS. Each of the Company and Mr. Vannini
acknowledge and agree that irreparable damage would occur in the event any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached and that such damage would not be
compensable in damages. It is accordingly agreed that each of the parties
hereto shall be entitled to an injunction or injunctions to prevent breaches
of the provisions
5
<PAGE>
of this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state thereof having jurisdiction,
in addition to any other remedy to which it may be entitled at law or equity,
without furnishing an undertaking or bond and without proof of irreparable
damage, both of which are hereby waived.
SECTION 6.2 NOTICES. All notices, requests and other communications to
any person named hereunder shall be in writing (including wire, telecopier or
similar writing) and shall be given to such person at its or his address or
telecopier number set forth below or such address or telecopier numbers as
such person may hereafter specify for the purpose by notice to the other
person:
If to the Company: Coastcast Corporation
3025 East Victoria Street
Rancho Dominguez, CA 90221
Telecopier No. (310) 631-2884
If to Mr. Vannini: Jonathan P. Vannini
828 Irwin Drive
Hillsborough, CA 94010
Telecopier No. (650) 347-2181
Each such notice, request or other communication shall be effective (a) if
given by telecopier, when such telecopier is transmitted to the telecopier
number specified in this subsection and the appropriate answer back is
received or (b) if given by any other means, when actually received at the
address specified in this subsection, PROVIDED a notice given other than
during normal business hours or on a business day at the place of receipt
shall not be effective until the opening of business on the next business day.
SECTION 6.3 GOVERNING LAW AND FORUM. This Agreement shall be construed
in accordance with and governed by the internal laws of the State of
California. Each of the parties hereby agrees that any litigation concerning
this Agreement shall be conducted exclusively in the Superior Court of the
State of California in Los Angeles County or the United States District Court
located in Los Angeles, and no such action shall be commenced in any other
court. The parties hereby irrevocably consent to the jurisdiction and venue
of the foregoing courts and waive any objection thereto.
SECTION 6.4 AMENDMENTS. This Agreement may be amended, modified or
supplemented only by written agreement of the parties hereto.
SECTION 6.5 WAIVER OF BREACH. Any failure of any party to comply with
any obligation, covenant, agreement or condition herein may be waived by the
party entitled to the benefit of such obligation, covenant, agreement or
condition only by a written instrument signed by such party, but such waiver
or failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any
6
<PAGE>
subsequent or other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent shall be effective
only if given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section.
SECTION 6.6 SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
SECTION 6.7 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6.8 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect to the subject
matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
SECTION 6.9 INVALID PROVISIONS. If any provision of this Agreement
shall be deemed or declared to be unenforceable, invalid or void, the same
shall not impair any of the other provisions of this Agreement.
SECTION 6.10 AUTHORITY. Each of the parties represents and warrants
with respect to itself or himself that it or he is duly authorized to
execute, deliver and perform this Agreement, that this Agreement has been
duly executed by such party, and that this Agreement is a valid and binding
agreement of such party, enforceable against such party in accordance with
its terms.
SECTION 6.11 EFFECTIVENESS OF AGREEMENT. This Agreement will become
effective on the date that Mr. Vannini is elected to serve as a director of
the Company to fill a vacancy on the board of directors resulting from the
resignation of a current director. If Mr. Vannini is not elected to serve as
a director of the Company by November 9, 1998, this Agreement will not become
effective and will be of no further force or effect after that date.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
COASTCAST CORPORATION
/s/ Jonathan P. Vannini By: /s/ Hans H. Buehler
- ------------------------- ---------------------------
JONATHAN P. VANNINI Hans H. Buehler
Chairman and Chief Executive Officer
7
<PAGE>
November 6, 1998
Mr. Richard W. Mora
2500 Wavecrest Drive
Corona del Mar, CA 92625
Dear Mr. Mora:
This letter confirms the following severance agreement with you in
connection with termination of your employment with Coastcast Corporation
("Coastcast"):
1. RESIGNATION. It is acknowledged that you have submitted your
resignation as an officer, director and employee of Coastcast effective November
6, 1998 (the "Termination Date").
2. SEVERANCE PAYMENTS AND BONUS.
(a) SEVERANCE PAYMENTS. Coastcast will make severance payments to
you in the total gross sum of $425,000, including a payment of $212,500 on
January 6, 1999 and a payment of $212,500 on January 5, 2000. The severance
payments will be paid in accordance with Coastcast's usual payroll practices.
