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FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED JUNE 30, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 fiscal year ended June 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
__________For the transition period from _____ to _____.
Commission File Number: 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0160250
(State or other jurisdiction (IRS Employer
of incorporation) Identification
No.)
Post Office Drawer 457, Whichard's Beach Road.,
Washington, NC 27889
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number,
including area code: (919) 975-2000
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $ .01 per share
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 requirement for the past 90 day.
[ X ]Yes [ ] 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 ]Yes [ ]No
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The aggregate market value of the voting stock held by
non-affiliates of the registrant was $ 30,981,540 at October
7, 1997 based upon a closing price of $15.00 per share on
such date for the Company's Common Stock.
As of October 7, 1997 there were 4,725,108 shares of
the Company's Common Stock issued of which 15,000 shares are
owned by the Company's subsidiary Fountain Powerboats, Inc.
and are regarded as treasury shares.
Documents incorporated by reference: None.
Part I
Item 1. Business.
Background
Fountain Powerboat Industries, Inc. (the "Company"),
through its wholly-owned subsidiary, Fountain Powerboats,
Inc. (the "Subsidiary"), designs, manufactures, and sells
offshore sport boats, sport cruisers, and sport fishing
boats intended for that segment of the recreational power
boat market where speed, performance, and quality are the
main criteria for purchase. The Company's strategy in
concentrating on that segment of the market is to maximize
its use of the reputation of its Chairman and President,
Reginald M. Fountain, Jr., as an internationally recognized
power boat racer and designer. The Company also has made
specialized high performance boats for the United States
Government.
The Company's products are sold through a network of
authorized dealers worldwide. The Company has targeted that
segment of the market in which purchase decisions are
generally predicated to a relatively greater degree on the
product's image, style, speed, performance, quality, and
safety and to a lesser degree on the product's price or
other economic considerations.
Products.
Each of the Company's products is based upon a deep V-
shaped fiberglass hull with a V-shaped pad and a notched
transom. This design enables the boat to move along the
water at high speed on its pad and achieve performance and
stability standards which the Company believes are greater
than those offered by its competitors. As a result, the
Company maintains that its boats are among the fastest, best-
handling, and safest boats of their kind.
In Fiscal 1994, the Company developed a new, high
performance hull design for its boats. These new "positive-
lift" designs increase speed significantly and gives a
softer ride by incorporating radically different keel lines
with steps in the hull bottoms. Handling and fuel economy
are also substantially improved with the new designs. The
Company is seeking patent protection for these new hull
designs.
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All of the Company's sport boats, ranging from 25' to
51' are of inboard/outdrive or surface drive design. They
are propelled by single, twin, or triple gasoline (or
diesel) engines ranging from 415 HP to more than 1,000 HP
each. Fountain also builds custom racing boats designed
specifically for competition. The Company also produces
outboard powered center consoles and outboard or stern drive
cabin model offshore sport fishing boats ranging from 25'
through 32'. Furthermore, the Company builds 29', 32', 38'
and 47' sport cruisers. By February, 1998, the company will
introduce a Super Cruiser, 65 foot in length with a 16'
beam.
Introduced early in Fiscal 1992, the 47' Sport Cruiser
is the flagship of the Fountain fleet. Its hull design is
based upon that of the Company's 47' Super boat and 42'
manufacturer's Super-Vee boats which won 8 out of 10 races
in a recent twelve month period. The model features a walk-
in cabin, enclosed head with shower, complete galley with
refrigerator and microwave among it's very extensive list of
standard equipment.
With most of the amenities of a traditional cruising
yacht, the Fountain 47' Sport Cruiser is capable of speeds
in excess of 70 mph with standard triple MerCruiser 502 EFI
engines. A high performance diesel engine version is
available for international use. This boat was named "The
Outstanding Offshore Performance Boat" for 1992 and 1993 by
Powerboat Magazine and "Best of the Best" for 1992 by
Boating Magazine. Depending primarily upon the customer's
choice of engines, the retail price of this boat is from
$348,000 to $603,000.
The Company's new 47' Lightning Sport Boat is available
with a wide range of engine options and amenities which make
it suitable for long range cruising at high speeds in
relatively rough offshore waters. Its sleek styling makes
it particularly attractive. Depending primarily upon the
type of engines selected, this boat retails at prices
ranging from $364,000 to $618,000.
As of August, 1997, the 42' Lightning Sport Boat has
been redesigned and restyled and operates at maximum speeds
of 75 to 100 mph and is very stable even in relatively rough
offshore waters. This boat's standard features include an
integrated swim platform, flush deck hatches, and an
attractively appointed cockpit and cabin. This boat was
cited by Powerboat Magazine as "The Outstanding Offshore
Performance Boat" for 1988 and 1990. It retails at prices
ranging form $222,000 to $386,000, depending primarily upon
the type of engines selected. Equipped with special racing
engines, this model set a new world speed record for V-
hulled boats in February, 1996 at 131.941 mph.
Introduced in Fiscal 1991, the 38' Sport Cruiser offers
a scaled down version of the many amenities found on the 47'
Sport Cruiser. This model has successfully incorporated the
performance type sport boat's features without compromising
the comforts found in a cruiser. Depending primarily upon
the customer's choice of engines, the retail price of the
boat is from $221,000 to $375,000.
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The 38' Fever Sport Boat operates at maximum speeds of
between 70 and 100 mph. Its retail price ranges from
$201,000 to $354,000, depending primarily upon the type of
engines selected. This model was cited by Powerboat
Magazine as "Offshore Performance Boat of the Year" for 1989
and, again, for 1991. It also captured an award from The
Hot Boat Magazine for "Boat of the Year" for 1991.
The 35' Lightning Sport Boat is similar in design to
the 38' Fever, but operates at maximum speeds between 70 and
100 mph. Because of its smaller size and lighter weight,
this model can achieve greater speeds than a 38' Fever when
equipped with the same size engines. The 25' Lightning was
named by Powerboat Magazine "Offshore Boat of the Year" for
1981 and 1995. It has also captured that magazine's title
"Outstanding Offshore Performance Boat" for
1980,1981,1982,1983,1984, and 1987. This boat retails at
prices ranging from $163,000 to $202,000, depending
primarily upon the type of engines selected.
Fountain's 32' Fever Sport Boat was introduced during
Fiscal 1991 to satisfy the market's demand for a mid-size
sport boat between the 29' Fever and the 35' Lightning.
This model combines many of the advantages of both the 29'
model the 35' model. Depending primarily upon the
customer's choice of engines, the retail price of this boat
is from $132,000 to $163,000.
The 29' Fever single engine is one of the most popular
boats in our line. It operates at a maximum speed of 54 to
73 mph and retails between $85,000 and $106,000 depending on
engine size. It has great balance and speed for a single
engine and for its size really handles the big waters.
Fountain's 27' Fever sport boat has a single engine.
It was added to the line in order to enable the first time
offshore performance boat buyer to acquire a Fountain power
boat at a very affordable price. This model won an award
from Powerboat Magazine for "The Full Size Boat of the Year"
for 1991 and 1992. It also captured that magazine's award
for "Outstanding full-size Workmanship" for 1995. Depending
primarily upon the type of engine selected the retail price
of this boat is from $73,000 to $94,000.
In 1990, the Company's sole offshore sport fishing boat
was a 31' model which featured a center console design and
incorporated the same high performance, styling, and
structural integrity as its sport boat models. It has a
deck configuration engineered for the knowledgeable,
experienced sport fisherman. This boat has won the Southern
Kingfish Association's World Championship for five of the
last seven years and has won more than 50% of the top ten
positions over the same period.
In Fiscal 1992, Fountain added substantially to its
sport fishing boat line. An all new 29' twin engine center
console model and an all new 25' single engine center
console model were introduced to extend the product line.
The design, construction, and performance of these new
models, together with the proven features of the 31' center
console model, make a line which in management's view will
appeal to many experienced sport fishermen.
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To further enhance its sport fishing boat line, the
Company introduced a new 31' walk around cabin model based
upon the proven 31' center console hull design. This model
features a deck design which incorporates a walk-in cabin,
enclosed head with shower, and a full galley. With twin
outboard engine power, this model is produced either as a
fishing boat for the serious angler or as a purely
recreational sport boat type cruiser.
During Fiscal 1993, the Company introduced both 25' and
29' walk around cabin fishing boats with outboard engine
power and a new 32' walk around cabin model fishing boat
with inboard power. Other new product introductions for
Fiscal 1994 are 25' and 29' walk around cabin model fishing
boats with inboard power.
For Fiscal 1998, the Company plans to introduce two all
new surface drive sport boats, the 46' and 51' Lightning.
These boats will come with the Company's new second
generation positive lift hulls. The 42' Lightning is also
new for 1998. This will have the new style deck with full
wrap around windshield and canvas top. These boats also
have an all new positive lift hull which will increase
speed, stability and ride comfort. Fountain will also
launch into the yacht market with the introduction of the
all new 65' Supercruiser. This performance yacht will be
much faster than the competition, while still providing all
the comforts of a luxury yacht through the use of Fountain's
all new super ventilated positive lift hull equipped with
Fountain's all new Surface Drive System.
During the last quarter of Fiscal 1997, the Company
introduced the Fountain Drive System. Fountain developed
this state of the art drive system which will revolutionize
performance boating. This new technology matches Fountain's
Super Ventilated Positive Lift Hull with a highly efficient
surface drive system. Born from the Fountain's racing
heritage, this revolutionary system offers increased speed
and efficiency, better rough water handling, stainless steel
components to minimize corrosion, greater horsepower
capacity, less component parts and gears and better transfer
of horsepower to the water. Fountain continues to strive to
offer the latest in performance technology in each and every
boat we build. Never before has a production boat company
offered such technology to its customers.
Following is a table showing the number of boats
completed and shipped in each of the last three fiscal years
by product line:
Fiscal Fiscal Fiscal
1997 1996 1995
Sport boats ....... 336 295 293
Sport cruisers .... 14 20 15
Sport fishing boats 128 109 93
------ ------ -----
Total 478 424 401
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The Company conducts research and development projects
for the design of its plugs and molds for hull, deck, and
small parts production. The design, engineering, and
tooling departments currently employ approximately 29 full-
time employees. Amounts spent on design research and
development and to build new plugs and molds in recent years
were:
Design Construction
Research & of New Plugs
Development and Molds
Fiscal 1997 $635,652 $1,684,274
Fiscal 1996 234,425 878,513
Fiscal 1995 134,828 767,102
For Fiscal 1998, planned design research and
development expenses are $ 750,000 and plug and mold
construction expenditures are approximately $ 3,000,000.
These expenditures will be primarily to complete the tooling
needed to produce three luxury high performance sport
yachts, a 51' model, a 58' model and a 65' model. Also,
work will be started on a 35' wide beam surface drive cabin
sport fishing boat. Tooling expenditures will also be made
for other modifications to existing models.
Manufacturing capacity is sufficient to accommodate
approximately 40 to 50 boats in various stages of
construction at any one time. The Company shipped 478 boats
in Fiscal 1997, 424 boats in Fiscal 1996 and 401 boats in
Fiscal 1995.
Construction of a boat currently made, depending on
size, takes approximately three to five weeks. Construction
of the all new wide beam Super Cruisers should be as
follows: A 51' by December, 1997, the 65' by February, 1998
and the 58' by April, 1998. The Company currently has the
ability to manufacture approximately 600 boats per year with
additional personnel. The Company can further expand its
manufacturing capacity by adding additional personnel,
plant, equipment, and tooling.
The manufacturing process for the hulls and decks
consists primarily of the "laying-up" by hand of vinylester
resins and high quality stitched, bi-directional and quad-
directional fiberglass over a foam core in the molds
designed and constructed by the Company's engineering and
tooling department. This creates a composite structure with
strong outer and inner skins with a thicker, light core in
between. The "laying-up" of fiberglass by hand rather than
using chopped fiberglass and mechanical blowers, results in
superior strength and appearance. The resin used to bind
the composite structure together is vinylester which is
stronger, better bonding, and more flexible than the
polyester used by most other fiberglass boat manufacturers.
Decks are bonded to the hulls using bonding agents, rivets,
screw, and fiberglass to achieve a strong, unitized
construction.
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As one of the most highly integrated manufacturers in
the marine industry, the Company manufactures many metal,
plexiglass, plastic, and small parts (such as gas tanks,
seat frames, steering systems, instrument panels, bow rails,
brackets, T-tops, and windscreens) to assure that its
quality standards are met. In addition, the company also
manufacturers all of its upholstery to its own custom
specifications and benefits from lower cost, receives parts
just in time for assembly and achieves savings of several
million dollars. All other component parts and materials
used in the manufacture of the Company's boats are readily
available from a variety of suppliers at comparable prices
exclusive of discounts. However, where practicable, the
Company purchases certain supplies and materials from a
limited number of suppliers in order to obtain the benefit
of volume discount.
Certain materials used in boat manufacturing, including
the resins used to make the decks and hulls, are toxic,
flammable, corrosive, or reactive and are classified by the
federal and state governments as "hazardous materials."
Control of these substances is regulated by the
Environmental Protection Agency and state pollution control
agencies which require reports and inspect facilities to
monitor compliance with their regulations. The Company's
cost of compliance with environmental regulations has not
been material. The Company's manufacturing facilities are
regularly inspected by the Occupational Safety and Health
Administration and by state and local inspection agencies
and departments. The Company believes that its facilities
comply with substantially all regulations. The Company,
however, has been informed that it may incur or may have
incurred liability for remediation of ground water
contamination at two hazardous waste disposal sites
resulting from the disposal of a hazardous substance at
those sites by a third-party contractor of the Subsidiary.
(See item 3. Legal Proceedings.)
Recreational power boats must be certified by the
manufacturer to meet U.S. Coast Guard specifications. In
addition, their safety is subject to federal regulation
under the Boat Safety Act of 1971, as amended, pursuant to
which boat manufacturers may be required to recall products
for replacement of parts or components that have
demonstrated defects affection safety. The Company has
never had to conduct a product recall.
Sales and Marketing.
Sales are made through approximately 50 dealers
throughout the United States. The Company also has 14
additional dealers throughout the world. These dealers are
not exclusive to the Company and carry the boats of other
companies including some which may be competitive with the
Company's products. The territories served by any dealer
are not exclusive to the dealer. However, the Company uses
discretion in locating new dealers in an effort to protect
the interests of the existing dealers.
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Following is a table of sales by geographic area for
the last three fiscal years:
Fiscal`97 Fiscal '96 Fiscal `95
United States .. $48,346,485 $40,545,235 $38,220,232
Canada, Mexico, Central
and South America ....$1,047,913 $658,738 $ -0-
Europe and
the Middle East .... $752,801 $394,078 $309,165
Asia ............... $ 367,126 $ -0- $ 197,932
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Total ........ $50,514,325 $41,598,051 $38,727,329
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The Company has a growing international advertising
program and is seeking additional distribution for its
products in foreign markets through its own sales
representative who is establishing new dealers at a rapid
pace. In general, the Company requires payment in full or
an irrevocable letter of credit from a domestic bank before
it will ship a boat overseas. Consequently, there is no
credit risk associated with its foreign sales nor risk
related to foreign currency fluctuation. The Company
believes that within several years, foreign sales could
account for up to 25% of its total sales.
For Fiscal 1997 one dealer accounted for 6.6% of sales
and two other dealers each accounted for more than 5% of
sales. For Fiscal 1996 one dealer accounted for 10.2% of
sales and three other dealers each accounted for more than
5% of sales. For Fiscal 1995 one dealer accounted for 9.8%
of sales and four other dealers each accounted for more than
5% of sales. The Company believes that the loss of any
particular dealer would not have a materially adverse effect
on sales. As sales continue to grow through more dealers,
it is reasonable to assume the Company will grow less
dependent on any one dealer.
Field sales representatives call upon existing dealers
and develop new dealers. The field sales force is headed by
the Fountain's National Director of Sales who is responsible
for developing a full dealer organization for sport boats,
sport cruisers, sport fishing boats and now yachts. The
Company is seeking to establish separate sport boat and
fishing boat dealers in most marketing areas due to the
specialization of each type of boat and the different sales
programs required.
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Although a sales order can be cancelled at any time,
most boats are pre-sold to a dealer before entering the
production line. The Company generally has been able to
sell to another dealer any boat for which the order has been
cancelled. To date, cancellations have not had any material
effect on the Company. The Company normally does not
manufacture boats for inventory.
The Company ships boats to its dealers on a cash on
delivery basis. However, approximately one-half of the
Company's shipments are made pursuant to commercial dealer
"floor plan financing" programs in which the Company
participates on behalf of its dealers. Under these
arrangements, a dealer establishes lines of credit with one
or more third-party lenders for the purchase of showroom
inventory.
When a dealer purchases a boat pursuant to a floor plan
arrangement, it draws against its line of credit and the
lender pays the invoice cost of the boat, net of shipping
charges, directly to the Company. Generally, payment is
made to the Company within seven business days. When the
dealer in turn sells the boat to a retail customer, the
dealer repays the lender, thereby restoring its available
credit line.
For the 1998 model year (which commenced July 1, 1997),
the Company had made arrangements to pay all interest
charged to dealers by certain floor plan lenders for as long
as six months. This and other incentives to the dealers
have resulted in relatively level month to month production
and sales. After six months, the free interest program ends
and interest will be charged to the dealer at the rates set
by the lender. The dealers will make curtailment payments
(principal payments) in the boats as required by their
particular commercial lenders. Similar sales promotion
programs were in effect during Fiscal 1997, 1996, and 1995.
Each dealer's floor plan credit facilities are secured
by the dealer's inventory, letters of credit, and perhaps,
other personal and real property. In connection with the
dealer's floor plan arrangements, the Company (together with
substantially all other major manufacturers) has agreed to
repurchase any of its boats which a lender repossesses from
a dealer and returns to the Company. In the event that a
dealer defaults under a credit line, the lender may then
invoke the manufacturers' repurchase agreements with respect
to that dealer. In that event, all repurchase agreements of
all manufacturers supplying a defaulting dealer are
generally invoked regardless of the boat or boats with
respect to which the dealer has defaulted (See also Item 7,
Management's Discussion and Analysis of Financial Condition
and Results of Operations).
The Company participates in floor plan arrangements
with several major third-party lenders on behalf of its
dealers, most of whom have financing arrangements with more
than one lender.
Except as described above or where it has a direct
repurchase agreement with a dealer, the Company is under no
material obligation to repurchase boats from its dealers.
From time to time the Company will voluntarily repurchase a
boat for the convenience of the dealer or for another dealer
who needs a particular model not readily available from the
factory.
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The marketing of boats to retail customers is primarily
the responsibility of the dealer, whose efforts are
supplemented by the Company through advertising in boating
magazines and participation in regional, national, and
international boat shows.
Additionally, in order to further promote its products,
the Company developed a racing program. This entailed the
construction of specially designed race boats which have
been entered in major national offshore boat races.
Fountain race boats won many major races. Additionally,
Fountain single, twin and triple engine racing boats
currently own world speed records. The result of this
record of victories and speed records by a major
manufacturer is that the Company's products won a reputation
for very fast and safe hull design, durable construction,
and mechanical reliability.
The Company believes that the favorable publicity
generated by its record setting and winning race boats has
contributed significantly to its sales volume. Although the
Company curtailed its racing program for Fiscal 1992 and
sold all of its race boats, the fact that its racing program
was so successful in Fiscal 1990 and Fiscal 1991 has, the
Company believes, significantly benefited its sales volume
in subsequent years. From fiscal 1992 through fiscal 1996,
the Company had limited its participation in racing to
partial support of customer owned and driven Fountain race
boats. Also, the Company Founder and C.E.O., Reggie
Fountain, has raced a limited schedule since 1992, and won
numerous races in both factory and customer boats; he has
also set numerous speed records in both factory and customer
boats. These Fountain race boats were, in general, very
successful in the various racing circuits in which they
competed. The Company commenced construction of two race
boats during Fiscal 1997 and intends to again implement a
racing program during Fiscal 1998.
As part of the marketing program for its new line of
sport fishing boats, the Company sponsored several
outstanding sport fishermen in the Southern Kingfish
Association's King Mackerel Tournaments. This competitive
circuit is held throughout the Southeast. In Fiscal 1992,
the Company's boats and sponsored fishermen dominated the
tournaments by winning four of the top five spots. One
Fountain fisherman, Clayton Kirby, was named "Angler of the
Year" and finished in first place. Again, in Fiscal 1993,
first place was taken by a Fountain fisherman. Fountain
fishermen also won second place and 11 of the top 15 spots
in Fiscal 1993. Since Fiscal 1993, the Fountain fishing
team has continued to place high in the final standings
winning five of the last seven S.K.A. world championships.
The Southern Kingfish Association's tournaments are held
weekly and attract from one hundred to one thousand entrants
with prizes ranging up to $350,000. The winning
participation by Fountain sport fishing boats has given them
favorable exposure to serious sport fishermen, in particular
with respect to the superior performance of Fountain's
fishing boat line.
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Sales Order Backlog.
The sales order backlog as of the end of September 1997
was for approximately 200 boats having an estimated sales
value of $20,000,000. This compares to an equivalent
backlog at this time in September, 1996 and September, 1995.
During the last two years the Company's lower priced fishing
boat lines have led sales increases holding down the average
unit price. Later this year, with the formal introduction
of the new 46', 51' and 65' models which have not been
included in backlog numbers, the Company believes that its
average unit price and margins will increase significantly.
The Company's Fall Dealer Allocation Program is designed to
promote early replenishment of the stock in Dealer
inventories depleted throughout the spring and summer.
Product Warranty.
The Company warrants the deck and hull of its boats
against defects in material and workmanship for a period of
three years. Engines included in the boats are warrantied
by the engine manufacturer. Warranty expenses of $707,202
were incurred in Fiscal 1997 and were charged-off against
net income. A reserve for warranty expenses estimated to be
incurred in future years had been recorded and amounted to
$500,000 at June 30, 1997. For 1996, warranty costs were
only six-tenths of one (1) percent. Warranty cost as a
percentage of sales are among the lowest in the marine
industry thereby reflecting the Company's superior
construction of its boats.
Competition.
Competition within the power boat manufacturing
industry is intense. While the high performance sports boat
market comprises only a small segment of all boats
manufactured, the higher prices commanded by these boats
make it a significant market in terms of total dollars
spent. The manufacturers that compete directly with the
Company in its market segment include:
Wellcraft Division of Genmar Industries, Inc.
Formula, a Division of Thunderbird Products Corporation
Cigarette Racing Team, Inc.
Baja Boats, Inc.
The Company believes that in its market segment, speed,
performance, quality, image, and safety are the main
competitive factors, with styling and price being somewhat
lesser considerations.
Their market for fishing boats is much larger than the
one for sport boats, but there are many more fishing boat
manufacturers than there are sport boat manufacturers. With
its winning image, Fountain will always sell its projected
budget.
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For High Performance Surface Drive Super Ventilated
Positive Lift wide beam cruisers, we believe there is a
ready market waiting for our products. It is our belief
that there are no competitors that can match us in this
highly profitable area.
Employees.
As of September 30, 1997 the Company had 331 employees,
of whom seven were executive and management personnel.
Sixteen were engaged primarily in administrative positions
including accounting, personnel, marketing and sales
activities. Twenty-nine were employed in engineering,
tooling, and design. About one dozen are employed to expand
and maintain our facilities. The balance were engaged in
manufacturing operation. None of the Company's employees
are party to a collective bargaining agreement. The Company
considers its employee relations to be satisfactory. The
Company is an affirmative action, equal opportunity
employer.
Item 2. Properties.
The Company's executive offices and manufacturing
facilities are located on 62 acres along the Pamlico River
in Beaufort County, North Carolina. All of the land,
buildings and improvements are owned by the Company and are
held as collateral on notes and mortgages payable having a
balance of $8,273,378 at June 30, 1997
The operating facility contains seven buildings
totaling 167,250 square feet located on fifteen acres. The
buildings consist of the following:
Approximate
Square Footage Principal Use
Building 1 .......... 13,200 Executive offices,
shipping and
receiving, and paint
shop.
Building 2 .......... 7,200 Final prep shop.
Building 3 .......... 63,800 Lamination, woodworking,
upholstery, final
assembly,
inventory, and
cafeteria.
Building 4 .......... 14,250 Metal fabrication shop.
Building 5 .......... 26,300 Lamination, Assembly
& Engineering Offices.
Building 6 .......... 18,500 Mold storage.
Building 7 .......... 12,000 Tooling, Racing, service,
and warranty.
Building 8 .......... 8,750 Lamination extension
area.
Building 9 4,500 Mold Storage
Building 10 25,200 Mold Storage, Mold Prep
and Service
Building 11 10,500 Manufacturing and Tooling
======
Total ................. 204,200
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Site improvements include a boat ramp and docking
facilities along a 600 foot canal leading to the Pamlico
River. In addition, approximately 200,000 square feet of
concrete paving surrounds the buildings and provides for
employee parking. Thirty-five unimproved acres are owned
and available for future expansion.
Item 3. Legal Proceedings.
The Company has been notified by the United States
Environmental Protection Agency (the "EPA") and the North
Carolina Department of Environment, Health and Natural
Resources ("NCSEHNR") that it has been identified as a
potentially responsible party (a "PRP") and may incur, or
may have incurred, liability for the remediation of ground
water contamination at the Spectron/Galaxy Waste Disposal
Site located in Elkton, Maryland (notice from the EPA dated
June 7, 1989) and the Seaboard Disposal Site, located in
High Point, North Carolina, also referred to as the
Jamestown, North Carolina site (notice form the EPA dated
July 10, 1991), resulting from the disposal of hazardous
substance at those sites by a third-party contractor of the
Company. The Company has been informed that the EPA and
NCDEHNR ultimately may identify a total of between 1,000 and
2,000, or more PRP's with respect to each site. The amounts
of the hazardous substances generated by the Company, which
are disposed of at both sites, are believed to be minimal in
relation to the total amount of hazardous substances
disposed of by all PRP's at the sites. At present, the
environmental conditions at the sites, to the Company's
knowledge, have not been fully determined by the EPA and
NCDEHNR, respectively, and the Company is not able to
determine at this time the amount of any potential liability
it may have in connection with remediation at either site.
Without any acknowledgment of liability, approximately $3,279
has been paid by the Company to date
as a non-performing cash-out participant in an EPA-
supervised response and removal program at the Elkton,
Maryland site, and in a NCSEHNR-supervised removal and
preliminary assessment program at the Jamestown, North
Carolina site. A cash-out proposal for the next phase of
the project is expected to be forthcoming from the PRP Group
for the Elkton, Maryland site within the near future.
According to the PRP Group, The Company's full cash-out
amount is estimated to be approximately $10,000 for the
Elkton, Maryland site based upon an estimated 3,304 gallons
of waste disposed of at that site by the Company's third
party contractor. A cash-out proposal in the approximate
amount of $66,000 based upon an estimated 19,245 gallons of
water is anticipated from the PRP Group for the Jamestown,
North Carolina site following completion of a remedial
investigation and feasibility study in early 1998,
according to the PRP Group administrator. Any such cash-out
agreement will be subject to approval by EPA and NCDEHNR,
respectively. The Company has accrued the estimated $76,000
liability related to these matters in the accompanying
financial statements.
