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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, 1999
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
RANCHO DOMINGUEZ, CALIFORNIA 90221
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 638-0595
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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. /X/
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the New York Stock
Exchange on March 1, 2000 ($14.0625 per share): $82,253,000.
As of March 1, 2000, 7,701,571 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 21, 2000, 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, 1999
<TABLE>
<CAPTION>
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PART I PAGE
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<S> <C> <C>
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 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 18
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PART III
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Item 10. Directors and Executive Officers of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management 19
Item 13. Certain Relationships and Related Transactions 19
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PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
Coastcast Corporation is one of the largest manufacturers in the world of
investment-cast titanium and stainless steel golf clubheads for high-quality,
premium-priced metal woods, irons and putters. The Company believes it has
manufactured more metal wood clubheads for high-quality, premium-priced golf
clubs than any other manufacturer. Over the 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 a significant number of 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 approximately 9% of the Company's total sales for the year ended
December 31, 1999.
In addition, in April 1999, the Company acquired a small company that casts
aluminum compressor wheels using the reusable investment pattern process. The
Company has converted a portion of the plant in Rancho Dominguez to support this
new business. The business will start generating revenue in the first quarter of
2000.
In the past several 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 41% and 42% of the Company's total sales
in 1998 and 1999, 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.
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- 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 13 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
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:
<TABLE>
<CAPTION>
CALLAWAY TAYLOR MADE
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<S> <C>
GREAT BIG BERTHA HAWKEYE TITANIUM METAL WOODS FIRESOLE TITANIUM METAL WOODS
BIG BERTHA STEELHEAD PLUS METAL WOODS FIRESOLE OFFSET TITANIUM METAL WOODS
GREAT BIG BERTHA HAWKEYE TITANIUM IRONS BURNER BUBBLE 2 METAL WOODS
X14 STEELHEAD IRONS SUPER STEEL METAL WOODS
ODYSSEY DUAL FORCE BLADE PUTTERS SUPER STEEL OFFSET METAL WOODS
ODYSSEY DF ROSSIE MALLET PUTTERS
ODYSSEY DUAL FORCE WEDGES
ODYSSEY VARIABLE DUROMETER PUTTERS TITLEIST
--------
975D/976R TITANIUM METAL WOODS
975F TITANIUM METAL WOODS
CLEVELAND DCI 981 & 981 SL IRONS
--------- DCI 962 IRONS
RTG WEDGES BOB VOKEY WEDGES
588 WEDGES DCI 990 IRONS
691 WEDGES
485 WEDGES
PING
----
COBRA ISI TITANIUM METAL WOODS
----- ISI STEEL FAIRWAY METAL WOODS
TRUSTY RUSTY PWR WEDGES
</TABLE>
GOLF PRODUCT CUSTOMERS
For almost twenty years, the Company has supplied investment-cast clubheads
for metal woods, irons and putters to many 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
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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, and Wilson 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 many 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 47%, 49% and 34% of the Company's total
sales in 1999, 1998 and 1997, respectively. Fortune Brands (formerly American
Brands, owner of Titleist and Cobra) accounted for 25%, 22% and 12% of the
Company's total sales in 1999, 1998 and 1997, respectively. Taylor Made
accounted for 12%, 14% and 23% of the Company's total sales in 1999, 1998 and
1997, 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 a significant number of
separate manufacturing steps.
The basic steps of investment-casting, in its simplest form, are as
follows:
- - Produce a metal die (sometimes called a wax mold) based on specifications
provided by the customer.
- - Inject wax into the die, producing a pattern the exact shape of the final
casting.
- - Surround (or "invest") the pattern with a ceramic material which is allowed
to dry to form a ceramic shell.
- - Remove the wax by heat, leaving a cavity in the ceramic shell in the shape
of the desired casting.
- - Pour molten metal into the cavity in the ceramic shell and allow it to
solidify.
- - Remove the ceramic material by mechanical and chemical action after the
metal solidifies and clean the casting.
- - Finish and inspect the casting.
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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 numerous separate steps and finishing of
a head for a metal wood can involve many more separate steps. Most of the
clubheads and substantially all of the metal woods manufactured by the Company
are finished by it to customer specifications, although some of such
clubheads--principally irons--are delivered to customers in an unfinished state.
The Company, to assist its customers, at times also polishes and finishes
limited quantities of investment-cast clubheads manufactured by other companies.
QUALITY CONTROL. The Company believes that its success as a leading
supplier of golf clubheads is largely attributable to its quality control
measures. The Company attempts to monitor every aspect of the engineering and
manufacturing process to assure the quality of the clubheads manufactured by the
Company. Particular attention is paid to the quality of raw materials
(principally wax, ceramic and metal alloys), gating techniques employed in
channeling the flow of molten metal in the ceramic shell in the casting process,
and rigorous inspection standards to assure compliance with the customers'
product specifications throughout the manufacturing process.
REGULATIONS. The Company uses hazardous substances and generates hazardous
waste in the ordinary course of its business. The Company is subject to various
federal, state, local and foreign environmental laws and regulations, including
those governing the use, discharge and disposal of hazardous materials. Although
the Company has not to date incurred any material liabilities under
environmental laws and regulations and believes that its operations are in
substantial compliance with applicable laws and regulations, environmental
liabilities could arise in the future that may adversely affect the Company's
business. See "Discontinued Operations" below.
COMPETITION - GOLF
The Company operates in a highly competitive environment. The Company
competes against a number of manufacturers of investment-cast titanium clubheads
for high-quality, premium-priced golf clubs, including but not limited to: 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.), O-ta Precision
Casting Co. Ltd., Dynamic Precision Casting MFG. Co. Ltd. and Advanced Group
International 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
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times. Shipment of clubheads to the United States from Asia usually requires at
least two weeks by ocean freight. 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 larger
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, 1999, the Company employed 4,303 persons on a full-time
basis. Of these employees, 2,655 and 772 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.
The production and maintenance employees in the Gardena, California
facility are represented by the United Steelworkers of America. There were 189
such employees as of December 31, 1999. 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.
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During the last half of 1999, the Company started manufacturing aluminum
compressor wheels using the reusable investment pattern process. This process
utilizes plaster molds and rubber patterns to produce complex, thin wall
aluminum compressor wheels. The Company believes that its principal competitors
in this business are Ross Aluminum Foundries, Sterling Division of Doncasters
plc, and the AlliedSignal Foundry in Ireland.
DISCONTINUED OPERATIONS
In 1993, the Company announced its decision to discontinue its aerospace
business. This business was substantially phased out in 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, for the year ended December 31, 1998, 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 steel investment
casting manufacturing facilities are located in a 120,000 square foot leased
facility in Rancho Dominguez, California, a suburb of Los Angeles. Approximately
20,000 square feet of this facility has been allocated to the Company's new
aluminum compressor wheels business. The lease expires in October, 2003 and the
Company has a five-year extension option.
