<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-12676
-----------------------
COASTCAST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3454926
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3025 EAST VICTORIA STREET 90221
RANCHO DOMINGUEZ, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 638-0595
------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------- ---------------------
COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the New York Stock
Exchange on March 15, 1999 ($8.500 per share): $52,255,000.
As of March 15, 1999, 7,934,404 shares of the Common Stock, no par
value, of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held June 18, 1999, are incorporated by reference into Part
III of this Report.
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COASTCAST CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
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PART I PAGE
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Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
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PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 11
Item 6 Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8 Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 19
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PART III
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Item 10. Directors and Executive Officers of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management 19
Item 13. Certain Relationships and Related Transactions 20
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PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20
</TABLE>
2
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PART I
ITEM 1. BUSINESS.
GENERAL
Coastcast Corporation is one of the largest manufacturers in the world
of investment-cast titanium and stainless steel golf clubheads for
high-quality, premium-priced metal woods, irons and putters. The Company
believes it has manufactured more metal wood clubheads for high-quality,
premium-priced golf clubs than any other manufacturer. Over the past two
decades, golf clubs with perimeter-weighted heads have become much more
popular among golfers because such clubs are more forgiving to off-center
hits than other types of clubs. The investment-casting process has become the
principal method for manufacturing clubheads because it facilitates the use
of perimeter weighting designs and modern alloys and enhances manufacturing
precision and uniformity. Manufacturing precision is particularly important
in the manufacture of an oversized, thin-walled metal wood which can involve
more than 200 separate manufacturing steps to produce a clubhead that meets
strict standards for size, weight, strength and finish.
The Company also manufactures a variety of investment-cast orthopedic
implants and surgical tools (used principally in replacement of hip and knee
joints in humans and small animals) and other specialty products, which
products accounted for less than 7% of the Company's total sales for the year
ended December 31, 1998.
In the past three years, golf clubs with titanium alloy heads have
become popular. The Company developed the capability of manufacturing
titanium clubheads and began shipping titanium clubheads at the end of 1995.
Titanium clubheads accounted for approximately 50% and 41% of the Company's
total sales in 1997 and 1998, respectively.
The Company was incorporated as a California corporation in 1980.
BUSINESS STRATEGY - GOLF
The Company recognizes that golf club companies are critical to its
success and, accordingly, has designed its business strategy to engender
customer satisfaction in order to maintain its industry leadership position.
The Company's strategy consists of the following principal elements:
- MAINTAIN RELIABLE, HIGH-QUALITY MANUFACTURING. The Company believes
its manufacturing expertise, quality control, scheduling flexibility,
substantial production capacity and its ability to manufacture golf
clubheads using stainless steel or titanium alloys differentiate it
from others in the industry. The Company endeavors to respond quickly
to customers' orders and deliver high-quality clubheads on a timely
basis. This capability is particularly important to golf club
companies which can experience rapid growth from the increasing
popularity of a particular club or set of clubs.
- INTEGRATE OPERATIONS. The Company's operations are integrated, from
the computer-aided manufacture of some of the tooling used to produce
clubheads through foundry operations and finishing processes,
including painting.
- FOSTER CLOSE CUSTOMER RELATIONSHIPS. The Company believes that its
responsive service has been a significant element of its success. The
Company endeavors to be a value-added supplier by offering
consistently high levels of customer service and support.
The Company has a staff of 12 employees dedicated to sales and customer
service. The Company maintains its own internal laboratory for testing of
customers' products during the production process. The Company typically
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delivers finished products to its customers within 10 weeks from receipt of the
customer's order during peak production periods, within 6 to 8 weeks during
other periods and within several weeks or even several days if necessary to
accommodate a customer's need for more rapid delivery. With new products,
depending on their complexity, a longer turnaround period may be expected.
GOLF PRODUCTS
The Company's golf products are generally used in golf clubs targeted at
the high end of the market. These clubs must satisfy the requirements of
highly-skilled amateur and professional golfers, including touring
professionals. As such, golf clubs which incorporate clubheads manufactured
by the Company are sometimes referred to in the industry as "tour-driven"
golf clubs.
The Company's clubheads are included in a variety of leading metal
woods, irons and putters, some of which are listed below:
CALLAWAY
--------
GREAT BIG BERTHA HAWKEYE TITANIUM METAL WOODS
GREAT BIG BERTHA TITANIUM METAL WOODS
BIG BERTHA STEELHEAD METAL WOODS
BIG BERTHA WARBIRD METAL WOODS
GREAT BIG BERTHA TUNGSTEN TITANIUM IRONS
X12 BIG BERTHA IRONS
BIG BERTHA IRONS
TOUR SERIES WEDGES
BIG BERTHA BLADE PUTTERS
S2H2 PUTTERS
BOBBY JONES PUTTERS
CLEVELAND
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8T TOUR ACTION TITANIUM METAL WOODS
TA3 IRONS
RTG WEDGES
588 WEDGES
691 WEDGES
485 WEDGES
COBRA
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KING COBRA TOUR TITANIUM METALWOODS
KING COBRA OFFSET TITANIUM METALWOODS
TRUSTY RUSTY PWR WEDGES
BOBBY GRACE PUTTERS
ODYSSEY
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DUAL FORCE BLADE PUTTERS
DF ROSSIE MALLET PUTTERS
DUAL FORCE WEDGES
VARIABLE DUROMETER PUTTERS
TAYLOR MADE
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FIRESOLE TITANIUM METAL WOODS
TITANIUM BUBBLE 2 IRONS
BURNER BUBBLE TITANIUM 2 METAL WOODS
TITANIUM 2 FAIRWAY RAYLORS
TOUR WOODS
BURNER BUBBLE 2 METAL WOODS
BURNER TOUR IRONS
LCG IRONS
TITLEIST
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975D/976R TITANIUM METAL WOODS
STARSHIP METAL WOODS
DCI 981 & 981 SL IRONS
DCI 962 IRONS
OVERSIZE PLUS IRONS
962 "BLADE" IRONS
BOB VOKEY WEDGES
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NEVER COMPROMISE
----------------
ALPHA PUTTERS
BETA PUTTERS
GAMMA PUTTERS
DELTA PUTTERS
ALPHA II PUTTERS
KAPPA PUTTERS
PING
----
ISI TITANIUM METAL WOODS
GOLF PRODUCT CUSTOMERS
Over the past fifteen years, the Company has supplied investment-cast
clubheads for metal woods, irons and putters to a majority of the top golf
companies which produce high-quality, premium-priced golf clubs. Most golf
club companies source the three principal components of a golf club--the
clubhead, shaft, and grip--from independent suppliers which manufacture these
components based on the golf club companies' designs and specifications. The
Company currently is a major supplier of stainless steel and titanium
clubheads to Callaway Golf Company, which is the producer of the Big Bertha
line of steel metal woods and irons and the Great Big Bertha titanium metal
woods and irons, and Odyssey putters and wedges, since its acquisition by
Callaway in August 1997. In addition, the Company is a supplier of
investment-cast steel and titanium clubheads for companies which market the
Titleist, Taylor Made, Cleveland, Cobra, Never Compromise, Wilson and Daiwa
brands of golf clubs.
Substantially all of the clubheads manufactured by the Company are used
in high-quality, premium-priced golf clubs. The Company believes that a
substantial portion of the clubheads manufactured by it are incorporated in
clubs sold in North America, although an increasing portion of the Company's
clubheads are incorporated in clubs sold in parts of Asia, Europe and other
parts of the world. Historically, a limited number of golf club companies
have held a very substantial portion of the total market share for
high-quality, premium-priced golf clubs in North America. Currently, some of
the more popular high-quality, premium-priced clubs are Callaway metal woods
and irons; Taylor Made metal woods and irons; Titleist metal woods, irons and
putters; Odyssey putters; Wilson metal woods, irons and putters; and Cobra
metal woods. Several of these golf clubheads are marketed by customers of the
Company. Callaway (including Odyssey after its acquisition by Callaway in
August 1997) accounted for 49%, 34% and 46% of the Company's total sales in
1998, 1997 and 1996, respectively. Fortune Brands (formerly American Brands,
owner of Titleist and Cobra) accounted for 22% and 12% of the Company's total
sales in 1998 and 1997, respectively. Taylor Made accounted for 14%, 23% and
18% of the Company's total sales in 1998, 1997 and 1996, respectively.
A close working relationship typically exists between the Company and
its principal golf club customers, and sales and marketing activities are
conducted by a limited number of direct sales employees and senior executives
of the Company.
MANUFACTURING - GOLF
INVESTMENT-CASTING PROCESS. Investment-casting is a highly specialized
method of making metal products. It has become the principal method for the
manufacture of golf clubheads. Previously, woods were made of wood and irons
were produced by forging and machining. Greater flexibility in the shape and
weight distribution of clubheads is possible with the investment-casting
process. Investment-casting facilitates perimeter weighting and the use of
modern alloys. It also enhances manufacturing precision and uniformity. The
enhanced precision inherent in investment-casting is particularly important
in the manufacture of metal woods which can involve more than 200 separate
manufacturing steps.
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The basic steps of investment-casting, in its simplest form, are as
follows:
- - Produce a metal die (sometimes called a wax mold) based on
specifications provided by the customer.
- - Inject wax into the die, producing a pattern the exact shape of the
final casting.
- - Surround (or "invest") the pattern with a ceramic material which is
allowed to dry to form a ceramic shell.
- - Remove the wax by heat, leaving a cavity in the ceramic shell in the
shape of the desired casting.
- - Pour molten metal into the cavity in the ceramic shell and allow it to
solidify.
- - Remove the ceramic material by mechanical and chemical action after the
metal solidifies and clean the casting.
- - Finish and inspect the casting.
METAL ALLOYS. Most clubheads manufactured by the Company are made of
titanium or stainless steel alloys. Titanium clubheads have similar tensile
strength as stainless steel with approximately one-half the weight of steel.
Therefore, a larger oversized clubhead can be manufactured using titanium
without increasing clubhead weight. The Company's Gardena facility is devoted
to titanium operations.
POLISHING AND FINISHING. The Company conducts golf clubhead polishing
and finishing operations in its facilities in Mexicali, Mexico. Finishing of
the head for an iron or putter can require more than 50 separate steps and
finishing of a head for a metal wood can involve as many as 100 separate
steps. Most of the clubheads and substantially all of the metal woods
manufactured by the Company are finished by it to customer specifications,
although some of such clubheads--principally irons--are delivered to
customers in an unfinished state. The Company, to assist its customers, at
times also polishes and finishes limited quantities of investment-cast
clubheads manufactured by other companies.
QUALITY CONTROL. The Company believes that its success as a leading
supplier of golf clubheads is largely attributable to its quality control
measures. The Company attempts to monitor every aspect of the engineering and
manufacturing process to assure the quality of the clubheads manufactured by
the Company. Particular attention is paid to the quality of raw materials
(principally wax, ceramic and metal alloys), gating techniques employed in
channeling the flow of molten metal in the ceramic shell in the casting
process, and rigorous inspection standards to assure compliance with the
customers' product specifications throughout the manufacturing process.
REGULATIONS. The Company uses hazardous substances and generates
hazardous waste in the ordinary course of its business. The Company is
subject to various federal, state, local and foreign environmental laws and
regulations, including those governing the use, discharge and disposal of
hazardous materials. Although the Company has not to date incurred any
material liabilities under environmental laws and regulations and believes
that its operations are in substantial compliance with applicable laws and
regulations, environmental liabilities could arise in the future that may
adversely affect the Company's business. See "Discontinued Operations" below.
COMPETITION - GOLF
The Company operates in a highly competitive environment. The Company
competes against a number of manufacturers of investment-cast titanium clubheads
for high-quality, premium-priced golf clubs, including but not
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limited to: Sturm Ruger, Inc., and Cast Alloys, Inc. The Company competes
principally against two significant U.S.-based manufacturers (Hitchner
Manufacturing Co., Inc. and Cast Alloys, Inc.) of investment-cast steel
clubheads. The Company also competes with several foreign manufacturers of
investment-cast steel clubheads, including Worldmark Services Ltd. (formerly
Fu-Sheng Industrial Co. Ltd.).
The Company believes that its position as a leading manufacturer of
titanium and steel clubheads for high-quality, premium-priced golf clubs is
due to its ability to produce quality clubheads in quantities sufficient to
meet rapidly growing demand for popular golf clubs, its experience and
expertise in manufacturing investment-cast golf clubheads, and its integrated
manufacturing operations.
Although price is a factor, the Company does not compete solely on
price. Quality and service are key success factors in the premium price golf
clubhead market. The Company seeks to provide better products and service to
its customers than its competitors in order to increase or retain market
share.
Although the Company's foreign competitors (the principal ones of which
are located in Asia) are typically able to offer prices below the Company's
prices, the Company believes that it has some competitive advantages over
foreign manufacturers, including its ability to deliver clubheads more
quickly to its customers due to shorter shipping and lead times. Shipment of
clubheads to the United States from Asia usually requires at least two weeks
by ocean freight. In addition, the Company believes that its foreign
competitors have not demonstrated the same willingness and ability as the
Company to commit sufficient resources to meet rapidly growing demand for
popular golf clubs in a timely manner. Further, the Company believes that
certain of its customers prefer products made in the United States.
The Company also competes against golf club companies that internally
produce clubheads for their clubs. The Company believes that one of the
largest dozen golf club companies, Karsten Manufacturing Co., which produces
the Ping brand of clubs, manufactures substantially all of the
investment-cast steel clubheads for use in its own clubs. The Company
believes that this golf club company produces clubheads for its own use only
and does not currently compete with the Company for the business of other
golf club companies. However, Karsten Manufacturing Co. has purchased some
golf clubheads for its Ping brand from the Company.
The Company also faces potential competition from those golf club
companies that currently purchase golf clubheads from outside suppliers but
may, in the future, manufacture clubheads internally. If the Company's
current customers begin manufacturing clubheads internally, the Company's
sales would be adversely affected. The Company believes that as long as
component suppliers, such as the Company, provide high-quality component golf
club parts at competitive prices and reliably, it is unlikely that many golf
club companies will commence their own manufacturing.
The Company experiences indirect competition from golf club companies
that produce golf clubs with clubheads that are not investment-cast. For
example, some clubheads for woods are made of wood, some clubheads for irons
are forged, some clubheads for putters are machined, and some clubheads are
made of graphite or other composites. The Company believes that the
investment-cast, metal clubhead has a greater share of the market for
clubheads for high-quality, premium priced golf clubs than these alternate
types of clubheads. In particular, the metal wood has surpassed the wooden
wood as the most popular wood and the investment-cast iron has surpassed the
forged iron as the most popular type of iron. Graphite and other composite
clubheads have been available for several years, but to date have not become
nearly as popular as investment-cast clubheads.
EMPLOYEES
As of December 31, 1998, the Company employed 3,072 persons on a
full-time basis. Of these employees, 2,163 and 184 were employed by Coastcast
Corporation, S.A. and Coastcast Tijuana S. de R. L. de C. V., respectively,
the Mexican subsidiaries of the Company. The Company considers its employee
relations to be good.
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The production and maintenance employees in the Gardena, California
facility are represented by the United Steelworkers of America. There were
130 such employees as of December 31, 1998. The collective bargaining
agreement for such employees was effective May 12, 1997, and will expire on
May 11, 2000.
ORTHOPEDIC IMPLANTS AND SPECIALTY PRODUCTS
The Company also manufactures orthopedic implants and surgical tools
(used principally for replacement of hip and knee joints in humans and small
animals) and other specialty products. The Company believes that the
engineering and manufacturing discipline required to manufacture these
products has contributed to the Company's ability to manufacture golf
products.
The Company is endeavoring to develop its steel, titanium, and other
alloy investment casting capabilities to potential customers in other
commercial and industrial businesses outside of the golf business. At this
stage, the Company cannot predict which product opportunities will result in
profitable sales, and whether volumes will be significant.
The Company believes that its principal competitors in this business are
Precision Castparts Corporation and PED Manufacturing.
TERMINATION OF CHINA JOINT VENTURE
In December 1998, the Company entered into a joint venture agreement
with a company in Taiwan to establish a new golf clubhead manufacturing plant
in mainland China. That joint venture agreement has since been terminated.
The parties concluded that current market conditions were not sufficiently
stable to proceed with joint ownership of a new plant in China. The Company
incurred no costs in connection with the terminated joint venture other than
legal, accounting and administrative costs which were not material.
DISCONTINUED OPERATIONS
The Company historically manufactured investment-cast aerospace and
other industrial products in addition to golf clubheads and orthopedic
implant products. In October 1993, the Company announced its decision to
discontinue its aerospace business because of declining sales and operating
losses on this portion of its business. This business was essentially phased
out by June 1994. In connection with the offering for sale of the
Wallingford, Connecticut property, the Company had an environmental
assessment performed, which identified the presence of certain chemicals
associated with chlorinated solvents in groundwater beneath a portion of the
property. The Company conducted investigations to determine the source and
extent of the contamination. In addition, the Company determined that 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, under
an agreement 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
Consolidated Statements of Income.
ITEM 2. PROPERTIES.
The Company's principal executive offices and one of two investment
casting manufacturing facilities are located in a 120,000 square foot leased
facility in Rancho Dominguez, California, a suburb of Los Angeles. The lease
expires in October, 2003 and the Company has a five-year extension option.
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The Company owns a complex of plants in Gardena, California (which is
within approximately five miles of the Rancho Dominguez facilities),
comprising an aggregate of approximately 110,000 square feet. These
facilities are principally used for manufacturing titanium golf clubheads and
tooling. In October 1994, the Company purchased approximately two acres of
land contiguous to its Gardena facility. In April 1996, the Company purchased
another approximately two acres of land next to the land purchased in October
1994. This land is available for future expansion if and when necessary.
Clubhead polishing and finishing operations are conducted in facilities
leased by the Company's subsidiary in Mexicali, Mexico under four lease
agreements, comprising an aggregate of approximately 141,000 square feet.
Three of the leases expire in December 2003, and the other lease expires in
June 2001.
The Company intends to move most of its steel casting operations to a
186,000 square foot leased investment casting facility for steel products in
Tijuana, Mexico. The facility is currently operational. The Company has
options to lease sites contiguous to the property as needed for future growth.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to legal actions arising in the ordinary course
of business, none of which, individually or in the aggregate, in the opinion
of management, after consultation with counsel, will have a material adverse
effect on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Hans H. Buehler 66 Chairman of the Board and Chief Executive
Officer
Robert C. Bruning 56 Chief Financial Officer and Secretary
Ramon F. Ibarra 46 Vice President, Manufacturing
Bryan Rolfe 45 Vice President, New Product Development
Kathleen H. Wainwright 34 Vice President, Sales
</TABLE>
Mr. Buehler is one of the founders of the Company and has been Chairman
of the Board since the Company's inception in 1980. Prior to founding the
Company, he was President of the Rex Precision Products Division of Alco
Standard Corporation, a competitor of the Company that was acquired by the
Company in 1987. Mr. Buehler has more than 40 years of experience in the
investment-casting business, including more than 30 years of experience in
the manufacture of golf clubheads.
Mr. Bruning joined the Company in May 1996. From 1989 to 1996, he was
Chief Financial Officer of Zacky Farms, Inc., a producer of poultry products.
From 1986 to 1988, Mr. Bruning was a partner at Coopers & Lybrand, LLP. Prior
to that time he worked for Arthur Andersen, LLP for 19 years, 9 of which he
served as a partner.
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Mr. Ibarra joined the Company in June 1981. Since 1989, he has served as
Vice President, Manufacturing of the golf operations of the Company. Prior to
such time, he served as the production manager for the Company with respect
to all phases of its business and as the plant manager at the facility
located in Rancho Dominguez, California.
Mr. Rolfe joined the Company in July 1998. From 1997 to June 1998, he
was a consultant and President of Slotline Golf Company. From 1995 to 1997,
he was the President and Chief Operating Officer of Cleveland Golf Company.
Mr. Rolfe worked 20 years at Salomon North America in a variety of management
positions, including Director of Operations and Finance from 1991 to 1995.
Ms. Wainwright joined the Company in 1988. Since November 1996 she has
served as Vice President, Sales. Prior to that time, she served the Company
in various capacities, including plant manager at the facility located in
Wallingford, Connecticut.
Each officer serves at the pleasure of the Board of Directors of the
Company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRINCIPAL MARKET AND PRICES
The common stock of the Company is listed on the New York Stock Exchange
under the symbol PAR. The following table sets forth the high and low sales
prices per share for the common stock of the Company as reported by the New
York Stock Exchange.
<TABLE>
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FISCAL YEAR HIGH LOW
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<S> <C> <C> <C>
1997
First Quarter $20 1/2 $12 1/2
Second Quarter 14 3/8 9 3/4
Third Quarter 15 3/4 10 3/4
Fourth Quarter 17 7/16 13 1/8
1998
First Quarter 22 5/8 13 3/8
Second Quarter 25 16 1/4
Third Quarter 19 5/8 8 3/8
Fourth Quarter 9 11/16 6 5/8
</TABLE>
The approximate number of record holders of common stock of the Company as of
March 15, 1999 was 174.
DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to payment of dividends will be at the
discretion of the Company's Board of Directors and will depend on the
Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board of Directors.
STOCK REPURCHASE
On October 25, 1995, the Board of Directors authorized the Company to
purchase up to one million shares of Coastcast common stock from time to time
in the open market or negotiated transactions. Under this authorization, the
Company purchased 139,400 shares at a cost of $1.5 million for the year ended
December 31, 1998. As of December 31, 1998, there were 457,000 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.
BUSINESS RISKS
CUSTOMER CONCENTRATION. The Company's sales have been and very likely
will continue to be concentrated among a small number of customers. Sales to
as few as three customers accounted for 85% of sales during the year ended
December 31, 1998 and sales to four customers accounted for 84% of sales
during the years ended December 31, 1997 and 1996. Sales to the Company's top
customer, Callaway Golf Company (including Odyssey Golf after its acquisition
by Callaway in August 1997) accounted for 49% of sales for the year ended
December 31, 1998.
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The Company has no long-term contracts with, and is not the exclusive
supplier to, any of its customers, which the Company believes is typical
industry practice. Although the Company is now a principal supplier of steel
and titanium clubheads to Callaway, there are other actual or potential
sources of supply to Callaway and the level of future orders is not known at
this time. In the event Callaway increases purchases from other suppliers,
the Company could be adversely affected. Although the Company believes that
its relationships with its customers are good and its prices are competitive,
the loss of a significant customer or a substantial decrease in the sales of
golf clubs by a significant customer could have a material adverse effect on
the Company's business.
COMPETITION. The Company operates in a highly competitive market. All of
the Company's products are manufactured according to customers' designs and
specifications. Accordingly, the Company competes against other independent
domestic and foreign manufacturers which have the capability to manufacture
investment-cast clubheads. The Company also experiences indirect competition
from golf club companies that manufacture their own clubheads or make golf
clubs with clubheads that are not investment-cast or are made of materials
the Company is not currently capable of producing. Potential competition also
exists from those golf club companies that currently purchase clubheads from
the Company but may, in the future, manufacture clubheads internally. The
Company believes that it competes principally on the basis of its ability to
produce consistently high-quality golf clubheads in quantities sufficient to
meet rapidly growing demand for popular golf clubs. Some of the Company's
current and potential competitors may have greater resources than the Company.
NEW PRODUCTS. The Company's historical success has been attributable, in
part, to its ability to supply clubheads for companies whose new products
rapidly attained a significant portion of the market for high-quality,
premium-priced golf clubs. In the future, the Company's success will depend
upon its continued ability to manufacture golf clubheads for such companies.
There are no assurances, however, of the Company's ability to do so. If a
golf club having a head not manufactured by the Company gains significant
market share from customers of the Company, the Company's business would be
adversely affected.
NEW MATERIALS AND PROCESSES. The Company's future success is also
dependent on continuing popularity of investment-cast clubheads. A
significant loss of market share to golf clubs with heads made by other
processes would have a material adverse impact on the Company's business.
Similarly, the Company's future success is also dependent on continuing
popularity of clubheads made of titanium or stainless steel alloys or other
metal alloys which the Company is capable of casting.
MANUFACTURING COST VARIATIONS. Consistent manufacture of high-quality
products requires constant care in the manufacture and maintenance of
tooling, monitoring of raw materials, and inspection for compliance with
product specifications throughout the manufacturing process.
Investment-casting is labor intensive, and numerous steps are required to
produce a finished product. Variations in manufacturing costs and yields
occur from time to time, especially with new products during the "learning
curve" phase of production and products which are more difficult to
manufacture such as titanium or oversized metal wood and iron golf clubheads.
The length and extent of these variations are difficult to predict.
DEPENDENCE ON POLISHING AND FINISHING PLANT IN MEXICO. A substantial
portion of the golf clubheads manufactured by the Company, and some clubheads
produced by other clubhead manufacturers, are polished and finished by the
Company. The polishing and finishing processes used by the Company are highly
labor intensive. The Company performs substantially all of these processes in
its facilities in Mexicali, Mexico pursuant to the "maquiladora" duty-free
program established by the Mexican and U.S. governments. Such program enables
the Company to take advantage of generally lower costs in Mexico, without
paying duty on inventory shipped into or out of Mexico or paying certain
Mexican taxes. The Company pays certain expenses of the Mexico facility in
Mexican currency and thus is subject to fluctuations in currency value. The
Company does not have any exchange rate hedging arrangements to protect
against fluctuations in currency value. The Company is also subject to other
customary risks of doing business
12
<PAGE>
outside the United States. There can be no assurance that the Mexican
government will continue the "maquiladora" program or that the Company will
continue to be able to take advantage of the benefits of the program. The
loss of these benefits could have an adverse effect on the Company's
business. The Company believes that the North American Free Trade Agreement
has not had any adverse effect on its Mexican operations.
HAZARDOUS WASTE. In the ordinary course of its manufacturing process,
the Company uses hazardous substances and generates hazardous waste. The
Company has no material liabilities as of December 31, 1998 under
environmental laws and regulations, and believes that its operations are in
substantial compliance with applicable laws and regulations. Nevertheless, no
assurance can be given that the Company will not encounter environmental
problems or incur environmental liabilities in the future which could
adversely affect its business. See also Item 1. Business - Discontinued
Operations.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING. Sales of golf equipment
are dependent on discretionary spending by consumers, which may be adversely
affected by general economic conditions. A decrease in consumer spending on
premium-priced golf clubs could have an adverse effect on the Company's
business.
SEASONALITY; FLUCTUATIONS IN OPERATING RESULTS. The Company's customers
have historically built inventory in anticipation of purchases by golfers in
the spring and summer, the principal selling season for golf equipment. The
Company's operating results have been impacted by seasonal demand for golf
clubs, which generally results in higher sales in the second and third
quarters. The timing of large new product orders from customers and
fluctuations in demand due to a sudden increase or decrease in popularity of
specific golf clubs have contributed to quarterly or other periodic
fluctuations. No assurance can be given, however, that these factors will
mitigate the impact of seasonality in the future.
RELIANCE ON KEY PERSONNEL. The success of the Company is dependent upon
its senior management, and their ability to attract and retain qualified
personnel. The Company does not have any non-competition agreements with any
of its employees. There is no assurance that the Company will be able to
retain its existing senior management personnel or be able to attract
additional qualified personnel.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of common
stock of the Company in the public market or the perception that such sales
could occur may adversely affect prevailing market prices of such common
stock.
FLUCTUATIONS IN CALLAWAY GOLF COMPANY SHARES. The Company's common stock
value has from time to time fluctuated somewhat in relation to the share
value of the Callaway Golf Company. The prevailing market price of the
Company's common stock could be adversely impacted by a substantial
fluctuation in the market price of Callaway common stock.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Income Data (1):
Sales $144,560 $149,515 $148,257 $76,001 $90,590
Gross Profit 22,365 28,533 33,826 12,914 22,746
Income from operations 11,971 17,776 24,454 5,941 15,317
Income from continuing operations
before class action lawsuit
settlement expense and income taxes 13,504 18,751 25,496 7,488 16,242
Class action lawsuit settlement expense -0- -0- -0- 2,075 -0-
Income from Continuing
Operations Data:
Income before income taxes 13,504 18,751 25,496 5,413 16,242
Income taxes 5,672 7,875 10,430 2,114 6,420
Income from continuing operations 7,832 10,876 15,066 3,299 9,822
Income from Continuing Operations Per
Share--Basic $ 0.91 $ 1.24 $ 1.72 $ 0.36 $ 1.10
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Income from Continuing Operations Per
Share--Diluted $ 0.89 $ 1.22 $ 1.67 $ 0.36 $ 1.08
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Weighted Average Shares Outstanding--Basic 8,638 8,798 8,773 9,045 8,926
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Weighted Average Shares Outstanding--Diluted 8,837 8,924 9,038 9,099 9,113
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data (1):
Working Capital $46,717 $56,795 $44,800 $34,788 $37,475
Total Assets 83,673 90,025 76,100 58,908 56,821
Total debt, including
current portion -0- -0- -0- -0- -0-
Deferred compensation 295 1,614 438 -0- -0-
Shareholders' equity 77,142 78,391 66,487 50,252 51,076
</TABLE>
(1) In October 1993, the Company announced its decision to discontinue its
aerospace business. See Note 2 of Notes to Consolidated Financial
Statements.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated operating
results expressed in thousands of dollars and as a percentage of sales.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Sales $144,560 100.0 $149,515 100.0 $148,257 100.0
Cost of sales 122,195 84.5 120,982 80.9 114,431 77.2
Gross profit 22,365 15.5 28,533 19.1 33,826 22.8
Selling, general
and administrative 10,394 7.2 10,757 7.2 9,372 6.3
Income from continuing
operations 11,971 8.3 17,776 11.9 24,454 16.5
Other income, net 1,533 1.1 975 0.6 1,042 .7
Income from continuing
operations before
income taxes 13,504 9.3 18,751 12.5 25,496 17.2
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Sales decreased $4.9 million, or 3%, to $144.6 million for 1998 from
$149.5 million for 1997. Increases in sales of steel alloy metal woods and
irons were more than offset by the decrease is sales of titanium alloy
clubheads and steel alloy putters. Titanium clubhead sales represented 41%
and 50% of total sales for 1998 and 1997, respectively. Sales to Callaway
Golf Company, including sales to Odyssey Golf after its acquisition by
Callaway Golf Company in August 1997, represented 49% of total sales for 1998
compared to 34% in 1997. There is no assurance that sales to Callaway will
represent similar percentages of total sales in the future.
Gross profit decreased $6.1 million, or 21%, to $22.4 million for 1998
from $28.5 million for 1997. The gross profit margin decreased to 16% in 1998
from 19% in 1997. The decrease in gross margin was due principally to the
significant decrease in the manufacturing volume of titanium clubheads during
the last half of 1998, higher costs and lower yields relating to the start-up
of three new products lines and start-up expenses related to the Tijuana
plant. There was no gross profit for the quarter ended December 31, 1998
compared to $7.2 million for the comparable quarter in 1997. The gross profit
margin decreased to 0% in the fourth quarter 1998 versus 20% in the fourth
quarter of 1997. This decrease was principally due to the decrease in sales
volume coupled with the negative effect of write-downs of inventory and
non-producing assets and the start-up of the Tijuana plant.
Selling, general and administrative expense decreased by $.4 million, or
4%, to $10.4 million for 1998 from $10.8 million for 1997. The decrease in
selling, general and administrative expense was due primarily to decreased
expenses related to the reversal of most of the prior years' accrual for the
supplemental executive retirement program, partially offset by an increase in
severance pay and legal fees and settlement costs related to a threatened
proxy contest which was resolved in the fourth quarter.
15
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Sales increased $1.2 million, or 1%, to $149.5 million for 1997 from
$148.3 million for 1996. Decreases in sales of titanium alloy and steel alloy
metal wood clubheads were more than offset by increases in sales of titanium
alloy iron clubheads, putter clubheads, and steel alloy iron clubheads, and
an increase in medical implant sales. Titanium clubhead sales represented
approximately 50% and over 55% of total sales for 1997 and 1996,
respectively. Sales to Callaway Golf Company, including sales to Odyssey Golf
after its acquisition by Callaway Golf Company in August 1997, represented
34% of total sales for 1997 compared to 46% in 1996.
Gross profit decreased $5.3 million, or 16%, to $28.5 million for 1997
from $33.8 million for 1996. The gross profit margin decreased to 19% in 1997
from 23% in 1996. The decrease in gross margin was due principally to a
change in the product mix from a preponderance of metal woods to irons and
putters.
Selling, general and administrative expense increased by $1.4 million,
or 15%, to $10.8 million for 1997 from $9.4 million for 1996. The increase in
selling, general and administrative expense was due primarily to increased
payroll and related expenses, expenses related to the supplemental executive
retirement program, and increased expenses associated with information
systems, partially offset by a decrease in legal expenses.
DISCONTINUED OPERATIONS
The Company historically manufactured investment-cast aerospace and
other industrial products in addition to golf clubheads and orthopedic
implant products. In October 1993, the Company announced its decision to
discontinue its aerospace business because of declining sales and operating
losses on this portion of its business. This business was essentially phased
out by June 1994. In connection with the offering for sale of the
Wallingford, Connecticut property, the Company had an environmental
assessment performed, which identified the presence of certain chemicals
associated with chlorinated solvents in groundwater beneath a portion of the
property. The Company conducted investigations to determine the source and
extent of the contamination. In addition, the Company determined that 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, under
an agreement 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 $.2 million loss from
discontinued operations, net of income tax benefit, as shown on the
Consolidated Statements of Income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at December 31, 1998
was $27.6 million compared to $28.2 million on December 31, 1997, a decrease
of $.6 million. Net cash provided by operating activities was $19.1 million
for the year ended December 31, 1998. Net income of $7.7 million,
depreciation and amortization of $3.4 million, and a decrease in receivables
and inventory of $16.2 million, were partially offset by an increase in
prepaids and other current assets of $4.4 million, decrease in payables and
accrued liabilities of $3.8 million and a decrease in deferred compensation
of $1.3 million. Investing activities of $10.6 million consist primarily of
$8.8 million of net capital expenditures and the purchase of Company-owned
cash surrender value life insurance policies on certain key employees of $2.7
million. Net cash used by financing activities of $9.2 million consists
mainly of the repurchase of Company common stock of $12.4 million partially
offset by proceeds from exercise of stock options of $3.2 million including
related tax benefits.
16
<PAGE>
The Company maintains an unsecured revolving line of credit which allows
the Company to borrow up to $5 million and which had no outstanding balance
at December 31, 1998. This line of credit, which expires on June 1, 1999,
bears interest at the bank's prime rate or LIBOR plus 2%.
On October 25, 1995, the Board of Directors authorized the Company to
purchase up to one million shares of Coastcast common stock from time to time
in the open market or negotiated transactions. Under this authorization, the
Company purchased 139,400 shares at a cost of $1.5 million for the year ended
December 31, 1998. As of December 31, 1998, there were 457,000 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 believes that its current cash position, the working capital
generated by future operations and the ability to borrow should be adequate
to meet its financing requirements for current operations and the foreseeable
future.
QUARTERLY INFORMATION AND SEASONALITY
Set forth below is certain unaudited quarterly financial information.
The Company believes that all other necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below
to present fairly, and in accordance with generally accepted accounting
principles, the selected quarterly information when read in conjunction with
the consolidated financial statements included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------------------------------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $45,321 $43,588 $31,627 $24,024 $29,001 $39,938 $43,935 $36,641
Gross profit (loss) 9,649 9,580 3,147 (11) 4,025 7,982 9,369 7,157
Income (loss) before
taxes 6,928 6,903 1,175 (1,502) 2,013 4,907 6,449 5,382
Provision for income
taxes 2,910 2,899 493 (630) 815 2,091 2,709 2,260
Income from
continuing
operations 4,018 4,004 682 (872) 1,198 2,816 3,740 3,122
Loss from
discontinued
operations -0- -0- (157) -0- -0- -0- -0- -0-
Net income 4,018 4,004 525 (872) 1,198 2,816 3,740 3,122
Net income per share - basic .45 .44 .06 (.11) .14 .32 .43 .35
Net income per share - diluted .44 .42 .06 (.11) .13 .32 .42 .35
</TABLE>
The Company's customers have historically built inventory in
anticipation of purchases by golfers in the spring and summer, the principal
selling season for golf equipment. The Company's operating results have been
impacted by seasonal demand for golf clubs, which generally results in higher
sales during the six month period that include the second and third quarters.
The timing of large new product orders from customers and fluctuations in
demand due to a sudden increase or decrease in popularity of specific golf
clubs have contributed to quarterly or other periodic fluctuations. No
assurances can be given, however, that these factors will mitigate the impact
of seasonality.
17
<PAGE>
BACKLOG
As of December 31, 1998, the Company had a backlog of approximately
$25.4 million as compared to a backlog of approximately $52.2 million as of
December 31, 1997. The Company believes that its current backlog is scheduled
to be shipped in the ensuing four months. Although many of the Company's
customers release purchase orders months prior to the requested delivery
date, these orders are generally cancelable without penalty provided that no
production has commenced. If production has commenced, an order is cancelable
upon payment of the cost of production. Historically, the Company's backlog
generally has been the highest in the second and third quarters due
principally to seasonal factors. Backlog is not necessarily indicative of
future operating results.
YEAR 2000 CONVERSION
The Company has identified issues, developed plans and is working to
resolve the potential impact of the year 2000 on its business operations and
the ability of its computerized information systems to accurately process
information that may be date sensitive. Problems might occur if any of its
programs recognize a date using "00" as the year 1900 rather than the year
2000.
The Company utilizes a number of computer programs. The primary
information technology systems it utilizes are (1) the customer order and
backlog system, and (2) the accounting and financial systems which include
general ledger, accounts payable, accounts receivable, billing and
collection, inventory value and location, and fixed assets. The Company
believes that its customer order and backlog, and accounting and financial
systems will be year 2000 compliant in a timely manner and will not be
materially impacted by the year 2000. The maintenance and modifications to
these programs are not material and are expensed as incurred. The Company has
an experienced and dedicated staff to perform the functions identified and is
reasonably confident that it will be year 2000 compliant in a timely manner.
The Company has sent questionnaires to its major customers and
suppliers. So far, approximately 75% of the major customers and suppliers
have responded to the questionnaire and have revealed no circumstances that
would cause a significant disruption to business operations.
The Company's largest three customers represented 85% of sales for the
year ended December 31, 1998. Should any one of these customers experience
significant business interruption relating to non-year 2000 compliance, the
Company could be materially impacted. To the extent that the Company relies
on other third parties, such as banking institutions and major suppliers who
are unable to address their year 2000 issues in a timely manner, the Company
could be materially impacted.
Based on the information collected to date, the Company does not believe
that the cost of addressing the year 2000 issues will have material adverse
impact on its financial position. The Company does not have a formal
contingency plan but the Company plans to devote the resources required to
resolve significant year 2000 issues in a timely manner. The Company
maintains disaster recovery plans in the event of system failures, which
include regular backup of historical information.
FORWARD LOOKING INFORMATION
This report and other reports of the Company contain or may contain certain
forward-looking statements and information that are based on beliefs of, and
information currently available to, the Company's management as well as
estimates and assumptions made by the Company's management. When used, the words
"anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and
similar expressions as they relate to the Company or the Company's management,
are used to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions relating to the Company's
18
<PAGE>
operations and results of operations, competitive factors and pricing
pressures, shifts in market demand, the performance and needs of the
industries served by the Company, the costs of product development and other
risks and uncertainties, including, in addition to any uncertainties
specifically identified in the text surrounding such statements,
uncertainties with respect to changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances and conditions
and actions taken or omitted to be taken by third parties, including the
Company's stockholders, customers, suppliers, business partners, competitors,
and legislative, regulatory, judicial and other governmental authorities and
officials. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended
or planned.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information, other than quarterly information, required by this
item is incorporated herein by reference to the consolidated financial
statements and supplementary data listed in Item 14 of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item with respect to directors is
incorporated herein by reference to the information contained under the
caption "Nomination and Election of Directors" in the Proxy Statement
relating to the Annual Meeting of Shareholders to be held on June 18, 1999,
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the year ended December 31, 1998. Information
with respect to executive officers is included in Part I of this Report. The
information required by this Item with respect to compliance with Section
16(a) of the Securities Exchange Act of 1934 is incorporated herein by
reference to the information contained under the caption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement
relating to the Annual Meeting of Shareholders to be held on June 18, 1999,
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the year ended December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference to the information contained under the caption "Executive
Compensation and Other Information" in the Proxy Statement relating to the
Annual Meeting of Shareholders to be held on June 18, 1999, which will be
filed with the Securities and Exchange Commission no later than 120 days
after the close of the year ended December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference to the information contained under the captions "Voting Securities
and Principal Shareholders" and "Stock Ownership of Management" in the Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June
18, 1999, which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended December 31, 1998.
19
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a)(1) LIST OF FINANCIAL STATEMENTS
The consolidated financial statements listed in the accompanying Index
to Financial Statements and Schedules are filed as part of this Report.
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULE
The financial statement schedule listed in the accompanying Index to
Financial Statements and Schedule are filed as part of this Report.
(a)(3) LIST OF EXHIBITS
The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Report.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of 1998.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 15, 1999 COASTCAST CORPORATION
By: /s/ HANS H. BUEHLER
---------------------------------
Hans H. Buehler, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 15, 1999.
SIGNATURE TITLE
/s/ HANS H. BUEHLER
- ------------------------
Hans H. Buehler Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
/s/ ROBERT C. BRUNING
- ------------------------
Robert C. Bruning Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ ROBERT L. GATES
- ------------------------
Robert L. Gates Director
/s/ EDWIN A. LEVY
- ------------------------
Edwin A. Levy Director
/s/ LEE E. MIKLES
- ------------------------
Lee E. Mikles Director
/s/ JONATHAN P. VANNINI
- ------------------------
Jonathan P. Vannini Director
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE NUMBER
- --------------------------------- -----------
<S> <C>
Independent Auditors' Report 23
Consolidated Balance Sheets as of December 31, 1998 and 1997 24
Consolidated Statements of Income for the years ended December 31, 1998, 1997
and 1996 25
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1996, 1997 and 1998 26
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 27
Notes to Consolidated Financial Statements 28
SCHEDULES
Independent Auditors' Report 39
Schedule II--Valuation and Qualifying Accounts for the years ended December 31,
1996, 1997 and 1998 40
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Coastcast Corporation:
We have audited the accompanying consolidated balance sheets of Coastcast
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Coastcast Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 9, 1999
23
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
----------- -----------
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $27,551,000 $28,187,000
Trade accounts receivable, net of allowance for doubtful
accounts of $600,000 and $500,000 at December 31, 1998
and 1997, respectively (Note 1) 7,556,000 12,893,000
Inventories (Notes 1 and 3) 10,326,000 21,208,000
Prepaid income taxes 4,011,000 -
Prepaid expenses and other current assets 2,378,000 2,019,000
Deferred income taxes (Notes 1 and 8) 1,131,000 1,597,000
Net assets of discontinued operations (Note 1 and 2) - 911,000
----------- -----------
Total current assets 52,953,000 66,815,000
Property, plant and equipment, net (Notes 1 and 4) 24,116,000 19,079,000
Cash surrender value of life insurance (Note 7) 6,215,000 3,529,000
Other assets 389,000 602,000
----------- -----------
$83,673,000 $90,025,000
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,804,000 $ 4,986,000
Accrued liabilities (Note 6) 3,432,000 5,034,000
----------- -----------
Total current liabilities 6,236,000 10,020,000
Deferred compensation (Note 7) 295,000 1,614,000
----------- -----------
Total liabilities 6,531,000 11,634,000
Commitments and contingencies (Notes 2, 7 and 9)
Shareholders' Equity (Notes 1 and 10):
Preferred stock, no par value, 2,000,000 shares authorized;
none issued and outstanding
Common stock, no par value, 20,000,000 shares authorized;
7,989,404 and 8,849,005 shares issued and outstanding as of
December 31, 1998 and 1997, respectively 30,309,000 39,233,000
Retained earnings 46,833,000 39,158,000
----------- -----------
Total shareholders' equity 77,142,000 78,391,000
----------- -----------
$83,673,000 $90,025,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales (Notes 1 and 12) $144,560,000 $149,515,000 $148,257,000
Cost of sales 122,195,000 120,982,000 114,431,000
------------ ------------ ------------
Gross profit 22,365,000 28,533,000 33,826,000
Selling, general and administrative 10,394,000 10,757,000 9,372,000
------------ ------------ ------------
Income from operations 11,971,000 17,776,000 24,454,000
Other income, net 1,533,000 975,000 1,042,000
------------ ------------ ------------
Income before income taxes 13,504,000 18,751,000 25,496,000
Provision for income taxes (Notes 1 and 8) 5,672,000 7,875,000 10,430,000
------------ ------------ ------------
Income from continuing operations 7,832,000 10,876,000 15,066,000
Loss from discontinued operations (net
of income tax benefit of $113,000 - Notes 1 and 2) (157,000) - -
------------ ------------ ------------
Net income $ 7,675,000 $ 10,876,000 $ 15,066,000
------------ ------------ ------------
------------ ------------ ------------
NET INCOME PER SHARE (Notes 1 and 11)
Income from continuing operations per
share - basic $ .91 $ 1.24 $ 1.72
Discontinued operations per share - basic (.02) - -
------------ ------------ ------------
Net income per share - basic $ .89 $ 1.24 $ 1.72
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares outstanding 8,637,724 8,797,734 8,772,815
------------ ------------ ------------
------------ ------------ ------------
Income from continuing operations per share -
diluted $ .89 $ 1.22 $ 1.67
Discontinued operations per share - diluted (.02) - -
------------ ------------ ------------
Net income per share - diluted $ .87 $ 1.22 $ 1.67
------------ ------------ ------------
------------ ------------ ------------
Diluted weighted average shares outstanding 8,837,304 8,924,262 9,038,223
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
NUMBER OF
SHARES AMOUNT RETAINED EARNINGS TOTAL
--------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 8,734,694 $37,036,000 $13,216,000 $ 50,252,000
Net income 15,066,000 15,066,000
Stock options exercised, including related
tax benefit (Note 10) 56,996 834,000 834,000
Director compensatory stock options 269,000 269,000
Stock options granted to non-employee (Note 10) 269,000 269,000
Repurchase of common stock (13,800) (203,000) (203,000)
--------------- ----------- ------------- ------------
BALANCE AT DECEMBER 31, 1996 8,777,890 38,205,000 28,282,000 66,487,000
Net income 10,876,000 10,876,000
Stock options exercised, including related
tax benefit (Note 10) 71,115 759,000 759,000
Director compensatory stock options 269,000 269,000
--------------- ----------- ------------- ------------
BALANCE AT DECEMBER 31, 1997 8,849,005 39,233,000 39,158,000 78,391,000
Net income 7,675,000 7,675,000
Stock options exercised, including related
tax benefit (Note 10) 205,199 3,184,000 3,184,000
Director compensatory stock options 269,000 269,000
Repurchase of common stock (1,064,800) (12,377,000) (12,377,000)
--------------- ----------- ------------- ------------
BALANCE AT DECEMBER 31, 1998 7,989,404 $30,309,000 $46,833,000 $ 77,142,000
--------------- ----------- ------------- ------------
--------------- ----------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,675,000 $10,876,000 $ 15,066,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,375,000 2,838,000 2,479,000
Loss on disposal of property, plant and equipment 1,001,000 305,000 79,000
Change in accrual for disposal of aerospace business (701,000) (180,000) (214,000)
Deferred compensation (1,319,000) 1,176,000 438,000
Deferred income taxes 765,000 (656,000) 479,000
Non-employee director compensatory stock options 269,000 269,000 269,000
Changes in operating assets and liabilities:
Trade accounts receivable 5,337,000 (1,110,000) (4,585,000)
Inventories 10,882,000 452,000 (14,049,000)
Prepaid expenses and other current assets (4,370,000) 2,781,000 (2,057,000)
Accounts payable and accrued liabilities (3,784,000) 845,000 519,000
------------ ----------- ------------
Net cash provided by (used in) operating activities 19,130,000 17,596,000 (1,576,000)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales of short-term investments - - 14,718,000
Purchase of property, plant and equipment (8,787,000) (2,127,000) (7,653,000)
Proceeds from disposal of property, plant and equipment 687,000 76,000 138,000
Purchase of life insurance policies and other assets (2,473,000) (2,177,000) (1,704,000)
------------ ------------ ------------
Net cash (used in) provided by investing activities (10,573,000) (4,228,000) 5,499,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options granted to non-employee - - 269,000
Proceeds from issuance of common stock upon exercise of
options, including related tax benefit 3,184,000 759,000 834,000
Repurchase of common stock (12,377,000) - (203,000)
----------- ----------- ------------
Net cash (used in) provided by financing activities (9,193,000) 759,000 900,000
----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (636,000) 14,127,000 4,823,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,187,000 14,060,000 9,237,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $27,551,000 $28,187,000 $ 14,060,000
----------- ----------- ------------
----------- ----------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 8,546,000 $ 5,544,000 $ 10,500,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
COASTCAST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of Coastcast Corporation (the "Company") and
its wholly owned subsidiary. All material intercompany transactions have been
eliminated in consolidation.
ORGANIZATION AND OPERATIONS--Coastcast Corporation is incorporated under
the laws of the State of California. The Company's principal business is the
production of investment-cast golf clubheads, and precision investment
castings and related engineering for the medical industry. The Company sells
its products to customers of varying strength and financial resources,
principally located in the United States. The Company's wholly owned
subsidiaries are incorporated under the laws of the Mexican maquiladora
program and its principal activities are the production of golf clubheads.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
DISCONTINUED OPERATIONS--The Company has historically manufactured
investment-cast aerospace and other industrial products in addition to golf
clubheads and orthopedic implant products. In October 1993, the Company
announced its decision to discontinue its aerospace business, and as of June
1994 had essentially phased out this business (See Note 2).
REVENUE RECOGNITION--Revenue is recognized when goods are shipped to the
customer.
CASH EQUIVALENTS--Cash equivalents consist of short-term investments
with original maturities of three months or less.
CONCENTRATION OF CREDIT RISK--The Company's financial instruments that
are exposed to credit risk consist primarily of accounts receivable. The
Company grants credit to substantially all of its customers, performs ongoing
credit evaluations of its customers' financial condition and maintains an
allowance for potential credit losses. See also Note 12.
INVENTORIES--Inventories are stated at the lower of cost (determined on
a first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated
at cost. Depreciation and amortization are provided using primarily
straight-line methods over the estimated useful lives of the related assets
as follows:
<TABLE>
<S> <C>
Machinery and equipment 5-7 years
Building and improvements 5-31 years
Furniture, fixtures and computers 3-7 years
Autos and trucks 5-7 years
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of expected
28
<PAGE>
future cash flows (undiscounted and without interest charges) is less than
the carrying amount of an asset, an impairment loss is recognized.
INCOME TAXES--Deferred tax assets and liabilities are recognized based
on differences between financial statement and tax basis of assets and
liabilities using presently enacted tax rates (see Note 8).
EARNINGS PER SHARE--Basic net income per share is based on the weighted
average number of shares of common stock outstanding. Diluted net income per
share is based on the weighted average number of shares of common stock
outstanding and dilutive potential common equivalent shares from stock
options (using the treasury stock method).