(b) BONUS ELIGIBILITY. In the event that the Coastcast Board of
Directors authorizes payment of bonus compensation to any officers with respect
to their services for the 1998 fiscal year, the Board in its sole discretion may
award you a bonus, but shall be under no obligation to do so. The determination
of whether to make a bonus award to you and the amount thereof, if any, shall be
within the sole discretion of the Board of Directors.
3. RETIREMENT BENEFITS. In lieu of and in full satisfaction of any and
all obligations of Coastcast and any and all rights you may otherwise have under
or in respect of the Coastcast Supplemental Executive Retirement Plan (the
"SERP"), all of which are released by you pursuant to Paragraph 10 below,
Coastcast will provide retirement benefits to you in accordance with the
following:
<PAGE>
Mr. Richard W. Mora
November 6, 1998
Page 2
(a) SINGLE LIFE ANNUITY. On the date that you attain the age of
65 and on the same day of each succeeding month thereafter during the
remainder of your life, Coastcast will pay to you the gross sum of $6,667
(the "Single Life Annuity"). Payments under the Single Life Annuity will
cease upon your death.
(b) EARLY RETIREMENT ANNUITY. You may elect to have the monthly
payments provided for in subparagraph (a) immediately preceding commence prior
to the date that you attain the age of 65 by giving Coastcast at least 13 months
written notice of such election prior to the date on which you elect to have
such monthly payments commence, in which case Coastcast will pay to you a
reduced monthly sum which is the actuarial equivalent of the Single Life Annuity
payments provided for in subparagraph (a) immediately preceding (the "Early
Retirement Annuity").
(c) JOINT AND SURVIVOR ANNUITY. You may elect to have the monthly
Single Life Annuity payments, including the Early Retirement Annuity payments,
paid for as long as the survivor of you and your wife shall live by giving
Coastcast at least 13 months written notice of such election prior to the date
on which such monthly payments are to commence, in which case Coastcast will pay
to you and the survivor of you and your wife following the death of the first of
you to die a reduced monthly sum which is the actuarial equivalent of the Single
Life Annuity payments (or, if applicable, the Early Retirement Annuity payments)
(the "Joint and Survivor Annuity").
(d) ACTUARIAL ADJUSTMENTS. The Early Retirement Annuity and the
Joint and Survivor Annuity will be based on the Single Life Annuity and
actuarially adjusted to be the equivalent actuarial value of the Single Life
Annuity based on the following actuarial assumptions: (i) a discount rate of
7.5%; and (ii) mortality factors based on eighty percent (80%) of the 1983 Group
Annuity Mortality (83GAM) tables for males.
4. WITHHOLDING AND PAYMENTS. There will, of course, be deductions and
withholdings from the gross amount of all payments made to you hereunder for
applicable federal, state and local income and employment taxes, FICA, etc.
Unless you make other arrangements with Coastcast, checks will be mailed to your
home or deposited in your bank if you so designate.
5. HEALTHCARE BENEFITS. You may elect to continue health benefit
coverage under Coastcast's group health plan for you, your spouse and/or
eligible dependents to the extent available under the terms of the plan pursuant
to the healthcare coverage continuation provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), at the
<PAGE>
Mr. Richard W. Mora
November 6, 1998
Page 3
same coverage level provided immediately prior to the Termination Date.
Coastcast will pay the cost of COBRA continuation coverage for you, your wife
and daughter, Stacey, for the first 60 days following the Termination Date.
Thereafter, you will be responsible for the applicable premium cost of any
COBRA continuation coverage available to you, your wife and dependents for
the remainder of the COBRA continuation coverage period, provided that
Coastcast will pay the applicable premium cost of any COBRA continuation
coverage available to your daughter, Stacey, for a total period of up to 12
months following your Termination Date.
6. OUTPLACEMENT COSTS. Coastcast will reimburse you up to $35,000 for
the cost of outplacement services, office and communication expenses and other
costs incurred by you in obtaining employment, which amount shall be reimbursed
monthly within five (5) business days after receipt of an itemization of all
incurred expenses covered by this Paragraph 6. Reimbursement for outplacement
services will commence not earlier than the eighth day after the date hereof and
continue on the first business day of each month thereafter until the earlier of
such time as you obtain employment or receive the maximum reimbursement
specified herein.