-14-
<PAGE>
The Company received a demand letter dated February 22,
1996, from the representative and agent for a famous
professional basketball player, for damages in connection
with an advertisement for the Company which used the
basketball player's name. The monetary demand was for
$1,000,000 if the claim was resolved prior to the institution
of a lawsuit, which also has been threatened. The Company
put its primary and umbrella liability insurance carriers on
notice after receiving the demand. On January 2, 1997, the
Company filed suit in U.S. District Court for the Eastern
District of North Carolina against the basketball player,
his affiliates and Spencer Communications (a company owned
by a director of the Company) claiming it did not know of or
approve of the ad using the basketball player's name. The
Company withdrew the ad after being contacted by the
basketball player's attorney. The Company further contends
that it did not state that the player was endorsing the
product and that the player has no legal claim to the usage
of a certain word within the advertisment. The Company
further claims that the player's counsel used coercion by
threatening suit and that the Company should be awarded the
costs of suit. On May 8, 1997, the player and his company
filed a response with counterclaim and crossclaim claiming
trademark infringement and unfair competition seeking
damages for $10,000,000. The Company filed a reply and
seeks dismissal. Shortly after the Company filed suit in
North Carolina, the player and an affiliated company filed suit
in the Northern District of Illinois. This matter was later
transferred to North Carolina and the Company has moved to
dismiss this suit with prejudice because it is repetitious
of the counterclaims in the Company's declaratory judgment
suit. (See Note 10)
There were seven product liability lawsuits brought
against the Company at June 30, 1997. In the Company's
opinion, these lawsuits are without merit. Therefore, these
lawsuits are being defended vigorously. The Company carries
sufficient product liability insurance to cover attorney's
fees and any losses which may occur from these lawsuits over
and above the insurance deductibles.
The Company was audited during Fiscal 1997 by the State
of North Carolina under the Escheat and Unclaimed Property
Statute. The State Treasurer's audit report was received
and a small amount of escheated funds were paid. However,
the Company disputed approximately $65,000 of remaining
escheated property by appealing to the Administrative office
of the State of North Carolina. The dispute has been
resolved by the Company's payment of $3,090 to the State.
-15-
<PAGE>
The Company filed suit on July 21, 1997 against Marcia
K. Garbrecht, Gary D. Garbrecht, Mach, Inc., and Mach
performance, Inc. Gary D. Garbrecht is a former director of
the Company and together with his wife owned Mach, Inc. and
Mach Performance, Inc. The Company acquired Mach
Performance, Inc. which manufactured propellers in order to
effectuate the Company's goals of vertical integration and
because the directors were convinced by Gary Garbrecht that
Mach Performance, Inc.'s propeller sales would grow
significantly. As a director of the Company, Gary Garbrecht
represented that Mach Performance, Inc.'s sales would exceed
$3(three)million per year. He and his wife also made
representations directly to the Company and to independent
auditors and appraisers hired to determine the value of Mach
Performance, Inc. Among those representations were
representations that Mach Performance did not have
agreements to repurchase assets previously sold, That
inventory was currently valued according to GAAP, that
warranty claims were not significant enough to require
accounting contingencies, and that the product manufactured
by mach Performance, Inc. was of high quality. After the
acquisition and the move of production to Washington, N.C.
during the spring of 1997, the Company learned that Mach
Performance, Inc. did have repurchase agreements, that its
warranty claims were significant, and that the propellers
manufactured by its equipment and processes were not of high
quality. Gary Garbrecht resigned as an employee of the
Company in April and resigned as a director in May. After
investigating the warranty claims and the quality of the
propellers built through Mach Performance, Inc.'s equipment
and processes, the Company notified the Garbrechts that the
contracts involved in and resulting from the acquisition
were rescinded. Because the Garbrechts refused to recognize
the rescission and to return the consideration they
received, the Company filed suit.This suit seeks rescission
of an Agreement and Plan of Reorganization entered into with
the Garbrechts in 1996 for the Company's acquisition of Mach
Performance, Inc. The Company seeks rescission of the
acquisition and merger agreement and voidance of the
resulting transaction on grounds of fraud and material
breach of contract. Federal securities fraud claims are
based on the Garbrechts' alleged deceptive acts in violation
of Section 10(b) of the Securities Exchange Act of 1934,
arising from the sale of Mach Performance, Inc. capital
stock to the Company in exchange for the Company's issuance
to them of 127,500 new restricted shares of its common stock
valued at $1,041,250. Other claims include breach of
fiduciary duty, based on North Carolina law, arising from
Mr. Garbrecht's alleged material misrepresentations and
omissions while serving as a director of the Company during
the time when the acquisition and merger agreement was
reached. The Company is seeking a preliminary and permanent
injunction against the sale or transfer of its 127,500 new
restricted common shares acquired by the Garbrechts in the
transaction, and is seeking monetary damages, including
trebled and punitive damages in an unspecified amount, for
the claims stated above, as well as for a number of alleged
actions by Mr. Garbrecht after the acquisition, including
usurpation of corporate opportunities and conversion. The
Garbrechts and Mach, Inc. have filed counterclaims alleging
breach of Gary D. Garbrecht's employment contract, breach of
the merger contract, and requesting a declaratory judgment
regarding the parties' rights and responsibilities under all
the contracts involved in this transaction. The company
intends to vigorously pursue its claims against the
Garbrechts and their co-defendants in this suit, and to
defend vigorously against the counterclaims brought by the
Garbrechts and their affiliates.
-16-
<PAGE>
On September 3, 1997, the company filed suit against
P.R.O.P. Tour, Inc., an affiliate of Gary Gary Garbrecht.
P.R.O.P. tour Inc. runs a Formula One racing tour of which
the Company is the major sponsor. This sponsorship had two
components, a sponsorship of a Formula One race held in
Washington, N.C. and a separate sponsorship of the entire
series of races which made the Company's subsidiary,
Fountain Powerboats, Inc., the title sponsor of the series.
The suit results from P.R.O.P. Tour Inc.'s repeated claims
that it was damaged by alleged breaches of the sponsorship
agreement for the Washington, N.C. race by Fountain
Powerboats, Inc. The Company decided to seek a declaratory
judgment regarding its obligations under the Washington,
N.C. race contract. The suit also includes claims by the
Company involving the series sponsorship agreement based on
P.R.O.P. Tour, Inc.'s repudiation of its obligations to
provide the Company primary media exposure according to the
terms of that agreement.
Item 4. Submission of Matters to a Vote of Security
Holders.
No matters were submitted to the Shareholders for a vote
during the last quarter of Fiscal 1997.
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock, $.01 per value, was listed
and began trading on the NASDAQ National Market System
(under the symbol "FPWR") on August 28,1996. Prior to that
time the Company's common stock was traded on the American
Stock Exchange (under the symbol "FPI").
The following table contains certain historical high
and low price information relation to the common stock for
the past quarter indicated. Amounts shown reflect high and
low sales prices of the common stock on the Nasdaq National
Market System since August 28, 1996 and the American Stock
Exchange prior to such date:
Quarter Ended High Low
September 30, 1994 ... $2.92 $1.50
December 31, 1994 .. 4.42 1.83
March 31, 1995 4.83 3.50
June 30, 1995 ... 4.17 3.00
September 30, 1995 ... 5.50 3.59
December 31, 1995 ... 4.09 3.50
March 31, 1996 . 4.00 3.50
June 30, 1996 .... 7.92 3.79
September 30, 1996 ........ 8.08 5.69
December 31, 1996 . ...12.33 7.75
March 31, 1997 .. 16.08 10.65
June 30, 1997 ... 13.16 9.50
-17-
<PAGE>
The Company has not declared or paid any cash dividends
since its inception. Any decision as to the future payment
of dividends will depend on the Company's earning, financial
position, and such other factors as the Board of Directors
deems relevant.
The number of shareholders of record for the Company's
common stock as of September 30, 1997 was approximately
1500.
-18-
<PAGE>
Item 6. Selected Financial Data
Fountain Powerboat Industries, Inc. and Subsidiary
Selected Financial Data
Fiscal Years 1993 through 1997
Year Ended June 30,
Operations Statement Data: ------------------------------------------
- ----------------------
(Period Ended) 1997 1996 1995 1994 1993
- ----------------- ------ ----- ------ ------ ------
Sales $50,514,325 $41,598,051 $38,727,329 $22,240,212 $27,232,360
Income from continuing
operations $4,069,832 $3,680,034 $2,047,876 $ (2,993,344) $ 146,433
Loss from discontinued
operations $2,829,951 - - - -
Net Income
(loss) $ 1,239,951 $ 3,680,034 $ 2,047,876 $(2,993,344) $ 146,433
Income (loss) per share $.25 $ .81 $ .45 $( .67) $.03
Weight average shares
outstanding .. 4,995,154 4,528,608 4,528,608 4,452,856 4,398,750
Fully diluted earnings (loss)
per share ... $ N/A $ .77 $ .45 $ N/A $N/A
Fully diluted weighted average
shares outstanding N/A 4,800,238 4,539,694 N/A N/A
Balance Sheet Data
(At Period End)
- -----------------------------------
Current assets.. $10,997,133 $8,378,341 $6,185,727 $5,365,619 $5,011,591
Total Assets . $23,713,896 $18,498,104 $16,334,757 $16,266,787 $16,211,026
Current Liabilities $6,305,212 $6,180,476 $6,081,298 $14,976,570 $5,920,743
Long-term debt.. $8,047,039 $5,433,184 $7,049,049 $133,683 $6,440,403
Stockholders'
equity (1) .. $ 9,361,645 $6,884,444 $3,204,410 $1,156,534 $3,849,880
- -------------------
(1) The Company has not paid any dividends since its inception.
-19-
<PAGE>
Item 7. Management's Discussion and
Analysis of Financial
Condition and Results of Operations.
As described more fully
below at "Business
Environment", approximately half of the
Company's shipments
to dealers were financed through so-called
"100% floor plan
arrangements" with third-party lenders
pursuant to which
the Company may be required to repurchase
boats repossessed
by the lenders if the dealers defaults
under his credit
arrangement. The other half of shipments
were C.O.D. or
payment prior to shipment.
Generally, the Company recognizes a sale
when a boat is
shipped to a customer, legal title and
all other incidents
of ownership have passed from the Company
to the customer,
and payment is received from the
customers' third-party
commercial lender or from the customer.
This is the method
of sales recognition believed to be in
use by most boat
manufacturers.
The Company has developed criteria
for determining
whether a shipment should be recorded as
a sale or as a
deferred sale (a balance sheet liability).
The criteria for
recording a sale are that the boat has
been completed and
shipped to a customer, that title and all
other incidents of
ownership have passed to the customer, and
that there is no
direct commitment to repurchase the boat
or to pay floor
plan interest beyond the normal sales program terms.
At June 30, 1995, the Company estimated
the balances in
deferred sales to be $197,541 and in deferred
cost of sales
to be $183,393. At June 30, 1994, the
Company estimated the
balances in deferred sales to be $1,100,000
and in deferred
cost of sales to be $850,000. The
differences between the
estimates for deferred sales and deferred
cost of sales at
June 30, 1994 and June 30, 1995 had the
effect of increasing
the gross margin on sales and net income
after taxes for the
year by $235,852 ($.05 per share).
At June 30, 1997 and 1996, there
were no commitments to
dealers to pay the interest on floor
plan financed boats in
excess of the time period specified in
the Company's written
sales program and there were
no direct repurchase
agreements. This was because of
much improved market
conditions and strong ongoing consumer
demand for boats.
Therefore, there were no deferred sales
or cost of sales
estimated at June 30, 1997, and
1996. The differences
between the estimates for deferred sales
and deferred cost
of sales at June 30, 1995 and June 30,
1996 had the effect
of increasing the gross margin on sales
and net income after
taxes for the year by $14,148. There
was no such effect on
Fiscal 1997.
The Company has a contingent
liability to repurchase
boats where it participates in the
floor plan financing made
available to its dealers by third-party
finance companies.
Sales to participating dealers are
approved by the
respective finance companies. If a
participating dealer
does not satisfy its obligation to the
lender and the boat
is subsequently repossessed by the lender,
then the Company
can be required to repurchase the boat.
The Company had a
contingent liability of approximately
$8,600,000 at June 30,
1997, $7,200,000 at June 30, 1996 and
$7,700,000 at June 30,
1995 for the shipment of boats which
remained uncollected by
the finance companies at those dates.
The lesser contingent
liability at June 30, 1996 is due to
fewer boats being floor
planned by dealers with finance
companies. Additionally, at
June 30, 1997 and June 30, 1996
the Company had recorded a
$200,000, and $207,359 reserve for
losses which may be
reasonably expected to be incurred
on boat repurchases in
future years.
-20-
<PAGE>
Business Environment.
The company's Sales have continued
to increase each
year. Sales for 1997 were $50,514,325,
a 21% increase from
Sales for Fiscal 1996. Improved sales
volume for Fiscal
1997 was in line with a general
improvements is the overall
recreational boating industry and the
result of additional
production capacity. Also, the Company
continued its highly
effective advertising and marketing
programs throughout
Fiscal 1997.
Sales for Fiscal 1996 were
$41,598,051, a 7% increase
from sales for Fiscal 1995. Sales
for Fiscal 1995 were
$38,727,329.
In Fiscal 1997, the Company
continued to advertise and
market aggressively. Management believes
that the Company's
advertising, marketing, racing, and
tournament fishing
programs, as well as, its reputation as
the builder of the
highest quality, best performing,
and safest high
performance boats in the industry,
all contributed in
increased sales for Fiscal 1997.
Typically, each dealer's floor
plan credit facilities
are secured by the dealer's inventory,
and, perhaps, the dealers letter of credit or other
personal and real property. In connection
with the dealers'
floor plan arrangements, the Company
(as well as
substantially all other major manufacturers)
has agreed in
most instances to repurchases, under
certain circumstances,
any of its boats which a lender
repossesses from a dealer
and returns to the Company. In the
event that a dealer
defaults under credit line, the
lender may invoke the
manufacturers' repurchase agreements
with respect to that
dealer. In that event, all repurchase
agreements of all
manufacturers supplying a defaulting
dealer are generally
invoked regardless of the boat or
boats with respect to
which the dealer has defaulted.
Except where there is a
direct repurchase agreement
with the customer, the Company is
under no obligation to
repurchase boats from its dealers,
although it will on
occasion voluntarily assist a dealer
in selling a boat or
repurchase a boat for the convenience of a dealer.
No boats were repurchased
in Fiscal 1997, 1996 and
Fiscal 1994 in connection with
floor plan arrangements.
Five boats were repurchased during
Fiscal 1995 in connection
with floor plan arrangements. At
June 30, 1997 and 1996,
the Company had recorded a $200,000,
and $207,359 reserve
for losses which may be reasonably
expected to be incurred
on boat repurchases in future years.
Results of Operations.
Net income for Fiscal 1997
was $1,239,951 or $.25 per
share outstanding. This compares
to net income for Fiscal
1996 of $3,680,034, or $.81 per
share. The change in net
income was due to a discontinued
operations loss and write-
down of assets of a Subsidiary,
Fountain Power, Inc. for
$2,829,881.(See Note #10 and Note #15).
-21-
<PAGE>
Income from continuing operations
(before the loss and
writedown due to Fountain Power, Inc,)
increased in Fiscal
1997 to $4,069,832 or 10% over fiscal
1996. Income from
continuing operations for Fiscal 1996
was $3,680,034. The
improvement in income from continuing
operations for Fiscal
1997 was the result of greater
sales volume, price
increases, production efficiencies, and
a favorable sales
mix. The mix of sales continued to
be weighted with sales
of the Company's larger, higher margin sport boats.
Net income for Fiscal 1996 was up
due to an improvement
in sales volume, production efficiencies
and a favorable
sales mix. Also, income was bolstered
by inclusion of a non-
recurring $800,000 discount earned
for the early retirement
of indebtedness to a vendor.
Sales were $41,598,051 for
Fiscal 1996, or up by 7% from the previous year.
Net income for Fiscal 1995 was
up primarily because of
substantially improved sales volume.
Sales were $38,
727,329, or up by 74% from the
previous year. Sales for
Fiscal 1994 were $22,240,212. The
sales mix for Fiscal 1994
was unfavorable and overall sales
volume through February,
1994 was less than anticipated.
Fewer boats were sold and
they were generally smaller and
less profitable resulting in
a loss for the year.
In Fiscal 1994, at the Miami
boat show in mid-February,
the new "positive-lift" hull
design was introduced. This
new hull design significantly
increases speed, improves
handling, and results in much
better fuel economy.
Subsequent to the introduction of
this new design, the
Company received many orders for
large, profitable sport
boats having the new "positive-lift" hull.
As the Company's sales order
volume improved, it began
to greatly increase its level
of purchases of high
performance engines and other
critical components.
Unfortunately, the high performance
engines and certain
other critical components were not
available on a timely
basis. This caused serious and
prolonged delays in the
Company's boat production. Many
costly inefficiencies were
incurred in its manufacturing
operations as a consequence of
not having the necessary high
performance engines and
components on a timely basis. By
July, 1994 most of these
supply problems had been resolved.
Most of the sales orders
that were not completed in the fourth
quarter of Fiscal 1994
because of delayed deliveries of
critical components were
completed in the first quarter of Fiscal 1995.
The Company's gross profit
margin as a percentage of
sales increased to 26.8% in Fiscal 1997
from 22.3% in Fiscal
1996 and 20.1% in Fiscal 1995. The
increase in the gross
margin percentage was due to price
increases and the sales
mix of larger, higher margin sport
boats. Greater sales
volume, more integrated manufacturing operations
and production efficiencies
also contributed to an
improved gross margin for Fiscal 1997.
Depreciation expense was $1,642,969
for Fiscal 1997,
$1,536,479 for Fiscal 1996, and
$1,628,867 for Fiscal 1995.
Depreciation expense by asset category was as follows:
-22-
<PAGE>
Fiscal Fiscal Fiscal
1997 1996 1995
Land improvements $ 22,468 $20,595 $18,849
Buildings $ 231,546 $260,580 $269,460
Molds & plugs $1,041,211 $980,104 $1,076,746
Machinery & Equipment $295,829 $ 225,654 $216,089
Furniture & fixtures $24,572 $11,114 $12,094
Transportation equipment $27,343 $ 38,432 $35,629
------- ------- -------
Total $1,642,969 $1,536,479 $ 1,628,867
======== ======== ========
The $ 92,388 decrease in
depreciation expense for
Fiscal 1996 from Fiscal 1995 is due to an excess of
molds becoming fully
depreciated over new molds commencing
to be depreciated
during the year. Those particular molds
which are now fully
depreciated are still in active service.
Following is a schedule of
the net fixed asset
additions during Fiscal 1997 and Fiscal 1996.
Fiscal 1997 Fiscal 1996
Buildings ........ $ 360,231 $ 225,781
Land and Improvements...$ 315,605 -
Molds and plugs ...... $ 1,684,274 $ 878,513
Construction in Progress...$ 809,506 -
Machinery & equipment ..$ 649,895 $ 376,241
Furniture & fixtures .. $ 18,767 $ 6,270
Transportation equipment .$ 41,718 $ (33,925)
----------- ----------
Total $ 3,879,996 $1,482,880
========= =========
-23-
<PAGE>
Selling expenses were $6,463,875
for Fiscal 1997,
$4,285,923 for Fiscal 1996, and $3,897,086
for Fiscal 1995.
The Company continued to promote its
products primarily by
magazine advertising in Fiscal 1997.
Advertising expense
was $1,267,822 for Fiscal 1997,
$849,627 for Fiscal 1996,
and $977,787 for Fiscal 1995.
These advertising
expenditures increased the Company's
visibility in the
recreational marine industry and promoted
its boat sales.
Management believes that advertising
is necessary in order
to maintain the Company's sales volume and dealer
base.
Additionally, in an effort to
further promote its
products, the Company continued its
offshore racing and
tournament fishing programs. These
programs cost $1,256,631
in Fiscal 1997, $867,743 in Fiscal
1996 and $576,741 in
Fiscal 1995. As previously noted,
the Company curtailed its
offshore racing program in Fiscal
1992 and sold its last
remaining race boat, but continued
a limited racing program
and its tournament fishing program
through Fiscal 1997. The
Company commenced construction of two
race boats during late
Fiscal 1997 and intends to again
implement a racing program
during Fiscal 1998.
Selling expenses compared for
the past three fiscal
years were as follows:
Fiscal 1997 Fiscal 1996 Fiscal 1995
Offshore racing and
tournament fishing ..$1,256,631 $867,743 $576,741
Advertising $1,267,822 $849,627 $977,787
Salaries & commissions $1,029,810 $ 578,170 $752,206
Boat Shows ... . $452,859 $285,321 $388,710
Dealer incentives $1,286,649 $ 954,234 $938,563
Other selling expenses $1,170,104 $ 750,828 $263,079
----------- ---------- ---------
Total $ 6,463,875 $4,285,923 $3,897,006
======= ========= =========
General and administrative
expenses include the
finance, accounting, legal, personnel,
data processing, and
administrative operating expenses
of the Company. These
expenses were $2,553,870 for
Fiscal 1997, $1,904,988 for
Fiscal 1996, and $1,415,637 for
Fiscal 1995. Most of the
increase for Fiscal 1997 over
Fiscal 1996 was in executive
compensation, travel expense, and attorneys' fees.
Interest expense was $557,768
for Fiscal 1997, $747,337
for Fiscal 1996, and $989,359 for
Fiscal 1995. The decrease
in interest expense for Fiscal 1997
is primarily from lower
interest rates on long term debt.
-24-
<PAGE>
No fixed assets were sold in
Fiscal 1997. During Fiscal
1996 some trucks were sold yielding
a gain of $22,906.
During Fiscal 1995 some miscellaneous
fixed assets were sold
yielding a loss amounting to $23,015.
Included in other income for
Fiscal 1997 are consulting
fees earned by the use of Mr.
Fountain amounting to
$260,000, and these have been
assigned to the company.
Included in other income for Fiscal
1996 is a non-recurring
$800,000 discount earned for the
early retirement of
indebtedness to a vendor. Included
in other income for
Fiscal 1995 is the non-recurring gain
on the settlement of a
state sales and use tax assessment
amounting to $169,552.
Also included in other income for
Fiscal 1996 are $610,420
of technical consulting fees earned
by the Company by the
use of Mr. Fountain. These
consulting fees amounted to
$452,911 for Fiscal 1995. Under
the terms of the current
consulting contract, the consulting
fees ended entirely
after Fiscal 1997.
Liquidity and Financial Resources.
Operations in Fiscal 1997
provided $5,474,162 in cash.
Net income plus depreciation expense
provided cash amounting
to $2,882,920. However, relatively
large amounts were
needed to finance investment
activities in purchasing
property, plant, equipment and
molds. The loss from
operations of the discontinued
subsidiaries, Fountain Power,
Inc. and Mach Performance, Inc.
also contributed to the use
of cash (See Note 15).
The ending cash balance was
$3,690,658.
Operations for the prior
fiscal year 1996, provided
$3,935,379 in cash. Net income
plus depreciation expense
provided cash amounting to
$5,216,513. However, relatively
large amounts were needed to
finance increases in accounts
receivable and inventories. The
ending cash balance was
$1,360,619.
During Fiscal year 1995
operations consumed $1,133,240
in cash. Net income plus
depreciation expense provided cash
amounting to $3,676,743. However,
relatively large amounts
were needed to finance an increase
in accounts receivable, a
decrease in accounts payable and
a reduction in customer
deposits. The ending cash balance was $490,807.
Investing activities for
Fiscal 1997 required
$4,936,129, including expenditures
for additional molds and
plugs amounting to $1,684,274 and
for property, plant and
equipment for $2,249,670. Also,
increases in other assets
required $306,030.
Investing activities for
Fiscal 1996 required
$1,484,306 including expenditures
for additional molds and
plugs amounting to $878,513 and
for other property, plant
and equipment amounting to $604,367.
Investing activities for
Fiscal 1995 required
$1,169,744, including expenditures for
additional molds and
plugs amounting to $767,102 and for
other property, plant,
and equipment amounting to $431,137.
-25-
<PAGE>
Financing activities for
Fiscal 1997 provided
$1,095,851. Included in this amount
are proceeds from
issuance of notes payable and long
term debt to G. E.
Capital Corporation for $8,500,000 and
the retirement of all
previous long term debt of $6,427,060.
Financing activities for Fiscal
1996 used $1,581,261.
Included in this amount is $2,192,528
of indebtedness to a
vendor which was retired entirely
during the year. Debt
repayments to MetLife Capital
Corporation and others
amounted to $627,637.
Financing activities for
Fiscal 1995 provided
$2,118,080. Included in this
amount is $2,600,000 of
indebtedness to a vendor which was
converted from a short-
term trade payable to a
long-term note payable. Debt
repayments to MetLife Capital
Corporation and other amounted
to $928,632.
The net increase in
cash for Fiscal 1997 was
$2,330,039. For Fiscal 1998, the
Company anticipates that
the $3,690,658 beginning cash
balance and the amounts
expected to be provided from
1997 operations will be
sufficient to meet most of the
Company's liquidity needs of
the year. However, planned capital
expenditures for Fiscal
1998 are substantially greater
than for Fiscal 1997. The
Company intends to increase
its production capacity,
principally for new products,
in Fiscal 1998. Therefore,
the Company is reviewing
various financing alternatives to
provide for its increased growth.
Effective December 31, 1996,
the Company repaid its
indebtedness to MetLife
Capital Corporation, Deutsche
Financial Services, and others with
a new $10,000,000 long
term loan agreement with General
Electric Capital
Corporation, of which $7,500,000 was
initially disbursed. A
second disbursement was made during
the year for $1,000,000
bringing the total outstanding as
of June 30, 1997 to
$8,500,000 less scheduled monthly principal
reductions.
Effective December 31, 1993,
the Company refinanced its
indebtedness to Metlife Capital
Corporation. A $2,000,000
revolving loan was incorporated into
the long-term debt and
the total amount was amortized over
ten years with a call at
the end of the fifth year. The
interest rate on the debt
was fixed at 8 1/2%. The new
monthly payment amounts very
closely approximate what the
principal and interest payment
amounts were prior to the
refinancing. The indebtedness is
secured by a first lien to
the Company's assets, except
engines manufactured by Mercury
Marine. An additional
$76,194 was borrowed in the
transaction. The total amount
of the debt to MetLife as
December 31, 1993 was $6,683,200
after the refinancing. The
indebtedness to MetLife was
$6,003,799 at June 30, 1995 and $5,500,467
at June 30, 1996.
The Loan agreement with
MetLife was amended January 1,
1995, to revise certain financial
ratio requirements that
the Company had previously not
attained. After the revision
of the financial ratio requirements
and at June 30, 1995 and
1996, the Company was in compliance
with all of the MetLife
financial ratio requirements.
In June of 1994, the
ompany arranged for a line of
credit from Deutsche Financial
Services for engine
purchases. At June 30, 1994 the
amount owed to Deutsche was
$152,287, at June 30, 1995 the
amount owed was $534,185 and
at June 30, 1996 the amount
owed was $1,173,089. The
maximum amount of the line
of credit from Deutsche is
$1,200,000. The debt is secured
by a first lien on all
engine inventory and by a
$200,000 irrevocable letter of
credit.
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<PAGE>
In December, 1995 the
Company borrowed $600,000 from G.
E. Capital Corporation for
the purpose of retiring its
indebtedness to a vendor. This
debt to G. E. Capital
Corporation is scheduled for
repayment over forty months at
9.00% interest. It is secured
by various boat molds and
product tooling and by an irrevocable
bank letter of credit
for $200,000. The unpaid balance
at June 30, 1996 was
$538,044.
Effects of Inflation.
The Company has not been
materially affected by the
moderate inflation of recent
years. Since most of the
Company's plant and its
equipment are relatively new,
expenditures for replacements
are not expected to be a
factor in the near-term future.
When raw material costs
increase because of inflation,
the Company attempts to minimize
the effect of these
increases by using alternative,
less costly materials, or
by finding less costly sources
for the materials it uses.
When the foregoing measures are
not possible, its selling
prices are increased to recover the cost
increases.
The Company's products are
targeted at the segment of
the power boat market where
retail purchasers are generally
less significantly affected by
price or other economic
conditions. Consequently, management
believes that the
impact of inflation on sales and
the results of operations
will not be material.
Cautionary Statement for Purposes
of "Safe Harbor" Under the
Private Securities Reform Act of 1995.
The Company may from time
to time make forward-looking
statements, including statements
projecting, forecasting, or
estimating the Company's performance
and industry trends.
The achievement of the projections,
forecasts, or estimates
contained in these statements is
subject to certain risks
and uncertainties, and actual results
and events may differ
materially from those projected, forecasted,
or estimated.