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value because of the short maturities of these instruments.
RECLASSIFICATIONS--Certain prior year balances have been restated to
reflect current year classifications.
ACCOUNTING PRONOUNCEMENT--In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company's required adoption date is
January 1, 2000. The Company has not yet evaluated the impact of SFAS No. 133
on its results of operations or financial position but believes that the
effect of the adoption of Statement No. 133 will not be material.
2. DISCONTINUED OPERATIONS
The plan adopted in October 1993 to phase out the aerospace business was
essentially completed by June 1994. In connection with the offering for sale
of the Wallingford, Connecticut property, the Company had an environmental
assessment performed, which identified the presence of certain chemicals
associated with chlorinated solvents in groundwater beneath a portion of the
property. The Company conducted investigations to determine the source and
extent of the contamination. In addition, the Company determined that 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, under
an agreement 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
Consolidated Statements of Income.
29
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 5,137,000 $ 7,578,000
Tooling 225,000 540,000
Work-in-process 4,019,000 12,375,000
Finished goods 945,000 715,000
----------- -----------
$10,326,000 $21,208,000
----------- -----------
----------- -----------
</TABLE>
Included above are costs incurred for the production of tooling which is
subsequently sold to customers upon acceptance of the first production unit.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land $ 2,186,000 $ 2,186,000
Buildings and improvements 9,945,000 7,436,000
Machinery and equipment 27,861,000 22,656,000
Autos and trucks 857,000 786,000
Furniture, fixtures and computers 3,078,000 2,669,000
----------- -----------
43,927,000 35,733,000
Less accumulated depreciation and amortization 19,811,000 16,654,000
----------- -----------
$24,116,000 $19,079,000
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization expense for 1998, 1997 and 1996 was
$3,375,000, $2,838,000 and $2,479,000, respectively.
5. SHORT-TERM BORROWINGS
The Company maintains an unsecured revolving line of credit which allows
the Company to borrow up to $5,000,000 and which had no outstanding balance
at December 31, 1998 and 1997. This line of credit, which expires on June 1,
1999, bears interest at the bank's prime rate or LIBOR plus 2%.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
30
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Accrued payroll and related expenses $1,279,000 $2,706,000
Accrued vacation 738,000 1,000,000
Accrued insurance 668,000 434,000
Accrued income taxes - 552,000
Other accrued expenses 747,000 342,000
------------ -----------
$3,432,000 $5,034,000
------------ -----------
------------ -----------
</TABLE>
7. RETIREMENT PLANS
The Company has a defined benefit plan which covers substantially all of
its hourly union employees. The plan provides for a monthly benefit payable
for the participant's lifetime commencing the first day of the month
following the attainment of age sixty-five in an amount equal to $9.50 to
$10.85 multiplied by the participant's credited service.
31
<PAGE>
The following table sets forth the plan's change in benefit obligation,
change in plan assets and components of net pension cost:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $1,778,000 $1,623,000
Service cost 75,000 34,000
Interest cost 139,000 112,000
Actuarial loss from change in assumptions 384,000 -
Actuarial loss (gain) (33,000) 52,000
Benefits paid (63,000) (43,000)
---------- ----------
Benefit obligation at end of year 2,280,000 1,778,000
---------- ----------
---------- ----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
year 2,187,000 1,883,000
Actual return on plan assets 115,000 347,000
Employer contributions - -
Benefits paid (63,000) (43,000)
---------- ----------
Fair value of plan assets at end of year 2,239,000 2,187,000
---------- ----------
---------- ----------
Funded status (41,000) 409,000
Unrecognized actuarial loss (gain) 101,000 (275,000)
Unrecognized prior service cost 91,000 98,000
Unrecognized transition obligation (121,000) (147,000)
---------- ----------
Net amount recognized $ 30,000 $ 85,000
---------- ----------
---------- ----------
COMPONENTS OF NET PENSION COST:
Service cost $ 75,000 $ 34,000 $ 31,000
Interest cost 139,000 112,000 104,000
Return on plan assets (115,000) (347,000) (159,000)
Amortization and deferral (44,000) 199,000 13,000
---------- ---------- ---------
Net pension cost $ 55,000 $ (2,000) $ (11,000)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 6.5% and 7% in 1998 and
1997, respectively. The expected long-term rate of return on assets was 6.5%
and 7% for 1998 and 1997, respectively.
Effective January 1, 1996, the Company adopted a retirement savings plan
(the "401(k) Plan") pursuant to which all U.S. employees who satisfy the age
and service requirements under the plan and who are not covered by collective
bargaining agreements may defer compensation for income tax purposes under
section 401(k) of the Internal Revenue Code of 1986. Participants may
contribute up to 15% of their compensation up to the maximum permitted under
federal law. The Company is obligated to contribute annually an amount equal
to 25% of each participant's contribution up to 6% of that participant's
annual compensation. In accordance with the provisions of the 401(k) Plan,
the Company matched employee contributions in the amount of $108,000, $78,000
and $102,000 during 1998, 1997 and 1996, respectively.
32
<PAGE>
On September 1, 1996, the Company adopted a supplemental executive
retirement plan (the "SERP") for certain key employees. Benefits generally
accrued at a rate of 7% of final average salary per year of participation in
the plan, up to 10 years. In general, participants in the plan only become
fully vested with respect to their accrued benefits upon completion of 5
years of plan participation. The benefits under this plan were frozen
effective December 31, 1997. In October 1998, the Chairman and Chief
Executive Officer voluntarily relinquished all of his rights under this plan.
In addition, a former executive has also forfeited his benefits under this
plan. An amended and restated supplemental executive retirement plan was
approved effective January 1, 1998. The amended plan revises the benefit
formula for participants and provides additional flexibility with respect to
funding.
The following table sets forth the plan's change in benefit obligation,
change in plan assets and components of net pension cost:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 4,631,000 $ 3,455,000
Curtailment as of January 1, 1998 (4,032,000) -
Service cost 81,000 759,000
Interest cost 83,000 276,000
Actuarial loss from change in assumptions 93,000 224,000
Amendment 186,000 -
Actuarial loss (gain) 417,000 (83,000)
Benefits paid - -
----------- -----------
Benefit obligation at end of year 1,459,000 4,631,000
----------- -----------
----------- -----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning ----------- -----------
and end of year - -
----------- -----------
----------- -----------
Funded status (1,459,000) (4,631,000)
Unrecognized actuarial loss (gain) 491,000 135,000
Unrecognized prior service cost 177,000 183,000
Unrecognized transitional obligation 496,000 2,699,000
----------- -----------
(Accrued)/prepaid benefit cost $ (295,000) $(1,614,000)
----------- -----------
----------- -----------
COMPONENTS OF NET PENSION COST:
Service cost $ 81,000 $ 759,000 $ 699,000
Interest cost 83,000 276,000 97,000
Return on plan assets - - -
Amortization and deferral 74,000 198,000 66,000
Curtailment/forfeitures (1,807,000) (128,000) (103,000)
1996 amortized (unamortized) expense 250,000 71,000 (321,000)
----------- ----------- ---------
Net pension cost (income) $(1,319,000) $ 1,176,000 $ 438,000
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
33
<PAGE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% and 7.5% in 1998 and
1997, respectively. To fund this plan, the Company has purchased whole-life
insurance contracts on certain participants. The cash surrender value of these
policies is in an irrevocable rabbi trust and is presented as an asset of the
Company in the accompanying consolidated balance sheets.
The Company does not provide any other post-retirement benefits to its
employees.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $3,675,000 $7,045,000 $ 8,319,000
State 753,000 1,703,000 1,405,000
Foreign 251,000 (73,000) 227,000
---------- ---------- -----------
4,679,000 8,675,000 9,951,000
---------- ---------- -----------
Deferred:
Federal 844,000 (651,000) 258,000
State 149,000 (149,000) 221,000
---------- ---------- -----------
993,000 (800,000) 479,000
---------- ---------- -----------
$5,672,000 $7,875,000 $10,430,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The actual provision on income before income taxes differs from the
statutory federal income tax rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Federal income taxes at the statutory rate $4,726,000 $6,563,000 $ 8,924,000
State income taxes, net of federal benefit 618,000 1,030,000 1,541,000
California investment tax credit (67,000) (30,000) (349,000)
Other items 395,000 312,000 314,000
---------- ----------- -----------
$5,672,000 $7,875,000 $10,430,000
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The tax effects of items comprising the Company's net deferred tax asset
are as follows:
34
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts $ 254,000 $ 213,000
Deferred compensation 124,000 688,000
Accrued expenses 404,000 557,000
Inventory reserve 750,000 635,000
State income taxes 299,000 455,000
Depreciation (252,000) (381,000)
Other items (448,000) (570,000)
---------- ----------
$1,131,000 $1,597,000
---------- ----------
---------- ----------
</TABLE>
9. COMMITMENTS
OPERATING LEASES--The Company leases certain facilities under various
operating leases with terms ranging from five to ten years. The leases contain
renewal options for additional five or ten year periods which have not been
included in the rental commitment schedule below. In general, these leases
provide for payment of property taxes, maintenance and insurance by the Company
and include rental increases based on the Consumer Price Index.
The future minimum lease payments required under these leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
---------------------------------------------------------
<S> <C>
1999 $ 1,692,000
2000 1,692,000
2001 1,635,000
2002 1,578,000
2003 1,496,000
Thereafter 2,997,000
-----------
$11,090,000
-----------
-----------
</TABLE>
Rent expense for 1998, 1997 and 1996 was approximately $1,669,000,
$1,106,000 and $1,355,000, respectively.
10. STOCK OPTION PLANS
Under the Company's 1996 Amended and Restated Employee Stock Option Plan
("1996 Employee Stock Option Plan"), a maximum of 1,950,000 shares of common
stock may be issued pursuant to exercise of options granted to officers and key
employees under the plan. Options may be granted under the plan at prices which
are equal to or greater than the fair market value of the shares at the date of
grant. The options become exercisable over a period of time as determined by the
Board of Directors or a committee of directors and generally expire ten years
from the date of grant or earlier following termination of employment. As of
December 31, 1998, an aggregate of 624,692 shares had been purchased pursuant to
exercise of options granted under the plan, options to purchase an aggregate of
853,817 shares were outstanding (including options which were then exercisable
to purchase 513,334 shares), and 471,491 shares were available for additional
grants of options under the plan.
Under the Company's 1995 Amended and Restated Non-Employee Director Stock
Option Plan ("1995 Director Stock Option Plan"), a maximum of 200,000 shares of
common stock may be issued pursuant to exercise of options
35
<PAGE>
granted under the plan to certain non-employee directors. Options are granted
under the plan at prices equal to the fair market value of the shares at the
date of grant. The options generally become exercisable over a three-year
period of time and expire at the earlier of one year after the optionee
ceases to be a director or ten years from the date of grant. As of December
31, 1998, no shares had been purchased under the plan, options to purchase an
aggregate of 200,000 shares were outstanding under the plan, including
130,000 shares as to which such options were then exercisable, and no shares
were available for additional grants of options under the plan.
In April 1996, the Board of Directors granted to a non-employee options
to purchase 30,000 shares of common stock, all of which were outstanding and
exercisable as of December 31, 1998. These options were not issued under the
foregoing option plans.
In September 1997, the Board of Directors approved the repricing of all
employee stock options having exercise prices above the fair market value as
of the repricing date. A total of 591,783 shares were repriced.
The following summarizes the Company's stock option activity under all
arrangements for the three years ended December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
--------- --------
<S> <C> <C>
Balance, January 1, 1996 806,392 $10.73
Granted 689,698 16.81
Forfeited (147,635) 13.36
Exercised (56,996) 12.00
--------- --------
Balance, December 31, 1996 1,291,459 $14.48
Granted 63,540 15.50
Forfeited (70,371) 15.22
Exercised (71,115) 8.60
--------- --------
Balance, December 31, 1997 1,213,513 $13.57
Granted 530,230 14.68
Forfeited (454,727) 15.36
Exercised (205,199) 11.57
--------- --------
Balance, December 31, 1998 1,083,817 $13.75
--------- --------
--------- --------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
36
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
- ------------- -------------- -------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
$7.31 - 10.00 170,000 8.0 $ 9.08 110,000 $ 10.00
10.25 - 13.63 398,172 7.9 12.81 162,110 12.19
13.81 - 14.13 378,515 7.1 14.12 311,224 14.13
14.50 - 22.25 97,130 8.0 15.59 60,000 18.75
27.00 - 30.00 40,000 6.9 27.75 30,000 28.00
- ------------- -------------- -------------- ------------ --------------- ------------
$7.31 - 30.00 1,083,817 7.6 $ 13.75 673,334 $ 14.01
- ------------- -------------- -------------- ------------ --------------- ------------
- ------------- -------------- -------------- ------------ --------------- ------------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for options granted under its 1996
Employee Stock Option Plan or its 1995 Director Stock Option Plan, except for
stock options granted to directors on December 13, 1995, which were subject to
approval and subsequently approved by shareholders on June 12, 1996. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income: As reported $7,675,000 $10,876,000 $15,066,000
Pro forma 6,869,000 8,749,000 14,460,000
Net income per share - basic: As reported $ .89 $ 1.24 $ 1.72
Pro forma $ .80 $ .99 $ 1.65
Net income per share - diluted: As reported $ .87 $ 1.22 $ 1.67
Pro forma $ .76 $ .95 $ 1.55
</TABLE>
The fair value of each stock option grant is estimated on the date of grant
using the Black-Scholes option pricing model. The following weighted-average
assumptions were used in 1998, 1997 and 1996, respectively: no dividend yield,
expected volatility of 71.8%, 67.0% and 61.8%, risk-free interest rate of 4.3%,
5.8% and 5.9%, and expected term of 4.0, 4.6 and 4.0 years. The weighted average
fair value per share of options granted in 1998, 1997 and 1996 was $8.33, $7.42
and $8.25, respectively.
37
<PAGE>
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $7,675,000 $10,876,000 $15,066,000
---------- ----------- -----------
Numerator for basic and diluted earnings per
share--income available to common stockholders 7,675,000 10,876,000 15,066,000
Denominator:
Denominator for basic earnings per share--
weighted-average shares 8,637,724 8,797,734 8,772,815
Effect of dilutive securities:
Stock options 199,580 126,528 265,408
---------- ----------- -----------
Dilutive potential common shares 199,580 126,528 265,408
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 8,837,304 8,924,262 9,038,223
---------- ----------- -----------
---------- ----------- -----------
Basic earnings per share $ 0.89 $ 1.24 $ 1.72
---------- ----------- -----------
---------- ----------- -----------
Diluted earnings per share $ 0.87 $ 1.22 $ 1.67
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The anti-dilutive options as of December 31, 1998, 1997 and 1996 were
1,023,817, 116,600 and 448,598, respectively.
12. BUSINESS SEGMENTS
The Company is engaged principally in the business of manufacturing
precision investment-cast titanium and stainless steel golf clubheads,
representing 93%, 94% and 94% of sales for the years ended December 31, 1998,
1997 and 1996, respectively. On June 30, 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard ("SFAS") No. 131
"Disclosures About Segments of an Enterprise and Related Information" effective
for fiscal years beginning after December 15, 1997. In accordance with the
selection criteria established by SFAS 131, the Company has determined that it
has one business segment.
The Company derived 49%, 22% and 14% of sales from three top customers in
1998, 34%, 23%, 15% and 12% of sales from four top customers in 1997; and 46%,
18% and 13% of sales from three top customers in 1996.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Coastcast Corporation:
We have audited the consolidated financial statements of Coastcast Corporation
and subsidiaries as of December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated February 9, 1999; such report is included elsewhere in this Annual Report
on Form 10-K. Our audits also included the financial statement schedule of
Coastcast Corporation, listed in Item 14(a)(2). This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 9, 1999
39
<PAGE>
COASTCAST CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(CHARGED)/
BALANCE AT CREDITED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------------------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 (400,000) (400,000)
Year ended December 31, 1997 (400,000) (100,000) (500,000)
Year ended December 31, 1998 (500,000) (100,000) (600,000)
</TABLE>
40
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
<S> <C> <C>
3.1.1 Articles of Incorporation of the Company, as amended (1)
3.1.2 Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on December 6, 1993 (1)
3.2 Bylaws of the Company (1)
4 Specimen Stock Certificate of the Company (1)
10.1* 1993 Amended and Restated Employee Stock Option Plan ("Employee Plan")
(1)
10.2* 1996 Amended and Restated Employee Stock Option Plan ("Employee Plan")
(4)
10.3* Non-Employee Director Stock Option Plan ("Director Plan"), together with
form of notice of grant and grant summary (1)
10.4* 1995 Amended and Restated Non-Employee Director Stock Option Plan
("Director Plan"), together with form of notice of grant and grant
summary (1)
10.5 Agreement. effective May 11, 1997, between the Company and United
Steelworkers of America (6)
10.6 Lease Agreement, dated December 16, 1998, between Coastcast Corporation, 44
S.A. and Parque Industrial Mexicali, S.A. de C.V. for the facilities
known as Mercurio #70 in Mexicali, Mexico
10.7 Lease Agreement, dated December 16, 1998, between Coastcast Corporation, 66
S.A. and Parque Industrial Mexicali, S.A. de C.V. for the facilities
known as Avenue Galaxia #50 in Mexicali, Mexico
10.8 Lease Agreement, dated December 16, 1998, between Coastcast Corporation, 88
S.A. and Parque Industrial Mexicali, S.A. de C.V. for the facilities
known as Mercurio #30 in Mexicali, Mexico
10.9 Lease Agreement, dated January 22, 1996, between Coastcast Corporation,
S.A. and Parque Industrial Mexicali, S.A. de C.V. for the facilities
known as Calle Marte #162 in Mexicali, Mexico (2)
10.10 Guaranty, dated January 26, 1999, by the Company for the lease of the 110
Mexicali, Mexico facilities known as Mercurio #70
10.11 Guaranty, dated January 26, 1999, by the Company for the lease of the 116
Mexicali, Mexico facilities known as Avenue Galaxia #50
41
<PAGE>
10.12 Guaranty, dated January 26, 1999, by the Company for the lease of the 122
Mexicali, Mexico facilities known as Mercurio #30
10.13 Guaranty, dated January 23, 1996, by the Company for the lease, dated
January 22, 1996 (2)
10.14 Lease Agreement, dated September 1, 1997, between the Company and Watson
Land Company for the facilities in Rancho Dominguez, California (5)
10.15 Lease Agreement, dated January 5, 1998, between Coastcast Tijuana, S. De 128
R.L. De C.V. and Frederick Clarke Sanders, Jr., Frederick Sanders
Flourie, Monique Sanders Flourie, Scott Michael Sanders Flourie and
Carlo E. Muzquiz Davila for real estate in Tijuana, Baja California,
Mexico
10.16 Lease Guaranty Agreement, dated August 18, 1998, by the Company for the 146
lease of the Tijuana facility
10.17 Form of Indemnification Agreement (1)
10.18 Revolving Line of Credit Note and Credit Agreement, effective December
23, 1997, between the Company and Imperial Bank (6)
10.19 Revolving Line of Credit Note and First Amendment to Credit Agreement, 150
effective February 1, 1999, between the Company and Imperial Bank
10.20* Amended and Restated Coastcast Corporation Selected Employees Pension
Plan, dated October 1, 1987 (1)
10.21* Amendment to the Coastcast Corporation Selected Employees Pension Plan,
effective May 12, 1997 (6)
10.22* Coastcast Corporation 401(k) Retirement Plan, effective January 1, 1996
(2)
10.23 Coastcast Corporation S Corporation Termination, Tax Allocation and
Indemnification Agreement dated December 1, 1993, between the Company
and certain Shareholders(1)
10.24* Coastcast Corporation Supplemental Executive Retirement Plan, effective
September 1, 1996 (3)
10.25* First Amendment to Coastcast Corporation Supplemental Executive
Retirement Plan, effective September 1, 1996 (3)
10.26* Second Amendment to Coastcast Corporation Supplemental Executive
Retirement Plan, dated February 18, 1997 (4)
10.27* Trust Agreement by and between Coastcast Corporation and Imperial Trust
Company, dated September 1, 1996 (3)
42
<PAGE>
10.28* Coastcast Corporation Amended and Restated Supplemental Executive 158
Retirement Plan, effective January 1, 1998
10.29* Amended and Restated Trust Agreement by and between Coastcast 181
Corporation and 180 Imperial Trust Company, dated December 18, 1998
10.30 Agreement dated November 6, 1998 between the Company and Jonathan
Vannini (7)
10.31* Agreement dated November 6, 1998 between the Company and Richard W. Mora
(7)
10.32* Agreement dated January 15, 1999 between the Company and Richard W. Mora 202
21 Subsidiaries of the Company 206
23 Consent of Independent Auditors 207
27 Financial Data Schedule 208
</TABLE>
- ---------------------------------
* Management contract or compensating plan or arrangement.
(1) Incorporated by reference to the exhibits to the Registration Statement on
Form S-1 (Registration No. 33-71294) filed on November 4, 1993, as amended
by Amendment No. 1 filed on November 17, 1993, Amendment No. 2 filed on
December 1, 1993, and Amendment No. 3 filed on December 9, 1993.
(2) Incorporated by reference to the exhibits to Form 10-K for the fiscal year
ended December 31, 1995.
(3) Incorporated by reference to the exhibits to Form 10-K for the fiscal year
ended September 30, 1996.
(4) Incorporated by reference to the exhibits to Form 10-K for the fiscal year
ended December 31, 1996.
(5) Incorporated by reference to the exhibits to Form 10-Q for the fiscal
quarter ended September 30, 1997.
(6) Incorporated by reference to the exhibits to Form 10-K for the fiscal year
ended December 31, 1997.
(7) Incorporated by reference to the exhibits to Form 10-Q for the fiscal
quarter ended September 30, 1998.
43
<PAGE>
LEASE AGREEMENT entered into by and between PARQUE INDUSTRIAL MEXICALI, S.A. DE
C.V., (hereinafter referred to as PIMSA), herein represented by MR. EDUARDO
MANUEL MARTINEZ PALOMERA, Party of the First Part, and by COASTCAST CORPORATION,
S.A., (hereinafter referred to as COMPANY), herein represented by MR. WILLIAM
LAWRENCE OSBORN, Party of the Second Part, pursuant to the following RECITALS
and CLAUSES:
R E C I T A L S
I. PIMSA hereby declares that:
A. It is a company organized and existing under the Mexican General
Corporation Law, as per Public Instrument Number 20,032, executed before
attorney Fernando Diaz Ceballos, Notary Public Number 4 of the City of Mexicali,
Baja California, Mexico.
B. Mr. Eduardo Manuel Martinez Palomera is its attorney-in-fact, as it
appears in Public Instrument Number 31,019, Volume 569, executed on November
26, 1997, before attorney Fernando Diaz Ceballos, Notary Public Number 4 of
the City of Mexicali, Baja California, Mexico.
C. PIMSA's registration number at the Federal Registry of Taxpayers is:
PIM-790807-D96.
D. The address at which it has its principal place of business is Avenida
Galaxia Number 18-B, Parque Industrial Mexicali I, Mexicali, Baja California,
Mexico.
E. PIMSA has developed the Mexicali Industrial Park I and the Mexicali
Industrial Park II, and is developing the Mexicali Industrial Park III and the
Mexicali Industrial Park IV. The Mexicali Industrial Park I, hereinafter
referred to as the Industrial Park, is more specifically shown and described on
EXHIBIT "A", which is attached hereto and made a part hereof.
F. The parties desire to enter into a Lease of Lots 4, 5, 6, 7 and 8 of
Block 4, located in the Mexicali Industrial Park I, at Calle Mercurio Number 70,
and of certain improvements constructed on the land. The land and PIMSA's
Improvements together shall hereinafter be referred to as the Leased Property.
G. That it has previously applied for and obtained financial loans
through Mexican and Foreign Banking and Lending Institutions, with which funds,
buildings and improvements located in the Industrial Parks have been, are being
and will be constructed.
<PAGE>
2
II. COMPANY hereby declares that:
A. It is a company organized under the Mexican General Corporation Law as
per Public Instrument Number 28,658, Volume 478, executed on January 26, 1994,
before attorney Fernando Diaz Ceballos, Notary Public Number 4 of the City of
Mexicali, Baja California, Mexico.
B. Mr. William Lawrence Osborn verifies his capacity as General Director
of Operations and General Manager of COMPANY as per Public Instrument Number
31,457, Volume 577, executed on November 09, 1998, before attorney Fernando Diaz
Ceballos, Notary Public Number 4 of the City of Mexicali, Baja California,
Mexico.
C. COMPANY's registration number at the Federal Registry of Taxpayers
is: CCO-821123-QA1.
D. The address at which it has its principal place of business is Calle
Mercurio Number 70, Mexicali Industrial Park I, Mexicali, Baja California,
Mexico.
Pursuant to the above, the parties agree as follows:
C L A U S E S
I. SCOPE OF LEASE AGREEMENT.
On the express terms and conditions set forth hereinafter, the scope of
this Lease Agreement is as follows: PIMSA hereby leases to COMPANY and COMPANY
hereby leases from PIMSA the land in the Industrial Park as described on EXHIBIT
"B", which is attached hereto and made a part hereof, and PIMSA's Improvements
as more specifically described hereinafter in this Lease Agreement.
II. CONSTRUCTION BY PIMSA.
A. PIMSA has, at its expense, constructed on the land certain
improvements which shall hereinafter be referred to as PIMSA's Improvements.
Said PIMSA's Improvements have been constructed in accordance with plans and
specifications which have been approved by PIMSA and COMPANY and such approval
is hereby acknowledged by the parties.
B. PIMSA has constructed all PIMSA's Improvements in accordance with all
laws, ordinances, regulations, and orders of governmental authorities, and
Industrial Park Regulations which are attached hereto as EXHIBIT "C". The term
<PAGE>
3
"Improvements" shall, depending on the context, refer to either "PIMSA's
Improvements", "COMPANY's Improvements" or both. The term "COMPANY's
Improvements" shall refer to those improvements identified in Paragraph III.A.
below.
C. The Leased Property is considered Ready For Occupancy.
D. Upon prior written consent of PIMSA, COMPANY may at any time prior to
the commencement of the term hereof, at its sole risk, enter upon and install
such trade fixtures and equipment in the Leased Property as it may elect;
provided, however that, (I) COMPANY shall provide evidence of insurance
satisfactory to PIMSA.
III. INSTALLATIONS BY COMPANY.
A. COMPANY may, at its expense, install on the Leased Property, such
trade fixtures, equipment and furniture as it may deem necessary; provided
that such items are installed and are removable without damage to the
structural integrity of PIMSA's Improvements. Said trade fixtures, equipment
and furniture shall remain COMPANY's property and unless COMPANY is in
default hereunder, shall be removed by COMPANY on or before the expiration
date of the term hereof. COMPANY may also install temporary improvements in
the interior of PIMSA's Improvements upon the Leased Property provided that
such COMPANY's Improvements are installed and are removable without damage to
the structure of the PIMSA's Improvements. Such COMPANY's Improvements shall
remain property of COMPANY and, unless COMPANY is in default hereunder, shall
be removed by COMPANY upon expiration of the term hereof or earlier
termination of this Lease. COMPANY shall repair, at its sole expense, all
damage caused by the installation or removal of trade fixtures, equipment,
furniture or temporary COMPANY's Improvements, reasonable wear and tear
excepted.
B. COMPANY shall perform all installations in accordance with all laws,
ordinances, regulations, orders of governmental authorities, and the Industrial
Park Regulations which are attached hereto as EXHIBIT "C".
IV. LEASE TERM AND COMMENCEMENT DATE.
A. LEASE AGREEMENT. This Lease Agreement shall be effective from the
Commencement Date until the same is terminated as provided hereinafter, the
complete period of tenancy being referred to herein as the "Lease Term".
<PAGE>
4
B. INITIAL LEASE TERM. The initial term of this Lease ("Initial Term")
shall commence on January 01, 1999, ("Commencement Date") and shall end on the
last day of the fifth (5th) consecutive full Lease Year, as said term is
hereinafter defined.
C. LEASE YEAR. The term "Lease Year" as used herein, shall mean a period
of twelve (12) consecutive full calendar months. The First Lease Year shall
begin on the Commencement Date of the term hereof, if the Commencement Date of
the term hereof shall occur on the first (1st) day of a calendar month; if not
then the First Lease Year shall commence upon the first (1st) day of the
calendar month next following the Commencement Date of the term hereof. Each
succeeding Lease Year shall commence upon the anniversary date of the First
Lease Year.
D. OPTION TO RENEW. COMPANY shall have the right to extend the term of
this Lease Agreement upon the terms, conditions and rentals set forth herein,
for one (1) additional period of five (5) years, ("Renewal Terms"), by giving
written notice to PIMSA not less than six (6) months prior to the expiration of
the Initial Term of this Lease Agreement, so long as COMPANY is not then in
default hereunder.
V. RENT.
A. INITIAL TERM. As minimum monthly rent for the Lease of the Leased
Property during the Lease Term hereof, COMPANY shall pay to PIMSA at the address
of PIMSA stated above, the monthly sum in Pesos, Mexican Currency, equal to the
monthly payments in Dollars, United States Currency, payable as follows:
1. $29,064.00 Dollars, United States Currency, (Twenty Nine Thousand
Sixty Four Dollars 00/100, United States Currency), upon the execution of this
contract which sum shall be applied to the last three (3) months of the Initial
Term.
2. Fifty Seven (57) equal monthly payments of $9,688.00 Dollars
(Nine Thousand Six Hundred Eighty Eight Dollars 00/100, Untied States Currency),
each payable in advance on the first (1st) day of each month during the Initial
Term, commencing on the first (1st) month of the Initial Term.
3. Increase Of Monthly Rent For The Second, Third, Fourth and Fifth
Lease Years. On the first (1st) day of the Second, Third, Fourth and Fifth
Lease Years the
<PAGE>
5
monthly rent for such Lease Years shall be increased by an amount which is equal
to the product of:
a. The monthly rent then being paid for the immediately
preceding Lease Year, in accordance to Clause V.A.2., hereinabove, multiplied by
b. The percentage increase in the Index (as hereinafter
defined) during the immediately preceding Lease Year.
1) Maximum Rent Increase; No Decrease. Notwithstanding
anything herein contained to the contrary, the monthly rent for the Second,
Third, Fourth and Fifth Lease Years shall not be increased by an amount greater
than ten percent (10%) of the rent for the immediately preceding Lease Year. In
no event shall the monthly rent for the Second, Third, Fourth and Fifth Lease
Years be decreased below the monthly rent for the immediately preceding Lease
Year.
2) Index Defined. The term "Index" shall mean the United
States Bureau of Labor Statistics Consumer Price Index for all Urban Consumers
(all items, Los Angeles-Anaheim-Riverside area, 1982-1984=100).
If the compilation or publication of the Index is
transferred to any other department, bureau or agency of the United States
government or is discontinued, then the index most similar to the Index shall be
used to calculate the rent increases provided for herein. If PIMSA and COMPANY
cannot agree on a similar alternate index, then the matter shall be submitted
for decision to the American Arbitration Association in accordance with the then
rules of such association, and the decision of the arbitrators shall be binding
upon the parties. The cost of such arbitration shall be divided equally between
PIMSA and COMPANY.
B. ADDITIONAL RENT. With the exception of income tax imposed upon PIMSA,
and any tax associated with the Sale or Transfer of the Leased Property or
PIMSA's Improvements, which shall be borne by PIMSA, COMPANY will pay to PIMSA,
as additional rent, an amount equal to the sum of all taxes and assessments of
every kind which are or may be at any time during the Lease Term, levied against
the Leased Property or the Lease Agreement, including but not limited to gross
sales tax, value added tax or stamp tax, property tax and all such taxes and
assessments, levied by any federal, state or municipal government, or any
governmental authority. All such taxes and assessments shall be paid by PIMSA
and reimbursed by COMPANY within ten (10) days after the receipt showing the
payment thereof is presented to COMPANY by PIMSA.
<PAGE>
6
In calculating the amount of COMPANY's reimbursement, all taxes which
shall become due for the first and last years of the Lease Term shall be
apportioned prorata between PIMSA and COMPANY in accordance with the respective
number of months during which each party shall be in possession of the Leased
Property.
C. RENEWAL TERMS.
1. GRANT OF OPTION AND MANNER OF EXERCISE. COMPANY shall have the
option to extend the term of this Lease for one (1) period of five (5) years,
(the "Extended Term"). COMPANY shall give written notice to PIMSA not less
than six (6) months prior to the expiration of the initial term, if COMPANY
elects to exercise the option to extend granted herein.
2. RENT. The monthly rent for each Lease Year of the Extended Term
shall be equal to the monthly rent for the immediately preceding Lease Year,
plus an amount which is equal to the product of:
a. The monthly rent paid by COMPANY during the immediately
preceding Lease Year, multiplied by
b. The percentage increase in the Index (as hereinabove
defined) during the immediately preceding Lease Year.
Notwithstanding anything herein contained to the contrary, the monthly
rent for each Lease Year of the Extended Term shall not be increased by an
amount greater than ten percent (10%) of the monthly rent for the immediately
preceding Lease Year. In no event shall the monthly rent for any Lease Year of
the Extended Term be decreased below the monthly rent for the immediately
preceding Lease Year.
D. COMPANY will pay the rent provided for in the above Paragraph A. in
Pesos, Mexican Currency, at the rate of exchange effective in the free foreign
market on the date such sums are paid, or in Dollars, United States Currency, as
law and Foreign Exchange Rules allow, as PIMSA may elect.
The foregoing will not be considered to impede or hinder PIMSA's
possibilities and rights under Clause XII to negotiate or assign this agreement
to Mexican, United States or other Foreign Banking or Lending Institutions.
E. PRORATION. The rent for any partial month shall be prorated.
<PAGE>
7
F. LIQUIDATED DAMAGES. In the event this Lease Agreement is terminated
by PIMSA due to a default of COMPANY prior to or during the first (1st) six (6)
months of the Lease Term, PIMSA shall be entitled to keep and retain as
liquidated damages all sums paid or deposited by COMPANY, as prepaid rent or as
a security deposit, in addition to any other rights of PIMSA provided for
herein.
G. SETOFF. The payment of any rent due under this Lease shall not be
withheld or reduced for any reason whatsoever, and COMPANY agrees to assert any
claim, demand, or other right against PIMSA only by an independent proceeding.
VI. USE.
The Leased Property shall be used and occupied for any lawful industrial
purpose not in violation of the Industrial Park Regulations attached hereto as
EXHIBIT "C". COMPANY shall promptly and adequately comply with all laws,
ordinances and orders of all governmental authorities affecting the Leased
Property, and its cleanliness, safety and labor facilities applicable to the
COMPANY's use of the Leased Property. COMPANY shall not perform or omit any
acts that may damage the Leased Property, or be a nuisance, or menace to other
occupants of the Industrial Park.
VII. INSURANCE.
A. COMPREHENSIVE LIABILITY INSURANCE. During the Lease Term, COMPANY
shall, at its own expense, obtain and maintain in full force a policy of
comprehensive liability insurance including property damage, that insures
COMPANY and PIMSA (and such other agents or employees of PIMSA, PIMSA's
subsidiaries or affiliates, or PIMSA's assignees or any nominee of PIMSA holding
any interest in the Leased Property, including without limitation, the holder of
any mortgage encumbering the Leased Property) against liability for injury to
persons and property and for death of any persons occurring in or about the
Leased Property. The liability to such insurance shall be in the amount of
$100,000.00 Dollars (One Hundred Thousand Dollars 00/100, United States
Currency).
B. FIRE AND OTHER INSURANCE. During the Lease Term, COMPANY at its sole
expense, shall obtain and maintain in full force, in the amount of $924,000.00
Dollars (Nine Hundred Twenty Four Thousand Dollars 00/100, United States
Currency), or as modified herein, a policy or policies of insurance for fire,
lightning, explosion, falling aircraft, smoke, windstorm, earthquake, hail,
vehicle damage, volcanic
<PAGE>
8
eruption, strikes, civil commotion, vandalism, riots, malicious mischief, debris
removal, steam boiler or pressure object or machinery breakage if applicable,
and flood insurance, on all the Leased Property, including but not limited to
the shell building and interior fit-up. COMPANY shall also obtain and maintain
annual rental insurance in the amount of the annual rent provided for herein in
favor of PIMSA. COMPANY shall be responsible for maintaining insurance on all
of COMPANY's own property. Except for insurance upon COMPANY's property, PIMSA
or its appointee shall be named the COMPANY's beneficiary of any and all
proceeds from any such policy or policies, as their interests may appear.
C. FORM AND DELIVERY OF POLICIES. Each insurance policy referred to in
the preceding paragraphs shall be in a form approved by the Department of
Finance and Public Credit and written with one or more companies licensed to do
insurance in Mexicali, Baja California, Mexico, and shall provide that it shall
not be subject to cancellation or change except after at least thirty (30) days
prior written notice to PIMSA. The policies, or duly executed certificates for
them, together with copies of receipts for payment of the premiums thereof,
shall be delivered to PIMSA prior to the Commencement Date of the Lease Term, as
provided in Clause IV hereof; all documents verifying the renewal of such
policies shall be delivered to PIMSA at least thirty (30) days prior to the
expiration of the term of such coverage. Prior to the Commencement Date of the
Lease Term, each party shall procure and maintain such insurance covering its
own liability and property as each deems appropriate.
D. ADDITIONAL INSURANCE. COMPANY shall obtain and maintain in full force
and effect such additional amounts of insurance as may be required by PIMSA,
from time to time, in accordance with the provisions of this Clause VII, and in
order to adequately and properly insure PIMSA of and for the then current
replacement value of the Leased Property.
E. WAIVER OF SUBROGATION. The parties release each other, and their
respective authorized representatives, from any claims for damage to any person
or to the premises and to the fixtures, personal property, tenant's
improvements, and alterations of either PIMSA or COMPANY in or on the premises
that are caused by or result from risks insured against under any insurance
policies carried by the parties and in force at the time of any such damage. If
either party purchases insurance, the policy shall provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any
<PAGE>
9
policy. If a party hereto cannot obtain such waiver of subrogation through
reasonable efforts, it shall obtain insurance naming the other party as a
coinsured under its policy in order to accomplish the intent of this provision.
VIII. TAXES AND ASSESSMENTS.
COMPANY agrees to pay all taxes and assessments of every kind levied upon
any and all personal property of COMPANY, its successors and assigns, whether
same shall be or may become a lien upon the Leased Property. All such taxes and
assessments shall be paid by COMPANY before the same become delinquent. In the
event that this contract is recorded at the Public Registry of Property, COMPANY
shall pay all costs of such recordation, including, but not limited to, notary
fees, charges, taxes and stamps required in connection therewith.
IX. REPAIRS, ALTERATIONS AND IMPROVEMENTS.
A. PIMSA.
1. After receipt of written notice from COMPANY, PIMSA at its
expense, shall with the minimum interference with COMPANY's normal use of the
Leased Property, diligently proceed to repair any structural defects in the roof
or exterior bearing walls, excepting normal use, wear and damage. PIMSA shall
not be liable for any damages, and shall not be obligated to make any repairs,
caused by any negligent act or omissions of COMPANY, its employees, agents,
invitees, or contractors. PIMSA shall have no other obligation to maintain or
repair any other portion of the Leased Property. PIMSA shall not be liable to
COMPANY for any damage resulting from PIMSA's failure to make any repairs,
unless COMPANY has notified PIMSA of the need for such repairs, and PIMSA has
failed to commence such repairs within ten (10) days after said notice has been
given and failed to complete the same in a diligent manner.
2. If PIMSA fails to make the repairs described in Clause IX.A.,
COMPANY may, but shall not be required to, make or cause such repairs, to be
made, and PIMSA shall, on demand, immediately pay to COMPANY the actual cost of
the repairs.
<PAGE>
10
B. COMPANY.
1. COMPANY, at its expense, shall keep and maintain in good order
and repair, except for normal use and wear, all of the Leased Property,
except for those obligations of PIMSA stated in Paragraph A.1., of this
Clause, including but not limited to, all plumbing, sewage and other utility
facilities that are within the Leased Property, as well as fixtures,
partitions, walls (interior and exterior, including painting as often as
necessary), floors, ceilings, signs, all air conditioning, heating and
similar equipment, doors, window, plate glass and all other repairs of every
kind and character to the Leased Property. COMPANY at its expense, shall
repair all leaks except those caused by structural defects. The plumbing
facilities shall not be used for any other purpose than that for which they
were constructed. The expense of any breakage, stoppage or damage resulting
from a violation of this provision, shall be borne by COMPANY. COMPANY shall
store all trash only temporarily within the Leased Property, and shall
arrange for the regular pick up of trash at COMPANY's expense. COMPANY shall
not burn any trash of any kind in or about the Leased Property or the
Industrial Park.
2. COMPANY shall require written consent to make any alteration,
improvement or addition to the exterior walls and roof of the Leased Property
with a cost exceeding $5,000.00 Dollars (Five Thousand Dollars 00/100, United
States Currency); and COMPANY shall not damage any floors, walls, ceilings,
partitions, or any wood, stone or ironwork on or about the Leased Property.
3. COMPANY shall keep the Leased Property free and clear of all
encumbrances and liens arising out of acts or omissions of COMPANY, including
those arising out of acts or construction done or ordered by COMPANY. However,
if by reason of any work performed, materials furnished or obligations incurred
by COMPANY with any third party, or any other act or omission by COMPANY, PIMSA
is made liable or involved in litigation, COMPANY shall hold harmless and
indemnify PIMSA including any costs and expenses, and attorneys' fees incurred
by reason thereof. Should COMPANY fail fully to discharge any such encumbrances
or liens within thirty (30) days after the date it has been instituted, or fail
to provide a bond acceptable to PIMSA in the event of contest, PIMSA, at its
option, may pay all or any part thereof. If PIMSA pays any such lien or
encumbrances or any part thereof, COMPANY shall, on demand, immediately pay
PIMSA the amount so paid, together with interest at the rate of twenty percent
(20%) per annum from the date of payment. No
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11
lien or encumbrance of any character whatsoever created by an act or omission by
COMPANY shall in any way attach or affect the rights of PIMSA on the Leased
Property.
X. UTILITY SERVICES.
During the term of this Lease Agreement, COMPANY shall promptly pay for any
and all public and other utilities and related services furnished to the Leased
Property, including but not limited to, water, gas, electricity and telephone
charges.
XI. RIGHT-OF-WAY.
PIMSA is hereby granted a right-of-way upon, across, over and under the
Leased Property for ingress, egress, installations, replacing, repairing and
maintaining all utilities, including but not limited to water, gas, telephones
and all electricity and any television or radio antenna system serving the
Leased Property. By virtue of this right-of-way it shall be expressly
permissible for the providing electrical and/or telephone company to erect and
maintain the necessary poles and other necessary equipment on the Leased
Property; provided that in exercising any right PIMSA may have under this Clause
XI, PIMSA agrees to cause only a minimum interference with COMPANY's use and
possession of the Leased Property.
XII. ASSIGNMENT AND SUBLETTING.
A. COMPANY shall have the right, upon prior written notice to PIMSA, to
assign or transfer this Lease Agreement, or any interest therein, or permit the
use of the Leased Property by any individual, corporation, or entity, or
sublease all or part of the Leased Property, provided, however, that in the
event of any such assignment, transfer or sublease, COMPANY and its Guarantor
shall remain liable for all its obligations under this Lease Agreement.
B. PIMSA shall have the right to assign and reassign, from time to time,
any or all of the rights and obligations of PIMSA in this Lease Agreement, or
any interest therein, without COMPANY's consent, provided that no such
assignment or reassignment shall impair any of the rights of COMPANY herein, and
provided further, that PIMSA shall remain liable for all of its obligations
under this Lease Agreement. In the event of an assignment or reassignment,
COMPANY shall not diminish or withhold any of the rents payable hereunder by
asserting against such assignee any defense, setoff, or counterclaims which
COMPANY may have against PIMSA or any
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12
other person. COMPANY hereby specifically waives, with respect to withholding
of rent, any preventative measures to guarantee payment of a claim, as provided
by the Code of Civil Procedure.
XIII. SUBORDINATION.
During the term of this Lease Agreement, PIMSA shall have the right to
encumber its interest in the Leased Property or in this Lease Agreement for
any purpose it deems convenient, and COMPANY shall and hereby does
subordinate its interest in this Lease Agreement and in the Leased Property
to such encumbrance. However, in the event such encumbrance is foreclosed or
judicially enforced, the one who holds the encumbrance shall agree to honor
this Lease Agreement and accept the performance by COMPANY of its obligations
hereunder. COMPANY shall execute any agreement which may be required by
PIMSA in confirmation of such subordination and submit whatever public
financial data may normally be requested by any trust, insurance company,
bank or other recognized lending institution.
Once that PIMSA shall have notified COMPANY in writing that it has assigned
its interest in this Lease Agreement to any lending institution as security for
a debt or other obligation of PIMSA, PIMSA shall not have the power to amend
this Lease Agreement so as to reduce the rent, decrease the term or modify or
negate any substantial obligation of COMPANY hereunder, or to accept a
rescission of this contract, without the written consent of such lending
institution. Such obligation shall continue until the lending institution shall
have notified COMPANY in writing that such assignment has been terminated, on
the understanding that if PIMSA fails to obtain such lending institution's
approval to carry out the foregoing, the amendment of the term above mentioned
shall have no effect whatsoever as against such lending institution.
In addition, if the lending institution should notify COMPANY in writing
requiring the payment of rents hereunder directly to such lending institution or
its representative, then COMPANY shall be obligated to pay to such lending
institution or its representative such subsequent monthly rental coming due
under this Lease Agreement (together with any unpaid rent then past due), until
the date on which such lending institution notifies COMPANY authorizing payment
of rent to PIMSA or other party entitled thereto. COMPANY understands and
agrees that except for the advanced rental payments provided for in Paragraph
A.1. of Clause V of this Lease Agreement, PIMSA may not collect any rent more
than one
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13
(1) month in advance and COMPANY, at the request of PIMSA, shall provide a
statement that no such advanced payment has been made; such document shall be
binding upon COMPANY as against the lending institution to which this Lease
Agreement may be assigned. In addition, the lending institution shall not be
bound to recognize those payments made to PIMSA after the COMPANY has received
notice requiring payments to be made to such lending institutions.
XIV. ACCESS TO LEASED PROPERTY.
Without undue interference to COMPANY's operation, PIMSA or its authorized
representative shall have the right to enter the Leased Property during all
COMPANY business hours, and in emergencies at all times, to inspect the Leased
Property and to make repairs, additions, or alterations to the Leased Property.
For a period commencing ninety (90) days prior to the termination of this Lease
Agreement, PIMSA shall have access to the Leased Property for the purpose of
exhibiting it to prospective clients and may post usual for sale or for lease
signs upon the Leased Property. Except in case of emergency, PIMSA shall give
notice to COMPANY before entering the Leased Property, and COMPANY shall have
the right to accompany any representatives of PIMSA and prospective clients.
XV. DAMAGE OR DESTRUCTION.
A. TOTAL. In the event that the whole or a substantial part of the
Leased Property is damaged or destroyed by fire, act of nature, or any other
cause, so as to make COMPANY unable to continue the operation of its business,
PIMSA shall, within fifteen (15) days from such destruction, determine whether
the Leased Property can be restored within six (6) months, and notify COMPANY of
said determination. If PIMSA determines that the Leased Property cannot be
restored within six (6) months, either PIMSA or COMPANY shall have the right and
option to immediately terminate this Lease Agreement, by advising the other
thereof by written notice. If PIMSA determines that the Leased Property can be
restored within said six (6) months, PIMSA shall, at its own expense, to the
extent of the funds awarded to PIMSA from the proceeds of the insurance required
under Clause VII hereinabove, proceed diligently to reconstruct PIMSA's
Improvements, and in such event, PIMSA shall accept in lieu of rent during the
period when COMPANY is substantially deprived of the use of the Leased Property
any rental insurance proceeds which may be payable pursuant to rental insurance
provided for hereinabove.
<PAGE>
14
B. PARTIAL. In the event the said damage caused to the Leased Property
does not prevent COMPANY from continuing the normal operation of its business on
the Leased Property, PIMSA and COMPANY shall repair said damage, each party
reconstructing that portion of the building and interior installations for which
it was responsible during the original construction; provided that excluding
damage or destruction to the parking lot during the period required for such
repair work of PIMSA's Improvements or the improvements, rental payable
hereunder by COMPANY shall be equitably prorated to the proportioned
interference with COMPANY's use and possession of the Leased Property occasioned
by such damage and repair, and in such event, PIMSA shall accept in lieu of the
equitably prorated rent payable hereunder, during the period when COMPANY is
partially deprived of the use and possession of the Leased Property, any rental
insurance proceeds attributable to rent which may be payable pursuant to said
insurance provided for hereinabove.
XVI. LIMITATION OF LIABILITY.
Except for intentional or negligent acts or omissions of PIMSA, its agents
or employees, PIMSA shall not be liable to COMPANY or to any other person
whatsoever for any loss or damage of any kind or nature caused by the
intentional or negligent acts or omissions of COMPANY or other occupants of the
Industrial Park or of adjacent property, or the public, or other causes beyond
the control of PIMSA, including but not limited to, any failure to furnish, or
any interruption of any utility or other services in or about the Leased
Property. COMPANY recognizes that additions, replacements, and repairs to the
Industrial Park will be made from time to time, provided that the same shall not
substantially interfere with COMPANY's use and enjoyment of the Leased Property.
XVII. INDEMNIFICATION.
COMPANY agrees to indemnify and save PIMSA harmless from any and all claims
for damages or losses of any nature whatsoever, arising from negligent act or
omission of COMPANY or its contractors, licensees, agents, invitees, or
employees, or arising from any accident, injury or damage whatsoever caused to
any person or property occurring in or about the Leased Property, or the areas
adjoining the Leased Property and from and against all costs and expenses,
including attorneys' fees, incurred thereby.
<PAGE>
15
PIMSA indemnifies and holds COMPANY harmless from any injury or damage to
COMPANY or its agents or employees and from any and all liability for injury to
third persons or damage to the property of third persons while lawfully upon the
Leased Property occurring by reason of any negligent act or omission of PIMSA,
its contractors, licensees, invitees, agents or employees.
XVIII. NOTICES.
All notices under this Lease Agreement shall be forwarded to the addresses
mentioned in the Recitals above, with a copy to the Guarantor of this Lease
Agreement, or such other addresses as may from time to time be furnished by the
parties hereto. Said notices shall be in writing and if mailed, shall be deemed
given ten (10) days after the date of mailing thereof. Duplicate notices shall
be sent by certified airmail, postage prepaid, to such additional addresses as
may from time to time be requested in writing by the parties hereto.
XIX. COMPANY'S DEFAULT.
A. Each of the following shall be a default of COMPANY.
1. Vacation or abandonment of Leased Property.
2. Failure to pay any installment of rent due and payable hereunder
upon the date when said payment is due, said failure continuing for a period of
ten (10) days.