The Company owns a complex of plants in Gardena, California (which is
within approximately five miles of the Rancho Dominguez facilities), comprising
an aggregate of approximately 110,000 square feet. These facilities are
principally used for manufacturing titanium golf clubheads and tooling. In
October 1994, the Company purchased approximately two acres of land contiguous
to its Gardena facility. In April 1996, the Company purchased another
approximately two acres of land next to the land purchased in October 1994. This
land is available for future expansion if and when necessary.
Clubhead polishing and finishing operations are conducted in facilities
leased by the Company's subsidiary in Mexicali, Mexico under four lease
agreements, comprising an aggregate of approximately 142,000 square feet. Three
of the leases expire in December 2003, and the other lease expires in June 2006.
All four leases have a five-year extension option.
The Company has moved a significant portion of its steel golf clubhead
casting operations to a 186,000 square foot leased investment casting facility
in Tijuana, Mexico. The lease expires in April 2008 and the Company has two
five-year extension options. Also, the Company has options to lease sites
contiguous to the property as needed for future growth.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to legal actions arising in the ordinary course of
business, none of which, individually or in the aggregate, in the opinion of
management, after consultation with counsel, will have a material adverse effect
on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Hans H. Buehler 67 Chairman of the Board and Chief Executive Officer
Larry J. Cornelius 58 Vice President, Titanium Operations
Norman Fujitaki 45 Chief Financial Officer and Secretary
Ramon F. Ibarra 47 Vice President, Manufacturing
William L. Osborn 45 Vice President, Mexicali Operations
Bryan Rolfe 47 Vice President, New Product Development
Roberto Roman 57 Vice President, Human Resources
Todd L. Smith 36 Executive Vice President, Operations
Kathleen H. Wainwright 35 Senior Vice President, Sales
K. Michael Wellman 55 Senior Vice President - Foundries
</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. Cornelius joined the Company in March 1995. In July 1999, he was
promoted to Vice President Titanium Casting. From 1995 to 1999, he was the
Director of the Titanium operations. From 1992 to 1995, he was the Engineering
Manager for IMI Titanium Inc. Mr. Cornelius has over 22 years of experience in
the titanium business.
Mr. Fujitaki joined the Company in 1994. He served as Corporate Controller
from 1994 to March 1999 and was promoted to Chief Financial Officer in April
1999. He previously was employed for eight years by Neutrogena Corporation, a
manufacturer and marketer of skin and hair care products, for which he served as
Corporate Controller from September 1988.
Mr. Ibarra joined the Company in 1981. Since 1989, he has served as Vice
President, Manufacturing 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. Osborn joined the Company in 1993. In July 1999, he was promoted to
Vice President Mexicali Finishing. Prior to this time, he served the Company in
various management capacities in the manufacturing area.
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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.
Mr. Roman joined the Company in 1986. In July 1999, he was promoted to Vice
President - Human Resources. Prior to this time, he served the Company in
various management capacities in the human resource area. Mr. Roman has over 30
years of human resources experience.
Mr. Smith joined the Company in 1981. In February 2000, he was promoted to
Executive Vice President - Operations. From July 1999 to January 2000, he was
the Vice President - Operations. Prior to this time, he served the Company in
various management capacities in both the manufacturing and administrative
areas. Mr. Smith is the son of Hans H. Buehler.
Ms. Wainwright joined the Company in 1988. In February 2000, she was
promoted to Senior Vice President - Sales. From November 1996 to January 2000,
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.
Mr. Wellman joined the Company in 2000. In February 2000, he became the
Senior Vice President - Foundries. From 1993 to 1999, he was the President and
owner of Commercial Titanium Casting, Inc. From 1989 to 1993, he was the Group
Vice President of Sturm Ruger Inc. Mr. Wellman has over 26 years of foundry
experience.
Each officer serves at the pleasure of the Board of Directors of the
Company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRINCIPAL MARKET AND PRICES
The common stock of the Company is listed on the New York Stock Exchange
under the symbol PAR. The following table sets forth the high and low sales
prices per share for the common stock of the Company as reported by the New York
Stock Exchange.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ----------- ---- ---
<S> <C> <C>
1999
First Quarter $ 9 7/8 $ 6 15/16
Second Quarter 12 3/4 8 7/8
Third Quarter 12 7/8 10 1/2
Fourth Quarter 16 13/16 10 11/16
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 1, 2000 was 145.
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 292,500 shares at a cost of $3.4 million for the year ended
December 31, 1999. As of December 31, 1999, there were 164,500 shares remaining
to be purchased under this authorization. In addition, in December 1999, the
Board of Directors authorized the repurchase of an additional one million shares
of Coastcast common stock from time to time in the open market or negotiated
transactions.
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 84% of sales during the year ended December 31,
1999 and sales to three or four customers accounted for 85% and 84% of sales
during the years ended December 31, 1998 and 1997, respectively. Sales to the
Company's top customer, Callaway Golf Company (including Odyssey Golf after its
acquisition by Callaway in August 1997) accounted for 47% of sales for the year
ended December 31, 1999.
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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 MANUFACTURING PLANTS IN MEXICO. A substantial portion of the
golf clubheads manufactured by the Company, including clubheads cast by the
Tijuana plant, and some clubheads produced by other clubhead manufacturers, are
polished and finished by the Company in its Mexicali facilities. The polishing
and finishing processes used by the Company are highly labor intensive. The
Company manufactures in Tijuana and 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
facilities 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
12
<PAGE>
other customary risks of doing business outside the United States. There can be
no assurance that the Mexican government will continue the "maquiladora" program
or that the Company will continue to be able to take advantage of the benefits
of the program. The loss of these 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, 1999 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,
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data (1):
Sales $120,383 $144,560 $149,515 $148,257 $ 76,001
Gross profit 21,773 22,365 28,533 33,826 12,914
Income from operations 14,355 11,971 17,776 24,454 5,941
Income from continuing operations
before class action lawsuit
settlement expense and income taxes 16,101 13,504 18,751 25,496 7,488
Class action lawsuit settlement expense -0- -0- -0- -0- 2,075
Income from Continuing
Operations Data :
Income before income taxes 16,101 13,504 18,751 25,496 5,413
Income taxes 6,582 5,672 7,875 10,430 2,114
Income from continuing operations 9,519 7,832 10,876 15,066 3,299
Income from Continuing Operations Per Share--
Basic $ 1.21 $ 0.91 $ 1.24 $ 1.72 $ 0.36
======== ======== ======== ======== ========
Income from Continuing Operations Per Share--
Diluted $ 1.20 $ 0.89 $ 1.22 $ 1.67 $ 0.36
======== ======== ======== ======== ========
Weighted Average Shares Outstanding--Basic 7,892 8,638 8,798 8,773 9,045
======== ======== ======== ======== ========
Weighted Average Shares Outstanding--Diluted 7,924 8,837 8,924 9,038 9,099
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Working Capital $58,155 $46,717 $56,795 $44,800 $34,788
Total Assets 92,316 83,673 90,025 76,100 58,908
Deferred compensation 541 295 1,614 438 -0-
Shareholders' equity 83,290 77,142 78,391 66,487 50,252
</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,
-----------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Sales $120,383 100.0 $144,560 100.0 $149,515 100.0
Cost of sales 98,610 81.9 122,195 84.5 120,982 80.9
Gross profit 21,773 18.1 22,365 15.5 28,533 19.1
Selling, general
and administrative 7,418 6.2 10,394 7.2 10,757 7.2
Income from continuing
operations 14,355 11.9 11,971 8.3 17,776 11.9
Other income, net 1,746 1.5 1,533 1.1 975 0.6
Income from continuing
operations before
Income taxes 16,101 13.4 13,504 9.3 18,751 12.5
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Sales decreased $24.2 million, or 17%, to $120.4 million for 1999 from
$144.6 million for 1998. The decline in sales was due to an over 34% decrease
in sales volume of clubheads during the first half of 1999 partially offset
by an increase in clubhead sales in the second half of 1999. Titanium
clubhead sales represented approximately 42% and 41% of total sales for 1999
and 1998, respectively. Sales to Callaway Golf Company, including sales to
Odyssey Golf after its acquisition by Callaway Golf Company in August 1997,
represented 47% of total sales for 1999 compared to 49% in 1998. There is no
assurance that sales to Callaway will represent similar percentages of total
sales in the future.