The applicable risks and
uncertainties include general
economic and industry conditions
that affect all businesses,
as well as matters that are
specific to the Company and the
markets it serves. For example,
the achievement of
projections, forecasts, or
estimates contained in the
Company's forward-looking statements
may be impacted by
national and international economic
conditions; compliance
with governmental laws and regulations;
accidents and acts
of God; and all of the general risks
associated with doing
business.
-27-
<PAGE>
Risks that are specific to
the Company and its markets
include but are not limited to
compliance with increasingly
stringent environmental laws and
regulations; the cyclical
nature of the industry; competition
in pricing and new
product development from larger
companies with substantial
resources; the concentration of
a substantial percentage of
the Company's sales with a few
major customers, the loss of,
or change in demand from dealers,
any of which could have a
material impact upon the Company;
labor relations at the
Company and at its customers
and suppliers; and the
Company's single-source supply
and just-in-time inventory
strategies for some critical
boat components, including high
performance engines, which
could adversely affect production
if a single-source supplier is
unable for any reason to meet
the Company's requirements on a timely
basis.
Item 8. Financial Statements and Supplementary Data.
The financial statements are set
forth immediately following
the signature page.
Item 9. Changes in and
There were no changes in
or disagreements with the
independent auditors on accounting
and financial disclosure
matters.
Part III
Item 10. Directors and Executive Officers
Registrant.
The Current directors of
Registrant and its Subsidiary
are as Follows:
REGINALD M. FOUNTAIN, JR., age 57,
founded the Company's
Subsidiary during 1979 and has served
as its Chief Executive
Officer from its organization. He
became a director and
President of the Company upon its
acquisition of the
Subsidiary in August, 1986. Mr. Fountain presently serves
as Chairman, President, Chief Executive
Officer, and Chief
Operating Officer of the Company and
its Subsidiary. From
1971 to 1979, Mr. Fountain was a
world class race boat
driver, and was the Unlimited Class
World Champion in 1976
and 1978.
REGGIE FOUNTAIN - A BIOGRAPHY
Whether it's racing, building the world's premier
high-performance sport boats, investing in real estate
or selling life insurance, Reggie Fountain has always
been a winner at everything he does.
One only needs to spend a few minutes with Reggie
Fountain to sense the excitement of an American success
story come true. The man loves his work.
Whether it's beating a star-studded fleet of
world-class offshore racers, personally researching,
developing and manufacturing his renowned high-performance
pleasure boats, earning a business and law degree at
the University of North Carolina, joining the Million
Dollar Round Table of Life Insurance Salesmen or
completing a real estate deal in his native North
Carolina, Fountain always finds a way to win.
WORLD CHAMPION TUNNEL BOAT RACER
Reggie entered his first boat race in 1954
at the age of 14, moving quickly into professional
competition in 1970. A year later, while driving
for Glastron Boats, he was named the Houston Gulf
Coast Marathon Association Champion and the Outstanding
New Driver at the lake Havasu World Championships.
Relying on a keen sense for speed, a superstar
racing career was under way.
The following year, operating as an independent,
Fountain made boat racing history by setting two world
records earning three national closed-course
championships all in one day at the Marine Stadium
in Miami. Fountain's dominance as an independent
eventually earned him a place on the vaunted Mercury
Factory Team where he teamed with Bill Seebold and
Earl Bentz to become the most dominant trio in
tunnel outboard history.
Sporting the Mercury corporate colors, Fountain
won an amazing 20 of 31 races entered in 1973.
In 1975, he followed up by winning 10 of 19 events,
but it was the bicentennial year of 1976 that will
be remembered as the pinnacle of Fountain's tunnel
racing career. He finished first in 15 of 23 races
entered, capped by a well deserved title at the St.
Louis OZ World Championships. Fountain won the
prestigious St. Louis race again in 1978,
then retired from active competition the
following year to pursue an extensive R&D
testing program commissioned by Mercury Marine
while continuing to manage his growing real
estate interests.
FOUNTAIN POWERBOATS - THE BEST ON THE WATER
Before Reggie could begin MerCruiser's
testing program, he needed a boat. After
evaluating the market, he contracted with
Bill Farmer of Excalibur Boats in Sarasota,
Florida to use one of his 31' V-bottoms.
As the testing program progressed, Fountain
couldn't resist the temptation to tinker
with the boat. A little sandpaper on the
running surface netted a speed increase.
Hand-crafted putty strakes improved handling
and further modifications on the stern drive
height improved acceleration. Before long,
Reggie had made so many changes the boat no
longer resembled the original.
Encouraged by the noteworthy performance
gains, Fountain next attacked the deck and hull
design. As the development process continued,
Fountain noticed a growing market for the
high customized test boats. A short time
later, Fountain Powerboats was born in an
abandoned used car dealership just outside
Reggie's residence in Washington, North
Carolina near the Pamlico River.
FOUNTAIN POWERBOATS - ALWAYS ON THE GO
Growth has come rapidly at Fountain
Powerboats. What started in 1979 as a
10,000-square foot manufacturing facility
with eight employees and annual sales of
$515,000 has swelled to 200,000 square
feet, more than 300 employees and projected
sales for the 1995-96 model year in excess
of $45,000,000.
Likewise, Fountain's model line has
kept pace with the company's phenomenal
growth. Seventeen years after he started,
Fountain's Lightning Series includes 35',
42' and 47' offerings, while the award-winning
Fever Series features 27', 29', 32' and 38'
models. For cruising enthusiasts that want
more performance, Fountain's 32', 38' and 47'
Sports Cruisers are considered the best on
the water. And for those interested in getting
started in high-performance boating, Fountain
offers an award-winning 24' Competition Series.
In addition to his world-renowned sport boats,
fisherman can likewise enjoy Fountain's patented
brand of performance. Fountain entered the
bluewater fishing market at full strength in
1990. Today, the company's fishing fleet
included a diverse mix of boats from 25' to 32'
with either stern drive or outboard power in
center console, cuddy cabin and open bow configurations.
THE BEST ON THE WATER
From the outset, Fountain has insisted
on ultimate quality. A pioneer of space-age
laminates in the boating industry, Fountain
was among the first to use bi- and tri-directional
glass along with lightweight coring material.
Underneath, Fountain was one of the first to
successfully utilize a notch transom, pad
keel running surface for improved handling
and performance.
With Reggie at the helm, Fountain
Powerboats has gained an international
reputation as the world's premier high-performance
boat company. Fountain is the only builder
ever to earn Boat of the Year honors from
three different boating publications, including
Powerboat, Hot Boat and Boating. For 15
consecutive years, Fountain has been recognized
in Powerboat magazine's annual Awards of
Product Excellence program, including five
Offshore Boat of the Year awards - the most
recent in 1996. Furthermore, fishing boats
designed and built by Fountain have thoroughly
dominated competition on the Southern
Kingfish Association (SKA) tour like
no other builder in history. Anglers
in Fountain fishing boats have earned
firstplace overall honors four of the
five years, including Dave Workman's
back-to-back wins in 94'-955'. Further,
Team Fountain has never failed to place
at least five boats in the top ten spots
in the 2,000-member SKA.
A RETURN TO RACING
Certainly, a trophy case full of awards
and accolades have helped propel Fountain to
the forefront of the boating world but it's
been the achievement in offshore racing that
has truly separated Fountain from the rest
of the pack. After nearly a decade of
retirement from active competition, Reggie
Fountain returned to racing in 1990 to
campaign nationwide on the offshore circuit.
Not since the late Don Aronow has a man
designed, built, throttled and driven a
boat of his own make to such dominance on
the demanding offshore tour. Fountain
Powerboats is the only V-bottom builder
in the decade of the 90's to score a
first-place overall finish at a nationally
sanctioned offshore race. We've done it
more than a dozen times. Wellcraft,
Cigarette, Formula, Baja and Hustler
have a combined tally of zero. Further,
in a two-year stretch, Reggie Fountain
went undefeated in major offshore competition.
In addition to his complete
dominance on the racecourse, Fountain
has clearly established several times
that he builds the world's fastest, safest,
smoothest and best handling V-bottoms
on the water. In the last six years,
the most hotly contested prize on the
offshore circuit has been the kilo
record. Fountain started this seesaw
battle in 1991 with a 114.585-mph clocking
in the triple-engine 47-foot Superboat
Team Fountain. The Wellcraft got into
the act with a triple-engine 116.751-mph
blast of its own. Hell bent on returning
bragging rights to North Carolina, Fountain
upped the mark to 123.91 mph six month
later with the wrinkle that he did the
trick in a smaller, less powerful 42-foot
twin-engine boat. And then there's the
latest episode that Fountain will always
remember as icing on the cake literally.
Fountain's back to back 5/8th mile kilo
passes of 133.788 and 130.092 mph became
all the more noteworthy when you consider
they were recorded in a freezing sub-zero
snow flurry. The new 131.94-mph speed
marks the second time that Reggie has
used a twin-engine boat to break a record
held by a triple.
Perhaps Fountain's biggest milestone
achievement in offshore racing came in
New Orleans, LA, in 1990. Racing against
a star-studded fleet that included actors
Chuck Norris, Don Johnson, and Kurt
Russell, Fountain overcame amazing odds
and beat the entire field of hybrid
racing catamarans with his V-bottom.
The win was particularly sweet for
Fountain because heretofore V-bottoms
reputedly were no match for the
catamarans in slick water. To the
amazement of the "experts" Fountain
aced a fleet of the world's fastest
offshore cats in water conditions on
lake Ponchartrain that would've been
ideal for a barefoot ski tournament.
Two years later in 1992, Reggie,
throttling john Rebhan's Fountain 42'
Lightning, Ohio Steel, accomplished
the near impossible by capturing the
OPT World and National Championships
in Open V-bottom. Fountain also won
the APBA World Championship in
Manufacturer's Super Vee.
REGGIE FOUNTAIN - MR. FULL THROTTLE
Although the title on his
business card says, "Reggie Fountain,
Chief Executive Officer, Chairman of
the Board and President," it scarcely
touches upon the extent of his actual
involvement. Unlike any other CEO in
the performance boating industry,
Reggie Fountain is hands-on every step
of the way.
Drawing on over 37 years of
experience in all aspects of racing
and pleasure boating, Fountain personally
masterminds all engineering and new
product Research and Development.
Considered among the most innovative
minds in the boating world, Fountain
revolutionized the way we go fast on
the water in the late 70's when he
introduced his amazing notch-transom,
pad-keel running surface. Then in
1992, he took the state of the art
one giant step further when he
introduced Positive Lift a breakthrough
that added more than a 10 percent
performance increase to Fountain's
already superior top-end performance
while also improving handling and
cornering agility.
Once a mold is created,
Fountain performs all initial
on-the-water testing and then
collaborates with his staff on
interior design and graphic styling.
To this day, Fountain still logs
approximately 1,000 hours a year on the water.
Time permitting, Reggie continues
to offer personal instruction in
the finer points of operating a
high-performance boat to many of
the customers that visit his North
Carolina facility. Furthermore, he
personally tests many of his boats
prior to shipment to a dealer
network that expands to all
corners of the United States.
GARY E. MAZZA,III, age 59, became
a director of the
Company on December 28. 1993. Mr.
Mazza is a practicing
attorney in the business, tax and
international areas of the
law in Annapolis, Maryland. He also
practices law in New
York and Virginia. He is the Chairman
of Triangle Tractor &
Trailer, Inc., a Director of the
American Red Cross of
Maryland, and an Adjunct Professor
at the University of
Maryland. He is the founder,
Executive Vice President, and
General Counsel for Aerovias
Quisqueana, C. por A., Santo
Domingo, Dominican Republic.
Prior to entering private
practice, Mr. Mazza was the
Director of the Legal Education
Institute at the U.S. Department
of Justice from 1977 to
1981. Prior to 1977, he served
as the Director of Legal
Training for the U.S. Civil Service
Commission and as Senior
Legal Advisor for the State
Attorney General's Achievement
Award. Mr. Mazza is a highly
decorated retired United
States Army Colonel.
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<PAGE>
FEDERICO PIGNATELLI, age 44,
became a director of the
Company on April 8, 1992.
Mr. Pignatelli is the U.S.
Representative of Eurocapital
Partners, Ltd., and investment
banking firm. From 1989 to April,
1992, he was a Managing
Director at Gruntal & Company,
an investment banking firm.
From 1988 to 1989, he was General
Manager of Euromobiliar
Ltd., a subsidiary of Euromobiliare,
SpA, a publicly held
investment and merchant bank in
Italy and Senior Vice
President of New York and Foreign
Securities Corporation, an
institutional brokerage firm in
New York. From 1986 to
1988, he was Managing Director at
Ladenburg, Thalmann & Co.,
an investment banking firm. From
1980 to 1986, he was
Assistant Vice President of
E. F. Jutton International.
Prior to 1980, he was
a financial journalist. Mr.
Pignatelli was elected as a
director of the Company pursuant
to the right of Eurocapital
Partners, Ltd. to designate one
member of the Board of
Directors in connection with a
private placement of the
Company's Common Stock. Mr.
Pignatelli also serves as
chairman of BioLase Technology,
Inc., a company which produces
medical and dental lasers and
endodontic products. Formerly,
he served as a director of
MTC Electronic Technologies Co.,
Ltd., a NASDAQ/NMS company,
and of CST Entertainment Imaging,
Inc., and American Stock
Exchange Company engaged in colonizing black
and white film.
MARK SPENCER, age 42, became a
director on February 26,
1992. He founded Spencer
Communications, and advertising
public relations firm
specializing in the marine industry,
in 1987. Previously, Mr.
Spencer began his journalism
career at Powerboat Magazine
in 1976. He was named
Executive Editor of Powerboat
Magazine in 1981 and served in
that capacity until 1987. During
the last seven years Mr.
Spencer has served as on camera
expert commentator for ESPN
covering the boating industry.
In addition to Mr. Fountain,
who is listed above as a
director, other executive officers
of the Company are as
follows:
JOSEPH F. SCHEMENAUER, age 52,
was appointed Vice President - Finance and Chief Financial
Officer in September, 1997.
Mr. Schemenauer has had twenty
years experience as Chief
Financial Officer and or Controller
in the boating industry,
primarily with Chris Craft
Corporation (and its successors,
Murray Chris Craft Sportboats,
Inc. and Murray Chris Craft
Cruisers, Inc.), Donzi Marine
Corporation, Wellcraft and
Triumph Yachts Divisions of
Genmar Industries, Inc. and
Luhrs Corporation. His predecessor,
Alan Krehbiel, served
in that capacity until August, 1997.
BLANCHE C. WILLIAMS, age 63,
has been Corporate Secretary
and Treasurer of the Company
since August, 1986, and has
held the same positions with
the Company's Subsidiary since
it was formed during 1979.
Mrs. Williams also served as
Executive Assistant to the President
from 1979 to 1988 and
is currently serving in that capacity.
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<PAGE>
Item 11. Executive Compensation.
The following table
sets forth the compensation
awarded, paid to or earned by
the Company's Chief Executive
Officer, who was the only executive
officer of the Company
whose compensation exceeded
$100,000 in Fiscal 1997, 1996,
and 1995.
Name and Principal Fiscal Annual Compensation Long-term Stock
Position Year Salary(1) Bonus(2) Compensation Options
- --------------- ----- ----- ------- ---------- ------
Reginald M.
Fountain Jr. 1997 $350,000 $151,717 $ -0- -0-
Chairman,
President,Chief 1996 $232,154 $199,984 $ -0- -0-
Executive Officer,
and 1995 $221,650 $106,438 $ -0- 450,000
Chief Operating Officer (4)
(1) The Board of Directors
increased Mr. Fountain's annual
base salary to $285,000 for the
period March 30, 1995 to
March 30, 1996 and to $350,000
for Fiscal 1997. The amounts
shown do not include the
value of certain personal
benefits received in addition
to cash compensation. The
aggregate value of such personal
benefits received was less
than ten percent (10%) of the total cash
compensation paid.
(2) The bonuses paid to Mr.
Fountain for Fiscal 1995,1996
and 1997 were authorized by the
Board on May 1, 1994.
His bonus represents 5% of net
income after the profit
sharing distribution, if
any, but before income taxes
limited to a maximum of $250,000.
(3) Mr. Fountain does not
participate in the Company's 401
(k) Plan and has no other
long- term compensation, other
than stock options.
The Following table
contains information concerning the
grant of stock options to
the named executive officer in
Fiscal 1995:
Name ................... Reginald M. Fountain, Jr.
Number of securities underlying
options/SARS granted .......... 450,000
Per cent of total options/SARS
granted to employees in the
fiscal year ................. 100%
Exercise price .................. $4.667
Expiration date .............. 8/04/05
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<PAGE>
Potential realizable value of assured
stock-appreciation for
option term based on a per share market
price of the common
stock on the last trading day
prior to the day of grant of $4.667:
Five percent ... $ 1,320,678
Ten percent .... $ 3,346,859
The following table contains
information concerning the
exercise of stock options and
employment related options and
information concerning unexercised
stock options held as of
June 30, 1997 by the named executive officer:
Name ....................... Reginald M. Fountain, Jr.
Shares acquired on exercise ...... -0-
Market value at time of exercise
less exercise price, or
value realized............... -0-
Number of unexercised options & warrants:
Exercisable options ......... 480,000
Non-Exercisable ............ -0-
Value of unexercised in-the-money
options at June 30, 1997,
Exercisable ............. $ 2,479,680 (1)
(1) The closing sale price of
the Common stock on Monday,
June 30, 1997 was $9.833.
Value equals the difference
between market value and exercise price.
In October, 1995, the
Financial Accounting Standards
Board issued SFAS No. 123,
"Accounting for Stock Based
Compensation". SFAS No. 123
permits a company to choose
either a new fair value based
method of accounting for its
stock based compensation arrangements
or to comply with the
current APB Opinion 25 intrinsic
value based method adding
pro forma disclosure of net income
and earnings per share
computed as if the fair value based
method had been applied
in the financial statements. SFAS
No. 123 is effective for
fiscal years beginning after December
15, 1995. The Company
will adopt SFAS No. 123 in 1997
using pro forma disclosures
of net income and earnings per
share. The impact of stock
options on the Company's pro forma
disclosures of net income
and earnings per share calculations
is not know as the
Company has not yet implemented the provision
of the SFAS.
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<PAGE>
Directors' Compensation.
Directors of the Company
currently do not receive any
fees or other compensation for
their services as directors,
but they are reimbursed for
travel and other out-of-pocket
expenses in connection with their
attendance at meetings of
the Board of Directors.
In Fiscal 1995, each
non-employee director (Messrs.
Pignatelli, Mazza, Garbrecht,
and Spencer) was granted non-
qualified stock options to purchase
30,000 common shares at
$3.5833 per share. These
non-qualified stock options
awarded to the outside directors
were not under any of the
Company's existing stock
option plans. Mr. Pignatelli
exercised a portion of his
options to purchase 24,000 shares
during Fiscal 1997 and Mr.
Mazza exercised all of his
options during July 1997.
Mr. Garbrecht resigned as a
director in April 1997. The
Company takes the position that
Mr. Garbrecht's options terminated
upon his resignation.
These options are disputed in
the lawsuit. (See "Legal
Proceedings" and "Stock Option Plans")
Employment Agreement.
Reginald M. Fountain, Jr.
serves as the Company's
President, Chief Executive
Officer, and Chief Operating
Officer pursuant to an employment
agreement entered into
during 1989. The agreement
provides for automatic
extensions of one-year periods
until terminated. Under the
agreement, Mr. Fountain receives
a base salary approved by
the Board of Directors and an
annual cash bonus based upon
the Company's net profits before
taxes. On May 1, 1994, the
Board of Directors authorized
an increase in the annual
bonus payment to Mr. Fountain to
5% of net income after the
profit sharing distribution but
before income taxes limited
to a maximum of $250,000.
Bonuses of $151,717 for Fiscal
1997, $199,984 for Fiscal 1996
and $106,438 for Fiscal 1995
were paid to Mr. Fountain.
The agreement terminates upon
death or permanent disability.
The current agreement
replaced a similar agreement with
Mr. Fountain that had been
in effect from December, 1986 to 1989.
Profit Sharing Plan.
No Profit Sharing Plan was
authorized for Fiscal 1997
or Fiscal 1996. On May 1,
1994, the Board of Directors
authorized a Profit Sharing Plan
applicable to all eligible
employees for Fiscal 1995. The
profit sharing calculations
were based upon the consolidated
audited net income for the
full fiscal year before income
taxes. The actual profit
sharing distribution for Fiscal
1995 was $376,614 and was
paid in full to the eligible employees
on August 12, 1995.
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<PAGE>
Stock Option Plans.
During 1987, shareholders
of the Company approved the
1986 Incentive Stock Option Plan.
The Plan is administered
by the Board of Directors which
may, in its discretion, from
time to time, grant to officers
and key employees options to
purchase share of the Company's
common stock. Directors who
are not officers or employees
of the Company or its
Subsidiary are not eligible to be
granted options under the
1986 plan.
The 1986 Plan provides that
the purchase price per
share of common stock provided for
in options granted shall
not be less than 100% of the fair
market value of the stock
at the time the option is granted.
However, in the case of
an optionee who possesses more
than 10% of the total
combined voting power of all classes
of the Company's stock,
the purchase price shall not be
less than 110% of the fair
market value of the stock on the date of the
grant.
No consideration is payable
to the Company by an
optionee at the time an option
is granted. Upon exercise of
an option, payment of the purchase
price of the common stock
being purchased shall be made to
the Company in cash, or at
the discretion of the Board of
Directors, by surrender of a
promissory not from the optionee,
or by surrender of shares
of common stock already held by
the optionee which shall be
valued at their fair market value
on the date the option is
exercised, or by any combination
of the foregoing. Also,
payment may be in installments,
and upon such other terms
and conditions as the Board of
Directors, in its discretion,
shall approve.
Under the 1986 Plan, the
aggregate fair market value of
shares with respect to which
options are exercisable for the
first time by an employee in
any calendar year generally may
not exceed $100,000.
The term of each option
granted under the Plan is
determined by the Board of Directors,
but may in no event be
more than ten years from the date
such option is granted.
However, in the case of an option
granted to a person who,
at the time the option is granted,
owns stock possessing
more than 10% of the total combined
voting power of all
classes of stock of the Company, the
term of the option may
not be for a period of more than five
years from the date of
grant. Unless the Board of
Directors determines otherwise,
no option may be exercised for
one year after the date of
grant. Thereafter, an option
may be exercised either in
whole or in installments as shall
be determined by the Board
of Directors at the time of
the grant for each option
granted. All rights to purchase
stock pursuant to an
option, unless sooner terminated
or expired, shall expire
ten years from the date option was granted.
Upon the termination of
optionee's employment with the
Company, his option shall be
limited to the number of shares
for which the option is exercisable
by him on the date of
his termination of employment, and
shall terminate as to any
remaining shares. However, if the
employment of an optionee
is terminated for "cause" (as
defined in the Plan), the
optionee's rights under any
then outstanding option
immediately terminate at the
time of his termination of
employment. No option shall be
transferable by an optionee
otherwise than by will or
the laws of descent and
distribution. As part of the
employment arrangement of Gary
Garbrecht which was part
of the acquisition of Mach
Performance, Inc., Mr. Garbrecht's
contract provided for
30,000 shares of stock options.
-33-
<PAGE>
Under the 1986 Plan, a
maximum of 300,000 shares of the
Company's common stock have been
reserved for issuance. In
the event of a stock dividend paid
in shares of the common
stock, or a recapitalization,
reclassification, split-up or
combination of shares of such stock,
the Board of Directors
shall have the authority to make
appropriate adjustments in
the members of shares subject to
outstanding options and the
option prices relating thereto,
and in the total number of
shares reserved for the future
granting of options under the
Plan.
During 1989 the Board of
Directors amended the Plan to
delete a provision requiring that
options granted to any one
employee be exercised only in the
sequential order in which
they were granted. That provision
at one time was, but is
no longer, required by the
Internal Revenue Code, as
amended, to be contained in incentive stock
option plans.
During Fiscal 1995 options
to purchase 30,000 shares
were awarded to Mr. Fountain at
$3.9417 ($3.5833 X 110%) per
share and options to purchase
30,000 share were awarded to
the Chief Financial Officer at
$3.667 per share. Of the
options granted in previous years,
all had expired by June
30, 1996. During Fiscal 1997
options to purchase 30,000
shares were exercised by the
Chief Financial Officer. The
1986 Plan terminated on December 5, 1996.
On June 21, 1995, a Special
Meeting of the shareholders
was held to vote upon the adoption
of the 1995 Stock Option
Plan. The new Plan as adopted
by the Shareholders allowed
for up to 450,000 common stock
options to be granted by the
Board of Directors to employees
or directors of the Company
on either a qualified or
non-qualified basis. Subsequently,
on August 4, 1995, the Board
unanimously voted to grant the
entire 450,000 stock options
authorized under the 1995 Stock
Option Plan to Mr. Reginald
M. Fountain, Jr. at $4.667 per
share on a non-qualified basis.
None of the options granted
to Mr. Fountain under the
1995 Plan have been exercised.
The expiration date of the
options granted to Mr. Fountain
is August 4, 2005.
During Fiscal 1995,
each of the four non-employee
directors was granted
non-qualified stock options to
purchase 30,000 common shares at
$3.5833 per share. These
non-qualified stock options awarded
to the outside directors
were not under any of the
Company's existing stock option
plans. (See Directors' Compensation for
status)
An October 11, 1996
employment agreement with former
director Gary Garbrecht provided
him with 30,000 option
shares, pursuant to the
1986 stock option plan, on
Industries common stock exercisable
at 12.25 per share to be
granted in blocks of 5,000
option shares each year for the
four year term of the employment
contract starting October
11, 1998. Gary Garbrecht
resigned employment with the
Company April 29, 1997. The
Company takes the position that
the options were not yet granted
to Gary Garbrecht when he
resigned and, that, in any event,
options which are not yet
exercisable when employment
terminates are void under the
1986 stock option plan.
This position is disputed by Gary
Garbrecht and the options
are involved in a lawsuit between
the Company and Gary Garbrecht
which is discussed above in
the section titled "Legal Proceedings."
-34-
<PAGE>
401 (k) Payroll Savings Plan.
During Fiscal 1991,
the Company initiated a 401 (k)
Payroll Savings Plan (the "401
(k) Plan") for all employees.
Eligible employees may elect to
defer up to fifteen percent
of their salaries. The amounts
deferred by the employees
are fully vested at all times.
The Company matches twenty-
five percent of the employee's
deferred salary amounts
limited to a maximum of five
percent of their salaried
amounts, or a maximum of one and
one-fourth percent of their
salaries. Amounts contributed by the
Company vest at a rate
of twenty percent per year of
service. Mr. Fountain, by his
own election, does not participate
in the 401 (k) Plan.
There are no postretirement benefit plans
in effect.
Performance Table.
The following table was
prepared by Standard & Poor's
Compustant Services, Inc.
It compares the Company's
cumulative total shareholder
return with a stock market
performance indicator (S. & P.
500 Index) and an industry
index (S. & P. Leisure Time).
The table assumes a base
point of June 30, 1992 to
be equal to $100.00 Accumulated
returns are noted through June
30, 1997. Each time period
covered by the table gives
the dollar value of the
investment assuming monthly
reinvestment of dividends. The
Company has never paid any cash dividends.
Total Shareholder Returns - Dividends Reinvested
Annual Return Percentage
Years Ending
Company/Index Jun93 Jun94 Jun95 Jun96 Jun97
Fountain Powerboats
Inds. Inc. -14.01 -55.82 142.14 100.03 28.25
S&P 500 Index 13.63 1.41 26.07 26.00 34.70
Leisure Time
(Products) -500 19.55 .87 -21.45 33.63 25.61
Base Indexed Returns
Period Years Ending
Company/Index Jun92 Jun93 Jun94 Jun95 Jun96 Jun97
Fountain Powerboats
Inds. Inc. 100 85.99 37.99 91.98 183.99 235.97
S&P 500 Index 100 113.33 115.23 145.27 183.04 246.55
Leisure Time
(Products)-500 100 119.55 120.60 146.47 191.32 240.33
As can be seen from the
table, the total return to
shareholders of the Company's
common stock over the past
five years compares favorably or
is greater than the S. & P.