3. Default in the performance of any of COMPANY's covenants,
agreements or obligations hereunder, said default, except default in the payment
of any installment of rent, continuing for fifteen (15) days after written
notice thereof is given from PIMSA to COMPANY;
4. A general assignment by COMPANY for the benefit of creditors;
5. The filing of a voluntary petition in bankruptcy by COMPANY or
the filing of an involuntary petition by COMPANY's creditors, said petition
remaining undischarged for a period of ninety (90) days.
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16
6. The appointment of a Receiver to take possession of substantially
all of COMPANY's assets or of this leasehold, said receivership remaining
undischarged for a period of ninety (90) days.
7. Attachment, execution or other judicial seizure of substantially
all of COMPANY's assets or this leasehold, such attachment, execution or other
seizure remaining undismissed or undischarged for a period of ninety (90) days
after the levy hereof.
B. In addition to the above, each of the following shall be considered a
default of the COMPANY, if there is in respect to Guarantor:
1. A general assignment by Guarantor for the benefit of creditors;
2. The filing of a voluntary petition in bankruptcy by Guarantor or
the filing of an involuntary petition by Guarantor's creditors, said petition
remaining undischarged for a period of ninety (90) days;
3. The appointment of a Receiver to take possession of substantially
all of Guarantor's assets or of this leasehold, said receivership remaining
undissolved for a period of ninety (90) days or;
4. Attachment, execution or other judicial seizure of substantially
all of Guarantor's assets or this leasehold, such attachment, execution or other
seizure remaining undismissed or undischarged for a period of ninety (90) days
after the levy thereof.
C. Upon occurrence of any one of the foregoing defaults, PIMSA shall have
the right, at its option, and in addition to other rights or remedies granted by
law, including the right to claim damage, to do either of the following:
1. Immediately rescind this Lease Agreement and eject COMPANY from
the Leased Property.
2. Claim Specific Performance. In the case of default as specified
above, PIMSA shall, in addition to all other remedies, have the right to declare
the entire unpaid balance of rent to the end of the five (5) year Lease Term
then in effect, and all other sums due to PIMSA, immediately due and payable,
plus interest at the rate of twenty percent (20%) per annum of said sums from
the date of such declaration until payment in full, provided that PIMSA shall
diligently proceed to lease the Leased Property to another tenant or
<PAGE>
17
otherwise make beneficial use thereof in mitigation of damages, rent and all
other sums due or payable to PIMSA.
In the event the Leased Property is leased to another tenant
during the aforesaid five (5) year Lease Term or otherwise used in a beneficial
manner:
a. PIMSA shall promptly refund to COMPANY that portion of
rent and interest paid by COMPANY pursuant to this Paragraph 2. which is
allocable to the period of the Lease Term during which the Leased Property
was leased to another tenant or otherwise used in a beneficial manner as well
as any other allocable sums paid by COMPANY to PIMSA, less any loss or damage
incurred by PIMSA as a result of COMPANY's default, or;
b. If such rent or other sums have not been paid by COMPANY to
PIMSA, PIMSA shall credit such amount(s) to COMPANY.
XX. RIGHT TO CURE DEFAULTS.
In the event of COMPANY's breach or default of any term or provision
herein, PIMSA may, without any obligation to do so, at any time after ten
(10) days written notice, cure such breach or default, or make repairs to the
Leased Property, for the account and at the expense of COMPANY. If PIMSA, by
reason of such breach or default, pays any money, or is compelled to incur
any expense, including attorneys' fees, the sums so paid or incurred by PIMSA
with all interest, costs, and damages, shall be paid by COMPANY to PIMSA on
the first (1st) day of the month following the incurring of such expenses.
If any installment of rent or any other payment is not promptly paid when
due, it shall bear interest of twenty percent (20%) per annum from the date
on which it becomes due until paid; but this provision is not intended to
relieve the COMPANY from fulfilling its obligations hereunder in the time and
in the manner specified in this agreement. The foregoing interest, expenses
and damages shall be recoverable from COMPANY by exercise of PIMSA's remedies
hereinabove set forth. Efforts by PIMSA to mitigate the damages caused by
COMPANY's breach of this Lease shall not be construed to be a waiver of
PIMSA's right to recover damages under this Clause XX. Nothing in this
Clause XX affects the right of PIMSA to indemnification by COMPANY in
accordance with Clause XVII hereinabove for liability arising prior to the
termination of this Lease for personal injuries or property damage.
<PAGE>
18
XXI. WAIVER.
In the event PIMSA or COMPANY does not compel the other to comply with any
of the obligations hereunder, such action or omission shall not be construed as
a waiver of a subsequent breach of the same or any other provision. Any consent
or approval shall not be deemed to waive or render unnecessary the consent or
approval of any subsequent or similar act by COMPANY or PIMSA.
XXII. CERTIFICATES.
COMPANY shall, within ten (10) days of receipt of a written request made by
PIMSA, deliver to PIMSA a statement in writing certifying that this Lease
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same are in full force and effect as modified); the
dates to which the rent and any other charges have been paid in advance, and
that PIMSA's Improvements have been satisfactorily completed. It is intended
that any such statement may be relied upon by any person, prospective purchaser,
or lending institution interested in the Leased Property.
XXIII. HOLDING OVER.
If COMPANY should remain in possession of the Leased Property after the
expiration of this Lease, COMPANY shall pay a minimum monthly rent equal to
twice the then minimum monthly rent then paid in the month immediately
preceding the month in which the holdover period began until COMPANY has
delivered to PIMSA the Leased Property, or executed a new Lease Agreement.
This provision shall not be construed as granting any right to COMPANY to
remain in possession of the Leased Property after the expiration of the Lease
Term. COMPANY shall indemnify PIMSA against any loss or liability resulting
from delay by COMPANY in surrendering the Leased Property, if such loss or
liability is founded on said delay, less any amounts paid pursuant to this
clause. The parties agree that COMPANY shall quit and surrender the Leased
Property at the expiration of this Lease Agreement, waiving the right
provided by law.
XXIV. SURRENDER.
A. On the last day of the term of this Lease Agreement, or the sooner
termination thereof pursuant to other provisions hereof, COMPANY shall quit and
surrender the Leased Property in the same conditions as received by COMPANY, and
restore the premises to a clean and good condition (normal
<PAGE>
19
wear and tear excepted) together with PIMSA's Improvements that may have been
made in the same. Prior to termination of this Lease Agreement, COMPANY shall
have removed all of its property in accordance with Clause III hereof and all
property not removed shall be deemed abandoned by COMPANY. COMPANY shall repair
and restore the Leased Property to a good and clean condition, normal wear and
tear excepted, while removing the COMPANY's property.
XXV. QUIET ENJOYMENT.
PIMSA agrees that COMPANY, upon paying the rent and all other charges
provided for herein and upon complying with all of the terms and provisions of
this Lease Agreement, shall lawfully and quietly occupy and enjoy the Leased
Property during the Lease Term.
XXVI. ATTORNMENT.
COMPANY shall, in the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any
mortgage or deed of trust made by PIMSA, its successors or assigns,
encumbering the Leased Property, or any part thereof, if so requested, attorn
to the purchaser upon such foreclosure or sale and recognize such purchaser
as the lessor under this Lease.
XXVII. ENVIRONMENTAL PROTECTION LAW.
PIMSA hereby states that the Leased Property, its soil and underground are
free and clear of any hazardous materials, wastes or contaminants.
Nevertheless, PIMSA shall indemnify and save the COMPANY harmless from and
against losses, demands, claims, payments, suits, actions and judgments of any
nature and description brought against it by reason of the fact that
contaminants existed on the Leased Property, soil and/or underground, or were
deposited there, prior to date of signature of this Agreement. The COMPANY will
be responsible for any losses, damages or injuries caused by the contaminants
which are deposited on the Leased Property, soil or underground after date of
signature of this Agreement.
It will be the sole responsibility of the COMPANY to comply with all
Federal State or Municipal environmental laws, rules and dispositions, which
must be complied with by the COMPANY pursuant with the industrial activities it
will perform in the Leased Property and therefore, must obtain the required
licenses, authorizations, permits and any other document that it must possess
pursuant with the aforestated environmental rules.
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20
Furthermore, the COMPANY will be solely and exclusively responsible for
any demand, claim, or proceeding initiated against PIMSA, and which results
from acts or omissions by the COMPANY, regarding the handling of hazardous or
toxic materials or wastes located in or moved to, from or through the Leased
Property. The COMPANY in these cases, shall indemnify and save PIMSA harmless
from and against losses, demands, claims, payments, suits, actions and
judgments of any competent environmental authority.
XXVIII. MISCELLANEOUS.
A. This document contains all of the agreements and conditions made
between the parties, and may not be modified orally in any manner other than by
a written agreement signed by the authorized representative of the parties.
B. If any term, covenant, condition or provision of this Lease
Agreement, or the application thereof to any person or circumstance, shall to
any extent be held by a court of competent jurisdiction, to be invalid, void or
unenforceable, the remainder of the terms, covenants, conditions or provisions
of this Lease Agreement, or the application thereof to any person or
circumstance, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
C. In the event that either party should bring an action against the
other party for the possession of the Leased Property, or for the recovery of
any sum due hereunder, or because of the breach or default of any covenant in
this Lease Agreement, the prevailing party shall have the right to collect from
the other party its costs and expense, including attorneys' fees.
D. Every payment and performance required by this Lease Agreement, shall
be paid and performed precisely on the date specified for such payment or
performance and no delay or extension thereof shall be permitted.
E. The titles and subtitles in these clauses of this document shall have
no effect on the interpretation of the terms and provisions contained in this
Lease Agreement.
F. The parties agree that this Lease Agreement be governed by the Laws of
the State of Baja California. For everything pertaining to the interpretation
and compliance of this Lease Agreement the parties thereby expressly submit to
the jurisdiction of the Civil Courts of the City of Mexicali, State of Baja
California, waiving any other jurisdiction which
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21
might be applicable by reason of their present or future domiciles or otherwise.
G. This Lease Agreement shall be executed in Spanish and English.
However, in the event a dispute or other inconsistency should arise regarding
interpretation or meaning of this Lease Agreement, the English version shall
control.
H. Whenever the prior consent of either party, written or otherwise, is
required as a condition for any act by the other party under this Lease
Agreement, such party agrees not to arbitrarily or unreasonably withhold such
consent.
I. Each party shall execute such further documents as shall be requested
by the other party, but only to the extent that the effect of said documents is
to give legal effect to rights set forth in the Lease Agreement.
J. COMPANY hereby covenants to PIMSA, and PIMSA relies upon said covenant
as a material inducement to enter into this Lease, that COMPANY will deliver to
PIMSA, concurrently with the execution and delivery hereof a Guaranty of this
Lease in the form attached hereto as EXHIBIT "D", executed by, COASTCAST
CORPORATION, or by such other Guarantor as may be acceptable to PIMSA.
K. Submission of this instrument for examination or signature by COMPANY
does not constitute a reservation of or option to Lease, and it is not effective
as a Lease or otherwise until execution and delivery by both PIMSA and COMPANY.
L. This Lease and each of its covenants and conditions shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the provisions hereof. Whenever in this
Lease Agreement a reference is made to PIMSA, such reference shall be deemed to
refer to the person in whom the interest of the lessor hereunder shall be
vested. Any successor or assignee of COMPANY who accepts an assignment or the
benefit of this Lease Agreement and enters into possession or enjoyment
hereunder shall thereby assume and agree to perform and be bound by the
covenants and conditions thereof.
M. In the event the Government of Mexico or any subdivision thereof
appropriates, forcibly buys or in any other way takes over the assets or
business of the lessee, and without due cause by COMPANY prevents COMPANY from
doing
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22
business in Mexico, the COMPANY may upon written notice to PIMSA terminate this
Lease Agreement without liability or penalty for such termination and without
further liability for rental payments due under this Lease Agreement but without
prejudice to the rights of PIMSA and COMPANY to claim from the corresponding
authority the damages caused.
XXIX. Rider number I, PIMSA's Improvements, is attached hereto and by this
reference made a part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the
16th day of December, nineteen hundred ninety eight.
"PIMSA" "COMPANY"
/s/ Eduardo Manuel Martinez /s/ William Lawrence Osborn
- --------------------------- ---------------------------
PARQUE INDUSTRIAL MEXICALI, COASTCAST CORPORATION, S.A.
S.A. DE C.V. Mr. William Lawrence Osborn
Mr. Eduardo Manuel Martinez General Director of Operations
Palomera and General Manager
Executive Vice President
W I T N E S S E S
/s/ [ILLEGIBLE] /s/ Hans H. Buehler
- --------------------------- ---------------------------
<PAGE>
Exhibit 10.7
LEASE AGREEMENT entered into by and between PARQUE INDUSTRIAL MEXICALI, S.A. DE
C.V., (hereinafter referred to as PIMSA), herein represented by MR. EDUARDO
MANUEL MARTINEZ PALOMERA, Party of the First Part, and by COASTCAST CORPORATION,
S.A., (hereinafter referred to as COMPANY), herein represented by MR. WILLIAM
LAWRENCE OSBORN, Party of the Second Part, pursuant to the following RECITALS
and CLAUSES:
R E C I T A L S
I. PIMSA hereby declares that:
A. It is a company organized and existing under the Mexican General
Corporation Law, as per Public Instrument Number 20,032, executed before
attorney Fernando Diaz Ceballos, Notary Public Number 4 of the City of Mexicali,
Baja California, Mexico.
B. Mr. Eduardo Manuel Martinez Palomera is its attorney-in-fact, as it
appears in Public Instrument Number 31,019, Volume 569, executed on November 26,
1997, before attorney Fernando Diaz Ceballos, Notary Public Number 4 of the
City of Mexicali, Baja California, Mexico.
C. PIMSA's registration number at the Federal Registry of Taxpayers is:
PIM-790807-D96.
D. The address at which it has its principal place of business is Avenida
Galaxia Number 18-B, Parque Industrial Mexicali I, Mexicali, Baja California,
Mexico.
E. PIMSA has developed the Mexicali Industrial Park I and the Mexicali
Industrial Park II, and is developing the Mexicali Industrial Park III and the
Mexicali Industrial Park IV. The Mexicali Industrial Park I, hereinafter
referred to as the Industrial Park, is more specifically shown and described on
EXHIBIT "A", which is attached hereto and made a part hereof.
F. The parties desire to enter into a Lease of Lots 4, 5, 6, 7, 8 and 9
of Block 5, located in the Mexicali Industrial Park I, at Avenida Galaxia Number
50, and of certain improvements constructed on the land. The land and PIMSA's
Improvements together shall hereinafter be referred to as the Leased Property.
G. That it has previously applied for and obtained financial loans
through Mexican and Foreign Banking and Lending Institutions, with which funds,
buildings and improvements located in the Industrial Parks have been, are being
and will be constructed.
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2
II. COMPANY hereby declares that:
A. It is a company organized under the Mexican General Corporation Law
as per Public Instrument Number 28,658, Volume 478, executed on January 26,
1994, before attorney Fernando Diaz Ceballos, Notary Public Number 4 of the
City of Mexicali, Baja California, Mexico.
B. Mr. William Lawrence Osborn verifies his capacity as General
Director of Operations and General Manager of COMPANY as per Public
Instrument Number 31,457, Volume 577, executed on November 09, 1998, before
attorney Fernando Diaz Ceballos, Notary Public Number 4 of the City of
Mexicali, Baja California, Mexico.
C. COMPANY's registration number at the Federal Registry of Taxpayers
is: CCO-821123-QA1.
D. The address at which it has its principal place of business is Calle
Mercurio Number 70, Mexicali Industrial Park I, Mexicali, Baja California,
Mexico.
Pursuant to the above, the parties agree as follows:
C L A U S E S
I. SCOPE OF LEASE AGREEMENT.
On the express terms and conditions set forth hereinafter, the scope of
this Lease Agreement is as follows: PIMSA hereby leases to COMPANY and COMPANY
hereby leases from PIMSA the land in the Industrial Park as described on EXHIBIT
"B", which is attached hereto and made a part hereof, and PIMSA's Improvements
as more specifically described hereinafter in this Lease Agreement.
II. CONSTRUCTION BY PIMSA.
A. PIMSA has, at its expense, constructed on the land certain
improvements which shall hereinafter be referred to as PIMSA's Improvements.
Said PIMSA's Improvements have been constructed in accordance with plans and
specifications which have been approved by PIMSA and COMPANY and such approval
is hereby acknowledged by the parties.
B. PIMSA has constructed all PIMSA's Improvements in accordance with all
laws, ordinances, regulations, and orders of governmental authorities, and
Industrial Park Regulations which are attached hereto as EXHIBIT "C". The term
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3
"Improvements" shall, depending on the context, refer to either "PIMSA's
Improvements", "COMPANY's Improvements" or both. The term "COMPANY's
Improvements" shall refer to those improvements identified in Paragraph III.A.
below.
C. The Leased Property is considered Ready For Occupancy.
D. Upon prior written consent of PIMSA, COMPANY may at any time prior to
the commencement of the term hereof, at its sole risk, enter upon and install
such trade fixtures and equipment in the Leased Property as it may elect;
provided, however that, (I) COMPANY shall provide evidence of insurance
satisfactory to PIMSA.
III. INSTALLATIONS BY COMPANY.
A. COMPANY may, at its expense, install on the Leased Property, such
trade fixtures, equipment and furniture as it may deem necessary; provided
that such items are installed and are removable without damage to the
structural integrity of PIMSA's Improvements. Said trade fixtures, equipment
and furniture shall remain COMPANY's property and unless COMPANY is in
default hereunder, shall be removed by COMPANY on or before the expiration
date of the term hereof. COMPANY may also install temporary improvements in
the interior of PIMSA's Improvements upon the Leased Property provided that
such COMPANY's Improvements are installed and are removable without damage to
the structure of the PIMSA's Improvements. Such COMPANY's Improvements shall
remain property of COMPANY and, unless COMPANY is in default hereunder, shall
be removed by COMPANY upon expiration of the term hereof or earlier
termination of this Lease. COMPANY shall repair, at its sole expense, all
damage caused by the installation or removal of trade fixtures, equipment,
furniture or temporary COMPANY's Improvements, reasonable wear and tear
excepted.
B. COMPANY shall perform all installations in accordance with all laws,
ordinances, regulations, orders of governmental authorities, and the Industrial
Park Regulations which are attached hereto as EXHIBIT "C".
IV. LEASE TERM AND COMMENCEMENT DATE.
A. LEASE AGREEMENT. This Lease Agreement shall be effective from the
Commencement Date until the same is terminated as provided hereinafter, the
complete period of tenancy being referred to herein as the "Lease Term".
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4
B. INITIAL LEASE TERM. The initial term of this Lease ("Initial Term")
shall commence on January 01, 1999, ("Commencement Date") and shall end on the
last day of the fifth (5th) consecutive full Lease Year, as said term is
hereinafter defined.
C. LEASE YEAR. The term "Lease Year" as used herein, shall mean a period
of twelve (12) consecutive full calendar months. The First Lease Year shall
begin on the Commencement Date of the term hereof, if the Commencement Date of
the term hereof shall occur on the first (1st) day of a calendar month; if not
then the First Lease Year shall commence upon the first (1st) day of the
calendar month next following the Commencement Date of the term hereof. Each
succeeding Lease Year shall commence upon the anniversary date of the First
Lease Year.
D. OPTION TO RENEW. COMPANY shall have the right to extend the term of
this Lease Agreement upon the terms, conditions and rentals set forth herein,
for one (1) additional period of five (5) years, ("Renewal Terms"), by giving
written notice to PIMSA not less than six (6) months prior to the expiration of
the Initial Term of this Lease Agreement, so long as COMPANY is not then in
default hereunder.
V. RENT.
A. INITIAL TERM. As minimum monthly rent for the Lease of the Leased
Property during the Lease Term hereof, COMPANY shall pay to PIMSA at the address
of PIMSA stated above, the monthly sum in Pesos, Mexican Currency, equal to the
monthly payments in Dollars, United States Currency, payable as follows:
1. $32,871.00 Dollars, United States Currency, (Thirty Two Thousand
Eight Hundred Seventy One Dollars 00/100, United States Currency), upon the
execution of this contract which sum shall be applied to the last three (3)
months of the Initial Term.
2. Fifty Seven (57) equal monthly payments of $10,957.00 Dollars
(Ten Thousand Nine Hundred Fifty Seven Dollars 00/100, United States Currency),
each payable in advance on the first (1st) day of each month during the Initial
Term, commencing on the first (1st) month of the Initial Term.
3. Increase of Monthly Rent For the Second, Third, Fourth and Fifth
Lease Years. On the first (1st) day of the Second, Third, Fourth and Fifth
Lease Years the
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5
monthly rent for such Lease Years shall be increased by an amount which is equal
to the product of:
a. The monthly rent then being paid for the immediately
preceding Lease Year, in accordance to Clause V.A.2., hereinabove, multiplied by
b. The percentage increase in the Index (as hereinafter
defined) during the immediately preceding Lease Year.
1) Maximum Rent Increase; No Decrease. Notwithstanding
anything herein contained to the contrary, the monthly rent for the Second,
Third, Fourth and Fifth Lease Years shall not be increased by an amount greater
than ten percent (10%) of the rent for the immediately preceding Lease Year. In
no event shall the monthly rent for the Second, Third, Fourth and Fifth Lease
Years be decreased below the monthly rent for the immediately preceding Lease
Year.
2) Index Defined. The term "Index" shall mean the United
States Bureau of Labor Statistics Consumer Price Index for all Urban Consumers
(all items, Los Angeles-Anaheim-Riverside area, 1982-1984=100).
If the compilation or publication of the Index is
transferred to any other department, bureau or agency of the United States
government or is discontinued, then the index most similar to the Index shall be
used to calculate the rent increases provided for herein. If PIMSA and COMPANY
cannot agree on a similar alternate index, then the matter shall be submitted
for decision to the American Arbitration Association in accordance with the then
rules of such association, and the decision of the arbitrators shall be binding
upon the parties. The cost of such arbitration shall be divided equally between
PIMSA and COMPANY.
B. ADDITIONAL RENT. With the exception of income tax imposed upon PIMSA,
and any tax associated with the Sale or Transfer of the Leased Property or
PIMSA's Improvements, which shall be borne by PIMSA, COMPANY will pay to PIMSA,
as additional rent, an amount equal to the sum of all taxes and assessments of
every kind which are or may be at any time during the Lease Term, levied against
the Leased Property or the Lease Agreement, including but not limited to gross
sales tax, value added tax or stamp tax, property tax and all such taxes and
assessments, levied by any federal, state or municipal government, or any
governmental authority. All such taxes and assessments shall be paid by PIMSA
and reimbursed by COMPANY within ten (10) days after the receipt showing the
payment thereof is presented to COMPANY by PIMSA.
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6
In calculating the amount of COMPANY's reimbursement, all taxes which
shall become due for the first and last years of the Lease Term shall be
apportioned prorata between PIMSA and COMPANY in accordance with the respective
number of months during which each party shall be in possession of the Leased
Property.
C. RENEWAL TERMS.
1. GRANT OF OPTION AND MANNER OF EXERCISE. COMPANY shall have the
option to extend the term of this Lease for one (1) period of five (5) years,
(the "Extended Term"). COMPANY shall given written notice to PIMSA not less
than six (6) months prior to the expiration of the initial term, if COMPANY
elects to exercise the option to extend granted herein.
2. RENT. The monthly rent for each Lease Year of the Extended Term
shall be equal to the monthly rent for the immediately preceding Lease Year,
plus an amount which is equal to the product of:
a. The monthly rent paid by COMPANY during the immediately
preceding Lease Year, multiplied by
b. The percentage increase in the Index (as hereinabove
defined) during the immediately preceding Lease Year.
Notwithstanding anything herein contained to the contrary, the monthly
rent for each Lease Year of the Extended Term shall not be increased by an
amount greater than ten percent (10%) of the monthly rent for the immediately
preceding Lease Year. In no event shall the monthly rent for any Lease Year of
the Extended Term be decreased below the monthly rent for the immediately
preceding Lease Year.
D. COMPANY will pay the rent provided for in the above Paragraph A. in
Pesos, Mexican Currency, at the rate of exchange effective in the free foreign
market on the date such sums are paid, or in Dollars, United States Currency, as
law and Foreign Exchange Rules allow, as PIMSA may elect.
The foregoing will not be considered to impede or hinder PIMSA's
possibilities and rights under Clause XII to negotiate or assign this agreement
to Mexican, United States or other Foreign Banking or Lending Institutions.
E. PRORATION. The rent for any partial month shall be prorated.
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7
F. LIQUIDATED DAMAGES. In the event this Lease Agreement is terminated
by PIMSA due to a default of COMPANY prior to or during the first (1st) six (6)
months of the Lease Term, PIMSA shall be entitled to keep and retain as
liquidated damages all sums paid or deposited by COMPANY, as prepaid rent or as
a security deposit, in addition to any other rights of PIMSA provided for
herein.
G. SETOFF. The payment of any rent due under this Lease shall not be
withheld or reduced for any reason whatsoever, and COMPANY agrees to assert any
claim, demand, or other right against PIMSA only by an independent proceeding.
VI. USE.
The Leased Property shall be used and occupied for any lawful industrial
purpose not in violation of the Industrial Park Regulations attached hereto as
EXHIBIT "C". COMPANY shall promptly and adequately comply with all laws,
ordinances and orders of all governmental authorities affecting the Leased
Property, and its cleanliness, safety and labor facilities applicable to the
COMPANY's use of the Leased Property. COMPANY shall not perform or omit any
acts that may damage the Leased Property, or be a nuisance, or menace to other
occupants of the Industrial Park.
VII. INSURANCE.
A. COMPREHENSIVE LIABILITY INSURANCE. During the Lease Term, COMPANY
shall, at its own expense, obtain and maintain in full force a policy of
comprehensive liability insurance including property damage, that insures
COMPANY and PIMSA (and such other agents or employees of PIMSA, PIMSA's
subsidiaries or affiliates, or PIMSA's assignees or any nominee of PIMSA holding
any interest in the Leased Property, including without limitation, the holder of
any mortgage encumbering the Leased Property) against liability for injury to
persons and property and for death of any persons occurring in or about the
Leased Property. The liability to such insurance shall be in the amount of
$100,000.00 Dollars (One Hundred Thousand Dollars 00/100, United States
Currency).
B. FIRE AND OTHER INSURANCE. During the Lease Term, COMPANY at its sole
expense, shall obtain and maintain in full force, in the amount of $1,045,000.00
Dollars (One Million Forty Five Thousand Dollars 00/100, United States
Currency), or as modified herein, a policy or policies of insurance for fire,
lightning, explosion, falling aircraft, smoke, windstorm, earthquake, hail,
vehicle damage, volcanic
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8
eruption, strikes, civil commotion, vandalism, riots, malicious mischief, debris
removal, steam boiler or pressure object or machinery breakage if applicable,
and flood insurance, on all the Leased Property, including but not limited to
the shell building and interior fit-up. COMPANY shall also obtain and maintain
annual rental insurance in the amount of the annual rent provided for herein in
favor of PIMSA. COMPANY shall be responsible for maintaining insurance on all
of COMPANY's own property. Except for insurance upon COMPANY's property, PIMSA
or its appointee shall be named the COMPANY's beneficiary of any and all
proceeds from any such policy or policies, as their interests may appear.
C. FORM AND DELIVERY OF POLICIES. Each insurance policy referred to in
the preceding paragraphs shall be in a form approved by the Department of
Finance and Public Credit and written with one or more companies licensed to do
insurance in Mexicali, Baja California, Mexico, and shall provide that it shall
not be subject to cancellation or change except after at least thirty (30) days
prior written notice to PIMSA. The policies, or duly executed certificates for
them, together with copies of receipts for payment of the premiums thereof,
shall be delivered to PIMSA prior to the Commencement Date of the Lease Term, as
provided in Clause IV hereof; all documents verifying the renewal of such
policies shall be delivered to PIMSA at least thirty (30) days prior to the
expiration of the term of such coverage. Prior to the Commencement Date of the
Lease Term, each party shall procure and maintain such insurance covering its
own liability and property as each deems appropriate.
D. ADDITIONAL INSURANCE. COMPANY shall obtain and maintain in full force
and effect such additional amounts of insurance as may be required by PIMSA,
from time to time, in accordance with the provisions of this Clause VII, and in
order to adequately and properly insure PIMSA of and for the then current
replacement value of the Leased Property.
E. WAIVER OF SUBROGATION. The parties release each other, and their
respective authorized representatives, from any claims for damage to any person
or to the premises and to the fixtures, personal property, tenant's
improvements, and alterations of either PIMSA or COMPANY in or on the premises
that are caused by or result from risks insured against under any insurance
policies carried by the parties and in force at the time of any such damage. If
either party purchases insurance, the policy shall provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any
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9
policy. If a party hereto cannot obtain such waiver of subrogation through
reasonable efforts, it shall obtain insurance naming the other party as a
coinsured under its policy in order to accomplish the intent of this provision.
VIII. TAXES AND ASSESSMENTS.
COMPANY agrees to pay all taxes and assessments of every kind levied upon
any and all personal property of COMPANY, its successors and assigns, whether
same shall be or may become a lien upon the Leased Property. All such taxes and
assessments shall be paid by COMPANY before the same become delinquent. In the
event that this contract is recorded at the Public Registry of Property, COMPANY
shall pay all costs of such recordation, including, but not limited to, notary
fees, charges, taxes and stamps required in connection therewith.
IX. REPAIRS, ALTERATIONS AND IMPROVEMENTS.
A. PIMSA.
1. After receipt of written notice from COMPANY, PIMSA at its
expense, shall with the minimum interference with COMPANY's normal use of the
Leased Property, diligently proceed to repair any structural defects in the roof
or exterior bearing walls, excepting normal use, wear and damage. PIMSA shall
not be liable for any damages, and shall not be obligated to make any repairs,
caused by any negligent act or omissions of COMPANY, its employees, agents,
invitees, or contractors. PIMSA shall have no other obligation to maintain or
repair any other portion of the Leased Property. PIMSA shall not be liable to
COMPANY for any damage resulting from PIMSA's failure to make any repairs,
unless COMPANY has notified PIMSA of the need for such repairs, and PIMSA has
failed to commence such repairs within ten (10) days after said notice has been
given and failed to complete the same in a diligent manner.
2. If PIMSA fails to make the repairs described in Clause IX.A.,
COMPANY may, but shall not be required to, make or cause such repairs, to be
made, and PIMSA shall, on demand, immediately pay to COMPANY the actual cost of
the repairs.
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10
B. COMPANY.
1. COMPANY, at its expense, shall keep and maintain in good order
and repair, except for normal use and wear, all of the Leased Property,
except for those obligations of PIMSA stated in Paragraph A.1., of this
Clause, including but not limited to, all plumbing, sewage and other utility
facilities that are within the Leased Property, as well as fixtures,
partitions, walls (interior and exterior, including painting as often as
necessary, floors, ceilings, signs, all air conditioning, heating and similar
equipment, doors, window, plate glass and all other repairs of every kind and
character to the Leased Property. COMPANY at its expense, shall repair all
leaks except those caused by structural defects. The plumbing facilities
shall not be used for any other purpose than that for which they were
constructed. The expense of any breakage, stoppage or damage resulting from a
violation of this provision, shall be borne by COMPANY. COMPANY shall store
all trash only temporarily within the Leased Property, and shall arrange for
the regular pick up of trash at COMPANY's expense. COMPANY shall not burn
any trash of any kind in or about the Leased Property or the Industrial Park.
2. COMPANY shall require written consent to make any alteration,
improvement or addition to the exterior walls and roof of the Leased Property
with a cost exceeding $5,000.00 Dollars (Five Thousand Dollars 00/100, United
States Currency); and COMPANY shall not damage any floors, walls, ceilings,
partitions, or any wood, stone or ironwork on or about the Leased Property.
3. COMPANY shall keep the Leased Property free and clear of all
encumbrances and liens arising out of acts or omissions of COMPANY, including
those arising out of acts or construction done or ordered by COMPANY. However,
if by reason of any work performed, materials furnished or obligations incurred
by COMPANY with any third party, or any other act or omission by COMPANY, PIMSA
is made liable or involved in litigation, COMPANY shall hold harmless and
indemnify PIMSA including any costs and expenses, and attorneys' fees incurred
by reason thereof. Should COMPANY fail fully to discharge any such encumbrances
or liens within thirty (30) days after the date it has been instituted, or fail
to provide a bond acceptable to PIMSA in the event of contest, PIMSA, at its
option, may pay all or any part thereof. If PIMSA pays any such lien or
encumbrances or any part thereof, COMPANY shall, on demand, immediately pay
PIMSA the amount so paid, together with interest at the rate of twenty percent
(20%) per annum from the date of payment. No
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11
lien or encumbrance of any character whatsoever created by an act or omission by
COMPANY shall in any way attach or affect the rights of PIMSA on the Leased
Property.
X. UTILITY SERVICES.
During the term of this Lease Agreement, COMPANY shall promptly pay for any
and all public and other utilities and related services furnished to the Leased
Property, including but not limited to, water, gas, electricity and telephone
charges.
XI. RIGHT-OF-WAY.
PIMSA is hereby granted a right-of-way upon, across, over and under the
Leased Property for ingress, egress, installations, replacing, repairing and
maintaining all utilities, including but not limited to water, gas, telephones
and all electricity and any television or radio antenna system serving the
Leased Property. By virtue of this right-of-way it shall be expressly
permissible for the providing electrical and/or telephone company to erect and
maintain the necessary poles and other necessary equipment on the Leased
Property; provided that in exercising any right PIMSA may have under this Clause
XI, PIMSA agrees to cause only a minimum interference with COMPANY's use and
possession of the Leased Property.
XII. ASSIGNMENT AND SUBLETTING.
A. COMPANY shall have the right, upon prior written notice to PIMSA, to
assign or transfer this Lease Agreement, or any interest therein, or permit the
use of the Leased Property by any individual, corporation, or entity, or
sublease all or part of the Leased Property, provided, however, that in the
event of any such assignment, transfer or sublease, COMPANY and its Guarantor
shall remain liable for all its obligations under this Lease Agreement.
B. PIMSA shall have the right to assign and reassign, from time to time,
any or all of the rights and obligations of PIMSA in this Lease Agreement, or
any interest therein, without COMPANY's consent, provided that no such
assignment or reassignment shall impair any of the rights of COMPANY herein, and
provided further, that PIMSA shall remain liable for all of its obligations
under this Lease Agreement. In the event of an assignment or reassignment,
COMPANY shall not diminish or withhold any of the rents payable hereunder by
asserting against such assignee any defense, setoff, or counterclaims which
COMPANY may have against PIMSA or any
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12
other person. COMPANY hereby specifically waives, with respect to withholding
of rent, any preventative measures to guarantee payment of a claim, as provided
by the Code of Civil Procedure.
XIII. SUBORDINATION.
During the term of this Lease Agreement, PIMSA shall have the right to
encumber its interest in the Leased Property or in this Lease Agreement for any
purpose it deems convenient, and COMPANY shall and hereby does subordinate its
interest in this Lease Agreement and in the Leased Property to such encumbrance.
However, in the event such encumbrance is foreclosed or judicially enforced, the
one who holds the encumbrance shall agree to honor this Lease Agreement and
accept the performance by COMPANY of its obligations hereunder. COMPANY shall
execute any agreement which may be required by PIMSA in confirmation of such
subordination and submit whatever public financial data may normally be
requested by any trust, insurance company, bank or other recognized lending
institution.
Once that PIMSA shall have notified COMPANY in writing that it has assigned
its interest in this Lease Agreement to any lending institution as security for
a debt or other obligation of PIMSA, PIMSA shall not have the power to amend
this Lease Agreement so as to reduce the rent, decrease the term or modify or
negate any substantial obligation of COMPANY hereunder, or to accept a
rescission of this contract, without the written consent of such lending
institution. Such obligation shall continue until the lending institution shall
have notified COMPANY in writing that such assignment has been terminated, on
the understanding that if PIMSA fails to obtain such lending institution's
approval to carry out the foregoing, the amendment of the term above mentioned
shall have no effect whatsoever as against such lending institution.
In addition, if the lending institution should notify COMPANY in writing
requiring the payment of rents hereunder directly to such lending institution or
its representative, then COMPANY shall be obligated to pay to such lending
institution or its representative each subsequent monthly rental coming due
under this Lease Agreement (together with any unpaid rent then past due), until
the date on which such lending institution notifies COMPANY authorizing payment
of rent to PIMSA or other party entitled thereto. COMPANY understands and
agrees that except for the advanced rental payments provided for in Paragraph
A.1. of Clause V of this Lease Agreement, PIMSA may not collect any rent more
than one
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13
(1) month in advance and COMPANY, at the request of PIMSA, shall provide a
statement that no such advanced payment has been made; such document shall be
binding upon COMPANY as against the lending institution to which this Lease
Agreement may be assigned. In addition, the lending institution shall not be
bound to recognize those payments made to PIMSA after the COMPANY has received
notice requiring payments to be made to such lending institutions.
XIV. ACCESS TO LEASED PROPERTY.
Without undue interference to COMPANY's operation, PIMSA or its authorized
representative shall have the right to enter the Leased Property during all
COMPANY business hours, and in emergencies at all times, to inspect the Leased
Property and to make repairs, additions, or alterations to the Leased Property.
For a period commencing ninety (90) days prior to the termination of this Lease
Agreement, PIMSA shall have access to the Leased Property for the purpose of
exhibiting it to prospective clients and may post usual for sale or for lease
signs upon the Leased Property. Except in case of emergency, PIMSA shall give
notice to COMPANY before entering the Leased Property, and COMPANY shall have
the right to accompany any representatives of PIMSA and prospective clients.
XV. DAMAGE OR DESTRUCTION.
A. TOTAL. In the event that the whole or a substantial part of the
Leased Property is damaged or destroyed by fire, act of nature, or any other
cause, so as to make COMPANY unable to continue the operation of its business,
PIMSA shall, within fifteen (15) days from such destruction, determine whether
the Leased Property can be restored within six (6) months, and notify COMPANY of
said determination. If PIMSA determines that the Leased Property cannot be
restored within six (6) months, either PIMSA or COMPANY shall have the right and
option to immediately terminate this Lease Agreement, by advising the other
thereof by written notice. If PIMSA determines that the Leased Property can be
restored within said six (6) months, PIMSA shall, at its own expense, to the
extent of the funds awarded to PIMSA from the proceeds of the insurance required
under Clause VII hereinabove, proceed diligently to reconstruct PIMSA's
Improvements, and in such event, PIMSA shall accept in lieu of rent during the
period when COMPANY is substantially deprived of the use of the Leased Property
any rental insurance proceeds which may be payable pursuant to rental insurance
provided for hereinabove.
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14
B. PARTIAL. In the event the said damage caused to the Leased Property
does not prevent COMPANY from continuing the normal operation of its business on
the Leased Property, PIMSA and COMPANY shall repair said damage, each party
reconstructing that portion of the building and interior installations for which
it was responsible during the original construction; provided that excluding
damage or destruction to the parking lot during the period required for such
repair work of PIMSA's Improvements or the improvements, rental payable
hereunder by COMPANY shall be equitably prorated to the proportioned
interference with COMPANY's use and possession of the Leased Property occasioned
by such damage and repair, and in such event, PIMSA shall accept in lieu of the
equitably prorated rent payable hereunder, during the period when COMPANY is
partially deprived of the use and possession of the Leased Property, any rental
insurance proceeds attributable to rent which may be payable pursuant to said
insurance provided for hereinabove.
XVI. LIMITATION OF LIABILITY.
Except for intentional or negligent acts or omissions of PIMSA, its agents
or employees, PIMSA shall not be liable to COMPANY or to any other person
whatsoever for any loss or damage of any kind or nature caused by the
intentional or negligent acts or omissions of COMPANY or other occupants of the
Industrial Park or of adjacent property, or the public, or other causes beyond
the control of PIMSA, including but not limited to, any failure to furnish, or
any interruption of any utility or other services in or about the Leased
Property. COMPANY recognizes that additions, replacements, and repairs to the
Industrial Park will be made from time to time, provided that the same shall not
substantially interfere with COMPANY's use and enjoyment of the Leased Property.
XVII. INDEMNIFICATION.
COMPANY agrees to indemnify and save PIMSA harmless from any and all claims
for damages or losses of any nature whatsoever, arising from negligent act or
omission of COMPANY or its contractors, licensees, agents, invitees, or
employees, or arising from any accident, injury or damage whatsoever caused to
any person or property occurring in or about the Leased Property, or the areas
adjoining the Leased Property and from and against all costs and expenses,
including attorneys' fees, incurred thereby.
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15
PIMSA indemnifies and holds COMPANY harmless from any injury or damage to
COMPANY or its agents or employees and from any and all liability for injury to
third persons or damage to the property of third persons while lawfully upon the
Leased Property occurring by reason of any negligent act or omission of PIMSA,
its contractors, licensees, invitees, agents or employees.
XVIII. NOTICES.
All notices under this Lease Agreement shall be forwarded to the addresses
mentioned in the Recitals above, with a copy to the Guarantor of this Lease
Agreement, or such other addresses as may from time to time be furnished by the
parties hereto. Said notices shall be in writing and if mailed, shall be deemed
given ten (10) days after the date of mailing thereof. Duplicate notices shall
be sent by certified airmail, postage prepaid, to such additional addresses as
may from time to time be requested in writing by the parties hereto.
XIX. COMPANY'S DEFAULT.
A. Each of the following shall be a default of COMPANY.
1. Vacation or abandonment of Leased Property.
2. Failure to pay any installment of rent due and payable hereunder
upon the date when said payment is due, said failure continuing for a period of
ten (10) days.
3. Default in the performance of any of COMPANY's covenants,
agreements or obligations hereunder, said default, except default in the payment
of any installment of rent, continuing for fifteen (15) days after written
notice thereof is given from PIMSA to COMPANY;
4. A general assignment by COMPANY for the benefit of creditors;
5. The filing of a voluntary petition in bankruptcy by COMPANY or
the filing of an involuntary petition by COMPANY's creditors, said petition
remaining undischarged for a period of ninety (90) days.
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16
6. The appointment of a Receiver to take possession of substantially
all of COMPANY's assets or of this leasehold, said receivership remaining
undischarged for a period of ninety (90) days.
7. Attachment, execution or other judicial seizure of substantially
all of COMPANY's assets or this leasehold, such attachment, execution or other
seizure remaining undismissed or undischarged for a period of ninety (90) days
after the levy hereof.
B. In addition to the above, each of the following shall be considered a
default of the COMPANY, if there is in respect to Guarantor:
1. A general assignment by Guarantor for the benefit of creditors;
2. The filing of a voluntary petition in bankruptcy by Guarantor or
the filing of an involuntary petition by Guarantor's creditors, said petition
remaining undischarged for a period of ninety (90) days;
3. The appointment of a Receiver to take possession of substantially
all of Guarantor's assets or of this leasehold, said receivership remaining
undissolved for a period of ninety (90) days or;
4. Attachment, execution or other judicial seizure of substantially
all of Guarantor's assets or this leasehold, such attachment, execution or other
seizure remaining undismissed or undischarged for a period of ninety (90) days
after the levy thereof.
C. Upon occurrence of any one of the foregoing defaults, PIMSA shall have
the right, at its option, and in addition to other rights or remedies granted by
law, including the right to claim damage, to do either of the following:
1. Immediately rescind this Lease Agreement and eject COMPANY from
the Leased Property.
2. Claim Specific Performance. In the case of default as specified
above, PIMSA shall, in addition to all other remedies, have the right to declare
the entire unpaid balance of rent to the end of the five (5) year Lease Term
then in effect, and all other sums due to PIMSA, immediately due and payable,
plus interest at the rate of twenty percent (20%) per annum of said sums from
the date of such declaration until payment in full, provided that PIMSA shall
diligently proceed to lease the Leased Property to another tenant or
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17
otherwise make beneficial use thereof in mitigation of damages, rent and all
other sums due or payable to PIMSA.
In the event the Leased Property is leased to another tenant
during the aforesaid five (5) year Lease Term or otherwise used in a beneficial
manner:
a. PIMSA shall promptly refund to COMPANY that portion of rent
and interest paid by COMPANY pursuant to this Paragraph 2. which is allocable to
the period of the Lease Term during which the Leased Property was leased to
another
tenant or otherwise used in a beneficial manner as well as any other allocable
sums paid by COMPANY to PIMSA, less any loss or damage incurred by PIMSA as a
result of COMPANY's default, or;
b. If such rent or other sums have not been paid by COMPANY to
PIMSA, PIMSA shall credit such amount(s) to COMPANY.
XX. RIGHT TO CURE DEFAULTS.
In the event of COMPANY's breach or default of any term or provision
herein, PIMSA may, without any obligation to do so, at any time after ten
(10) days written notice, cure such breach or default, or make repairs to the
Leased Property, for the account and at the expense of COMPANY. If PIMSA, by
reason of such breach or default, pays any money, or is compelled to incur
any expense, including attorneys' fees, the sums so paid or incurred by PIMSA
with all interest, costs, and damages, shall be paid by COMPANY to PIMSA on
the first (1st) day of the month following the incurring of such expenses.
If any installment of rent or any other payment is not promptly paid when
due, it shall bear interest of twenty percent (20%) per annum from the date
on which it becomes due until paid; but this provision is not intended to
relieve the COMPANY from fulfilling its obligations hereunder in the time and
in the manner specified in this agreement. The foregoing interest, expenses
and damages shall be recoverable from COMPANY by exercise of PIMSA's remedies
hereinabove set forth. Efforts by PIMSA to mitigate the damages caused by
COMPANY's breach of this Lease shall not be construed to be a waiver of
PIMSA's right to recover damages under this Clause XX. Nothing in this
Clause XX affects the right of PIMSA to indemnification by COMPANY in
accordance with Clause XVII hereinabove for liability arising prior to the
termination of this Lease for personal injuries or property damage.
<PAGE>
18
XXI. WAIVER.
In the event PIMSA or COMPANY does not compel the other to comply with any
of the obligations hereunder, such action or omission shall not be construed as
a waiver of a subsequent breach of the same or any other provision. Any consent
or approval shall not be deemed to waive or render unnecessary the consent or
approval of any subsequent or similar act by COMPANY or PIMSA.
XXII. CERTIFICATES.
COMPANY shall, within ten (10) days of receipt of a written request made by
PIMSA, deliver to PIMSA a statement in writing certifying that this Lease
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same are in full force and effect as modified); the
dates to which the rent and any other charges have been paid in advance, and
that PIMSA's Improvements have been satisfactorily completed. It is intended
that any such statement may be relied upon by any person, prospective purchaser,
or lending institution interested in the Leased Property.
XXIII. HOLDING OVER
If COMPANY should remain in possession of the Leased Property after the
expiration of this Lease, COMPANY shall pay a minimum monthly rent equal to
twice the then minimum monthly rent then paid in the month immediately
preceding the month in which the holdover period began until COMPANY has
delivered to PIMSA the Leased Property, or executed a new Lease Agreement.
This provision shall not be construed as granting any right to COMPANY to
remain in possession of the Leased Property after the expiration of the Lease
Term. COMPANY shall indemnify PIMSA against any loss or liability resulting
from delay by COMPANY in surrendering the Leased Property, if such loss or
liability is founded on said delay, less any amounts paid pursuant to this
clause. The parties agree that COMPANY shall quit and surrender the Leased
Property at the expiration of this Lease Agreement, waiving the right
provided by law.
XXIV. SURRENDER.
A. On the last day of the term of this Lease Agreement, or the sooner
termination thereof pursuant to other provisions hereof, COMPANY shall quit and
surrender the Leased Property in the same conditions as received by COMPANY, and
restore the premises to a clean and good condition (normal
<PAGE>
19
wear and tear excepted) together with PIMSA's Improvements that may have been
made in the same. Prior to termination of this Lease Agreement, COMPANY shall
have removed all of its property in accordance with Clause III hereof and all
property not removed shall be deemed abandoned by COMPANY. COMPANY shall repair
and restore the Leased Property to a good and clean condition, normal wear and
tear excepted, while removing the COMPANY's property.
XXV. QUIET ENJOYMENT.
PIMSA agrees that COMPANY, upon paying the rent and all other charges
provided for herein and upon complying with all of the terms and provisions of
this Lease Agreement, shall lawfully and quietly occupy and enjoy the Leased
Property during the Lease Term.
XXVI. ATTORNMENT.
COMPANY shall, in the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any
mortgage or deed of trust made by PIMSA, its successors or assigns,
encumbering the Leased Property, or any part thereof, if so requested, attorn
to the purchaser upon such foreclosure or sale and recognize such purchaser
as the lessor under this Lease.
XXVII. ENVIRONMENTAL PROTECTION LAW.
PIMSA hereby states that the Leased Property, its soil and underground are
free and clear of any hazardous materials, wastes or contaminants.
Nevertheless, PIMSA shall indemnify and save the COMPANY harmless from and
against losses, demands, claims, payments, suits, actions and judgments of any
nature and description brought against it by reason of the fact that
contaminants existed on the Leased Property, soil and/or underground, or were
deposited there, prior to date of signature of this Agreement. The COMPANY will
be responsible for any losses, damages or injuries caused by the contaminants
which are deposited on the Leased Property, soil or underground after date of
signature of this Agreement.
It will be the sole responsibility of the COMPANY to comply with all
Federal State or Municipal environmental laws, rules and dispositions, which
must be complied with by the COMPANY pursuant with the industrial activities it
will perform in the Leased Property and therefore, must obtain the required
licenses, authorizations, permits and any other document that it must possess
pursuant with the aforestated environmental rules.
<PAGE>
20
Furthermore, the COMPANY will be solely and exclusively responsible for any
demand, claim, or proceeding initiated against PIMSA, and which results from
acts or omissions by the COMPANY, regarding the handling of hazardous or toxic
materials or wastes located in or moved to, from or through the Leased Property.
The COMPANY in these cases, shall indemnify and save PIMSA harmless from and
against losses, demands, claims, payments, suits, actions and judgments of any
competent environmental authority.
XXVIII. MISCELLANEOUS.
A. This document contains all of the agreements and conditions made
between the parties, and may not be modified orally in any manner other than by
a written agreement signed by the authorized representative of the parties.
B. If any term, covenant, condition or provision of this Lease
Agreement, or the application thereof to any person or circumstance, shall to
any extent be held by a court of competent jurisdiction, to be invalid, void or
unenforceable, the remainder of the terms, covenants, conditions or provisions
of this Lease Agreement, or the application thereof to any person or
circumstance, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
C. In the event that either party should bring an action against the
other party for the possession of the Leased Property, or for the recovery of
any sum due hereunder, or because of the breach or default of any covenant in
this Lease Agreement, the prevailing party shall have the right to collect from
the other party its costs and expense, including attorneys' fees.
D. Every payment and performance required by this Lease Agreement, shall
be paid and performed precisely on the date specified for such payment or
performance and no delay or extension thereof shall be permitted.
E. The titles and subtitles in these clauses of this document shall have
no effect on the interpretation of the terms and provisions contained in this
Lease Agreement.
F. The parties agree that this Lease Agreement be governed by the Laws of
the State of Baja California. For everything pertaining to the interpretation
and compliance of this Lease Agreement the parties thereby expressly submit to
the jurisdiction of the Civil Courts of the City of Mexicali, State of Baja
California, waiving any other jurisdiction which
<PAGE>
21
might be applicable by reason of their present or future domiciles or otherwise.