Gross profit decreased $.6 million, or 3%, to $21.8 million for 1999 from
$22.4 million for 1998. The gross profit margin increased to 18% in 1999 from
16% in 1998. The improvement in gross margin was due principally to higher costs
incurred in the last half of 1998 associated with inventory write-downs, new
products and the start up of the Tijuana plant.
Selling, general and administrative expense decreased by $3.0 million, or
29%, to $7.4 million for 1999 from $10.4 million for 1998. The decrease in
selling, general and administrative expense was due primarily to decreased
payroll and related expenses, legal expenses and life insurance expense
partially offset by an increase in deferred compensation expense principally
because the prior year included the forfeiture and curtailment of these benefits
which resulted in a large reduction in deferred compensation expense for the
year ended December 31, 1998.
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.
15
<PAGE>
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.
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.
DISCONTINUED OPERATIONS
In 1993, the Company announced its decision to discontinue its aerospace
business. This business was substantially phased out in 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, 1999 was
$42.8 million compared to $27.6 million on December 31, 1998, an increase of
$15.2 million. Net cash provided by operating activities was $17.6 million for
the year ended December 31, 1999. Net income of $9.5 million, depreciation and
amortization of $4.1 million, a decrease in prepaids and other current assets of
$4.2 million and an increase in accounts payable and accrued liabilities of $2.1
million, were partially offset by an increase in accounts receivables and
inventory of $1.6 million and $.7 million, respectively. Cash provided from
investing activities of $.9 million consist primarily of the surrender of life
insurance policies of $6.2 million partially offset by $4.2 million of capital
expenditures and the net purchases of investments of $1.0 million. Net cash used
by financing activities of $3.3 million consists mainly of the repurchase of
Company common stock of $3.4 million.
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, 1999. This line of credit, which expires on May 30, 2000, bears
interest at the bank's prime rate or LIBOR plus 2%.
16
<PAGE>
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 292,500 shares at a cost of $3.4 million for the year ended
December 31, 1999. As of December 31, 1999, there were 164,500 shares remaining
to be purchased under this authorization. In addition, in December 1999, the
Board of Directors authorized the repurchase of an additional one million shares
of Coastcast common stock from time to time in the open market or negotiated
transactions.
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, 1999 DECEMBER 31, 1998
---------------------------------------------------------------------------------------
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 $ 27,091 $ 33,582 $ 31,957 $ 27,753 $ 45,321 $ 43,588 $ 31,627 $ 24,024
Gross profit (loss) 5,849 7,636 3,776 4,512 9,649 9,580 3,147 (11)
Income (loss) before taxes 3,976 5,796 2,603 3,726 6,928 6,903 1,175 (1,502)
Provision for income taxes 1,670 2,434 1,032 1,446 2,910 2,899 493 (630)
Income from continuing
operations 2,306 3,362 1,571 2,280 4,018 4,004 682 (872)
Loss from discontinued
operations -0- -0- -0- -0- -0- -0- (157) -0-
Net income 2,306 3,362 1,571 2,280 4,018 4,004 525 (872)
Net income per share - basic .29 .43 .20 .29 .45 .44 .06 (.11)
Net income per share-diluted .29 .42 .20 .29 .44 .42 .06 (.11)
</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.
BACKLOG
As of December 31, 1999, the Company had a backlog of approximately $34.5
million as compared to a backlog of approximately $25.4 million as of December
31, 1998. 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.
17
<PAGE>
YEAR 2000 CONVERSION AND RESIDUAL EFFECT
To date, the Company's has not experienced any problems associated with the
year 2000. However, that does not mean that the year 2000 problem will not
affect us in the future. For example, programs may fail to recognize February
29, 2000 as a leap year date as a result of an exception to the calculation of
leap years that will occur in the year 2000. These residual year 2000 issues
could have an adverse impact on our operations.
If residual year 2000 problems cause the failure of any of the technology,
software or systems necessary to use our products or operate our business, we
could lose customers, suffer significant disruptions in our business, lose
revenues and incur substantial liabilities and expenses. We could also become
involved in costly litigation resulting from residual year 2000 problems. These
problems could materially and adversely affect our business, results of
operations and financial condition. In addition, a disruption in the operations
of parties with whom we interact could materially and adversely affect our
business, results of operations and financial condition.
FORWARD LOOKING INFORMATION
This report and other reports of the Company contain or may contain certain
forward-looking statements and information that are based on beliefs of, and
information currently available to, the Company's management as well as
estimates and assumptions made by the Company's management. When used, the words
"anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and
similar expressions as they relate to the Company or the Company's management,
are used to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions relating to the Company's
operations and results of operations, competitive factors and pricing pressures,
shifts in market demand, the performance and needs of the industries served by
the Company, the costs of product development and other risks and uncertainties,
including, in addition to any uncertainties specifically identified in the text
surrounding such statements, uncertainties with respect to changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
business partners, competitors, and legislative, regulatory, judicial and other
governmental authorities and officials. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may vary significantly from those anticipated, believed,
estimated, expected, intended or planned.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information, other than quarterly information, required by this item is
incorporated herein by reference to the consolidated financial statements and
supplementary data listed in Item 14 of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item with respect to directors is
incorporated herein by reference to the information contained under the caption
"Nomination and Election of Directors" in the Proxy Statement relating to the
Annual Meeting of Shareholders to be held on June 21, 2000, which will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the year ended December 31, 1999. 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 21, 2000, which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the year ended
December 31, 1999.
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 21, 2000, which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
year ended December 31, 1999.
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 21, 2000,
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the year ended December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference
to the information contained under the caption "Certain Transactions" in the
Proxy Statement relating to the Annual Meeting of Shareholders to be held on
June 21, 2000, which will be filed with the Securities and Exchange Commission
no later than 120 days after the close of the year ended December 31, 1999.