7. SATISFACTION OF OBLIGATIONS. The payments and benefits provided for
you above shall be in lieu of and in full satisfaction of any and all
obligations of Coastcast and any and all other rights you may otherwise have to
compensation and benefits from Coastcast, including, without limitation, any and
all rights to compensation or benefits under or with respect to the SERP, the
bonus plan, the stock option plan, vacation, sick leave, and the like.
8. RETURN OF PROPERTY. Forthwith following execution and delivery of
this agreement, you will return and/or account for all Coastcast property in
your possession, including, without limitation, keys, credit cards, if any,
manuals, supplies, equipment, etc. The automobile which has been provided for
your use by Coastcast may be retained and used by you until December 1, 1998, at
which time it must be returned to Coastcast. You will be solely responsible for
any damage or necessary repairs to the vehicle between the time of execution of
this agreement and the return of the automobile to Coastcast.
9. EXPENSE REPORTS. You will submit to Coastcast, within a reasonable
period of time, all outstanding business expenses for reconciliation and
reimbursement. Coastcast will pay only for business expenses incurred prior to
the Termination Date and only according to its established expense reimbursement
policy.
10. RELEASE OF COASTCAST. Except as provided below in this Paragraph 10,
you hereby forever release and discharge Coastcast, all of its respective
subsidiaries, and all of their successors, affiliates, assigns, employees,
former employees, attorneys, agents, officers,
<PAGE>
Mr. Richard W. Mora
November 6, 1998
Page 4
directors, and shareholders from any and all causes of actions, judgments,
liens, indebtedness, damages, losses, claims, liabilities, and demands of
every kind and character, known or unknown, suspected, or unsuspected,
absolute or contingent, prior to the date of execution of this agreement
including but not limited to claims arising out of or in any manner relating
to (i) your employment with Coastcast and/or termination of such employment;
(ii) any restrictions on the right of Coastcast or any of the released
parties to terminate employees; (iii) any common law claims or actions; (iv)
any statements made by any of the released parties; or (v) any federal,
state, or governmental statute, regulation, or ordinance, including, without
limitation, Title VII of the Civil Rights Act of 1964 and the Civil Rights
Act of 1991, the Americans with Disabilities Act, the Employee Retirement
Income Security Act of 1974, the Age Discrimination in Employment Act, the
California Fair Employment and Housing Act, and claims with any division of
the California Department of Industrial Relations or Department of Fair
Employment and Housing. You hereby waive any and all rights you may have
under California Civil Code Section 1542 (or any analogous state law or
federal law or regulation) which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
The foregoing release does not apply to any of the obligations of Coastcast
under this agreement, your employee stock option agreement(s), the Coastcast
retirement savings plan (which is not the SERP), any rights which you may have
under directors and officers liability insurance policies maintained by
Coastcast, or the indemnification agreement between you and Coastcast which was
executed in 1995 (the "Indemnification Agreement").
11. RELEASE OF YOU. Except as provided below in this Paragraph 11,
Coastcast hereby forever releases and discharges you and your heirs, successors
and assigns from any and all causes of actions, judgments, liens, indebtedness,
damages, losses, claims, liabilities, and demands of every kind and character,
known or unknown, suspected, or unsuspected, absolute or contingent, prior to
the date of execution of this agreement including but not limited to claims
arising out of or in any manner relating to (i) your employment with Coastcast;
or (ii) your position as a director of Coastcast (collectively, "Coastcast
Claims"). Coastcast hereby waives any and all rights it may have under
California Civil Code Section 1542 (or any analogous state law or federal law or
regulation) which provides as set forth in Paragraph 10 above.
<PAGE>
Mr. Richard W. Mora
November 6, 1998
Page 5
The foregoing release does not apply to any of your obligations under this
agreement or the Indemnification Agreement or any Coastcast Claims arising out
of or resulting from misappropriation of funds or property, fraud, gross
negligence or willful misconduct by you.