G. This Lease Agreement shall be executed in Spanish and English.
However, in the event a dispute or other inconsistency should arise regarding
interpretation or meaning of this Lease Agreement, the English version shall
control.
H. Whenever the prior consent of either party, written or otherwise, is
required as a condition for any act by the other party under this Lease
Agreement, such party agrees not to arbitrarily or unreasonably withhold such
consent.
I. Each party shall execute such further documents as shall be requested
by the other party, but only to the extent that the effect of said documents is
to give legal effect to rights set forth in the Lease Agreement.
J. COMPANY hereby covenants to PIMSA, and PIMSA relies upon said covenant
as a material inducement to enter into this Lease, that COMPANY will deliver to
PIMSA, concurrently with the execution and delivery hereof a Guaranty of this
Lease in the form attached hereto as EXHIBIT "D", executed by, COASTCAST
CORPORATION, or by such other Guarantor as may be acceptable to PIMSA.
K. Submission of this instrument for examination or signature by COMPANY
does not constitute a reservation of or option to Lease, and it is not effective
as a Lease or otherwise until execution and delivery by both PIMSA and COMPANY.
L. This Lease and each of its covenants and conditions shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the provisions hereof. Whenever in this
Lease Agreement a reference is made to PIMSA, such reference shall be deemed to
refer to the person in whom the interest of the lessor hereunder shall be
vested. Any successor or assignee of COMPANY who accepts an assignment or the
benefit of this Lease Agreement and enters into possession or enjoyment
hereunder shall thereby assume and agree to perform and be bound by the
covenants and conditions thereof.
M. In the event the Government of Mexico or any subdivision thereof
appropriates, forcibly buys or in any other way takes over the assets or
business of the lessee, and without due cause by COMPANY prevents COMPANY from
doing
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22
business in Mexico, the COMPANY may upon written notice to PIMSA terminate this
Lease Agreement without liability or penalty for such termination and without
further liability for rental payments due under this Lease Agreement but without
prejudice to the rights of PIMSA and COMPANY to claim from the corresponding
authority the damages caused.
XXIX. Rider number I, PIMSA's Improvements, is attached hereto and by this
reference made a part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the
16th day of December, nineteen hundred ninety eight.
"PIMSA" "COMPANY"
/s/ Eduardo Manuel Martinez /s/ William Lawrence Osborn
- ------------------------------ ------------------------------
PARQUE INDUSTRIAL MEXICALI, COASTCAST CORPORATION, S.A.
S.A. DE C.V. Mr. William Lawrence Osborn
Mr. Eduardo Manuel Martinez General Director of Operations
Palomera and General Manager
Executive Vice President
W I T N E S S E S
- - - - - - - - -
/s/ [Illegible] /s/ Hans H. Buehler
- ------------------------------ ------------------------------
<PAGE>
Exhibit 10.8
LEASE AGREEMENT entered into by and between PARQUE INDUSTRIAL MEXICALI, S.A. DE
C.V., (hereinafter referred to as PIMSA), herein represented by MR. EDUARDO
MANUEL MARTINEZ PALOMERA, Party of the First Part, and by COASTCAST CORPORATION,
S.A., (hereinafter referred to as COMPANY), herein represented by MR. WILLIAM
LAWRENCE OSBORN, Party of the Second Part, pursuant to the following RECITALS
and CLAUSES:
R E C I T A L S
I. PIMSA hereby declares that:
A. It is a company organized and existing under the Mexican General
Corporation Law, as per Public Instrument Number 20,032, executed before
attorney Fernando Diaz Ceballos, Notary Public Number 4 of the City of Mexicali,
Baja California, Mexico.
B. Mr. Eduardo Manuel Martinez Palomera is its attorney-in-
fact, as it appears in Public Instrument Number 31,019, Volume 569, executed on
November 26, 1997, before attorney Fernando Diaz Ceballos, Notary Public Number
4 of the City of Mexicali, Baja California, Mexico.
C. PIMSA's registration number at the Federal Registry of Taxpayers is:
PIM-790807-D96.
D. The address at which it has its principal place of business is Avenida
Galaxia Number 18-B, Parque Industrial Mexicali I, Mexicali, Baja California,
Mexico.
E. PIMSA has developed the Mexicali Industrial Park I and the Mexicali
Industrial Park II, and is developing the Mexicali Industrial Park III and the
Mexicali Industrial Park IV. The Mexicali Industrial Park I, hereinafter
referred to as the Industrial Park, is more specifically shown and described on
EXHIBIT "A", which is attached hereto and made a part hereof.
F. The parties desire to enter into a Lease of Lots 1, 2, 3, 4, 5, 6, 7,
8 and a portion of Lot 9 of Block 2, located in the Mexicali Industrial Park I,
at Calle Mercurio Number 30, and of certain improvements constructed on the
land. The land and PIMSA's Improvements together shall hereinafter be referred
to as the Leased Property.
G. That it has previously applied for and obtained financial loans
through Mexican and Foreign Banking and Lending Institutions, with which funds,
buildings and improvements located in the Industrial Parks have been, are being
and will be constructed.
<PAGE>
2
II. COMPANY hereby declares that:
A. It is a company organized under the Mexican General Corporation Law as
per Public Instrument Number 28,658, Volume 478, executed on January 26, 1994,
before attorney Fernando Diaz Ceballos, Notary Public Number 4 of the City of
Mexicali, Baja California, Mexico.
B. Mr. William Lawrence Osborn verifies his capacity as General Director
of Operations and General Manager of COMPANY as per Public Instrument Number
31,457, Volume 577, executed on November 09, 1998, before attorney Fernando Diaz
Ceballos, Notary Public Number 4 of the City of Mexicali, Baja California,
Mexico.
C. COMPANY's registration number at the Federal Registry of Taxpayers is:
CCO-821123-QA1.
D. The address at which it has its principal place of business is Calle
Mercurio Number 70, Mexicali Industrial Park I, Mexicali, Baja California,
Mexico.
Pursuant to the above, the parties agree as follows:
C L A U S E S
I. SCOPE OF LEASE AGREEMENT.
On the express terms and conditions set forth hereinafter, the scope of
this Lease Agreement is as follows: PIMSA hereby leases to COMPANY and COMPANY
hereby leases from PIMSA the land in the Industrial Park as described on EXHIBIT
"B", which is attached hereto and made a part hereof, and PIMSA's Improvements
as more specifically described hereinafter in this Lease Agreement.
II. CONSTRUCTION BY PIMSA.
A. PIMSA has, at its expense, constructed on the land certain
improvements which shall hereinafter be referred to as PIMSA's Improvements.
Said PIMSA's Improvements have been constructed in accordance with plans and
specifications which have been approved by PIMSA and COMPANY and such approval
is hereby acknowledged by the parties.
B. PIMSA has constructed all PIMSA's Improvements in accordance with all
laws, ordinances, regulations, and orders of governmental authorities, and
Industrial Park Regulations which are attached hereto as EXHIBIT "C". The term
<PAGE>
3
"Improvements" shall, depending on the context, refer to either "PIMSA's
Improvements", "COMPANY's Improvements" or both. The term "COMPANY's
Improvements" shall refer to those improvements identified in Paragraph III.A.
below.
C. The Leased Property is considered Ready For Occupancy.
D. Upon prior written consent of PIMSA, COMPANY may at any time prior to
the commencement of the term hereof, at its sole risk, enter upon and install
such trade fixtures and equipment in the Leased Property as it may elect;
provided, however that, (I) COMPANY shall provide evidence of insurance
satisfactory to PIMSA.
III. INSTALLATIONS BY COMPANY.
A. COMPANY may, at its expense, install on the Leased Property, such
trade fixtures, equipment and furniture as it may deem necessary; provided
that such items are installed and are removable without damage to the
structural integrity of PIMSA's Improvements. Said trade fixtures, equipment
and furniture shall remain COMPANY's property and unless COMPANY is in
default hereunder, shall be removed by COMPANY on or before the expiration
date of the term hereof. COMPANY may also install temporary improvements in
the interior of PIMSA's Improvements upon the Leased Property provided that
such COMPANY's Improvements are installed and are removable without damage to
the structure of the PIMSA's Improvements. Such COMPANY's Improvements shall
remain property of COMPANY and, unless COMPANY is in default hereunder, shall
be removed by COMPANY upon expiration of the term hereof or earlier
termination of this Lease. COMPANY shall repair, at its sole expense, all
damage caused by the installation or removal of trade fixtures, equipment,
furniture or temporary COMPANY's Improvements, reasonable wear and tear
excepted.
B. COMPANY shall perform all installations in accordance with all laws,
ordinances, regulations, orders of governmental authorities, and the Industrial
Park Regulations which are attached hereto as EXHIBIT "C".
IV. LEASE TERM AND COMMENCEMENT DATE.
A. LEASE AGREEMENT. This Lease Agreement shall be effective from the
Commencement Date until the same is terminated as provided hereinafter, the
complete period of tenancy being referred to herein as the "Lease Term".
<PAGE>
4
B. INITIAL LEASE TERM. The initial term of this Lease ("Initial Term")
shall commence on January 01, 1999, ("Commencement Date") and shall end on the
last day of the fifth (5th) consecutive full Lease Year, as said term is
hereinafter defined.
C. LEASE YEAR. The term "Lease Year" as used herein, shall mean a period
of twelve (12) consecutive full calendar months. The First Lease Year shall
begin on the Commencement Date of the term hereof, if the Commencement Date of
the term hereof shall occur on the first (1st) day of a calendar month; if not
then the First Lease Year shall commence upon the first (1st) day of the
calendar month next following the Commencement Date of the term hereof. Each
succeeding Lease Year shall commence upon the anniversary date of the First
Lease Year.
D. OPTION TO RENEW. COMPANY shall have the right to extend the term of
this Lease Agreement upon the terms, conditions and rentals set forth herein,
for one (1) additional period of five (5) years, ("Renewal Terms"), by giving
written notice to PIMSA not less than six (6) months prior to the expiration of
the Initial Term of this Lease Agreement, so long as COMPANY is not then in
default hereunder.
V. RENT.
A. INITIAL TERM. As minimum monthly rent for the Lease of the Leased
Property during the Lease Term hereof, COMPANY shall pay to PIMSA at the address
of PIMSA stated above, the monthly sum in Pesos, Mexican Currency, equal to the
monthly payments in Dollars, United States Currency, payable as follows:
1. $36,471.00 Dollars, United States Currency, (Thirty Six Thousand
Four Hundred Seventy One Dollars 00/100, United States Currency), upon the
execution of this contract which sum shall be applied to the last three (3)
months of the Initial Term.
2. Fifty Seven (57) equal monthly payments of $12,157.00 Dollars
(Twelve Thousand One Hundred Fifty Seven Dollars 00/100, United States
Currency), each payable in advance on the first (1st) day of each month during
the Initial Term, commencing on the first (1st) month of the Initial Term.
3. Increase Of Monthly Rent For The Second, Third, Fourth and Fifth
Lease Years. On the first (1st) day of the Second, Third, Fourth and Fifth
Lease Years the
<PAGE>
5
monthly rent for such Lease Years shall be increased by an amount which is equal
to the product of:
a. The monthly rent then being paid for the immediately
preceding Lease Year, in accordance to Clause V.A.2., hereinabove, multiplied by
b. The percentage increase in the Index (as hereinafter
defined) during the immediately preceding Lease Year.
1) Maximum Rent Increase; No Decrease. Notwithstanding
anything herein contained to the contrary, the monthly rent for the Second,
Third, Fourth and Fifth Lease Years shall not be increased by an amount greater
than ten percent (10%) of the rent for the immediately preceding Lease Year. In
no event shall the monthly rent for the Second, Third, Fourth and Fifth Lease
Years be decreased below the monthly rent for the immediately preceding Lease
Year.
2) Index Defined. The term "Index" shall mean the United
States Bureau of Labor Statistics Consumer Price Index for all Urban Consumers
(all items, Los Angeles-Anaheim-Riverside area, 1982-1984-100).
If the compilation or publication of the Index is
transferred to any other department, bureau or agency of the United States
government or is discontinued, then the index most similar to the Index shall be
used to calculate the rent increases provided for herein. If PIMSA and COMPANY
cannot agree on a similar alternate index, then the matter shall be submitted
for decision to the American Arbitration Association in accordance with the then
rules of such association, and the decision of the arbitrators shall be binding
upon the parties. The cost of such arbitration shall be divided equally between
PIMSA and COMPANY.
B. ADDITIONAL RENT. With the exception of income tax imposed upon PIMSA,
and any tax associated with the Sale or Transfer of the Leased Property or
PIMSA's Improvements, which shall be borne by PIMSA, COMPANY will pay to PIMSA,
as additional rent, an amount equal to the sum of all taxes and assessments of
every kind which are or may be at any time during the Lease Term, levied against
the Leased Property or the Lease Agreement, including but not limited to gross
sales tax, value added tax or stamp tax, property tax and all such taxes and
assessments, levied by any federal, state or municipal government, or any
governmental authority. All such taxes and assessments shall be paid by PIMSA
and reimbursed by COMPANY within ten (10) days after the receipt showing the
payment thereof is presented to COMPANY by PIMSA.
<PAGE>
6
In calculating the amount of COMPANY's reimbursement, all taxes which
shall become due for the first and last years of the Lease Term shall be
apportioned prorata between PIMSA and COMPANY in accordance with the respective
number of months during which each party shall be in possession of the Leased
Property.
C. RENEWAL TERMS.
1. GRANT OF OPTION AND MANNER OF EXERCISE. COMPANY shall have the
option to extend the term of this Lease for one (1) period of five (5) years,
(the "Extended Term"). COMPANY shall given written notice to PIMSA not less
than six (6) months prior to the expiration of the initial term, if COMPANY
elects to exercise the option to extend granted herein.
2. RENT. The monthly rent for each Lease Year of the Extended Term
shall be equal to the monthly rent for the immediately preceding Lease Year,
plus an amount which is equal to the product of:
a. The monthly rent paid by COMPANY during the immediately
preceding Lease Year, multiplied by
b. The percentage increase in the Index (as hereinabove
defined) during the immediately preceding Lease Year.
Notwithstanding anything herein contained to the contrary, the monthly
rent for each Lease Year of the Extended Term shall not be increased by an
amount greater than ten percent (10%) of the monthly rent for the immediately
preceding Lease Year. In no event shall the monthly rent for any Lease Year of
the Extended Term be decreased below the monthly rent for the immediately
preceding Lease Year.
D. COMPANY will pay the rent provided for in the above Paragraph A. in
Pesos, Mexican Currency, at the rate of exchange effective in the free foreign
market on the date such sums are paid, or in Dollars, United States Currency, as
law and Foreign Exchange Rules allow, as PIMSA may elect.
The foregoing will not be considered to impede or hinder PIMSA's
possibilities and rights under Clause XII to negotiate or assign this agreement
to Mexican, United States or other Foreign Banking or Lending Institutions.
E. PRORATION. The rent for any partial month shall be prorated.
<PAGE>
7
F. LIQUIDATED DAMAGES. In the event this Lease Agreement is terminated
by PIMSA due to a default of COMPANY prior to or during the first (1st) six (6)
months of the Lease Term, PIMSA shall be entitled to keep and retain as
liquidated damages all sums paid or deposited by COMPANY, as prepaid rent or as
a security deposit, in addition to any other rights of PIMSA provided for
herein.
G. SETOFF. The payment of any rent due under this Lease shall not be
withheld or reduced for any reason whatsoever, and COMPANY agrees to assert any
claim, demand, or other right against PIMSA only by an independent proceeding.
VI. USE.
The Leased Property shall be used and occupied for any lawful industrial
purpose not in violation of the Industrial Park Regulations attached hereto as
EXHIBIT "C". COMPANY shall promptly and adequately comply with all laws,
ordinances and orders of all governmental authorities affecting the Leased
Property, and its cleanliness, safety and labor facilities applicable to the
COMPANY's use of the Leased Property. COMPANY shall not perform or omit any
acts that may damage the Leased Property, or be a nuisance, or menace to other
occupants of the Industrial Park.
VII. INSURANCE.
A. COMPREHENSIVE LIABILITY INSURANCE. During the Lease Term, COMPANY
shall, at its own expense, obtain and maintain in full force a policy of
comprehensive liability insurance including property damage, that insures
COMPANY and PIMSA (and such other agents or employees of PIMSA, PIMSA's
subsidiaries or affiliates, or PIMSA's assignees or any nominee of PIMSA holding
any interest in the Leased Property, including without limitation, the holder of
any mortgage encumbering the Leased Property) against liability for injury to
persons and property and for death of any persons occurring in or about the
Leased Property. The liability to such insurance shall be in the amount of
$100,000.00 Dollars (One Hundred Thousand Dollars 00/100, United States
Currency).
B. FIRE AND OTHER INSURANCE. During the Lease Term, COMPANY at its sole
expense, shall obtain and maintain in full force, in the amount of $1,160,000.00
Dollars (One Million One Hundred Sixty Thousand Dollars 00/100, United States
Currency), or as modified herein, a policy or policies of insurance for fire,
lightning, explosion, falling aircraft, smoke, windstorm, earthquake, hail,
vehicle damage, volcanic
<PAGE>
8
eruption, strikes, civil commotion, vandalism, riots, malicious mischief, debris
removal, steam boiler or pressure object or machinery breakage if applicable,
and flood insurance, on all the Leased Property, including but not limited to
the shell building and interior fit-up. COMPANY shall also obtain and maintain
annual rental insurance in the amount of the annual rent provided for herein in
favor of PIMSA. COMPANY shall be responsible for maintaining insurance on all
of COMPANY's own property. Except for insurance upon COMPANY's property, PIMSA
or its appointee shall be named the COMPANY's beneficiary of any and all
proceeds from any such policy or policies, as their interests may appear.
C. FORM AND DELIVERY OF POLICIES. Each insurance policy referred to in
the preceding paragraphs shall be in a form approved by the Department of
Finance and Public Credit and written with one or more companies licensed to do
insurance in Mexicali, Baja California, Mexico, and shall provide that it shall
not be subject to cancellation or change except after at least thirty (30) days
prior written notice to PIMSA. The policies, or duly executed certificates for
them, together with copies of receipts for payment of the premiums thereof,
shall be delivered to PIMSA prior to the Commencement Date of the Lease Term, as
provided in Clause IV hereof; all documents verifying the renewal of such
policies shall be delivered to PIMSA at least thirty (30) days prior to the
expiration of the term of such coverage. Prior to the Commencement Date of the
Lease Term, each party shall procure and maintain such insurance covering its
own liability and property as each deems appropriate.
D. ADDITIONAL INSURANCE. COMPANY shall obtain and maintain in full force
and effect such additional amounts of insurance as may be required by PIMSA,
from time to time, in accordance with the provisions of this Clause VII, and in
order to adequately and properly insure PIMSA of and for the then current
replacement value of the Leased Property.
E. WAIVER OF SUBROGATION. The parties release each other, and their
respective authorized representatives, from any claims for damage to any person
or to the premises and to the fixtures, personal property, tenant's
improvements, and alterations of either PIMSA or COMPANY in or on the premises
that are caused by or result from risks insured against under any insurance
policies carried by the parties and in force at the time of any such damage. If
either party purchases insurance, the policy shall provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any
<PAGE>
8
policy. If a party hereto cannot obtain such waiver of subrogation through
reasonable efforts, it shall obtain insurance naming the other party as a
coinsured under its policy in order to accomplish the intent of this provision.
VIII. TAXES AND ASSESSMENTS.
COMPANY agrees to pay all taxes and assessments of every kind levied upon
any and all personal property of COMPANY, its successors and assigns, whether
same shall be or may become a lien upon the Leased Property. All such taxes and
assessments shall be paid by COMPANY before the same become delinquent. In the
event that this contract is recorded at the Public Registry of Property, COMPANY
shall pay all costs of such recordation, including, but not limited to, notary
fees, charges, taxes and stamps required in connection therewith.
IX. REPAIRS, ALTERATIONS AND IMPROVEMENTS.
A. PIMSA.
1. After receipt of written notice from COMPANY, PIMSA at its
expense, shall with the minimum interference with COMPANY's normal use of the
Leased Property, diligently proceed to repair any structural defects in the roof
or exterior bearing walls, excepting normal use, wear and damage. PIMSA shall
not be liable for any damages, and shall not be obligated to make any repairs,
caused by any negligent act or omissions of COMPANY, its employees, agents,
invitees, or contractors. PIMSA shall have no other obligation to maintain or
repair any other portion of the Leased Property. PIMSA shall not be liable to
COMPANY for any damage resulting from PIMSA's failure to make any repairs,
unless COMPANY has notified PIMSA of the need for such repairs, and PIMSA has
failed to commence such repairs within ten (10) days after said notice has been
given and failed to complete the same in a diligent manner.
2. If PIMSA fails to make the repairs described in Clause IX.A.,
COMPANY may, but shall not be required to, make or cause such repairs, to be
made, and PIMSA shall, on demand, immediately pay to COMPANY the actual cost of
the repairs.
<PAGE>
10
B. COMPANY
1. COMPANY, at its expense, shall keep and maintain in good order
and repair, except for normal use and wear, all of the Leased Property,
except for those obligations of PIMSA stated in Paragraph A.1., of this
Clause, including but not limited to, all plumbing, sewage and other utility
facilities that are within the Leased Property, as well as fixtures,
partitions, walls (interior and exterior, including painting as often as
necessary), floors, ceilings, signs, all air conditioning, heating and
similar equipment, doors, window, plate glass and all other repairs of every
kind and character to the Leased Property. COMPANY at its expense, shall
repair all leaks except those caused by structural defects. The plumbing
facilities shall not be used for any other purpose than that for which they
were constructed. The expense of any breakage, stoppage or damage resulting
from a violation of this provision, shall be borne by COMPANY. COMPANY shall
store all trash only temporarily within the Leased Property, and shall
arrange for the regular pick up of trash at COMPANY's expense. COMPANY shall
not burn any trash of any kind in or about the Leased Property or the
Industrial Park.
2. COMPANY shall require written consent to make any alteration,
improvement or addition to the exterior walls and roof of the Leased Property
with a cost exceeding $5,000.00 Dollars (Five Thousand Dollars 00/100, United
States Currency); and COMPANY shall not damage any floors, walls, ceilings,
partitions, or any wood, stone or ironwork on or about the Leased Property.
3. COMPANY shall keep the Leased Property free and clear of all
encumbrances and liens arising out of acts or omissions of COMPANY, including
those arising out of acts or construction done or ordered by COMPANY. However,
if by reason of any work performed, materials furnished or obligations incurred
by COMPANY with any third party, or any other act or omission by COMPANY, PIMSA
is made liable or involved in litigation, COMPANY shall hold harmless and
indemnify PIMSA including any costs and expenses, and attorneys' fees incurred
by reason thereof. Should COMPANY fail fully to discharge any such encumbrances
or liens within thirty (30) days after the date it has been instituted, or fail
to provide a bond acceptable to PIMSA in the event of contest, PIMSA, at its
option, may pay all or any part thereof. If PIMSA pays any such lien or
encumbrances or any part thereof, COMPANY shall, on demand, immediately pay
PIMSA the amount so paid, together with interest at the rate of twenty percent
(20%) per annum from the date of payment. No
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11
lien or encumbrance of any character whatsoever created by an act or omission by
COMPANY shall in any way attach or affect the rights of PIMSA on the Leased
Property.
X. UTILITY SERVICES.
During the term of this Lease Agreement, COMPANY shall promptly pay for any
and all public and other utilities and related services furnished to the Leased
Property, including but not limited to, water, gas, electricity and telephone
charges.
XI. RIGHT-OF-WAY.
PIMSA is hereby granted a right-of-way upon, across, over and under the
Leased Property for ingress, egress, installations, replacing, repairing and
maintaining all utilities, including but not limited to water, gas, telephones
and all electricity and any television or radio antenna system serving the
Leased Property. By virtue of this right-of-way it shall be expressly
permissible for the providing electrical and/or telephone company to erect and
maintain the necessary poles and other necessary equipment on the Leased
Property; provided that in exercising any right PIMSA may have under this Clause
XI, PIMSA agrees to cause only a minimum interference with COMPANY's use and
possession of the Leased Property.
XII. ASSIGNMENT AND SUBLETTING.
A. COMPANY shall have the right, upon prior written notice to PIMSA, to
assign or transfer this Lease Agreement, or any interest therein, or permit the
use of the Leased Property by any individual, corporation, or entity, or
sublease all or part of the Leased Property, provided, however, that in the
event of any such assignment, transfer or sublease, COMPANY and its Guarantor
shall remain liable for all its obligations under this Lease Agreement.
B. PIMSA shall have the right to assign and reassign, from time to time,
any or all of the rights and obligations of PIMSA in this Lease Agreement, or
any interest therein, without COMPANY's consent, provided that no such
assignment or reassignment shall impair any of the rights of COMPANY herein, and
provided further, that PIMSA shall remain liable for all of its obligations
under this Lease Agreement. In the event of an assignment or reassignment,
COMPANY shall not diminish or withhold any of the rents payable hereunder by
asserting against such assignee any defense, setoff, or counterclaims which
COMPANY may have against PIMSA or any
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12
other person. COMPANY hereby specifically waives, with respect to withholding
of rent, any preventative measures to guarantee payment of a claim, as provided
by the Code of Civil Procedure.
XIII. SUBORDINATION.
During the term of this Lease Agreement, PIMSA shall have the right to
encumber its interest in the Leased Property or in this Lease Agreement for any
purpose it deems convenient, and COMPANY shall and hereby does subordinate its
interest in this Lease Agreement and in the Leased Property to such encumbrance.
However, in the event such encumbrance is foreclosed or judicially enforced, the
one who holds the encumbrance shall agree to honor this Lease Agreement and
accept the performance by COMPANY of its obligations hereunder. COMPANY shall
execute any agreement which may be required by PIMSA in confirmation of such
subordination and submit whatever public financial data may normally be
requested by any trust, insurance company, bank or other recognized lending
institution.
Once that PIMSA shall have notified COMPANY in writing that it has assigned
its interest in this Lease Agreement to any lending institution as security for
a debt or other obligation of PIMSA, PIMSA shall not have the power to amend
this Lease Agreement so as to reduce the rent, decrease the term or modify or
negate any substantial obligation of COMPANY hereunder, or to accept a
rescission of this contract, without the written consent of such lending
institution. Such obligation shall continue until the lending institution shall
have notified COMPANY in writing that such assignment has been terminated, on
the understanding that if PIMSA fails to obtain such lending institution's
approval to carry out the foregoing, the amendment of the term above mentioned
shall have no effect whatsoever as against such lending institution.
In addition, if the lending institution should notify COMPANY in writing
requiring the payment of rents hereunder directly to such lending institution or
its representative, then COMPANY shall be obligated to pay to such lending
institution or its representative each subsequent monthly rental coming due
under this Lease Agreement (together with any unpaid rent then past due), until
the date on which such lending institution notifies COMPANY authorizing payment
of rent to PIMSA or other party entitled thereto. COMPANY understands and
agrees that except for the advanced rental payments provided for in Paragraph
A.1. of Clause V of this Lease Agreement, PIMSA may not collect any rent more
than one
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13
(1) month in advance and COMPANY, at the request of PIMSA, shall provide a
statement that no such advanced payment has been made; such document shall be
binding upon COMPANY as against the lending institution to which this Lease
Agreement may be assigned. In addition, the lending institution shall not be
bound to recognize those payments made to PIMSA after the COMPANY has received
notice requiring payments to be made to such lending institutions.
XIV. ACCESS TO LEASED PROPERTY.
Without undue interference to COMPANY's operation, PIMSA or its authorized
representative shall have the right to enter the Leased Property during all
COMPANY business hours, and in emergencies at all times, to inspect the Leased
Property and to make repairs, additions, or alterations to the Leased Property.
For a period commencing ninety (90) days prior to the termination of this Lease
Agreement, PIMSA shall have access to the Leased Property for the purpose of
exhibiting it to prospective clients and may post usual for sale or for lease
signs upon the Leased Property. Except in case of emergency, PIMSA shall give
notice to COMPANY before entering the Leased Property, and COMPANY shall have
the right to accompany any representatives of PIMSA and prospective clients.
XV. DAMAGE OR DESTRUCTION.
A. TOTAL. In the event that the whole or a substantial part of the
Leased Property is damaged or destroyed by fire, act of nature, or any other
cause, so as to make COMPANY unable to continue the operation of its business,
PIMSA shall, within fifteen (15) days from such destruction, determine whether
the Leased Property can be restored within six (6) months, and notify COMPANY of
said determination. If PIMSA determines that the Leased Property cannot be
restored within six (6) months, either PIMSA or COMPANY shall have the right and
option to immediately terminate this Lease Agreement, by advising the other
thereof by written notice. If PIMSA determines that the Leased Property can be
restored within said six (6) months, PIMSA shall, at its own expense, to the
extent of the funds awarded to PIMSA from the proceeds of the insurance required
under Clause VII hereinabove, proceed diligently to reconstruct PIMSA's
Improvements, and in such event, PIMSA shall accept in lieu of rent during the
period when COMPANY is substantially deprived of the use of the Leased Property
any rental insurance proceeds which may be payable pursuant to rental insurance
provided for hereinabove.
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14
B. PARTIAL. In the event the said damage caused to the Leased Property
does not prevent COMPANY from continuing the normal operation of its business on
the Leased Property, PIMSA and COMPANY shall repair said damage, each party
reconstructing that portion of the building and interior installations for which
it was responsible during the original construction; provided that excluding
damage or destruction to the parking lot during the period required for such
repair work of PIMSA's Improvements or the improvements, rental payable
hereunder by COMPANY shall be equitably prorated to the proportioned
interference with COMPANY's use and possession of the Leased Property occasioned
by such damage and repair, and in such event, PIMSA shall accept in lieu of the
equitably prorated rent payable hereunder, during the period when COMPANY is
partially deprived of the use and possession of the Leased Property, any rental
insurance proceeds attributable to rent which may be payable pursuant to said
insurance provided for hereinabove.
XVI. LIMITATION OF LIABILITY.
Except for intentional or negligent acts or omissions of PIMSA, its agents
or employees, PIMSA shall not be liable to COMPANY or to any other person
whatsoever for any loss or damage of any kind or nature caused by the
intentional or negligent acts or omissions of COMPANY or other occupants of the
Industrial Park or of adjacent property, or the public, or other causes beyond
the control of PIMSA, including but not limited to, any failure to furnish, or
any interruption of any utility or other services in or about the Leased
Property. COMPANY recognizes that additions, replacements, and repairs to the
Industrial Park will be made from time to time, provided that the same shall not
substantially interfere with COMPANY's use and enjoyment of the Leased Property.
XVII. INDEMNIFICATION.
COMPANY agrees to indemnify and save PIMSA harmless from any and all claims
for damages or losses of any nature whatsoever, arising from negligent act or
omission of COMPANY or its contractors, licensees, agents, invitees, or
employees, or arising from any accident, injury or damage whatsoever caused to
any person or property occurring in or about the Leased Property, or the areas
adjoining the Leased Property and from and against all costs and expenses,
including attorneys' fees, incurred thereby.
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15
PIMSA indemnifies and holds COMPANY harmless from any injury or damage to
COMPANY or its agents or employees and from any and all liability for injury to
third persons or damage to the property of third persons while lawfully upon the
Leased Property occurring by reason of any negligent act or omission of PIMSA,
its contractors, licensees, invitees, agents or employees.
XVIII. NOTICES.
All notices under this Lease Agreement shall be forwarded to the addresses
mentioned in the Recitals above, with a copy to the Guarantor of this Lease
Agreement, or such other addresses as may from time to time be furnished by the
parties hereto. Said notices shall be in writing and if mailed, shall be deemed
given ten (10) days after the date of mailing thereof. Duplicate notices shall
be sent by certified airmail, postage prepaid, to such additional addresses as
may from time to time be requested in writing by the parties hereto.
XIX. COMPANY'S DEFAULT.
A. Each of the following shall be a default of COMPANY.
1. Vacation or abandonment of Leased Property.
2. Failure to pay any installment of rent due and payable hereunder
upon the date when said payment is due, said failure continuing for a period of
ten (10) days.
3. Default in the performance of any of COMPANY's covenants,
agreements or obligations hereunder, said default, except default in the payment
of any installment of rent, continuing for fifteen (15) days after written
notice thereof is given from PIMSA to COMPANY;
4. A general assignment by COMPANY for the benefit of creditors;
5. The filing of a voluntary petition in bankruptcy by COMPANY or
the filing of an involuntary petition by COMPANY's creditors, said petition
remaining undischarged for a period of ninety (90) days.
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16
6. The appointment of a Receiver to take possession of substantially
all of COMPANY's assets or of this leasehold, said receivership remaining
undischarged for a period of ninety (90) days.
7. Attachment, execution or other judicial seizure of substantially
all of COMPANY's assets or this leasehold, such attachment, execution or other
seizure remaining undismissed or undischarged for a period of ninety (90) days
after the levy hereof.
B. In addition to the above, each of the following shall be considered a
default of the COMPANY, if there is in respect to Guarantor:
1. A general assignment by Guarantor for the benefit of creditors;
2. The filing of a voluntary petition in bankruptcy by Guarantor or
the filing of an involuntary petition by Guarantor's creditors, said petition
remaining undischarged for a period of ninety (90) days;
3. The appointment of a Receiver to take possession of substantially
all of Guarantor's assets or of this leasehold, said receivership remaining
undissolved for a period of ninety (90) days or;
4. Attachment, execution or other judicial seizure of substantially
all of Guarantor's assets or this leasehold, such attachment, execution or other
seizure remaining undismissed or undischarged for a period of ninety (90) days
after the levy thereof.
C. Upon occurrence of any one of the foregoing defaults, PIMSA shall have
the right, at its option, and in addition to other rights or remedies granted by
law, including the right to claim damage, to do either of the following:
1. Immediately rescind this Lease Agreement and eject COMPANY from
the Leased Property.
2. Claim Specific Performance. In the case of default as specified
above, PIMSA shall, in addition to all other remedies, have the right to declare
the entire unpaid balance of rent to the end of the five (5) year Lease Term
then in effect, and all other sums due to PIMSA, immediately due and payable,
plus interest at the rate of twenty percent (20%) per annum of said sums from
the date of such declaration until payment in full, provided that PIMSA shall
diligently proceed to lease the Leased Property to another tenant or
<PAGE>
17
otherwise make beneficial use thereof in mitigation of damages, rent and all
other sums due or payable to PIMSA.
In the event the Leased Property is leased to another tenant
during the aforesaid five (5) year Lease Term or otherwise used in a beneficial
manner:
a. PIMSA shall promptly refund to COMPANY that portion of
rent and interest paid by COMPANY pursuant to this Paragraph 2. which is
allocable to the period of the Lease Term during which the Leased Property
was leased to another tenant or otherwise used in a beneficial manner as well
as any other allocable sums paid by COMPANY to PIMSA, less any loss or damage
incurred by PIMSA as a result of COMPANY's default, or;
b. If such rent or other sums have not been paid by COMPANY to
PIMSA, PIMSA shall credit such amount(s) to COMPANY.
XX. RIGHT TO CURE DEFAULTS.
In the event of COMPANY's breach or default of any term or provision
herein, PIMSA may, without any obligation to do so, at any time after ten
(10) days written notice, cure such breach or default, or make repairs to the
Leased Property, for the account and at the expense of COMPANY. If PIMSA, by
reason of such breach or default, pays any money, or is compelled to incur
any expense, including attorneys' fees, the sums so paid or incurred by PIMSA
with all interest, costs, and damages, shall be paid by COMPANY to PIMSA on
the first (1st) day of the month following the incurring of such expenses.
If any installment of rent or any other payment is not promptly paid when
due, it shall bear interest of twenty percent (20%) per annum from the date
on which it becomes due until paid; but this provision is not intended to
relieve the COMPANY from fulfilling its obligations hereunder in the time and
in the manner specified in this agreement. The foregoing interest, expenses
and damages shall be recoverable from COMPANY by exercise of PIMSA's remedies
hereinabove set forth. Efforts by PIMSA to mitigate the damages caused by
COMPANY's breach of this Lease shall not be construed to be a waiver of
PIMSA's right to recover damages under this Clause XX. Nothing in this
Clause XX affects the right of PIMSA to indemnification by COMPANY in
accordance with Clause XVII hereinabove for liability arising prior to the
termination of this Lease for personal injuries or property damage.
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18
XXI. WAIVER.
In the event PIMSA or COMPANY does not compel the other to comply with any
of the obligations hereunder, such action or omission shall not be construed as
a waiver of a subsequent breach of the same or any other provision. Any consent
or approval shall not be deemed to waive or render unnecessary the consent or
approval of any subsequent or similar act by COMPANY or PIMSA.
XXII. CERTIFICATES.
COMPANY shall, within ten (10) days of receipt of a written request
made by PIMSA, deliver to PIMSA a statement in writing certifying that this
Lease Agreement is unmodified and in full force and effect (or if there have
been modifications, that the same are in full force and effect as modified);
the dates to which the rent and any other charges have been paid in advance,
and that PIMSA's Improvements have been satisfactorily completed. It is
intended that any such statement may be relied upon by any person,
prospective purchaser, or lending institution interested in the Leased
Property.
XXIII. HOLDING OVER.
If COMPANY should remain in possession of the Leased Property after
the expiration of this Lease, COMPANY shall pay a minimum monthly rent equal
to twice the then minimum monthly rent then paid in the month immediately
preceding the month in which the holdover period began until COMPANY has
delivered to PIMSA the Leased Property, or executed a new Lease Agreement.
This provision shall not be construed as granting any right to COMPANY to
remain in possession of the Leased Property after the expiration of the Lease
Term. COMPANY shall indemnify PIMSA against any loss or liability resulting
from delay by COMPANY in surrendering the Leased Property, if such loss or
liability is founded on said delay, less any amounts paid pursuant to this
clause. The parties agree that COMPANY shall quit and surrender the Leased
Property at the expiration of this Lease Agreement, waiving the right
provided by law.
XXIV. SURRENDER.
A. On the last day of the term of this Lease Agreement, or the
sooner termination thereof pursuant to other provisions hereof, COMPANY shall
quit and surrender the Leased Property in the same conditions as received by
COMPANY, and restore the premises to a clean and good condition (normal
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19
wear and tear excepted) together with PIMSA's Improvements that may have been
made in the same. Prior to termination of this Lease Agreement, COMPANY shall
have removed all of its property in accordance with Clause III hereof and all
property not removed shall be deemed abandoned by COMPANY. COMPANY shall repair
and restore the Leased Property to a good and clean condition, normal wear and
tear excepted, while removing the COMPANY's property.
XXV. QUIET ENJOYMENT.
PIMSA agrees that COMPANY, upon paying the rent and all other charges
provided for herein and upon complying with all of the terms and provisions of
this Lease Agreement, shall lawfully and quietly occupy and enjoy the Leased
Property during the Lease Term.
XXVI. ATTORNMENT.
COMPANY shall, in the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any
mortgage or deed of trust made by PIMSA, its successors or assigns,
encumbering the Leased Property, or any part thereof, if so requested, attorn
to the purchaser upon such foreclosure or sale and recognize such purchaser
as the lessor under this Lease.
XXVII. ENVIRONMENTAL PROTECTION LAW.
PIMSA hereby states that the Leased Property, its soil and underground are
free and clear of any hazardous materials, wastes or contaminants.
Nevertheless, PIMSA shall indemnify and save the COMPANY harmless from and
against losses, demands, claims, payments, suits, actions and judgments of any
nature and description brought against it by reason of the fact that
contaminants existed on the Leased Property, soil and/or underground, or were
deposited there, prior to date of signature of this Agreement. The COMPANY will
be responsible for any losses, damages or injuries caused by the contaminants
which are deposited on the Leased Property, soil or underground after date of
signature of this Agreement.
It will be the sole responsibility of the COMPANY to comply with all
Federal State or Municipal environmental laws, rules and dispositions, which
must be complied with by the COMPANY pursuant with the industrial activities it
will perform in the Leased Property and therefore, must obtain the required
licenses, authorizations, permits and any other document that it must possess
pursuant with the aforestated environmental rules.
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20
Furthermore, the COMPANY will be solely and exclusively responsible for any
demand, claim, or proceeding initiated against PIMSA, and which results from
acts or omissions by the COMPANY, regarding the handling of hazardous or toxic
materials or wastes located in or moved to, from or through the Leased Property.
The COMPANY in these cases, shall indemnify and save PIMSA harmless from and
against losses, demands, claims, payments, suits, actions and judgments of any
competent environmental authority.
XXVIII. MISCELLANEOUS.
A. This document contains all of the agreements and conditions made
between the parties, and may not be modified orally in any manner other than by
a written agreement signed by the authorized representative of the parties.
B. If any term, covenant, condition or provision of this Lease Agreement,
or the application thereof to any person or circumstance, shall to any extent be
held by a court of competent jurisdiction, to be invalid, void or unenforceable,
the remainder of the terms, covenants, conditions or provisions of this Lease
Agreement, or the application thereof to any person or circumstance, shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
C. In the event that either party should bring an action against the
other party for the possession of the Leased Property, or for the recovery of
any sum due hereunder, or because of the breach or default of any covenant in
this Lease Agreement, the prevailing party shall have the right to collect from
the other party its costs and expense, including attorneys' fees.
D. Every payment and performance required by this Lease Agreement, shall
be paid and performed precisely on the date specified for such payment or
performance and no delay or extension thereof shall be permitted.
E. The titles and subtitles in these clauses of this document shall have
no effect on the interpretation of the terms and provisions contained in this
Lease Agreement.
F. The parties agree that this Lease Agreement be governed by the Laws of
the State of Baja California. For everything pertaining to the interpretation
and compliance of this Lease Agreement the parties thereby expressly submit to
the jurisdiction of the Civil Courts of the City of Mexicali, State of Baja
California, waiving any other jurisdiction which
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21
might be applicable by reason of their present or future domiciles or otherwise.
G. This Lease Agreement shall be executed in Spanish and English.
However, in the event a dispute or other inconsistency should arise regarding
interpretation or meaning of this Lease Agreement, the English version shall
control.
H. Whenever the prior consent of either party, written or otherwise, is
required as a condition for any act by the other party under this Lease
Agreement, such party agrees not to arbitrarily or unreasonably withhold such
consent.
I. Each party shall execute such further documents as shall be requested
by the other party, but only to the extent that the effect of said documents is
to give legal effect to rights set forth in the Lease Agreement.
J. COMPANY hereby covenants to PIMSA, and PIMSA relies upon said covenant
as a material inducement to enter into this Lease, that COMPANY will deliver to
PIMSA, concurrently with the execution and delivery hereof a Guaranty of this
Lease in the form attached hereto as EXHIBIT "D", executed by, COASTCAST
CORPORATION, or by such other Guarantor as may be acceptable to PIMSA.
K. Submission of this instrument for examination or signature by COMPANY
does not constitute a reservation of or option to Lease, and it is not effective
as a Lease or otherwise until execution and delivery by both PIMSA and COMPANY.
L. This Lease and each of its covenants and conditions shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the provisions hereof. Whenever in this
Lease Agreement a reference is made to PIMSA, such reference shall be deemed to
refer to the person in whom the interest of the lessor hereunder shall be
vested. Any successor or assignee of COMPANY who accepts an assignment or the
benefit of this Lease Agreement and enters into possession or enjoyment
hereunder shall thereby assume and agree to perform and be bound by the
covenants and conditions thereof.
M. In the event the Government of Mexico or any subdivision thereof
appropriates, forcibly buys or in any other way takes over the assets or
business of the lessee, and without due cause by COMPANY prevents COMPANY from
doing
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22
business in Mexico, the COMPANY may upon written notice to PIMSA terminate this
Lease Agreement without liability or penalty for such termination and without
further liability for rental payments due under this Lease Agreement but without
prejudice to the rights of PIMSA and COMPANY to claim from the corresponding
authority the damages caused.
XXIX. Rider number I, PIMSA's Improvements, is attached hereto and by this
reference made a part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the
16th day of December, nineteen hundred ninety eight.
"PIMSA" "COMPANY"
/s/ Eduardo Manuel Martinez Polomera /s/ William Lawrence Osborn
PARQUE INDUSTRIAL MEXICALI, COASTCAST CORPORATION, S.A.
S.A. DE C.V. Mr. William Lawrence Osborn
Mr. Eduardo Manuel Martinez General Director of Operations
Palomera and General Manager
Executive Vice President
W I T N E S S E S
/s/ [ILLEGIBLE] /s/ Hans H. Buehler
-------------------------- ---------------------------
<PAGE>
G U A R A N T Y
WHEREAS, PARQUE INDUSTRIAL MEXICALI, S.A. DE C.V., a Mexican Corporation
(hereinafter referred to as PIMSA) is the owner of certain real property in the
Industrial Park of Mexicali; and
WHEREAS, this Guaranty is given by COASTCAST CORPORATION (hereinafter referred
to as the GUARANTOR) to induce PIMSA to enter into a Lease Agreement, with
COASTCAST CORPORATION, S.A., a Mexican Corporation (hereinafter referred to as
COMPANY), dated December 16, 1998, for the Leased Property located on Lots 4, 5,
6, 7 and 8 of Block 4 in the Mexicali Industrial Park I.
NOW, THEREFORE, in consideration of the foregoing, it is agreed:
1. OBLIGATION OF THE GUARANTOR. The GUARANTOR unconditionally guarantees to
PIMSA, its successors and assigns, the prompt, full and complete payment and
performance to PIMSA of all of the conditions, covenants, obligations,
liabilities and agreements of COMPANY as set forth in the Lease Agreement,
attached hereto as EXHIBIT "A" or any extension thereof between PIMSA and
COMPANY. This Guaranty extends to and includes any and all interest due or to
become due, together with all attorneys' fees, costs and expenses of collection
incurred by PIMSA in connection with any matter covered by this Guaranty.
2. TERM OF GUARANTY. The liability of the GUARANTOR shall continue until
payment is made and performance given pursuant to every obligation of the
COMPANY now due or hereafter to become due in accordance with the terms of the
Lease Agreement or any extension thereof, between PIMSA and COMPANY, and until
payment is made of any loss or damage incurred by PIMSA with respect to any
matter covered by this Guaranty. This Guaranty shall be irrevocable. Nothing
contained herein shall impose upon GUARANTOR any greater or different liability
that is or may be imposed on said COMPANY under the Lease Agreement except
GUARANTOR's liability to pay PIMSA attorneys' fees, costs and expenses of
collection incurred in proceeding against GUARANTOR hereunder.
3. CONSENT TO PIMSA'S ACTS. The GUARANTOR consents, without affecting the
GUARANTOR'S liability to PIMSA hereunder, that PIMSA may, without notice to or
consent of the GUARANTOR, upon such terms as it may deem advisable:
a) Extend, in whole or in part, by renewal or otherwise anytime of
payment or performance on the part of COMPANY, provided for in the Lease
Agreement;
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2
b) Release, surrender, exchange, modify, impair or extend any period or
duration, or any time for performance, or payment on the part of COMPANY,
required by the Lease Agreement; and
c) Settle or compromise any claim of PIMSA against COMPANY or against any
other person, firm or corporation whose obligation is held by PIMSA as security
for COMPANY's obligation to PIMSA under the Lease Agreement.
The GUARANTOR hereby ratifies and affirms any such extension renewal,
release, surrender, exchange, modification, impairment, settlement or compromise
and all such acts shall be binding upon GUARANTOR who hereby waives all
defenses, counterclaims or offsets which GUARANTOR might have solely by reason
thereof.
4. WAIVER OF GUARANTOR. GUARANTOR waives:
a) Notice of acceptance of this Guaranty by PIMSA.
b) Notice of presentment, notice of nonperformance, notices of dishonor
and notices of the existence, creation or incurring of new or additional
indebtedness or obligations, demands for payment or performance or protest of
any obligations of COMPANY to PIMSA under the Lease Agreement;
c) Notice of the failure of any person, firm or corporation to pay to
PIMSA any indebtedness held by PIMSA as collateral security for any obligation
of COMPANY to PIMSA under the Lease Agreement;
d) Any right to require PIMSA to (I) proceed against COMPANY; (II)
proceed against or exhaust any security or other lien or right of or held by
PIMSA from COMPANY; or (III) pursue any other remedy in the power of PIMSA
whatsoever;
e) Any defenses, offsets or claims whatsoever which COMPANY may have
against PIMSA;
f) Any defenses, offsets or claims arising from any governmental action
or intervention which wholly or partially frustrates the performance of the
Lease Agreement by the COMPANY or frustrates any or all of the purposes for
which the Lease Agreement was entered into;
g) Any defects in perfection of the assignment and pledge of the rents by
failure to record the Lease Agreement or any instrument of assignment and pledge
in the Public Registry under Mexican Law.
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3
5. REPRESENTATIONS BY GUARANTOR. GUARANTOR represents and warrants that at
the time of execution and delivery of this Guaranty, nothing exists to impair
the effectiveness of the liability of GUARANTOR to PIMSA hereunder, or the
immediate taking effect of this GUARANTY as the sole agreement between the
GUARANTOR and PIMSA with respect to guaranteeing all of COMPANY's obligations to
PIMSA under the Lease Agreement. GUARANTOR further represents and warrants that
GUARANTOR is authorized to execute and deliver this Guaranty and that the person
executing this Guaranty is authorized to execute the same for and on behalf of
GUARANTOR.
6. REMEDY OF PIMSA. In the event of any default on the part of COMPANY as
defined in the Lease Agreement, PIMSA may at its option proceed in the first
instance against GUARANTOR, jointly and severally, to collect any obligation
covered by this Guaranty, without first proceeding against COMPANY or any other
person, firm or corporation and without first resorting to any property at any
time held by PIMSA as collateral security.
7. MODIFICATION OF AGREEMENT. The whole of this Guaranty is herein set
forth and there is no verbal or other written agreement and no understanding
or custom affecting the terms hereof. This Guaranty can be modified only by
a written instrument signed by the party to be charged therewith.
8. NON-WAIVER BY PIMSA. The liability of GUARANTOR under this Guaranty
shall not be affected by the insolvency of COMPANY or PIMSA, at any time or by
the acceptance by PIMSA of security, notes, acceptance, drafts or checks or by
assignment, foreclosure or other dispositions thereof by PIMSA, at any time, or
by PIMSA presenting or proving for allowance any secured or unsecured claim or
demand or by PIMSA's acceptance of any composition, plan of reorganization,
settlement, compromise, dividend, payment or distributions; and GUARANTOR shall
not be entitled to claim any right in or benefit by reason of, any such
composition, plan of reorganization, settlement, compromise, dividend, payment
or distribution, or in or by reason of any security held by PIMSA, or the
proceeds or other disposition thereof; unless and until all of said obligations,
liabilities and indebtedness, together with interest, attorneys' fees and costs
due to PIMSA under this Guaranty or under the Lease Agreement, shall have been
paid in full. Nothing contained in this Agreement shall alter any of the rights
or remedies of PIMSA against COMPANY. GUARANTOR authorizes PIMSA, without
notice or demand and without affecting the liability of GUARANTOR hereunder,
from time to time to:
<PAGE>
4
a) Renew, compromise, extend, accelerate, or otherwise change the time
for payment of, or otherwise change the terms of the indebtedness or any part
thereof under the Lease Agreement, including increase or decrease of any amounts
due thereunder or any rate of interest specified therein;
b) Take and hold security for the payment of this Guaranty or the
indebtedness guaranteed, and exchange, enforce, waive, release, any such
security;
c) Apply such security and direct the order or manner of sale thereof, as
PIMSA in its discretion may determine; and
d) Release or substitute any one or more of COMPANY or GUARANTOR. PIMSA
may assign this Guaranty in whole or in part. GUARANTOR may assign this
Guaranty in whole or in part, provided that GUARANTOR shall remain liable for
its obligations hereunder unless released therefrom by PIMSA or its successors
and provided further that GUARANTOR shall first give PIMSA sixty (60) days prior
written notice.