19
<PAGE>
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 1999.
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 1, 2000 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 1, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ HANS H. BUEHLER
- ---------------------------
Hans H. Buehler Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
/s/ NORMAN FUJITAKI
- ---------------------------
Norman Fujitaki Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ ROBERT L. GATES
- ---------------------------
Robert L. Gates Director
/s/ ROBERT H. GOON
- ---------------------------
Robert H. Goon Director
/s/ EDWIN A. LEVY
- ---------------------------
Edwin A. Levy Director
/s/ LEE E. MIKLES
- ---------------------------
Lee E. Mikles Director
/s/ PAUL A. NOVELLY
- ---------------------------
Paul A. Novelly Director
/s/ JONATHAN P. VANNINI
- ---------------------------
Jonathan P. Vannini Director
</TABLE>
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE NUMBER
- -------------------------------- -----------
<S> <C>
Independent Auditors' Report 23
Consolidated Balance Sheets as of December 31, 1999 and 1998 24
Consolidated Statements of Income for the years ended December 31, 1999, 1998
and 1997 25
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1997, 1998 and 1999 26
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 27
Notes to Consolidated Financial Statements 28
SCHEDULES
Independent Auditors' Report 39
Schedule II--Valuation and Qualifying Accounts for the years ended December 31,
1997, 1998 and 1999 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, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 7, 2000
23
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents (Note 1) $42,740,000 $ 27,551,000
Trade accounts receivable, net of allowance for doubtful
accounts of $500,000 and $600,000 at December 31, 1999
and 1998, respectively (Note 1) 9,179,000 7,556,000
Inventories (Notes 1 and 3) 11,059,000 10,326,000
Prepaid income taxes 550,000 4,011,000
Prepaid expenses and other current assets 1,627,000 2,378,000
Deferred income taxes (Notes 1 and 8) 1,485,000 1,131,000
----------------- -----------------
Total current assets 66,640,000 52,953,000
Property, plant and equipment, net (Notes 1 and 4) 24,170,000 24,116,000
Cash surrender value of life insurance (Note 7) - 6,215,000
Investments (Note 1) 925,000 -
Other assets, net 581,000 389,000
----------------- -----------------
$ 92,316,000 $ 83,673,000
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,949,000 $ 2,804,000
Accrued liabilities (Note 6) 3,536,000 3,432,000
----------------- -----------------
Total current liabilities 8,485,000 6,236,000
Deferred compensation (Note 7) 541,000 295,000
----------------- -----------------
Total liabilities 9,026,000 6,531,000
Commitments and contingencies (Notes 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;
7,701,571 and 7,989,404 shares issued and outstanding as of
December 31, 1999 and 1998, respectively 26,964,000 30,309,000
Retained earnings 56,352,000 46,833,000
Accumulated other comprehensive income (26,000) -
------------------ -----------------
Total shareholders' equity 83,290,000 77,142,000
------------------ -----------------
$92,316,000 $ 83,673,000
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales (Notes 1 and 12) $120,383,000 $144,560,000 $149,515,000
Cost of sales 98,610,000 122,195,000 120,982,000
----------------- ----------------- -----------------
Gross profit 21,773,000 22,365,000 28,533,000
Selling, general and administrative 7,418,000 10,394,000 10,757,000
----------------- ----------------- -----------------
Income from operations 14,355,000 11,971,000 17,776,000
Other income, net 1,746,000 1,533,000 975,000
----------------- ----------------- -----------------
Income before income taxes 16,101,000 13,504,000 18,751,000
Provision for income taxes (Notes 1 and 8) 6,582,000 5,672,000 7,875,000
----------------- ----------------- -----------------
Income from continuing operations 9,519,000 7,832,000 10,876,000
Loss from discontinued operations (net of
income tax benefit of $113,000 - Notes 1 and 2) - (157,000) -
----------------- ----------------- -----------------
Net income $ 9,519,000 $ 7,675,000 $ 10,876,000
================= ================= =================
NET INCOME PER SHARE (Notes 1 and 11)
Income from continuing operations per
share - basic $ 1.21 $ .91 $ 1.24
Discontinued operations per share - basic - (.02) -
----------------- ----------------- -----------------
Net income per share - basic $ 1.21 $ .89 $ 1.24
================= ================= =================
Weighted average shares outstanding 7,892,360 8,637,724 8,797,734
================= ================= =================
Income from continuing operations per share -
diluted $ 1.20 $ .89 $ 1.22
Discontinued operations per share - diluted - (.02) -
----------------- ----------------- -----------------
Net income per share - diluted $ 1.20 $ .87 $ 1.22
================= ================= =================
Diluted weighted average shares outstanding 7,923,957 8,837,304 8,924,262
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock Other
-------------------------- Compre-
Number of Retained hensive Comprehensive
Shares Amount Earnings Income Total Income
---------- ------------ ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 8,777,890 $ 38,205,000 $28,282,000 $ -- $ 66,487,000
Stock options exercised, including related
income tax benefit (Note 10) 71,115 759,000 759,000
Director compensatory stock options 269,000 269,000
Net income 10,876,000 10,876,000 10,876,000
---------- ------------ ----------- -------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 8,849,005 39,233,000 39,158,000 78,391,000 $ 10,876,000
Stock options exercised, including related ============
income 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)
Net income 7,675,000 7,675,000 7,675,000
---------- ------------ ----------- -------- ------------ ------------
BALANCE AT DECEMBER 31, 1998 7,989,404 30,309,000 46,833,000 77,142,000 $ 7,675,000
Stock options exercised, including related ============
income tax benefit (Note 10) 4,667 48,000 48,000
Repurchase of common stock (292,500) (3,393,000) (3,393,000)
Unrealized loss on investments, net of
income tax benefit of $19,000 (26,000) (26,000) (26,000)
Net income 9,519,000 9,519,000 9,519,000
---------- ------------ ----------- -------- ------------ ------------
BALANCE AT DECEMBER 31, 1999 7,701,571 $ 26,964,000 $56,352,000 $(26,000) $ 83,290,000 $ 9,493,000
========== ============ =========== ======== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
COASTCAST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,519,000 $ 7,675,000 $ 10,876,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,089,000 3,375,000 2,838,000
Goodwill amortization 18,000 -- --
Loss on disposal of machinery and equipment 91,000 1,001,000 305,000
Change in accrual for disposal of aerospace business -- (701,000) (180,000)
Deferred compensation 246,000 (1,319,000) 1,176,000
Deferred income taxes (334,000) 765,000 (656,000)
Non-employee director compensatory stock options -- 269,000 269,000
Changes in operating assets and liabilities:
Trade accounts receivable (1,621,000) 5,337,000 (1,110,000)
Inventories (728,000) 10,882,000 452,000
Prepaid expenses and other current assets 4,216,000 (4,370,000) 2,781,000
Accounts payable and accrued liabilities 2,127,000 (3,784,000) 845,000
------------ ------------ ------------
Net cash provided by operating activities 17,623,000 19,130,000 17,596,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,247,000) (8,787,000) (2,127,000)
Proceeds from disposal of machinery and equipment 80,000 687,000 76,000
Surrender (purchase) of life insurance policies 6,215,000 (2,686,000) (1,857,000)
Purchase of investments (1,107,000) -- --
Sales/maturities of investments 136,000 -- --
Purchase of business, net of cash acquired (233,000) -- --
Other assets 67,000 213,000 (320,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 911,000 (10,573,000) (4,228,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit 48,000 3,184,000 759,000
Repurchase of common stock (3,393,000) (12,377,000) --
------------ ------------ ------------
Net cash (used in) provided by financing activities (3,345,000) (9,193,000) 759,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,189,000 (636,000) 14,127,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 27,551,000 28,187,000 14,060,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,740,000 $ 27,551,000 $ 28,187,000
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 3,436,000 $ 8,546,000 $ 5,544,000
============ ============ ============
</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 subsidiaries. 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 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 has three wholly-owned subsidiaries, two are
incorporated under the laws of the Mexican maquiladora program and their
principal activities are the production of golf clubheads, and the other is
incorporated in the State of California and manufactures aluminum compressor
wheels.