500 stocks and the S. & P. Leisure Time
stocks.
-35-
<PAGE>
Board Report on Executive Compensation.
The entire Board of
Directors, including its Chairman,
Mr. Reginald M. Fountain, Jr.,
who also serves as the
Company's President, Chief
Executive Office, and Chief
Operating Officer has
prescribed unanimously the
compensation amounts for the
Company's executive officers.
These compensation amounts are
deemed adequate by the Board
based upon its judgment
as to the qualifications,
experience, and performance
of the individual executive
officers, as well as, the
Company's size, complexity,
growth, and financial performance.
During Fiscal 1995,
recognizing the Company's much
improved financial performance
under his leadership, the
Board increased Mr. Fountain's
salary to $285,000 for the
period March 30, 1995 through
March 30, 1996, and to
$350,000 thereafter.
The entire Board has
also approved Mr. Fountain's
employment agreement with the
Company, more fully described
above (Item 11), under
"Employment Agreements", which
provides for a minimum base
salary and annual cash bonus
equal to five percent of
the Company's net profits after
profit sharing distribution
but before income taxes limited
to a maximum of $250,000.
Bonuses paid to Mr. Fountain for
Fiscal 1997 were $151,717,
for Fiscal 1996 amounted to
$199,984 and for Fiscal 1995 amounted
to $106,438.
Compliance with Section 16.
Not applicable.
Item 12. Security Ownership
of Certain Beneficial Owners
and Management.
Principal Shareholders.
The following table sets forth
the beneficial ownership of
the Company's Common Stock as of
September 15, 1997, by each
person known to the Company to
beneficially own more than
five percent (5%) of the
Company's Common Stock. This
table had been prepared based
upon information provided
to the Company by each
Shareholder:
Name and Amount of Beneficial Percent of
Address Ownership Class (3)
Reginald M. Fountain, Jr.
P.O. Drawer 457
Whichard's Beach Road
Washington, N.C. 27889 2,569,372 (1) 54.38%
Triglova Finanz, A.G.
P.O. Box 1824
52nd Street
Urbanization Obarrio
Torre Banco Sur, 10th Floor
Panama City,
Republic of Panama 408,750 (2) 8.65%
(1) Mr. Fountain has sole
voting and investment power with
respect to all share
shown as beneficially owned.
Includes options to acquire 480,000
shares of common stock.
-36-
<PAGE>
(2) The Company is informed
that the shares shown as
beneficially owned by Triglova
Finanz, A.G. are owned
directly by it, and it
claims shared voting and investment
power with respect to all
such shares held by Mr. Filippo
Dollfus De Vockersberg, C/O
Fider Service, 1 Via Degli
Amadio 6900, Lugano, Switzerland.
Mr. Dollfus had been
authorized to act as
attorney-in-fact for Triglova Finanz,
A.G., and, therefore, claims
shared voting and investment
power with respect to such shares.
(3) The percentage for each
person is calculated on the
basis of the Company's total
outstanding shares less the
15,000 shares owned by the Company's
Subsidiary.
Directors and Officers. The
following table sets forth the
beneficial ownership of the
Company's common stock as of
September 15, 1997, for
each of the Company's current
directors, and for all directors
and officers of the Company
as a group.
Name Amount of Percent
and Beneficial of
Address Ownership Class (3)
Reginald M.
Fountain, Jr. (1) 2,569,372 (2) 54.38%
Mark L. Spencer (1) 33,400 (2) (3)
Federico Pignatelli (1) 30,000 (2) (3)
Gary E. Mazza III (1) 34,500 (3)
Blanche C. Williams (1) 300 (3)
Joseph F. Schemenauer (1) -0- (3)
All directors and officers as
a group (6 persons) 2,667,572 (2) 56.46%
(1) The address of each
person is P.O. Drawer 457,
Whichard's Beach Road,
Washington, North Carolina
27889. Except as otherwise
indicated, to the best knowledge
of management of the Company,
each of the persons listed
or included in the group
has sole voting and investment
power over all shares shown
as beneficially owned.
Percentages for each person listed
and for the group are
calculated on the basis of
the Company's total
outstanding shares less the 15,000
shares owned by the
Company's Subsidiary.
-37-
<PAGE>
(2) For Mr. Fountain, includes
options to purchase 480,000
shares of common stock held.
For Messrs. Spencer and
Pignatelli includes options to
purchase 30,000 and 6,000
common shares respectively.
Mr. Pignatelli has already
exercised 24,000 options shares.
(3) Less than 1%
Item 13. Certain Relationships and Related-Party Transactions.
During the fourth quarter
of Fiscal 1996, the Company
borrowed $170,000 from Mr.
Fountain to supplement its
working capital. This loan was
unsecured with interest at
12%. The Company paid Mr. Fountain
$2,710 in interest. The
loan was entirely repaid by June 30, 1996.
Mr. Fountain loaned the
Company $300,000 in November,
1992 to supplement the Company's
working capital. The loan
was unsecured and bore interest
at the rate of 12% per
annum. Effective January 31, 1994,
the Company's Board of
Directors authorized the
issuance of 129,858 additional
common stock shares in consideration
for the cancellation of
this $300,000 debt to Mr.
Fountain. The additional shares
were issued at a price of $2.333
per share to Mr. Fountain
and to Triangle Finance Ltd.,
a client of Eurocapital, Ltd.
Mr. Federico Pignatelli is
the U.S. representative of
Eurocapital, Ltd. and is also
a director of the Company.
Mr. Fountain cancelled two thirds
of the total amount of the
debt ($202,000, including $200,000
of principal and $2,000
of accrued interest) for 86,572
common shares. Triangle
Finance Ltd. repaid on-third of the
total amount of the debt
($101,000, including $100,000 of
principal and $1,000 of
accrued interest) for 43,286 common
shares. The Board of
Directors determined that the price
of $2.333 per share was
fair to the Company after
consideration of such factors as
the common stock's book value,
its then current market
price, and recent private placements.
No interest was paid to
Mr. Fountain in Fiscal 1997, or
1995. The Company also paid
rentals at what it believes to
be their fair market values
during the last three fiscal
years to Mr. Fountain or
to entities owned by him as
follows:
Fiscal Fiscal Fiscal
1997 1996 1995
Apartment Rentals..... $17,260 $ 15,380 $ 13,995
R. M. Fountain, Jr.
- airplane rentals ..$ 296,498 $ 155,499 $104,469
-------- -------- ---------
$ 313,758 $170,879 $118,464
======= ======= ======
(See Note 12)
-38-
<PAGE>
The rentals paid to
Eastbrook Apartments and Village
Green Apartments are primarily
for temporary lodging for
relocating and transient Company
personnel and visitors.
The rentals paid for the
airplane are based upon the actual
hours that the airplane was used
for Company business plus a
monthly stand-by charge for
the exclusive use of the
airplane. During Fiscal 1993,
Mr. Fountain purchased the
airplane from the Company
together with a parcel of real
estate located at Morehead
City, North Carolina. The
Company recorded a profit on
these transactions with Mr.
Fountain amounting to $117,126.
During the first quarter of
Fiscal 1998 the Company
purchased an airplane from Mr.
Fountain for $1,375,000.
Principal financing for the
airplane is through General Electric Capital Corporation.
Mr. Gary D. Garbrecht
was a director of the Company
through April 1997 and the
President and sole shareholder of
Mach Performance, Inc.
which supplies the Company's
subsidiary with some of its
requirements for propellers and
other accessory items. The
Company paid Mach Performance,
Inc. $254,623 in Fiscal 1997,
$191,709 in Fiscal 1996,
$254,696 in Fiscal 1995.
The Company acquired Mach
Performance, Inc. for 127,500
shares of common stock during
Fiscal 1997.
Mr. Gary E. Mazza, III,
a distinguished attorney,
businessman, educator, and
retired United States Army
Colonel was elected to the
Board of Directors on December
28, 1993. He is Mr. Fountain's
father-in-law. The Company
paid Mr. Mazza $1,709 in Fiscal
1997, $11,079 in Fiscal 1996
and $1, 743 in Fiscal 1995.
Mr. Federico Pignatelli was
elected to the Board of
Directors as the designee of
Eurocapital, Ltd., the
Company's investment banking firm
in connection with a
private placement of the Company's
Stock. No amounts were
paid to Mr. Pignatelli or to
Eurocapital, Ltd., or to any of
their affiliates, in Fiscal 1997, 1996
or 1995.
Mr. Mark L. Spencer is
a director of the Company and
the President and sole
shareholder of Spencer
Communications, Inc. which furnishes
advertising and public
relations services the Company.
The Company paid Spencer
Communications, Inc. $547,436 in
Fiscal 1997, $265,985 in
Fiscal 1996 and $138,116 in Fiscal 1995.
The Company believes that
all of the above transactions
were on terms which were not
more favorable than would have
been obtained from non-affiliated parties.
-39-
<PAGE>
Part IV
Item 14. Exhibits, Financial
Statement Schedules, and
Reports on Form 8 and Form 8-K.
(a) The following documents are
filed as part of this
Report:
(1) Financial Statements.
The Following consolidated
financial statements of the
Company and its
Subsidiary are included in Part II, Item 8,
herein:
Page No.
Independent Auditors'Report..................
Consolidated Balance Sheets
June 30, 1997 and 1996 ........
Consolidated Statements of Operations
Years Ended June 30, 1997, 1996, 1995 .............
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1997, 1996, 1995 ............
Consolidated Statements of Cash Flows
Years Ended June 30, 1997, 1996, 1995
...................
Notes to Consolidated Financial Statements .............
(2) Exhibits. The following exhibits are filed with this
report or incorporated by reference to a
previous filing:
3.01 Certificate of Incorporation of the Company
(Incorporated by
reference to the Company's Registration Statement filed
on Previously
October 2, 1986)
......................................................... Filed
3.2 Amendments to Certificate of Incorporation of the
Company
(Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement field on December 2,1986)
.................... Previously Filed
3.3 Amendment to Certificate of Incorporation of the Company
(Incorporated by reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991) ..................... Previously Filed
3.4 By-laws of the Company (Incorporated by reference to Amendment
No. 1 to the Company's Registration Statement filed on
December 2, 1986) ........................... Previously Filed
3.5 Certificate of Amendment to the Articles of Incorporation, Consent
Action in Writing of the Majority Stockholders, and Resolutions
Adopted by Unanimous Written Consent of the Board of Directors
for the one-for-two reverse stock split of February 4, 1994
........................................... Previously Filed
4.1 Form of Warrant Agreement (Incorporated by reference to
Amendment
No. 2 to the Company's Registration Statement filed on
December 10, 1986) .......................... Previously Filed
4.2 Form of Stock Certificate (Incorporated by reference to the
exhibit filed with the Registrant's Annual Report on Form 10K
for the fiscal year ended October 1, 1989)........ Previously Filed
10.1 1986 Incentive Stock Option Plan (Incorporated by reference to
Amendment No. 1 to the Company's Registration Statement
filed on
December 2, 1986) ...................... Previously Filed
10.2 Employment Agreement dated May 31, 1989 between
Reginald M.
Fountain, Jr. and the Company's Subsidiary
(Incorporated by
reference to the exhibit filed with the Registrant's
Annual Report on Form 10K for the fiscal year ended October
1, 1989)
..................... Previously Filed
10.3 First Modification of Revolving Loan and Security
Agreement
dated August 29, 1990 by and between Fountain
Powerboats Inc. and
MetLife Financial Acceptance Corporation (Incorporated
by
reference to the exhibit filed with the Registrant's
Annual Report
on Form 10K for the fiscal year ended March 22, 1994)
....................... Previously Filed
10.4 Loan and Security Agreement with MetLife Capital
Corporation
dated December 31, 1993 ......... Previously Filed
10.5 Consulting and Marketing Agreement with the Mercury
Marine
division of the Brunswick Corporation dated July 11,
1994
................ Previously Filed
10.6 Loan Extension and Amendment Agreement with the Mercury
Marine division of the Brunswick Corporation dated
July 11, 1994 ........... Previously Filed
10.7 Amendment to Consulting and Marketing Agreement with the
Mercury marine division of the Brunswick Corporation dated
July 11, 1994 .................. Previously Filed
10.8 Standstill Agreement with the Mercury Marine division of the
Brunswick Corporation dated July 11, 1994
....................................... Previously Filed
10.9 Amendment No. One dated September 24, 1994 to Loan and
Security Agreement of December 31, 1993 with MetLife
Capital Corporation ......... Previously Filed
10.10 Consent to Loan Restructure dated January 1, 1995
from MetLife
Capital Corporation ............ Previously Filed
10.11 Amendment No. Two dated January 1, 1995 to Loan
and
Security Agreement dated of December 31, 1993 with MetLife
Capital Corporation ........... Previously Filed
10.12 Second Loan Extension, Consolidation and Amendment
Agreement dated February 24, 1995 with Brunswick Corporation,
Mercury Marine Division ....... Previously Filed
10.13 Modification of Deeds and Trust and Assignment of Rents, Issues
and Profits dated February 24, 1995 with Brunswick Corporation,
Mercury Marine Division ........ Previously Filed
10.14 Consulting and Marketing Agreement dated February 24, 1995
with Brunswick Corporation, Mercury Marine Division
...................... Previously Filed
10.15 Supply agreement dated February 24, 1995 with Brunswick
...............................Previously Filed
10.16 Master Security Agreement dated December 21, 1995
with G.E. Capital Corporation
........................... Previously Filed
10.17 Promissory Note dated December 21, 1995 with
G.E. Capital Corporation
.................... Previously Filed
10.18 Collateral Schedule No. 001 dated December 21, 1995
with G.E. Capital Corporation
........................... Previously Filed
10.19 Letter of Credit Agreements dated December 21,
1995
with G.E. Capital Corporation........ Previously Filed
10.20 Agreement and Plan of Reorganization with
Mach Performance, Inc...................Filed Herewith
10.21 Loan Agreement dated December 31, 1996 with
General Electric Capital Corporation........Filed Herewith
21 List of Subsidiaries ...........
(b) No Amendments on Form 8 or Current Reports on Form 8-K
were filed by the Registrant during the fiscal year
ended June 30, 1996.
-42-
<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 t be signed on its behalf by the
undersigned, thereunto duly authorized.
FOUNTAIN POWERBOATS INDUSTRIES, INC.
/s/ Reginald M. Fountain, Jr.
By: __________________________________________
Reginald M. Fountain, Jr.
Chairman, President, and
Chief Executive Officer
Date: October 14, 1997
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 and on the dates indicated.
/s/ Reginald M. Fountain, Jr.
____________________________________ October 14, 1997
Reginald M. Fountain, Jr.
Chairman, President, and Chief Executive Officer
(Principal Executive Officer)
/s/ Gary E. Mazza III
____________________________________ October 14, 1997
Gary E. Mazza III
Director
/s/ Federico Pignatelli
____________________________________ October 14, 1997
Federico Pignatelli
Director
/s/ Mark L. Spencer
________________________________________ October 14, 1997
Mark L. Spencer
Director
/s/ Joseph Schemenauer
____________________________________ October 14, 1997
Joseph Schemenauer
Chief Financial Officer
(Principal Accounting
and Financial Officer)
-43-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONTENTS
PAGE
_ Independent Auditors' Report 1
_ Consolidated Balance Sheets, as of June 30, 1997
and 1996 2
_ Consolidated Statements of Operations, for the years
ended June 30, 1997, 1996 and 1995. 3 - 4
_ Consolidated Statement of Stockholders Equity, for the
years ended June 30, 1997, 1996 and 1995. 5
_ Consolidated Statements of Cash Flows, for the years
ended June 30, 1997, 1996 and 1995. 6 - 7
_ Notes to the Consolidated Financial Statements 8 - 24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina
We have audited the accompanying consolidated balance sheets of
Fountain Powerboat Industries, Inc. and Subsidiary as of June 30,
1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years
ended June 30, 1997, 1996 and 1995. 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, the consolidated financial statements audited by
us present fairly, in all material respects, the financial
position of Fountain Powerboat Industries, Inc. and Subsidiary as
of June 30, 1997 and 1996, and the results of their operations
and their cash flows for the years ended June 30, 1997, 1996 and
1995 in conformity with generally accepted accounting principles.
/s/ PRITCHETT, SILER & HARDY, P.C.
PRITCHETT, SILER & HARDY, P.C.
July 31, 1997
SALT LAKE CITY, UTAH 84111
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
_____________________
1997 1996
______________________
CURRENT ASSETS:
Cash & cash equivalents $2,994,503 $1,360,619
Certificates of deposit - held to maturity 696,155 -
Accounts receivable, less allowance for
doubtful accounts of $30,000 for 1997
and $27,000 for 1996 1,867,747 2,853,684
Inventories 3,937,757 4,009,195
Prepaid expenses 1,131,703 154,843
Current tax assets 369,268 -
___________ _________
Total Current Assets 10,997,133 8,378,341
PROPERTY, PLANT AND EQUIPMENT, net 12,219,156 9,928,186
OTHER ASSETS 497,607 191,577
__________ ___________
$23,713,896 $18,498,104
__________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $1,173,089
Current maturities of long-term debt 595,607 767,254
Accounts payable 1,987,508 1,713,760
Accrued expenses 860,786 914,732
Dealer territory service accrual 1,637,572 765,674
Customer deposits 310,042 228,608
Allowance for boat repurchases 200,000 207,359
Warranty reserve 500,000 410,000
Net liabilities of discontinued operations 213,697 -
____________ _________
Total Current Liabilities 6,305,212 6,180,476
____________ _________
LONG-TERM DEBT, less current maturities 7,677,771 5,433,184
DEFERRED TAX LIABILITY 369,268 -
COMMITMENTS AND CONTINGENCIES (See Note 10) - -
STOCKHOLDERS' EQUITY [Restated]
Common stock, par value $.01 per share,
authorized 200,000,000 shares; issued
4,725,108 and 4,543,608 shares 47,251 45,436
Additional paid-in capital 10,517,740 9,282,305
Accumulated deficit (1,092,598) (2,332,549)
____________ __________
9,472,393 6,995,192
Less: Treasury Stock, at cost
15,000 shares (110,748) (110,748)
____________ __________
9,361,645 6,884,444
____________ __________
$23,713,896 $18,498,104
____________ __________
The accompanying notes are an integral part of these financial
statements.
-2-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
_____________________________________
1997 1996 1995
_____________ __________ ___________
NET SALES $ 50,514,325 $41,598,051 $38,727,329
COST OF SALES 36,976,247 32,326,371 30,953,992
_____________ __________ ___________
Gross Profit 13,538,078 9,271,680 7,773,337
_____________ __________ ___________
EXPENSES:
Selling expense 6,463,375 4,285,923 3,897,086
Selling expense - related party 500 - -
General and administrative 2,240,112 1,729,399 1,297,173
General and administrative
- related parties 313,758 175,589 118,464
_____________ ___________ __________
Total expenses 9,017,745 6,190,911 5,312,723
_____________ ___________ __________
OPERATING INCOME 4,520,333 3,080,769 2,460,614
NON-OPERATING INCOME (EXPENSE):
Other income 437,694 1,404,500 642,277
Interest expense (557,768) (744,627) (989,359)
Interest expense - related parties - (2,710) -
Gain (loss) on disposal of assets - 22,906 (23,015)
______________ ___________ _________
(120,074) 680,069 (370,097)
INCOME BEFORE INCOME TAXES 4,400,259 3,760,838 2,090,517
CURRENT TAX EXPENSE 330,427 80,804 42,641
DEFERRED TAX EXPENSE - - -
_____________ ___________ __________
INCOME FROM CONTINUING
OPERATIONS 4,069,832 3,680,034 2,047,876
DISCONTINUED OPERATIONS(See Note 14):
Loss from Operations of
Fountain Power, Inc. and
Mach Performance, Inc.(Net
of no income tax effect) 2,389,480 - -
Estimated losses on disposal
of the operations of
Fountain Power, Inc. and
Mach Performance, Inc. (Net
of no income tax effect) 440,401 - -
____________ ____________ ___________
LOSS FROM DISCONTINUED
OPERATIONS (2,829,881) - -
______________ ___________ __________
NET INCOME $1,239,951 $3,680,034 $2,047,876
______________ ___________ __________
[Continued]
-3-
<PAGE>
FOUNTAIN POWERBOAT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
[CONTINUED]
Year Ended June 30,
______________________________________
1997 1996 1995
____________ ___________ ___________
PRIMARY EARNINGS PER SHARE:
Continuing Operations $ .82 $ .81 $ .45
Loss from Operations of
Discontinued Segments (.48) - -
Estimated Loss on Disposal
of Discontinued Segments (.09) - -
______________ __________ ___________
PRIMARY EARNINGS PER SHARE $ .25 $ .81 $ .45
______________ ___________ __________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,995,154 4,528,608 4,528,608
_____________ ____________ __________
FULLY DILUTED EARNINGS PER SHARE:
Continuing Operations $ N/A $ .77 $ .45
Loss from Operations of
Discontinued Segments N/A - -
Estimated Loss on Disposal
of Discontinued Segments N/A - -
_____________ ___________ ___________
FULLY DILUTED EARNINGS PER SHARE: $ N/A $ .77 $ .45
_____________ ___________ ___________
FULLY DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING N/A 4,800,238 4,539,694
_____________ ___________ ___________
The accompanying notes are an integral part of these financial
statements.
-4-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM JUNE 30, 1994 THROUGH JUNE 30, 1997
[RESTATED]
Total
Common Stock Additional Accum- Treasury Stock Stock-
__________________ Paid-in ulated _______________ holders'
Shares Amount Capital Deficit Shares Amount Equity
_________ ______ _________ ______ _______ ______ ________
BALANCE, June 30,
1994 4,543,608 $45,436 $9,282,305 $(8,060,459) 15,000 $110,748 $1,156,534
Net profit for
the year ended
June 30, 1995 - - - 2,047,876 - - 2,047,876
__________ _______ _________ _________ _____ _______ ________
BALANCE, June 30,
1995 4,543,608 45,436 9,282,305 (6,012,583) 15,000 110,748 3,204,410
Net profit for
the year ended
June 30, 1996 - - - 3,680,034 - - 3,680,034
________ _______ _________ ________ ______ _______ _________
BALANCE, June 30,
1996 4,543,608 45,436 9,282,305 (2,332,549) 15,000 110,748 6,884,444
Common stock issued
for acquisition of
Mach Performance,
October 1996, at
$8.17 per share 127,500 1,275 1,039,975 - - - 1,041,250
Additional common
stock shares
issued for options
exercised during
Fiscal 1997, at
$3.58 to $3.67
per share 54,000 540 195,460 - - - 196,000
Net profit for the
year ended
June 30, 1997 - - - 1,239,951 - - 1,239,951
__________ ______ ______ _________ ______ _____ ________
BALANCE, June 30,
1997 4,725,108 $47,251 $10,517,740 $(1,092,598)15,000 $110,748 $9,361,645
_______ _____ __________ __________ ______ ______ _________
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
______________________________________
1997 1996 1995
_____________ ___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,239,951 $3,680,034 $2,047,876
Adjustments to reconcile
net income(loss) to net
cash provided by operating
activities:
Depreciation expense 1,642,974 1,536,479 1,628,867
(Gain) loss on disposal
of property,plant,
and equipment - (22,906) 23,015
Net effect of Acquired
Subsidiary 1,041,250 - -
Change in assets and liabilities:
Accounts receivable 985,937 (954,830) (1,486,475)
Inventories 71,438 (601,469) 89,224
Prepaid expenses (976,860) 50,104 (4,369)
Accounts payable 273,748 (86,832) (3,129,557)
Accounts payable
-related parties - (4,769) (8,031)
Accrued expenses (53,946) (237,757) 346,719
Dealer territory
service accrual 871,898 765,674 -
Customer deposits 81,434 (184,201) (447,016)
Allowance for boat returns (7,359) - (42,641)
Warranty reserve 90,000 10,000 85,000
Deferred sale net of
deferred cost of sales - (14,148) (235,852)
Net liabilities of
discontinued operations 213,697 - -
______________ ___________ __________
Net Cash Provided by (Used in)
Operating Activities $5,474,162 $3,935,379 $(1,133,240)
_______________________________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificates
of deposits, net 696,155 - -
Proceeds from sale of
property, plant
and equipment - 31,203 34,000
Investment in additional
molds and related plugs (1,684,274) (878,513) (767,102)
Purchase of other property,
plant and equipment (2,249,670) (604,367) (431,137)
Increase in other assets (306,030) (32,629) (5,505)
_____________ ___________ ___________
Net Cash (Used in) Investing
Activities $(4,936,129) $(1,484,306) $(1,169,744)
____________ ____________ ___________
[Continued]
-6-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CONTINUED]
Year Ended June 30,
______________________________________
1997 1996 1995
_____________ __________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)
on engine floor plan
agreement $(1,173,089) $638,904 $ 390,136
Proceeds from issuance
of common stock 196,000 - -
Proceeds from issuance of
notes payable and
long-term debt 8,500,000 600,000 2,656,576
Repayment of long-term debt (6,427,060) (2,820,165) (928,632)
______________ ___________ _________
Net Cash Provided by (Used in)
Financing Activities $1,095,851 $(1,581,261) $2,118,080
______________ ___________ _________
Net increase (decrease) in
cash & cash equivalents $ 1,633,884 $869,812 $(184,904)
Beginning cash & cash
equivalents balance 1,360,619 490,807 675,711
_______________ __________ __________
Ending cash & cash
equivalents balance $ 2,994,503 $1,360,619 $490,807
_____________ ___________ __________
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest:
Unrelated parties $ 557,768 $744,627 $ 989,359
Related parties - 2,710 -
______________ __________ ____________
$ 557,768 $747,337 $ 989,359
______________ ___________ ___________
Income taxes $ 395,796 $ 42,641 $ -
_______________ __________ ___________
Supplemental schedule of Non-cash Investing and Financing
Activities:
For the year ended June 30, 1997:
The Company issued 127,500 shares of common stock in the
acquisition of Mach Performance. Valued at $1,041,250
or $8.17 per share (See Notes 7, 10 and 14).
For the year ended June 30, 1996:
None
For the year ended June 30, 1995:
None]
The accompanying notes are an integral part of these financial
statements.
-7-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting
Policies.
Nature of the Business: The Company manufactures high-
performance deep water sport boats, sport cruisers, sport
fishing boats, custom offshore racing boats and is developing
a super cruiser yacht. These boats are sold to its worldwide
network of approximately sixty dealers. Its offices and
manufacturing facilities are located in Washington, North
Carolina and it has been in business since 1979. The Company
employs approximately 326 people and is an equal opportunity,
affirmative action employer.
Principles of consolidation: The consolidated financial
statements include the accounts of the Company and its wholly-
owned subsidiary, Fountain Powerboats, Inc. together with its
six subsidiaries, Fountain Aviation, Inc., Fountain
Sportswear, Inc., Fountain Power, Inc., Fountain Trucking,
Inc., Fountain Unlimited, Inc. and Mach Performance, Inc. All
significant inter-company accounts and transactions have been
eliminated in consolidation. Fountain Aviation, Inc. and
Fountain Unlimited, Inc. were not active during Fiscal 1997
and were subsequently dissolved effective October 1, 1997.
Also effective October 1, 1997, Fountain Trucking, Inc. and
Fountain Sportswear, Inc. were subsequently dissolved and the
operations transferred to Fountain Powerboats, Inc. The
operations of Fountain Power, Inc. and Mach Performance, Inc.
were discontinued effective June 30, 1997(see Note 14).
Fiscal year: The Company's fiscal year-end is June 30th, which
is its natural business year-end.
Accounting Estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosures 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 estimated by management.