9. APPLICABLE LAW. This Guaranty is entered into in the County of Imperial,
State of California, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with the laws of the State of
California. The parties further agree that in the event a dispute should arise
as to the obligations of either party hereto, the parties expressly waive the
right to bring or remove any action in or to the otherwise appropriate Federal
District Court. Such judicial actions shall be pursued exclusively in the
appropriate State forum.
10. MISCELLANEOUS PROVISIONS. GUARANTOR agrees to pay to PIMSA a reasonable
attorneys' fee and all other costs and expenses which may be incurred by PIMSA
in the collection or efforts to collect the indebtedness owed by COMPANY to
PIMSA pursuant to the Lease Agreement or in the collection or efforts to collect
or enforcement of the sums due under this Guaranty, provided that if GUARANTOR
is the prevailing party in any action or proceeding to enforce this Guaranty or
collect any amounts allegedly due hereunder, PIMSA shall pay GUARANTOR a
reasonable attorneys' fee and other costs and expenses which may be incurred by
GUARANTOR. The paragraph headings of this Guaranty are not part of this
Guaranty and shall have no effect upon the construction and interpretation of
any part hereof and are inserted herein for convenience only. In the event that
any provision hereof or any portion of any provision hereof shall be deemed to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other portion of said provision or any other
<PAGE>
5
provision herein. All remedies herein conferred upon PIMSA shall be cumulative
and no one exclusive of any other remedy conferred herein or by law or equity.
Time is of the essence in the performance of each and every obligation herein
imposed. GUARANTOR represents and warrants that it has all requisite power and
authority to enter into this Guaranty agreement and to carry out the provisions
and conditions of this Guaranty agreement and that neither the execution or
delivery of this agreement or the consummation hereof nor the performance of the
terms hereof will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under or result in the creation of any
lien pursuant to any other agreement or instrument under which GUARANTOR is
obligated.
11. ACKNOWLEDGEMENT OF ASSIGNMENT. In the event this Guaranty is assigned to a
bank or other lending institution, the GUARANTOR shall furnish to such entity a
letter stating that the GUARANTOR acknowledges receipt of notice of an
assignment by PIMSA of said Guaranty; that said Guaranty is in full force and
effect; that no changes to the Guaranty as originally executed have been made;
that the GUARANTOR will not enter into any modification of this Guaranty without
first obtaining prior written approval thereof from said lender; that said
lender may rely solely upon the Guaranty with respect to the lender's right to
receive the rents in accordance with the terms of the Lease Agreement; and that
all payments made thereafter shall be made to the lender or its assigns at such
times not in conflict with those permissible under the Lease Agreement, at such
places and/or in United States Dollars as directed by the lender or its assigns.
12. NOTICE OF DEFAULT. Notwithstanding any provision to the contrary herein
expressed or implied, no claim of default on the part of COMPANY or on the part
of GUARANTOR shall be made hereunder unless and until notice of such defaults
has been given to COMPANY as provided in the Lease Agreement and a copy thereof
mailed to GUARANTOR by first class certified or registered mail, postage prepaid
at: 3025 East Victoria Street, Rancho Dominguez, California 90221, Attention
President.
13. SUCCESSORS BOUND. This Guaranty is binding jointly and severally upon
GUARANTOR and its legal representatives and successors and shall inure to the
benefit of PIMSA, its legal representatives, successors and assigns.
IN WITNESS WHEREOF, GUARANTOR has signed this Agreement as of the 26th day of
January, 1999.
<PAGE>
6
"GUARANTOR"
By: /s/ Hans H. Buehler
--------------------------
Its: CEO
Attest:
By: /s/ Robert C. Bruning
--------------------------
Its: CFO
--------------------------
<PAGE>
Exhibit 10.11
G U A R A N T Y
WHEREAS, PARQUE INDUSTRIAL MEXICALI, S.A. DE C.V., a Mexican Corporation
(hereinafter referred to as PIMSA) is the owner of certain real property in the
Industrial Park of Mexicali; and
WHEREAS, this Guaranty is given by COASTCAST CORPORATION (hereinafter referred
to as the GUARANTOR) to induce PIMSA to enter into a Lease Agreement, with
COASTCAST CORPORATION, S.A, a Mexican Corporation (hereinafter referred to as
COMPANY), dated December 16, 1998, for the Leased Property located on Lots 4, 5,
6, 7, 8 and 9 of Block 5 in the Mexicali Industrial Park I.
NOW, THEREFORE, in consideration of the foregoing, it is agreed:
1. OBLIGATION OF THE GUARANTOR. The GUARANTOR unconditionally guarantees to
PIMSA, its successors and assigns, the prompt, full and complete payment and
performance to PIMSA of all of the conditions, covenants, obligations,
liabilities and agreements of COMPANY as set forth in the Lease Agreement,
attached hereto as EXHIBIT "A" or any extension thereof between PIMSA and
COMPANY. This Guaranty extends to and includes any and all interest due or to
become due, together with all attorneys' fees, costs and expenses of collection
incurred by PIMSA in connection with any matter covered by this Guaranty.
2. TERM OF GUARANTY. The liability of the GUARANTOR shall continue until
payment is made and performance given pursuant to every obligation of the
COMPANY now due or hereafter to become due in accordance with the terms of the
Lease Agreement or any extension thereof, between PIMSA and COMPANY, and until
payment is made of any loss or damage incurred by PIMSA with respect to any
matter covered by this Guaranty. This Guaranty shall be irrevocable. Nothing
contained herein shall impose upon GUARANTOR any greater or different liability
that is or may be imposed on said COMPANY under the Lease Agreement except
GUARANTOR's liability to pay PIMSA attorneys' fees, costs and expenses of
collection incurred in proceeding against GUARANTOR hereunder.
3. CONSENT TO PIMSA'S ACTS. The GUARANTOR consents, without affecting the
GUARANTOR's liability to PIMSA hereunder, that PIMSA may, without notice to or
consent of the GUARANTOR, upon such terms as it may deem advisable:
a) Extend, in whole or in part, by renewal or otherwise anytime of
payment or performance on the part of COMPANY, provided for in the Lease
Agreement;
<PAGE>
2
b) Release, surrender, exchange, modify, impair or extend any period or
duration, or any time for performance, or payment on the part of COMPANY,
required by the Lease Agreement; and
c) Settle or compromise any claim of PIMSA against COMPANY or against any
other person, firm or corporation whose obligation is held by PIMSA as security
for COMPANY's obligation to PIMSA under the Lease Agreement.
The GUARANTOR hereby ratifies and affirms any such extension renewal,
release, surrender, exchange, modification, impairment, settlement or compromise
and all such acts shall be binding upon GUARANTOR who hereby waives all
defenses, counterclaims or offsets which GUARANTOR might have solely by reason
thereof.
4. WAIVER OF GUARANTOR. GUARANTOR waives:
a) Notice of acceptance of this Guaranty by PIMSA.
b) Notice of presentment, notice of nonperformance, notices of dishonor
and notices of the existence, creation or incurring of new or additional
indebtedness or obligations, demands for payment or performance or protest of
any obligations of COMPANY to PIMSA under the Lease Agreement;
c) Notice of the failure of any person, firm or corporation to pay to
PIMSA any indebtedness held by PIMSA as collateral security for any obligation
of COMPANY to PIMSA under the Lease Agreement;
d) Any right to require PIMSA to (I) proceed against COMPANY; (II)
proceed against or exhaust any security or other lien or right of or held by
PIMSA from COMPANY; or (III) pursue any other remedy in the power of PIMSA
whatsoever;
e) Any defenses, offsets or claims whatsoever which COMPANY may have
against PIMSA;
f) Any defenses, offsets or claims arising from any governmental action
or intervention which wholly or partially frustrates the performance of the
Lease Agreement by the COMPANY or frustrates any or all of the purposes for
which the Lease Agreement was entered into;
g) Any defects in perfection of the assignment and pledge of the rents by
failure to record the Lease Agreement or any instrument of assignment and pledge
in the Public Registry under Mexican Law.
<PAGE>
3
5. REPRESENTATIONS BY GUARANTOR. GUARANTOR represents and warrants that at
the time of execution and delivery of this Guaranty, nothing exists to impair
the effectiveness of the liability of GUARANTOR to PIMSA hereunder, or the
immediate taking effect of this GUARANTY as the sole agreement between the
GUARANTOR and PIMSA with respect to guaranteeing all of COMPANY's obligations to
PIMSA under the Lease Agreement. GUARANTOR further represents and warrants that
GUARANTOR is authorized to execute and deliver this Guaranty and that the person
executing this Guaranty is authorized to execute the same for and on behalf of
GUARANTOR.
6. REMEDY OF PIMSA. In the event of any default on the part of COMPANY as
defined in the Lease Agreement, PIMSA may at its option proceed in the first
instance against GUARANTOR, jointly and severally, to collect any obligation
covered by this Guaranty, without first proceeding against COMPANY or any other
person, firm or corporation and without first resorting to any property at any
time held by PIMSA as collateral security.
7. MODIFICATION OF AGREEMENT. The whole of this Guaranty is herein set
forth and there is no verbal or other written agreement and no understanding
or custom affecting the terms hereof. This Guaranty can be modified only by
a written instrument signed by the party to be charged therewith.
8. NON-WAIVER BY PIMSA. The liability of GUARANTOR under this Guaranty
shall not be affected by the insolvency of COMPANY or PIMSA, at any time or
by the acceptance by PIMSA of security, notes, acceptance, drafts or checks
or by assignment, foreclosure or other dispositions thereof by PIMSA, at any
time, or by PIMSA presenting or proving for allowance any secured or
unsecured claim or demand or by PIMSA's acceptance of any composition, plan
of reorganization, settlement, compromise, dividend, payment or
distributions; and GUARANTOR shall not be entitled to claim any right in or
benefit by reason of, any such composition, plan of reorganization,
settlement, compromise, dividend, payment or distribution, or in or by reason
of any security held by PIMSA, or the proceeds or other disposition thereof;
unless and until all of said obligations, liabilities and indebtedness,
together with interest, attorneys' fees and costs due to PIMSA under this
Guaranty or under the Lease Agreement, shall have been paid in full. Nothing
contained in this Agreement shall alter any of the rights or remedies of
PIMSA against COMPANY. GUARANTOR authorizes PIMSA, without notice or demand
and without affecting the liability of GUARANTOR hereunder, from time to time
to:
<PAGE>
4
a) Renew, compromise, extend, accelerate, or otherwise change the time
for payment of, or otherwise change the terms of the indebtedness or any part
thereof under the Lease Agreement, including increase or decrease of any amounts
due thereunder or any rate of interest specified therein;
b) Take and hold security for the payment of this Guaranty or the
indebtedness guaranteed, and exchange, enforce, waive, release, any such
security;
c) Apply such security and direct the order or manner of sale thereof, as
PIMSA in its discretion may determine; and
d) Release or substitute any one or more of COMPANY or GUARANTOR. PIMSA
may assign this Guaranty in whole or in part. GUARANTOR may assign this
Guaranty in whole or in part, provided that GUARANTOR shall remain liable for
its obligations hereunder unless released therefrom by PIMSA or its successors
and provided further that GUARANTOR shall first give PIMSA sixty (60) days prior
written notice.
9. APPLICABLE LAW. This Guaranty is entered into in the County of Imperial,
State of California, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with the laws of the State of
California. The parties further agree that in the event a dispute should arise
as to the obligations of either party hereto, the parties expressly waive the
right to bring or remove any action in or to the otherwise appropriate Federal
District Court. Such judicial actions shall be pursued exclusively in the
appropriate State forum.
10. MISCELLANEOUS PROVISIONS. GUARANTOR agrees to pay to PIMSA a reasonable
attorneys' fee and all other costs and expenses which may be incurred by PIMSA
in the collection or efforts to collect the indebtedness owed by COMPANY to
PIMSA pursuant to the Lease Agreement or in the collection or efforts to collect
or enforcement of the sums due under this Guaranty, provided that if GUARANTOR
is the prevailing party in any action or proceeding to enforce this Guaranty or
collect any amounts allegedly due hereunder, PIMSA shall pay GUARANTOR a
reasonable attorneys' fee and other costs and expenses which may be incurred by
GUARANTOR. The paragraph headings of this Guaranty are not part of this
Guaranty and shall have no effect upon the construction and interpretation of
any part hereof and are inserted herein for convenience only. In the event that
any provision hereof or any portion of any provision hereof shall be deemed to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other portion of said provision or any other
<PAGE>
5
provision herein. All remedies herein conferred upon PIMSA shall be cumulative
and no one exclusive of any other remedy conferred herein or by law or equity.
Time is of the essence in the performance of each and every obligation herein
imposed. GUARANTOR represents and warrants that is has all requisite power and
authority to enter into this Guaranty agreement and to carry out the provisions
and conditions of this Guaranty agreement and that neither the execution or
delivery of this agreement or the consummation hereof nor the performance of the
terms hereof will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under or result in the creation of any
lien to any other agreement or instrument under which GUARANTOR is obligated.
11. ACKNOWLEDGEMENT OF ASSIGNMENT. In the event this Guaranty is assigned to a
bank or other lending institution, the GUARANTOR shall furnish to such entity a
letter stating that the GUARANTOR acknowledges receipt of notice of an
assignment by PIMSA of said Guaranty; that said Guaranty is in full force and
effect; that no changes to the Guaranty as originally executed have been made;
that the GUARANTOR will not enter into any modification of this Guaranty without
first obtaining prior written approval thereof from said lender; that said
lender may rely solely upon the Guaranty with respect to the lender's right to
receive the rents in accordance with the terms of the Lease Agreement; and that
all payments made thereafter shall be made to the lender or its assigns at such
times not in conflict with those permissible under the Lease Agreement, at such
places and/or in United States Dollars as directed by the lender or its assigns.
12. NOTICE OF DEFAULT. Notwithstanding any provision to the contrary herein
expressed or implied, no claim of default on the part of COMPANY or on the part
of GUARANTOR shall be made hereunder unless and until notice of such defaults
has been given to COMPANY as provided in the Lease Agreement and a copy thereof
mailed to GUARANTOR by first class certified or registered mail, postage prepaid
at: 3025 East Victoria Street, Rancho Dominguez, California 90221, Attention
President.
13. SUCCESSORS BOUND. This Guaranty is binding jointly and severally upon
GUARANTOR and its legal representatives and successors and shall inure to the
benefit of PIMSA, its legal representatives, successors and assigns.
IN WITNESS WHEREOF, GUARANTOR has signed this Agreement as of the 26th day of
January, 1999.
<PAGE>
6
"GUARANTOR"
By: /s/ Hans H. Buehler
--------------------------
Its:
-----------------------------
CEO
Attest:
By: /s/ Robert C. Bruning
---------------------------
Its: CFO
----------------------------
<PAGE>
G U A R A N T Y
WHEREAS, PARQUE INDUSTRIAL MEXICALI, S.A. DE C.V., a Mexican Corporation
(hereinafter referred to as PIMSA) is the owner of certain real property in the
Industrial Park of Mexicali; and
WHEREAS, this Guaranty is given by COASTCAST CORPORATION (hereinafter referred
to as the GUARANTOR) to induce PIMSA to enter into a Lease Agreement, with
COASTCAST CORPORATION, S.A., a Mexican Corporation (hereinafter referred to as
COMPANY), dated December 16, 1998, for the Leased Property located on Lots 1, 2,
3, 4, 5, 6, 7 and 8 and a portion of Lot 9 of Block 2 in the Mexicali
Industrial Park I.
NOW, THEREFORE, in consideration of the foregoing, it is agreed:
1. OBLIGATION OF THE GUARANTOR. The GUARANTOR unconditionally guarantees to
PIMSA, its successors and assigns, the prompt, full and complete payment and
performance to PIMSA of all of the conditions, covenants, obligations,
liabilities and agreements of COMPANY as set forth in the Lease Agreement,
attached hereto as EXHIBIT "A" or any extension thereof between PIMSA and
COMPANY. This Guaranty extends to and includes any and all interest due or to
become due, together with all attorneys' fees, costs and expenses of collection
incurred by PIMSA in connection with any matter covered by this Guaranty.
2. TERM OF GUARANTY. The liability of the GUARANTOR shall continue until
payment is made and performance given pursuant to every obligation of the
COMPANY now due or hereafter to become due in accordance with the terms of the
Lease Agreement or any extension thereof, between PIMSA and COMPANY, and until
payment is made of any loss or damage incurred by PIMSA with respect to any
matter covered by this Guaranty. This Guaranty shall be irrevocable. Nothing
contained herein shall impose upon GUARANTOR any greater or different liability
that is or may be imposed on said COMPANY under the Lease Agreement except
GUARANTOR's liability to pay PIMSA attorneys' fees, costs and expenses of
collection incurred in proceeding against GUARANTOR hereunder.
3. CONSENT TO PIMSA'S ACTS. The GUARANTOR consents, without affecting the
GUARANTOR'S liability to PIMSA hereunder, that PIMSA may, without notice to or
consent of the GUARANTOR, upon such terms as it may deem advisable:
a) Extend, in whole or in part, by renewal or otherwise anytime of
payment or performance on the part of COMPANY, provided for in the Lease
Agreement;
<PAGE>
2
b) Release, surrender, exchange, modify, impair or extend any period or
duration, or any time for performance, or payment on the part of COMPANY,
required by the Lease Agreement; and
c) Settle or compromise any claim of PIMSA against COMPANY or against any
other person, firm or corporation whose obligation is held by PIMSA as security
for COMPANY's obligation to PIMSA under the Lease Agreement.
The GUARANTOR hereby ratifies and affirms any such extension renewal,
release, surrender, exchange, modification, impairment, settlement or compromise
and all such acts shall be binding upon GUARANTOR who hereby waives all
defenses, counterclaims or offsets which GUARANTOR might have solely by reason
thereof.
4. WAIVER OF GUARANTOR. GUARANTOR waives:
a) Notice of acceptance of this Guaranty by PIMSA.
b) Notice of presentment, notice of nonperformance, notices of dishonor
and notices of the existence, creation or incurring of new or additional
indebtedness or obligations, demands for payment or performance or protest of
any obligations of COMPANY to PIMSA under the Lease Agreement;
c) Notice of the failure of any person, firm or corporation to pay to
PIMSA any indebtedness held by PIMSA as collateral security for any obligation
of COMPANY to PIMSA under the Lease Agreement;
d) Any right to require PIMSA to (I) proceed against COMPANY; (II)
proceed against or exhaust any security or other lien or right of or held by
PIMSA from COMPANY; or (III) pursue any other remedy in the power of PIMSA
whatsoever;
e) Any defenses, offsets or claims whatsoever which COMPANY may have
against PIMSA;
f) Any defenses, offsets or claims arising from any governmental action
or intervention which wholly or partially frustrates the performance of the
Lease Agreement by the COMPANY or frustrates any or all of the purposes for
which the Lease Agreement was entered into;
g) Any defects in perfection of the assignment and pledge of the rents by
failure to record the Lease Agreement or any instrument of assignment and pledge
in the Public Registry under Mexican Law.
<PAGE>
3
5. REPRESENTATIONS BY GUARANTOR. GUARANTOR represents and warrants that at
the time of execution and delivery of this Guaranty, nothing exists to impair
the effectiveness of the liability of GUARANTOR to PIMSA hereunder, or the
immediate taking effect of this GUARANTY as the sole agreement between the
GUARANTOR and PIMSA with respect to guaranteeing all of COMPANY's obligations to
PIMSA under the Lease Agreement. GUARANTOR further represents and warrants that
GUARANTOR is authorized to execute and deliver this Guaranty and that the person
executing this Guaranty is authorized to execute the same for and on behalf of
GUARANTOR.
6. REMEDY OF PIMSA. In the event of any default on the part of COMPANY as
defined in the Lease Agreement, PIMSA may at its option proceed in the first
instance against GUARANTOR, jointly and severally, to collect any obligation
covered by this Guaranty, without first proceeding against COMPANY or any other
person, firm or corporation and without first resorting to any property at any
time held by PIMSA as collateral security.
7. MODIFICATION OF AGREEMENT. The whole of this Guaranty is herein set
forth and there is no verbal or other written agreement and no understanding
or custom affecting the terms hereof. This Guaranty can be modified only by
a written instrument signed by the party to be charged therewith.
8. NON-WAIVER BY PIMSA. The liability of GUARANTOR under this Guaranty
shall not be affected by the insolvency of COMPANY or PIMSA, at any time or by
the acceptance by PIMSA of security, notes, acceptance, drafts or checks or by
assignment, foreclosure or other dispositions thereof by PIMSA, at any time, or
by PIMSA presenting or proving for allowance any secured or unsecured claim or
demand or by PIMSA's acceptance of any composition, plan of reorganization,
settlement, compromise, dividend, payment or distributions; and GUARANTOR shall
not be entitled to claim any right in or benefit by reason of, any such
composition, plan of reorganization, settlement, compromise, dividend, payment
or distribution, or in or by reason of any security held by PIMSA, or the
proceeds or other disposition thereof; unless and until all of said obligations,
liabilities and indebtedness, together with interest, attorneys' fees and costs
due to PIMSA under this Guaranty or under the Lease Agreement, shall have been
paid in full. Nothing contained in this Agreement shall alter any of the rights
or remedies of PIMSA against COMPANY. GUARANTOR authorizes PIMSA, without
notice or demand and without affecting the liability of GUARANTOR hereunder,
from time to time to:
<PAGE>
4
a) Renew, compromise, extend, accelerate, or otherwise change the time
for payment of, or otherwise change the terms of the indebtedness or any part
thereof under the Lease Agreement, including increase or decrease of any amounts
due thereunder or any rate of interest specified therein;
b) Take and hold security for the payment of this Guaranty or the
indebtedness guaranteed, and exchange, enforce, waive, release, any such
security;
c) Apply such security and direct the order or manner of sale thereof, as
PIMSA in its discretion may determine; and
d) Release or substitute any one or more of COMPANY or GUARANTOR. PIMSA
may assign this Guaranty in whole or in part. GUARANTOR may assign this
Guaranty in whole or in part, provided that GUARANTOR shall remain liable for
its obligations hereunder unless released therefrom by PIMSA or its successors
and provided further that GUARANTOR shall first give PIMSA sixty (60) days prior
written notice.
9. APPLICABLE LAW. This Guaranty is entered into in the County of Imperial,
State of California, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with the laws of the State of
California. The parties further agree that in the event a dispute should arise
as to the obligations of either party hereto, the parties expressly waive the
right to bring or remove any action in or to the otherwise appropriate Federal
District Court. Such judicial actions shall be pursued exclusively in the
appropriate State forum.
10. MISCELLANEOUS PROVISIONS. GUARANTOR agrees to pay to PIMSA a reasonable
attorneys' fee and all other costs and expenses which may be incurred by PIMSA
in the collection or efforts to collect the indebtedness owed by COMPANY to
PIMSA pursuant to the Lease Agreement or in the collection or efforts to collect
or enforcement of the sums due under this Guaranty, provided that if GUARANTOR
is the prevailing party in any action or proceeding to enforce this Guaranty or
collect any amounts allegedly due hereunder, PIMSA shall pay GUARANTOR a
reasonable attorneys' fee and other costs and expenses which may be incurred by
GUARANTOR. The paragraph headings of this Guaranty are not part of this
Guaranty and shall have no effect upon the construction and interpretation of
any part hereof and are inserted herein for convenience only. In the event that
any provision hereof or any portion of any provision hereof shall be deemed to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other portion of said provision or any other
<PAGE>
5
provision herein. All remedies herein conferred upon PIMSA shall be cumulative
and no one exclusive of any other remedy conferred herein or by law or equity.
Time is of the essence in the performance of each and every obligation herein
imposed. GUARANTOR represents and warrants that it has all requisite power and
authority to enter into this Guaranty agreement and to carry out the provisions
and conditions of this Guaranty agreement and that neither the execution or
delivery of this agreement or the consummation hereof nor the performance of the
terms hereof will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under or result in the creation of any
lien pursuant to any other agreement or instrument under which GUARANTOR is
obligated.
11. ACKNOWLEDGEMENT OF ASSIGNMENT. In the event this Guaranty is assigned to a
bank or other lending institution, the GUARANTOR shall furnish to such entity a
letter stating that the GUARANTOR acknowledges receipt of notice of an
assignment by PIMSA of said Guaranty; that said Guaranty is in full force and
effect; that no changes to the Guaranty as originally executed have been made;
that the GUARANTOR will not enter into any modification of this Guaranty without
first obtaining prior written approval thereof from said lender; that said
lender may rely solely upon the Guaranty with respect to the lender's right to
receive the rents in accordance with the terms of the Lease Agreement; and that
all payments made thereafter shall be made to the lender or its assigns at such
times not in conflict with those permissible under the Lease Agreement, at such
places and/or in United States Dollars as directed by the lender or its assigns.
12. NOTICE OF DEFAULT. Notwithstanding any provision to the contrary herein
expressed or implied, no claim of default on the part of COMPANY or on the part
of GUARANTOR shall be made hereunder unless and until notice of such defaults
has been given to COMPANY as provided in the Lease Agreement and a copy thereof
mailed to GUARANTOR by first class certified or registered mail, postage prepaid
at: 3025 East Victoria Street, Rancho Dominguez, California 90221, Attention
President.
13. SUCCESSORS BOUND. This Guaranty is binding jointly and severally upon
GUARANTOR and its legal representatives and successors and shall inure to the
benefit of PIMSA, its legal representatives, successors and assigns.
IN WITNESS WHEREOF, GUARANTOR has signed this Agreement as of the 26th day of
January, 1999.
<PAGE>
6
"GUARANTOR"
By: /s/ Hans H. Buehler
-----------------------------
Its: CEO
-----------------------------
Attest:
By: /s/ Robert C. Bruning
---------------------------
Its: CFO
---------------------------
<PAGE>
EXHIBIT 10.15
LEASE AGREEMENT ENTERED INTO BY AND BETWEEN FREDERICK CLARKE SANDERS, Jr.,
FREDERICK SANDERS FLOURIE, MONIQUE SANDERS FLOURIE, SCOTT MICHAEL SANDERS
FLOURIE, AND CARLO E. MUZQUIZ DAVILA (HEREINAFTER JOINTLY REFERRED TO AS "THE
LESSOR"), AND COASTCAST TIJUANA, S DE R.L. DE C.V. (HEREINAFTER REFERRED TO AS
THE "LESSEE"), REPRESENTED HEREIN BY MR. RAMON IBARRA FRANCO, PURSUANT TO THE
FOLLOWING RECITALS AND CLAUSES:
R E C I T A L S
1. THE LESSOR hereby declares that:
a) It is a fideicommissary with powers to lease and perform
improvements regarding the land identified as Lots F1 and F2, located at
PASEO DEL CUCAPAH, FRACCIONAMIENTO EL LAGO, in the city of Tijuana, Baja
California, as proven by public deed annexed herein as Attachment "A", with
30,614.15 square meters of surface (hereinafter referred to as the "Land",
together with a plan stating the exact location of it, as well as its
description under attached "A-1", which jointly constitute the present
agreement.
b) It is currently arranging to obtain official documentation on the
part of the competent authorities that so define the industrial use of the
Land.
c) The Land has access to water, drainage, electricity, and
electrical capabilities to provide services to the improvements, as defined
hereinbelow, according to the requirements and specifications detailed in
Attachment "B" herein, as well as to the Expansion Improvements, a term which
is also defined hereinbelow.
d) For the purposes of this Lease Agreement, the address at which it
has its principal place of business is: BOULEVARD PACIFICO NO. 14533, PARQUE
INDUSTRIAL PACIFICO, TIJUANA, BAJA CALIFORNIA.
e) It has agreed to perform certain improvements to the Land, which
are defined in Clause 2, as follows, and to lease said Land and the Lessor
Improvements to the Lessee (hereinafter jointly referred to as "Leased
Property")
f) The land is free from any encumbrances and other ownership
limitations, with the exception of easements, agreements, park regulations
(as such term is defined hereinafter), along with other service constraints
or easements, referred to as the "Permitted Easements").
g) They have the powers to enter into this agreement as accredited
in the deed, as pertinent, with public deeds annexed hereof as Attachment
"A", and ratified herein by Bancrecer, S.A. Said powers have not been
revoked nor constrained.
h) Is currently undertaking the organization of an association of
tenants and owners of real estate and improvements in the PARQUE INDUSTRIAL
EL LAGO (the "Park Association"), which shall operate according to its own
statutes and the regulations of the PARQUE INDUSTRIAL EL LAGO (hereinafter
the "Park Regulations"), annexed hereof as Attachment "C".
i) For purposes of collection of rents and any additional rights
derived hereof, they appoint Mr. Frederick Clarke Sanders as trustee of all
individuals that form the LESSOR.
II. Mr. Ramon Ibarra Franco hereby declares that:
a) Coastcast Tijuana, S. de R.L. de C.V. is a duly organized company
under the Mexican General Corporation Law, pursuant to public deed number
28155, volume 585, dated the 16th day of December, 1997, and granted before
the faith of Notary Public Number Eight (8) for the City of Mexicali, Victor
Ibanez Bracamontes, Attorney at Law, copy of which is annexed herein as
Attachment "D".
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b) It possesses sufficient powers to represent the Lessor, which
have not been revoked nor constrained in any way, as accredited in the public
deed referred to in the preceding paragraph.
c) The address of its constituent shall be precisely that of the
Leased Property. However, for purposes of previous notices to the Lessee
prior to Final Occupancy, as this term is defined hereinafter, the address of
the Lessee shall be as described in Clause 21.
d) Its constituent wishes to enter into this lease with the Lessor
regarding the Leased Property, according to the following terms and
conditions.
Pursuant to the above, both parties agree as follows:
C L A U S E S:
I.- LEASE AND DELIVERY
The LESSOR hereby leases to LESSEE and LESSEE hereby leases from LESSOR the
Leased Property described in Attachments "A" and "A1" hereof.
II.- INDUSTRIAL INSTALLATIONS.
2.1 The LESSOR shall, at its expense, perform all works, provide all the
necessary labor and all new items, and shall obtain all the necessary
certificates and permits to build an industrial shell with a surface
of 185,907 sq. feet on the Leased Property (hereinafter the
"Industrial Installations"), in compliance with the preliminary
plans, specifications, construction schedule, and construction terms
so established by both parties, and which are annexed herein as
Attachment "A1".
2.2 Through the approval of the plans and specifications, the LESSEE
shall not assume technical accountability for the terms stated in
Attachment "A1" herein. Approval on the part of the LESSEE is of a
general nature, unless agreed upon otherwise, and does not exonerate
the LESSOR of its accountability for the design, construction, and
building of the Industrial Installations under the terms so required.
2.3 The LESSOR shall carry out all constructions regarding the LESSOR
Improvements, in compliance with all laws, ordinances, regulations,
orders of governmental authorities, as well as with the Park
Regulations, which are annexed herein as Attachment "C". The term
"LESSEE Improvements" shall refer to all those improvements so
described in Clause 4 hereinbelow.
The LESSOR shall compensate and exonerate the LESSEE from any and all
claims or charges filed by contractors that perform the Industrial
Installations, or by the authorities that in a declarative but not
limitative manner include: payments to the INSTITUTO MEXICANO DEL
SEGURO SOCIAL (Mexican Social Security Institute, or IMSS), the FONDO
NACIONAL PARA LA VIVIENDA DE LOS TRABAJADORES (National Fund for
Workers Housing, or INFONAVIT), and the fiscal authorities, as well
as damages and fees that result, or may originate from the lack of
compliance of the obligations on the part of the LESSOR due to the
construction of the Industrial Installations and equipment for the
Leased Property, according to the requirements of applicable laws and
ordinances.
2.4 The LESSOR acknowledges and is in agreement with the LESSEE that the
latter may request modifications regarding the design and
specifications of the LESSOR Improvements, provided said
modifications do not affect their cost or the works in accordance
with the construction schedule pertaining to the latter. In the
event that said changes affect the costs of the LESSOR Improvements,
or the works in accordance with the construction schedule, the LESSOR
and the LESSEE shall jointly determine the effect of those changes on
the costs, as well as any extension to the construction schedule. If
such were the case, where both parties were not able to reach an
agreement regarding the costs and time in order to carry out said
requested modifications, and also in the event that they
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could not reach an agreement that resolves the dispute at issue in a
satisfactorily manner, both parties agree to solve said controversy
through Arbitration in accordance with what is provided in Clause
23.5 herein. The LESSOR agrees to provide the LESSEE with a copy of
the request for modifications addressed to the constructor showing
the costs and construction schedule, in order to obtain authorization
on the part of the LESSEE for such purposes.
2.5 The LESSOR shall diligently complete the LESSOR Improvements in the
Leased Property according to the plans and specifications, so that
the LESSEE may utilize and occupy said Improvements in accordance
with the following schedule:
a) Beneficial Occupancy of the Leased Property: February 15, 1998.
b) Final Occupancy of the Leased Property: March 15, 1998.
For the purposes of this clause, Beneficial Occupancy and Final
Occupancy are defined as follows:
BENEFICIAL OCCUPANCY: Shall be defined as delivery to the LESSEE of
the industrial area of the LESSOR Improvements, including walls,
roofs, doors, floors, floor coverings, platforms and interior paint
jobs, the entire production area (the "Initial Improvements"), so
that the LESSEE may install its equipment within the Leased Property
and begin the construction of certain improvements on the part of the
LESSEE to the Leased Property, so that all such fixtures, equipment
and any other improvements carried out on the part of the LESSEE are
sale and may not be damaged by climate conditions or the construction
process.
FINAL OCCUPANCY: Shall be defined as the substantial completion of
all works and finishes of the interior part of the industrial area
and office area, as well as all the exterior parts and infrastructure
of the LESSOR Improvements, in order to allow the LESSEE to make use
of the Leased Property to commence normal unfolding of its operations
unhindered, excluding non functional aesthetical issues or the punch
list, without exceeding the amount of $66,000.00 Dollars, legal
currency of the United States of America, regarding the construction
costs of the LESSOR Improvements, in compliance with what is stated
in Attachment "B" herein. In the event the cost for the construction
of what is stated in the punch list exceeds the amount of $66,000.00
Dollars, legal currency of the United States of America, the date of
the Final Occupancy shall be deferred in accordance with what is
stated in Clause 2.10. The LESSOR agrees to conclude pending issues
appearing in the punch list within a period of thirty (30) of the
Date of Final Occupancy.
By virtue of the aforesaid, the Date of Final Occupancy shall
be that in which the LESSEE acknowledges the completion of the LESSOR
Improvements, with the exception of the aforementioned punch list, as
the result of an inspection carried through within the Leased
Property by the representatives of the LESSEE and the LESSOR.
Notwithstanding the aforementioned, in the event that a difference of
opinions arises between the LESSEE and the LESSOR regarding the Date
of Final Occupancy, both parties agree to perform to the best of
their ability in order to amicably resolve the difference. If the
difference still remains after a period of thirty (30) days following
the notice of completion of the LESSOR Improvements, said difference
shall have to be resolved through arbitration according to what is
stated hereinbelow.
2.6 At all times, and upon signature of this agreement, the LESSEE and/or
its representative, shall have the right to enter the Leased Property
to inspect progress on construction of the LESSOR Improvements, and
the LESSOR shall have readily available for the LESSEE and/or its
representative, the construction log and any other construction
report that is available so that the LESSEE and/or its
representative, may continually assess the construction of the LESSOR
Improvements. If so required by the LESSEE, the LESSOR shall make
arrangements for the English translation of said reports for the
LESSEE, and the LESSEE agrees to reimburse the LESSOR for any expense
disbursed pertaining to said translations.
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2.7 The LESSOR agrees to contract the services of a reputable laboratory
approved by the LESSEE, and to provide the LESSEE with a copy of all
results of tests done by the LESSOR or its contractors relating to
the Leased Property or the construction of the LESSOR Improvements,
and the LESSEE shall have the right to carry out independent tests in
any part of the Leased Property, LESSOR Improvements, construction
materials and fixtures. Such verification shall be at its own
expense to determine if whether the Industrial installations are
built in compliance with Attachment "B" hereof. Said independent
tests carried out by the LESSEE shall exonerate the LESSOR of any
obligation to build the LESSOR Improvements in compliance with
Attachment "B" hereof.
2.8 In the event the results of any of the tests indicate the existence
of a substantial deviation regarding the completion and
specifications of the Lessor Improvements, the LESSEE shall notify
the LESSOR of said deviation, and shall require an immediate
correction of it, for which the LESSOR agrees to swiftly comply with
said requirement.
2.9 In the event the LESSOR does not complete the construction of the
LESSOR Improvements so that the LESSEE may occupy the Leased Property
on the date of the Beneficial Occupancy stated hereinabove, the
LESSEE shall have the right to receive a contractual penalty due to
damages, which consists in the reduction of a day of rent for each
calendar day of delay in the completion of the Initial LESSOR
Improvements in compliance with Attachment "B" and with Clause 2.5
hereof, which defines the improvements to be completed at said date.
The aforesaid reduction shall be applied to the first month and, when
pertinent, to the subsequent months beginning on the month when the
LESSEE commences payment of rents, as is stated herein.
Notwithstanding the aforementioned, not the aforesaid penalty nor the
rent reduction shall extend the date of the Final Occupancy, nor
shall it diminish the compensation for damages the LESSEE has the
right to receive in the event the LESSOR fails to comply in the
delivery to the LESSEE of the Final Occupancy on the date stated in
Clause 2.5 hereinbefore.
2.10 In addition, when the LESSOR fails to comply with the completion of
the construction of the LESSOR Improvements, in compliance with
Attachment "B", during or before the date of the Final Occupancy of
the Leased Property, the LESSEE shall have the right to receive as
compensation for damages, and in addition to the reduction of the
rent stated in the preceding clause, an amount equivalent to two (2)
days of rent for each calendar day of delay of the projected dates
for the Final Occupancy. Also, and in the event said delay exceeds a
period of thirty (30) days following the date of the Final Occupancy,
the penalty for damages shall double, beginning on the thirty-first
day of delay after said date of the Final Occupancy, for an amount
equivalent to four (4) days of rent for each day of delay, with the
understanding, notwithstanding, that (i) in case said delay continues
for thirty (30) days after the date of the Final Occupancy as stated
hereinabove, or (ii) in case the construction of the installations is
stopped or suspended due to the lack of permits or due authorizations
from the competent authorities for a period of thirty (30) or more
consecutive days (except due to Acts of Nature or Force Majeure),
then, in any of said cases, the LESSEE, at its own choice, shall
terminate this agreement, for which the LESSEE shall have a right to
immediately receive from the LESSOR the reimbursement of every rent
deposit and/for advance that the LESSEE may have paid to the LESSOR
to date according to what is stated hereto for, to continue with the
accumulation of liquid damages. Any rent deduction granted according
to this clause shall be applied to the first months, and in the event
it is applicable to the months following the ones when the LESSEE
begins rent payments, as is stated herein. The parties acknowledge
and agree that the date of the Final Occupancy shall be extended for
a period equivalent to the delays attributable to the LESSEE, or to
its contractors or subcontractors, or due to an Act of Nature or
Force Majeure.
2.11 Notwithstanding what is stated in paragraph 2.5 hereinbefore, the
LESSOR expressly acknowledges and agrees that the LESSEE may go
inside the Leased Property at any given moment during the
construction of the LESSOR Improvements, in order to carry out the
initial installations of the LESSOR Improvements in accordance with
the construction schedule, and with the understanding that said
installations shall not interfere with the construction of the LESSOR
Improvements. Also, it
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is understood that the entry of the LESSEE to the Leased Property at
any given moment prior to the completion of the construction of the
LESSOR Improvements, shall not be understood as the completion of the
construction of the LESSOR Improvements in their entirety, or in
part, as is stated herein.
III. OCCUPANCY BY LESSEE
The LESSEE shall use the Leased Property for manufacturing and storage
activities, as well as for any other activity with industrial purposes as
permitted by the Law, and that do not breach what is stated in the Park
Regulations.
3.1 The LESSEE may, at its own risk and expense, install in the Leased
Property, all those improvements, fixtures, equipment and furniture
it deems necessary, which at every given moment shall be considered
as exclusive property of the LESSEE, provided such goods are
installed and removed without any substantial damage to the Leased
Property.
3.2 The LESSEE shall repair the damages caused to the Leased Property
during the installation or removal of the improvements, fixtures,
equipment, and furniture stated in the preceding paragraph.
3.3 The LESSEE shall comply with the installation and removal of fixtures
and equipment in accordance with all applicable laws, ordinances and
regulations, assuming liability for any violation hereof.
3.4 The LESSEE agrees to withdraw said improvements, equipment and/or
furniture it may have installed in the Leased Property before the
date of the term of the lease, in order to leave the Leased Property
in its normal conditions, with the understanding that the LESSOR
Improvements include the piercing of roofs of the Leased Property.
After having removed said improvements, the LESSEE shall repair the
damaged area, and shall have to install a new roof section made up of
corrugated steel. In the event the LESSEE fails to comply in
removing said improvements, fixtures, equipment, and/or furniture
from the Leased Property according to the terms provided hereinabove,
the LESSOR shall have the right whether to remove said improvements,
fixtures, equipment, and furniture from the Leased Property at the
expense of the LESSEE, or to consider that said improvements,
fixtures, equipment, and/or furniture have been gratuitously
abandoned in the Leased Property by the LESSEE in favor of the LESSOR.
3.5 The LESSEE may not modify the basic structure, facade, and the
essential public utilities of the Leased Property, and may not
perform works or modifications resulting in a value exceeding
$50,000.00 dollars (Fifty Thousand Dollars, 00/100, legal tender of
the United States of America), without prior consent and in written
form from the LESSOR, which shall not be denied without sufficient
grounds.
IV.- LESSEE IMPROVEMENTS
4.1 The LESSEE, at its expense, may install and build certain additional
improvements, and it may also perform certain modifications,
expansions, or additions to any of the LESSOR Improvements, provided
said alterations, expansions, improvements and additions do not
affect in an adverse manner the structural support of said LESSOR
Improvements, or reduce the just market value of the Leased Property
to a value below the value the Leased Property would have before
their completion, provided said alterations are performed in a
diligent manner, following working standards in compliance with all
applicable laws, ordinances, regulations, and orders of governmental
authorities.
4.2 The LESSOR acknowledges and agrees that said Lessor Improvements
shall be the exclusive property of the LESSEE, and may be removed, at
LESSEE'S choice, from the Leased Property in compliance with
provisions stated in Clause 3 hereof.
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4.3 The LESSEE shall compensate and exonerate the LESOR from any demand,
claim due to furnishing of materials, claims on the part of the
governmental authorities that in a declarative but not limitative
manner include the INSTITUTO MEXICANO DE SEGURO SOCIAL (Mexican
Institute for Social Security, or IMSS), the FONDO NACIONAL DE LA
VIVIENDA PARA LOS TRABAJADORES (National Fund for Worker Housing, or
INFONAVIT), and fiscal authorities; as well as any damage and expense
resulting from the noncompliance on the part of the LESSEE of any of
its obligations for the construction of the structures and Lessee
Improvements, installations, machinery and equipment, repairs of the
Leased Property when so required, in compliance with this agreement.
V.- USE OF LEASED PROPERTY AND THE ENVIRONMENT
5.1 The LESSOR expressly acknowledges that the LESSEE intends to make use
of the Leased Property as installations for warehouse and factory,
and therefore expressly authorizes use of the Leased Property on the
part of the LESSEE as general offices, warehouse, factory,
storehouse, repair services, engineering services, sales,
demonstration of products and training of clients and employees, and
as secondary purposes as warehouse, vehicles parking spaces, and all
other uses deemed incidental and in relation with manufacturing,
storage and installation of offices with a legitimate intent. During
the term of this lease the LESSEE shall not perform or permit any act
within the Leased Property that violates the laws, ordinances,
regulations, Park restrictions, or orders of governmental authorities.
5.2 The LESSOR guarantees that the Leased Property has not been
previously used for an industrial or commercial purpose, and that it
is free from any hazardous or toxic substances as these terms are
defined in the current legislation. The LESSOR agrees to compensate
and quickly exonerate the LESSEE from any claim or liability that may
result with regards to the preceding item. Also, the LESSOR shall
have to make the arrangements so that any lessee or owner of
properties adjacent to the Leased Property complies with all the laws
and regulations pertaining to hazardous or toxic residues or
substances, and agrees to exonerate the LESSEE from any claim or
liability derived from such item.
5.3 The LESSOR shall not be liable for any pollution caused by the LESSEE
to the Leased Property during the term hereof, or any extension of
it. The LESSEE agrees to compensate and exonerate the LESSOR from
any liability that may result with regards to the use of the Leased
Property on the part of the LESSEE, except when caused by a
noncompliance on the part of the LESSOR.
VI.- RENT
6.1 Beginning on the date of the Commencement of the Lease (as such term
is defined hereinbelow), and during the initial effective term
hereof, the LESSEE shall pay the LESSOR, at its domicile, or at any
other domicile so indicated by the LESSOR, and within the first ten
(10) days of each month, a monthly rent amounting to $57,631.00
(Fifty Seven Thousand Six Hundred and Thirty One and 00/100) Dollars,
currency of the United States of America, or its equivalent in Pesos,
Mexican Currency. Notwithstanding the aforementioned, during the
first year of the lease as of the Date of Commencement of the Lease,
as said term is defined in clause 7.2 hereof, the amount of
$15,717.55 Dollars, U.S. currency, shall have to be credited each
month towards the rent payments concerning the first eleven (11)
monthly rent payments in compliance with what is stated in clause
19.1 hereof.
6.2 The monthly rent stated hereinabove shall be increased on an annual
basis by two percent (2%), as of the second year, and said increase
shall remain effective during and until the eighth (8th) year of the
lease, thereby remaining without an increase on the ninth (9th) and
tenth (10th) year of this lease.
6.3 In order to calculate the monthly rent, if paid in Pesos, Mexican
Currency, the parties shall use the highest effective exchange rate
currently in the sales market as used by the BANCO NACIONAL DE
MEXICO, BANCOMER, and BANCA SERFIN, on the day of payment, or on the
immediately preceding
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business day, when the payment day is a nonworking day for bank
institutions.
6.4 In the event the LESSEE decides to exercise the lease option stated
in clause 7.4 hereof, the parties agree that the initial monthly rent
with reference to said extension period, shall have to be equal to
the rent corresponding to the fifth (5th) year of the original period
of this lease. Subsequently, and during the extension periods, the
monthly rent shall be increased at an annual rate of two percent
(2%), during each anniversary of the new Date of Commencement of the
Lease.
6.5 In the event of a delay, the LESSEE agrees to pay the LESSOR for
damages, a monthly rate of five percent (5%) on the unpaid amounts,
as of the tenth (10th) day elapsed once said notice of delay has been
notified.
VII. EFFECT OF LEASE AND DELIVERY OF THE LEASED PROPERTY
7.1 The life of the agreement shall be for a period of ten (10)
compulsory years for the parties, unless it is extended in accordance
with the provisions hereof, (hereinafter the "Period of Lease" or
"Term of this Agreement"). The Term of this Agreement shall commence
as of the date of Final Occupancy, the date when the LESSOR
Improvements have been completed (hereinafter "the date of
Commencement of the Lease").
7.2 Date of Commencement of Rent: The first month of rent shall have to
be paid in thirty days following the date of Final Occupancy. All
adjustments to the rent, as stated in Clause 6.2 and 6.4 hereinabove,
shall come into effect on the anniversary of the Date of Commencement
of the Lease.
7.3 Notwithstanding the aforementioned, it is agreed upon that the LESSEE
shall have access to the Leased Property in order to install the
LESSEE Improvements as of the 15th day of January, 1998.
7.4 The LESSEE shall have the option of renewing the "Period of the
Lease" for two (2) additional periods or terms of five (5) years each
(hereinafter the "Period of Extension") by means of a simple notice
furnished to the LESSOR upon expiration of the initial period of the
lease or any of its extensions.
VIII. INSURANCE
8.1 As of the Date of Commencement of the Lease, and during the life of
this agreement, the LESSEE agrees to obtain an insurance policy
covering the Leased Property against fire, Act of God or Force
Majeure, explosion, and any other risk covered by the policy known as
"Comprehensive Coverage Extension". The corresponding insurance
policy shall be obtained for an amount enough to cover the
replacement cost of $3,000,000.00 (Three Million 00/100 Dollars,
legal tender of the United States of America), with said amount being
payable to the LESSOR or its transferee.
8.2 Also, and from the Date of Commencement of the Lease, and during the
term of this agreement, the LESSEE is obligated to obtain, at its
expense, a civil liability insurance policy protecting the LESSEE and
the LESSOR against any demand, claim or action due to injuries or
death of any person, or for any liability arising from damages to
foreign property regarding the use of the Leased Property by the
LESSEE. The liability limit of the corresponding insurance shall be
at least $150,000.00 (One Hundred and Fifty Thousand 00/100) Dollars,
currency of the United States of America.
8.2 The policies referred to in paragraphs 8.1 and 8.2 hereinabove shall
have to be obtained with an insurance company authorized to issue
insurance in Mexico, to the satisfaction of the LESSOR. Furthermore,
within the clauses of said policies, it shall have to be stated that
the latter may not undergo any modification whatsoever with regards
to its coverage without prior consent and in written form on the part
of the LESSOR. The LESSEE shall have to notify the LESSOR with at
least thirty (30) days in advance of its intention to change
insurance companies, so that the LESSOR may review and analyze the
authorization of the new insurance company. Such authorization may
not be denied
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without proper justification. Also, the corresponding policies shall
establish in their clauses that, when pertinent, the LESSOR shall be
notified with thirty (30) days in advance of its intention to
terminate any such policies during the term hereof. A certified copy
of the policies, as well as of the corresponding payment receipts,
shall have to be delivered to the LESSOR, in its domicile, within
fifteen (15) following the Date of Beneficial Occupancy. A certified
copy of the documents of renewal of policies shall have to be
delivered to the LESSOR with at least thirty (30) days before the
date of completion of the policies.
8.4 Reciprocal Release. Both parties, as well as their authorized
representatives, agree to remain mutually free from any claim for
damages to any person, or to the Leased Property and its
improvements, personal property, the LESSEE improvements, as well as
the modifications both of the LESSOR and of the LESSEE, on or with
regards to the Leased Property under the insurance policies
contracted by the parties, and in effect when such damages occur.