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 the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<S> <C>
Building and improvements 5-31 years
Machinery and equipment 5-7 years
Transportation 5-7 years
Furniture, fixtures and computers 3-7 years
</TABLE>
28
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of an asset, an impairment loss is recognized.
INVESTMENTS-- Investments are included in an irrevocable rabbi trust and
are considered available for sale and carried at fair value. Fair value for
fixed maturity investments and equity securities is based on quoted market
prices. Unrealized appreciation or depreciation on fixed maturity investments
and equity securities is included in shareholders' equity. Gains and losses on
sales of investments are computed on the specific identification method and are
reflected in Other income, net.
INCOME TAXES--Deferred income taxes are recognized based on differences
between the financial statement and tax bases 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 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 reclassified to
reflect the current year presentation.
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, 2001. The
Company believes that the effect of the adoption of Statement No. 133 will not
be material on its results of operations or financial position.
2. DISCONTINUED OPERATIONS
The plan adopted in 1993 to phase out the aerospace business was
substantially completed in 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,
--------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Raw materials and supplies $ 4,771,000 $ 5,137,000
Tooling 165,000 225,000
Work-in-process 5,698,000 4,019,000
Finished goods 425,000 945,000
------------------- -------------------
$ 11,059,000 $ 10,326,000
=================== ===================
</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,
---------------------------------------------
1999 1998
-------------------- -------------------
<S> <C> <C>
Land $ 2,186,000 $ 2,186,000
Buildings and improvements 10,517,000 9,945,000
Machinery and equipment 29,115,000 27,861,000
Transportation 2,436,000 857,000
Furniture, fixtures and computers 3,659,000 3,078,000
-------------------- -------------------
47,913,000 43,927,000
Less accumulated depreciation and amortization 23,743,000 19,811,000
-------------------- -------------------
$ 24,170,000 $ 24,116,000
==================== ===================
</TABLE>
Depreciation and amortization expense for 1999, 1998 and 1997 was
$4,089,000, $3,375,000 and $2,838,000, 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, 1999 and 1998. This line of credit, which expires on May 30, 2000,
bears interest at the bank's prime rate or LIBOR plus 2%.
30
<PAGE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1999 1998
--------------------- --------------------
<S> <C> <C>
Accrued payroll and related expenses $ 1,533,000 $ 1,279,000
Accrued vacation 931,000 738,000
Accrued insurance 504,000 668,000
Other accrued expenses 568,000 747,000
--------------------- --------------------
$ 3,536,000 $ 3,432,000
===================== ====================
</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,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 2,280,000 $ 1,778,000
Service cost 48,000 75,000
Interest cost 140,000 139,000
Actuarial loss from change in assumptions (207,000) 384,000
Actuarial loss (gain) 39,000 (33,000)
Benefits paid (146,000) (63,000)
----------- -----------
Benefit obligation at end of year 2,154,000 2,280,000
=========== ===========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 2,239,000 2,187,000
Actual return on plan assets 114,000 115,000
Benefits paid (146,000) (63,000)
----------- -----------
Fair value of plan assets at end of year 2,207,000 2,239,000
=========== ===========
Funded status 53,000 (41,000)
Unrecognized actuarial loss (gain) (29,000) 101,000
Unrecognized prior service cost 84,000 91,000
Unrecognized transition obligation (96,000) (121,000)
----------- -----------
Net amount recognized $ 12,000 $ 30,000
=========== ===========
COMPONENTS OF NET PENSION COST:
Service cost $ 48,000 $ 75,000 $ 34,000
Interest cost 140,000 139,000 112,000
Return on plan assets (114,000) (115,000) (347,000)
Amortization and deferral (56,000) (44,000) 199,000
----------- ----------- -----------
Net pension cost (income) $ 18,000 $ 55,000 $ (2,000)
=========== =========== ===========
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7% and 6.5% in 1999 and
1998, respectively. The expected long-term rate of return on assets was 7% and
6.5% for 1999 and 1998, 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 $93,000, $108,000 and $78,000 during
1999, 1998 and 1997, 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, except for the Chairman and Chief Executive Officer who voluntarily
relinquished all of his rights 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. Under the amended plan, benefits
generally accrues ratably over 25 years of service at 2% per year (up to a
maximum of 25 years of service) with the actual benefit being dependent on years
of service with Company subject to the social security offset.