Cash and Cash Equivalents: For purposes of the statement of
cash flows, the Company considers all highly liquid debt
instruments with a maturity of three months or less to be cash
equivalents. At June 30, 1997 and 1996, the Company had
$3,590,658 and $1,260,619, respectively, in excess of
federally insured amounts held in cash and certificates of
deposit.
Certificates of Deposit: The Company accounts for investments
in debt and equity securities in accordance with Statement of
Financial Accounting Standard (SFAS) 115, "Accounting for
certain Investments in Debt and Equity Securities,". Under
SFAS 115 the Company's certificates of deposit (debt
securities) have been classified as held-to-maturity and are
recorded at amortized cost. Held-to-maturity securities
represent those securities that the Company has both the
positive intent and ability to hold until maturity (See Note
2).
Inventories: Inventories are stated at the lower of cost or
market. Cost is determined by the first-in, first-out method
(See Note 3).
Property, Plant, and Equipment and Depreciation: Property,
plant, and equipment is carried at cost. Depreciation on
property, plant, and equipment is calculated using the
straight-line method and is based upon the estimated useful
lives of the assets (See Note 4).
-8-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting
Policies. [Continued]
Fair Value of Financial Instruments: Management estimates the
carrying value of financial instruments on the consolidated
financial statements approximates their fair values.
Dealer territory service accrual: The Company has established
a program to pay a service award to dealers for boat
deliveries into their market territory for which they will
perform service. The service award is a percentage of the
purchase price of the boat ranging from 0% to 7% based on the
dealers service performance rating. The Company has accrued
estimated dealer territory service awards at June 30, 1997 and
1996 of $1,637,572 and 765,674, respectively.
Allowance for Boat Repurchases: The Company provides an
allowance for boats financed by dealers under floor plan
finance arrangements that may be repurchased from finance
companies under certain circumstances where the Company has a
repurchase agreement with the lender. The amount of the
allowance is based upon probable future events which can be
reasonably estimated (See Note 10).
Warranties: The Company warrants the entire deck and hull,
including its supporting bulkhead and stringer system, against
defects in materials and workmanship for a period of three
years. The Company has accrued a reserve for these
anticipated future warranty costs.
Revenue recognition: The Company sells boats only to
authorized dealers and to the U.S. Government. A sale is
recorded when a boat is shipped to a dealer or to the
Government, legal title and all other incidents of ownership
have passed from the Company to the dealer or to the
Government, and an account receivable is recorded or payment
is received from the dealer, from the Government, or from the
dealer's third-party commercial lender. This is the method of
sales recognition in use by most boat manufacturers.
The Company has developed criteria for determining whether a
shipment should be recorded as a sale or as a deferred sale (a
balance sheet liability). The criteria for recording a sale
are that the boat has been completed and shipped to a dealer
or to the Government, that title and all other incidents of
ownership have passed to the dealer or to the Government, and
that there is no direct or indirect commitment to the dealer
or to the Government to repurchase the boat or to pay floor
plan interest for the dealer beyond the normal, published
sales program terms.
The sales incentive floor plan interest expense for each
individual boat sale is accrued for the maximum six month (180
days) interest payment period in the same fiscal accounting
period that the related boat sale is recorded. The entire six
months' interest expense is accrued at the time of the sale
because the Company considers it a selling expense (See Note
10). The amount of interest accrued is subsequently adjusted
to reflect the actual number of days of remaining liability
for floor plan interest for each individual boat remaining in
the dealer's inventory and on floor plan.
Presently, the Company's normal sales program provides for the
payment of floor plan interest on behalf of its dealers for a
maximum of six months. The Company believes that this program
is currently competitive with the interest payment programs
offered by other boat manufacturers, but may from time to time
adopt and publish different programs as necessary in order to
meet competition.
-9-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting
Policies. [Continued]
Income Taxes: The Company accounts for income taxes in
accordance with FASB Statement No. 109, "Accounting for Income
Taxes (see Note 8).
Advertising Cost: Costs incurred in connection with
advertising and promotion of the Company's products are
expensed as incurred. Such costs amounted to $1,267,822,
$849,627 and $977,787 for the years ended 1997, 1996 and
1995.
Earnings Per Share: The computations of primary and fully
diluted earnings per share amounts are based upon the weighted
average number of outstanding common shares during the
periods, plus, when their effect is dilutive, additional
shares assuming the exercise of certain vested stock options,
reduced by the number of shares which could be purchased from
the proceeds from the exercise of the stock options assuming
they were exercised.
Restatement: The financial statements have been restated for
all periods presented to reflect a three-for-two forward stock
split effected August 14, 1997 (see Note 7 and 15).
Reclassifications: The financial statements for years prior
to June 30, 1997 have been reclassified to conform with the
headings and classifications used in the June 30, 1997
financial statements.
Note 2. Certificates of Deposit.
Certificates of deposit are carried at amortized cost and
consisted of the following investments at June 30, 1997:
Purchase Amortized Maturity
Date AcquiredMaturity Date Value Cost Value
___________ ____________ ________ __________ __________
12/18/96 12/18/97 $50,086 $50,486 $52,641
5/4/97 5/4/98 210,373 216,187 221,312
3/28/97 3/28/98 209,275 212,077 220,157
3/28/97 3/28/98 214,533 217,405 225,688
____________ ___________ _________
$684,267 $696,155 $719,798
___________ ___________ _________
Note 3. Inventories.
Inventories consist of the following:
June 30,
______________________
1997 1996
___________ __________
Parts and supplies $2,820,414 $3,095,379
Work-in-process 882,323 715,133
Trailers - 38,414
Finished goods 335,020 260,269
____________ __________
4,037,757 4,109,195
Reserve for obsolescence (100,000) (100,000)
____________ __________
$3,937,757 $4,009,195
____________ __________
-10-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Property, Plant, and Equipment.
Property, plant, and equipment consists of the following:
Estimated
Useful June 30,
Lives ________________________
in Years 1997 1996
_______ ___________ ____________
Land and related improvements 10-30 $1,301,721 $ 986,116
Buildings and related
improvements 10-30 6,559,930 6,199,699
Construction-in-progress N/A 815,793 6,287
Production molds and
related plugs 8 11,658,760 9,974,486
Machinery and equipment 3-5 3,493,375 2,843,480
Furniture and fixtures 5 483,699 464,932
Transportation equipment 5 241,044 199,326
___________ ________
$24,554,322 $20,674,326
Accumulated depreciation (12,335,166) (10,746,140)
____________ ___________
$12,219,156 $9,928,186
____________ ___________
Depreciation expense amounted to $1,642,975, $1,536,479, and
$1,628,867 for the year ended June 30, 1997, 1996 and 1995,
respectively.
Construction costs of production molds for new and existing
product lines are capitalized and depreciated over an
estimated useful life of eight years. Depreciation starts
when the production mold is placed in service to manufacture
the product. The costs include the direct materials, direct
labor, and an overhead allocation based on a percentage of
direct labor. Production molds under construction amounted to
$219,227 and $0 at June 30, 1997 and 1996.
During Fiscal 1997, the Company did not realize any gain or
loss from the sale or disposition of any of its fixed assets.
The Company sold fixed assets and realized gains amounting to
$22,906 for Fiscal 1996. For Fiscal 1995, the Company
incurred losses on fixed assets sold amounting to $23,015.
On June 30, 1997, the Company determined to discontinue the
operations of its Fountain Power, Inc. and Mach Performance,
Inc. subsidiaries. An allowance for estimated future losses
expected to be incurred upon disposal of certain fixed assets
has been accrued in the amount of $440,401 against $539,457 in
fixed assets. These assets have been reclassified to net
liabilities of discontinued operations (See Note 14).
Note 5. Notes Payable.
The Company had no outstanding short-term notes payable at
June 30, 1997. During Fiscal 1996, the Company retired its
interest bearing indebtedness to Mercury Marine. Most of the
amount owing to Mercury Marine was repaid from the Company's
operating funds, but, additionally, $600,000 was borrowed from
G.E. Capital Corporation on a long-term basis to repay
Mercury. This indebtedness to G.E. Capital Corporation was
retired during Fiscal 1997 (See Note 6) as part of refinancing
under a new credit agreement.
-11-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Notes Payable [Continued]
The Company also retired the short-term debt to Deutsche
Financial Services during Fiscal 1997 (see Note 6). At June
30, 1996, the balance of the note amounted to $1,173,089
payable to Deutsche Financial Services for engine purchases
financed by Deutsche.
Note 6. Long-term Debt and Pledged Assets.
On December 31, 1996, the Company concluded a $10,000,000
credit agreement with General Electric Capital Corporation.
Under the terms of the new credit agreement, the Company
refinanced substantially all of its interest bearing debts and
will have additional funds made available to it for expansion.
Initially, the Company borrowed $7,500,000 from GE Capital
Services primarily to refinance existing debts. All of the
Company's prior interest bearing debts to MetLife Capital
Corporation, Deutsche Financial Services, GE Capital
Corporation, Branch Bank & Trust Leasing Corp., and other
smaller creditors were paid off entirely. The Company
borrowed another $1,000,000 to fund plant and equipment
additions. An additional $1,500,000 is available to the
Company for further expansion until December 31, 1997. The
interest rate on the indebtedness to GE Capital Services is
variable and ranged from 8.08% to 8.29% during the period with
a rate of 8.29% on June 30, 1997. There is a ten-year
amortization of the debt with a five-year call. The loan is
secured by all of the Company's real and personal property and
by the Company's assignment of a $1,000,000 key man life
insurance policy. The current portion of the debt is $595,607
at June 30, 1997.
At June 30, 1996, long-term debt consisted of $5,500,467 owing
to MetLife and 538,044 owing to GE Capital Corporation. Other
long term contracts primarily various capital leases
obligations amounted to $161,927. The current portion of these
obligations amounted to $767,254
The estimated aggregate maturities required on long-term debt
at June 30, 1997 are as follows:
1998 $ 595,607
1999 645,585
2000 699,757
2001 758,476
2002 5,573,953
Thereafter -
____________
$8,273,378
_____________
-12-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Common Stock, Options, and Treasury Stock.
Common Stock: The Company issued 127,500 new restricted
common shares at $8.17 per share to acquire Mach Performance,
Inc. in October, 1996 from a director of the Company. During
June 1997, the Company discontinued the operations and has
filed a lawsuit asking for the rescission of the acquisition
agreement from Mach Performance, Inc. to recover the 127,500
restricted common shares. (See Note 10 and 14).
Subsequent to the year ended June 30, 1997, and reflected in
the accompanying financial statements, the Company announced a
three for two forward stock split. The shareholder record
date was set at August 1, 1997, with fractional shares to be
paid in cash on the payable date, August 14, 1997.
Stock Options: Under the terms of the Company's qualified 1986
employee incentive stock option plan, which expired on
December 5, 1996, options were authorized to purchase up to
300,000 shares of the Company's common stock at a price of no
less than 100% of the fair market value on the date of grant
as determined by the Board of Directors. Options can be
exercised for a ten-year period from the date of grant.
During Fiscal 1995, 30,000 options each were granted to the
Chief Executive Officer and to the Chief Financial Officer at
$3.94 and $3.67 per share respectively. During 1997, the
Chief Financial Officer exercised his 30,000 options for
$110,000.
During October 1996, in connection with the acquisition of
Mach Performance, Inc. the Company entered into an employment
agreement with the director to continue to operate Mach
Performance, Inc. and to head up the operations of Fountain
Power, Inc.. The employment agreement provided that the
Company issue a total of 30,000 options under the Company's
qualified 1986 employee incentive stock option plan
exercisable over a four year period (7,500 options exercisable
each year on the anniversary date of the agreement). The
director resigned his position as an employee during April
1997 and as a director during May 1997. The Company has filed
a lawsuit seeking the return and cancelation of the options
(See Note 10).
On June 21, 1995, a special meeting of the shareholders was
held to vote upon the adoption of the 1995 stock option plan.
The new plan as adopted by the shareholders allowed up to
450,000 common stock options to be granted by the Board of
Directors to employees or directors of the Company on either a
qualified or non-qualified basis. Subsequently, on August 4,
1995, the Board unanimously voted to grant the entire 450,000
stock options authorized under the 1995 stock option plan to
Mr. Reginald M. Fountain, Jr. at $4.67 per share on a non-
qualified basis. None of the options granted to Mr. Fountain
under the 1995 stock option plan have been exercised.
Effective March 23, 1995, the Board of Directors authorized
the issuance of stock options to purchase 30,000 shares of
common stock to each of the Company's four outside directors
at $3.58 per share on a non-qualified basis. During Fiscal
1997, one of the directors exercised his options for 24,000
shares for $86,000 and assigned, with the specific consent of
the Company's Board of Directors, his remaining 6,000 options
to another party. Subsequent to June 30, 1997, another
director exercised his 30,000 stock options for $110,000.
-13-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Common Stock, Options, and Treasury Stock. [Continued]
A summary of the status of the options granted under the
Company's stock option plans and other agreements at June 30,
1997, 1996 and 1995, and changes during the periods then ended
is presented in the table below:
1997 1996 1995
__________________ _______________ _______________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
_______ _______ _______ ______ ________ ______
Outstanding at
beginning
of period 630,000 $6.54 198,750 $4.01 24,375 $7.44
Granted 30,000 8.17 450,000 4.67 180,000 3.66
Exercised (54,000) 3.63 - - - -
Forfeited - - - - - -
Canceled - - (18,750) 7.44 (5,625) 7.44
__________ ______ ________ _____ ________ ______
Outstanding at end
of Period 606,000 $4.63 630,000 $4.38 198,750 $4.01
__________ ______ ________ _____ ________ ______
Exercisable at end
of period 576,000 $4.45 630,000 $4.38 198,750 $4.01
__________ ______ ________ _____ _________ _____
Weighted average
fair value of options
granted 30,000 $.28 450,000 $.22 180,000 $ .09
________________ ______ ________ _____ _________ ______
The fair value of each option granted is estimated on the date
of granted using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants
during the year and period ended June 30, 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.6%, 6.3% and
6.3%, expected dividend yields of zero for all periods,
expected lives of 4, 2 and 7 years, and expected volatility of
83%, 85% and 85%.
A summary of the status of the options outstanding under the
Company's stock option plans and other agreements at June 30,
1997 is presented below:
Options Outstanding Options Exercisable
_____________________________ _________________
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Outstanding Contractual Price Exercisable Price
Prices Life
__________ ________ __________ ______ ________ ______
$3.58 - $3.94 126,000 7.9 years $3.67 126,000 $3.67
$4.67 450,000 8.1 years $4.67 450,000 $4.67
$8.17 30,000 9.2 years $8.17 - -
Included in the options outstanding at June 30, 1997 and 1996 are
60,000 and 30,000 options issued to a former director of the
Company. The Company has filed a lawsuit seeking to have the
options returned and canceled. (See Note 10).
-14-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Common Stock, Options, and Treasury Stock. [Continued]
The Company accounts for these plans and other option
agreements under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations. Accordingly, since all options granted were
granted with exercise prices at market value or above, no
compensation cost has been recognized in the accompanying
financial statements. Had compensation cost for these options
been determined based on the fair value at the grant dates for
awards under these plans and other option agreements
consistent with the method prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation:, the Company's net income and earnings per
common share would have been the proforma amounts as indicated
below:
Year Ended June 30,
_________________________________
1997 1996 1995
__________ _________ _________
Net Income As reported $1,239,951 $3,680,034 $2,047,876
Proforma $1,234,605 $3,617,601 $2,037,360
Earnings per share As reported $ .25 $ .81 $ .45
Proforma $ .25 $ .80 $ .45
Treasury Stock: The Company is holding 15,000 shares of its
own common stock. This common stock is accounted for as
treasury stock at its acquisition cost of $110,748 ($7.38 per
share) in the accompanying financial statements.
Note 8. Income Taxes.
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109. FASB 109
requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense
of temporary reporting differences between book and tax
accounting and any available operating loss or tax credit
carryforwards.
At June 30, 1997 and 1996, the totals of all deferred tax
assets were $1,462,432 and $1,917,494. The totals of all
deferred tax liabilities were $1,037,362 and $893,349. The
amount of and ultimate realization of the benefits from the
deferred tax assets for income tax purposes is dependent, in
part, upon the tax laws in effect, the Company's future
earnings, and other future events, the effects of which cannot
be determined. Because of the uncertainty surrounding the
realization of the deferred tax assets, the Company has
established valuation allowances of $425,070 and $1,024,145 as
of June 30, 1997 and 1996, respectively, which have been
offset against the deferred tax assets. The net decrease in
the valuation allowance during the year ended June 30, 1997,
was $599,075.
The Company has available at June 30, 1997 unused operating
loss carryforwards of approximately $601,119, which may be
applied against future taxable income and which expire in
various years through 2010.
-15-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Income Taxes. [Continued]
The Company incurred current tax expense amounting to $258,371
for Fiscal 1997 and $80,804 for Fiscal 1996 as a result of the
federal alternative minimum income tax. The components of
federal income tax expense from continuing operations consist
of the following:
Year Ended June 30,
_____________________________________
1997 1996 1995
______________ _________ ___________
Current income tax expense:
Federal $ 258,371 $ 80,804 $ 41,431
State 72,056 - 1,210
______________ _________ ___________
Net current tax expense $ 330,427 $ 80,804 $ 42,641
______________ __________ ___________
Deferred tax expense (benefit) resulted from:
Excess of tax over financial
accounting depreciation. $144,013 $(18,130) $67,663
Warranty reserves (42,300) (4,200) (35,700)
Accrued vacations (8,107) (3,765) (5,137)
Dealer incentive reserves (37,500) 42,000 7,258
Bad debt reserves (28,686) 1,260 1,260
Deferred sales and cost, net - 5,942 99,058
Excess contributions
carryforwards - - 1,298
Inventory adjustment
-Sec.263A (6,366) (12,304) (16,648)
Decrease in NOL
carryforwards 1,014,168 1,646,237 805,215
Decrease in valuation
allowance (599,075) (1,573,833) (797,651)
Allowance for obsolete
inventory 3,000 (4,200) (16,800)
Alternative minimum tax
credits (256,982) (79,007) (41,431)
Reserve for loss on
disposition (171,756) - -
Investment tax credits - - (86,294)
Allowance for boat
repurchases (10,409) - 17,909
______________ ________ ___________
Net deferred tax expense $ - $ - $ -
______________ _________ ___________
Deferred income tax expense results primarily from the
reversal of temporary timing differences between tax and
financial statement income.
-16-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Income Taxes. [Continued]
The reconciliation of income tax from continuing operations
computed at the U.S. federal statutory tax rate to the
Company's effective rate is as follows:
Year Ended June 30,
_____________________________________________
1997 1996 1995
_______________________________________
Computed tax at the expected
federal statutory rate. 34.00% 34.00% 34.00%
Excess of tax over financial
accounting depreciation - .43 (3.16)
Warranty reserves - .10 1.67
State income taxes, net of
federal benefit 5.00 5.28 5.28
Deferred sales and cost, net. - (.14) (4.62)
Compensation from stock options (3.85) - -
(Increase) decrease in NOL
carryforwards (14.48) (38.82) (37.59)
Officer's life insurance .78 - -
Valuation allowance (16.08) - -
Net effect of alternative minimum
taxes .03 1.86 1.93
Investment tax credits - - 4.03
Other 2.11 (.56) .50
_______________________________________
Effective income tax rates 7.51% 2.15% 2.04%
_______________________________________
The temporary differences gave rise to the following deferred
tax asset (liability):
June 30,
___________________________
1997 1996
________________________
Excess of tax over financial
accounting depreciation $(1,037,362) $(893,349)
Warranty reserve 214,500 72,200
Obsolete inventory reserve 39,000 42,000
Accrued vacations 48,063 9,957
Allowance for boat repurchases 97,500 7,091
Dealer incentive reserves 58,500 21,000
Bad debt reserve 40,026 1,340
Reserve for loss on disposition 171,756 -
Inventory adjustments - Sec. 253A 124,992 118,626
NOL carryforwards 204,380 1,218,548
Alternative minimum tax credits 377,421 120,438
Investment tax credits.. 86,294 86,294
-17-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Research and Development.
The Company expenses the costs of researching and developing
new products and components as the costs are incurred.
Research and development costs are included in the cost of
sales and amounted to $635,652 for Fiscal 1997, $234,425 for
Fiscal 1996, and $134,828 for Fiscal 1995.
Note 10. Commitments and Contingencies.
Employment Agreement: The Company entered into a one-year
employment agreement in 1989 with its Chairman, Mr. Reginald
M. Fountain, Jr. The agreement provides for automatic one-
year renewals at the end of each year subject to Mr.
Fountain's continued employment.
Dealer Interest: The Company regularly pays a portion of
dealers' interest charges for floor plan financing for up to
six months. These interest charges amounted to $1,009,285 for
Fiscal 1997, $704,736 for Fiscal 1996, and $708,655 for Fiscal
1995. They are included in the accompanying consolidated
statements of operations as part of selling expense. At June
30, 1997 and 1996 the estimated unpaid dealer incentive
interest included in accrued expenses amounted to $150,000 and
$50,000, respectively.
Manufacturer Repurchase Agreements: The Company makes
available through third-party finance companies floor plan
financing for many of its dealers. Sales to participating
dealers are approved by the respective finance companies. If
a participating dealer does not satisfy its obligations under
the floor plan financing agreement in effect with its
commercial lender(s) and boats are subsequently repossessed by
the lender(s), then under certain circumstances the Company
may be required to repurchase the repossessed boats if it has
executed a repurchase agreement with the lender(s). At June
30, 1997, the Company had a contingent liability to repurchase
boats in the event of dealer defaults and if repossessed by
the commercial lenders amounting to approximately $8,600,000.
The Company has reserved for the future losses it might incur
upon the repossession and repurchase of boats from commercial
lenders. The amount of the reserve is based upon probable
future events which can be reasonably estimated. At June 30,
1997, the allowance for boat repurchases was $200,000. Also,
in connection with one of its floor plan agreements with a
lender, the Company has provided an irrevocable standby letter
of credit in the amount of $250,000 as security for the
lender.
Utility Agreement: During 1997, the Company entered into a
development agreement with Beaufort County, North Carolina.
Under the agreement, the County will provide $522,802 towards
the extension of community sewer and water service to the
Company's plant site. The Company agreed to: 1). expand it's
plant and purchase additional production equipment; 2) employ
an additional fifty people by April 30, 1999, sixty percent
whose household incomes are under low or moderate income
limits. If the number of low or moderate income newly
employed individuals falls below fifty one percent, then the
entire $522,802 amount will become due and payable by the
Company to the County. If the Company fails to create and
maintain fifty new jobs specified prior to April 30, 1999,
then the Company will reimburse the County $10,456 for each
low to moderate income job not created up to a maximum of
$522,802.
-18-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Commitments and Contingencies. [Continued]
Environmental: The Company has been notified by the United
States Environmental Protection Agency (the "EPA") and the
North Carolina Department of Environment, Health and Natural
Resources ("NCDEHNR") that it has been identified as a
potentially responsible party (a "PRP") and may incur, or may
have incurred, liability for the remediation of ground water
contamination at the Spectron/Galaxy Waste Disposal Site
located in Elkton, Maryland and the Seaboard Disposal Site,
located in High Point, North Carolina, also referred to as the
Jamestown, North Carolina site, resulting from the disposal of
hazardous substances at those sites by a third party
contractor of the Company. The Company has been informed that
the EPA and NCDEHNR ultimately may identify a total of between
1,000 and 2,000, or more, PRP's with respect to each site.
The amounts of hazardous substances generated by the Company,
which were disposed of at both sites, are believed to be
minimal in relation to the total amount of hazardous
substances disposed of by all PRP's at the sites. At present,
the environmental conditions at the sites, to the Company's
knowledge, have not been fully determined by the EPA and
NCDEHNR, respectively, and the Company is not able to
determine at this time the amount of any potential liability
it may have in connection with remediation at either site.
Without any acknowledgment or admission of liability, the
Company has made payments of approximately $3,279 to date as a
non-performing cash-out participant in an EPA-supervised
response and removal program at the Elkton, Maryland site, and
in a NCDEHNR-supervised removal and preliminary assessment
program at the Jamestown, North Carolina site. A cash-out
proposal for the next phase of the project is expected to be
forthcoming from the PRP Group for the Elkton, Maryland site
within the near future. According to the PRP Group, the
Company's full cash-out amount is estimated to be
approximately $10,000 for the Elkton, Maryland site, based
upon an estimated 3,304 gallons of waste disposed of at that
site by the Company. A cash-out proposal in the approximate
amount of $66,000 based on an estimated 19,245 gallons of
waste is anticipated from the PRP Group for the Jamestown,
North Carolina site following completion of a remedial
investigation and feasibility study in early 1998, according
to the PRP Group administrator. Any such cash-out agreement
will be subject to approval by EPA and NCDEHNR, respectively.
The Company has accrued the estimated $76,000 liability
related to these matters in the accompanying financial
statements.
Litigation: The Company was audited during Fiscal 1997 by the
State of North Carolina under the Escheat and Unclaimed
Property Statute. The State Treasurer's audit report was
received and the Company paid a small amount of the escheated
funds. However, the Company filed a dispute as to the
remaining escheats property, amounting to approximately
$65,000. The matter was appealed to the Administrative Office
of the State of North Carolina. The dispute was subsequently
resolved by the Company's payment of $3,090 to the state.
-19-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Commitments and Contingencies. [Continued]
Litigation: The Company received a demand letter, dated
February 22, 1996, from a representative of a famous
basketball player (Player), claiming damages in connection
with an advertisement for the Company. The letter demanded
payment of $1,000,000 unless the claim was resolved prior to
filing suit. The Company put its primary and umbrella
insurance carriers on notice after receiving the demand. On
January 2, 1997, the Company filed suit in U.S. District Court
for the Eastern District of North Carolina against the Player
and his affiliated company and the advertising agency (an
agency owned by a director of the Company) that produced the
advertisement. The Company asserted that it had neither
previewed nor authorized an advertisement using the Player's
name and that the advertising agency had designed and run the
advertisement without the Company's prior review and consent.
The Company contends that it withdrew the advertisement after
being contacted by the Player's counsel and that Player was
not damaged by the advertisement. The Company further
contends that it did not state that the Player was endorsing
the product and that the Player has no legal claim to the
usage of a certain word within the advertisement. Further,
the Company claims that Player's counsel used coercion by
threatening suit and that the Company should be awarded the
costs of suit. On May 8, 1997, the Player and his affiliated
company filed an answer, counterclaim, and crossclaim,
alleging trademark infringement, unfair competition and
trademark dilution, and seeking damages of $10,000,000,
trebled, plus punitive and exemplary damages. On June 4,
1997, the Company filed a reply to the Counterclaim, denying
the Player's allegations and seeking dismissal of the
Counterclaims against it. A discovery plan was agreed to by
all parties and filed on July 14, 1997. Discovery is
scheduled to be completed by April, 1998, and is set for trail
on October 13, 1998. Shortly after the Company filed suit in
North Carolina, the Player and affiliated company filed suit
against the Company and advertising agency on February 24,
1997, in U.S. District Court for the Northern District of
Illinois. The Complaint alleges trademark infringement,
unfair competition and trademark dilution, and seeks damages
of $10,000,000, trebled, plus punitive and exemplary damages.
By Order dated April 30, 1997, this matter was transferred to
North Carolina. The Company has moved to dismiss the suit with
prejudice because the claims are repetitions of the
counterclaims in the Company's declaratory judgment suit. The
Player has responded by requesting that his suit be dismissed
without prejudice or consolidated with the Company's
declaratory judgment action. The Company intends to vigorously
defend its interests in these matters unless a reasonable and
equitable settlement can be reached.
