-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnN8UNytFTNRChbDrUNI9SnhqfVIKA0Khl+FmTTNeIGENB2gsYeVzPN1Lcc+tvnE b/mqFz3hAZfSn7lCpBlmaQ== 0000912057-96-024617.txt : 19961106 0000912057-96-024617.hdr.sgml : 19961106 ACCESSION NUMBER: 0000912057-96-024617 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961105 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COASTCAST CORP CENTRAL INDEX KEY: 0000914479 STANDARD INDUSTRIAL CLASSIFICATION: NONFERROUS FOUNDRIES (CASTINGS) [3360] IRS NUMBER: 953454926 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12676 FILM NUMBER: 96654020 BUSINESS ADDRESS: STREET 1: 3025 E VICTORIA ST CITY: RANCHO DOMINGUEZ STATE: CA ZIP: 90221 BUSINESS PHONE: 3106380595 MAIL ADDRESS: STREET 1: 3025 EAST VICTORIA ST CITY: RANCHO DOMINIQUEZ STATE: CA ZIP: 90221 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to __________ --------------------------------- Commission file number 1-12676 COASTCAST CORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 95-3454926 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3025 EAST VICTORIA STREET, RANCHO DOMINGUEZ, CA 90221 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310)638-0595 Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- At November 1, 1996 there were outstanding 8,777,890 shares of common stock, no par value. 1 COASTCAST CORPORATION INDEX Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 (Unaudited) 3 Condensed Consolidated Statements of Income Three Months Ended September 30, 1996 and 1995 (Unaudited) 4 Nine Months Ended September 30, 1996 and 1995 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION: Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 2 COASTCAST CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) ASSETS September 30, December 31, 1996 1995 -------------- -------------- Current assets: Cash and cash equivalents $ 16,639,000 $ 9,237,000 Short-term investments, at cost, which approximates market value 2,554,000 14,718,000 Accounts receivable, net of allowance for doubtful accounts of $400,000 and $300,000 at September 30, 1996 and December 31, 1995, respectively 12,524,000 7,198,000 Inventories (Note 2) 18,720,000 7,611,000 Prepaid expenses and other current assets 2,788,000 2,743,000 Deferred income taxes 1,240,000 1,240,000 Net current assets of discontinued operations (Note 3) 776,000 697,000 ----------- ----------- Total current assets 55,241,000 43,444,000 Property, plant and equipment, net of accumulated depreciation and amortization of $14,296,000 and $12,676,000 at September 30, 1996 and December 31, 1995, respectively 19,651,000 15,214,000 Other assets 1,952,000 250,000 ----------- ----------- Total assets $76,844,000 $58,908,000 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,048,000 $ 3,833,000 Accrued liabilities 4,744,000 4,823,000 Income taxes payable 467,000 - ----------- ----------- Total current liabilities 12,259,000 8,656,000 Deferred compensation 111,000 - ----------- ----------- Total liabilities 12,370,000 8,656,000 Commitments and contingencies Shareholders' equity: Preferred stock, no par value, 2,000,000 shares authorized, none issued and outstanding - - Common stock, no par value, 20,000,000 shares authorized; 8,777,890 and 8,734,694 shares issued and outstanding as of September 30, 1996 and December 31, 1995, respectively 37,869,000 37,036,000 Retained earnings 26,605 000 13,216,000 ----------- ----------- Total shareholders' equity 64,474,000 50,252,000 ----------- ----------- Total liabilities and shareholders' equity $76,844,000 $58,908,000 ----------- ----------- ----------- -----------
See notes to condensed consolidated financial statements. 3 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended September 30, -------------------------------- 1996 1995 -------------------------------- Sales $ 41,495,000 $ 17,305,000 Cost of sales 31,943,000 13,974,000 -------------- -------------- Gross profit 9,552,000 3,331,000 Selling, general and administrative expenses 1,678,000 1,604,000 -------------- -------------- Income from operations 7,874,000 1,727,000 Other income 238,000 418,000 -------------- -------------- Income before settlement of class action lawsuit and provision for income taxes 8,112,000 2,145,000 Class action lawsuit settlement expense - 2,075,000 -------------- -------------- Income before provision for income taxes 8,112,000 70,000 Provision for income taxes 3,245,000 29,000 -------------- -------------- Net income $ 4,867,000 $ 41,000 -------------- -------------- -------------- -------------- Net income per share (Note 4) $ .54 $ .00 ------ ------ Weighted average shares outstanding 9,087,334 9,141,047 See notes to condensed consolidated financial statements. 4 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Nine Months Ended September 30, -------------------------------- 1996 1995 -------------- -------------- Sales $ 113,347,000 $ 62,024,000 Cost of sales 84,439,000 49,503,000 -------------- -------------- Gross profit 28,908,000 12,521,000 Selling, general and administrative expenses 7,052,000 5,182,000 -------------- -------------- Income from operations 21,856,000 7,339,000 Other income 846,000 1,154,000 -------------- -------------- Income before settlement of class action lawsuit and provision for income taxes 22,702,000 8,493,000 Class action lawsuit settlement expense - 2,075,000 -------------- -------------- Income before provision for income taxes 22,702,000 6,418,000 Provision for income taxes 9,313,000 2,631,000 -------------- -------------- Net income $ 13,389,000 $ 3,787,000 -------------- -------------- -------------- -------------- Net income per share (Note 4) $1.48 $.41 ----- ---- Weighted average shares outstanding 9,064,076 9,148,081 See notes to condensed consolidated financial statements. 5 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, ---------------------------------- 1996 1995 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,389,000 $ 3,787,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,784,000 1,362,000 Loss on disposal of machinery and equipment 60,000 66,000 Deferred compensation 111,000 - Deferred income taxes 61,000 95,000 Changes in operating assets and liabilities: Accounts receivable (5,326,000) (243,000) Inventories (11,109,000) 2,054,000 Prepaid expenses and other current assets (45,000) 419,000 Income taxes payable 467,000 - Accounts payable and accrued liabilities 3,136,000 614,000 Change in accrual for disposal of aerospace business (139,000) (233,000) ------------- ------------- Net cash provided by operating activities 2,389,000 7,921,000 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net sales of short-term investments 12,164,000 2,060,000 Purchase of property, plant and equipment (6,282,000) (2,458,000) Proceeds from disposal of machinery and equipment - - Other assets (1,702,000) (681,000) ------------- ------------- Net cash provided by (used in) investing activities 4,180,000 (1,079,000) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock upon exercise of options net of related tax benefit 834,000 - Non-employee director stock options 202,000 - Repurchase of common stock (203,000) - ------------- ------------- Net cash provided by financing activities 833,000 - ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 7,402,000 6,842,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,237,000 7,188,000 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,639,000 $ 14,030,000 ------------- ------------- ------------- -------------