IX.- TAXES AND COSTS
9.1 The LESSOR shall be liable for the payment of the Income Tax and the
Tax on Assets under the term of its obligations. On the other hand,
the LESSEE shall be liable for the payment or reimbursement of the
Property Tax to the LESSOR or for any other tax that could be
stipulated on the Leased Property, and that may be derived thereof,
or by the use of the latter on the part of the LESSOR, and to which
the LESSEE is liable by law, including the Value Added Tax, and
maintenance fees of the Industrial Park Association.
X.- REPAIRS AND MAINTENANCE
10.1 LESSOR
10.1.1 During the entire term hereof, as well as any extension of
it, and after having notified the LESSEE in written form, the LESSOR
shall have to proceed with the repairs of any structural defect of
the Leased Property arising sa a consequence of normal wear and tear
of the latter, including exterior walls, foundations, floors,
structural plumbing, cistern and ceiling. The LESSOR shall also have
to provide maintenance to the parking areas, drainage, and paved
areas where damages exceed the amount of $5,000.00 Dollars (Five
Thousand Dollars 00/100, legal currency of the United States of
America), due to disaster, occurring as a consequence of underground
earth movements. On the other hand, the LESSEE agrees to make its
best effort to timely notify the LESSOR on the existence of any
structural defect. Notwithstanding the aforementioned, in the event
the LESSEE Improvements require the piercing of roofs in order to
install equipment and fixtures, then the maintenance and repair of
the roof areas that were affected by any of the LESSEE Improvements
shall be the exclusive responsibility of the LESSEE. In addition,
both parties agree that the repair of said structural deficiencies
shall be deemed as the sole repair by which the LESSOR shall be
liable hereunder. The LESSEE agrees to make its greatest effort in
notifying the LESSOR on a timely basis on the existence of any
structural defect. The LESSOR shall then proceed diligently to carry
out the repairs as soon as practically possible, and to continue with
them until they are thoroughly concluded.
Furthermore, the LESSOR accepts every and any obligation to
immediately maintain a repair, at its expense, and with minimum
interference to the operations of the LESSEE, any superficial or
structural defect or damage, as well as the damages caused by
underground movements, with no restrictions of cost applicable due to
a disaster, of an area of the Leased Property so described in
Attachment "E" of this agreement identified as the "Excluded Area."
10.1.2. The LESSOR shall not be liable, nor shall be obligated to
repair the damages caused due to negligence of the part of the
LESSEE, or of its workers, clients, contractors, or guests.
10.2 LESSEE
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10.2.1 THE LESSEE shall be deemed liable for the repairs that should
be performed due to damages to the Leased Property, other than those
referred to in clause 10.1 hereinabove. The damages referred to in
this clause including in a declarative but not limitative manner, the
maintenance that should be performed on the plumbing systems, sewer,
telephone, gas, and to the equipment and fixtures, interior walls,
inferior and exterior paint jobs, floor tiles, modular ceilings,
ventilation and A/C systems and fixtures, heating, doors and windows,
glass, shipment and loading ramps and docks, lighting, electrical
system, and so on, of the Leased Property, and in general, everything
not deemed a structural repair as stated in clause 10.1.1
hereinbefore. All repairs performed by the LESSEE shall have to be
of an equal quality to that of the originals. All expenses as a
result of carelessness and negligence of the part of the LESSEE, as
stated hereof, shall have to covered by the LESSEE.
10.2.2 The LESSEE shall have to keep the Leased Property, along with
its improvements, free from any encumbrance or lien. With regards to
the entirety of the parts of the Leased Property, the LESSEE shall
have to care for them as to keep them clean and properly ordered,
free from garbage, debris and forbidden materials.
XI.- COMPENSATION
11.1 The LESSEE agrees to compensate and exonerate the LESSOR from any
claim for damages and losses of any nature derived from negligence or
omission on the part of the LESSEE, or of its contractors, licensees,
agents, guests, employees, or derived from any accident, injury or any
other damage caused to any person or property in or around the
Leased Property, or in areas adjacent to the Leased Property, as well
as against any and all fees and expenses, including legal fees, that
should arise from such claims.
11.2 The LESSOR agrees to compensate and exonerate the LESSEE from any claim
for damages or losses of any nature derived from negligence or
omission on the part of the LESSOR, or of its contractors, licensees,
agents, guests, or employees, or derived from any accident, injury or
any other damage caused to any person or property in or around the
Leased Property, or in areas adjacent to the Leased Property, as well
as against any and all fees and expenses, including legal fees, that
should arise from such claims.
XII.- SERVICES
12.1 The LESSEE agrees to request directly from the renderers of the
corresponding services, the public services the LESSEE may need to
obtain from said renderers and shall immediately pay for any charge
related with said services furnished to the LESSEE in the Leased
Property including in declarative but not limitative manner, water,
gas, electrical power and telephone service fees.
12.2 The LESSOR shall install or shall make arrangements for the
installation, before the Date of Final Occupancy, of the
infrastructure related with water and drainage services, fire
hydrants, electrical power, and telephone lines, as are defined
hereinbelow for the supply of water, drainage, fire hydrants,
electrical power, and telephone service to the Leased Property in
compliance with federal, state, and local regulations, and shall make
all arrangements for the approval and acceptance of said
infrastructure on the part of the authorities, whether they be
federal, state, or local, that have jurisdiction over the streets
adjacent to the Leased Property. In the event any charge, whether
special or of any type, is filed against the Leased Property or the
LESSEE, (other than rights of use), due to any of the aforesaid
items, or by noncompliance on the part of LESSOR with any of its
obligations as a developer, the LESSOR, at its expense, shall pay
said charges and shall settle and close the matter.
12.3 The LESSOR guarantees that the Leased Property shall have at least 8000
Kva of 13,200 volts
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available within the boundaries of the industrial shell. Consequently
the LESSEE may contract the electrical power up to said capacity only
upon payment of the rights of connection and contract.
12.4 The LESSOR guarantees that the Leased Property has or shall have
twenty (20) telephone lines available at the time of the completion
of the Industrial Installations; the LESSEE shall have the right of
exclusive use regarding said lines. Consequently, the LESSEE shall
be able to contract up to twenty (20) telephone lines through the
payment of the "contract rights" to the telephone company.
12.5 The LESSOR guarantees that the Leased Property shall have the
drainage system, fire hydrant, and water works completed before or on
the date of the Final Occupancy, as stated in Attachment "A1" hereof,
so that it may be able to perform the industrial activities it has
planned by the use of the appropriate pipeline system and water
system that provide services to the Leased Property. The LESSEE
shall contract the water supply up to said capacity from the COMISION
NACIONAL DE AGUAS (National Water Commission, or CNA), by means of
the payment of rights for measuring equipment and rights of
connection.
12.6 In the event the LESSOR is not willing to provide the infrastructure
for the public utilities guaranteed by the LESSOR as of the date of
the Final Occupancy, or when LESSEE is not able to contract said
services due to causes not attributable to the LESSEE, the LESSOR
shall directly provide the LESSEE with said services at its exclusive
expense, until the LESSEE is able to contract said services, and the
LESSOR shall pay the difference between the cost the LESSEE would
normally pay if said services were furnished by the public utilities
companies, and the cost of the LESSOR when providing said services.
It is agreed upon that LESSOR'S liability according to this clause
shall end once the LESSEE has contracted the services referred to in
this clause, and the supply of said services has been initiated.
12.7 Furthermore, in the event that after sixty (60) days of the Final
Occupancy there is a lack of availability of these services so that
the LESSEE'S operations may not be adequately performed, LESSEE may
proceed to immediately terminate this agreement, with no obligation
whatsoever, and LESSOR shall promptly reimburse all amounts paid by
LESSEE hereunder, including in declarative but not limitative manner,
the amounts regarding guarantee deposit and advance rents.
12.8 The LESSEE agrees to contract all public utilities with the
corresponding suppliers, at least sixty (60) days before the date of
the Beneficial Occupancy in order to insure a timely supply of said
utilities to the Leased Property. The LESSOR agrees to furnish
timely support to said contractings, and to provide all the
appropriate information required to date by said suppliers. Also,
the LESSOR agrees to make the necessary corrections as required by
the companies providing said utilities, and by any LESSOR
Improvement, in order to facilitate and allow for the rendering of
said services.
XIII.- CESSION AND SUBLEASE
13.1 The LESSEE may not cede nor sublease its rights and obligations
hereunder, unless it obtains prior consent in written form on the
part of the LESSOR, which may not be denied without proper
justification. Such consent may not be deemed necessary when the
LESSEE cedes or subleases in favor of an affiliate or subsidiary
provided the LESSEE and the Guarantor are jointly liable for the
obligations of the transferee and/or sublessor, whichever the case.
13.2 The LESSOR shall have the right to cede, in whole or in part, its
rights and obligations hereunder. Consequently, the LESSEE herein
authorizes the LESSOR, so that the latter may formalize the cessions
it deems necessary. Also, the LESSOR shall have the express right of
guaranteeing any of its present or future obligations with its rights
hereunder.
XIV.- WITHHOLDING OF RENT
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The LESSEE herein waives any right to withhold the rent payments, except as
stated in clause 16.2 hereof. Consequently the LESSEE shall pay in a timely
manner, and under the terms agreed upon herein, all rent payments the LESSEE has
a right to.
XV.- ACCESS TO LEASED PROPERTY
15.1 Upon prior notice, and without undue interference to LESSEE'S
operations, the LESSOR, or its authorized representatives, shall have
the right to enter the Leased Property during all LESSEE'S business
hours, and at all times in the event of an emergency, to perform
repairs, modifications, or alterations to the Leased Property for
which it is authorized or obligated in accordance with this agreement.
15.2 The LESSOR shall have the right to show the Leased Property to any
prospect client within six (6) months prior to the term of this
lease, provided the LESSEE has not notified the LESSOR as is stated
in clause 7.4 hereinbefore. Prior to any demonstration, the LESSOR
shall communicate the identity of said client to the LESSEE, and in
the event the prospect client is a competitor of the LESSEE, the
latter shall have the right to deny such Demonstration. By the same
token, during said period of six (6) months, the LESSOR shall have
the right to post signs its deems appropriate on the facade of the
Leased Property in order to promote the leasing of it.
15.3 Except in the event of emergencies, the LESSOR shall notify the
LESSEE before the former enters the Leased Property, and the LESSEE
shall have the right to accompany the representatives of the LESSOR,
as well as the prospect clients.
XVI.- RIGHT OF PARTIES TO COMPLY WITH THEIR OBLIGATIONS
16.1 If at any given moment the LESSEE, fails to comply with one or more
of the obligations at its expense, in compliance with this lease, the
LESSOR, ten (10) days after it notified the LESSEE in written form
(or without notice in the event of an emergency), without waiver or
exonerating the LESSEE from compliance of any of its obligations in
compliance with the LEASE, shall be able, without any obligation
whatsoever, to enter the Leased Property in order to take all
necessary measures required to comply with the obligations of the
LESSEE hereunder. All amounts paid by the LESSOR, and all costs and
expenses incurred upon by the LESSOR with respect to the compliance
of any obligations of the LESSEE shall be paid by the LESSEE to the
LESSOR when the latter so requires it.
16.2 If at any given moment the LESSOR fails to comply with its
obligations regarding the completion of the Industrial Installations,
including the aforementioned punch list on or before the 15th of
April, of 1998, five (5) days after it notified the LESSOR in written
form, without waiver or exonerating the LESSOR from compliance of any
of its obligations in compliance with the LEASE, shall be able,
without any obligation whatsoever, to carry out any act in the
interest of the LESSOR in compliance with the obligations of building
and completing the Industrial Installations hereunder. All amounts
paid by the LESSEE, as well as all the costs and expenses incurred upon
by the LESSEE with regards to compliance of any of said obligations
of the LESSOR, shall be paid by the LESSOR to the LESSEE when the
latter so requires it, or in the event they are not paid within a
period of thirty (30) days, said amounts shall be discounted from the
payment of future rents.
XVII.- DAMAGE OR DESTRUCTION
17.1 The LESSOR and the LESSEE, respectively, shall be liable for damages
to the Leased Property caused by their own fault or negligence, or
that of their representatives, employees or visitors.
17.2 In the event the LESSEE is hindered, whether completely or partially,
with regards to the use of the Leased Property due to damages caused
by fire, Act of God or Force Majeure, or due to any other cause that
leads to the hindrance of its business operations, the rent shall be
reduced in proportion
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to the part of the Leased Property where use is hindered. If the
LESSEE was hindered from using the Leased Property in its entirety,
the rent shall not be paid during such period in which the LESSOR
Improvements may not be used. In such case, and within a period of
20 days following the catastrophe, the LESSOR shall swiftly proceed,
at its expense, and with funds coming from the insurance stated in
clause eight (8) hereinbefore, to begin repairs, restoration or
reconstruction of said LESSOR Improvements to the extent it is deemed
necessary to provide the LESSEE with a property of equal quality,
design, materials and construction than the one existing prior to the
occurrence of damages, within a period that shall be agreed upon by
both parties, and which should not exceed a period of three (3)
months.
17.3 Notwithstanding the aforementioned, in the event such damages or
destruction are total, or exceed 75% of the total insurable value of
the LESSOR Improvements, and the LESSOR and LESSEE determine, within
a period of ten (10) days following the damage or destruction, that
the repairs, restoration or reconstruction may not be performed
within a period of ninety (90) days following the damage or
destruction, then the LESSEE shall have the right in any of these
causes, and at its choice, to terminate this agreement through
written notice furnished to the LESSOR within thirty (30) days
following the date of damages with no responsibility whatsoever. In
the event this agreement is terminated according to the provisions
stated in this clause, the rent payable by the LESSEE in compliance
with this agreement shall no longer be demandable in its entirety on
the date of damages or destruction, and the LESSOR shall reimburse
LESSEE with any amount received as advance payment for rent or
guarantee deposit.
17.4 The percentage of the insurable value referred to in the preceding
paragraph shall be determined by an insurance adjuster and the
insurance company with which the insurance provided in clause eight
(8) hereof was contracted.
17.5 If all obstacles to use the LESSOR Improvements are imputable to the
LESSEE, its representatives, employees, and visitors, the LESSEE
shall continue to pay the rent as if it were still making use of said
shell.
XVIII.- PARK OBLIGATIONS AND RESTRICTIONS
18.1 The LESSEE agrees to comply in their entirety with the Covenants and
Restrictions of the Park, which are annexed and are integrated herein
as Attachment "B", and to pay $0.50 cents (Fifty cents 50/100, legal
tender of the United States of America) for each square meter of the
land of the Leased Property per year (hereinafter the "Maintenance
Fee", to be apportioned according to the date of the Final Occupancy
during the first year), for street maintenance, common landscaping,
common areas, and so on, of the Industrial Park. Said Maintenance
Fee shall no longer be demandable in accordance with a case of
catastrophe as defined in clause 17 hereof.
XIX.- GUARANTIES
19.1 The LESSOR acknowledges receiving from the LESSEE herein, the amount
of $230,524.00 (Two Hundred and Thirty Thousand Five Hundred and
Twenty Four Dollars, 00/100, legal tender of the United States of
America). From said amount the LESSOR shall apply the amount of
$57,631.00 (Fifty Seven Thousand Six Hundred and Thirty One, 00/100
Dollars, legal tender of the United States of America) as guarantee
deposit, which shall be reimbursed to the LESSEE upon termination of
this agreement, without interests, and after the LESSOR verifies,
through an inspector, that the Leased Property is in good condition,
clean, except for normal wear and tear, unless agreed upon otherwise
by both parties in written form. The balance of said deposit, that
is, the amount of $172,893.00 (One Hundred and Seventy Two Thousand
Eight Hundred and Ninety Three, 00/100, Dollars, legal tender of the
United States of America) shall be applied to the payment of rents
during the first year of the Term of Agreement, by proportionally
amortizing said amount during the second (2nd) through twelfth (12th)
months of the first year of rent.
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19.2 In the event of anticipated termination of this agreement due to
causes attributable to LESSEE, LESSOR shall have the right to
withhold every amount delivered to LESSOR as rent payment, whether
anticipated or deposit, aside from any other right pertaining to
LESSOR.
XX.- NOTICES
20.1 Any notice that should be done to the parties in compliance with the
terms hereof shall be remitted to the addresses stated hereinbelow,
or to any other addresses provided from time to time by the parties.
Said notices shall have to be in written form and shall be delivered
in person. If remitted by mail, said notices shall be considered as
carried through upon ten (10) days following their deposit at the
postal service. If remitted via facsimile, said notices shall have
to be sent to the addresses and telephone numbers mentioned
hereinbelow. Should the notices be sent by mail or via facsimile, a
duplicate of said notices should be remitted by certified mail,
freight prepaid, with acknowledgment of receipt to the domiciles
mentioned hereinbelow, or to the additional domiciles provided by the
parties from time to time in written form.
TO THE LESSOR: Avenida Pacifico No. 14533
Parque Industrial Pacifico
Tijuana, Baja California,
RE: Mr. Frederick Clarke Sanders
Telephone number: (66) 81-1211
Facsimile number: (66) 81-1346
TO THE LESSEE: COASTCAST TIJUANA, S. DE R.L. DE C.V.
Paseo del Cucapah s/n
Delegacion de la Presa
Tijuana, Baja California 22500
Telephone number: (66) 27-9164
Facsimile number: (66) 27-9168
COASTCAST CORPORATION: 3025 E. Victoria Street
Rancho Dominguez, California 90224
United States of America
Telephone number: (310) 638-0595
Facsimile number: (310) 631-2884
XXI.- ANTICIPATED TERMINATION
The LESSOR may terminate this agreement by any of the following causes:
21.1 In the event of termination of period stipulated in clause seven (7).
21.2 Noncompliance on the part of the LESSEE to pay the monthly rent,
demandable by means of written notice given to the LESSEE according
to the terms of clause 6.5 hereof, when said noncompliance persists
for a period of ten (10) days following the receipt of said notice on
the part of the LESSEE.
21.3 Noncompliance on the part of the LESSEE on any of the covenants,
agreements and obligations stipulated herein when such noncompliance
continues for a period of ten (10) days following receipt of written
notice on the part of the LESSEE from the LESSOR stating such
circumstance. In the event the noncompliance requires, with proper
justification, of a period longer than the aforementioned thirty (30)
days required to compensate, said term shall be extended accordingly.
21.4 A file for bankruptcy against the LESSEE or the Guarantor, if such
action is not cancelled within ninety
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(90) days following notice to LESSOR regarding the existence of such a
request.
21.5 In the event of an injunction, execution, or any other measure
derived from a judicial decision that engages a substantial part of
the assets of the LESSEE or the Guarantor, said injunction,
execution, or measure derived from a judicial decision that remains
without being released or acquitted for a period of sixty (60) days
following the execution of said resolutions or injunctions.
21.6 In the event of appointment of a beneficiary or depositary in order
to take possession of all or a substantial part of the assets
belonging to the LESSEE or the Guarantor.
21.7 In the event both parties are unable to reach an agreement in
compliance with clause 23.7 hereof, referring to the manner in which
to mitigate any negative effect of the current price of the dollar in
relation to the rent, which derives from the coming into force of a
new legislation, or due to Force Majeure or Act of God occurring
within a period of sixty (60) days following the coming into effect
of said legislation or Force Majeure. In the event the LESSOR
initiates any action to terminate or rescind this agreement against
the LESSEE for causes stipulated herein, the LESSEE shall reimburse
the LESSOR with any cost related with the vacancy of the Leased
Property on the part of the LESSEE, (i) if the LESSEE does not vacate
the Leased Property, (ii) said action is resolved in favor of the
LESSOR by the competent courts where the issue was cleared up, and
(iii) retroactive as of the date in which the corresponding action
was filed, the LESSEE shall pay the LESSOR as contract penalty a
monthly amount equal to two (2) times the monthly effective rent on
the date in which said action was initiated, or the effective rent
prior to the termination of the agreement. The LESSEE acknowledges
that this clause shall not be interpreted as an authorization to
occupy the Leased Property after the effective period hereof.
XXII.- RENT OPTION
22.1 The LESSOR herein grants in favor of the LESSEE an irrevocable option
of leasing approximately 20,000 square meters of land adjacent to the
Leased Property and indicated for reference in the plan annexed
herein as Attachment "A-2" (hereinafter the "Adjacent Land or
Option") for which the LESSOR agrees to carry out the construction of
a building, on the basis of the specifications agreed upon by the
LESSOR and the LESSEE. The rent Option of the Adjacent Land shall be
in effect during the first five (5) years of the initial term hereof
and may be exercised in two phases by the LESSEE, each one for
approximately 10,000 square meters of land, marked for reference in
the plan that is annexed herein as Attachment "A-2", and also marked
in the same plan as Phase 1 and Phase 2 (hereinafter referred to as
"Phase 1", and "Phase 2", respectively).
The option granted herein shall be subject to the following terms:
22.1.1 The rent option of Phase 1 for the future construction of an
expansion to the Leased Property shall be granted without any
counterclaim for an initial term of two (2) years, beginning on the
Date of Commencement of the Lease.
22.1.2 Upon termination of the second year of the Date of Commencement of
the Lease, the LESSEE, at its choice, shall extend the term for the
rent option of Phase 1 without performing any construction whatsoever
of an industrial shell for an additional period of three (3) years,
against payment to the LESSOR of the amount of $5,380.00 Monthly
Dollars; said amount shall increase annually on every anniversary
date of the Date of Commencement of the Lease, at the annual rate of
two percent (2%).
22.1.3 The option to lease Phase 2, the Adjacent Land (or Option) for the
eventual construction of an expansion of the Leased Property shall be
granted with no consideration whatsoever for an initial term of three
(3) years beginning on the Date of Commencement of the Lease. At its
own choice, the LESSEE may extend the term of the option with respect
to Phase 2 after said date, and for the remainder of the Initial Term
of the Lease with without any need to perform any construction
whatsoever, by paying LESSOR the amount of $5,380.00 Monthly Dollars,
additional to the amount
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stipulated in the preceding paragraph, and whose sum shall be
increased at an annual basis on the same dates and percentages as
those stated in paragraph 22.1.2 hereinbefore.
22.1.4 It is agreed upon that in the event the option to build an expansion
to the industrial building in Phase 1 of the Adjacent Land is not
exercised, the option to sublease Phase 2 of the Adjacent Land shall
be automatically cancelled. In case the LESSEE exercises its option
for expansion during the term stated in paragraphs 22.1.1 and 22.1.3
hereinbefore, there shall be no "option" rent for the land during the
construction period.
22.1.5 Once the LESSEE has received notice from the LESSOR, by means of
which the latter informs the former of the exercise of these Options,
the LESSOR agrees to perform in a timely manner the preparation of
the preliminary plans for the construction schedule (collectively
referred to as the "Preliminary Expansion Plans", and said
Preliminary Expansion Plans shall be prepared in accordance with the
instructions on the part of the LESSEE, or as agreed upon by both
parties. The Expansion Improvements in Phases 1 and 2, whichever the
case, shall have to be completed in a period of six (6) months as of
the date in which the LESSEE notifies the LESSOR of the former's
approval of the Expansion Plans. The price for the lease shall be
based on the cost of the land and the construction divided by eighty
(80), with the understanding that said Expansion Improvements shall
be built by the LESSOR or by an affiliate of the LESSOR at LESSOR'S
expense; or otherwise, the parties shall carry out mutual
negotiations regarding the rent for the use of the Adjacent Land (or
Option), to be paid by the LESSEE. After said period, the initial
rent for the Adjacent Land and/or the Improvements, whichever the
case, shall be increased at an annual rate of two percent (2%). The
remaining terms and conditions related to said Adjacent Land and/or
Additional Adjacent Land and/or Improvements shall be subject to the
provisions hereof, when applicable, including those that relate to
contract penalties, rent increases, guarantee deposit, term of lease,
etc. On the basis of the aforesaid, the terms related to each phase
must be reflected in a modification to this agreement, to be entered
into by and between the parties in accordance with the acceptance of
the LESSEE in relation to the Expansion Plans that correspond to each
of said phases.
22.1.5.A For purposes of calculating the rent of the Expansion, the Adjacent
Land shall have a value of $50.00 (Fifty Dollars, 00/100, currency of
the United States of America) per square meter as of the Date of
Commencement of the Lease, which shall be increased at an annual rate
of two percent (2%).
22.1.5.B The term of the lease for the Leased Property shall be coextensive
with the expansion of the lease.
XXIII.- MISCELLANEOUS
23.1 In the event each of the parties exercise any action against the
other in order to protect certain rights hereunder, said
noncompliance shall not be interpreted as a waiver to any right
derived hereof.
23.2 This agreement may only be modified by written accord signed by the
authorized representatives of the parties.
23.3 In the event any part exercises an action against the other to demand
compliance of this agreement, the party obtaining favorable
resolution shall have a right to the expenses and costs and
reasonable legal fees.
23.4 In compliance to what is provisioned by article 2869, paragraph III
of the Civil Code for the State of Baja California, both parties
agree to register this agreement, at LESSEE'S expense, in the
REGISTRO PUBLICO DE LA PROPIEDAD (Public Registry of the Property),
in the city of Tijuana, B.C., in the understanding that both parties
agree to carry out all acts, ratifications, and certifications
required for such purposes.
23.5 In the event of controversy due to the interpretation and compliance
hereof, the parties expressly submit to the settlement of their
controversies in arbitration in accordance with the terms stipulated
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in the Code of Commerce currently in effect in Mexico, for which both
parties agree that the arbitration decision should be carried out in
the Spanish language, with one sole arbitrator, who shall be an
expert of matters of leasing of industrial shells, with domicile in
Tijuana, Baja California, and said arbitrator shall be designated by
mutual accord of the parties, and in the event of not reaching an
agreement, the arbitrator shall be designated at the request of any
of the parts by the Professional Association of Civil Engineers of
the city of Tijuana, Baja California. Each party shall be responsible
for its own costs and fees derived from the arbitration decision, and
said costs and fees shall have to be eventually divided into equal
parts between the parties. The arbitration decision shall be
considered final and not subject to appeal.
Notwithstanding the aforementioned, the parties agree that in any
matter related with the noncompliance or termination of this
agreement, they shall expressly submit to the jurisdiction of the
Civil Courts of the city of Tijuana, Baja California, thereby waiving
any other jurisdiction which might be applicable by reason of their
present of future domiciles o otherwise.
23.6 In the event any provision hereof is by any one reason or another
forbidden or not demandable in any aspect, this Agreement shall have
to be interpreted as if said provision was never included within said
agreement.
23.7 In view of the fact that is the intention of the parties under the
terms hereof, that the LESSOR receives the Total Value of the Dollar
with regards to the rents during the entire term of this agreement
and its extensions, and that the LESSEE may make use of the Leased
Property during said periods, both parties agree that in the event a
new legislation comes into effect in the future, or that by an Act of
God or Force Majeure, the effects deriving with regarding to this,
provided they are exercised by the LESSEE, are those referring to the
current price of the dollar as it undergoes a substantial reduction
with respect to the payment of rent to the LESSOR, the LESSEE agrees
not to exercise any of said rights that may derive in such decrease,
unless such rights are a consequence of the Law. Notwithstanding the
aforementioned and in order to be able to mitigate any negative
effect on the value of the Dollar with regards to the rent, and so
that the LESSOR may comply with its financial commitments contracted
by the construction of the LESSOR Improvements, the LESSOR and LESSEE
agree to carry out a diligent and comprehensive search for an
equitable and law-abiding solution at that moment, so that the LESSOR
may continue to receive the total value of the dollar with regards to
the rent payments, and the LESSEE continues to enjoy and occupy the
Leased Property.
XXIV.- CORPORATE GUARANTEE
24.1 The LESSEE hereby delivers a guarantee from COASTCAST CORPORATION
(for purposes of this agreement, the "Guarantor") to the LESSOR,
under the Document of Guarantee, which is annexed herein as
Attachment "D". Moreover, COASTCAST CORPORATION agrees to guarantee
all and each one of the obligations of the LESSEE hereunder. Also,
COASTCAST CORPORATION shall have to provide the LESSOR with the
information audited on annual basis regarding its financial situation
during the entire term of this agreement.
IN WITNESS WHEREOF, the parties enter into this Lease Agreement in the places
and dates indicated as follows:
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THE LESSOR THE LESSEE
MR. FREDERICK CLARKEE SANDERS COASTCAST TIJUANA,
S. DE R.L. DE C.V.
- ------------------------------ -----------------------------------
(SIGNED) Name: Ramon Ibarra Franco
Place: San Diego, California (SIGNED)
Date: January 5, 1998 Place:
-----------------------------
Date: January 5, 1998
MR. FREDERICK CLARKE SANDERS
FLOURIE
- ---------------------------------
(SIGNED)
Place: San Diego, California
Date: January 5, 1998
MS. MONIQUE SANDERS FLOURIE
- ---------------------------------
(SIGNED)
Place: San Diego, California
Date: January 5, 1998
MR. SCOTT MICHAEL SANDERS FLOURIE
- ---------------------------------
(SIGNED)
Place: San Diego, California
Date: January 5, 1998
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MR. CARLO MUZQUIZ DAVILA
- ---------------------------------
(SIGNED)
Place: San Diego, California
THE GUARANTOR
COASTCAST CORPORATION
--------------------------------
(SIGNED)
Name: Dick W. Mora
Place: (RANCHO DOMINGUEZ, CA.)
--------------------------
Date: January 5, 1998
BANCRECER, S.A. WITNESS
INSTITUCION DE BANCA MULTIPLE
GRUPO FINANCIERO BANCRECER
DIVISION FIDUCIARIA
- ----------------------------- -----------------------------------
(SIGNED) (SIGNED)
(ILLEGIBLE NAME OF REVIEWER) Name: MR. ANGEL ORTEGA
18
<PAGE>
LEASE GUARANTY AGREEMENT
FOR AND IN CONSIDERATION of the agreement of Monique Sanders Flourie,
Frederick Clarke Sanders, Frederick Clarke Sanders Flourie, Scott Michael
Sanders Flourie and Carlo Enrique Muzquiz Davila ("Lessor and CoastCast Tijuana,
S. de R. L. de C.V. ("Lessee"), dated January 5, 1998, and further, to induce
Lessor to enter into the Lease, and for other good and valuable consideration,
CoastCast Corporation, Inc. ("Guarantor"), a California corporation,
unconditionally and irrevocably guarantees to Lessor the prompt, full, and
complete performance of all of the terms, covenants, and provisions of, the
Lease, and the full and prompt, payment of all rentals, deposits, and other sums
now or hereafter becoming due and payable pursuant to the terms and provisions
of the Lease, and any and all renewals, extensions, amendments, or modifications
of the Lease (all of the foregoing are collectively the "Obligations").
In the event any sums owing on any of the Obligation shall become due,
Guarantor shall immediately pay all of such sums due to Lessor without demand or
notice whatsoever. In the event any of the terms, covenants or provisions of
the Lease are not performed promptly saw therein provided, Guarantor shall
immediately so perform such terms, covenants, or provisions without any demand
or notice whatsoever.
It shall not be necessary or required in order to enforce Guarantor's
obligations under this Lease Guaranty Agreement that Lessor shall have made
demand for payment or performance upon Lessee or any other person liable on
or for the Obligations for payment to Lessee or to any other person liable
thereon or have given notice to Lessee or any other person liable thereon of
non-payment or non-performance of said Obligations, or any other notice
whatsoever. It shall not be necessary or required, and Guarantor shall not
be entitled to require, that Lessor file suit or proceed to obtain or assert
a claim against Lessee for the Obligations, or any part thereof, or file suit
or proceed to obtain or assert a claim against any other person liable for
the Obligations, or any part thereof, or make any effort to collect or
enforce the performance of the Obligations, or any part thereof, from any
such other person liable for the Obligations, or any part thereof, before or
as a condition of enforcing the liability of Guarantor under this Lease
Guaranty Agreement. Guarantor waives any right to the benefit of or to
require or control application of any security or the proceeds of any
security now existing or hereafter obtained by Lessor as security for the
Obligations or any dispersements, payments, or other property at any time
received by, paid to, or in the possession of Lessor. Guarantor shall not
have any recourse or action against Lessor by reason of any action Lessor may
take or omit to take in connection with security or any other guaranty at any
time existing thereof.
<PAGE>
2
This is a guaranty of payment and performance and not merely of collection.
No renewal, extension, or rearrangement of any other indulgence with
respect to the Obligations, or any part thereof, no release of or substitution
for any security or other guaranty now or hereafter held by Lessor for
Obligations, or of any part thereof, no failure to perfect any lien or security
interest, no impairment of collateral, no release of Lessee or any other person
primarily or secondarily liable on or for any of the Obligations, or any part
thereof, no delay in enforcement of the payment or performance of the
Obligations, or any part thereof, and no delay or omission or power with respect
to the Obligations, or any part thereof, or any security therefor or guaranty
thereof or under this Lease Guaranty Agreement shall in any manner impair the
rights of Lessor or the obligations and liability of Guarantor Hereunder.
Guarantor further waives notice of the acceptance of this guaranty and
waives grace, demand, notice of default, notice of intent to accelerate
maturity, notice that Lessor will not accept late payments, notice of
acceleration maturity, presentment for acceleration, presentment for payment,
protest notice of pretest and of dishonor, and diligence on taking any action
with respect to this Lease Guaranty Agreement or said Obligations or any
property, rights, or interests which secure this Lease Guaranty Agreement or
said Obligations. Guarantor consents to and waives notice of any and all
renewals, extensions, and rearrangements of said Obligations and to the release
of all or any part of any property, rights, or interests which secure this Lease
Guaranty Agreement or said Obligations or any person liable for any of the
Obligations.
The obligations, covenants, agreements and duties of Guarantor under
this Lease Guaranty Agreement shall in no way be affected or impaired by (i)
the involuntary or involuntary bankruptcy, assignment for the benefit of
credits, reorganization or similar proceeding affecting Lessee or any of
LESSEE's assets, or (ii) the release of Lessee from the performance or
observance of any of the agreements, covenants, terms or conditions contained
in the documents evidencing the Obligations by LESSEE's bankruptcy,
receivership, or similar protective filing. This Lease Guaranty Agreement
shall continue to be effective or be reinstalled, as the case may be, if at
any time any payment or performance of any of the Obligations is rescinded or
must be otherwise returned by Lessor in connection with the insolvency,
bankruptcy or reorganization of Lessee or otherwise, all as though such
payment had not been made.
Guarantor hereby irrevocable waives any and all claims or other rights
which it may now have or hereafter acquire against Lessee or any other
<PAGE>
3
guarantor of the Obligations that arise from the existence, payment, performance
or enforcement of Guarantor's liabilities or Obligations under this Lease
Guaranty Agreement, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification, and any right to
participate in any claim or remedy of Lessor against Lessee or any other
guarantor of the Obligations or any collateral which Lessor now has or hereafter
acquires, whether or not such right, claim or remedy arises in equity or under
contract, statute or common law including without limitation, the right to take
in receipt from Lessee, directly or indirectly, in cash or other property or by
setoff or in any other manner, payment or security on account of such right,
claim or remedy. Without limiting the generality of and in addition to the
foregoing, Guarantor hereby irrevocably waives any and all claims or other
rights it may now have or hereafter acquire against Lessor, Lessee or any other
person under the laws of the State of California. If any amount shall be paid
to Guarantors in violation of this paragraph and the Obligations shall not have
been paid in full, such amount shall be deemed to have been paid to Guarantor
for the benefit, and held in trust for the benefit of Lessor and shall
forthwith be paid to Lessor to be credited and applied upon the Obligations.
This Lease Guaranty Agreement is intended for and shall inure to the
benefit of Lessor and each and every other person who shall from time to time be
or become the owner, assignee or holder of the Lease or any of the Obligations
hereby guaranteed, and each and every reference herein to "Lessor" shall also
include and refer to each and every successor or assignee of Lessor at any time
holding or owing any part of or interest in any part of the Lease or the
Obligations hereby Guaranteed. This Lease Guaranty Agreement shall be
transferable and negotiable, in whole or in part, by Lessor and its assigns,
with the same force and effect and to the same extent that the Lease or the
Obligations are transferable. Guarantor expressly waives notice of transfer or
assignment of the Lease or the Obligations, or any part thereof, or of the
rights of Lessor Hereunder.
Any proceeding under this Lease Guaranty Agreement may be brought by Lessor
as to some, but less than all, Obligations, at LESSOR's sole discretion, and any
such proceeding brought by Lessor with respect to some, but less than all,
Obligations shall not in any manner whatsoever affect, waive, diminish, or
impair the rights of Lessor to thereafter institute proceeding as to any or all
Obligations not therefore the subject of any proceeding under this Lease
Guaranty Agreement, either simultaneously or serially, until all Obligations
have been fully and finally paid and discharged. The exercise of any right or
remedy granted to or conferred upon Lessor in this Lease Guaranty Agreement or
in any
<PAGE>
4
instrument, document, or other writing now or hereafter evidencing, securing, or
otherwise pertaining to said Obligations or this Lease Guaranty Agreement shall
be wholly discretionary with Lessor, and such right or remedy shall not in any
manner affect, impair, or diminish the obligations and liabilities of Guarantor
or any person liable on said Obligations, or constitute or be deemed a waiver of
any such right or remedy or any other past, present, or future right or remedy
of Lessor.
This Lease Guaranty Agreement and the obligations of Guarantor hereunder,
and all of the terms, provisions, covenants, warranties, waivers, and agreements
contained herein or in any writing evidencing, securing, or otherwise pertaining
to the Obligations shall be binding upon Guarantor and its successors, legal
representatives and assigns.
Any notice or demand to Guarantor or in connection herewith may be given
and shall conclusively be deemed and considered to have been given and received
upon the deposit thereof in writing in the U.S. Mails, duly stamped and address
to such Guarantor at the address of Guarantor shown below or at Guarantor's most
recent address as then shown by the records of Lessor, but actual notice,
however, given or received, shall always be effective. The last preceding
sentence shall not be construed in anywise to affect or impair any waiver of
notice or demand herein provided or to require giving of notice of any kind
whatsoever to or upon Guarantor in any situation or for any reason.
Guarantor shall pay to Lessor its collection and enforcement costs,
including reasonable attorney's fees, if the Obligations are not paid or
performed by Guarantor when due as required herein or if this Lease Guaranty
Agreement is enforced through any judicial proceedings whatsoever. In addition,
Guarantor shall pay collection and enforcement costs, including reasonable
attorney's fees, that Lessor has incurred in collecting or enforcing or
attempting to collect or enforce the Obligations from Lessee.
THIS LEASE GUARANTY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED, AND
INTERPRETED UNDER THE LAWS OF THE STATE OF CALIFORNIA, UNITED STATES OF AMERICA.
EXECUTED EFFECTIVE AS OF THE 14 DAY OF AUGUST, 1998.
By: /s/ Richard W. Mora
----------------------------
PRINTED NAME: Richard W. Mora
TITLE: Chief Executive Officer
<PAGE>
[LOGO]
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5,000,000.00 02-01-1999 06-01-1999 00003 000 00709056974 259
- ---------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR
LOAN OR ITEM.
BORROWER: COASTCAST CORPORATION LENDER: Imperial Bank
3025 E. Victoria Street Los Angeles Airport Regional Office
Rancho Dominguez, CA 90221-5616 9920 S. La Cienega Blvd., Suite 206
Inglewood, CA 90301-4423
- ---------------------------------------------------------------------------------------------------------------
Principal Amount: $5,000,000.00 Initial Rate: 7.750% Date of Note: February 1, 1999
</TABLE>
PROMISE TO PAY. COASTCAST CORPORATION ("Borrower") promises to pay to
Imperial Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Five Million & 00/100 Dollars
($5,000,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on June 1, 1999. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning February 28, 1999, and all subsequent interest payments are due on
the last day of each month after that. The annual interest rate for this Note
is computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied
first to any unpaid collection costs and any late charges, then to any unpaid
interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. Subject to designation of a different interest rate
index by Borrower as provided below, the interest rate on this Note is
subject to change from time to time based on changes in an index which is the
Imperial Bank Prime Rate (the "Index"). The Prime Rate is the rate announced
by Lender as its Prime Rate of Interest from time to time. Lender will tell
Borrower the current index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each day. The index currently is
7.750%. The interest rate to be applied to the unpaid principal balance of
this Note will be at a rate equal to the index, resulting in an initial rate
of 7.750%. NOTICE: Under no circumstances will the interest rate on this Note
be more than the maximum rate allowed by applicable law.
INTEREST RATE OPTIONS. The following interest rate options are available
under this Note:
(a) DEFAULT OPTION. The interest rate margin and index described in the
"VARIABLE INTEREST RATE" paragraph above (the "Default Option").
(b) LIBOR. A margin of 2,000 percentage points over LIBOR. For purposes
of this Note, LIBOR shall mean London Inter-Bank Offered Rate as
provided in the LIBOR ADDENDUM TO NOTE attached hereto and made a
part hereof.
When the interest rate is based on a fixed rate, the rate shall be in effect
for a period of the number of days or months as indicated in the rate option
description (the "Interest Period"), in any case extended to the next
succeeding business day when necessary, beginning on a borrowing date,
conversion date or expiration date of the then current Interest Period.
Adjustments in the interest rate due to changes in the maximum nonusurious
interest rate allowed (the "Highest Lawful Rate") shall be made on the
effective day of any change in the Highest Lawful Rate.
Provided Borrower is not in default under this Note, Borrower may designate
in advance which of the above interest rate indexes shall be applicable to
any loan advance under this Note and shall designate any optional Interest
Period applicable to any fixed rate loan or advance. In the absence of any
such designation the interest rate option shall be the Default Option.
Thereafter unpaid principal balances under this Note may be converted (at the
end of an Interest Period if the index used to determine the interest rate
therefore is a fixed rate) to another of the above interest rate options, or
continued for an additional interest period, when applicable, as designated
by Borrower in advance; and in the absence of sufficient advance designation
as to conversion to or continuation of a fixed rate index, the index shall be
converted to the Default Option. Notwithstanding the foregoing, a fixed rate
index may not be elected for a loan or advance under this Note, nor any
conversion to or continuation of a fixed rate index be elected, if the
Interest Period thereof would extend beyond the maturity of this Note.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is
entitled to a minimum interest charge of $250.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect either now or at the time made or
furnished. (d) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to
take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (f) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within ten (10)
days; or (b) if the cure requires more than ten (10) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to
pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 5.000 percentage points over the index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any
increased rate). Lender may hire or pay someone else to help collect this
Note if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of Los
Angeles County, the State of California. Lender and Borrower hereby waive the
right to any jury trial in any action, proceeding, or counterclaim brought by
either Lender or Borrower against the other. (Initial Here [Illegible]) This
Note shall be governed by and construed in accordance with the laws of the
State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
<PAGE>
02-01-1999 PROMISSORY NOTE Page 2
(Continued)
- -------------------------------------------------------------------------------
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. All oral requests shall be confirmed in writing on the day of the
request. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Hans Buehler, CEO & Chairman
of the Board; and Robert C. Bruning, CFO & Secretary. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions
of an authorized person or (b) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor
has with Lender, including any agreement made in connection with the signing
of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan
with Lender; (d) Borrower has applied funds provided pursuant to this Note
for purposes other than those authorized by Lender; or (e) Lender in good
faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.
REFERENCE PROVISION. 1. Other than (i) non-judicial foreclosure and all
matters in connection therewith regarding security interests in real or
personal property; or (ii) the appointment of a receiver, or the exercise of
other provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties
arising out of or relating to this document ("Agreement"), which controversy,
dispute or claim is not settled in writing within thirty (30) days after the
"Claim Date" (defined as the date on which a party subject to the Agreement
gives written notice to all other parties that a controversy, dispute or
claim exists), will be settled by a reference proceeding in California in
accordance with the provisions of Section 638 et seq. of the California Code
of Civil Procedure, or their successor section ("CCP"), which shall
constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such
controversy, dispute or claim is subject to the reference proceeding and
except as set forth above, the parties waive their rights to initiate any
legal proceedings against each other in any court or jurisdiction other than
the Superior Court in the County where the Real Property, if any, is located
or Los Angeles County if none (the "Court"). The referee shall be a retired
Judge of the Court selected by mutual agreement of the parties, and if they
cannot so agree within forty-five (45) days after the Claim Date, the referee
shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP 170.6. The
referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the Claim Date and (b) try any and all issues of law or fact
and report a statement of decision upon them, if possible, within ninety (90)
days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP 644 in
any court in the State of California having jurisdiction. Any party may apply
for a reference proceeding at any time after thirty (30) days following
notice to any other party of the nature of the controversy, dispute or claim,
by filing a petition for a hearing and/or trial. All discovery permitted by
this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for
any reason whatsoever, including, without limitation, legal objections raised
to such discovery or unavailability of a witness due to absence or illness.
No party shall be entitled to "priority" in conducting discovery. Depositions
may be taken by either party upon seven (7) days written notice, and request
for production or inspection of documents shall be responded to within ten
(10) days after service. All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose decision
shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Superior Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
2. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence,
and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter,
except that when any party so requests, a court reporter will be used at any
hearing conducted before the referee. The party making such a request shall
have the obligation to arrange for and pay for the court reporter. The costs
of the court reporter at the trial shall be borne equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be
empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will
be binding upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the claims of
the parties that are the subject of the reference. The parties hereto
expressly reserve the right to contest or appeal from the final judgment or
any appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of fact, conclusions
of law, a written statement of decision, and the right to move for a new
trial or a different judgment, which new trial, if granted, is also to be a
reference proceeding under this provision.
4. In the event that the enabling legislation which provides for appointment
of a referee is repealed (and no successor statute is enacted), any dispute
between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration.
The arbitration will be conducted by a retired judge of the Court, in
accordance with the California Arbitration Act, 1280 through 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery
as set forth hereinabove shall apply to any such arbitration proceeding.
CREDIT AGREEMENT. This Note is subject to the provisions of the Credit
Agreement dated February 2, 1998, and all amendments thereto and replacements
therefor.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
COASTCAST CORPORATION
x /s/ Robert C. Bruning
-----------------------
Authorized Officer
- -------------------------------------------------------------------------------
Variable Rate, Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off.,
Ver.3.26b(c) 1989 CFI ProServices, Inc.
All rights reserved. (CA-D20
09COAST.LNC1.OVL)
<PAGE>
[LOGO] LIBOR ADDENDUM
TO NOTE
This Libor Addendum ("Addendum") is dated as of FEBRUARY 1, 1999, and is
by and between COASTCAST CORPORATION ("Borrower") and Imperial Bank ("Bank").
This Addendum amends and supplements the NOTE to which it is attached (the
"Note") and forms a part of and is incorporated into the Note.
In the event of any inconsistency between the terms herein and the terms
of the Note, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meanings set forth in the Note.
1. ADVANCES.
1.1 PRIME LOANS. Advances permitted pursuant to the terms of the Note
or this Addendum which bear interest in relation to Bank's Prime Rate shall
be referred to herein as "Prime Loans" and each such advance shall be a
"Prime Loan." Each Prime Loan shall bear interest at an annual rate equal to
the sum of 0.000% plus the Bank's Prime Rate. "Prime Rate" shall mean the
rate of interest publicly announced by Bank from time to time in Inglewood,
California, as its prime rate for lending. The Prime Rate is not intended to
be the lowest rate of interest charged by Bank in connection with extensions
of credit to borrowers.
1.2 LIBOR LOANS. Advances permitted pursuant to the terms of the Note
or this Addendum which bear interest in relation to the Libor Rate shall be
referred to herein as "Libor Loans" and each such advance shall be a "Libor
Loan." Each Libor Loan shall bear interest at the Libor Rate, as defined
below. A Libor Loan shall be in the minimum amount of FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) or such greater amount which is an integral multiple of
Fifty Thousand Dollars ($50,000). No Libor Loan shall be made after the last
Business Day that is at least THREE (3) MONTHS prior to the Maturity Date
described in the Note.
2. INTEREST ON LIBOR LOANS.
2.1 RATE OF INTEREST. Each Libor Loan shall bear interest on the
unpaid principal amount thereof from the Loan Date through the date paid
(whether by acceleration or otherwise) at a rate equal to the sum of 2.000%
per annum plus the Libor Rate for the Interest Period.
(a) "Loan Date" shall mean the date on which (i) a Libor Loan is
made, a Libor Loan is continued, or a Prime Loan is converted to a Libor Loan.
(b) "Interest Period" shall mean a period of ONE (1) MONTH,
commencing on the applicable Loan Date, as selected by Borrower pursuant to
Section 2.2; PROVIDED, HOWEVER, that Borrower may not select an Interest
Period that would otherwise extend beyond the Maturity Date of the Loan.
Borrower may also select a twelve (12) month Interest Period if and when Bank
notifies Borrower that such Interest Period is available, as determined by
Bank in its sole discretion.
(c) "Libor Rate" shall mean, for the applicable Interest Period
for a Libor Loan, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) equal to (i) the Libor Base Rate for such Interest Period
divided by (ii) 1.00 minus the Reserve Requirement Rate (expressed as a
decimal fraction) for such Interest Period.
(d) "Libor Base Rate" shall mean with respect to any Interest
Period, the rate equal to the arithmetic mean (rounded upwards, if necessary,
to the nearest 1/16 of 1%) of:
(i) the offered rates per annum for deposits in U.S.
Dollars for a period equal to such Interest Period which appears at
11:00 a.m., London time, on the Reuters Screen LIBOR Page on the
Business Day that is two (2) Business Days before the first day of such
Interest Period, in each case if at least four (4) such offered rates
appear on such page, or
(ii) if clause (i) is inapplicable, (x) the offered rate
per annum for deposits in U.S. Dollars for a period equal to such
Interest Period which appears as of 11:00 a.m., London time on the
Telerate Monitor on Telerate Screen 3750 on the Business Day which is
two (2) Business Days before the first day of such Interest Period; or
(y) if clause (x) above is inapplicable, the arithmetic mean (rounded
upwards, if necessary, to the nearest 1/16 of 1%) of the interest rates
per annum offered by at least three (3) prime banks selected by Bank at
approximately 11:00 a.m. London time, on the Business Day which is two
(2) Business Days before such date for deposits in U.S. Dollars to prime
banks in the London interbank market, in each case for a period equal to
such Interest Period in an amount equal to the amount to which the Libor
Rate applies.
<PAGE>
(e) "Business Day" means any day on which Bank is open for
business in the State of California.
(f) "Reuters Screen LIBOR Page" means the display designated as
page LIBOR on the Reuters Monitor Money Rates Service or such other page as
may replace the LIBOR page on that service for the purpose of displaying
London interbank offered rates of major banks.
(g) "Reserve Requirement Rate" means, for any Interest Period,
the aggregate of the rates, effective as of the Business Day which is two (2)
Business Days before the first day of the Interest Period, at which:
(i) reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest
Period under Regulation D against "Eurocurrency liabilities" (as such
term is used in Regulation D) by member banks of the Federal Reserve
System; and
(ii) any additional reserves are required to be maintained
by Bank by reason of any Regulatory Change against (x) any category of
liabilities which includes deposits by reference to which the Libor Rate
is to be determined as provided in the definition of "Libor Base Rate;"
or (y) any category of extensions of credit or other assets which
include Libor Loans.
(h) "Regulatory Change" means, with respect to Bank, any change
on or after the date of the Note and this Addendum in any Governmental
Regulation, including the introduction of any new Governmental Regulation or
the rescission of any existing Governmental Regulation.