12. ENTIRE AGREEMENT. It is understood and agreed that this agreement is
fully integrated, represents the entire understanding of the parties, and there
are no other agreements, representations, promises, or negotiations which have
not been expressly set forth herein, any outstanding stock option agreements,
and any other employee benefit plans sponsored by Coastcast in which you are
participating as of the Termination Date. Nothing contained herein shall
constitute or imply any admission of liability or wrongdoing by any party. This
agreement can be amended, modified, or terminated only by an instrument in
writing executed by you and the chief executive officer of Coastcast.
13. COOPERATION. You further agree and understand that you are prohibited
for a period of two years from employing or attempting to employ any of
Coastcast's employees. You further agree that you will not in any way disparage
Coastcast or any of its employees or directors, or engage in any conduct adverse
to Coastcast's interests, including but not limited to the disclosure to
competitors or diversion or attempted diversion by solicitation or any other
means of any of Coastcast's business opportunities existing, identified or for
which discussions were initiated prior to the Termination Date, confidential
information, technology or proprietary rights. You shall also cooperate with
Coastcast in its defense of the pending counterclaim against Coastcast by
Jonathan Vannini in the suit pending in the federal court in Los Angeles,
California and in any litigation or administrative proceedings involving any
matters with which you were involved during your employment with Coastcast,
provided that Coastcast reimburses you for out-of-pocket expenses incurred by
you at Coastcast's request, which expenses must be authorized and approved in
advance by Coastcast. Should you violate this or any other provision of this
agreement, you understand and agree that you will forfeit any and all remaining
payments under this agreement. Coastcast will also not disparage you.
Provisions of this Paragraph 13 precluding you from disparaging Coastcast and
Coastcast from disparaging you shall not limit in any manner claims or
allegations by you or Coastcast in connection with litigation or threatened
litigation.
14. DISPUTE RESOLUTION. It is understood and agreed that:
(a) ARBITRATION. In the event of any dispute, controversy, or claim
concerning this agreement, its validity, interpretation, enforcement, or breach,
the prevailing party, in addition to all other legal or equitable remedies
possessed, shall recover his or its
<PAGE>
Mr. Richard W. Mora
November 6, 1998
Page 6
reasonable attorneys fees and costs in connection with any such dispute,
controversy, or claim. Any such dispute, controversy, or claim shall be
resolved by arbitration in the County of Los Angeles, State of California, in
accordance with the then-existing commercial arbitration rules of the
American Arbitration Association, and judgment upon any award rendered by the
arbitrator(s) may be entered by any state or federal court having
jurisdiction thereof. The arbitrator shall have the authority only to
enforce the legal and contractual rights of the parties and shall not add to,
modify, disregard or refuse to enforce any contractual provision. The
arbitrator shall have no right, power or jurisdiction to award a party any
punitive or exemplary damages of any kind. The parties acknowledge and agree
that by entering into this Agreement they are agreeing to this arbitration
provision and are waiving all rights to a trial by jury. The provisions of
California Code of Civil Procedure Sections 1281, et seq. govern this
arbitration provision. The parties intend that this agreement to arbitrate
shall be valid, enforceable, and irrevocable.
(b) INJUNCTIVE RELIEF. This Paragraph 14 shall only operate to
require arbitration of claims for money damages. Should a party wish to seek
injunctive or other non-monetary relief, those claims shall be brought in a
court of competent jurisdiction.
15. REVOCATION OF AGREEMENT. It is understood, acknowledged, and agreed
that:
(a) AGE DISCRIMINATION. IN CONSIDERATION OF THE ADDITIONAL
SEPARATION PAYMENTS PROVIDED HEREUNDER, WHICH PAYMENTS AND BENEFITS ARE BEYOND
THOSE PROVIDED BY COASTCAST POLICY OR BY LAW, YOU ARE KNOWINGLY AND VOLUNTARILY
WAIVING VARIOUS RIGHTS AND CLAIMS, INCLUDING ANY POSSIBLE CLAIMS FOR AGE
DISCRIMINATION UNDER THE FEDERAL LAW KNOWN AS THE AGE DISCRIMINATION AND
EMPLOYMENT ACT OF 1967, AS AMENDED. YOU UNDERSTAND THAT THIS WAIVER DOES NOT
EXTEND TO RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE THIS AGREEMENT IS
EXECUTED.
(b) CONSULTATION WITH ATTORNEY. YOU HAVE BEEN GIVEN AN OPPORTUNITY
TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING THIS AGREEMENT. YOU HAVE BEEN
GIVEN A PERIOD OF AT LEAST 21 DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT AND
HAVE WAIVED THIS RIGHT AFTER CONSULTING WITH AN ATTORNEY.