See notes to condensed consolidated financial statements. 6 COASTCAST CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The condensed consolidated balance sheet as of September 30, 1996, the related condensed consolidated statements of income for the three and nine months and cash flows for the nine months ended September 30, 1996 and 1995 have been prepared by Coastcast Corporation (the "Company") without audit. In the opinion of management, all adjustments (consisting only of normal recurring accruals) have been made which are necessary to present fairly the financial position, results of operations and cash flows of the Company at September 30, 1996 and for the periods then ended. Although the Company believes that the disclosure in the condensed consolidated financial statements is adequate for a fair presentation thereof, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The December 31, 1995 audited statements were included in the Company's annual report on Form 10-K under the Securities Exchange Act of 1934 for the year ended December 31, 1995. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto contained in that annual report. The results of operations for the periods ended September 30, 1996 are not necessarily indicative of the results for the full year. 2. INVENTORIES Inventories consisted of the following: September 30, December 31, 1996 1995 ------------ ------------ Raw materials and supplies $8,079,000 $1,546,000 Tooling 224,000 178,000 Work-in-process 9,607,000 4,981,000 Finished goods 810,000 906,000 ----------- ----------- $18,720,000 $7,611,000 ----------- ----------- ----------- ----------- 3. DISCONTINUED OPERATIONS The plan adopted in October 1993 to phase out the aerospace business was essentially completed by June 1994. The net current assets of discontinued operations as of September 30, 1996 were $776,000, 7 principally consisting of the estimated net realizable value of the Wallingford, Connecticut property including the related deferred tax asset. In connection with the offering for sale of the Wallingford, Connecticut property, the Company had an environmental assessment performed, which identified the presence of certain chemicals associated with chlorinated solvents in groundwater beneath a portion of the property. The Company is currently conducting further investigation to determine the source and extent of the contamination. The Company has recorded the net assets associated with its discontinued operations at the estimated net realizable value. However, since the precise source and extent of the contamination has not been identified at this time, no assurances can be given that the proceeds to be realized upon the sale of this property less the cost of remediation will equal or exceed the estimated net realizable value. 4. EARNINGS PER SHARE Net income per share is based on the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from stock options, using the treasury stock method. 8 COASTCAST CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales increased 139.9% and 82.7% to $41.5 million and $113.3 million for the three months and nine months ended September 30, 1996, respectively, from $17.3 million and $62.0 million for the three months and nine months ended September 30, 1995, respectively. The increase was primarily due to sales of titanium clubheads, mainly metal wood clubheads, which have significantly higher unit sales prices than steel-alloy clubheads. Sales of titanium clubheads were partially offset by a decrease in sales of steel-alloy metal wood clubheads. Titanium clubhead sales represented 65% and 54% of total sales for the three months and nine months ended September 30, 1996, respectively. Gross profit increased 187.9% and 131.2% to $9.5 million and $28.9 million for the three months and nine months ended September 30, 1996, respectively, from $3.3 million and $12.5 million for the three months and nine months ended September 30, 1995. Gross profit margins increased to 23.0% and 25.5% for the three months and nine months ended September 30, 1996 respectively, from 19.2% and 20.2% for the comparable prior year periods, due principally to the shift in production to titanium clubheads. Selling, general and administrative expense increased 6.2% and 36.5% to $1.7 million and $7.1 million for the three months and nine months ended September 30, 1996, respectively, from $1.6 million and $5.2 million for the comparable prior year periods. An increase in payroll and related expenses for the three months ended September 30, 1996, compared to the prior year period was almost offset by a decrease in legal fees. The increase for the nine month period over the comparable prior year period was due primarily to increased payroll and related expenses and increased legal fees. DISCONTINUED OPERATIONS The plan adopted in October 1993 to phase out the aerospace business was essentially completed by June 1994. The net current assets of discontinued operations as of September 30, 1996 were $776,000, principally consisting of the estimated net realizable value of the Wallingford, Connecticut property including the related deferred tax asset. In connection with the offering for sale of the Wallingford, Connecticut property, the Company had an environmental assessment performed, which identified the presence of certain chemicals associated with chlorinated solvents in groundwater beneath a portion of the property. The Company is currently conducting further investigation to determine the source and extent of the contamination. The Company has recorded the net assets associated with its discontinued operations at the estimated net realizable value. However, since the precise source and extent of the contamination has not been identified at this time, no assurances can be given that the proceeds to be realized upon the sale of this property less the cost of remediation will equal or exceed the estimated net realizable value. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and short-term investments position at September 30, 1996, was $19.2 million compared to $23.9 million on December 31, 1995, a decrease of $4.7 million. Net cash provided by operating activities was $2.4 million for the nine months ended September 30, 1996. The operating activities net cash was primarily provided by net income of $13.4 million, depreciation and amortization of $1.8 million and an increase in accounts payable and accrued liabilities of $3.1 million, partially offset by an increase in inventories of $11.1 million and an increase in accounts receivable of $5.3 million. Capital expenditures were $6.3 million for the nine months ended September 30, 1996. On October 25, 1995, the Board of Directors authorized the Company to purchase up to one million shares of the Company's common stock from time to time in the open market or negotiated transactions. For the nine months ended September 30, 1996, the Company purchased and retired 13,800 shares for $203,000. As of September 30, 1996, there were 596,400 shares remaining to be purchased under this authorization. The Company has no long term debt. The Company believes that its current cash position, working capital generated from future operations and the ability to borrow from financial institutions should be adequate to meet its financing requirements for the foreseeable future. 10 COASTCAST CORPORATION PART II. OTHER INFORMATION Item 5. Other Information The following business risks, as disclosed in Part II, Item 5 "Market for Registrant's Common Equity and Related Stockholder Matters" on Form 10-K for the fiscal year ended December 31, 1995, are hereby incorporated by reference as those set forth fully herein: Customer concentration Competition New products New materials and processes Manufacturing cost variations Dependence on polishing and finishing plant in Mexico Hazardous waste Dependence on discretionary consumer spending Seasonality; fluctuations in operating results Reliance on key personnel Shares eligible for future sale Fluctuations in Callaway Golf Company shares. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit: 10.1 Coastcast Corporation Supplemental Executive Retirement Plan, effective September 1, 1996 10.2 First Amendment to Coastcast Corporation Supplemental Executive Retirement Plan,effective September 1, 1996 10.3 Trust Agreement by and between Coastcast Corporation and Imperial Trust Company, dated September 1, 1996 11.1 Statement re: computation of per share earnings (b) Reports on Form 8-K: None 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COASTCAST CORPORATION November 1, 1996 By /s/ Robert C. Bruning - --------------------- -------------------------------------- Dated Robert C. Bruning Chief Financial Officer (Duly Authorized and Principal Financial Officer) 12 EX-10.1 2 EXHIBIT 10.1 COASTCAST CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN This Supplemental Executive Retirement Plan (the "Plan") is hereby established by Coastcast Corporation, a California corporation (the "Company"), effective September 1, 1996, for the purpose of attracting high quality employees and promoting in its employees increased efficiency and an interest in the successful operation of the Company by providing selected employees with benefits upon retirement. ARTICLE I DEFINITIONS 1.1 ADMINISTRATIVE COMMITTEE shall mean the Benefits Committee appointed by the Board of Directors of the Company to administer the Plan pursuant to Article 5 of the Plan. 1.2 BENEFICIARY shall mean the person(s) or entity designated as such in accordance with Article 7 of the Plan. 1.3 DISABILITY shall mean any cessation of the Participant's employment with the Company as a result of a physical or mental condition which prevents the Participant from performing important duties of his or her current employment. The Administrative Committee, in its complete and sole discretion, shall determine a Participant's Disability. At all times during the period of Disability, the Participant must be receiving regular and personal medical care from a competent physician unless the Participant provides the Administrative Committee with written proof acceptable to the Administrative Committee indicating that further medical care would be of no benefit. The Administrative Committee may require that the Participant submit to an examination by a competent physician or medical clinic selected by the Administrative Committee on an annual basis to confirm Disability. On the basis of such medical evidence, the determination of the Administrative Committee as to whether or not a condition of Disability exists or continues shall be conclusive. 1.4 CHANGE IN CONTROL shall mean either: (a) the dissolution or liquidation of Company; (b) a reorganization, merger or consolidation of Company with one or more corporations as a result of which Company is not the surviving corporation; (c) approval by the stockholders of Company of any sale, lease, exchange or other transfer (in one or a series of transactions) of all or substantially all of the assets of Company; or (d) approval by the stockholders of Company of any merger or consolidation of Company in which the holders of the voting stock of Company immediately before the merger or consolidation will not own fifty percent (50%) or more of the voting shares of the continuing or surviving corporation immediately after such merger or consolidation. EXHIBIT 10.1 1 of 9 13 1.5 EARLY RETIREMENT DATE shall mean the date on which the Participant attains age fifty-five (55) having completed at least five (5) Years of Participation. 1.6 ELIGIBLE EMPLOYEE shall mean a management level or highly compensated employee of the Company designated by the Administrative Committee to be eligible to participate in the Plan. 1.7 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.8 FINAL AVERAGE SALARY shall mean the Participant's average annual salary (excluding bonuses and other non-regular forms of compensation) earned from the Company (before adjustments for 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 earlier of Termination of Employment or the Normal Retirement Date. 1.9 FINANCIAL HARDSHIP shall mean an unexpected need for cash arising from illness, casualty loss, sudden financial reversal, or other such unforeseeable occurrence which is not covered by insurance and which is determined to qualify as a Financial Hardship by the Administrative Committee. Cash needs arising from foreseeable events such as the purchase of a residence or education expenses for children shall not, alone, be considered a Financial Hardship. 1.10 NORMAL RETIREMENT DATE shall mean the date on which the Participant attains age sixty-five (65). 1.11 PARTICIPANT shall mean an Eligible Employee who has become a participant in the Plan in accordance with Article 2 of the Plan. 1.12 PLAN YEAR shall mean the calendar year except that the first Plan Year shall begin on the effective date of the Plan and end on December 31, 1996. 1.13 TARGET RETIREMENT BENEFIT shall mean the Target Retirement Benefit as defined in paragraph 3.1 of the Plan. 1.14 TERMINATION FOR CAUSE shall mean (a) a breach of the Participant's fiduciary duty to the Company by reason of receipt of personal profits, (b) conviction of a felony, or (c) any other willful and gross misconduct committed by the Participant. 1.15 TERMINATION OF EMPLOYMENT shall mean the Participant's ceasing to be employed by the Company for any reason whatsoever, voluntary or involuntary, including by reason of the Participant's death or, to the extent provided in paragraph 3.7 of the Plan, the Participant's Disability. 1.16 YEARS OF PARTICIPATION shall mean the number of complete Plan Years that the Participant has been a Participant in the Plan while employed with the Company, beginning with the first Plan Year in which the Participant commenced participation in the Plan pursuant to Article 2 of 2 of 9 14 COASTCAST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN the Plan. Participants beginning participation in the Plan on the effective date of the Plan shall receive a full Year of Participation for the first short Plan Year. Notwithstanding the foregoing, in no event shall a Participant's total Year of Participation for purpose of this Plan exceed ten (10) years. ARTICLE 2 PARTICIPATION AND ELIGIBILITY All Eligible Employees are automatically enrolled in the Plan as of the date designated by the Administrative Committee. ARTICLE 3 BENEFITS 3.1 TARGET RETIREMENT BENEFIT. The Target Retirement Benefit shall be an annual amount, payable over the lifetime of the Participant, equal to the Participant's Years of Participation multiplied by seven percent (7%) multiplied by the Participant's Final Average Salary. The Target Retirement Benefit shall be paid in monthly installments over the lifetime of the Participant unless the Participant elects up to thirteen (13) months prior to Termination of Employment to receive actuarially adjusted benefits (based on reasonable actuarial assumptions) payable over the joint lives of the Participant and his or her spouse. 3.2 NORMAL RETIREMENT BEGINNING DATE. In the event of the Participant's Termination of Employment on or after the Normal Retirement Date, the Participant shall be entitled to receive the Target Retirement Benefit beginning sixty (60) days following the Normal Retirement Date. 3.3 EARLY RETIREMENT BENEFIT. In the event of the Participant's Termination of Employment prior to the Normal Retirement Date but on or after completing at least five (5) Years of Participation, if the Termination of Employment was not a Termination for Cause and if the Participant has fully complied with the provisions of paragraph 3.4 of the Plan, the Participant shall be entitled to receive the Target Retirement Benefit beginning sixty (60) days after the Normal Retirement Date. Notwithstanding the foregoing, the Participant may elect up to thirteen (13) months prior to Termination of Employment to receive actuarially reduced benefits (based on reasonable actuarial assumptions) beginning on or after the Early Retirement Date. 3.4 REQUIREMENT NOT TO COMPETE. Prior to the Participant's Normal Retirement Date, the Participant shall, in exchange for the right to continued benefits under this Plan, not engage or participate (as a partner, shareholder, director, officer, employee, agent, representative or independent contractor, or in any other capacity calling for the making of an investment or the performance of services) in any business which is competitive with the business of the Company. 