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,
------------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 1,459,000 $ 4,631,000
Curtailment as of January 1, 1998 -- (4,032,000)
Service cost 94,000 81,000
Interest cost 83,000 83,000
Actuarial loss (gain) from change in assumptions (162,000) 93,000
Amendment 7,000 186,000
Actuarial loss (gain) (130,000) 417,000
----------- -----------
Benefit obligation at end of year 1,351,000 1,459,000
=========== ===========
CHANGE IN PLAN ASSETS: -- --
=========== ===========
Funded status (1,351,000) (1,459,000)
Unrecognized actuarial loss 191,000 491,000
Unrecognized prior service cost 162,000 177,000
Unrecognized transition obligation 457,000 496,000
----------- -----------
(Accrued)/prepaid benefit cost $ (541,000) $ (295,000)
=========== ===========
COMPONENTS OF NET PENSION COST:
Service cost $ 94,000 $ 81,000 $ 759,000
Interest cost 83,000 83,000 276,000
Amortization and deferral 69,000 74,000 198,000
Curtailment/forfeitures -- (1,807,000) (128,000)
1996 amortized (unamortized) expense -- 250,000 71,000
----------- ----------- -----------
Net pension cost (income) $ 246,000 $(1,319,000) $ 1,176,000
=========== =========== ===========
</TABLE>
33
<PAGE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% for both 1999 and
1998. To fund this plan, the Company prior to December 31, 1998 purchased
whole-life insurance contracts on certain participants. All the whole-life
insurance contracts were surrendered for cash during 1999. A portion of the cash
received from the surrender of the contracts is invested in marketable
securities 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,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 5,464,000 $ 3,675,000 $ 7,045,000
State 1,173,000 753,000 1,703,000
Foreign 327,000 251,000 (73,000)
----------- ----------- -----------
6,964,000 4,679,000 8,675,000
----------- ----------- -----------
Deferred:
Federal (309,000) 844,000 (651,000)
State (73,000) 149,000 (149,000)
----------- ----------- -----------
(382,000) 993,000 (800,000)
----------- ----------- -----------
$ 6,582,000 $ 5,672,000 $ 7,875,000
=========== =========== ===========
</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,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal income taxes at the statutory rate $ 5,635,000 $ 4,726,000 $ 6,563,000
State income taxes, net of federal benefit 735,000 618,000 1,030,000
California investment tax credit (18,000) (67,000) (30,000)
Other items 230,000 395,000 312,000
----------- ----------- -----------
$ 6,582,000 $ 5,672,000 $ 7,875,000
=========== =========== ===========
</TABLE>
34
<PAGE>
The tax effects of items comprising the Company's net deferred income tax
asset are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Allowance for doubtful accounts $ 210,000 $ 254,000
Deferred compensation 227,000 124,000
Accrued expenses 464,000 404,000
Inventory reserve 575,000 750,000
State income taxes 309,000 299,000
Depreciation 115,000 (252,000)
Other items (415,000) (448,000)
----------- -----------
$ 1,485,000 $ 1,131,000
=========== ===========
</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, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------------
<S> <C>
2000 $ 1,710,000
2001 1,710,000
2002 1,710,000
2003 1,628,000
2004 824,000
Thereafter 2,529,000
-------------
$ 10,111,000
=============
</TABLE>
Rent expense for 1999, 1998 and 1997 was approximately $1,710,000,
$1,669,000 and $1,106,000, 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, 1999, an aggregate of 629,359 shares had been purchased pursuant to
the exercise of options granted under the plan, options to purchase an aggregate
of 781,156 shares were outstanding (including options which were then
exercisable to purchase 547,584 shares), and 539,485 shares were available for
additional grants of options under the plan.
35
<PAGE>
Under the Company's 1995 Amended and Restated Non-Employee Director Stock
Option Plan ("1995 Director Stock Option Plan"), a maximum of 200,000 shares of
common stock may be issued pursuant to exercise of options granted under the
plan to certain non-employee directors. Options are granted under the plan at
prices equal to the fair market value of the shares at the date of grant. The
options generally become exercisable over a three-year period of time and expire
at the earlier of one year after the optionee ceases to be a director or ten
years from the date of grant. As of December 31, 1998, no shares had been
purchased under the plan, options to purchase an aggregate of 200,000 shares
were outstanding under the plan, including 136,666 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, 1999. 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, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
--------- ---------
<S> <C> <C>
Balance, January 1, 1997 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
Granted 111,950 11.33
Forfeited (179,944) 12.92
Exercised (4,667) 10.25
--------- ---------
Balance, December 31, 1999 1,011,156 $ 13.86
========= =========
</TABLE>
36
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE PRICE AT 12/31/99 PRICE
- ------------------- ----------------- ------------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
$7.31 - 10.00 152,500 7.1 $9.09 111,666 $9.62
10.38 - 13.63 370,017 7.2 12.91 230,013 12.68
14.13 375,109 6.5 14.13 291,438 14.13
14.50 - 22.25 73,530 7.0 19.57 41,133 20.28
27.00 - 30.00 40,000 5.9 27.75 40,000 27.75
----------------- ------------------- -------------- ------------------ -----------------
$7.31 - 30.00 1,011,156 6.9 $13.86 714,250 $14.07
================= =================== ============== ================== =================
</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,
----------------------------------------------------------------
1999 1998 1997
------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Net income: As reported $9,519,000 $7,675,000 $10,876,000
Pro forma 9,184,000 6,869,000 8,749,000
Net income per share - basic: As reported $1.21 $.89 $1.24
Pro forma $1.16 $.80 $.99
Net income per share - diluted: As reported $1.20 $.87 $1.22
Pro forma $1.14 $.76 $.95
</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 1999, 1998 and 1997, respectively: no dividend yield,
expected volatility of 67.0%, 71.8% and 67.0%, risk-free interest rate of 5.7%,
4.3% and 5.8%, and expected term of 4.0, 4.0 and 4.6 years. The weighted average
fair value per share of options granted in 1999, 1998 and 1997 was $5.86, $8.33
and $7.42, respectively.
37
<PAGE>
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $ 9,519,000 $ 7,675,000 $10,876,000
----------- ----------- -----------
Numerator for basic and diluted earnings per share--
income available to common stockholders 9,519,000 7,675,000 10,876,000
Denominator:
Denominator for basic earnings per share--
weighted-average shares 7,892,360 8,637,724 8,797,734
Effect of dilutive securities:
Stock options 31,597 199,580 126,528
----------- ----------- -----------
Dilutive potential common shares 31,597 199,580 126,528
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 7,923,957 8,837,304 8,924,262
=========== =========== ===========
Basic earnings per share $ 1.21 $ 0.89 $ 1.24
=========== =========== ===========
Diluted earnings per share $ 1.20 $ 0.87 $ 1.22
=========== =========== ===========
</TABLE>
The anti-dilutive options as of December 31, 1999, 1998 and 1997 were
758,639, 1,023,817 and 116,600, respectively.
12. BUSINESS SEGMENTS
The Company is engaged principally in the business of manufacturing
precision investment-cast titanium and stainless steel golf clubheads,
representing 91%, 93% and 94% of sales for the years ended December 31, 1999,
1998 and 1997, respectively. The Company has determined that it has one
reportable business segment.
The Company derived 47%, 25% and 12% of sales from its three top customers
in 1999, 49%, 22% and 14% of sales from its three top customers in 1998 and 34%,
23%, 15% and 12% of sales from its four top customers in 1997.