-20-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Commitments and Contingencies. [Continued]
Litigation: The Company filed suit on July 21, 1997, against a
former officer and director and his wife, Mach, Inc., and Mach
Performance, Inc. This suit was filed in U.S. District Court
for the Eastern District of North Carolina, seeking rescission
of an Agreement and Plan of Reorganization entered into in
1996 for the Company's acquisition of Mach Performance, Inc.
in a merger transaction. The Company seeks rescission of the
acquisition and merger agreement and voidance of the resulting
transaction on grounds of fraud and material breach of
contract. The federal securities fraud claims are based on
the alleged deceptive acts in violation of Section 10(b) of
the Securities Exchange Act of 1934, arising from the sale of
Mach Performance, Inc. capital stock to the Company in
exchange for the Company's issuance to them of 127,500 new
restricted shares of its common stock valued at $1,041,250.
Other claims include breach of fiduciary duty, based on North
Carolina law, arising from the former director's alleged
material misrepresentations and omissions as a director of the
Company during the time when the acquisition and merger
agreement was negotiated. The Company is seeking a
preliminary and permanent injunction against the sale or
transfer of its 127,500 new restricted common shares issued in
the transaction, and is seeking monetary damages, including
trebled and punitive damages in an unspecified amount, for the
claims stated above, as well as for alleged actions by the
former director and officer after the acquisition. The former
director and his wife have filed counterclaims alleging breach
of contract regarding the failure to merge the Company and
regarding options issued to the former employee and director.
The Company intends to vigorously pursue its claims in this
suit, and to defend vigorously against any counterclaims or
suits brought by against the Company. The Company is also
seeking the return and cancelation of options to purchase
60,000 shares of common stock.
Product Liability and Other Litigation: There were seven
product liability lawsuits brought against the Company at June
30, 1997. The Company intends to vigorously defend its
interests in these matters. The Company carries sufficient
product liability insurance to cover attorney's fees and any
losses which may occur from these lawsuits over and above the
insurance deductibles. The Company is involved from time to
time in other litigation through the normal course of its
business. Management believes there are no such undisclosed
claims which would have a material effect on the financial
position of the Company.
Note 11. Export Sales.
The Company had export sales of $2,167,840 for Fiscal 1997,
$1,052,816 for Fiscal 1996, and $507,097 for Fiscal 1995.
Export sales were to customers in the following geographic
areas:
Year Ended June 30,
______________________________________________
1997 1996 1995
______________________________________
Americas $1,047,913 $658,738 $ -
Asia 367,126 - 197,932
Middle East and Europe. 752,801 394,078 309,165
_______________________________________
$2,167,840 $1,052,816 $ 507,097
_______________________________________
-21-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Transactions with Related Parties.
The Company paid or accrued the following amounts for services
rendered or for interest on indebtedness to Mr. Reginald M.
Fountain, Jr., the Company's Chairman, President, Chief
Executive Officer, and Chief Operating Officer, or to entities
owned or controlled by him:
Year Ended June 30,
______________________________________________
1997 1996 1995
_______________________________________
R.M. Fountain, Jr.
-Apartments rentals $ 17,260 $ 15,380 $ 13,995
R.M. Fountain, Jr.
- airplane rentals 296,498 155,499 104,469
R.M. Fountain, Jr.
- interest on loans - 2,710 -
R.M. Fountain, Jr.
- other misc. 500 2,000 -
_______________________________________
$ 314,258 $175,589 $ 118,464
_______________________________________
As of June 30, 1997 the Company had receivables and advances
from employees of the Company amounting to $165,936 which
includes $147,081 from Mr. Fountain.
During March 1997, the Company purchase 4.84 acres of land,
from Mr. Fountain for $123,000. The land is adjacent to the
land owned by the Company for anticipated future expansion
During the fourth quarter of Fiscal 1996, the Company borrowed
$170,000 from Mr. Fountain to supplement its working capital.
This loan was unsecured with interest at 12%. The loan was
entirely repaid to Mr. Fountain by June 30, 1996.
The Company paid $517,278, $265,985 and $138,116 for the year
ended June 30, 1997, 1996 and 1995 for advertising and public
relations services from a entity owned by a director of the
Company.
The Company acquired a subsidiary, Mach Performance, Inc.,
from a director of the Company for 127,500 shares of Common
Stock in a stock for stock purchase (See Note 15).
Prior to June 30, 1997, the Company received consulting fees
pursuant to a consulting agreement with a vendor of the
Company. Mr. Fountain has assigned these consulting fees to
the Company. Included in other non-operating income are
consulting fees earned by the Company amounting to $260,000
for Fiscal 1997, $610,420 for Fiscal 1996, and $452,911 for
Fiscal 1995. The consulting agreement expired on June 30, 1997
and has not been re-negotiated.
Note 13. Concentration of Credit Risk
Concentration of credit risk arise due to the Company
operating in the marine industry, particularly in the United
States. For Fiscal 1997 one dealer accounted for 6.6% of
sales and two other dealers each accounted for more than 5% of
sales. For Fiscal 1996 one dealer accounted for 10.2% of
sales and three other dealers each accounted for more than 5%
of sales. For fiscal 1995 one dealer accounted for 9.8% of
sales and four other dealers each accounted for more than 5%
of sales.
-22-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Acquisition and Discontinued Operations.
The Company formed Fountain Power, Inc., a subsidiary of
Fountain Powerboats, Inc. late in Fiscal 1996 to acquire Mach
Performance, Inc., a propeller manufacturer, and to engage in
the manufacturing of propellers and development of engines and
propulsion systems. Mach Performance, Inc. was acquired on
October 11, 1996, using the purchase method of accounting, in
a stock for stock exchange (from a director of the Company)
through the issuance of 127,500 restricted common shares
valued at $8.167 per share or $1,041,250, which exceeded the
fair market value of the net assets of Mach Performance, Inc.
by $411,401. The excess was recorded as goodwill and was
being amortized over 20 years. The operations were
subsequently moved from Lake Hamilton, Florida to the
Company's plant site near Washington, North Carolina in
December, 1996.
The operations never became profitable and during June, 1997,
the Company adopted a plan to discontinue the operations of
Mach Performance Inc. and Fountain Power, Inc. The
accompanying financial statements have been reclassified to
segregate the discontinued operations from continuing
operations. Included in the operating losses from the
discontinued operations is the write down of $395,761 of
remaining goodwill and $461,422 of propeller inventory which
management believes is not saleable. The Company also accrued
an allowance for estimated losses expected to be incurred in
the disposition of $440,401.
During July, 1997, the Company filed suit against a former
officer and director and his wife seeking rescission of the
acquisition and merger agreement with Mach Performance, Inc.
and voidance of the resulting transaction on grounds of fraud
and material breach of contract. The Company is further
asking that the 127,500 shares of common stock issued in the
transaction be returned to the Company and that certain stock
purchase options issued pursuant to an employment agreement
also be rescinded and canceled.
Net sales related to Mach Performance, Inc. for fiscal 1997
were $125,429.
The following is a condensed proforma statement of operations
that reflects what the presentation would have been for the
year ended June 30, 1997 without the reclassifications
required by "discontinued operations" accounting principles:
1997
_____________
Net Sales $50,954,753
Cost of goods sold (39,132,978)
Other operating expenses (10,127,760)
Other income (expense) (123,637)
Provision for taxes (330,427)
_____________
Net income $1,239,951
_____________
Earnings per share $ .25
_____________
-23-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Acquisition and Discontinued Operations. [Continued]
Net (liabilities) of discontinued operations at June 30,1997
consisted of the following:
1997
____________
Accounts receivables $ 4,174
Prepaid expenses 14,371
Equipment, net 539,457
Accounts payable (226,332)
Warranty & returns reserve (100,000)
Customer deposits (4,966)
Estimated loss on disposal (440,401)
____________
$213,697
____________
Note 15. Subsequent Events.
During July 1997, the Company approved a three-for-two forward
stock split of all its previously issued and outstanding
common stock including options to purchase common stock
(effectively a three share for two share stock dividend). The
split was accomplished during August. The effect of the
common stock split has been reflected in these financial
statements (See Note 1 and 7).
During July 1997, a director of the Company exercised stock
options held by him to acquire 30,000 shares of the Company's
common stock for $110,000 (See Note 7).
Prior to fiscal 1993, the Company owned and operated an
aircraft. During fiscal 1993, the aircraft was sold to
officer and director of the Company. The Company has been
leasing airplane services from the officer and director since
that time. During September 1997, the board of directors
determined to acquire an airplane for the Company and approved
the acquisition of an airplane from Mr. Fountain for
$1,375,000. The Company will issue a note payable to Mr.
Fountain for approximately $420,000 and will also assume the
remaining underlying indebtedness on the airplane.
Effective October 1, 1997, Fountain Trucking, Inc., Fountain
Sportswear, Inc., Fountain Aviation, Inc. and Fountain
Unlimited, Inc. were dissolved. In connection with the
dissolution of the subsidiaries the operations of Fountain
Trucking, Inc., and Fountain Sportswear, Inc. were transferred
to Fountain Powerboats, Inc. (See Note 1).
-24-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,995
<SECURITIES> 696
<RECEIVABLES> 1,897
<ALLOWANCES> 30
<INVENTORY> 3,938
<CURRENT-ASSETS> 10,997
<PP&E> 24,554
<DEPRECIATION> 12,335
<TOTAL-ASSETS> 23,714
<CURRENT-LIABILITIES> 6,305
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 9,315
<TOTAL-LIABILITY-AND-EQUITY> 23,714
<SALES> 50,514
<TOTAL-REVENUES> 50,514
<CGS> 36,976
<TOTAL-COSTS> 36,976
<OTHER-EXPENSES> 9,018
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 558
<INCOME-PRETAX> 4,400
<INCOME-TAX> 330
<INCOME-CONTINUING> 4,070
<DISCONTINUED> (2,830)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,240
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
</TABLE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
is made and entered into as of October 11, 1996, and is by and
between Fountain Powerboat Industries, Inc. ("Industries"), a
Nevada corporation, Fountain Powerboats, Inc. ("Powerboats", a
North Carolina corporation and a wholly owned subsidiary of
Industries, Fountain Power, Inc. ("Power"), a North Carolina
corporation and a wholly owned subsidiary of Powerboats, and Mach
Performance, Inc. ("Mach"), a Florida corporation.
R E C I T A L S
WHEREAS, the Boards of Directors of Industries, Powerboats,
Power and Mach deem it advisable and in the best interests of
Industries, Powerboats, Power and Mach and their respective
shareholders that Power and Mach combine; and
WHEREAS, Industries is a public company; and
WHEREAS, Industries is the owner of all the outstanding
shares Powerboats, which, in turn, is the owner of all of the
outstanding shares of Power; and
WHEREAS, the Boards of Directors of Industries, Powerboats,
Power and Mach deem it advisable that the acquisition by
Industries of Mach be effected through the merger of Power and
Mach (the "Merger") pursuant to this Agreement and an Agreement
of Merger; and
WHEREAS, Industries desires to acquire all of the
outstanding Mach shares for Eighty-five Thousand (85,000) shares
of voting Common Stock of Industries, which common shares shall
be restricted from sale, transfer, or hypothecation, as follows:
Twenty-eight Thousand Three Hundred and Thirty-three
(28,333) shares shall be restricted until October 11,
1998, and
Twenty-eight Thousand Three Hundred and Thirty-three
(28,333) shares shall be restricted until October 11,
1999, and
Twenty-eight Thousand Three Hundred and Thirty-four
(28,334) shares shall be restricted until October 11,
2000.
The foregoing shares shall bear appropriate legends on the
share certificates restricting that shares from sale, transfer,
or hypothecation, in a transaction that qualifies under Section
368(a)(2)(D) of Internal Revenue Code of 1986, as amended (the
"Code"); and
<PAGE>
In the event of any merger, consolidation, reorganization or
liquidation of Industries with one or more corporations in which
Industries is not the surviving corporation, or the transfer of
substantially all of Industries assets, or the transfer of more
than fifty percent (50%) of the then outstanding shares of Common
Stock of Industries to any person, persons, or corporations
("change of control"), then in that event Industries Board of
Directors shall authorize the termination of the foregoing common
stock restrictions, and
WHEREAS, the Board of Directors of Industries, Powerboats,
Power and Mach intend that the Merger constitute a
"reorganization" under Sections 268 (a)(2)(D) and 368 (a)(2)(E)
of the Internal Revenue Code of 1986, as amended (the "Code"),
and the rules and regulations of the Internal Revenue Service
(the "IRS") promulgated thereunder, have approved and adopted
this Agreement as a "plan of reorganization" within the meaning
of Section 368 of the Code, and the rules and regulations of the
IRS promulgated thereunder, and intend that the Merger be treated
as a tax free merger under the Code and the rules and regulations
of the IRS promulgated thereunder.
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
I. MERGER
1.01 Merger. Power and Mach shall merger pursuant to the
North Carolina General Corporation Law (the "Merger") and in
accordance with the Agreement of merger among Industries,
Powerboats, Power and Mach (the "Agreement of Merger"), a copy of
which is attached hereto as Exhibit 1.01. The Merger shall be
effective on the date on which the Agreement of Merger, or a
conformed copy thereof, in substantially the form annexed hereto
as Exhibit 1.01, is filed with the Secretary of the State of
North Carolina, which filing shall take place upon Closing.
1.02 Closing. The Closing of the transaction contemplated
by this Agreement (the "Closing") shall take place as soon as
practicable, but is expected to take place prior to December 31,
1996. At Closing, and pursuant to the Agreement of Merger, all
outstanding shares of Common Stock of Mach shall be cancelled and
in lieu thereof shareholders of Mach common stock shall receive
an aggregate of Eighty-five Thousand (85,000) shares of
Industries Common Stock, which stock will be restricted from
sale, transfer, or hypothecation as provided above. At Closing,
Industries, Powerboats, Power and Mach shall deliver the
following documents:
1.02(a). Each of Industries, Powerboats, Power and
Mach shall deliver an officer's certificate signed by its
president or chief financial officer, certifying that the
representations and warranties given by Industries, Powerboats,
Power and Mach, respectively, are true and correct as of the
Closing.
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<PAGE>
1.02(b). Mach shall deliver to Industries certified
copies of resolutions of the Company's Board of Directors,
electing the following persons as members of Mach's Board of
Directors and the following persons as directors and officers of
Mach:
Reginald M Fountain, Jr. - Chairman of the Board
Gary D. Garbrecht - Director
Gary E. Mazza, III - Director
Federico Pignatelli - Director
Mark L. Spencer - Director
Reginald M. Fountain, Jr. - Chief Executive Officer
Gary D. Garbrecht - President
Allan L. Krehbiel - Vice President and Chief
Financial Officer
Blanche C. Williams - Secretary & Treasurer
Carol J. Price - Assistant Secretary
1.02(c). Industries, Powerboats, and Power shall
deliver to Mach certified resolutions of their respective Boards
of Directors authorizing the Merger and the transactions
contemplated by this Agreement.
1.02(d). Mach shall deliver to Industries,
Powerboats, and Power certified resolutions of its board of
Directors and shareholders authorizing the Merger and the
transactions contemplated by this Agreement.
1.02(e). Industries' subsidiary, Powerboats, and Gary
D. Garbrecht shall enter into an Employment Agreement in the form
attached hereto as Exhibit 1.02.
II. REPRESENTATIONS AND WARRANTIES OF MACH
Mach represents and warrants to Industries, Powerboats, and
Power as follows, as of the date of this Agreement and as of the
Closing:
2.01. Organization.
2.01(a). Mach is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Florida; Mach has the corporate poser and authority to carry on
its business as presently conducted; and Mach is qualified to do
business in all jurisdictions where the failure to be so
qualified would have a material adverse effect on its business.
2.01(b). The copies of the Articles of Incorporation
and all amendments thereto of Mach as certified by the Secretary
of State of Florida, and the copy of the Bylaws as certified by
the Secretary of Mach, which have heretofore been delivered to
Industries, are complete and correct copies of such Articles of
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<PAGE>
Incorporation as amended and in effect on the date hereof. All
minutes and actions in writing without a meeting of the Board of
Directors and shareholders of Mach are contained in the minute
book of Mach heretofore delivered to Industries for examination,
and no minutes or actions in writing have been included in such
minute book since delivery to Industries that have not also been
delivered to Industries.
2.02. Capitalization.
2.02(a). The authorized capital stock and the issued
and outstanding shares of Mach are as set forth on Exhibit
2.02(a). All of the issued and outstanding shares of Mach are
duly authorized, validly issued, fully paid and nonassessable.
2.02(b). Except as set forth in Exhibit 2.02(b) there
are no outstanding options, warrants, or rights to purchase any
securities of Mach.
2.03. Subsidiaries and Investments. Mach does not own any
capital stock or have any interest in any corporation,
partnership or other form of business organization, except as
described in Exhibit 2.03 hereto.
2.04. Financial Statements. The unaudited financial
statements of Mach as of June 30, 1996 and for the two years
ended December 31, 1995 and 1994, including unaudited balance
sheets and the related unaudited statements of operations,
retained earnings, and cash flows for the periods then ended and
the audited financial statements of Mach as of August 31, 1996
and for the eight months ended August 31, 1996 (the "Financial
Statements") present fairly the financial positions and results
of operations of Mach, on a consistent basis.
2.05. No Undisclosed Liabilities. Other than as described
in Exhibit 2.05 hereto, Mach is not subject to any material
liability or obligation of any nature, whether absolute, accrued,
contingent, or otherwise and whether due or to become due, which
is not reflected or reserved against in the Financial Statements,
except those incurred in the normal course of business.
2.06. Absence of Material Changes. Since June 30, 1996,
except as described in any Exhibit hereto or as required or
permitted under this Agreement, there has not been:
2.06(a). any material change in the condition
(financial or otherwise) of the properties, assets, liabilities
or business of Mach, except changes in the ordinary course of
business which, individually and in the aggregate, have not been
materially adverse:
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<PAGE>
2.06(b). any redemption, purchase or other acquisition
of any shares of the capital stock of Mach, or any issuance of
any shares of capital stock or the granting, issuance or exercise
of any rights, warrants, options or commitments by Mach relating
to their authorized or issued capital stock; or
2.06(c). any change or amendment to the Articles of
Incorporation of Mach.
2.07. Litigation. Except as set forth in Exhibit 2.07
attached hereto, there is no litigation, proceeding or
investigation pending or threatened against Mach affecting any of
its properties or assets against any officer, director, or
stockholder of Mach that might result, either in any case or in
the aggregate, in any material adverse change in the business,
operations, affairs or condition of Mach or its properties or
assets, or that might call into question the validity of this
Agreement, or any action taken or to be taken pursuant hereto.
2.08. Title To Assets. Mach has good and marketable title
to all of its assets and properties now carried on its books
including those reflected in the balance sheets contained in the
Financial Statements, free and clear f all liens, claims,
charges, security interests or other encumbrances, except as
described in Exhibit 2.08 attached hereto or any other Exhibit.
2.09. Real Estate. There is set forth on Exhibit 2.09
attached hereto a brief description of all real estate (including
building and improvements) owned and held by Mach, together with
a legal description of such real estate. Mach has good and
marketable title to such real estate in fee simple and clear of
any encumbrances whatsoever except as shown on Exhibit 2.09
hereto.
2.10. Contracts and Undertakings. Mach is not in material
default, or alleged to be in material default, under any contact,
agreement, lease, license commitment, instrument or obligation
and no other party to any contract, agreement, lease, license,
commitment, instrument or obligation to which Mach is a party is
in default thereunder nor does there exist any condition or event
which, after notice or lapse of time or both, would constitute a
default by any party to any such contract, agreement, lease,
license, commitment, instrument or obligation. These contracts
and undertakings shall be delivered at Closing.
2.11. Underlying Documents. Copies of all documents
described in any exhibit attached hereto (or a summary of any
such contract, agreement or commitment, if oral) have been made
available to Industries and are complete and correct and include
al amendments, supplements or modifications thereto.
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<PAGE>
2.12. Transactions with Affiliates, Directors and
Shareholders. Except as set forth in Exhibit 2.12 hereto, there
are and have been no contracts, agreements, arrangements or other
transactions between Mach on the one hand, and any officer,
director, or shareholder of Mach, or any corporation or other
entity controlled by them.
2.13. No Conflict. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach of any term
or provision of, or constitute a default under, the Articles of
Incorporation or Bylaws of Mach, or any agreement, contract or
instrument to which Mach is a party or by which it or any of its
assets are bound.
2.14. Ownership of Intellectual Property Rights. Mach owns
or has valid right or license to sue on all patents, patent
rights, trade secrets, trademarks, trademark rights, trade names,
trade name rights, copyrights and other intellectual property
rights (collectively referred to as "Intellectual property
Rights") which are necessary to operate its business as now
proposed to be operated. Mach does not have any obligation to
compensate any person, firm, corporation, or other entity for the
use of any such Intellectual Property Rights, nor has Mach
granted to any person, firm, corporation or other entity any
license or other rights to use in any manner, or waived its
rights with respect to any Intellectual Property Rights of Mach.
2.15. Disclosure. To the actual knowledge of Mach, neither
this Agreement, the Financial Statements nor any other agreement,
document, certificate or written or oral statement furnished to
Industries by or on behalf of Mach in connection with the
transactions contemplated hereby, contains any untrue statement
of a material fact which when taken as a whole omits to state a
material fact necessary in order to make the statements contained
herein or therein not misleading.
2.16. Authority. Mach has full Power and authority to
enter into this Agreement and to carry out the transactions
contemplated herein. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby, have been duly authorized and approved by the Board of
Directors of Mach and no other corporate proceedings on the part
of Mach are necessary to authorize this Agreement and the
transactions contemplated hereby.
III. REPRESENTATIONS AND WARRANTIES OF INDUSTRIES, POWERBOATS,
AND POWER
Each of Industries, Powerboats and Power hereby represents
and warrants to Mach as follows, as of the date of this Agreement
and as of the Closing:
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<PAGE>
3.01. Organization.
3.01(a). Each of Industries, Powerboats, and Power is
a corporation duly organized, validly existing, and in good
standing under the laws of its state of incorporation; has the
corporate Power and authority to carry on its business as
presently conducted; and is qualified to do business in all
jurisdictions were the failure to be so qualified would have a
material adverse effect on the business of Industries,
Powerboats, or Power.
3.01(b). The copies of the charter documents, of
Industries, Powerboats, and Power, as certified by the Secretary
of Industries, Powerboats, and Power are complete and correct
copies of such documents as amended and in effect on the date
hereof. All minutes of meetings and actions in writing without a
meeting of the Boards of Directors and shareholders of
Industries, Powerboats and Power are contained in their
respective minute books and no minutes or actions in writing
without a meeting have been included in such minute book since
such delivery to Mach that have not also been delivered to Mach.
3.02. Capitalization. The authorized capital stock of
Industries consists of 200,000 000 shares of common stock, par
value $.01 per share, of which 3,044,072 shares are outstanding
including 10,000 shares owned by Fountain Powerboats, Inc. the
outstanding capital stock of Power consists of 10,000 shares of
common stock, par value of $1.00, all of which are outstanding.
All outstanding shares are duly authorized, validly issued, fully
paid and non-assessable.
3.03. Reporting Documents. Industries has delivered to
Mach copies of its Annual Report on Form 10-K for the year ended
June 30, 1996 (the "10-K") and its quarterly report on Form 10-Q
for the quarter ended September 30, 1996 (the "10-Q"). The 10-K
and 10-Q comply in all material respects with the requirements of
the Securities Exchange Act of 1934 (the "Exchange Act').
3.04. Authority. Each of Industries, Powerboats, and Power
has full power and authority to enter into this Agreement and to
carry out the transactions contemplated herein. The execution
and delivery of this Agreement and the Agreement of merger and
the consummation of the transactions contemplated hereby, have
been duly authorized and approved by the respective Boards of
Directors of Industries, Powerboats, and Power.
3.05. No Conflict. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach of any term
or provision of, or constitute a default under, the charter
documents or Bylaws of Industries, Powerboats, or Power, or any
agreement, contract or instrument to which Industries,
Powerboats, or Power is a party or by which it or any of its
assets are bound.
- 7 -
<PAGE>
3.06. Disclosure. To the actual knowledge of Industries,
Powerboats, or Power, neither this Agreement, the 10-K or the 10-
Q nor any other agreement, document, certificate or written or
oral statement furnished to Mach by or on behalf of Industries,
Powerboats, or Power in connection with the transactions
contemplated hereby, contains any untrue statement of a material
fact or when taken as a whole omits to state a material fact
necessary in order to make the statements contained herein or
therein not misleading.
3.07. Absence of Material Changes. Since September 30,
1996, except as described in any Exhibit hereto or as required or
permitted under this Agreement, there has not been:
3.07(a) any material change in the condition
(financial or otherwise) of the properties, assets, liabilities
or business of Industries, Powerboats, or Power, except changes
in the ordinary course of business which, individually and in the
aggregate, have not been materially adverse.
3.07(b) any redemption, purchase or other acquisition
of any shares of the capital stock of Industries, Powerboats, or
Power, or any issuance of any shares of capital stock or the
granting, issuance or exercise of any rights, warrants, options
or commitments by Industries, Powerboats, or Power relating to
their authorized or issued capital stock.
3.07(c) any amendment to the Certificate of
Incorporation of Industries or Articles of Incorporation of
Powerboats or power.
IV. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
4.01. All representations, warranties and covenants of
Industries, Powerboats, Power and Mach contained herein shall
survive the consummation of the transactions contemplated herein
and remain in full force and effect.
V. CERTAIN UNDERSTANDINGS AND AGREEMENTS
5.01 Audit and Appraisal. Upon execution of this
Agreement, Mach shall cooperate fully with the accounting firm of
Pritchett, Siler & Hardy to perform an audit of Mach's financial
statements as of and for the period ending August 31, 1996 (the
"Audit"). Mach shall also cooperate fully with an appraiser to
be selected by industries for the purpose of appraising Mach's
assets as of August 31, 1996 (the "Appraisal"). the cost of the
Audit and the Appraisal shall be borne by Industries.
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<PAGE>
VI. CONDITIONS TO CLOSING
6.01 Conditions to Obligations of Mach. The obligations of
Mach under this Agreement shall be subject to each of the
following conditions:
6.01(a) Representations and Warranties of Industries,
Powerboats, and Power to be True. The representations and
warranties of Industries, Powerboats, and Power herein contained
shall be true in all material respects at the Closing with the
same effect as though made at such time. Industries, Powerboats
and Power shall have performed in all material respects all
obligations and complied in all material respects, to their
actual knowledge, with all covenants and conditions required by
this Agreement to be performed or complied with by them at or
prior to the Closing.
6.01(b) No legal Proceedings. No injunction or
restraining order shall be in effect, and no action or proceeding
shall have been instituted and, at what would otherwise have been
the Closing, remain pending before a court to restrain or
prohibit the transactions contemplated by this Agreement.
6.01(c) Statutory Requirements. All statutory
requirements for the valid consummation by Industries,
Powerboats, and Power of the transactions contemplated by this
Agreement shall have been fulfilled. All authorizations,
consents and approvals of all governments and other persons
required to be obtained in order to permit consummation by
Industries, Powerboats, and Power of the transactions
contemplated by this Agreement and to continue unimpaired in all
material respects immediately following the Closing shall have
been obtained.
6.01(d) Closing Documents. Industries, Powerboats,
and Power shall have executed and delivered all documents
required to be executed and delivered by Industries, Powerboats,
and Power pursuant to this Agreement.
6.02 Conditions to Obligations of Industries, Powerboats,
and Power. The obligations of Industries, Powerboats, and Power
under this Agreement shall be subject to the following
conditions:
6.02(a) Representations and Warranties of Mach to be
True. The representations and warranties of Mach herein
contained shall be true in all material respects as of the
Closing, and shall have the same effect as though made at the
Closing; Mach shall have performed in all material respects all
obligations and complied in all material respects, to its actual
knowledge, with all covenants and conditions required by this
Agreement to be performed or complied with by it prior to the
Closing.
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<PAGE>
6.02(b) No Legal Proceedings. No injunction or
restraining order shall be in effect prohibiting this Agreement,
and no action or proceeding shall have been instituted and, at
what would otherwise have been the Closing, remain pending before
a court to restrain or prohibit the transactions contemplated by
this Agreement.