3 of 9 15 COASTCAST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN For this purpose, a business which is competitive with the Company shall mean any business involved in the casting of golf club heads for manufacturers of premium price golf clubs. 3.5 PRE-RETIREMENT SURVIVOR BENEFIT. In the event of the Participant's death prior to Termination of Employment the Participant's designated Beneficiary shall be entitled to receive the Target Retirement Benefit actuarially adjusted using reasonable actuarial assumptions to be paid in the form of a single lump sum ninety (90) days after the death of the Participant. 3.6 POST-RETIREMENT SURVIVOR 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 to have benefits payable over the joint lives of the Participant and his or her spouse, in which case benefit payments shall continue over the life of the Participant's spouse. 3.7 DISABILITY. For purpose of calculating benefits under the Plan, Disability shall not be treated as a Termination of Employment and the Participant shall continue to accrue Years of Participation during Disability, unless such Disability continues through the Normal Retirement Date. If Disability continues through such date, Termination of Employment shall be deemed to occur on the Normal Retirement Date and the Participant shall be entitled to receive the benefits provided upon normal retirement under this Plan. 3.8 ADJUSTED BENEFIT ON CHANGE IN CONTROL. Notwithstanding the foregoing, in the event of the Participant's Termination of Employment for any reason on or after a Change in Control, the Participant shall be entitled to receive the Target Retirement Benefit calculated by using ten (10) years of participation payable beginning sixty (60) days after the Normal Retirement Date. In the alternative, the Participant may elect up to thirteen (13) months prior to Termination of Employment to receive actuarially reduced benefits (based on reasonable actuarial assumptions) beginning on or after Termination of Employment. In the event of the Participant's Termination of Employment on or after a Change in Control, the Participant shall no longer be required to comply with the provisions of paragraph 3.4 of the Plan. ARTICLE 4 FINANCIAL HARDSHIP DISTRIBUTION Upon a finding that the Participant or the Beneficiary has suffered a Financial Hardship, the Administrative Committee may in its sole discretion, accelerate distributions of benefits under the Plan in the amount reasonably necessary to alleviate such Financial Hardship. For purposes of determining the amount available for distribution to a Participant in the event of a Financial Hardship, Final Average Salary shall be calculated as if a Termination of Employment occurred on the date the Administrative Committee finds that the Participant to have suffered such Financial Hardship. 4 of 9 16 COASTCAST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE 5 CONDITIONS RELATED TO BENEFITS 5.1 RIGHTS ON TERMINATION OF EMPLOYMENT. Except as expressly provided in the Plan, the Company will not be required or be liable to make any payments under the Plan subsequent to the Participant's (a) Termination for Cause or (b) Termination of Employment prior to completing five (5) Years of Participation. 5.2 AMENDMENT OR TERMINATION OF AGREEMENT. The Company may direct the Administrative Committee to amend or terminate the Plan at any time prior to Termination of Employment. However, if the Company terminates the Plan or amends the Plan in any manner resulting in a reduction of accrued benefits or a delay in vesting of accrued benefits of any Participant, the effective date of such termination or amendment shall be treated as the Early Retirement Date for such Participant and such Participant shall be entitled to the benefits provided under Section 3.3 without regard to the non-competition requirement of Section 3.4 and without regard to such termination or amendment of the Plan. If, after a Change in Control, the Company terminates the Plan or amends the Plan in any MANNER resulting in a reduction of accrued benefits or a delay in vesting of accrued benefits of any Participant, the effective date of such termination or amendment shall be treated as a Termination of Employment on or after a Change in Control and such Participant shall be entitled to the benefits provided under Section 3.8 without regard to such termination or amendment of the Plan. Any amendment or termination of the Plan after a Participant's Termination of Employment shall not affect benefits payable to such Participant or his or her Beneficiary under the Plan. 5.3 NO RIGHT TO COMPANY ASSETS. The benefits paid under the Plan will be paid from the general funds of the Company, and the Participant and any Beneficiary will be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder. 5.4 TRUST. The Company shall be responsible for the payment of all benefits under the Plan. At its discretion, the Company may establish one or more grantor trusts for the purposes of providing for payment of benefits under the Plan. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's creditors. Benefits paid to the Participant from any such trust or trusts shall be considered paid by the Company for purposes of meeting the obligations of the Company under the Plan. 5.5 PROTECTIVE PROVISIONS. The Participant shall cooperate with the Company by furnishing any and all information requested by the Administrative Committee, in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Administrative Committee may deem necessary and taking such other actions as may be requested by the Administrative Committee. If the Participant refuses to so cooperate, the Company shall have no further obligation to the Participant under the Plan. In the event of the Participant's suicide during the first two (2) years of participation in the Plan, or if the Participant makes any material 5 of 9 17 COASTCAST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN misstatement of information or nondisclosure of medical history, then, in the sole discretion of the Administrative Committee, benefits may be payable in a reduced amount to account for the Company's losses under any insurance product. 5.6 TAX LIABILITY AND WITHHOLDING. The Participant or Beneficiary shall make appropriate arrangements with the Company for the satisfaction of any federal, state or local income tax withholding requirements and Social Security or other employee tax requirements applicable to the provision of benefits under this Plan, If no other arrangements are made, the Company may provide, at its discretion, for such withholding and tax payments as may be required. In the event that at any time a determination is made by the Internal Revenue Service that a Participant or Beneficiary is in constructive receipt of any benefits payable under the Plan, the Company shall accelerate such benefits payable under the Plan to such Participant or Beneficiary. ARTICLE 6 ADMINISTRATION/CLAIMS PROCEDURES 6.1 ADMINISTRATION. The Administrative Committee shall administer the Plan and interpret, construe and apply its provisions in accordance with its terms. The Administrative Committee shall further establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Administrative Committee shall be final and binding, subject only to a determination otherwise by the Board of Directors of the Company. 6.2 NOTICE OF RIGHT TO CLAIM BENEFITS. The Administrative Committee shall notify the Participant and, where appropriate, the Beneficiary, of a right to claim benefits under the Plan, shall make forms available for filing of such claims, and shall provide the name of the person or persons with whom such claim should be filed. 