(i) "Governmental Regulation" means any (i) United States
Federal, state or foreign law or regulation (including without limitation
Regulation D); and (ii) the adoption or making of any interpretation,
application, directive or request applying to a class of lenders, including
Bank, of or under any United States Federal, state, or any foreign law or
regulation (whether or not having the force of law) by any court or by any
governmental, central banking, monetary or taxing authority charged with the
interpretation or administration of such law or regulation.
2.2 DETERMINATION OF INTEREST RATES. Subject to the terms and
conditions of the Note and this Addendum, Borrower, at its option, may
request an advance in the form of a Libor Loan, a continuation of a Libor
Loan, or a conversion of a Prime Loan into a Libor Loan, only upon delivery
to Bank of an irrevocable written notice received by Bank at least three (3)
Business Days prior to the requested Loan Date, specifying (i) the principal
amount of such Libor Loan, (ii) the requested Loan Date, and (iii) the
selected Interest Period. Upon receiving such notice, Bank shall determine
(which determination shall be in accordance with Section 2.1 and shall,
absent manifest error, be final, conclusive and binding upon all parties
hereto) the Libor Rate applicable to such Libor Loan two (2) Business Days
prior to the Loan Date, and shall promptly give notice thereof (in writing or
by telephone confirmed in writing) to Borrower. If Borrower shall fail to
notify Bank of its selected Interest Period for a Libor Loan (including the
continuation of an existing Libor Loan or the conversion of a Prime Loan into
a Libor Loan), the Borrower shall be deemed to have selected an Interest
Period of three (3) months.
2.3 COMPUTATION OF INTEREST AND FEES. All computations of interest
and fees payable pursuant to the Note shall be calculated on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed
(less the date of repayment).
2.4 RECORDATION BY BANK. Bank is hereby authorized to record the Loan
Date, the applicable Interest Period, the principal amount, and the interest
rate of each Libor Loan made (or continued or converted) by Bank, and the
date and amount of each payment or prepayment of principal thereof, in Bank's
records. Any such recordation shall constitute PRIMA FACIE evidence of the
accuracy of the information recorded; PROVIDED that the failure to make any
such recordation shall not in any way affect the Borrower's obligations
hereunder.
3. CONVERSION TO PRIME LOANS.
3.1 ELECTION BY BORROWER. Subject to all the terms and conditions of
this Addendum, Borrower may elect from time to time to convert a Libor Loan
to a Prime Loan by giving Bank at least three (3) Business Days' prior
irrevocable notice of such election, and any such conversion of a Libor Loan
shall be made on the last day of the Interest Period with respect thereto.
3.2 FAILURE OF NOTICE BY BORROWER. If Borrower otherwise fails to
give notice specifying its requests with respect to any Libor Loans that are
scheduled to become due, such failure shall be deemed, in the absence of any
notice from Borrower to the contrary, to be notice of a requested advance in
the form of a Prime Loan in a principal amount equal to the amount of said
Libor Loan.
4. PREPAYMENTS.
4.1 VOLUNTARY PREPAYMENT BY BORROWER. Subject to the terms and
conditions of the Note and this Addendum, Borrower may, upon at least three
(3) Business Days' irrevocable notice to Bank as provided herein, at any time
and from time to time on any Business Day prepay any Prime Loan or Libor Loan
in whole or in part, without penalty or premium, other than customary actual
"Breakage Fees" and "Prepayment Costs" as defined below, resulting from
prepayment of any Libor Loan prior to the expiration of the Interest Period
relating thereto. The notice of prepayment shall specify the date and amount
of the prepayment, and the Loan to which the
<PAGE>
prepayment applies. Each partial prepayment of a Libor Loan shall be in an
amount not less than Fifty Thousand Dollars ($50,000) or such greater amount
which is an integral multiple of Fifty Thousand Dollars ($50,000); PROVIDED,
that unless a Libor Loan is prepaid in full, no prepayment shall be made if,
after giving effect to such prepayment, the aggregate principal amount of
Libor Loans having the same Interest Period shall be less than FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00). Notice of prepayment having been delivered as
aforesaid, the principal amount of the prepayment specified in such notice
shall become due and payable on the prepayment date set forth in such notice.
All payments of principal under this Section 4 shall be accompanied by
accrued but unpaid interest on the amount being prepaid through the date of
such prepayment.
4.2 BREAKAGE FEES. If for any reason (including voluntary or
mandatory prepayment, voluntary or mandatory conversion of a Libor Loan into
a Prime Loan, or acceleration), Bank receives all or part of the principal
amount of a Libor Loan prior to the last day of the Interest Period for such
Loan, Borrower shall immediately notify Borrower's account officer at Bank
and, on demand by Bank, pay Bank the Breakage Fees, defined as the amount (if
any) by which (i) the additional interest which would have been payable on
the amount so received had it not been received until the last day of such
Interest Period exceeds (ii) the interest which would have been recoverable
by Bank (without regard to whether Bank actually so invests said funds) by
placing the amount so received on deposit in the certificate of deposit
markets or the offshore currency interbank markets or United States Treasury
investment products, as the case may be, for a period starting on the date on
which it was so received and ending on the last day of such Interest Period
at the interest rate determined by Bank in its reasonable discretion. Bank's
determination as to such amount shall be conclusive and final, absent
manifest error.
4.3 PREPAYMENT COSTS. Borrower shall pay to Bank, upon the demand of
Bank, such other amount or amounts as shall be sufficient (in the sole good
faith opinion of Bank) to compensate it for any loss, costs or expense
incurred by it as a result of any prepayment by Borrower (including voluntary
or mandatory prepayment, voluntary or mandatory conversion of a Libor Loan
into a Prime Loan, or prepayment due to acceleration) of all or part of the
principal amount of a Libor Loan prior to the last day of the Interest Period
for such Loan (including without limitation any failure by Borrower to
borrow a Libor Loan on the Loan Date for such borrowing specified in the
relevant notice of borrowing hereunder). Such costs shall include, without
limitation, any interest or fees payable by Bank to lenders of funds obtained
by it in order to make or maintain its loans based on the London interbank
eurodollar market. Bank's determination as to such costs shall be conclusive
and final, absent manifest error.
5. REMEDIES UPON EVENTS OF DEFAULT.
5.1 CONVERSION TO PRIME LOANS. If any Event of Default has occurred
and is continuing under the Note or this Addendum, then in addition to all
other remedies available to Bank under the Note, at the option of Bank and
without demand or notice, all Libor Loans then outstanding shall be
automatically converted to Prime Loans on the last day of each respective
Interest Period for each Libor Loan.
5.2 INDEMNITY. Borrower agrees to pay and indemnify Bank for, and to
hold Bank harmless from, any and all cost, loss or expense (including without
limitation any such cost, loss or expense arising from interest or fees
payable by Bank to lenders of funds obtained by it in order to maintain its
Libor Loans hereunder, or in its reemployment of funds obtained in connection
with the making or maintaining of Libor Loans) which Bank may sustain or
incur as a consequence of any default by Borrower in connection with or
related to: (a) payment of the principal amount of or interest on Libor
Loans, (b) making a borrowing or conversion of a Libor Loan after Borrower
has given a notice thereof in accordance with this Addendum, or (c) making a
prepayment of a Libor Loan after Borrower has given a notice thereof in
accordance with this Addendum, or any prepayment (whether optional or
mandatory) of any Libor Loan prior to the end of the applicable Interest
Period for such Loan.
6. ADDITIONAL PROVISIONS REGARDING LIBOR LOANS.
6.1 LIBOR RATE TAXES. All payments of principal, interest, fees,
costs, expenses and all other amounts payable to Borrower pursuant to the
Note and this Addendum shall be made free and clear of and without reduction
by reason of all present and future income, stamp and other taxes or other
charges whatsoever imposed, assessed, levied or collected by any national
government or any political subdivision or taxing authority thereof or any
organization of which it is a member (excluding (i) any taxes imposed on or
measured by the overall net income or gross receipts of Bank by any such
entity, and (ii) any taxes which would have been imposed even if no
provisions for Libor Loans had appeared in this Addendum) (collectively,
"Libor Taxes").
If any Libor Taxes are required to be withheld from any amounts
payable to Bank, Borrower shall pay such additional amounts as may be
necessary so as to yield to Bank a net amount equal to the total amount of
the payments provided for in this Addendum or under the Note which Bank would
have received if such amounts had not been subject to Libor Taxes.
If any Libor Taxes are payable directly by Borrower, they shall be
paid by Borrower prior to the date on which penalties attach for failure to
timely pay such Libor Taxes. Within forty five (45) days after the date on
which payment of any such Libor Taxes is due pursuant to applicable law,
Borrower will furnish Bank the original receipt for the full payment of such
Libor Taxes or, if such is not available, evidence of such payment
satisfactory in form and substance to Bank. Borrower shall indemnify and hold
Bank harmless against, and will reimburse to Bank, upon demand, any
incremental taxes, interest or penalties that may become payable by Bank as a
result of any failure by Borrower to pay any Libor Taxes when due.
<PAGE>
6.2 INABILITY TO DETERMINE FAIR INTEREST RATE. If at any time Bank,
in its sole and absolute discretion, determines that: (i) the amount of the
Libor Loans for periods equal to the corresponding Interest Periods are not
available to Bank in the offshore currency interbank markets, (ii) the Libor
Rate does not accurately reflect the cost to Bank of lending the Libor Loan,
or (iii) by reason of any changes arising after the date of the Note
affecting the London interbank eurodollar market, adequate and fair means do
not exist for ascertaining the applicable interest rate on the basis provided
for in Sections 2.1 and 2.2 above, then Bank shall promptly give notice
thereof to Borrower. Upon the giving of such notice, Bank's obligation to
make Libor Loans shall terminate, unless Bank and the Borrower agree in
writing to a different interest rate applicable to Libor Loans, or until such
time as Bank notifies Borrower that the circumstances giving rise to Bank's
notice no longer exist. While such circumstances continue to exist, (x) any
requested Libor Loan shall be treated as a request for a Prime Loan, (y) any
Prime Loan that was to have been converted to a Libor Loan shall be continued
as a Prime Loan, and (z) any outstanding Libor Loan shall be converted
retroactively, on the first day of the then current Interest Period with
respect thereto, to a Prime Loan.
6.3 ILLEGALITY OR IMPRACTICABILITY. If (i) due to any Governmental
Regulation it shall become unlawful for Bank to continue to fund or maintain
any Libor Loans, or to perform its obligations hereunder, or (ii) due to any
contingency occurring after the date of the Note which has a material adverse
effect on the London interbank eurodollar market, it has become impracticable
for Bank to continue to fund or maintain any Libor Loans, or to perform its
obligations hereunder, then Bank shall promptly give notice thereof to
Borrower. Upon the giving of such notice, Bank's obligation to make Libor
Loans shall terminate, and in such event, (x) any requested Libor Loan shall
be treated as a request for a Prime Loan, (y) any Prime Loan that was to have
been converted to a Libor Loan shall be continued as a Prime Loan, and (z)
any outstanding Libor Loan shall be converted retroactively, on the first day
of the then current Interest Period with respect thereto, to a Prime Loan.
6.4 GOVERNMENTAL REGULATIONS; INCREASED COSTS. Borrower shall pay to
Bank, within 15 days after demand by Bank, from time to time such amounts as
Bank may determine to be necessary to compensate it for any increased costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any Libor Loans to Borrower (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:
(a) imposes a new tax or changes the basis of taxation of any
amounts payable to Bank under the Note or this Addendum in respect of any
Libor Loans (other than changes which affect taxes measured by or imposed on
the overall net income of Bank by the jurisdiction in which such Bank has its
principal office); or
(b) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits or other liabilities with or for the account of Bank (including any
Libor Loans or any deposits referred to in the definition of Libor Base
Rate); or
(c) imposes any other condition affecting the Note (or any of
such extensions of credit or liabilities); or
(d) imposes or modifies a Governmental Regulation regarding
capital adequacy which has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank ("Parent")
as a consequence of its obligations hereunder to a level below that which
Bank (or its Parent) could have achieved but for such adoption, change or
compliance (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by Bank to be material.
Bank will notify Borrower of any event occurring after the date of the
Note which will entitle Bank to Additional Costs pursuant to this Section 6.4
as promptly as practicable after it obtains knowledge thereof and determines
to request such compensation. Bank will furnish Borrower with a statement
setting forth the basis and amount of each request by Bank for Additional
Costs under this Section 6.4. Determinations and allocations by Bank for
purposes of this Section 6.4 of the effect of any Regulatory Change on its
costs of maintaining its obligations to make Libor Loans or of making or
maintaining Libor Loans or on amounts receivable by it in respect of Libor
Loans, and of the additional amounts required to compensate Bank in respect
of any Additional Costs, shall be conclusive and final, absent manifest error.
This Addendum is executed as of the date first written above.
BORROWER BANK
Coastcast Corporation, Imperial Bank,
a California Corporation a California banking corporation
By /s/ Robert C. Bruning By /s/ Donald D. Douthwright
---------------------, -----------------------------
Its CFO for Brougham Morris
-------------------
Its Senior Vice President
-------------------------
By
--------------------,
Its
-------------------
<PAGE>
FIRST AMENDMENT TO
CREDIT AGREEMENT
This First Amendment ("Amendment") amends that certain Credit Terms and
Conditions Agreement ("Agreement") dated February 2, 1998, by and between
IMPERIAL BANK ("Bank") and COASTCAST CORPORATION ("Borrower") (the
"Agreement") as follows:
1. A new Paragraph 1.10 is hereby added to the Agreement to read in its
entirety as follows:
"YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable,
represent and warrant that they have reviewed the areas within their
operations and business which could be adversely affected by, and have
developed or are developing a program to address on a timely basis, the
Year 2000 Problem and have made related appropriate inquiry of material
suppliers and vendors, and based on such review and program, the Year 2000
Problem will not have a material adverse effect upon their financial
condition, operations or business as now conducted. "Year 2000 Problem"
means the possibility that any computer applications or equipment used by
Borrower may be unable to recognize and properly perform date sensitive
functions involving certain dates prior to and any dates on or after
December 31, 1999."
2. A new paragraph 2.13 is hereby added to the Agreement to read in its
entirety as follows:
"YEAR 2000 COMPLIANCE. Perform all acts reasonably necessary to ensure
that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) any customer, supplier or vendor whose compliance is
material to Borrower's business, becomes Year 2000 Compliant in a timely
manner. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation,
monitoring and testing of such systems. As used in this paragraph, "Year
2000 Compliant" shall mean, in regard to any entity, that all software,
hardware, firmware, equipment, goods or systems utilized by or material
to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the
year 2000. Borrower shall, immediately upon request, provide to Agent
such certifications or other evidence of Borrower's compliance with the
terms of this paragraph as Agent may from time to time require."
<PAGE>
3. Except as provided above, the Agreement remains unchanged.
4. This Amendment shall be effective as of February 1, 1999, and the
parties hereby confirm that the Agreement as amended is in full force and
effect.
COASTCAST CORPORATION IMPERIAL BANK
"BORROWER" "BANK"
By: /s/ Robert C. Bruning By: /s/ Donald D. Douthwright
--------------------- ------------------------
Robert C. Bruning for Brougham J. Morris
Chief Financial Officer Senior Vice President
<PAGE>
COASTCAST CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PREAMBLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Actuarial Equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Cause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.4 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.5 Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.6 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.7 Early Retirement Date. . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.8 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.9 Eligible Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.10 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.11 Estimated Section 401(k) Plan Benefit. . . . . . . . . . . . . . . . . . .4
1.12 Estimated Social Security Benefit. . . . . . . . . . . . . . . . . . . . .4
1.13 Final Average Salary . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1.14 Good Reason. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1.15 Independent Plan Administrator. . . . . . . . . . . . . . . . . . . . . .6
1.16 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.17 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.18 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.19 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.20 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.21 Postponed Retirement Date. . . . . . . . . . . . . . . . . . . . . . . . .6
1.22 Prior Plan Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.23 Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1.24 Retirement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1.25 Section 401(k) Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1.26 Termination of Employment. . . . . . . . . . . . . . . . . . . . . . . . .7
1.27 Years of Participation . . . . . . . . . . . . . . . . . . . . . . . . . .7
1.28 Years of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE II ELIGIBILITY FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . .8
2.1 Eligibility to Participate . . . . . . . . . . . . . . . . . . . . . . . .8
2.2 Entitlement to Benefits. . . . . . . . . . . . . . . . . . . . . . . . . .8
(a) Normal or Early Retirement. . . . . . . . . . . . . . . . . . . . . .8
(b) Termination of Employment Prior to Retirement . . . . . . . . . . . .8
(c) Pre-Retirement Death Benefit. . . . . . . . . . . . . . . . . . . . .8
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(d) Post-Retirement Death Benefit . . . . . . . . . . . . . . . . . . . .9
(e) Disability Retirement Benefit.. . . . . . . . . . . . . . . . . . . .9
2.3 Forfeiture of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE III BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Amount of Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Form of Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Payment of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Payees Under Legal Disability. . . . . . . . . . . . . . . . . . . . . . 11
3.5 Withholding for Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Mailing of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Grantor Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Protective Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Entitlement to Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Full Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V OPERATION AND ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . 13
5.1 Plan Administrator Powers. . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Composition of Plan Administrator. . . . . . . . . . . . . . . . . . . . 13
5.3 Plan Administrator Procedure . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Notices and Communications . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Reporting and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI APPLICATION FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Application for Benefits . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Content of Denial. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Appeals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Exhaustion of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VII MISCELLANEOUS MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Amendment or Termination . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Effect of Reorganization or Transfer of Assets . . . . . . . . . . . . . 17
7.3 Rights of Participants . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Assignment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5 Other Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.7 Receipt or Release . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Exhibit A Recognition of Predecessor Employer Service. . . . . . . . . . . . . . . 20
</TABLE>
-iii-
<PAGE>
COASTCAST CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PREAMBLE
The principal objective of the Coastcast Corporation Supplemental
Executive Retirement Plan ("Plan") is to help ensure that the Company
provides a competitive level of benefits in order to attract, retain, and
motivate selected executives. The Plan is designed to provide retirement
benefits to selected employees that will help the Company meet this objective.
The Plan was originally adopted effective September 1, 1996. This
amendment and restatement of the Plan freezes benefits at the level accrued
as of December 31, 1997 for all participants as of that date, except Hans
Buehler. Mr. Buehler has voluntarily agreed to reduce his accrued benefits
under the Plan to zero and shall not continue to participate in the Plan.
With respect to Participants with an accrued benefit as of December 31, 1997
who continue to be employed on December 18, 1998, such Participants shall be
entitled (subject to satisfaction of the vesting and other conditions imposed
under the Plan) to the greater of their accrued benefit as of December 31,
1997 (the "Prior Plan Benefit") or the accrued benefit determined under this
amended and restated Plan document, which includes a revised benefit formula
and counts service prior to the Effective Date for purposes of determining
accrued benefits.
The Plan was established for the purpose of providing benefits to a select
group of management or highly compensated employees. The benefits under the
Plan are considered unfunded. Accordingly, it is intended that the Plan be
exempt from the requirements of Parts II, III, and IV of Title I of Employee
Retirement Income Security Act of 1974 ("ERISA") pursuant to Sections 201(2),
301(a)(3), and 401(a)(1) of ERISA.
ARTICLE I
DEFINITIONS
1.1 ACTUARIAL EQUIVALENT. The "Actuarial Equivalent" of two (2) forms of
benefits shall be determined using the following actuarial assumptions:
<TABLE>
<S> <C>
Interest rate: 7.5%
Mortality: 1983 Group Annuity Mortality Table (80% of male
factors applied on a unisex basis)
</TABLE>
1.2 BOARD. The Board of Directors of Coastcast Corporation or its
delegate.
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<PAGE>
1.3 CAUSE. "Cause" shall mean:
(a) Theft or embezzlement from the Company or its affiliates
(regardless of whether or not such affiliates maintain the Plan),
(b) Fraud or other acts of dishonesty in the conduct of the business
of the Company or its affiliates (regardless of whether or not such affiliates
maintain the Plan) or the fulfillment of the Participant's assigned
responsibilities thereunder,
(c) Conviction of, or plea of NOLO CONTENDERE to, any felony or any
crime involving moral turpitude,
(d) Willful and knowing action which is materially injurious to the
business or reputation of the Company or its affiliates (regardless of whether
or not such affiliates maintain the Plan).
1.4 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have
occurred upon the occurrence of any one (or more) of the following events:
(a) the Company is merged or consolidated or reorganized into or with
another corporation and less than a majority of the combined voting power of the
then-outstanding securities of the surviving corporation immediately thereafter
is held in the aggregate by the holders of Voting Stock (as defined below) of
the Company immediately prior to such transaction;
(b) the Company sells or otherwise transfers all or substantially all
of its assets to any other corporation, if less than a majority of the combined
voting power of the then-outstanding voting securities of such corporation
immediately after such sale or transfer is held in the aggregate by the holders
of Voting Stock of the Company immediately prior to such sale or transfer;
(c) as a result of, or in connection with, any cash tender or
exchange offer, merger, reorganization or other business combination, sale of
assets or contested election, or any combination of the foregoing transactions
(a "Transaction"), the individuals who were members of the Board immediately
prior to the Transaction cease to constitute a majority of the members of the
Board or of the board of directors of any successor to the Company, unless the
election or nomination for election by the holders of the Voting Stock of the
Company was approved by a vote of the majority of Board members then still in
office who were members of the Board immediately prior to the Transaction; or
(d) in connection with a transfer or assignment of Voting Stock by
the current beneficial owners of Voting Stock, the beneficial ownership of
Voting Stock changes such that less than a majority of the Voting Stock
outstanding immediately after such assignment or transfer is held by the current
beneficial owners of Voting Stock.
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<PAGE>
For purposes of this Section, (i) "Voting Stock" shall mean shares of the
Company representing the combined voting power of the then outstanding
securities entitled to vote generally in the election of the Board, and (ii)
"beneficial ownership" and "beneficial owners" shall have the meaning ascribed
to it under Rule 13d-3 or any successor rule or regulation promulgated under the
Securities Exchange Act of 1934, as amended, as well as any person or entity
who, directly or indirectly, controls, is controlled by or under common control
with such beneficial owner.
1.5 COMPANY. Coastcast Corporation and any affiliated companies that
maintain the Plan.
1.6 DISABILITY. Any cessation of the Participant's employment with the
Company as a result of the inability of the Executive to perform his usual
duties for the Company for an extended period by reason of mental or physical
illness or injury. The Plan Administrator, in its complete and sole discretion,
shall determine a Participant's Disability after receiving competent medical
advice using nondiscriminatory standards and may rely on the determination of
any disability insurance carrier providing benefits under the terms of any
employer provided disability insurance coverage. At all times during the period
of Disability, the Participant must be receiving medical care from a competent
physician unless the Participant provides the Plan Administrator with written
proof acceptable to the Plan Administrator that additional medical care will be
of no benefit. The Plan Administrator may require that the Participant submit
to an examination on an annual basis by a competent physician or medical clinic
selected by the Plan Administrator to confirm whether a Disability is
continuing. The Plan Administrator shall have discretion to make a
determination based on the medical evidence.
1.7 EARLY RETIREMENT DATE.
(a) The first day of any month coincident with or next following the
month in which the Participant terminates employment with the Company:
(i) After becoming eligible for early retirement benefits, but
(ii) Before his Normal Retirement Date.
(b) A Participant first becomes eligible for early retirement
benefits when:
(i) He or she attains age fifty-five (55), and
(ii) He or she has at least five (5) Years of Participation.
1.8 EFFECTIVE DATE. The original effective date of the Plan was September
1, 1996. The effective date of this amended and restated Plan, is January 1,
1998, but the amendments continuing benefit accruals after December 31, 1997
only apply with respect to Participants who were Eligible Employees on or after
December 18, 1998.
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<PAGE>
1.9 ELIGIBLE EMPLOYEE. A management level or highly compensated employee
of the Company designated by the Plan Administrator to be eligible to
participate in the Plan.
1.10 ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
1.11 ESTIMATED SECTION 401(k) PLAN BENEFIT.
(a) A Participant's annual retirement benefit payable as a straight
life annuity at Retirement, based on the Actuarial Equivalent value of the
Company Matching Contributions to the Section 401(k) Plan on his behalf
(computed in accordance with the rules of Paragraph (b) below).
(b) The amount of the Elective Deferral Contributions and Company
Matching Contributions is computed as if:
(i) The Participant had commenced participation in the
Section 401(k) Plan on the date when he first became eligible to make Elective
Deferral Contributions to that plan, and
(ii) The Participant elected the maximum Elective Deferral
Contributions and had received the maximum amount of Company Matching
Contribution that he could receive each year, based upon the amount of his
income that is taken into account under the Section 401(k) Plan for that year.
1.12 ESTIMATED SOCIAL SECURITY BENEFIT.
(a) The annual Primary Insurance Amount estimated by the
Administrative Committee to be payable to the Participant under the Social
Security Act at his Normal Retirement Date (based on the assumption that the
Participant is eligible to receive Social Security Benefits, even if his actual
Social Security retirement age is later), determined without regard to any Late
Retirement Credit under the Social Security Act.
(b) The Estimated Social Security Benefit for a Participant whose
employment is terminated before age sixty-five (65) will be calculated assuming
the Participant will:
(i) Not receive any future wages that would be treated as wages
for purposes of the federal Social Security Act, and
(ii) Begin receiving Social Security benefits at his Normal
Retirement Date under this Plan (based on the assumption that the Participant is
eligible to receive Social Security Benefits, even if his actual Social Security
retirement age is later).
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<PAGE>
(c) The Estimated Social Security Benefit of a Participant will not
be increased by reason of any increase in the Primary Insurance Amount that
occurs following the termination of his employment.
1.13 FINAL AVERAGE SALARY.
(a) The Participant's average annual salary (excluding bonuses and
other non-regular forms of compensation) earned from the Company (before
adjustments for pre-tax contributions to Company sponsored employee benefit
Plans) during the three (3) highest salary years of the five (5) year period
ending on the December 31st next preceding the Termination of Employment Date.
Solely for purposes of determining the Prior Plan Benefit, Final Average Salary
shall be calculated based on the three (3) highest salary years of the five (5)
year period ending on December 31, 1997.
(b) In the event that the Participant has less than three (3)
calendar years of employment with the Company, his Final Average Salary shall be
the average amount of his annualized salary for the entire period.
1.14 GOOD REASON. The occurrence of any of the following circumstances
after a Change of Control, unless, in the case of events described in
Paragraphs (a), (b), (c) or (d) below, the circumstances are fully corrected
before the effective date of the Participant's notice that he is resigning from
the Company:
(a) A significant reduction or adverse change in the nature or scope
of the Participant's powers, functions, titles, position, responsibilities or
duties in respect of the Company or any affiliate, other than a change to which
the Participant consents;
(b) The Company's reduction in the Participant's annual base salary
(or any bonus provided for in a written employment agreement between the Company
and the Participant) as in effect immediately before the Change of Control or as
it may be subsequently increased;
(c) The Company's failure to pay within seven (7) days of the due
date any portion of:
(i) The Participant's current compensation, or
(ii) An installment of deferred compensation under any deferred
compensation plan of the Company;
(d) The Company's material reduction or failure to continue in effect
any compensation or benefits plan in which the Participant participated
immediately before the Change of Control that is material to his total
compensation, including but not limited to this Plan or any similar plans
adopted before the Change of Control. This provision shall not apply if an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan;
-5-
<PAGE>
Notwithstanding the foregoing, no act or omission by the Company or any
Affiliate shall constitute Good Reason unless:
(i) the Participant gives the Company or the Affiliate
written notice thereof within six (6) months after he first knew or should have
known of such act or omission; and
(ii) the act or omission is not remedied within thirty (30)
days after receipt of such notice.
1.15 INDEPENDENT PLAN ADMINISTRATOR. A person, persons or entity which,
prior to a Change in Control has accepted in writing the position of Independent
Plan Administrator under the grantor trust agreement established under Section
3.7 hereof. The appointment of the Independent Plan Administrator shall be
determined under the provisions of the grantor trust agreement established under
Section 3.7 hereof. Unless otherwise designated under the grantor trust
agreement established under Section 3.7 hereof, the Independent Plan
Administrator shall be a committee, the members of which shall be Hans Buehler,
Robert Bruning and Robert Gates. After a Change in Control, the designation of
the Independent Plan Administrator may not be changed without the unanimous
written consent of the designated Independent Plan Administrator.
1.16 NORMAL RETIREMENT DATE. The Participant's sixty-fifth (65th)
birthday.
1.17 PARTICIPANT. An Eligible Employee who has become a participant in the
Plan in accordance with Section 2.1.
1.18 PLAN. Coastcast Corporation Supplemental Executive Retirement Plan.
1.19 PLAN YEAR. The fiscal year of the Plan, which shall be the period
beginning on January 1 and ending on the following December 31.
1.20 PLAN ADMINISTRATOR. The person, persons or entity appointed by the
Board pursuant to Article V to manage, administer, interpret, and construe the
Plan.
1.21 POSTPONED RETIREMENT DATE. The first day on which the Participant
terminates employment with the Company following his Normal Retirement Date.
1.22 PRIOR PLAN BENEFIT. The Participant's accrued benefit based on Years
of Participation and Final Average Salary at December 31, 1997 under the terms
of the Plan in effect prior to the Effective Date of this amended and restated
Plan. The Prior Plan Benefit is frozen as of December 31, 1997.
1.23 RETIREMENT. The termination of a Participant's employment with the
Company after he has satisfied the requirements for benefits under Section 2.2
below.
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<PAGE>
1.24 RETIREMENT DATE. A Participant's Normal, Early, or Postponed
Retirement Date (whichever is applicable).
1.25 SECTION 401(k) PLAN. The Coastcast Corporation 401(k) Retirement Plan
as amended from time to time.
1.26 TERMINATION OF EMPLOYMENT. A participant's cessation of employment
with the Company and affiliates for any reason whatsoever, voluntary or
involuntary, including by reason of death or Disability.
1.27 YEARS OF PARTICIPATION. The number of complete Plan Years that the
Participant has been a Participant in the Plan while employed by the Company,
beginning with the first Plan Year in which the Participant commences
participation in the Plan pursuant to Section 2.1 of the Plan. A Participant
will be credited with one (1) Year of Participation for each Plan Year on or
after the Effective Date during which the Participant completes twelve (12)
months of continuous service for the Company and is a Participant in the Plan.
Participants beginning participation on the original Effective Date of the Plan
shall receive credit for a full Year of Participation for the initial short Plan
Year.
1.28 YEARS OF SERVICE.
(a) A Participant's years of service with the Company, including
periods prior to the Effective Date. Only complete Years of Service will be
taken into account under the Plan.
(b) A Participant will be credited with one (1) Year of Service for
each computation period during which the Participant completes twelve (12)
months of continuous service for the Company. A computation period shall be the
Plan Year. Except as otherwise set forth in resolutions of the Board:
(i) Each Participant will receive credit for all Years of
Service with the Company prior to commencing participation in the Plan, and
(ii) A Participant will be credited with any time while he is on
a leave of absence approved by the Company, including disability leave, up to a
maximum of two (2) additional Years of Service.
(c) Notwithstanding anything herein to the contrary, the Plan
Administrator may in its sole discretion designate in writing for any
participant the extent to which some or all service with a predecessor entity
shall be treated as service with the Company. Any such designation shall be
attached hereto as Exhibit A.
ARTICLE II
ELIGIBILITY FOR BENEFITS
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<PAGE>
II.1 ELIGIBILITY TO PARTICIPATE.
(a) An individual shall become a Participant at the time, and on the
conditions specified by the Plan Administrator.
(b) The Participants in the Plan as of the Effective Date of this
amendment and restatement are the individuals specified in Exhibit A attached
hereto. Additional Participants may be added to Exhibit A by the Plan
Administrator without requiring an amendment to the Plan.
(c) If it is subsequently determined that the participation of any
individual in the Plan is inconsistent with the Plan being exempt from the
requirements of Parts II, III, and IV of Title I of ERISA, at the election of
the Plan Administrator, the present value of the current accrued benefit payable
to that individual shall be paid in a lump sum as soon as administratively
possible after such determination is made.
II.2 ENTITLEMENT TO BENEFITS. A Participant shall be entitled to the
accrued benefit determined pursuant to Article III hereof in accordance with the
following:
(a) NORMAL OR EARLY RETIREMENT. A Participant who has a Termination
of Employment on or after his Early Retirement Date or Normal Retirement Date
will be eligible to retire and receive accrued benefits under this Plan at his
Normal Retirement Date. Notwithstanding the foregoing, the Participant may
elect up to thirteen (13) months prior to Termination of Employment to receive
Actuarial Equivalent reduced benefits beginning on or after his Early Retirement
Date.
(b) TERMINATION OF EMPLOYMENT PRIOR TO RETIREMENT. A Participant who
has a Termination of Employment for a reason other than death or Disability
prior to attaining Early Retirement Date, but after completing five (5) Years of
Participation, shall be entitled to receive a deferred vested accrued benefit at
his Normal Retirement Date.
(c) PRE-RETIREMENT DEATH BENEFIT. In the event of the Participant's
death while still employed by the Company or an affiliate and after completing
five (5) Years of Participation, the Participant's surviving spouse, if any,
shall be entitled to receive a survivor benefit at the Participant's Normal
Retirement Date. The amount of the benefit payable to the surviving spouse
shall be determined as if:
(i) The Participant had retired on the day before his death, and
(ii) Elected to receive his benefit in the form of an Actuarial
Equivalent one hundred percent (100%) joint and survivor annuity. The value of
the joint and survivor annuity will be the Actuarial Equivalent of the accrued
benefit to which the Participant would have become entitled based on his Years
of Service at the time of his death.
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<PAGE>
(d) POST-RETIREMENT DEATH BENEFIT. In the event of the Participant's
death after Termination of Employment, no further benefits shall be payable
under the Plan unless the Participant has elected, pursuant to Section 3.2(b),
to have benefits payable over the joint lives of the Participant and the
Participant's spouse, in which case Actuarial Equivalent benefit payments shall
continue over the life of the Participant's spouse or, if the Participant was
entitled to deferred vested benefits at the time of death, shall commence on the
Participant's Retirement Date.
(e) DISABILITY RETIREMENT BENEFIT. In the event of a Participant's
Termination of Employment on account of a Disability which is expected to
continue until Retirement Date shall be entitled to receive a deferred vested
accrued benefit at his Normal Retirement Date, without regard to Years of
Participation. For purposes of determining the Participant's accrued benefit,
the period of Disability prior to Retirement Date will be considered an approved
leave of absence for which Participant may be entitled to up to a maximum of two
(2) additional Years of Service credit.
II.3 FORFEITURE OF BENEFITS. Notwithstanding anything herein to the
contrary, the benefit payable hereunder to a Participant shall be forfeited if
he:
(a) Engages in competition with the Company (either before or after
Retirement) without the Board's prior authorization in writing. Prohibited
competition shall include the direct or indirect competition with the Company or
any affiliate in connection with any prohibited business (including, without
limitation, employment by, rendering advisory or consulting services to, service
as a partner, shareholder, director, officer, employee, agent, representative or
independent contractor of, or financial investment in a prohibited business).
For purposes of this paragraph, "prohibited business" shall mean any business
(and any branch office, location or operation thereof) which competes with any
service or product line of the Company or any Affiliate in any standard
metropolitan statistical areas in which the Company maintains current operations
or has expansion plans to which Participant is privy and any business involved
in casting golf club heads for manufacturers of premium price golf clubs;
provided, however, that a Participant may hold for investment less than one
percent (1%) of the outstanding common stock or debt securities of any
corporation which is regularly traded on a recognized stock exchange;
(b) Is discharged for Cause; or
(c) Experiences a Termination of Employment prior to completing five
(5) Years of Participation.
ARTICLE III
BENEFITS
III.1 AMOUNT OF BENEFIT. A Participant retiring in accordance with
Section 2.2 above will be eligible for a monthly retirement benefit equal to the
greater of the Prior Plan Benefit (as of December 31, 1997) or the amount
determined in Paragraph (a) below.
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<PAGE>
(a) The annual retirement benefit payable at a Participant's Normal
Retirement Date will be two percent (2%) of his Average Earnings for each Year
of Service, not to exceed twenty-five (25). However, in no event will a
participant's years of Service in excess of twenty-five (25) be taken into
account in determining the amount of his benefit. Furthermore, the
Participant's benefit will be reduced by the following amounts:
(i) His Estimated Social Security Benefit, and
(ii) The amount of benefit payable as a straight life annuity at
Normal Retirement Date, based on the Actuarial Equivalent value of the benefit
funded by the Company payable pursuant to the terms of any tax-qualified defined
benefit pension plan sponsored by the Company for the benefit of one or more
Participants.
(b) The annual retirement benefit payable to a Participant at an
Early Retirement Date will equal the Actuarial Equivalent of his benefit
determined in accordance with Paragraph (a) above (reduced for each month that
the benefit payment begins before age sixty-five (65)).
(c) The annual retirement benefit payable to a Participant at
Postponed Retirement Date will equal his benefit determined in accordance with
Paragraph (a) above based on his Years of Service and Average Earnings as of his
Postponed Retirement Date.
III.2 FORM OF BENEFIT.
(a) The benefit determined under this Plan will be payable in the
form of a straight life annuity over the life of the Participant.
(b) In accordance with rules and procedures prescribed by the Plan
Administrator, a Participant may elect at least thirteen (13) months prior to
Termination of Employment that his benefit be paid in the form of a joint and
(100%) survivor annuity payable over the joint lives of the Participant and the
Participant's spouse that will be the Actuarial Equivalent of the amount of the
Participant's benefit calculated pursuant to Paragraph (a) above. This election
must be made prior to the year in which the benefit becomes payable.
III.3 PAYMENT OF BENEFITS.
(a) Participants are not entitled to receive a distribution of their
benefits prior to Retirement.
(b) Benefits will begin on the first day of the month coincident with
or next following the Participant's Retirement Date. Benefits will continue to
be paid on the first day of each succeeding month.
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<PAGE>
(c) The last payment will be on the first day of the month in which
the retired Participant dies, unless the Participant has elected that his
benefit be paid in an optional form in accordance with the provisions of
Section 3.2(b) above.
III.4 PAYEES UNDER LEGAL DISABILITY.
(a) If the Plan Administrator believes that any payee is:
(i) A minor, or
(ii) Legally incapable of giving a valid receipt and discharge
for any payment due him,
the Plan Administrator may have the payment, or any part of it, made to the
person(s) or institution that it believes is caring for or supporting the payee.
(b) any payment under Paragraph (a) above shall be a payment for the
benefit of the payee and shall, to the extent thereof, be a complete discharge
of any liability under the Plan to the payee.
III.5 WITHHOLDING FOR TAXES. Any payments out of the Plan may be subject to
withholding for taxes as may be required by any applicable federal or state law.
To the extent that the benefit under this Plan is considered wages for income or
employment tax purposes during any period prior to the time benefits become
payable hereunder, the Company may withhold such taxes from the Participant's
current compensation as may be required by any applicable federal or state law.
III.6 MAILING OF PAYMENTS.
(a) All payments under the Plan shall be delivered in person or
mailed to the last address of the Participant (or, in the case of the death of
the Participant, to the last address of his surviving spouse).
(b) Each Participant shall be responsible for furnishing the Plan
Administrator with his current address.
III.7 GRANTOR TRUST. Although the Company is responsible for the payment of
all benefits under the Plan, the Company may, in its discretion, contribute
funds or assets (including insurance policies on the life of any or all
Participants) to a grantor trust for the purpose of paying benefits under this
Plan. Such trust may be irrevocable, but assets of the trust shall be subject
to the claims of creditors of the Company. To the extent any benefits provided
under the terms of the Plan are actually paid from the trust, the Company shall
have no further obligation with respect thereto. To the extent any benefits
provided under the terms of the Plan are not paid from the trust, such benefits
shall remain the obligation of and shall be paid by the Company. The
Participants shall have the status of unsecured creditors insofar as their legal
claim for
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<PAGE>
benefits under the Plan and the Participants shall have no security interest
or preferred claim in or to the assets of any such grantor trust.
III.8 PROTECTIVE PROVISIONS. Each Participant, as a condition of
participation, shall be required to cooperate with the Company by furnishing any
and all information requested by the Plan Administrator, to facilitate payment
of benefits hereunder by taking such physical examinations as the Plan
Administrator may deem necessary and by taking such other actions as may be
requested by the Plan Administrator. If the Participant refuses to so
cooperate, the Company shall have no further obligation to the Participant under
the Plan.
ARTICLE IV
CHANGE OF CONTROL
Notwithstanding anything in this Plan to the contrary, the provisions of
this Article IV apply to those Participants whose employment is terminated
within one (1) year following a Change of Control ("Affected Participants"), as
expressly provided herein.
IV.1 ENTITLEMENT TO BENEFITS. If the employment of an Affected Participant
is terminated by the Company in an involuntary termination for any reason other
than Cause (or the Affected Participant voluntarily resigns upon 30 days written
notice for Good Reason), at any time within one (1) year following a Change of
Control and prior to becoming entitled to Retirement under Section 2.2 above, he
shall be entitled to receive a benefit at Normal Retirement Date computed
according to Section 3.1 above as if the termination of employment date was the
Affected Participant's Normal Retirement Date, provided that this shall not
increase the Participant's Years of Service. Notwithstanding the foregoing, the
Participant may elect up to thirteen (13) months prior to Termination of
Employment to receive Actuarial Equivalent reduced benefits beginning on or
after his Early Retirement Date.
IV.2 FULL VESTING. An Affected Participant entitled to benefits under
Section 4.1 shall be fully vested in his or her accrued benefit without regard
to Years of Participation, but nothing herein shall increase the amount of the
Participant's accrued benefit or accelerate the timing of payment thereof.
ARTICLE V
OPERATION AND ADMINISTRATION OF THE PLAN
V.1 PLAN ADMINISTRATOR POWERS. The Plan Administrator shall have all
powers necessary to supervise the administration of the Plan and control its
operations. In addition to any powers and authority conferred on the Plan
Administrator elsewhere in the Plan or by law, the Plan Administrator shall have
the following powers and authority:
(a) To designate agents to carry out responsibilities relating to the
Plan;
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(b) To employ such legal, actuarial, accounting, clerical, and other
assistance as it may deem appropriate in administering this Plan;
(c) To establish rules and procedures for the conduct of the Plan
Administrator's business and the administration of this Plan;
(d) To administer this Plan and to decide all questions which may
arise under this Plan. All determinations by the Plan Administrator shall be
binding upon all parties, to the maximum extent permitted by law. The Plan
Administrator shall have discretionary authority in all aspects of the
administration and interpretation of the Plan, including the interpretation and
construction of the Plan and the ability to make determinations of disputed
facts; and
(e) To perform or cause to be performed such further acts as it may
deem to be necessary or appropriate in the administration of the Plan.
V.2 COMPOSITION OF PLAN ADMINISTRATOR.
(a) The Plan Administrator (who need not be Participants or even
employees of the Company) shall be appointed by the Board of the Company and
shall continue until termination of such status in accordance with the
provisions of this Article V. In the event the Board does not designate the
Plan Administrator, the Plan Administrator shall be the Company and may the
Company's authorized officers may act on its behalf in a representative
capacity. Notwithstanding the foregoing, if the Company creates a trust as
described in Section 3.7 hereof, and, if such trust provides for an Independent
Plan Administrator, then, following a Change in Control of the Company, the
Independent Plan Administrator (or any successor Independent Plan Administrator)
under the trust shall serve as Plan Administrator of this Plan, so long as such
entity is serving as Independent Plan Administrator under the trust.
(b) The Plan Administrator or any individual member thereof may
resign at any time by giving written notice to the Board, effective as the date
stated in the notice. The Plan Administrator or any individual member thereof
may be removed by the Board at any time.
(c) In the case of a Plan Administrator or an individual member
thereof who is also an employee of the Company, his Status as Plan Administrator
shall terminate as of the effective date of the termination of his employment,
except as otherwise provided in resolutions adopted by the Board.
(d) Upon the death, resignation, or removal of the Plan
Administrator, the Board may appoint a successor. Notice of the appointment of
a successor member shall be given by the Company in writing to the other members
of the Plan Administrator.
V.3 PLAN ADMINISTRATOR PROCEDURE.
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(a) In the event the Plan Administrator is a committee of two or more
individuals, a majority of the members of the Plan Administrator shall
constitute a quorum. Any action authorized by a majority of the members:
(i) Present at any meeting, or
(ii) In writing without a meeting,
shall constitute the actions of the Plan Administrator.
(b) The Plan Administrator may designate one or more individuals as
authorized to execute any document or documents on behalf of the Plan
Administrator.
V.4 NOTICES AND COMMUNICATIONS.
(a) All communications from Participants to the Plan Administrator
shall be in writing, on forms prescribed by the Plan Administrator. These
communications shall be mailed or delivered to the office designated by the Plan
Administrator, and shall be deemed to have been given when received by the Plan
Administrator.
(b) Each communication from the Plan Administrator to a Participant
or beneficiary shall be in writing and may be delivered in person or by mail.
These communications shall be deemed to have been delivered and received by the
Participant three (3) days after the date when it is deposited in the United
States Mail with postage prepaid, addressed to the Participant or beneficiary at
his last address of record with the Plan Administrator.
V.5 REPORTING AND DISCLOSURE. The Company (and not the Plan
Administrator) shall be responsible for the reporting and disclosure of
information required to be reported or disclosed pursuant to ERISA or any other
applicable law.
V.6 CONFLICT OF INTEREST. Any member of the Plan Administrator who is
also a Participant shall not be qualified to act or vote on any matter relating
solely to himself.
V.7 INDEMNIFICATION. To the extent permitted by law, the Certificate of
Incorporation of the Company, the Bylaws of the Company and any indemnity
agreements between the Company and its directors or employees, the Company shall
indemnify each member of the Board and of the Plan Administrator, and any other
employee of the Company with duties under the Plan, against expenses (including
any amount paid in settlement) reasonably incurred by him in connection with any
claims against him by reason of his conduct in the performance of his duties
under the Plan.
ARTICLE VI
APPLICATION FOR BENEFITS
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VI .1 APPLICATION FOR BENEFITS.
(a) The Plan Administrator may require any person claiming benefits
under the Plan ("Claimant") to submit an application therefor, together with
such other documents and information as the Plan Administrator may require.
(b) Within ninety (90) days following receipt of the application and
all necessary documents and information, the Plan Administrator's authorized
delegate reviewing the claim shall furnish the Claimant with written notice of
the decision rendered with respect to the application.
(c) Should special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the
Claimant prior to the expiration of the initial ninety (90) day period.
(i) The notice shall indicate the special circumstances
requiring an extension of time and the date by which a final decision is
expected to be rendered.
(ii) In no event shall the period of the extension exceed ninety
(90) days from the end of the initial ninety (90) day period.
VI.2 CONTENT OF DENIAL. In the case of a denial of the Claimant's
application, the written notice shall sat forth:
(a) The specific reasons for the denial;
(b) References to the Plan provisions upon which the denial is based;
(c) A description of any additional information or material necessary
for perfection of the application (together with an explanation of why the
material or information is necessary); and
(d) An explanation of the Plan's claims review procedure.
VI.3 APPEALS.
(a) In order to appeal the decision rendered with respect to his
application for benefits or with respect to the amount of his benefits, the
Claimant must follow the appeal procedures set forth in this Section 6.3.
(b) The appeal must be made, in writing:
(i) In the case where the claim is expressly rejected, within
sixty (60) days after the date of notice of the decision with respect to the
application, or
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(ii) In the case where the claim has neither been approved nor
denied within the applicable period provided in Section 6.1 above, within sixty
(60) days after the expiration of the period.
(c) The Claimant may request that his application be given full and
fair review by the Plan Administrator. The Claimant may review all pertinent
documents and submit issues and comments in writing in connection with the
appeal.
(d) The decision of the Plan Administrator shall be made promptly,
and not later than sixty (60) days after the Plan Administrator's receipt of a
request for review, unless special circumstances require an extension of time
for processing. In such a case, a decision shall be rendered as soon as
possible, but not later than one hundred twenty (120) days after receipt of the
request for review.
(e) The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner designed to be understood
by the Claimant, with specific references to the pertinent Plan provisions upon
which the decision is based.
VI.4 ARBITRATION. If the claim is denied after review, the Applicant shall
submit the claim to binding arbitration. Such arbitration shall be binding and
final. There shall be one arbitrator, who shall be a retired superior court or
federal court judge. 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 an Applicant any punitive or
exemplary damages of any kind. THE PARTICIPANT AND THE COMPANY ACKNOWLEDGE AND
AGREE THAT BY BECOMING A PARTICIPANT UNDER THE PLAN, THEY ARE AGREEING TO THIS
ARBITRATION PROVISION AND ARE WAIVING ALL RIGHTS TO A TRIAL BY JURY. The
prevailing party in any arbitration shall be entitled to recover his or its
reasonable attorneys' fees and costs. The provisions of California Code of
Civil Procedure Sections 1281, et seq. govern this arbitration provision.
VI.5 EXHAUSTION OF REMEDIES. No legal action for benefits under the Plan
may be brought unless and until the Claimant has exhausted his remedies under
this Article VI.
ARTICLE VII
MISCELLANEOUS MATTERS
VII.1 AMENDMENT OR TERMINATION.
(a) The Board may, at its sole discretion, amend or terminate this
Plan at any time or from time to time, in whole or in part by a duly adopted
resolution, provided that, without the consent of each existing Participant, no
amendment or termination may adversely affect that Participant's rights to
receive accrued benefits as provided in the Plan, as in effect prior to such
amendment or termination.
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(b) The termination of the Plan will result in the immediate vesting
of accrued benefits.
(c) All benefits will be payable at the time the Participant would
have otherwise been eligible to receive benefits under the provisions of this
Plan in effect before Plan termination. However, the Board may elect to
accelerate the payment of the benefits under the Plan, and to pay such benefits
in the form of lump sum distributions. Any lump sum benefits paid under this
Section 7.1(c) will be the Actuarial Equivalent of the benefits determined under
Section 3.1 above.
VII.2 EFFECT OF REORGANIZATION OR TRANSFER OF ASSETS.
(a) In the event of a consolidation, merger, sale, liquidation, or
other transfer of substantially all of the operating assets of the Company to
any other company, the ultimate successor to the business of the Company shall
automatically be deemed to have elected to continue this Plan in full force and
effect, in the same manner as if the Plan had been adopted by resolution of its
board of directors.
(b) The presumption set forth in Paragraph (a) above shall not apply
if the successor, by resolution of its board of directors, elects not to so
continue this Plan in effect. In such a case, the Plan shall terminate as of
the effective date set forth in the board resolution.
VII.3 RIGHTS OF PARTICIPANTS.
(a) Nothing contained herein will confer on any Participant the right
to be retained in the service of the Company, nor will it interfere with the
Company's right to discharge or otherwise deal with Participants without regard
to the existence of this Plan. The Company reserves the right to terminate the
employment of any Participant without any liability for any claim against the
Company except to the extent provided herein.
(b) The benefits under the Plan are unfunded. Accordingly, no
Participant shall have a preferred claim on, or a beneficial ownership interest
in, any assets of the Company prior to the time such assets are paid to him in
the form of benefits.