6.02(c) Statutory and Other Requirements. All
statutory requirements for the valid consummation by Mach of the
transactions contemplated by this Agreement shall have been
fulfilled; all authorizations, consents and approvals of all
Governmental agencies and authorities to be obtained in order to
permit consummation by Mach of the transactions contemplated by
this Agreement shall have been obtained.
6.02(d) The audited Balance Sheet of Mach as of August
31, 1996 shall reflect net worth (total assets less total
liabilities) of Mach to be no less than Six Hundred Thirty-
Thousand and Forty Dollars ($630,040) after adjustment for the
appraised value of the machinery and equipment and after the
reclassification of Ninety-four Thousand and Ninety-four Dollars
($94,094) and Three Hundred and Thirty-one Thousand Seven Hundred
and Sixty-three Dollars ($331,763) from debt owing to Mach
shareholders to equity of Mach shareholders. It is expressly
understood that Industries, Powerboats, and Power shall not
assume the aforementioned indebtednesses to Mach shareholders,
but rather, that these indebtednesses will be treated as part of
the equity of Mach in this transaction.
VII. TERMINATION OF OBLIGATIONS AND WAIVERS OF CONDITIONS;
PAYMENT OF EXPENSES
7.01 Termination of Agreement. Anything herein to the
contrary notwithstanding, this Agreement may be terminated at any
time before the Closing as follows and in no other manner;
7.01(a) Mutual Consent. By mutual consent of
Industries, Powerboats, Power and Mach.
7.01(b) Expiration Date. By either Industries,
Powerboats, Power and Mach if the Closing shall not have taken
place by December 31, 1996, which date may be extended by mutual
agreement of Industries, Powerboats, Power and Mach.
7.02. Payment of Expenses; Waiver of Conditions. In the
event that this Agreement shall be terminated pursuant to Section
7.01 all obligations of the parties under this Agreement shall
terminate and there shall be no liability of any party to the
other. Each party hereto will pay all costs and expenses
incident to its negotiation and preparation of this Agreement and
performance of and compliance with all agreements and conditions
contained herein or therein on its part to be performed or
complied with, including the fees, expenses and disbursements of
counsel.
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<PAGE>
If any of the conditions specified in Section 6.01 hereof has not
been satisfied, Mach may nevertheless a the election of Mach
proceed with the transactions contemplated hereby and if any of
the conditions specified in Section 6.02 hereof has not been
satisfied, Industries, Powerboats, and Power may nevertheless at
their joint election proceed with the transactions contemplated
hereby. In the event that the Closing shall be consummated, each
party hereto will pay all of its costs and expenses in connection
therewith.
XIII. MISCELLANEOUS
8.01 Finder's Fees, Investment Banking Fees. Neither
Industries, Powerboats, Power nor Mach have retained or used the
services of any person, firm or corporation in such manner as to
require the payment of any compensation as a finder or a broker
in connection with the transactions contemplated herein.
8.02 Tax Treatment. The transaction contemplated hereby is
intended to qualify as a so-called "tax-free" reorganization
under the provisions of Section 368 of the Internal Revenue Code.
Industries, Powerboats, Power and Mach acknowledge, however, that
they each have been represented by their own tax advisors in
connection with this transaction; that they have not made any
representations or warranties to the others with respect to the
tax treatment of such transaction or the effect thereof under
applicable tax laws, regulations, or interpretations; and that no
attorney's opinion or private revenue ruling has been obtained
with respect to the effects thereof under the Internal Revenue
Code of 1986, as amended.
8.03 Further Assurances. From time to time, at the other
party's request and without further consideration, each of the
parties will execute and deliver to the others such documents and
take such action as the other party may reasonably request in
order to consummate more effectively the transactions
contemplated hereby.
8.04 Parties in Interest. Except as otherwise expressly
provided herein, all the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective heirs, beneficiaries, personal and
legal representatives, successors and assigns of the parties
hereto.
8.05 Entire Agreement; Amendments. This Agreement,
including the schedules, Exhibits and other documents and
writings referred to herein or delivered pursuant hereto, which
form a part hereof, contains the entire understanding of the
parties with respect to this subject matter. There are no
restrictions, agreements, promises, warranties, covenants or
undertakings other than those
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<PAGE>
expressly set forth herein or therein. This Agreement supersedes
all prior agreements and understandings between the parties with
respect to this subject matter. This Agreement may be amended
only by a written instrument duly executed by the parties or
their respective successors or assigns.
8.06 Headings, Etc. The section and paragraph headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretations of
this Agreement.
8.07 Pronouns. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as the identity of the person, persons,
entity or entities may require.
8.08 Counterparts. this Agreement may be executed in
several counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same
instrument.
8.09 Governing Law. This Agreement shall be governed by
the laws of the State of North Carolina applicable to contracts
to be performed in the State of North Carolina.
IN WITNESS WHEREOF, this Agreement has been duly executed
and delivered by the parties hereto as the date first above
written.
FOUNTAIN POWERBOAT MACH PERFORMANCE, INC.
INDUSTRIES, INC.
FOUNTAIN POWERBOATS, INC.
/S/REGINALD M. FOUNTAIN, JR. /S/GARY D. GARBRECHT
Reginald M. Fountain, Jr. Gary D. Garbrecht
Chairman, President Chairman, President, and
Chief Executive officer, Chief Executive Officer
and Chief Operating Officer
FOUNTAIN POWER, INC.
/S/GARY D. GARBRECHT
Gary D. Garbrecht
President and Chief
Operating Officer
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<PAGE>
I HEREBY CERTIFY that I am the duly elected and qualified
secretary of MACH PERFORMANCE, INC., a Florida corporation and
the keeper of the records and corporate seal of said corporation;
that the following is a resolution duly adopted at a meeting of
the Board of Directors thereof held in accordance with its by-
laws at its offices at Lake Hamilton, Florida on the _____ day of
________, 1996, and that the same are now in full force.
Resolution
"BE IT RESOLVED, That the President and Vice
President/Secretary/Treasurer of this corporation, as well as
Gary Garbrecht, individually and Marcia Garbrecht, individually
the owners of all the shares of the corporation, hereby agree to
the merger of this corporation with Fountain Powerboat
Industries, Inc.
I HEREBY CERTIFY that the following named persons have been
duly elected to the offices set opposite their respective names,
that they continue to hold these offices at the present time, and
that the signatures appearing hereon are the genuine, original
signatures of each respectively:
GARY GARBRECHT
President/ /S/GARY D. GARBRECHT
Shareholder (signature)
MARCIA GARBRECHT
Vice President
Secretary/Treasurer/ /S/MARCIA GARBRECHT
Shareholder (signature)
IN WITNESS WHEREOF, I have hereunto affixed by name as
secretary and have caused the corporate seal of said corporation
to be hereto affixed this 19th day of March, 1997.
/S/MARCIA GARBRECHT
MARCIA GARBRECHT
Secretary
fountain\cooperative.cr
<PAGE>
CORPORATE RESOLUTION
I HEREBY CERTIFY that I am the duly elected and qualified
secretary of MACH PERFORMANCE, INC., A Florida corporation and
the keeper of the records and corporate seal of said corporation;
that the following is a resolution duly adopted at a meeting of
the Board of Directors thereof held in accordance with its by-
laws at its offices at Lake Hamilton, Florida on the ____ day of
_____, 1996, and that the same are now in full force.
Resolution
"BE IT RESOLVED, That the Board of Directors of Mach
Performance, Inc. and its shareholders have duly elected as
members of Mach Performance, Inc.'s Board of Directors the
following person as directors and officers:
Reginald M Fountain, Jr. - Chairman of the Board
Gary D. Garbrecht - Director
Gary E. Mazza, III - Director
Federico Pignatelli - Director
Mark L. Spencer - Director
Reginald M. Fountain, Jr. - Chief Executive Officer
Gary D. Garbrecht - President
Allan L. Krehbiel - Vice President and Chief
Financial Officer
Blanche C. Williams - Secretary & Treasurer
Carol J. Price - Assistant Secretary
I HEREBY CERTIFY that the following named persons have been
duly elected to the offices set opposite their respective names,
that they continue to hold these offices at the present time, and
that the signatures appearing hereon are the genuine original
signatures of each respectively:
GARY GARBRECHT
President /S/GARY GARBRECHT
(signature)
MARCIA GARBRECHT
Vice President
Secretary/Treasurer /S/MARCIA GARBRECHT
(signature)
IN WITNESS WHEREOF, I have hereunto affixed by name as
secretary and have caused the corporate seal of said corporation
to be hereto affixed this 19th day of March, 1997.
/S/MARCIA GARBRECHT
MARCIA GARBRECHT
Secretary
fountain\cooperative.cr2
<PAGE>
EXHIBIT 1.01
ARTICLES OF MERGER
THESE ARTICLES OF MERGER, dated as of October 11, 1996, are
entered into by and between Mach Performance, Inc. ("Mach"), a
Florida corporation, Fountain Power, Inc. ("Power"), a North
Carolina corporation, Fountain Powerboats, Inc. ("Powerboats"), a
North Carolina corporation, and Fountain Powerboat Industries,
Inc. ("Industries"), a Nevada Corporation, such corporations
being hereinafter collectively referred to as the "Constituent
Corporations." Power is sometimes hereinafter referred to as the
"Surviving Corporation." These Articles of Merger set forth the
Plan of Merger described in Section 55-11-01 of the North
Carolina Business Corporation act.
RECITALS
A. Industries is a Nevada corporation authorized to issue
200,000,000 shares of common stock $.01 par value (the
"Industries Common Stock"), of which 3,044,072 shares are issued
and outstanding at the date hereof.
B. Mach is a Florida corporation authorized to issue 10,000
shares of common stock, $1.00 par value (the "Mach Common
Stock"), of which 5,465 shares are issued and outstanding as of
the date hereof.
C. Industries owns all of the capital stock of Powerboats,
which, in turn, owns all of the capital stock of Power.
D. The respective Boards of Directors of each of the
Constituent Corporation deem it advisable and in the best
interests of the respective corporations and their respective
shareholders that Mach be merged with and into Power on the terms
and conditions hereinafter set forth in accordance with the
provisions of Sections 55-11-01 and 55-11-03 to 55-11-05
inclusive of the North Carolina Business Corporation Act.
E. On October 11, 1996, the Board of Directors of Power
adopted the following resolution, which resolution has not been
amended or revoked and is in full force and effect as of the date
hereof, and which resolution constitutes all approval required
for the merger of Mach with and into Power under Sections 55-11-
01 and 55-11-03 to 55-11-05 inclusive of the North Carolina
Business Corporation Act:
RESOLVED, That Power merge with and into Mach with Power
being the surviving corporation, pursuant to Articles of Merger
to be executed and acknowledged by Power.
F. The merger of Mach into Power was approved by Industries
and Powerboats, and Powerboats holds all of the 10,000
outstanding shares of Power common stock, which is the only class
of stock outstanding, acting by consent action in accordance with
Section 55-7-04 of the North Carolina Business Corporation Act.
- 13 -
<PAGE>
G. By execution these Articles of merger, then merger of
Mach with and into Power has been approved, in accordance with
Section 55-11-03(b0(2) of the North Carolina Business Corporation
Act.
H. On October 11, 1996, the Board of Directors of Mach
adopted the following resolution, which resolution has not been
amended or revoked and is in full force and effect as of the date
hereof.
RESOLVED, that Mach merge with and into Power, with Power
being the surviving corporation, pursuant to Articles of Merger
to be executed and acknowledged by Mach.
I. The merger of Mach into Power was approved by
shareholders holding all of the outstanding shares of Mach common
stock, which is the only class of stock outstanding, acting by
consent action in accordance with Section 55-7-04 of the North
Carolina business Corporation Act.
J. By execution and acknowledgment of these Articles of
Merger, the merger of Mach with and into Power has been approved
in accordance with the North Carolina Business Corporation Act.
NOW, THEREFORE, in order to prescribe (a) the terms and
conditions of the Merger; (b) to method of carrying the same into
effect; (c) the manner and basis of converting and exchanging the
shares of Mach's Common Stock into shares of Common Stock of
Industries; and (d) such other details and provisions as are
deemed necessary or desirable; and in consideration of the
foregoing recitals and the agreements, provisions and covenants
herein contained, Industries, Powerboats, Power and Mach hereby
agree as follows:
1. Effective Date. The Merger shall become effective upon
the filing of a copy of these Articles of Merger with the
Secretary of State of North Carolina, as required by Section 55-
11-05 of the North Carolina Business Corporation Act. The date
and time on which the Merger becomes effective is hereinafter
referred to as the "Effective Date."
2. Merger. At the Effective Date, Mach shall merger with
and into Power with Power being the Surviving Corporation and
the separate corporate existence of Mach shall cease. The
corporate identity, existence, purposes, franchises, powers,
rights and immunities of Mach at the Effective Date shall be
merged into Power which shall be fully vested therewith. Power
shall be subject to all of the debts and liabilities of Mach as
if power had itself incurred them and all rights of creditors and
all liens upon the property of each of Mach and Power shall e
preserved unimpaired, provided that such liens, if any, upon the
property of Power shall be limited to the property affected
thereby immediately prior to the Effective Date.
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<PAGE>
3. Articles of Incorporation. At the Effective Date, the
Articles of Incorporation of Power shall be the Articles of
Incorporation of the Surviving Corporation.
4. Effect of Merger on Outstanding Shares.
(a) Surviving Corporation. Each share of Power Common
Stock issued and outstanding immediately prior to the Effective
Date of the Merger shall continue to be outstanding.
(b) Disappearing Corporation. At the Effective Date,
each issued and outstanding share of Mach Common Stock shall be
cancelled.
5. Surrender of Share Certificates. After the Effective
Date, each holder of an outstanding certificate which prior to
the Effective Date evidenced Mach Common Stock shall surrender
the same, duly endorsed as Power may require, to Industries or
its designated agent for cancellation. Thereupon the
shareholders of Mach shall receive in exchange therefor 85,000
restricted common shares of Industries as provided in the
Agreement and Plan of Reorganization of October 11, 1996.
6. Status of Power Common Stock After the Effective Date.
(a) After the Effective Date, until surrendered in
accordance with Section 5 hereof, each outstanding certificate
which prior to the Effective Date represented shares of Mach
Common Stock, shall be deemed for all corporate purposes (subject
to the further provision of this Section 6(a) to evidence Power
Common Stock in accordance with the terms of this Agreement of
merger. After the Effective Date, there shall be no further
registry of transfers on the records of Mach common Stock
outstanding immediately prior to the Effective Date, and, if
certificates representing such shares are presented to Power or
Industries, as the successor of Mach, they shall be cancelled,
and the holder thereof shall be entitled to receive Industries
Common Stock in accordance with the terms of the Agreement and
plan of Reorganization of October 11, 1996. No dividends or
distributions will be paid to persons entitled to receive
certificates for shares of Industries Common Stock until such
persons shall have surrendered their Mach Common Stock
certificates in accordance with Section 5 hereof; provided,
however, that when such certificates shall have been so
surrendered in exchange for shares of Industries Common Stock,
there shall be paid to the holders thereof, but without interest
thereon all dividends and other distributions payable subsequent
to and in respect of a record date after the Effective Date on
the shares of Industries Common Stock for which such certificates
shall have been so exchanged. Holders of certificates for shares
of Mach Common Stock shall not be entitled, as such, to receive
any dividends unless and until they have exchanged those
certificates representing shares of Industries Common Stock as
provided herein.
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<PAGE>
(b) If any certificates of Industries Common Stock is
to be issued in a name other than that in which the certificate
for the Mach Common Stock surrendered in exchange is registered,
it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange
shall (i) pay any transfer or other taxes required by reason of
the issuance of such Industries Common Stock in any name other
than that of the registered holder of the certificate surrendered
or (ii) establish to the satisfaction of Power or Industries that
such tax has been paid or is not applicable.
7. Other Provisions.
(a) Governing Law; Entire Agreement. These Articles
of Merger shall be governed by and construed in accordance with
the laws of the State of North Carolina. These Articles of
Merger contain the entire agreement of the parties hereto, and
supersede any prior written or oral agreements between them
concerning the subject matter contained herein.
(b) Counterparts. These Articles of merger may be
executed in any number of counter parts and each such counterpart
shall be deemed to be an original instrument, but all of such
counterparts together shall constitute but one agreement.
(c) Further Assurances. Each Constituent Corporation
shall from time to time upon the request of the other Constituent
Corporation, execute and deliver and file and record all such
documents and instruments and take all such other actions as such
corporation may request in order to vest or evidence the vesting
in Power of title to and possession of all rights, properties,
assets and business of Power to the extent provided herein, or
otherwise to carry out the full intent and purpose of these
Articles of Merger.
IN WITNESS WHEREOF, the parties hereto have caused
these Articles of merger to be executed on behalf of the
Constituent Corporations as of the date and year first above
written.
MACH PERFORMANCE, INC. FOUNTAIN POWER, INC.
/S/GARY D. GARBRECHT /S/GARY D. GARBRECHT
Gary D. Garbrecht Gary D. Garbrecht
President President
FOUNTAIN POWERBOAT INDUSTRIES, INC.
FOUNTAIN POWERBOATS, INC.
/S/REGINALD M. FOUNTAIN, JR.
Reginald M. Fountain, Jr.
President
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<PAGE>
Exhibit 1.02
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as
of October 11, 1996, between Fountain Powerboats, Inc., a North
Carolina corporation ("Company") and Gary D. Garbrecht
("Employee").
W I T N E S S E T H:
WHEREAS, Employee possess unique talents of unusual value to
Company; and
WHEREAS, concurrently with the execution of this Agreement,
Fountain Powerboat Industries, Inc., Company's parent, is
acquiring all of the capital stock of Mach Performance, Inc.
("Mach") by merger of Mach into Company's subsidiary, Fountain
Power, Inc.; and
WHEREAS, Company recognizes that Employee's services are
peculiarly valuable to Company and therefore is willing to
provide Employee with the rights, benefits and compensation
provided for herein so as to secure the services of Employee for
the duration of this Agreement on the terms provided herein;
NOW THEREFORE, the parties hereto agree as follows:
1. Employment. Company hereby hires Employee to perform
the duties and render the services hereinafter set forth for a
period of four (4) years from the date of this Agreement, subject
to earlier termination as herein provided, and Employee hereby
accepts such employment and agrees faithfully to perform such
services during the term of this Agreement.
2. Duties. Employee agrees as President and Chief
Operating Officer of Company's subsidiary, Fountain Power, Inc.,
and to perform such duties as may be reasonably required of him
in such capacity with Company.
3. Exclusive Service. Employee agrees that he will devote
all of his time and efforts to this employment and apply all of
his skill and experience to the performance of his duties, and
that during the term of this Agreement, except with the written
approval of Company, Employee will not engage in, or be employed
in, any other business except as a passive investor, and Employee
will otherwise do nothing inconsistent with his duties hereunder.
4. Compensation. In consideration of the foregoing and for
all the services to be rendered by Employee pursuant thereto,
Employee shall receive a salary of Ten Thousand Dollars ($10,000)
per month, payable weekly in accordance with the payroll
practices
- 17 -
<PAGE>
of Company which may be in effect from time to time, and subject
to such withholding as is required by law. In addition, Company
shall reimburse Employee for all reasonable and documented
business expenses. As an employee of Company, Employee will be
entitled to participate in all benefit plans as they may be
offered from time to time by company to its other executive
employees. Employee shall be entitled to all other compensation
increases, perquisites, and benefits as may be determined from
time to time by the Board of Directors. Employee shall receive
an annual bonus equal to one percent (1%) of the consolidated
pretax net income of Fountain Powerboats, Inc. payable within
ninety days after the fiscal year-end. Employee shall also
receive a Seven Hundred Dollars ($700) per month automobile
allowance after the auto lease assumed in the Mach acquisition
expires. A monthly housing allowance incident to Employee's
relocation to North Carolina will be paid for up to one year from
the date of this Agreement or until the Employee's Florida
residence is sold, whichever come sooner, equivalent to the
Employee's current monthly home mortgage payment amount, or
$4,030.72. Employee shall also be granted the following stock
options under the Employee Incentive Stock Option Plan of 1986:
October 11, 1997 - 5,000 shares at $12.25 per share, and
October 11, 1998 - 5,000 shares at $12.25 per share, and
October 11, 1999 - 5,000 shares at $12.25 per share, and
October 11, 2000 - 5,000 shares at $12.25 per share,
The foregoing options shall be exercisable in whole or in part
for a period of ten years from the date of grant and be
immediately vested to the Employee and exercisable b him whether
or not he is an employee at the time of the exercise of the
option.
5. Termination. This Agreement shall terminate immediately
upon termination for cause or the death or disability of
Employee. For purpose of this Agreement, the term "disability"
shall mean the inability of Employee, due to mental or physical
illness or injury, to perform his duty as an employee of Company,
and the term "termination for cause" shall mean termination of
Employee by the Board of Directors on account of his refusal to
perform duties assigned to him, or breach by Employee of the
covenant contained in Section 6 hereof. This Agreement shall
also terminate immediately upon any voluntary resignation of
Employee.
6. Non-Competition. During the term of this Agreement, and
for one year after termination of this Agreement, Employee shall
not, either directly or indirectly, either as an employee,
employer, consultant, agent, principal, partner, stockholder,
officer or director, engage or participate in any business in
competition with that of Company.
- 18 -
<PAGE>
7. Disclosure of Information. Employee agrees not at any
time (during or after the term of this Agreement) to disclose or
use, except in pursuit of the business of Company or of any
affiliate of Company, an Proprietary Information of Company, or
of any affiliate of Company, acquired during the term of this
Agreement. For purposes of this Agreement the phrase
(Proprietary Information: means all information which is known or
intended to be known only to Employee or employees of Company,
except in pursuit of the business of Company any document, record
or other information of company, or others in a confidential
relationship with Company, and relates to specific business
matters such as patents, patent applications, trade secrets,
secret processes, proprietary know-how, information relating the
Company's business, and identity of suppliers or customers or
accounting procedures of Company, or relates to other business of
Company, Employee agrees not to remove from the premises of
Company, except in pursuit of the business of company, or of any
affiliate of Company, any document, record or other information
of Company. Employee recognizes that all such documents, records
or other information, whether developed by Employee or by someone
else for company, are the exclusive property of company.
8. Proprietary Information of Others. Employee
acknowledges that from time to time Company may do business with
suppliers or customers who will supply Company with information
of a confidential nature, and that Company may have a contractual
obligation to preserve the confidential nature of any such
information. Employee agrees to treat any information received
from suppliers or customers as confidential, and as if it were
the Proprietary Information of Company, unless advised otherwise
by the Chief Executive Officer of Company.
9. Remedies. In addition to any other remedies which
Company may have by virtue of this Agreement, Employee agrees
that in the event a breach of the obligations of confidence under
this Agreement are threatened, Company shall be entitled to
obtain a temporary restraining order and preliminary injunction
against Employee to restrain any breach of confidence or covenant
not to compete under this Agreement.
10. Term; Renewal. This Agreement shall automatically be
renewed for successive terms of one (1) year at the expiration of
the term set forth in Section 1 hereof, unless either the Board
of Directors or Employee shall give written notice to the other
of its or his intention not to renew this Agreement at least
ninety (90) days prior to the expiration of such term or renewed
term.
11. Assignment. This Agreement shall inure to the benefit
of and shall be binding upon the successors and the assigns of
Company. since this Agreement is based upon the unique abilities
and personal confidence in Employee, he shall have no right to
assign this Agreement or any of the rights hereunder.
- 19 -
<PAGE>
12. Prior Contracts. Any prior contract or agreement
between Company and Employee regarding employment is hereby
cancelled and shall be of no further force and effect.
13. Severability. If any provision of this Agreement shall
be found invalid by any court of competent jurisdiction, such
findings shall not affect the validity of the other provisions
hereof and the invalid provisions shall be deemed to have been
severed herefrom.
14. Waiver of Breach. The waiver by company or Employee of
the breach of any provision of this Agreement by the other party
or the failure to exercise by company or Employee of any right
granted hereunder shall not operate or be construed as the waiver
of any subsequent breach by the other party not the waiver of the
right to exercise any such right.
15. Entire Agreement. This instrument contains the entire
agreement of the parties, and may be amended only by an agreement
in writing signed by the parties.
16. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and if
sent by certified mail to his residence, in the case of the
Employee, or to its principal office, in the case of the Company.
17. Governing Law. This Agreement is entered into and
executed in the State of North Carolina and shall be governed by
the laws of such state. In the event of any proceeding brought
to enforce the provisions of this Agreement, the prevailing party
shall be entitled to costs of suit and attorneys' fees, in
addition to other remedies available.
IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the day and year first above written.
FOUNTAIN POWERBOATS, INC. EMPLOYEE
/S/R.M. FOUNTAIN, JR. /S/GARY D. GARBRECHT
R.M. Fountain, Jr. Gary D. Garbrecht
Chairman, President, Chief
Executive Officer, and Chief
Operating Officer
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<PAGE>
Mach Exhibit 2.03
Subsidiaries and Investments
None
- 21 -
<PAGE>
Mach Exhibit 2.02(a)
Capitalization
Class Authorized Outstanding
Common 10,000 shares 5,465 shares
- 22 -
<PAGE>
Mach Exhibit 2.02(b)
Options and Warrants
None
- 23 -
<PAGE>
Mach Exhibit 2.05
Undisclosed Liabilities
None
- 24 -
<PAGE>
Mach Exhibit 2.07
Litigation
None
- 25 -
<PAGE>
Mach Exhibit 2.08
Title to Assets
None
- 26 -
<PAGE>
Mach Exhibit 2.09
Real Estate
None
- 27 -
<PAGE>
Mach Exhibit 2.12
Interested Transactions
None
- 28 -
<PAGE>
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (hereinafter referred to as
the "Agreement") is made this 31st day of December, 1996, by and
between GENERAL ELECTRIC CAPITAL CORPORATION, a corporation
organized and existing under the laws of New York (hereinafter
referred to as "Lender"), FOUNTAIN POWERBOATS, INC., a
corporation duly organized and existing under the laws of the
State of North Carolina (hereinafter referred to as "Borrower"),
FOUNTAIN POWERBOAT INDUSTRIES, INC., a Nevada corporation (the
"Parent Corporation"), and FOUNTAIN TRUCKING, INC., a North
Carolina corporation ("Trucking"), FOUNTAIN AVIATION, INC., a
North Carolina corporation ("Aviation"), FOUNTAIN UNLIMITED,
INC., a North Carolina corporation ("Unlimited"), FOUNTAIN
SPORTSWEAR, INC., a North Carolina corporation ("Sportswear"),
and FOUNTAIN POWER, INC. a North Carolina corporation ("Power").
(Trucking, Aviation, Unlimited, Sportswear and Power are
collectively referred to as the "Present Subsidiaries." The
Parent Corporation, the Present Subsidiaries, any other present
future "Consolidated Subsidiaries" (hereinafter defined) of the
Parent Corporation, and the Borrower are hereinafter referred to
as the "Fountain Corporations").
RECITALS
The Borrower has applied to the Lender for, and
the Lender has agreed to make, subject to the terms of this
Agreement, a loan in the principal amount of up to $10,000,000.00
("the Loan"), to be evidenced by the Borrower's Promissory Note
dated December 31, 1996. The Loan shall be secured by a first
and only lien on the Property (hereinafter defined) as well as
other security hereinafter described.
AGREEMENT
Section 1. Loan Purpose; Conditions Precedent
(a) Loan Purpose; Disbursement of Proceeds. The
proceeds of the Loan may be used only for the following purposes:
(i) To satisfy existing indebtedness of the
Borrower as described in Schedule 1(a)
attached hereto.
(ii) To acquire tangible personal property
(including, but not limited to, equipment,
engines and molds) in the name of the
Borrower.
(iii) To finance the construction and
equipping of additional buildings and
facilities to be located on the real property
owned by the Borrower and located in Beaufort
County, North Carolina and described in
Exhibit A attached hereto and incorporated
herein by reference (the "Property") on which
the Borrower's existing boat manufacturing
facility is located. By the Deed of Trust,
the Borrower has encumbered the Property as
additional security for repayment of the
Loan.