6.3 CLAIMS PROCEDURES. The Administrative Committee shall establish procedures for action upon claims initially made and the communication of a decision to the claimant promptly and, in any event, not later than ninety (90) days after the date of the claim. The claim may be deemed by the claimant to have been denied for purposes of further review described below in the event a decision is not furnished to the claimant within such ninety (90) day period. Every claim for benefits which is denied shall be denied by written notice setting forth in a manner calculated to be understood by the claimant (i) the specific reason or reasons for the denial, (ii) specific reference to any provisions of the Plan on which the denial is based, (iii) description of any additional material or information that is necessary to process the claim, and (iv) an explanation of the procedure for further reviewing the denial of the claim. 6.4 REVIEW PROCEDURES. The Administrative Committee shall establish procedures for review of claim denials, such review to be undertaken by the Administrative Committee. The review given after denial of any claim shall be a full and fair review, with the claimant or his duly 6 of 9 18 COASTCAST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN authorized representative having one hundred eighty (180) days after receipt of denial of his claim to request such review, having the right to review all pertinent documents and the right to submit issues and comments in writing. The Administrative Committee shall establish a procedure for issuance of a decision by the Administrative Committee not later than sixty (60) days after receipt of a request for review from a claimant unless special circumstances, such as the need to hold a hearing, require a longer period of time, in which case a decision shall be rendered as soon as possible but not later than one hundred and twenty (120) days after receipt of the claimant's request for review. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant with specific reference to any provisions of the Plan on which the decision is based. ARTICLE 7 BENEFICIARY DESIGNATION The Participant shall have the right, at any time, to designate any person or persons as Beneficiary (both primary and contingent) to whom payment under the Plan shall be made in the event of the Participant's death. The Beneficiary designation shall be effective when it is submitted in writing to the Administrative Committee during the Participant's lifetime on a form prescribed by the Administrative Committee. The submission of a new Beneficiary designation shall cancel all prior Beneficiary designations. Any finalized divorce or marriage (other than a common law marriage) of a Participant subsequent to the date of a Beneficiary designation shall revoke such designation, unless in the case of divorce the previous spouse was not designated as Beneficiary and unless in the case of marriage the Participant's new spouse has previously been designated as Beneficiary. If a Participant fails to designate a Beneficiary as provided above, or if the Beneficiary designation is revoked by marriage, divorce, or otherwise without execution of a new designation, or if every person designated as Beneficiary predeceases the Participant or dies prior to complete distribution of the Participant's benefits, then the Administrative Committee shall direct the distribution of such benefits to the Participant's estate. ARTICLE 8 MISCELLANEOUS 8.1 SUCCESSORS OF THE COMPANY. The rights and obligations of the Company under the Plan shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company. 7 of 9 19 COASTCAST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 8.2 ERISA PLAN. The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301 and 401 of ERISA and therefore to be exempt from Parts 2, 3 and 4 of Title I of ERISA. 8.3 EMPLOYMENT NOT GUARANTEED. Nothing the Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Participant any right to be retained in employment with the Company. 8.4 GENDER, SINGULAR AND PLURAL. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. 8.5 CAPTIONS. The captions of the articles and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 8.6 VALIDITY. In the event any provision of the Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provisions of the Plan. 8.7 NOTICE. Any notice or filing required or permitted to be given to the Company or the Participant under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, in the case of the Company, to the principal office of the Company, directed to the attention of the Administrative Committee, and in the case of the Participant, to the last known address of the Participant indicated on the employment records of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the dam shown on the postmark on the receipt for registration or certification. 8.8 WAIVER OF BREACH. The waiver by the Company of any breach of any provision of the Plan shall not operate or be construed as a waiver of any subsequent breach by the Participant. 8.9 ARBITRATION. Any claim, dispute of other matter in question of any kind relating to the Plan shall be settled by arbitration in accordance with the California Employment Dispute Resolution Rules of the American Arbitration Association. Notice of demand for arbitration shall be made in writing to the opposing party and to the American Arbitration Association within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall a demand for arbitration be made after the date when the applicable statute of limitations would bar the institution of a legal or equitable proceeding based on such claim, dispute or other matter in question. The decision of the arbitrators shall be final and may be enforced in any court of competent jurisdiction. The arbitrators may award reasonable fees and expenses to the prevailing party in any dispute hereunder and shall award reasonable fees and expenses in the event that the 8 of 9 20 COASTCAST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN arbitrators find that the losing party acted in bad faith or with intent to harass, hinder or delay the prevailing party in the exercise of its rights in connection with the matter under dispute. Executed on AUGUST 16, 1996 under the authority and direction of the Board ----------- of Directors of the Company. COMPANY: COASTCAST CORPORATION A California Corporation By /s/ Richard W. Mora -------------------------- Its President & COO --------------- 9 of 9 21 EX-10.2 3 EXHIBIT 10.2 FIRST AMENDMENT TO COASTCAST CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, Coastcast Corporation, a California corporation (the "Company") has adopted the Coastcast Corporation Supplemental Executive Retirement Plan (the "Plan"), effective September 1, 1996; and WHEREAS, Hans H. Buehler is the Chief Executive Officer and Chairman of the Board of Directors of the Company and has served the Company faithfully for sixteen (16) years; and WHEREAS, the Company desires to credit Mr. Buehler immediately with ten (10) Years of Participation for purposes of the vesting of benefits provided by the Plan; NOW, THEREFORE, for purposes of calculating the Target Retirement Benefits under paragraph 3.1 of the Plan and for all other purposes under the Plan, Hans H. Buehler shall be credited with ten (10) Years of Participation as such term is defined in paragraph 1.16 of the Plan. COASTCAST CORPORATION By /s/ Richard W. Mora ---------------------- Its President & COO ---------------------- EXHIBIT 10.2 22 EX-10.3 4 EXHIBIT 10.3 EXHIBIT 10.3 COASTCAST CORPORATION GRANTOR TRUST This Trust Agreement made this 1st day of September, 1996 by and between Coastcast Corporation, a California corporation ("Company") and Imperial Trust Company, a California corporation ("Trustee"); WHEREAS, Company has entered into the Coastcast Corporation Supplemental Executive Retirement Plan (the "Plan") effective September 1, 1996 pursuant to which Company has agreed to provide participants in the Plan with certain supplemental retirement benefits; WHEREAS, Company has incurred or expects to incur liability under the terms of such Plan with respect to the individuals participating in such Plan; WHEREAS, Company wishes to establish a trust (hereinafter called "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of Company's creditors in the event of Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; WHEREAS, it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan. NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: ARTICLE 1 ESTABLISHMENT OF TRUST 1.1 NORMAL CONTRIBUTIONS. Company shall make contributions to the Trust at the times and in the amounts listed in Exhibit A to this Agreement, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. In the event that the Company fails to make the contributions specified in Exhibit A, the Trustee shall promptly notify the Company of such default. If the Company fails to correct such default within ninety (90) days after receipt of such notice, such default Shall be treated as a Change in Control for all purposes under this Trust Agreement. Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in Trust with Trustee to augment the principal to be held, administered and deposited by Trustee as provided in this Agreement. Neither Trustee nor any Plan participant 1 of 13 23 or beneficiary shall have any right to compel such additional contributions prior to a Change in Control. 1.2 CONTRIBUTIONS UPON A CHANGE IN CONTROL. Upon a Change in Control, Company shall make an irrevocable contribution to the Trust equal to the following: (a) the present value of all vested and unvested accrued benefits payable to participants or beneficiaries under the Plan on a pre-tax basis; plus (b) the present value of all reasonably anticipated fees and expenses (including reasonably anticipated legal expenses) of the Trust for the duration of the Trust, which shall be presumed to be at least one percent (1%) of the amount in paragraph (a); less (c) the current fair market value of all the assets held in the Trust immediately before such contribution. 1.3 IRREVOCABILITY. The Trust hereby established shall be irrevocable. 1.4 GRANTOR TRUST. The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of Subpart E, Part I, Subchapter J, Chapter 1, Subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 herein. 1.5 ESTABLISHMENT OF SUBTRUSTS. Upon a Change of Control, or at any other time upon written direction of Company, Trustee shall establish a separate subtrust for each participant in the Plan who is covered by the Trust. The subtrusts shall reflect an undivided interest in the assets of the Trust and shall not require any segregation of particular assets. Whenever separate subtrusts are established, the then-existing assets of the Trust or affected portion thereof shall be allocated in proportion to the vested accrued benefits, and then, if any assets remain, the unvested (if any) accrued benefits of the participants affected thereby, in both instances as of the end of the month immediately preceding such allocation. With respect to any new contributions to the Trust by Company after separate subtrusts have been established, Company shall designate the subtrust for which such contributions are made. After separate subtrusts are established, assets allocated to one subtrust may not be utilized to provide benefits under any other subtrust until all benefits payable under such subtrust have been paid in full. Trustee shall allocate investment earnings and losses of the Trust among the subtrusts in proportion to their account balances, except that changes in the value of an insurance contract shall be allocated to the subtrust for which it is held. Payments to general creditors in the event of Company becoming Insolvent shall be charged against the subtrusts in 2 of 13 24 proportion to their account balances, except that payment of benefits to a participant as a general creditor shall be charged against the subtrust for that participant. ARTICLE 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES 2.1 PAYMENT SCHEDULE PROVIDED BY COMPANY. Company shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula of other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. Trustee shall make provisions for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company. 2.2 BENEFITS DETERMINED BY PLAN. The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan prior to a Change in Control and by the Participant Committee after a Change in Control. Any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. Any dispute remaining after such review procedures shall be resolved as provided in Article 8. 2.3 DIRECT PAYMENT BY COMPANY. Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Company shall make the balance of each such payment as it falls due. Trustee shall notify Company where principal and earnings are not sufficient. ARTICLE 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT 3.1 INSOLVENCY DEFINED. Trustee shall cease payment of benefits to Plan participants and their beneficiaries if Company is Insolvent. Company shall be considered "Insolvent" for purposes of this Trust Agreement if (a) Company is unable to pay its debts as they become due, or (b) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 3 of 13 25 3.2 ASSETS SUBJECT TO CLAIMS OF CREDITORS ON INSOLVENCY. At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of general creditors of Company under federal and state law as set forth below. (a) The Board of Directors and the Chief Executive Officer of Company shall have the duty to inform Trustee in writing of Company's Insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has become Insolvent, Trustee shall determine whether Company is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. (b) Unless Trustee has actual knowledge of Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have no duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning Company's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Company's solvency. (c) If at any time Trustee has determined that Company is Insolvent, Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of Company with respect to benefits due under the Plan or otherwise. (d) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Article 2 of this Trust Agreement only after Trustee has determined that Company is not Insolvent (or is no longer Insolvent). 3.3 MAKE UP OF SUSPENDED BENEFITS AFTER INSOLVENCY. Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. ARTICLE 4 PAYMENTS TO COMPANY 4.1 NO RETURN OF ASSETS TO COMPANY PRIOR TO PAYMENT OF BENEFITS. Except as provided in Article 3 hereof, after the Trust has become irrevocable, Company shall have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payments of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan. 4 of 13 26 4.2 COMPANY MAY SUBSTITUTE OTHER PROPERTY FOR TRUST ASSETS. Company shall have the power to reacquire part or all of the assets or collateral held in the Trust at any time, by simultaneously substituting for it other readily marketable property of equivalent value, net of any costs of disposition. The property which is substituted may not be less liquid or marketable or less well secured than the property for which it is substituted, as determined by Trustee. Such power is exercisable in a nonfiduciary capacity and may be exercised without the approval or consent of participants or any other person. The value of any insurance contract for purposes of substitution shall be the present value of future projected cash flow or benefits payable under the contract, but not less than the cash surrender value. The projection shall include death benefits based on reasonable mortality assumptions, including facts specifically related to the health of the insured and the terms of the contract to be reacquired. Values shall be reasonably determined by Trustee and may be based on the determination of qualified