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, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999, and have issued our report thereon
dated February 7, 2000; 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 7, 2000
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, 1997 (400,000) (100,000) (500,000)
Year ended December 31, 1998 (500,000) (100,000) (600,000)
Year ended December 31, 1999 (600,000) 100,000 (500,000)
</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, S.A. and Parque
Industrial Mexicali, S.A. de C.V. for the facilities known as Mercurio #70 in Mexicali, Mexico
(8)
10.7 Lease Agreement, dated December 16, 1998, between Coastcast Corporation, S.A. and Parque
Industrial Mexicali, S.A. de C.V. for the facilities known as Avenue Galaxia #50 in Mexicali,
Mexico (8)
10.8 Lease Agreement, dated December 16, 1998, between Coastcast Corporation, S.A. and Parque
Industrial Mexicali, S.A. de C.V. for the facilities known as Mercurio #30 in Mexicali, Mexico
(8)
10.9 Lease Agreement, dated December 10, 1999, between Coastcast Corporation, S.A. and Parque 44
Industrial Mexicali, S.A. de C.V. for the facilities known as Calle Marte #162 in Mexicali,
Mexico
10.10 Guaranty, dated January 26, 1999, by the Company for the lease of the Mexicali, Mexico
facilities known as Mercurio #70 (8)
10.11 Guaranty, dated January 26, 1999, by the Company for the lease of the Mexicali, Mexico
facilities known as Avenue Galaxia #50 (8)
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
10.12 Guaranty, dated January 26, 1999, by the Company for the lease of the Mexicali, Mexico
facilities known as Mercurio #30 (8)
10.13 Guaranty, dated December 10, 1999, by the Company for the lease, dated December 10, 1999 67
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 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 (8)
10.16 Lease Guaranty Agreement, dated August 18, 1998, by the Company for the lease of the Tijuana
facility (8)
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, effective June 1, 1999, between the Company and Imperial Bank (9)
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* Coastcast Corporation Amended and Restated Supplemental Executive Retirement Plan, effective
January 1, 1998 (8)
10.28* Coastcast Corporation Amended and Restated Supplemental Executive Retirement Plan, effective 73
January 1, 1999
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C>
10.29* Trust Agreement by and between Coastcast Corporation and Imperial Trust Company, dated
September 1, 1996 (3)
10.30* Amended and Restated Trust Agreement by and between Coastcast Corporation and Imperial Trust
Company, dated December 18, 1998 (8)
10.31* Second Amendment to the Coastcast Corporation Grantor Trust (10)
10.32 Agreement dated November 6, 1998 between the Company and Jonathan Vannini (7)
10.33* Agreement dated November 6, 1998 between the Company and Richard W. Mora (7)
10.34* Agreement dated January 15, 1999 between the Company and Richard W. Mora (8)
10.35 Stock Purchase Agreement, dated April 22, 1999 between the Company and the selling shareholders
of California Precision Aluminum Casting, Inc. (9)
21 Subsidiaries of the Company 98
23 Consent of Independent Auditors 99
27 Financial Data Schedule 100
</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.
(8) Incorporated by reference to the exhibits to Form 10-K for the fiscal year
ended December 31, 1998.
(9) Incorporated by reference to the exhibits to Form 10-Q for the fiscal
quarter ended June 30, 1999.
(10) Incorporated by reference to the exhibits to Form 10-Q for the fiscal
quarter ended September 30, 1999.
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. 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 3, 4, 5, 9 AND A
PORTION OF LOT 10 OF BLOCK 6, LOCATED IN THE MEXICALI INDUSTRIAL PARK I, AT
CALLE MARTE NUMBER 162, 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 JPARKS 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.
<PAGE>
3
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 "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".
<PAGE>
4
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".
B. INITIAL LEASE TERM. THE INITIAL TERM OF THIS LEASE ("INITIAL TERM")
SHALL COMMENCE ON FEBRUARY 01, 2000 ("COMMENCEMENT DATE") AND SHALL END ON THE
LAST DAY OF THE SEVENTY SEVENTH (77TH) CONSECUTIVE MONTH (JUNE 30, 2006).
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. $29,682.00 DOLLARS, UNITED STATES CURRENCY, (TWENTY NINE THOUSAND
SIX HUNDRED EIGHTY TWO 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. SEVENTY FOUR (74) EQUAL MONTHLY PAYMENTS OF $9,894.00 DOLLARS
(NINE THOUSAND EIGHT HUNDRED NINETY FOUR 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.
<PAGE>
5
3. INCREASE OF MONTHLY RENT COMMENCING ON THE THIRD LEASE YEAR. ON
THE FIRST (1ST) DAY OF THE THIRD LEASE YEAR THE MONTHLY RENT 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 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 MONTH. IN NO EVENT
SHALL THE MONTHLY RENT FOR THE 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-RIVERSIDE-ORANGE COUNTY, CALIFORNIA 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
<PAGE>
6
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.
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.
<PAGE>
7
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.
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 (ONE HUNDRED THOUSAND DOLLARS 00/100, UNITED STATES
CURRENCY).
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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
$720,000.00 DOLLARS (SEVEN HUNDRED TWENTY 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 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.
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9
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 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.
<PAGE> 10
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.
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 PLUMBLING
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 WITHING 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 (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
ATTORNEY'S 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
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11
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 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 THE 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
<PAGE>
12
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 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
<PAGE>
13
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 (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,
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14
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.
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
<PAGE>
15
LEASED PROPERTY, OR THE AREAS ADJOINING THE LEASED PROPERTY AND FROM AND
AGAINST ALL COSTS AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED THEREBY.
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.
<PAGE>
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 (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 SEVENTY SEVEN
(77) MONTH 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
<PAGE>
17
ANOTHER TENANT OR 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 SEVENTY SEVEN (77) MONTH 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 (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 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
might be applicable by reason of their present or future domiciles or
otherwise.
<PAGE>
21
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 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
<PAGE>
22
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.
XXX. This Lease Agreement is in lieu of Lease Agreement dated January 22,
1996.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the
tenth day of december nineteen hundred ninety nine.
"PIMSA" "COMPANY"
/s/ Eduardo Manuel Martinez Palomera /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>
23
RIDER NUMBER 1
TO LEASE AGREEMENT BETWEEN
PARQUE INDUSTRIAL MEXICALI, S.A. DE C.V.
AND
COASTCAST CORPORATION, S.A.
PIMSA'S NUMBERS
The following improvements will be included in this Lease Agreement:
1. 300 kva electrical substation.
<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 10, 1999, FOR THE LEASED
PROPERTY LOCATED ON LOTS 3,4,5,9 AND A PORTION LOT 10 OF BLOCK 6 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 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 ASSIGNMENT, 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 10TH DAY OF
DECEMBER 1999.
<PAGE>
6
"GUARANTOR"
BY: /s/ Hans H. Buehler
-------------------
ITS: CHRMN. & CEO
-------------------
ATTEST:
BY: /s/ Norman Fujitaki
-------------------
ITS: CFO
-------------------
<PAGE>
COASTCAST CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Exhibit 10.28
73
<PAGE>
TABLE OF CONTENTS
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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
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(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.....................................................12
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............................................................13
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................................................15
5.6 Conflict of Interest....................................................15
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..................................................18
7.4 Assignment of Benefits..................................................18
7.5 Other Plans.............................................................18
7.6 Interpretation..........................................................18
7.7 Receipt or Release......................................................19
7.8 Governing Law...........................................................20
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Exhibit A Recognition or Predecessor Employer Service.............................20
Exhibit B Enhanced Benefit Accrual Formula for Larry Cornelius....................21
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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. The Plan was
amended and restated effective as of January 1, 1998 (the "Restatement
Effective Date") to freeze benefits at the level accrued as of December 31,
1997 for all participants as of that date, except Hans Buehler. Mr Buehler
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 continued 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 benefits formula and counts service
prior to the Effective Date for purposes of determining accrued benefits. The
Plan was further amended and restated effective as of January 1, 1999 to
revise the benefit accrual formula by the addition of Section 3.1(d).