(c) REVOCATION OF AGREEMENT. YOU UNDERSTAND THAT YOU MAY REVOKE THIS
AGREEMENT WITHIN SEVEN (7) DAYS FOLLOWING ITS EXECUTION, AND THAT THIS AGREEMENT
SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THIS SEVEN-DAY REVOCATION PERIOD
HAS EXPIRED. YOU MAY REVOKE THIS AGREEMENT ONLY BY GIVING WRITTEN NOTICE TO
COASTCAST WITHIN THE SEVEN (7) DAY PERIOD. IF YOU REVOKE THIS AGREEMENT, THIS
AGREEMENT BECOMES NULL AND VOID.
<PAGE>
Mr. Richard W. Mora
November 6, 1998
Page 7
(d) APPROVAL BY COASTCAST BOARD OF DIRECTORS. YOU UNDERSTAND THAT
THE EFFECTIVENESS OF THIS AGREEMENT IS SUBJECT TO THE APPROVAL OF THE BOARD OF
DIRECTORS OF COASTCAST WITHIN THE SEVEN (7) DAY REVOCATION PERIOD DESCRIBED IN
SUBPARAGRAPH 15(c), ABOVE. IN THE EVENT THIS AGREEMENT IS NOT APPROVED BY THE
BOARD OF DIRECTORS, COASTCAST MAY REVOKE THIS AGREEMENT WITHIN SEVEN (7) DAYS
FOLLOWING ITS EXECUTION, AND THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR
ENFORCEABLE UNTIL THIS SEVEN-DAY REVOCATION PERIOD HAS EXPIRED. COASTCAST MAY
REVOKE THIS AGREEMENT ONLY BY GIVING WRITTEN NOTICE TO YOU WITHIN THE SEVEN (7)
DAY PERIOD. IF COASTCAST REVOKES THIS AGREEMENT, THIS AGREEMENT BECOMES NULL
AND VOID.
16. ENFORCEMENT OF AGREEMENT. Should any portion, word, clause,
phrase, sentence or paragraph of this Agreement be declared void or
unenforceable, such portion shall be considered independent and severable from
the Agreement, the validity of which shall remain unaffected.
Please confirm your agreement to the foregoing by dating and signing this
Agreement where indicated below and returning a signed copy to Coastcast.
Sincerely,
COASTCAST CORPORATION
By: /s/ Hans H. Buehler
-----------------------------------
Hans H. Buehler
Chairman and Chief Executive Officer
Agreed this 6th day of November 1998.
/s/ Richard W. Mora
- -------------------------------------
Richard Mora
<PAGE>
Exhibit 11
COASTCAST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock outstanding at beginning of period 8,959,050 8,794,334 8,849,005 8,777,890
Exercise of options 95,154 - 205,199 16,444
Repurchase of common stock (1,047,800) - (1,047,800) -
---------- --------- ---------- ----------
Common stock outstanding at end of period 8,006,404 8,794,334 8,006,404 8,794,334
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Weighted average shares outstanding,
for computation of basic earnings per share 8,657,080 8,794,334 8,855,644 8,790,987
Dilutive effect of stock options after application
of treasury stock method 42,227 109,450 253,992 121,494
---------- --------- ---------- ----------
Total diluted weighted average shares outstanding,
for computation of diluted earnings per share 8,699,307 8,903,784 9,109,636 8,912,481
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Income from continuing operations $682,000 $3,740,000 $8,704,000 $7,754,000
Loss from discontinued operations (157,000) - (157,000) -
---------- --------- ---------- ----------
Net income $525,000 $3,740,000 $8,547,000 $7,754,000
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net income per share data:
Income from continuing operations per share -
basic $0.08 $0.43 $0.99 $0.88
Discontinued operations per share - basic (0.02) - (0.02) -
---------- --------- ---------- ----------
Net income per share - basic $0.06 $0.43 $0.97 $0.88
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Income from continuing operations per share -
diluted $0.08 $0.42 $0.96 $0.87
Discontinued operations per share - diluted (0.02) - (0.02) -
---------- --------- ---------- ----------
Net income per share - diluted $0.06 $0.42 $0.94 $0.87
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 26,272
<SECURITIES> 0
<RECEIVABLES> 10,812
<ALLOWANCES> 600
<INVENTORY> 14,012
<CURRENT-ASSETS> 58,060
<PP&E> 43,472
<DEPRECIATION> 18,895
<TOTAL-ASSETS> 89,625
<CURRENT-LIABILITIES> 8,853
<BONDS> 0
0
0
<COMMON> 30,366
<OTHER-SE> 47,705
<TOTAL-LIABILITY-AND-EQUITY> 89,625
<SALES> 120,536
<TOTAL-REVENUES> 120,536
<CGS> 98,160
<TOTAL-COSTS> 98,160
<OTHER-EXPENSES> 8,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,006