independent parties or experts. Trustee shall have the right to secure confirmation of value by a qualified independent party or expert for all property to be substituted for other property hereunder. ARTICLE 5 POWERS OF TRUSTEE 5.1 INVESTMENT POLICY. Company shall establish and provide to Trustee an "Investment Policy" setting forth permitted investments for the Trust. Prior to a Change in Control, Company may revise this Investment Policy from time to time and Trustee shall invest the Trust assets in investments authorized under the Investment Policy, in accordance with written directions of Company. After a Change in Control, the Participant Committee shall approve or revise the Investment Policy and shall direct Trustee with regard to investment of Trust assets. Trustee shall be fully protected in acting upon or complying with any investment objectives, guidelines, restrictions or directions provided by Company or the Participant Committee in accordance with this paragraph. If Trustee does not receive instructions from Company prior to a Change in Control, or from a Participant Committee after a Change in Control, for the investment of part or all of the Trust assets for a period of at least sixty (60) days, Trustee shall invest and reinvest the liquid assets of the Trust as Trustee may deem appropriate, in its sole discretion, in investments permitted under the Investment Policy as previously furnished to Trustee. Trustee is hereby specifically authorized to invest in any common or pooled investment fund or mutual fund (within the types of investments permitted under the Investment Policy), now or hereafter maintained by Trustee, or an affiliate of Trustee, and any interest-bearing savings or deposit accounts with the banking department of Trustee, or an affiliate of Trustee. 5.2 ADMINISTRATIVE POWERS. Subject in all respects to applicable provisions of this Trust Agreement and the Plan, Trustee shall have the rights, powers and privileges of an absolute owner when dealing with property of the Trust, including, without limiting the generality of the foregoing, the powers listed below: 5 of 13 27 (a) To sell, convey, transfer, exchange, partition, lease, and otherwise dispose of any of the assets of the Trust at any time held by Trustee under this Trust Agreement. (b) To exercise any option, conversion privilege or subscription right given the trustee as the owner of any security held in the Trust; to vote any corporate stock either in person or by proxy, with or without power of substitution; to consent to or oppose any reorganization, consolidation, merger, readjustment of financial structure, sale, lease or other disposition of the assets of any corporation or other organization, the securities of which may be an asset of the Trust; to take any action in connection therewith and receive and retain any securities resulting therefrom. (c) To cause any property of the Trust to be issued, held or registered in the name of Trustee as trustee, or in the name of one or more of its nominees, or one or more nominees of any system for the central handling of securities, or in such form that title will pass by delivery, provided that the records of Trustee shall in all events indicate the true ownership of such property. (d) To renew or extend the time of payment of any obligation due or to become due. (e) To commence or defend lawsuits or legal or administrative proceedings; to compromise, arbitrate or settle claims, debts or damages in favor of or against the Trust; to deliver or accept, in either total or partial satisfaction of any indebtedness or other obligation, any property; to continue to hold for such period of time as Trustee may deem appropriate any property so received; and to pay all costs and reasonable attorneys' fees in connection therewith out of the assets of the Trust. (f) To manage any real property in the Trust in the same manner as if Trustee were the absolute owner thereof. (g) To borrow money from any person in such amounts upon such terms and conditions and for such purposes as Trustee, in its discretion, may deem appropriate; in connection therewith to pledge or mortgage any Trust asset as security; to lend money on a secured or unsecured basis to any person other than a party in interest. (h) To hold such part of the assets of the Trust uninvested for such limited periods of time as may be necessary for purposes of orderly account administration or pending required directions, without liability for payment of interest. (i) To determine how all receipts and disbursements shall be credited, charged or apportioned as between income and principal. (j) To dispose of any property in the Trust and to enforce any note or obligations of Company to the Trust (and foreclose on any collateral securing such notes, subject to the terms of any pledge agreement to Trustee) in the event Company fails to 6 of 13 28 make required contributions to the Trust after sixty (60) days' written notice to Company of its failure to make such required contributions. (k) Generally to do all acts, whether or not expressly authorized, which Trustee may deem necessary or desirable for the orderly administration or protection of the Trust. 5.3 NO INVESTMENT IN COMPANY SECURITIES. In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by Company, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with assets of the Trust shall be designated by Trustee, and shall in no event be exercisable by or rest with Plan participants. 5.4 LIMITATION WITH RESPECT TO INSURANCE POLICIES. Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. 5.5 LIMITATION WITH RESPECT TO COMPANY AS A BUSINESS. Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. ARTICLE 6 DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. ARTICLE 7 ACCOUNTING BY TRUSTEE Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Such records shall be open to inspection by Company at all reasonable times. Within sixty (60) days following the close of each calendar year and within sixty (60) days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other 7 of 13 29 transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. After a Change in Control the Participant Committee shall have the same rights of inspection of Company and Trustee shall deliver a copy of its written account to the Participant Committee as well as to Company. ARTICLE 8 RESPONSIBILITY OF TRUSTEE 8.1 FIDUCIARY RESPONSIBILITY. Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company or the Participant Committee which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Company. 8.2 DISPUTED CLAIMS. In the event of a dispute between Company and any participant or beneficiary, Trustee may decide such claim and give notice to Company and the participant or beneficiary of its decision on the claim. Either party shall then have sixty (60) days from the receipt of such Trustee notice to make a demand for arbitration, in writing, to Trustee, the opposing party, and the American Arbitration Association. If no such demand is made after such sixty (60) day period, the decision of Trustee shall become final and binding on all parties. Trustee may decline to decide a claim and may submit such claim directly to arbitration by providing notice of demand for arbitration in writing to Company, the relevant participant or beneficiary and the American Arbitration Association. 8.3 ARBITRATION. Any claim, dispute or other matter in question arising out of or related to this Trust Agreement shall be resolved by binding arbitration in accordance with the California Employment Dispute and Resolution Rules of the American Arbitration Association. The decision of the arbitrators shall be final and may be enforced in any court of competent jurisdiction. The fees and expenses (including reasonable attorneys' fees) incurred in the arbitration shall be paid as directed by the arbitrator. However, all of Trustee's fees and expenses incurred in any arbitration or enforcement proceeding to resolve a dispute between Company and a participant or beneficiary shall be allowed as an administrative expense of the Trust. 