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:
Interest rate: 7.5%
Mortality: 1983 Group Annuity Mortality Table (80%of
male factors applied on a unisex basis)
1.2 BOARD. The Board of Directors of Coastcast Corporation or its
delegate.
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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 CONTEDERE 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 holder 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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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 "ORIGINAL EFFECTIVE DATE"). The effective date of this
amended and restated Plan, is January 1, 1998 (the "RESTATEMENT EFFECTIVE
DATE"), 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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1.9 ELIGIBLE EMPLOYEE. A management level or highly compensated
employee of the Company who is designated to participate in the Plan by the
Plan Administrator.
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 purpose 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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(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
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equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan;
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, Norman Fujitaki and Robert Gates. After a Change in
Control, the designation of the Independent Plan Administrator may not be
changed without written consent of a majority of the persons designated as
the 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 annual 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 Restatement Effective
Date. The Prior Plan Benefit is frozen as of December 31, 1997.
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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.
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.
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ARTICLE II
ELIGIBILITY FOR BENEFITS
2.1 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 Restatement Effective
Date 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.
2.2 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
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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.
(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 the 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 date Participant would have become
eligible for Retirement.
(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 the date Participant otherwise would be eligible
for Retirement, Participant 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 the date Participant otherwise
would be eligible for Retirement 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.
2.3 FORFEITURE OF BENEFITS. Notwithstanding anything herein to the
contrary, the benefit payable hereunder to a Participant shall be forfeited
if he:
(a) Engage 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 plan
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
regular 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.
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ARTICLE III
BENEFITS
3.1 AMOUNT OF BENEFIT. A Participant retiring in accordance with
Section 2.2 above will be eligible for a monthly retirement benefit equal to
one-twelfth the greater of the Prior Plan Benefit (as of December 31, 1997)
or the amount determined in Paragraph (a) below.
(a) The annual retirement benefit payable at a Participant's
Normal Retirement Date will be two percent (2%) of his Final Average Salary
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 his
Postponed Retirement Date will equal his benefit determined in accordance
with Paragraph (a) above based on his Years of Service and Final Average
Salary as of his Postponed Retirement Date.
(d) Notwithstanding anything herein to the contrary, the monthly
retirement benefit for Larry Cornelius shall, in lieu of the amount
determined in accordance with Paragraph (a) above, equal one twelfth (1/12)
of the amount determined in Schedule B attached hereto, provided that Mr.
Cornelius continues to be employed through his Normal Retirement Date. In the
event Mr. Cornelius experiences a Termination of Employment for a reason
other than death or Disability prior to attaining his Normal Retirement Date,
the amount of the monthly retirement benefit shall be determined under this
Section 3.1, without regard to this Paragraph (d) or Schedule B.
3.2 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.
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(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.
3.3 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.
(c) The last payment will be on the first day of the month in
which the retired Participant dies or forfeits, 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.
3.4 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.
3.5 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.
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3.6 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.
3.7 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 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.
3.8 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 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.
4.1 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
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<PAGE>
thirteen (13) months prior to Termination of Employment to receive Actuarial
Equivalent reduced benefits beginning on or after his Early Retirement Date.
4.2 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
5.1 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;
(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.
5.2 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
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<PAGE>
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.
5.3 PLAN ADMINISTRATOR PROCEDURE.
(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.
5.4 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 this last address of record with the Plan
Administrator.
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<PAGE>
5.5 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.
5.6 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.
5.7 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
6.1 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.
6.2 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;
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<PAGE>
(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.
6.3 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
(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.
6.4 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
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<PAGE>
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 provision of California Code of
Civil Procedure Sections 1281, et seq. govern this arbitration provision.
6.5 EXHAUSTION OF REMEDIES. No legal action for benefits under
the Plan may brought unless and until the Claimant has exhausted his remedies
under this Article VI.
ARTICLE VII
MISCELLANEOUS MATTERS
7.1 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.
(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.
7.2 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.
-17-
<PAGE>
7.3 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 the 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.
7.4 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. Payments 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 Plan Administrator and the
Company as to the Plan, and shall be equivalent to a receipt and release
pursuant to Section 7.7.
7.5 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.
7.6 INTERPRETATION.
(a) The provisions of this Plan shall in all cases be
interpreted in a manner that is consistent with the 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.
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<PAGE>
(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.
7.7 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.
7.8 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 19th day of February,
1999.
COASTCAST CORPORATION
By: /s/ Hans H. Buehler
-------------------------------
Hans H. Buehler, Chairman & CEO
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<PAGE>
EXHIBIT A
RECOGNITION OF PREDECESSOR EMPLOYER SERVICE
The following designated individuals shall be entitled to Years of Service
credit with the predecessor employer designated opposite their name, provided
they continue to be employed with the Company on the earlier of their Normal
Retirement Date, death or Disability. Years of Service with the designated
predecessor employer will not be credited in the event of Termination of
Employment before Normal Retirement Date for any reason other than death or
Disability.
NAME PREDECESSOR EMPLOYER EMPLOYMENT DATES
- ---- -------------------- ----------------
Gordon Green Chri-Tek Tool and Mold, Inc. August 13, 1997-May 30, 1993
Stanley Green Chri-Tek Tool and Mold, Inc. August 13, 1997-May 30, 1993
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<PAGE>
EXHIBIT B
ENHANCED BENEFIT ACCRUAL FORMULA FOR LARRY CORNELIUS
Subject to the terms of section 3.1(d), the annual retirement benefit
for Larry Cornelius (the "Participant") shall be equal to the greater of the
Prior Plan Benefit (as of December 31, 1997) or the amount determined in
Paragraph (A) below.
(A) The annual retirement benefit payable at the Participant's
Normal Retirement Date will be determined based on the designated percentage
for the specified period, as follows:
(1) fourteen percent (14%) of his Final Average Earnings for
the cumulative Years of Service periods prior to January
1, 1999; plus
(2) three percent (3%) of his Final Average Earnings for
each Year of Service during Plan Years 1999 through 2001;
plus
(3) five percent (5%) of his Final Average Earnings for each
Year of Service during Plan Years 2002 through 2004; plus
(4) six percent (6%) of his Final Average Earnings for each
Year of Service during Plan Years 2005 through 2006.
However, in no event will a cumulative percentage in excess of fifty percent
(50%) be taken into account in determining the amount of the Participant's
benefit.
(B) The amount determined in Paragraph (A) above shall be reduced
by the following amounts:
(1) The Participant's Estimated Social Security Benefit; and
(2) The amount of the benefit payable as a straight life
annuity at Normal Retirement Date, based on the Actuarial Equivalent value of
the benefit, if any, funded by the Company that is payable pursuant to the
terms of any tax-qualified defined benefit pension plan sponsored by the
Company.
-21-
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Coastcast Corporation, S.A. a Mexico corporation
Coastcast Tijuana, S. de R.L. de C.V., a Mexico corporation
California Precision Aluminum Casting, Inc., a California 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
7, 2000, appearing in this Annual Report on Form 10-K of Coastcast
Corporation for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 2, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOR THE YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
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<SALES> 120,383
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