(c) All rights created under the Plan shall be mere unsecured
contractual rights of Participants against the Company. However, nothing in
this document shall in any way diminish any rights of a Participant to pursue
his rights as a general creditor of Company with respect to his benefits under
the Plan.
VII.4 ASSIGNMENT OF BENEFITS. To the maximum extent permitted by law, no
benefit under this Plan may be assigned or alienated. Any purported transfer,
assignment, encumbrance, or attachment thereof shall be void and of no effect.
In the event of a dispute involving any individual's right to receive the
benefit hereunder, the Plan Administrator or the Company may enter an
interpleader action. Payment of the benefit to a court of competent
jurisdiction with proper notice to the appropriate parties in dispute shall be
in full satisfaction of all claims against the
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Plan Administrator and the Company as to the Plan, and shall be equivalent to
a receipt and release pursuant to Section 7.7.
VII.5 OTHER PLANS. This Plan shall not affect the right of any Participant
to participate in and receive benefits under and in accordance with the
provisions of any other employee benefit plans which are now or hereafter
maintained by the Company, unless the terms of such other employee benefit plan
or plans specifically provide otherwise.
VII.6 INTERPRETATION.
(a) The provisions of this Plan shall in all cases be interpreted in
a manner that is consistent with this Plan satisfying the applicable
requirements of ERISA.
(b) If any provision of the Plan is held invalid or unenforceable,
its invalidity or unenforceability shall not affect any other provisions of the
Plan, and the Plan will be construed and enforced as if the provision had not
been included in it.
(c) Unless the context clearly indicates otherwise, the masculine
gender shall include the feminine, the singular shall include the plural, and
the plural shall include the singular.
(d) Article and section headings are for convenience of reference
only and shall not be deemed to be part of the substance of this instrument or
in any way to enlarge or limit the contents of any Article or Section.
VII.7 RECEIPT OR RELEASE. Any payment to a Participant in accordance with
the provisions of this Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Plan Administrator and the Company, and
the Plan Administrator may require such Participant, as a condition precedent to
such payment, to execute a receipt and release to such effect.
VII.8 GOVERNING LAW. Except to the extent preempted by ERISA, this Plan
shall be construed, administered, and governed in all respects in accordance
with the laws of the State of California. If any provisions of this instrument
shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully
effective.
IN WITNESS WHEREOF, Coastcast Corporation has caused this Plan document to
be executed by its duly authorized officer as of the 18th day of December, 1998.
COASTCAST CORPORATION
By: /s/ Hans H. Buehler
-------------------------------
Hans Buehler, Chairman & CEO
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COASTCAST CORPORATION
GRANTOR TRUST
THIS AGREEMENT is made as of the 18th day of December, 1998, by
and between Coastcast Corporation("Company") and Imperial Trust Company
("Trustee") constitutes an amendment and restatement of the agreement entered
into between the parties as of September 1, 1996
WHEREAS, Company has adopted the Coastcast Corporation
Supplemental Executive Retirement Plan ("Plan"); and
WHEREAS, Company has incurred or expects to incur liability under
the terms of the Plan with respect to the individuals participating in such
Plan; and
WHEREAS, Company established a trust (hereinafter called "Trust")
to contribute to the Trust assets that shall be held therein, subject to the
claims of Company's creditors in the event of Company's Insolvency, as herein
defined, until paid to Plan participants and their beneficiaries in such manner
and at such times as specified in the Plan; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and
WHEREAS, it is the intention of Company to make contributions to
the Trust to provide itself with a source of funds to accumulate the amounts
necessary to satisfy its contractual liability to pay benefits under the Plan;
NOW, THEREFORE, the parties do hereby amend and restate the Trust
and agree that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) CONTRIBUTIONS. Company has deposited with Trustee in trust
the cash, securities and/or individual life insurance policies specified in
Appendix A, which constitute the principal of the Trust to be held, administered
and disposed of by Trustee as provided in this Trust Agreement. Except as
provided in any Plan, the Company, in its sole discretion, may at any time, or
from time to time, make additional deposits of cash or other property in trust
with the Trustee to augment the principal to be held, administered and disposed
of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor
any Participant or Beneficiary shall have any right to compel such additional
deposits. Trustee shall have no duty to determine or collect contributions
under the Plan, to make premium payments on any individual life insurance policy
held by the Trust (except to the extent the Company contributes funds for such
purpose or
<PAGE>
the cash value of such policy is available for such purpose) and shall have
no responsibility for any property until it is received and accepted by
Trustee. Such responsibility and liability shall continue only for so long
as such cash, securities, life insurance policies, or other property
constitute part of the Trust. Company shall have the sole duty and
responsibility for the determination of the accuracy or sufficiency of the
contributions to be made under the Plan and Trustee shall have no obligation
or responsibility in the event Company fails to (i) pay premiums on any
individual life insurance policy held by the Trust, or (ii) contribute funds
and direct Trustee to pay premiums on any individual life insurance policy
held by the Trust.
(b) IRREVOCABILITY. The Trust hereby established shall be
irrevocable.
(c) GRANTOR TRUST. The Trust is intended to be a grantor
trust, of which Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986,
as amended, and shall be construed accordingly.
(d) CREDITOR CLAIMS. The principal of the Trust, and any
earnings thereon shall be held separate and apart from other funds of Company
and shall be used exclusively for the uses and purposes of Plan participants
and general creditors as herein set forth. Plan participants and their
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Plan and
this Trust Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against Company. Any assets held by the
Trust will be subject to the claims of Company's general creditors under
federal and state law in the event of Insolvency, as defined in Section 4(a)
herein.
(e) TRUST FUND. The Company may, from time to time, deposit
in the Trust such cash, securities, life insurance policies or other property
as shall be transferred to the Trustee by the Company. All cash, securities,
life insurance policies or other property so received, together with the
income therefrom and any increment thereon or charge thereto (the "Trust
Fund"), shall be held, managed and administered by the Trustee pursuant to
the terms of this Trust Agreement without distinction between principal and
income. The Company may, from time to time, make additional deposits of
cash, securities, life insurance policies or other property to the Trust to
be held in the Trust Fund and administered and disbursed by the Trustee as
provided in this Trust Agreement.
(f) TOP HAT PLAN. Company represents and warrants to Trustee
that the Plan covers, and will cover, only a select group of management or
highly compensated employees as contemplated by Section 401(a) of ERISA and
interpretations, opinions, and rulings of the Department of Labor thereunder.
Company shall indemnify and hold harmless Trustee, its parent, subsidiaries
and affiliates and each of their respective officers, directors, employees
and agents from and against all liability, loss and expense, including
reasonable attorneys' fees and expenses suffered or incurred by any of the
foregoing indemnities as a result of a breach of the foregoing representation
and warranty. The provisions of this subsection shall survive termination of
this Trust Agreement.
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(g) DISTRIBUTION OF EXCESS TRUST FUND TO EMPLOYERS. In the
event that the Plan Administrator, prior to a Change in Control, or the
Independent Plan Administrator in its sole and absolute discretion, after a
Change in Control, determines that the Trust Fund exceeds 120 percent of the
anticipated benefit obligations and administrative expenses that are to be
paid under the Plan, the Trustee, at the direction of the Plan Administrator
prior to a Change in Control, or the Independent Plan Administrator in its
sole and absolute discretion after a Change in Control, shall distribute to
the Company and the Subsidiaries such excess portion of the Trust Fund.
SECTION 2. DEFINITIONS.
Any capitalized terms used in this Trust Agreement that are
not defined herein are defined under the terms of the Plan (all terms defined
therein shall have the same meaning herein) and the Plan definitions are
incorporated by reference herein.
SECTION 3. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) PAYMENT SCHEDULE PROVIDED BY PLAN ADMINISTRATOR. The
Plan Administrator (prior to a Change in Control) or the Independent Plan
Administrator (on or after a Change in Control) shall deliver to Trustee a
schedule (the "Payment Schedule") that indicates the amounts payable in
respect of each Plan participant (and his or her beneficiaries), that
provides a formula or other instructions acceptable to Trustee for
determining the amounts so payable, the form in which such amount is to be
paid (as provided for or available under the Plan), and the time of
commencement for payment of such amounts. The Plan Administrator or the
Independent Plan Administrator, as applicable, shall provide such Payment
Schedule to the Trustee at least once each Plan Year. Except as otherwise
provided herein, Trustee shall make payments to the Plan participants and
their beneficiaries in accordance with such Payment Schedule. As directed by
the Plan Administrator or the Independent Plan Administrator, as applicable,
the Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Plan and
shall pay amounts withheld to the appropriate taxing authorities.
(b) BENEFITS DETERMINED BY PLAN. The entitlement of a Plan
participant or his or her beneficiaries to benefits under the Plan shall be
determined by the Plan Administrator (prior to a Change in Control) or the
Independent Plan Administrator (on or after a Change in Control), and any
claim for such benefits shall be considered and reviewed under the procedures
set out in the Plan. The Plan Administrator (prior to a Change in Control)
or the Independent Plan Administrator (on or after a Change in Control) shall
notify Trustee of such determination and shall direct commencement of
payments of such benefits. Such directive shall identify:
(i) The participant;
(ii) The amount of the benefit;
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(iii) The participant's address; and
(iv) The amount of tax withholdings as well as any
other information necessary for the Trustee to effectuate the withholdings
and to forward those amounts to the appropriate taxing authorities.
(c) DIRECT PAYMENT BY COMPANY. Company may make payment of
benefits directly to Plan participants or their beneficiaries as they become
due under the terms of the Plan. Company shall notify Trustee and the Plan
Administrator (prior to a Change in Control) or the Independent Plan
Administrator (on or after a Change in Control) of its decision to make
payment of benefits directly prior to the time amounts are payable to
participants or their beneficiaries. In addition, if the Trust Fund is not
sufficient to make payments of benefits in accordance with the terms of the
Plan, Company shall make the balance of each such payment as it falls due.
Trustee shall notify Company where the Trust Fund is not sufficient.
(d) TAX REPORTING AND WITHHOLDING. In the event payments are
made by Company directly to Participants, Company shall have sole
responsibility for the reporting and withholding of any federal, state, or
local taxes that may be required to be withheld with respect to the payment
of benefits pursuant to the terms of the Plan(s) and shall pay amounts
withheld to the appropriate taxing authority.
(e) LIMITATION WITH RESPECT TO TAX REPORTING AND WITHHOLDING.
Trustee shall have not duty or responsibility with respect to the above
stated reporting, withholding or payment of taxes and shall have no
responsibility to determine that Company has provided for such reporting,
withholding or payment of such taxes.
(f) INDEMNIFICATION WITH RESPECT TO TAX REPORTING AND
WITHHOLDING. Company shall indemnify and hold Trustee harmless from any and
all losses, claims, penalties or damages which may occur as a result of
Trustee following in good faith the written direction of the Company to
reimburse Company for payments made hereunder to Participants and arising
from Company's tax reporting, withholding and payment obligations hereunder.
SECTION 4. TRUSTEE RESPONSIBILITY WHEN COMPANY IS INSOLVENT.
(a) INSOLVENCY DEFINED. Trustee shall cease payment of
benefits to Plan participants and their beneficiaries if Company becomes
Insolvent. Company shall be considered "Insolvent" for purposes of this Trust
Agreement if (i) Company is unable to pay its debts as they become due, or
(ii) Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
(b) ASSETS SUBJECT TO CLAIMS OF CREDITORS ON INSOLVENCY. At
all times during the continuance of this Trust, as provided in Section 1(d)
hereof, the Trust Fund shall be subject to claims of general creditors of
Company under federal and state law as set forth below.
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(i) The Board of Directors and the Chief Executive
Officer of Company shall have the duty to inform Trustee in writing of
Company's Insolvency. If a person claiming to be a creditor of Company
alleges in writing to Trustee that Company has become Insolvent, Trustee
shall determine whether Company is Insolvent and, pending such determination,
Trustee shall discontinue payment of benefits to Plan participants or their
beneficiaries. In all cases, Trustee shall be entitled to conclusively rely
upon the written certification of the Board of Directors or the Chief
Executive Officer of Company when determining whether Company is Insolvent.
If Trustee is unable to obtain information sufficient to ascertain
Insolvency, Trustee may seek instructions of a court of law or submit the
matter for arbitration before the American Arbitration Association or
interplead the Trust Assets at the expense of the Trust.
(ii) Upon receipt of the aforesaid written notice of
the Company's insolvency from a person claiming to be a creditor of Company,
the Trustee shall notify the Company, and the Company, within thirty (30)
days of receipt of such notice, shall engage an arbitrator (the "Arbitrator")
acceptable to Trustee, from the American Arbitration Association to determine
the Company's solvency or insolvency. The Company shall cooperate fully and
assist the Arbitrator, as may be requested by the Arbitrator, in such
determination and shall pay all costs relating to such determination. The
Arbitrator shall notify the Company and Trustee separately by registered mail
of its findings. If the Arbitrator determines that the Company is solvent or
if once found insolvent the Company is no longer insolvent, the Trustee shall
resume holding the Trust assets for the benefit of the Participants and may
make any distributions called for under this Trust Agreement, including any
amounts which should have been distributed during the period when the Trustee
suspended distributions in response to a notice of the Company's insolvency,
the Trustee shall continue to retain the assets of the Trust until the
Company's status of solvency or insolvency is decided by a court of competent
jurisdiction or it distributes all or a portion of the Trust assets to any
duly appointed receiver, trustee in bankruptcy, custodian or to the Company's
general creditors, but only as such distribution is ordered by a court of
competent jurisdiction. The Trustee shall have no liability for relying upon
the determination of the Arbitrator as to the Company's solvency or
insolvency.
(iii) Unless Trustee has actual knowledge of
Company's Insolvency, or has received notice from Company or a person claiming
to be a creditor alleging that Company is Insolvent, Trustee shall have no
duty to inquire whether Company is Insolvent. Trustee may in all events rely
on such evidence concerning Company's solvency as may be furnished to Trustee
and that provides Trustee with a reasonable basis for making a determination
concerning Company's solvency.
(iv) If at any time Trustee has determined that
Company is Insolvent, Trustee shall discontinue payments to Plan participants
or their beneficiaries and shall hold the assets of the Trust for the benefit
of Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan participants or their beneficiaries to pursue
their rights as general creditors of Company with respect to benefits due
under the Plan or otherwise.
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(v) Trustee shall resume the payment of benefits to
Plan participants or their beneficiaries in accordance with Section 3 of this
Trust Agreement only after Trustee has determined that Company is not
Insolvent (or is no longer Insolvent).
(c) MAKE-UP OF SUSPENDED BENEFITS AFTER INSOLVENCY. Provided
that there are sufficient assets, if Trustee discontinues the payment of
benefits from the Trust pursuant to Section 4(b) hereof and subsequently
resumes such payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to Plan participants or
their beneficiaries under the terms of the Plan for the period of such
discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
SECTION 5. PAYMENTS TO COMPANY.
Except as provided in Section 1(g) and Section 4 hereof,
Company shall have no right or power to direct Trustee to return to Company
or to divert to others any of the Trust assets before all payment of benefits
have been made to Plan participants and their beneficiaries pursuant to the
terms of the Plan, as certified to Trustee by the Plan Administrator (prior
to a Change in Control) or the Independent Plan Administrator (on or after a
Change in Control).
SECTION 6. INVESTMENT AUTHORITY.
Prior to a Change in Control, the assets of the Trust shall be
invested by Trustee pursuant to the direction of the Plan Administrator. On
or after a Change in Control, the assets of the Trust shall be invested by
Trustee pursuant to the direction of the Independent Plan Administrator.
Unless the Plan Administrator, or Independent Plan Administrator, as
applicable, and the Trustee have mutually agreed in a separate writing that
the Trustee shall have and exercise investment discretion with respect to all
or a portion of the assets of the Trust, the Plan Administrator (prior to a
Change in Control) or the Independent Plan Administrator (on or after a
Change in Control) shall have complete discretion with respect to the
investment of such assets at all times and shall direct the Trustee
accordingly. From time to time, the Trustee shall be notified in a writing
signed by an officer of the Company of the person or persons authorized to
act on behalf of the Plan Administrator (prior to a Change in Control) or the
Independent Plan Administrator (on or after a Change in Control) for purposes
of this Section and the Trust. In each such notice, the Company shall
warrant that all directions given by the Plan Administrator (prior to a
Change in Control) are proper. The Trustee shall have no responsibility to
review or to consider the propriety of holding or selling investments
directed by the Plan Administrator or the Independent Plan Administrator,
including, without limitation, any life insurance, retirement income or
annuity policies or contracts. The Company shall have the responsibility for
establishing and carrying out a funding policy and method, consistent with
the objectives of the Plan, taking into considerations the Plan's short-term
and long-term financial needs. The Trustee's responsibility for investment
and diversification of the assets in the portion of the Trust for which the
Trustee has investment discretion shall be subject to, and is limited by, the
investment guidelines issued to it by the Company. It is understood that,
unless otherwise agreed in writing, the Company, rather than the Trustee,
shall be responsible for the overall
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diversification of Trust assets. In the exercise of its investment
authority, Trustee shall have the powers described below.
(a) To invest and reinvest the principal and income of the
Trust and keep it invested, without distinction between principal and income,
in any security, property or obligation, secured or unsecured, or in any
combination of these; provided, however, that in no event mat Trustee invest
in securities (including stock or rights to acquire stock) or obligations
issued by the Company, other than a de minimis amount held in common
investment vehicles in which Trustee invests; and provided, further, that in
no event shall the assets of the Trust be invested in real estate. For this
purpose, "real estate" includes, but is not limited to, real property,
leaseholds, mineral interests and any form of asset which is secured by any
of the foregoing. All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee;
(b) To acquire, sell and exercise options to buy securities
("call" options) and to acquire, sell and exercise options to sell securities
("put" options);
(c) To buy, sell, assign, transfer, acquire, loan, lease (for
any purpose, including beyond the life of this Trust), exchange and in any
other manner to acquire, manage, deal with and dispose of all or any part of
the Trust property, for cash or credit;
(d) Subject to the Trustee's exercise of prudence and
fulfilment of Trustee's fiduciary obligations, to retain all or any portion
of the Trust in cash temporarily awaiting investment or for the purpose of
making distributions or other payments, without liability for interest
thereon, notwithstanding trustee's receipt of float;
(e) To take all of the following actions: to vote proxies of
any stocks, bonds or other securities; to give general or special proxies or
powers of attorney with or without power of substitution; to exercise any
conversion privileges, subscription rights or other options, and to make any
payments incidental thereto; to consent to or otherwise participate in
corporate reorganizations or other changes affecting corporate securities and
to delegate discretionary powers and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers of an owner
with respect to stocks, bonds, securities or other property held in the Trust;
(f) To pay or cause to be paid from the Trust any and all
real or personal property taxes, income taxes or other taxes or assessments
of any or all kinds levied or assessed upon or with respect to the Trust or
the Plan;
(g) To hold term or ordinary life insurance contracts or to
acquire annuity contracts on the lives of Participants, except that Trustee
shall have no power to name a beneficiary of the policy other than the Trust,
to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee (or upon the direction of
the Plan Administrator or Independent Plan Administrator to a named insured
participant or family member), or to loan to any person the proceeds of any
borrowing against such policy (but in the
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case of conflict between any such contract and the Plan, the terms of the
Plan shall prevail); to pay from the Trust the premiums on such contracts; to
distribute, surrender or otherwise dispose of such contracts; to pay the
proceeds, if any, of such contracts to the proper persons in the event of the
death of the insured Participant; to enter into, modify, renew and terminate
annuity contracts of deposit administration, of immediate participation or
other group or individual type with one or more insurance companies and to
pay or deposit all or any part of the Trust thereunder; to provide in any
such contract for the investment of all or any part of funds so deposited
with the insurance company in securities under separate accounts; to exercise
and claim all rights and benefits granted to the contract holder by any such
contracts. All payments of exercise of all powers with respect to insurance
contracts shall be solely on the direction of the Plan Administrator or
Independent Plan Administrator.
(h) To exercise all the further rights, powers, options and
privileges granted, provided for, or vested in trustees generally under
applicable federal or state laws, as amended from time to time, it being
intended that, except as otherwise provided in this Trust, the powers
conferred upon the Trustee herein shall not be construed as being in
limitation of any authority conferred by law, but shall be construed as in
addition thereto;
(i) Notwithstanding any powers granted to Trustee pursuant to
this Trust Agreement or to applicable law, Trustee shall not have any power
that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
(j) To invest funds in any type of interest-bearing account
including, without limitation, time certificates of deposit or
interest-bearing accounts issued by Trustee. To use other services or
facilities provided by Trustee its subsidiaries or affiliates, to the extent
allowed by applicable law and regulation. Such services may include but are
not limited to (1) the placing of orders for the purchase, exchange,
investment or reinvestment of securities through any brokerage service
conducted by, and (2) the purchase of units of any registered investment
company managed or advised by Trustee, its subsidiaries or affiliates and/or
for which Trustee, or its subsidiaries or affiliates act as custodian or
provide other services in addition to the fees payable under this Agreement.
Fee schedules for additional services shall be delivered to the appropriate
party in advance of the provision of such services. Independent fiduciary
approval of compensation being paid to the Trustee will be sought in advance
to the extent required under applicable law and regulation. If Trustee does
not have investment discretion, the services referred to above, as well as
any additional services, shall be utilized only upon the appropriate
direction of an authorized party.
(k) To cause all or any part of the Trust to be held in the
name of the Trustee (which in such instance need not disclose its fiduciary
capacity) or, as permitted by law, in the name of any nominees, including the
nominee name of any depository, and to acquire for the Trust any investment
in bearer form; but the books and records of the Trust shall at all times
show that all such investments are a part of the Trust and the Trustee shall
hold evidences of title to all such investments as are available;
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(l) To serve as custodian with respect to the Trust assets,
to hold assets or to hold eligible assets at the Depository Trust Company or
other depository;
(m) To employ such agents and counsel as may be reasonably
necessary in administration and protection of the Trust assets and to pay
them reasonable compensation; to employ any broker-dealer covered in the
self-dealing section, and pay to such broker-dealer its standard commissions;
to settle, compromise or abandon all claims and demands in favor of or
against the Trust; and to charge any premium on bonds purchased at par value
to the principal of the Trust without amortization from the Trust, regardless
of any law relating thereto;
(n) To abandon, compromise, contest arbitrate or settle
claims or demands; to prosecute, compromise and defend lawsuits but without
obligation to do so, all at the risk and expense of the Trust;
(o) To permit such inspections of documents at the principal
office of the Trustee as are required by law, subpoena or demand by United
States or state agency during normal business hours of the Trustee;
(p) To comply with all requirements imposed by law;
(q) To seek written instructions from the Company or Plan
Administrator on any matter and await written instructions without incurring
any liability. If at any time the Trustee should fail to receive requested
directions, the Trustee may act in the manner that in its discretion it deems
advisable under the circumstances for carrying out the purposes of this
Trust. Such actions shall be conclusive on the Company, the Plan
Administrator and the Participants on any matter if written notice of the
proposes action is given to the Company or Plan Administrator five (5) days
prior to the action being taken, and the Trustee receives no response;
(r) To compensate such executive, consultant, actuarial,
accounting, investment, appraisal administrative, clerical secretarial,
custodial, depository and legal firms, personnel and other employees or
assistants as are engaged by the Company or the Plan Administrator in
connection with the administration of the Plan and to pay from the Trust the
necessary expenses of such firms, personnel and assistants, to the extent not
paid by the Company;
(s) To impose a reasonable charge to cover the cost of
furnishing to Participants statements or documents;
(t) To act upon proper written directions of the Company,
Plan Administrator, or any Participant including directions given by
photostatic teletransmission using facsimile signature. If oral instructions
are given, to act upon those in Trustee's discretion prior to receipt of
written instructions. Trustee's recording or lack of recording of any such
oral instructions taken in Trustee's course of business shall constitute
conclusive proof of Trustee's receipt or non-receipt of the oral instructions;
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(u) To pay from the Trust the expenses reasonably incurred in
the administration of the Trust;
(v) To maintain insurance for such purposes, in such amounts
and with such companies as the Plan Administrator shall elect, including
insurance to cover liability or losses occurring by reason of the acts or
omissions of fiduciaries (but only if such insurance permits recourse by the
insurer against the fiduciary in the case of a breach of a fiduciary
obligation by such fiduciary);
(w) As directed by the Plan Administrator, to cause the
benefits provided under the Plans to be paid directly to the person entitled
thereto under the Plans, and in the amounts and at the times and in the
manner specified by the Plans, and to charge such payments against the Trust
and Accounts with respect to which such benefits are payable.
SECTION 7. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
SECTION 8. ACCOUNTING BY TRUSTEE.
Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to
be made, including such specific records as shall be agreed upon in writing
between Company and Trustee. Within 90 days following the close of each
calendar year and within 90 days after the removal or resignation of Trustee,
Trustee shall deliver to Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately), and showing all cash, securities
and other property held in the Trust at the end of such year or as of the
date of such removal or resignation, as the case may be. The Company shall
have sixty (60) days after the Trustee's mailing of each such quarterly or
final account within which to file with the Trustee written objections to
such account. Upon the expiration of each such period, the Trustee shall be
forever released and discharged from all liability and accountability to the
Company with respect to the propriety of its acts and transactions shown in
such account except with respect to any such acts or transactions as to which
the Company files written objections within such sixty-day period with the
Trustee.
Notwithstanding anything herein to the contrary, the Trustee
shall have no duty or responsibility to obtain valuations of any assets of
the Trust Fund, the value of which is not readily determinable on an
established market. Company shall bear sole responsibility for determining
said valuations and shall be responsible for providing said valuations to
Trustee in a
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timely manner. Trustee may conclusively rely on such valuations provided by
Company and shall be indemnified and held harmless by Company with respect to
such reliance.
SECTION 9. RESPONSIBILITY OF TRUSTEE.
(a) FIDUCIARY RESPONSIBILITY. Trustee shall act with the
care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like
aims, provided, however, that Trustee shall incur no liability to any person
for any action taken pursuant to a direction, request or approval given by
the Plan Administrator or the Independent Plan Administrator, as applicable,
which is contemplated by, and in conformity with, the terms of the Plan (as
certified to Trustee by the Plan Administrator or the Independent Plan
Administrator, as applicable) or this Trust and is given in writing. In the
event of a dispute between Company and a party, Trustee may apply to a court
of competent jurisdiction to resolve the dispute.
(b) LIMITATION ON TRUSTEE'S RESPONSIBILITY. Trustee is not a
party to, and has no duties or responsibilities under, the Plan other than
those that may be expressly contained in this Trust Agreement. In any case
in which a provision of this Trust Agreement conflicts with any provision in
the Plan, this Trust Agreement shall control. Trustee shall have no
responsibility:
(i) to administer the Plan, including, without
limitation, to determine the eligibility of any individual to participate in
the Plan, the amount of any participant's account balance under the Plan,
issuing statements to participants of their interest in the Trust or the
Plan, or the amount or timing of any benefit distributions under the Plan;
(ii) to compute any amount to be transferred or paid
to the Trust by the Company;
(iii) to collect any contributions or transfers of
assets to the Trust;
(iv) to question any investment direction received
from the Plan Administrator (prior to a Change in Control) or the Independent
Plan Administrator (on or after a Change in Control);
(v) to review any securities or property acquired
at the direction of the Plan Administrator (prior to a Change in Control) or
the Independent Plan Administrator (on or after a Change in Control);
(vi) to make any suggestions to the Plan
Administrator or the Independent Plan Administrator in connection with the
investment of the Trust assets;
(vii) to inquire into the acts or omissions of the
Company, the Plan Administrator or the Independent Plan Administrator;
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(viii) to satisfy the reporting and disclosure
obligations of the Code and ERISA with respect to the Plan; or
(ix) to determine whether the terms of the Plan
document satisfy the requirements of applicable law.
(c) TITLE. Trustee shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received
by it or delivered by it pursuant to this Trust Agreement and shall be held
harmless in acting upon any notice, request, direction, instruction, consent,
certification or other instrument believed by it to be genuine and delivered
by the proper party or parties.
(d) INDEMNIFICATION. The Company hereby agrees to indemnify
and hold harmless the Trustee, its officers, directors, employees or agents,
from and against any and all liabilities, claims for breach of fiduciary duty
or otherwise, demands, damages, costs and expenses, including reasonable
attorneys' fees arising from (i) any act taken or omitted by the Trustee in
good faith in accordance with or due to the absence of directions from the
Company, its agents, or any Plan Participant, (ii) any act taken or omitted
by a Fiduciary other than the Trustee in breach of such Fiduciary
responsibilities under the Plan or this Agreement, (iii) any failure by the
Company to pay premiums on any individual life insurance policy held by the
Trust, or contribute funds and direct Trustee to pay premiums on any
individual life insurance policy held by the Trust, (iv) any action taken by
the Trustee pursuant to a notification of an order to purchase or sell
securities issued by Company or a Plan Participant directly to a broker or
dealer or (v) any lawsuit or other proceeding involving the Plan or the Trust
for any reason including, without limitation, an alleged breach by the
Trustee of its responsibilities under this Agreement, unless a final judgment
or determination entered in any such lawsuit or proceeding holds or
determines that the Trustee is guilty of gross negligence, willful misconduct
or a breach of fiduciary responsibility. If the final judgment or
determination entered in any such lawsuit or proceeding holds or determines
that the Trustee is guilty of gross negligence, willful misconduct or a
breach of fiduciary responsibility, the Company's obligation to indemnify the
Trustee hereunder shall be limited to liability in excess of the Trustee's
allocable share of such liability. The Company shall have the right, but not
the obligation, to conduct the defense of the Trustee in any legal proceeding
covered by this section. However, any legal counsel selected to defend the
Trustee must be acceptable to the Trustee, and the Trustee may elect to
choose counsel, including in-house counsel, other than that selected by the
Company. The Company may, but shall not be required to, satisfy all or any
part of its obligations under this section through insurance arrangements
acceptable to the Trustee.
(e) DEFENSE COSTS. If Trustee, on behalf of the Trust,
undertakes or defends any litigation arising in connection with this Trust,
Company agrees to indemnify Trustee against Trustee's costs, expenses and
liabilities (including, without limitation, attorneys' fees and expenses)
relating thereto and to be primarily liable for such payments. If Company
does
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not pay such costs, expenses and liabilities in a reasonably timely manner,
Trustee may obtain payment from the Trust.
(f) COUNSEL. Trustee may consult with legal counsel (who may
also be counsel for Company generally) with respect to any of its duties or
obligations hereunder.
(g) AUTHORITY. Trustee may hire agents, accountants,
actuaries, investment advisors, financial consultants or other professionals
to assist it in performing any of its duties or obligations hereunder.
(h) LIMITATION WITH RESPECT TO INSURANCE POLICIES. Trustee
shall have, without exclusion, all powers conferred on Trustees by applicable
law, unless expressly provided otherwise herein, provided, however, that if
an insurance policy is held as an asset of the Trust, Trustee shall have no
power to name a beneficiary of the policy other than the Trust or to loan to
any person other than Company the proceeds of any borrowing against such
policy.
(i) LIMITATION WITH RESPECT TO TRUST AS A BUSINESS.
Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
(j) Trustee shall not be responsible or liable for any losses
to the Trust resulting from nationalization, expropriation, devaluation,
seizure, or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, levies or
other charges affecting the Trust's property; or acts of war, terrorism,
insurrection or revolution; or acts of God; or any other similar event beyond
the control of Trustee or its agents. This Section shall survive the
termination of this Trust Agreement.
(k) In the event the Company attempts to enjoin any benefit
payment that the Trustee has been directed to make under the terms of this
Trust Agreement, the Trustee shall commence legal action to allow such
payment. Subject to the Company's obligation to indemnify Trustee under
Section 8(e) hereof for the expenses of any such action, the Trustee may
withdraw from the Trust assets any amounts it deems necessary to pay legal
expenses, including attorneys fees, incurred in the course of such legal
action. Under no circumstances shall the Trustee be required to make such
payments for benefits or expenses from any source other than the Trust.
SECTION 10. PERSONS TO RECEIVE PAYMENT.
(a) The Trustee shall, except as otherwise provided
otherwise, pay all amounts payable hereunder to the person or persons
designated under the Plans or deposit such amounts to the Participant's
checking or savings account as directed by the Company and not to any other
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person or corporation, and only to the extent of assets held in the Trust,
and shall follow written instructions by the Company. The Company's written
instructions, to the Trustee to make distributions or not to make
distributions, and the amount thereof, shall be conclusive on all
Participants.
(b) Should any controversy arise as to the person or persons
to whom any distribution or payment is to be made by the Trustee, or as to
any other matter arising in the administration of the Plans or Trust, the
Trustee may retain the amount in controversy pending resolution of the
controversy or the Trustee may file an action seeking declaratory relief
and/or may interplead the Trust assets in issue, and name as necessary
parties the Company, the Participants and/or any or all persons making
conflicting demands.
(c) The Trustee shall not be liable for the payment of any
interest or income, except for that earned as a Trust investment, on any
amount withheld or interpleaded under subsection (b).
(d) The expense of the Trustee for taking any action under
subsection (b) shall be paid to the Trustee from the Trust.
SECTION 11. COMPENSATION AND EXPENSES OF TRUSTEE.
Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the
Trust. Trustee shall be entitled to the fees listed on Appendix B attached
hereto as reasonable compensation for the services rendered under this Trust
Agreement. To the extent Trustee advances funds to the Trust for
disbursements or to effect the settlement of purchase transactions, Trustee
shall be entitled to collect from the Trust an amount equal to what would
have been earned on the sums advanced (an amount approximating the "federal
funds" interest rate).
The Trustee reserves the right to alter this rate of
compensation at any time by providing the Company with notice of such change
of at least thirty (30) days prior to its effective date. Reasonable
compensation shall include compensation for any extraordinary services or
computations required, such as determination of valuation of assets when
current market values are not published and interest on funds to cover
overdrafts. The Trustee shall have a lien on the Trust for compensation and
for any reasonable expenses including counsel, appraisal, or accounting fees,
and if the Company fails to pay such amounts directly within 30 days of
presentment of an invoice, these amounts may be withdrawn from the Trust and
the Trust may be reimbursed by the Company.
SECTION 12. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to
Company, which shall be effective 30 days after receipt of such notice unless
Company and Trustee agree otherwise.
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(b) Trustee may be removed by Company 30 days notice or upon
shorter notice accepted by Trustee.
(c) Upon a Change of Control, as defined herein, Trustee may
not be removed by Company for six (6) months following the Change of Control.
If Trustee resigns or is removed within six (6) months following the Change
of Control, notwithstanding anything to the contrary in Section 11 hereof,
the Independent Plan Administrator may appoint a successor Trustee according
to the provisions of Section 11 hereof.
(d) Upon resignation or removal of Trustee and appointment of
a successor or Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 60 days after
receipt of notice of resignation, removal or transfer, unless Company and
Trustee agree to extend the time limit.
(e) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this section. If no
such appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All
expenses of Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust. Until a successor Trustee is
appointed, the Trustee shall be entitled to be compensated for its service
according to its published fee schedule then in effect for acting as Trustee.
SECTION 13. APPOINTMENT OF SUCCESSOR.
Except as provided in Section 12(c) hereof, if Trustee resigns
or is removed in accordance with Section 12(a) or (b) hereof, Company may
appoint any third party, such as a bank trust department or other party that
may be granted corporate Trustee powers under state law, as a successor to
replace Trustee upon resignation or removal. The appointment shall be
effective when accepted in writing by the new Trustee, who shall have all of
the rights and powers of the former Trustee, including ownership rights in
the Trust assets. The former Trustee shall execute any instrument necessary
or reasonably requested by Company or the successor Trustee to evidence the
transfer.
SECTION 14. SIGNING AUTHORITY.
The Company shall certify in writing to the Trustee the names
and specimen signatures of all those who are authorized to act as or on
behalf of the Company and those names and specimen signatures shall be
updated as necessary by a duly authorized official of the Company. The
Company shall promptly notify the Trustee if any person so designated is no
longer authorized to act on behalf of the Company. Until the Trustee
receives written notice that a person is no longer authorized to act on
behalf of the Company, the Trustee may continue to rely on the Company's
designation of such person.
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SECTION 15. INFORMATION TO BE PROVIDED TO TRUSTEE.
The Company shall maintain and furnish the Trustee with all
reports, documents and information as shall be required by the Trustee to
perform its duties and discharge its responsibilities under this Trust
Agreement, including without limitation a certified copy of each of the Plans
and all amendments thereto.
The Trustee shall be entitled to rely on the most recent
reports, documents and information furnished to it by the Company. The
Company shall be required to notify the Trustee as to the termination of
employment of any Participant by death, retirement or otherwise.
The Company shall arrange for each insurance company issuing
contracts held by the Trustee pursuant to Section 20, to furnish the Trustee
with such valuations and reports as are necessary to enable the Trustee to
fulfill its obligations under this Trust Agreement, and the Trustee shall be
fully protected in relying upon such valuations and reports.
SECTION 16. MEDIATION AND ARBITRATION OF DISPUTES.
If a dispute arises under this Trust Agreement between or
among the Company and Trustee, except as otherwise provided, the parties
agree first to try in good faith to settle the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association.
Thereafter, any remaining unresolved controversy or claim arising out of or
relating to this Agreement, or the performance or breach thereof, shall be
decided by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association and Title 9 of California Code
of Civil Procedure Section 1280 et seq. The sole arbitrator shall be a
retired or former Judge associated with the American Arbitration Association.
Judgment upon any award rendered by the arbitrator shall be final and may be
entered in any court having jurisdiction. Each party shall bear its own
costs, attorneys' fees and its share of arbitration fees. The Alternate
Dispute Resolution provision in this Agreement does not constitute a waiver
of the parties' rights to a judicial forum in instances where arbitration
would be void under applicable law, and does not preclude Trustee from
exercising its rights to interplead the funds of the Account at the cost of
the Account.
SECTION 17. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the foregoing,
no such amendment shall conflict with the terms of the Plan (as certified to
Trustee by Company) or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which
Plan participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plan (as certified to Trustee by Company). Upon
termination of the Trust any assets remaining in the Trust shall be returned
to Company.
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(c) Upon written approval of participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the Plan, Company
may terminate this Trust prior to the time all benefit payments under the
Plan have been made. All assets in the Trust at termination shall be returned
to Company.
SECTION 18. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable process.
(c) Notwithstanding anything to the contrary contained
elsewhere in this Trust Agreement, any reference to the Plan or Plan
provisions which require knowledge or interpretation of the Plan shall impose
a duty upon the Company, Plan Administrator or Independent Plan
Administrator, as applicable, to communicate such knowledge or interpretation
to Trustee. Trustee shall have no obligation to know or interpret any
portion of the Plan and shall in no way be liable for any proper action taken
contrary to the Plan.
(d) This Trust Agreement shall be governed by and construed
in accordance with the laws of the State of California.
SECTION 19. CHANGE IN CONTROL PROVISIONS.
(a) For purposes of this Trust, a "Change in Control" shall
be deemed to have occurred only if:
(i) the Company is merged or consolidated or
reorganized into or with another corporation and less than a majority of the
combined voting power of the then-outstanding securities of the surviving
corporation immediately thereafter is held in the aggregate by the holders of
Voting Stock (as defined below) of the Company immediately prior to such
transaction;
(ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation, if less than a
majority of the combined voting power of the then-outstanding voting
securities of such corporation immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) as a result of, or in connection with, any cash
tender or exchange offer, merger, reorganization or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions (a "Transaction"), the
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individuals who were members of the Board immediately prior to the
Transaction cease to constitute a majority of the members of the Board or of
the board of directors of any successor to the Company, unless the election
or nomination for election by the holders of the Voting Stock of the Company
was approved by a vote of the majority of Board members then still in office
who were members of the Board immediately prior to the Transaction; or
(iv) in connection with a transfer or assignment of
Voting Stock by the current beneficial owners of Voting Stock, the beneficial
ownership of Voting Stock changes such that less than a majority of the
Voting Stock outstanding immediately after such assignment or transfer is
held by the current beneficial owners of Voting Stock.
For purposes of this Section, (A) "Voting Stock" shall mean shares of the
Company representing the combined voting power of the then outstanding
securities entitled to vote generally in the election of the Board, and (B)
"beneficial ownership" and "beneficial owners" shall have the meaning
ascribed to it under Rule 13d-3 or any successor rule or regulation
promulgated under the Securities Exchange Act of 1934, as amended, as well as
any person or entity who, directly or indirectly, controls, is controlled by
or under common control with such beneficial owner.
(b) The Trustee shall have no independent duty to determine
that a Change in Control has occurred and shall not be required to take any
action or refrain from taking any actions hereunder which are based on a
Change in Control having occurred prior to the time it receives written
notice from the Company or a Participant that a Change in Control has
occurred or will occur and has had a reasonable opportunity to determine
whether a Change in Control, in fact, has occurred. At the Trustee's
request, the Company shall furnish such evidence as may be necessary to
enable the Trustee to determine whether a Change in Control has occurred. In
taking or refraining from any action under this Trust Agreement, the Trustee
may rely on its determination, including an opinion of counsel (who may be
counsel for the Company or the Trustee), that a Change in Control has
occurred. The Trustee's determination as to whether a Change in control has
occurred shall be binding and conclusive on all persons.
SECTION 20. INSURANCE POLICIES AND CONTRACTS.
Prior to a Change in Control, the Company, with the consent of
the Plan Administrator, reserves the right to transfer life insurance,
retirement income or annuity policies or contracts to the Trust, regardless
of the nature or type of such contract and regardless of the Company's
interest in or power to direct the investments under such policies or
contracts. Prior to a Change in Control, the Plan Administrator may direct
the Trustee to purchase any such policies or contracts and, following a
Change in Control, the Independent Plan Administrator shall have the same
powers regarding such insurance policies or contracts. Any such policy or
contract shall be an asset of the Trust subject to the claims of the
Company's creditors in the event of insolvency, as specified in this Trust
Agreement. The proceeds of any life insurance policy shall, upon the death
of the insured, be paid to the Trust. The Trustee shall be under no duty to
question any direction of the Plan Administrator or the Independent Plan
Administrator, to review the form of any such policies or contracts or the
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selection of the issuer thereof, or to make suggestions to the Plan
Administrator, the Independent Plan Administrator or to the issuer thereof
with respect to the form of such policies or contracts prior to or following
a Change in Control. Prior to a Change in Control, the Plan Administrator
may direct the Trustee to exercise the powers of the contract holder under
any such policies or contracts and, following a Change in Control, the
Independent Plan Administrator shall have the same powers regarding such
insurance policies or contracts. The Trustee shall exercise such powers only
upon the direction of the Plan Administrator or the Independent Plan
Administrator, as applicable. Notwithstanding anything to the contrary in the
Plan or this Trust Agreement, the Trustee shall be fully protected in acting
in accordance with a proper written direction of the Plan Administrator or
Independent Plan Administrator and shall not be liable for any loss of any
kind that may result by reason of any action taken or omitted by it in
accordance with any such direction, or by reason of inaction in the absence
of any such written directions. No insurance carrier shall for any purpose
be deemed a party to this Trust Agreement or be responsible for the validity
or sufficiency hereof. Notwithstanding the fact that it may have knowledge
of the terms of this Trust, the obligations of such insurance carrier shall
be determined solely by reference to the terms and conditions of the policies
or contracts issued by it.
SECTION 21. INDEPENDENT PLAN ADMINISTRATOR.
Various provisions of this Trust Agreement refer to the term
"Independent Plan Administrator" which shall mean a committee of three (3)
participants established after a Change in Control to establish the
investment policy and direct Trustee pursuant to the terms of this Trust
Agreement. The members of the committee shall be appointed by the Company
prior to a Change in Control. In the event of a Change in Control, the
Independent Plan Administrator shall assume the duties and authority of the
Administrator under the terms of the Plan and the duties of the Independent
Plan Administrator specified in this Trust Agreement. After a Change in
Control, the designation of the Independent Plan Administrator may not be
changed without the unanimous written consent of the designated Independent
Plan Administrator. In the event the Independent Plan Administrator fails to
act or resigns after a Change in Control, the Company and all Participants
may jointly agree to the designation of a successor Independent Plan
Administrator. Alternatively, the Company, the Trustee or any Participant
may (but shall not be required to) petition a court of competent jurisdiction
or bring an arbitration proceeding to appoint a successor Independent Plan
Administrator, which shall be an entity which is unrelated to, and
unaffiliated with, the Company. The Trustee shall be entitled to rely on the
determinations and directions of a qualified Independent Plan Administrator.
19
<PAGE>
SECTION 22. EFFECTIVE DATE.
The effective date of this amended Trust Agreement shall be December 18,
1998.
IN WITNESS WHEREOF, Company and Trustee have caused their duly authorized
officers to execute this Trust Agreement on the date first written above.
"Company" "Trustee"
Coastcast Corporation Imperial Trust Company
By /s/ Hans H. Buehler By /s/ Cathy Leider
--------------------------------- -------------------------------
Hans Buehler, Chairman and CEO Name: Cathy Leider
Title: Vice President
The undersigned hereby accept the duties and obligations of the Independent
Plan Administrator under the terms of the Plan and this Trust Agreement this
21 day of December, 1998.
/s/ Hans H. Buehler /s/ Robert C. Bruning
- ---------------------------------- -----------------------------------
Hans Buehler Robert C. Bruning
/s/ Robert L. Gates
- ----------------------------------
Robert Gates
20
<PAGE>
January 15, 1999
Mr. Richard W. Mora
2500 Wavecrest Drive
Corona del Mar, CA 92625
Dear Mr. Mora:
This letter ("this Amendment") confirms the following amendments to that
certain severance agreement dated November 6, 1998 (the "Agreement") between you
and Coastcast Corporation ("Coastcast"):
1. SEVERANCE PAYMENT. Paragraph 2 of the Agreement is deleted and
superseded in its entirety by this Paragraph 1. In lieu of the severance
payments previously contemplated by Paragraph 2(a) of the Agreement, Coastcast
will pay to you upon execution of this Amendment the gross sum of $425,000, less
deductions and withholdings from such gross sum for applicable federal, state,
and local income and employment taxes, FICA, etc.
2. NO RETIREMENT BENEFITS. Paragraph 3 of the Agreement is deleted and
superseded in its entirety by this Paragraph 2 in consideration of the release
of claims by Coastcast pursuant to Paragraph 5 of this Amendment and the other
promises and agreements of Coastcast under this Amendment. You hereby
acknowledge and agree that any and all rights you might otherwise have under or
in respect of the Coastcast Supplemental Executive Retirement Plan (the "SERP")
have been released by you pursuant to Paragraph 10 of the Agreement and any and
all rights you might otherwise have to retirement benefits under Paragraph 3 of
the Agreement have been released by you pursuant to Paragraph 4 of this
Amendment.
3. YOUR REPRESENTATIONS. To induce Coastcast to execute and deliver this
Amendment and to induce Coastcast to release claims against you pursuant to
Paragraph 5 of this Amendment, you hereby represent and warrant to Coastcast
that:
(a) You have never received, directly or indirectly, any personal
remuneration in connection with or as a result of the delivery of any golf
clubheads manufactured by Coastcast or any golf clubs including clubheads
manufactured by Coastcast to any person or entity.
(b) You have never received, directly or indirectly, any personal
remuneration in connection with or as a result of any loans by Coastcast to
Green Golf Finishing, Inc.
<PAGE>
Mr. Richard W. Mora
January 15, 1999
Page 2
(c) You have never received, directly or indirectly, any personal
remuneration in connection with or as a result of the SERP or purchase of life
insurance in connection with the SERP.
As used in this Paragraph 3, the term "personal remuneration" does not
include remuneration paid or benefits provided to you by Coastcast in connection
with your employment with Coastcast and does not include $3,000 which you have
disclosed was paid to you by The Roberson Company for attending three meetings
of the advisory board of that firm in the fall of 1996 and January 1998. You
hereby acknowledge that, in entering into this Amendment, Coastcast is relying
on, and that the obligations of Coastcast under this Amendment and the
effectiveness of the release of claims by Coastcast pursuant to Paragraph 5 of
this Amendment are all conditioned on, the truthfulness of the foregoing
representations and warranties.
4. RELEASE OF COASTCAS. Except as provided below in this Paragraph 4,
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, 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, which existed
immediately prior to the execution of this Amendment, 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; (v) the SERP; (vi) the
failure of Coastcast to make the payment contemplated by Paragraph 2(a) of
the Agreement to you on January 6, 1999; or (vii) 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.
<PAGE>
Mr. Richard W. Mora
January 15, 1999
Page 3
The foregoing release does not apply to any of the obligations of Coastcast
under the Agreement as amended by this Amendment, 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").
5. RELEASE OF YOU. Except as provided below in this Paragraph 5,
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, which
existed immediately prior to the execution of this Amendment, including, but not
limited to, claims arising out of or in any manner relating to (i) your
employment with Coastcast; (ii) the SERP; (iii) purchase of life insurance in
connection with the SERP; (iv) loans by Coastcast to Green Golf Finishing, Inc.;
(v) delivery of golf clubs including clubheads manufactured by Coastcast to any
person or entity; (vi) your position as an officer, director and employee of
Coastcast; or (vii) claims arising out of or resulting from misappropriation of
funds or property, fraud, gross negligence, or wilful misconduct, provided that
your representations and warranties in Paragraph 3 above are truthful.
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 4 above.
The foregoing release does not apply to any of your representations and
warranties or other obligations under the Agreement as amended by this
Amendment, your employee stock option agreements(s), the Coastcast retirement
savings plan, or the Indemnification Agreement.
6. ENTIRE AGREEMENT. It is understood and agreed that the Agreement as
amended by this Amendment is fully integrated, represents the entire
understanding of the parties with respect to the subject matter, and there are
no other agreements, representations, promises, or negotiations which have not
been expressly set forth herein with respect to the subject of the Agreement as
amended by this Amendment. Nothing contained herein shall constitute or imply
any admission of liability or wrongdoing by any party. The Agreement as amended
by this Amendment can be further amended, modified, or terminated only by an
instrument in writing executed by you and the chief executive officer of
Coastcast.
7. AGREEMENT REMAINS IN EFFECT. The Agreement, as amended by this
Amendment, shall remain in full force and effect without any other change.
<PAGE>
Mr. Richard W. Mora
January 15, 1999
Page 4
Please confirm your agreement to the foregoing by dating and signing this
amendment 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 15th day of January 1999.
/s/ Richard W. Mora
- ------------------------------
Richard W. Mora
APPROVAL OF COUNSEL:
SCOTT, REILLY & WHITEHEAD
Attorneys for Richard W. Mora
By:____________________________
R. Craig Scott, Partner
JEFFER, MANGELS, BUTLER & MARMARO, LLP
Attorneys for Coastcast Corporation
By: /s/ Robert H. Goon
-----------------------------
Robert H. Goon, Partner
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Coastcast Corporation, S.A. a Mexico corporation
Coastcast Tijuana, S. de R.L. de C.V., a Mexico corporation
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-77540 of Coastcast Corporation on Form S-8 of our reports, dated
February 9, 1999, appearing in this Annual Report on Form 10-K of Coastcast
Corporation for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 15, 1999
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR
THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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