8.4 LEGAL COUNSEL. Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. 8.5 EXPERTS. Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. 8 of 13 30 ARTICLE 9 COMPENSATION AND EXPENSES OF TRUSTEE Trustee shall be reimbursed for all reasonable expenses and shall be paid a reasonable fee fixed by agreement with Company from time to time. No increase in the fee shall be effective before sixty (60) days after Trustee gives notice to Company of the increase. Trustee shall notify Company periodically of expenses and fees. Company shall pay trustee and other administrative and valuation fees and expenses. ARTICLE 10 RESIGNATION AND REMOVAL OF TRUSTEE 10.1 RESIGNATION. Trustee may resign at any time by written notice to Company, which shall be effective sixty (60) days after receipt of such notice unless Company and Trustee agree otherwise. If Trustee resigns, Company shall select a successor Trustee in accordance with the provisions of Section 11.1 hereof, subject to the approval of the Participant Committee in the event of a Change in Control prior to the effective date of Trustee's resignation or removal. 10.2 REMOVAL. Trustee may be removed by Company at any time prior to a Change in Control on sixty (60) days' notice or upon shorter notice accepted by Trustee. On or after a Change in Control, Trustee may be removed by the Participant Committee on sixty (60) days' notice or upon shorter notice accepted by Trustee. If Trustee is removed, a successor shall be appointed, in accordance with Section 11.2 hereof, by the effective date of removal. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. 10.3 TRANSFER OF ASSETS. Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within ninety (90) days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. ARTICLE 11 APPOINTMENT OF SUCCESSOR 11.1 ON RESIGNATION OF TRUSTEE. If Trustee resigns pursuant to the provisions of Section 10.1 hereof, Company may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all the rights and powers of the former Trustee, including ownership rights in 9 of 13 31 Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer. 11.2 ON REMOVAL OF TRUSTEE. If Trustee is removed in accordance with Section 10.2 hereof, Company or the Participant Committee having the authority to make such removal may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company, the Participant Committee or the successor Trustee to evidence the transfer. 11.3 RESPONSIBILITY OF SUCCESSOR TRUSTEE. The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to the terms of this Trust Agreement. The successor Trustee shall not be responsible for and Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. ARTICLE 12 AMENDMENT OR TERMINATION 12.1 AMENDMENT. Prior to a Change in Control, this Trust Agreement may be amended by a written instrument executed by Trustee and Company. After a Change in Control this Trust Agreement may only be amended by a written instrument executed by Trustee, Company and the Participant Committee. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable. 12.2 TERMINATION. The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. Notwithstanding the foregoing, upon written approval of all participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Company. ARTICLE 13 MISCELLANEOUS 13.1 SEVERABILITY. Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 10 of 13 32 13.2 Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of California. ARTICLE 14 DEFINITIONS 14.1 CHANGE IN CONTROL shall mean either: (a) the dissolution or liquidation of Company; (b) a reorganization, merger or consolidation of Company with one or more corporations as a result of which Company is not the surviving corporation; (c) approval by the stockholders of Company of any sale, lease, exchange or other transfer (in one or a series of transactions) of all or substantially all of the assets of Company; or (d) approval by the stockholders of Company of any merger or consolidation of Company in which the holders of the voting stock of Company immediately before the merger or consolidation will not own fifty percent (50%) or more of the voting shares of the continuing or surviving corporation immediately after such merger or consolidation. For purposes of this Trust Agreement, a Change in Control shall be deemed to have occurred when Trustee makes a determination to that effect on its own initiative, or upon receipt by Trustee of written notice to that effect from Company. As provided in Section 1.1 of this Trust Agreement, the uncured failure of the Company to make required contributions to the Trust shall be considered a Change in Control for purposes of this Trust Agreement. 14.2 EFFECTIVE DATE. The effective date of this Trust Agreement shall be September 1, 1996. 14.3 INSOLVENT/INSOLVENCY shall have the meaning given to such term in Section 3.1 of this Agreement. 14.4 INVESTMENT POLICY shall mean the investment policy provided by Company or the Participant Committee to Trustee pursuant to Section 5.1 of this Trust Agreement. 14.5 PAYMENT SCHEDULE shall have the meaning given to such term in Section 2.1 of this Trust Agreement. 14.6 PARTICIPANT COMMITTEE shall mean the committee of three (3) participants established after a Change in Control to establish the Investment Policy and direct Trustee pursuant to the terms of this Trust Agreement. Such committee shall consist of participants who shall be nominated and elected upon a Change in Control and annually thereafter by the individual participants having an interest in the Trust assets as of the date of such election. 11 of 13 33 14.7 PAYMENT SCHEDULE shall have the meaning given to such term in Section 2.1 of this Trust Agreement. IN WITNESS WHEREOF, the parties hereto have executed and entered into this Agreement as of the effective date in Section 14.2 hereof. COMPANY: COASTCAST CORPORATION By /s/ Richard W. Mora ------------------- Its President & COO ----------------- TRUSTEE: IMPERIAL TRUST COMPANY By /s/ David W. Stein ------------------- Its Vice President ----------------- 12 of 13 34 EXHIBIT A ANNUAL CONTRIBUTIONS TO BE MADE BY COMPANY TO TRUST 9/1/96 $2,026,000 - ------ 1997 $2,026,000 - ---- 1998 $2,026,000 - ---- 1999 $2,026,000 - ---- 2000 $2,026,000 - ---- 2001 $2,026,000 - ---- 2002 $2,026,000 - ---- 13 of 13 35 EX-11.1 5 EXHIBIT 11.1 COASTCAST CORPORATION COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
Three Months Nine Months Ended September 30, Ended September 30, ---------------------------- ---------------------------- 1996 1995 1996 1995 ------------ ------------- ------------ ------------- Common stock outstanding at beginning of period 8,788,499 9,091,994 8,734,694 9,091,994 Repurchase of common stock (13,100) - (13,800) - Exercise of options 2,491 - 56,996 - -------------- -------------- -------------- -------------- Common stock outstanding at end of period 8,777,890 9,091,994 8,777,890 9,091,994 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Weighted average shares outstanding 8,788,476 9,091,994 8,771,111 9,091,994 Dilutive effect of stock options after application of treasury stock method 298,858 49,053 292,965 56,087 -------------- -------------- -------------- -------------- Total 9,087,334 9,141,047 9,064,076 9,148,081 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net income $ 4,867,000 $ 41,000 $ 13,389,000 $ 3,787,000 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net income per common and common equivalent share $ .54 $ .00 $ 1.48 $ .41 ------- ------- -------- -------
Exhibit 11.1 36 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 16,639 2,554 12,924 400 18,720 55,241 33,947 14,296 76,844 12,259 0 0 0 37,869 26,605 76,844 113,347 113,347 84,439 84,439 7,052 0 0 22,702 9,313 13,389 0 0 0 13,389 1.48 0
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