<INCOME-TAX> 6,302
<INCOME-CONTINUING> 8,704
<DISCONTINUED> 157
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,547
<EPS-PRIMARY> .97
<EPS-DILUTED> .94
</TABLE>
<PAGE>
Coastcast Corporation and Jonathan Vannini Announce Settlement
RANCHO DOMINGUEZ, Calif.--Nov. 9, 1998--Coastcast Corporation (NYSE:PAR)
and Jonathan Vannini today announced as part of an overall settlement between
them that Vannini has withdrawn his demand for a special meeting of
shareholders of Coastcast and that the litigation between them has been
settled.
The vacancy on the board of directors created by the resignation of
Richard W. Mora as an officer and director of Coastcast has been filled by
the election of Vannini to serve as a director of Coastcast. Vannini will
also be included on the slate of director-nominees of the board of directors
of Coastcast for election at the 1999 and 2000 annual meetings of
shareholders for as long as he continues to own not less than 8% of the
outstanding common stock of Coastcast. In addition to Vannini, the slate of
director-nominees of the board of directors for election at the 1999 and 2000
annual meetings of shareholders will include one person selected by the board
of directors subject to the approval of Vannini.
Vannini has withdrawn his demand for a special meeting of shareholders
of Coastcast. He has agreed that until August 31, 2000 he will refrain from
soliciting proxies or initiating or participating in efforts to affect
control or influence the affairs of Coastcast. He has also agreed to vote
his Coastcast shares at all meetings of shareholders of Coastcast during that
period in the same proportions as the votes cast by other shareholders.
Coastcast and Vannini have agreed to dismiss the litigation between
them, including Vannini's counterclaim against Coastcast and Hans Buehler,
Chairman and Chief Executive Officer. The parties have also exchanged
releases of all claims relating to the litigation and Vannini's ownership of
Coastcast shares. Coastcast has agreed to reimburse Vannini the sum of
$400,000 for a portion of the expenses incurred by him in connection with the
proposed special meeting of shareholders and the related litigation.
Buehler stated: "We are pleased to have resolved the differences with
Mr. Vannini so that the management of Coastcast may devote undivided
attention to running the company's business. We credit Mr. Vannini with
focusing attention on some important compensation issues which has resulted
in substantial cost reductions to the company. I expect him to make
additional contributions to Coastcast's future as a member of our board."
Buehler further stated: "Within the last several months, the board of
directors has rescinded amendments to the company's two stock option plans
which were approved at the 1998 annual meeting of shareholders, amended those
plans to preclude repricing of options without shareholder approval, and
curtailed the company's supplemental executive retirement plan which will
result in substantial savings to Coastcast. I personally have voluntarily
relinquished all of my rights under that plan and reduced my annual salary
rate by 20%. Compensation of other salaried employees has also been reduced."
Vannini added: "I am pleased by the actions taken by Mr. Buehler and the
Coastcast board in response to my recommendations. They have justified the
confidence I have shown in the Company by my substantial investment in
Coastcast stock. I look forward to working with the directors of Coastcast
in an effort to enhance shareholder value."
Coastcast, a leading manufacturer of golf clubheads, produces metal
woods, irons and putters in a variety of metals, including stainless steel
and titanium. Customers include Callaway, Cleveland, Cobra, Daiwa, Odyssey,
Taylor Made, Titleist and Wilson. The Company also manufactures a variety of
investment-cast orthopedic implants and surgical tools that are made to
customer specifications.
# # #
CONTACT: Coastcast Corp., Rancho Dominguez
Hans H. Buehler, 310/638-0595