R#0202662.05
<PAGE>
Of the $10,000,000 available for disbursement
under the Loan, $7,500,000 is being disbursed in connection with
Loan closing to satisfy existing indebtedness of the Borrower.
Upon the Lender's receipt of the Borrower's written request for
disbursement (but only once a month and for no less than
$500,000), provided there has occurred no Event of Default
hereunder and provided there has been no materially adverse
change in the financial condition of the Borrower, the Parent
Corporation and its Consolidated Subsidiaries, the remaining loan
proceeds of $2,500,000 (the "Remaining Proceeds") shall be
available for any one or more of the purposes hereinabove
described until and including January 2, 1998 (the "Funding
Deadline Date"). The Borrower shall not be entitled to borrow
any portion of the Remaining Proceeds, and the Lender shall have
no obligation to lend such Remaining Proceeds, at any time after
the Funding Deadline Date.
Upon the request of the Borrower, and with the
prior written consent of the Lender, the Remaining Proceeds may
be used to acquire tangible personal property in the name of a
Subsidiary of the Borrower, provided such Subsidiary grants to
the Lender a security interest in such assets pursuant to
documentation acceptable to the Lender.
(b) Conditions Precedent to Initial and Future
Advances. The Lender shall not be obligated to make any
disbursement until receipt by the Lender of the following items,
all in form and substance satisfactory to the Lender and the
Lender's counsel in their sole discretion:
1.01 Promissory Note. The Promissory Note ("Note") dated of
even date with this Agreement, evidencing the Loan and duly
executed by the Borrower.
1.02 Deed of Trust, Assignment of Rents and Security
Agreement. The recorded Deed of Trust, Assignment of Rents and
Security Agreement ("Deed of Trust") in which the Borrower shall
grant to a trustee for the benefit of the Lender a deed of trust
on the Property and a security interest in fixtures and other
personalty located on the property, all securing the Note.
1.03 Assignment of Rents and Leases. The assignment of
Rents and Leases in which the Borrower shall assign to Lender all
existing and thereafter arising leases on the Property and the
rents and profits therefrom.
1.04 Title Insurance. A standard ALTA non-expiring
mortgagee policy from a company or companies approved by the
Lender, providing coverage for the full principal amount of the
Note which is secured by the Deed of Trust and containing no
title exceptions unless approved by the Lender and the Lender's
counsel.
1.05 Survey. A certified copy of a recent survey of the
Property prepared by a registered land surveyor or civil
engineer, in form an substance satisfactory to the Lender.
1.06 Flood Hazard Certification. Evidence satisfactory to
the Lender and Lender's counsel as to whether the Property is
located within a 100-year flood zone or flood insurance
satisfactory to the Lender.
1.07 Environmental Audit Report. A favorable "Phase 1"
unedited environmental audit covering the Property from an
independent environmental engineering firm satisfactory to the
- 2 -
R#0202662.05
<PAGE>
Lender which reflects that no hazardous waste, toxic substance,
or other pollutants have contaminated the Property or, if the
Property has been so contaminated, that it has been
satisfactorily cleaned up in accordance with all Environmental
Laws. The Lender shall be fully authorized to discuss all
aspects of the audit with the engineering firm.
1.08 Master Security Agreement. A Master Security Agreement
(the "Security Agreement") in which the Borrower shall grant to
the Lender a first lien and security interest in the Borrower's
personal property described therein (the "Collateral") securing
the Note. A favorable opinion is required from legal counsel
acceptable to the Lender regarding the priority of the Lender's
lien position.
1.09 UCC Financing Statements. Acknowledged copies of UCC
Financing Statement (UCC-1) duly filed in all jurisdictions
necessary, or in the opinion of the Lender desirable, to perfect
the security interests granted in the Security Agreement, and
certified copies of Requests For Information (UCC-11) identifying
all previous financing statements on record for the Borrower and
any predecessors in title for the five-year period predating the
date of this Loan Agreement from all jurisdictions indicating
that no security interest has previously been granted in any of
the collateral described in the Security Agreement unless prior
approval has been given by the Lender.
1.10 Corporate Resolution. A Corporate Resolution from the
Board of Directors of each of the Fountain Corporations
authorizing the execution, delivery, and performance of the Loan
Documents to which it is a party.
1.11 Certificate of Good Standing; Charter Documents. A
certification of the Secretary of State of the State of North
Carolina as to the good standing of the Borrower and the Parent
Corporation.
1.12 By-Laws. A copy of the By-Laws of the Borrower,
certified by the Secretary of the Borrower or the Parent
Corporation (as the case may be) as to their completeness and
accuracy.
1.13 Certificate of Incumbency. A certificate of the
Secretary of each of the Fountain Corporations certifying the
names and true signatures of the officers of each of the Fountain
Corporations authorized to sign the Loan Documents.
1.14 Opinion of Counsel. A favorable opinion of counsel for
the Borrower satisfactory to the Lender and Lender's counsel.
1.15 Assignment of Life Insurance Policy. An Assignment of
Life Insurance Policy on the life of Reginald M. Fountain, Jr. in
the amount of $1,000,000.00 in form and substance satisfactory to
the Lender.
1.16 Appraisal(s). Two (2) copies of an appraisal of the
estimated market value of the Property and the Collateral. The
appraisal must be addressed to the Lender and must conform to the
Uniform Standards of Professional Appraisal Practice ("USPAP")
adopted by the Appraisal Standards Board of the Appraisal
Foundation. Any deviation from the USPAP must be explained in
the appraisal.
- 3 -
R#0202662.05
<PAGE>
1.17 Insurance. Evidence that the following insurance is in
place:
(a) business income coverage in amounts and from an insurer
as described in the Deed of Trust.
(b) commercial general liability insurance in amounts and
as described in the Deed of Trust.
1.18 Guaranty. A Corporate Guaranty executed by the Parent
Corporation and the Present Subsidiaries (the "Guaranty").
1.19 Additional Documents. Receipt by the Lender of other
approvals, opinions, or documents as the Lender may reasonably
request.
Section 2. Representations and Warranties.
In order to induce the Lender to enter into this Agreement
and to make the Loan, each of the Fountain Corporations
represents and warrants to the Lender (which representations and
warranties shall survive the delivery of the documents mentioned
herein and the making of the Loan contemplated hereby and shall
be deemed to have been made at any time hereafter that Loan
proceeds are disbursed) as follows:
2.01 Financial Statements. The balance sheet of the Parent
Corporation and its Consolidated Subsidiaries (as defined in
Section 9 hereof) and the related Statements of Income and
Retained Earnings of the Parent Corporation and its Consolidated
Subsidiaries, the accompanying footnotes together with the
accountant's opinion thereon, and all other financial information
previously furnished to the Lender, are true and correct and
fairly reflect the financial condition of the Parent Corporation
and its Consolidated Subsidiaries as of the dates thereof,
including all contingent liability of every type, and the
financial condition of the Parent Corporation and its
Consolidated Subsidiaries as stated therein has not changed
materially and adversely since the dates thereof.
2.02 Capacity and Standing. Each Fountain Corporation is
duly organized and validly existing under the laws of the state
in which it is incorporated, is duly qualified and in good
standing in every other state in which the nature of its business
shall require such qualification and where the failure to qualify
would have a material adverse effect, and it is duly authorized
by its board of directors to make and perform its respective
obligations under the Loan Documents.
2.03 No Violation of Other Agreements. The execution by
each Fountain Corporation of any of the Loan Documents, and other
performance by each Fountain Corporation thereunder will not
violate any provision of its certificate of incorporation or
bylaws (as amended), or of any law, other agreement, indenture,
note, or other instrument binding upon such Fountain Corporation,
or create any lien, charge or encumbrances on the Property or the
Collateral (except for the lien created by the Deed of Trust and
the Security Agreement), or give cause for the acceleration of
any of the obligations of the such Fountain Corporation.
- 4 -
R#0202662.05
<PAGE>
2.04 Authority. All authority from and approval by any
governmental body, commission, or agency, whether federal, state,
or local necessary to the making, validity, or enforceability of
this Agreement or the other Loan Documents has been obtained.
2.05 Asset Ownership. The Fountain Corporations have good
and marketable title to all of the properties and assets
reflected on the balance sheets and financial statements of the
Parent Corporation and its Consolidated Subsidiaries supplied to
the Lender, and all such properties and assets are free and clear
of mortgages, deeds of trust, pledges, liens, and all other
encumbrances except as otherwise disclosed by such financial
statements. The only asset held by the Parent Corporation is the
stock of the Borrower. The only Subsidiaries of the Parent
Corporation are the Present Subsidiaries. None of the Present
Subsidiaries owns Receivables (as defined in the Security
Agreement), Inventory (as defined in the Security Agreement) or
Tangible Personal Property (as defined in the Security Agreement)
in its own name except as disclosed in Schedule 2.05 attached
hereto. All of the Receivables and Inventory disclosed in the
Parent Corporation's financial statements are owned by the
Borrower except for those described in Schedule 2.05.
2.06 Discharge of Liens and Taxes. Each Fountain
Corporation has filed, paid and or discharged all taxes or other
claims which may become a lien on its properties or assets,
excepting to the extent that such items are being appropriately
contested in good faith and for which an adequate reserve for the
payment thereof is being maintained.
2.07 Regulation U. None of the proceeds of the Loan made
pursuant to this Agreement shall be used directly or indirectly
for the purpose of purchasing or carrying any stock in violation
of any of the provisions of Regulation U of the Board of
Governors of the Federal Reserve System.
2.08 ERISA. Each employee benefit plan, as defined by the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained by any Fountain Corporation meets, as of
the date hereof, the minimum funding standards of ERISA, all
applicable requirements of ERISA and of the Internal Revenue Code
of 1986, as amended, and no "Reportable Event" nor "Prohibited
Transaction" (as defined by ERISA) has occurred with respect to
any such plan.
2.09 Litigation. Except as disclosed in Schedule 2.09
attached hereto, there is no pending or threatened action or
proceeding against or affecting the Fountain Corporations before
any court, commission, governmental agency, whether state or
federal, or arbitration which may materially adversely affect
such party's financial condition, operations, properties, or
business or the ability of such party to perform its obligations
under the Loan Documents.
2.10 Binding and Enforceable. Each of the Loan documents,
when executed, shall constitute valid and binding obligations of
the Fountain Corporations being a party thereto and are
enforceable in accordance with its terms, except as may be
limited by bankruptcy, insolvency, moratorium, or similar laws
affecting creditors' rights generally.
2.11 Insolvency. After giving effect to the execution and
delivery of the Loan Documents and the making of the Loan under
this Agreement, none of the Fountain Corporations will be
"insolvent," as defined in 101 of Title 11 of the United States
Code or Section 2 of the
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Uniform Fraudulent Transfer Act, or any other applicable state
law pertaining to fraudulent transfers, as each may be amended
from time to time, or be unable to pay its debts generally as
such debts become due, or have an unreasonably small capital to
engage in any business or transaction, whether current or
contemplated.
Section 3. Affirmative Covenants
Each of the Fountain Corporations covenants and agrees that
from the date hereof and until payment in full of the Loan and
performance of all obligations under the Loan Documents, it will:
3.01 Maintain Existence. Preserve and maintain its
existence and good standing in its state of organization, and
qualify and remain qualified as a foreign corporation, in each
jurisdiction in which such qualification is required and where
the failure to qualify would have a material adverse effect on
such Fountain Corporation. The foregoing covenant shall not
preclude mergers permitted under Section 5.03 hereof and shall
not preclude the dissolution of a corporation owning no assets or
whose assets would vest, as a result of such dissolution, in the
Borrower.
3.02 Maintain Records. Keep adequate records and books of
account, in which complete entries will be made in accordance
with GAAP, consistently applied , reflecting all financial
transactions of Fountain Corporations.
3.03 Maintain Properties. Maintain, keep and preserve all
of its properties (tangible and intangible) necessary or useful
in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
3.04 Conduct of Business. Continue to engage in an
efficient, prudent, and economical manner in a business of the
same general type as now conducted.
3.05 Maintain Insurance. Maintain insurance with
financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are
usually carried by companies engaged in the same or a similar
business, which insurance may provide for a reasonable
deductible. The Lender shall be named as loss payee on all
policies which apply to the Lender's collateral and additional
insured on all such insurance, and the Borrower shall deliver
certificates of insurance at closing evidencing such insurance.
All such insurance policies shall provide, and the certificate
shall state, that no policy will be terminated without 30 days
prior written notice to Lender.
3.06 Comply with Laws. Comply in all material respects with
all applicable laws, rules, regulations, and orders including,
without limitation, all Environmental Laws and pay before any
delinquency all taxes, assessments, and governmental charges
imposed upon the Borrower or upon its property.
Provide to the Lender a copy of any written notice of a
governmental authority received by such Fountain Corporation
which indicates that such Fountain Corporation has violated a
law, rule, regulation and order, including without limitation any
Environmental Law.
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3.07 Right of Inspection. Permit the officers and
authorized agents of the Lender, at any reasonable time, to
examine and make copies of the records and books of account of
such Fountain Corporation, and visit the properties of such
Fountain Corporation, and to discuss such matters with any
officers, directors and independent accountants of such Fountain
Corporation as the Lender deems necessary.
3.08 Financial Reports and Other Data.
(a) As soon as practicable and in any event within ninety
(90) days after the end of each fiscal year, deliver, or cause to
be delivered to the Lender an audited consolidated balance sheet
of the Parent Corporation and its Consolidated Subsidiaries and
related statements of income and retained earnings and cash flow
for such fiscal year, setting forth in each case in comparative
form corresponding figures for the preceding annual period, all
satisfactory to the Lender. All annual financial statements will
be consolidated, will be prepared in conformity with generally
accepted accounting principles and will be in a form satisfactory
to the Lender. In connection with the examination, the
independent certified public accountant will issue a letter
stating any and all of the terms of this Agreement that are being
violated or that there are no violations.
(b) Deliver to the Lender as soon as practicable and in any
event within forty-five (45) days following the end of each
fiscal quarter except for the last fiscal quarter of the Parent
Corporation's fiscal year an unaudited consolidated balance sheet
for the Parent Corporation and its Consolidated Subsidiaries and
related statements of income and retained earnings and cash flow,
in each case for the period from the beginning of the then
current fiscal year to the end of such quarter, all in reasonable
detail and certified by the chief financial officer of the Parent
Corporation to provide a fair presentation of the financial
condition of the Parent Corporation and its consolidated
subsidiaries, subject to normal year end audit adjustments.
(c) As soon as available each year, copies of all state and
federal tax returns filed by each of the Fountain Corporations.
(d) With reasonable promptness, deliver such additional
financial or other data as the Lender may reasonably request
regarding each Fountain Corporation's operations, business
affairs and financial condition. The Lender is hereby authorized
by each Fountain Corporation to deliver a copy of such
information made available by such corporation to any regulatory
authority having jurisdiction over the Lender.
(e) Deliver to the Lender, on a quarterly basis, at the
time quarterly financial statements are tendered, a Certificate
of Compliance prepared by the Parent Corporation's Chief
Financial Officer and certified as to accuracy by such officer of
the Parent Corporation and the Borrower (the "Certificate of
Compliance"). The Certificate of Compliance shall set forth the
Fountain Corporations' status with respect to their compliance
with the covenants and other default provisions contained in the
Loan Documents hereinafter delivered. Any default shall be
identified with particularity, and the Borrower shall also
identify proposed action to be taken by the Borrower or such
other Fountain Corporation with respect thereto.
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(f) Deliver to Lender at least once each calendar month an
itemized list of the Borrower's "Inventory" (as defined in the
Security Agreement) and "Receivables" (as defined in the Security
Agreement) (the "Monthly Assets Report"). The Monthly Assets
Report shall identify the names and addresses of all dealers to
whom Inventory is in transit. This Monthly Assets Report shall
also describe with particularity additional equipment, molds and
other Tangible Personal Property (as defined in the Security
Agreement) acquired by the Borrower within the prior calendar
month and identify any Tangible Personal Property disposed of
within the prior calendar month and shall identify and federal
trademark registration applications and patent applications filed
during the preceding calendar month. The Borrower shall provide
serial numbers for any Tangible Personal Property having a value
of $50,000 individually and, if requested by the Lender, shall
identify the Lender's security interest in such property by
tagging such property with a written disclosure of such security
interest. The Borrower shall at all times maintain an aggregate
value of Inventory (as defined in the Security Agreement) and
Receivables (as defined in the Security Agreement) of at least
Five Million Five Hundred Thousand Dollars ($5,500,000).
Compliance with this covenant shall be established once each
month through the Monthly Assets Report and more frequently, upon
request of the Lender.
3.09 Knowledge of Certain Events. Upon an officer of any of
the Fountain Corporations obtaining knowledge of the occurrence
of any Event of Default hereunder, cause to be delivered to the
Lender, within fifteen (15) business days of such officer
obtaining such knowledge, an officer's certificate specifying the
nature thereof, the period of existence thereof and what action
is proposed to be taken with respect thereto.
3.10 Other Notices. Notify the Lender in writing within
thirty (30) business days of the occurrence of any of the
following with respect to such Fountain Corporation:
(a) the services upon such Fountain Corporation of any
action, suit or proceeding at law or in equity making a claim in
excess of $100,000;
(b) any event or condition which shall constitute an event
of default under any other agreement for borrowed money or any
known or potential material change in this or any other
contractual agreement;
(c) the loss of any patents, licenses, franchises,
trademarks, trademark rights, trade names, trade name rights and
copyrights material to its business;
(d) any event or condition which shall cause any
agreements, reports, schedules, certificates or instruments
heretofore or simultaneously with execution of this Agreement
delivered to the Lender by or on behalf of the Fountain
Corporations to become false or misleading in any material
respect with respect to this transaction;
(e) a Fountain Corporation or any other Person causes or
permits Hazardous Materials to be placed, held, located or
disposed of on, under or at real property owned, leased or
otherwise used by a Fountain Corporation or any part thereof in
violation of Environmental Laws (specifically including real
property that is not encumbered by the Deed of Trust).
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3.11 Further Assurances. Upon request of the Lender, duly
execute and deliver or cause to be duly executed and delivered to
the Lender such further instruments and do and cause to be done
such further acts that may be reasonably necessary or proper in
the opinion of the Lender to carry out more effectively the
provisions and purposes of the Loan Documents.
3.12 ERISA. Comply with all requirements of ERISA
applicable to it (including the payment of all obligations and
liabilities arising under ERISA) and furnish to the Lender as
soon as possible and in any event within 30 days after it or any
duly appointed administrator of any employee pension benefit plan
(as defined in ERISA) knows or has reason to know that a
Reportable Event (as defined in ERISA) with respect to any such
plan has occurred which is likely to result in a penalty being
imposed on the plan, a statement of the chief financial officer
of the Parent Corporation describing in reasonable detail such
Reportable Event and any action proposed to be taken with respect
thereto, together with a copy of the notice of such Reportable
Event given to the Pension Benefit Guaranty Corporation or a
statement that such notice will be filed with annual report to
the United States Department of Labor with respect to such plan
if such filing has been authorized.
3.13 Payment of Obligations. Pay when due (including any
applicable grace period) all of its obligations for indebtedness
for money borrowed, except where the same may be contested in
good faith and appropriate reserves for the accrual of the same
are maintained in amounts in accordance with GAAP.
3.14 Subsidiaries. In the event that any corporation or
other entity becomes a Subsidiary (directly or indirectly) of the
Parent Corporation, the Parent Corporation shall cause such
Subsidiary to guarantee repayment of the Note pursuant to a
guaranty in form and substance identical to the Guaranty and to
sign documentation, in form and substance satisfactory to the
Lender, agreeing to abide by the covenants and terms of the Loan
Agreement.
3.15 Assets. Each Monthly Assets Report shall disclose all
assets held in the name of the Parent Corporation and its
Consolidated Subsidiaries other than the Borrower. The value of
Tangible Personal Property, Inventory, or Receivables for any
Fountain Corporation other than the Borrower shall not exceed at
any one time $2,000,000.
If requested by the Lender, each of the Fountain
Corporations shall execute such documentation as the Lender deems
necessary so as to grant a first-priority security interest in
any asset held by such Fountain Corporation.
Section 4. Financial Covenants.
Unless otherwise specified herein, all terms of an
accounting character used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be
prepared in accordance with GAAP, applied on a basis consistent
(except for changes concurred in by the Parent Corporation's
independent public accounts or otherwise required by a change in
GAAP) with the most recent audited consolidated financial
statements of the Parent Corporation delivered to the Lender,
unless with respect to any such change concurred in by the Parent
Corporation's independent public accountants or required by GAAP,
in determining compliance with any of the provisions of this
Agreement or
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any of the other Loan Documents: (i) the Borrower shall have
objected to determining such compliance on such basis at the time
of delivery of such financial statements, or (ii) the Lender
shall so object in writing within 30 days after the delivery of
such financial statements, in either of which events such
calculations shall be made on a basis consistent with those used
in the preparation of the latest financial statements as to which
such objection shall not have been made.
Each of the Fountain Corporations covenants and agrees that
from the date hereof until payment in full of all indebtedness
and the performance of all obligations under the Loan Documents,
the Parent Corporation and its Consolidated Subsidiaries shall at
all times maintain the following financial position and ratios.
4.01 Current Ratio. A ratio of Consolidated Current Assets
to Consolidated Current Liabilities of not less than 1.0 to 1.0.
4.02 Tangible Net Worth. A minimum Consolidated Tangible
Net Worth of not less than $3,000,000.00 at all times.
4.03 Debt to Worth. A ratio of Consolidated Liabilities to
Consolidated Tangible Net Worth of not greater than 1.8 to 1.
4.04 Cash Flow Margin. The ratio of (I) Net Income after
taxes plus depreciation plus amortization to (ii) all long-term
debt payments (excluding interest) due within the next twelve
(12) months must exceed 2.0 to 1.0 annually. Compliance with
this ratio will be calculated on a rolling four quarter basis,
determined at the end of each fiscal quarter of the Parent
Corporation.
4.05 Capital Expenditures Limitation. Expenditures for
fixed assets in any fiscal year shall not exceed in the aggregate
for all Fountain Corporations the sum of $500,000 unless such
assets are subject to Lender's first lien position.
Section 5. Negative Covenants.
Each of the Fountain Corporations covenants and agrees that
from the date hereof and until payment in full of the Loan and
performance of all obligations under the Loan Documents, it shall
not, without the prior written consent of the Lender:
5.01 Liens. Create, incur, assume, or suffer to exist any
Lien (as defined in Section 9 hereof) upon or with respect to any
of its properties, except:
(a) Liens in favor of the Lender;
(b) Liens for taxes not yet due and payable or
otherwise being contested in good faith an for
which appropriate reserves are maintained;
(c) Other Liens imposed by law not yet due and
payable, or otherwise being contested in good
faith and for which appropriate reserves are
maintained;
(d) Purchase money Liens on any property hereafter
acquired (expressly excluding, however, Liens with
respect to any property acquired in replacement of
or
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substitution for property on which the Lender has
a security interest), provided that such purchase-
money Lien shall attach only to the property so
acquired.
5.02 Debt. Create, incur, assume, or suffer to exist any
Debt (as defined in Section 9 hereof), except:
(a) Debt to the Lender;
(b) Debt presently outstanding and shown on the most recent
financial statements of the Borrower submitted to the
Lender;
(c) Accounts payable to trade creditors incurred in the
ordinary course of business;
(d) Debt secured by purchase money Liens as outlined above
in Section 5.01(d);
(e) Additional Debt (including, but not limited to, Debt
owed to any Related Party) not to exceed $500,000.00 in
the aggregate.
5.03 Mergers. Enter into a merger or consolidate with or
sell, assign, lease, or otherwise dispose of all or substantially
all of its assets to any person or entity except for the merger
of a Consolidated Subsidiary into the Borrower where the Borrower
is the surviving corporation or a dissolution of a corporation
owing no assets or whose assets would vest, as a result of such
dissolution, in the Borrower.
5.04 Leases. Create, incur, assume, or suffer to exist any
leases, except:
(a) Leases presently outstanding and showing on the most
recent financial statement submitted to the Lender;
(b) Operating Leases for machinery and equipment which do
not in the aggregate require payments in excess of
$100,000 in any fiscal year of the Parent Corporation.
5.05 Dividends. Declare or pay any Dividends in excess of
Net Income plus depreciation less current maturities of
indebtedness in any fiscal year of the Parent Corporation.
5.06 Guaranties. Execute any Guarantee (as defined in
Section 9 hereof) or assume, Guarantee (as defined in Section 9
hereof), endorse, or otherwise be or become directly or
contingently liable for obligations of any person, or agree to
repurchase any Inventory sold to a third party except (i)
Guarantees by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of
business, (ii) Guarantees of repayment of interest accruing under
floor-plan-financed boats constituting Inventory; and (iii)
repurchase obligations arising under direct repurchase agreements
pursuant to which the Borrower agrees to repurchase boats
constituting Inventory from floor plan lenders. The aggregate
amount of all such Guarantees specified under (i), (ii) and
(iii), however, shall not exceed 200% of the net sales of the
Parent Corporation and its Consolidated Subsidiaries for the
preceding fiscal quarter.
5.07 Sale of Assets. Sell, lease, or otherwise dispose of
any of its assets or properties (exclusive of Inventory permitted
to be sold pursuant to the terms of the Security Agreement) in
excess of $200,000 in the aggregate for all Fountain Corporations
in any fiscal year of the Parent Corporation without the prior
written consent of the Lender.
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5.08 Transfer of Ownership. Transfer or sell more than 10%
of the total number of shares of stock in any Fountain
Corporation (other than the Parent Corporation) prior to the
repayment in full of the Note.
5.09 Related Party Contracts. No Fountain Corporation shall
enter into any contract (specifically including any lease or
contract for services) with any Related Party (as hereinafter
defined) without the Lender's prior review and approval of such
contract, not to be unreasonably withheld or delayed.
Section 6. Hazardous Materials and Environmental
Compliance.
6.01 Investigation. Each Fountain Corporation hereby
certifies that it has exercised due diligence to ascertain
whether its real property, including without limitation the
Property, is or has been affected by the presence of asbestos,
oil or oil products, urea formaldehyde, PCBs, hazardous or
nuclear waste, toxic chemicals and substances, or other Hazardous
Materials. Each Fountain Corporation represents and warrants
that except as disclosed in the audited financial statements for
the period ending June 30, 1996, or as disclosed in Schedule 6.01
attached hereto, there are no such materials contaminating its
real property, nor have any such materials been improperly stored
or improperly disposed of on the Property. Each Fountain
Corporation hereby agrees that it shall not permit any such
contamination as long as any indebtedness or obligations to the
Lender under the Loan Documents remain unpaid or unfulfilled. In
addition, no Fountain Corporation has or uses any underground
storage tanks on its real property which are not registered with
appropriate federal and/or state agencies and which are not
properly equipped and maintained in accordance with all
Environmental Laws. If requested by the Lender, each Fountain
Corporation shall provide the Lender with all necessary and
reasonable assistance required for purposes of determining the
existence of Hazardous Materials on real property owned by it,
including the Property, including allowing the Lender access to
such property, and access to such corporation's employees having
knowledge of, and to files and records within such corporation's
control relating to the existence, storage or discharge of
Hazardous Materials on such real property.
6.02 Compliance. Each Fountain Corporation agrees to comply
with all applicable Environmental Laws, including, without
limitation, all those relating to Hazardous Materials. Each
Fountain Corporation further agrees to provide the Lender, and
all appropriate federal and state authorities, with immediate
notice in writing of any hazardous or toxic materials released on
any property owned by it, including the Property, and to pursue
diligently to completion all appropriate and/or required remedial
action in the event of such release.
6.03 Remedial Action. The Lender shall have the right, but
not the obligation, to undertake all or any part of such remedial
action in the event of a release of hazardous or toxic materials
on the Property and to add any expenditures so made to the
principal indebtedness secured by the Deed of Trust. The
Borrower agrees to indemnify and hold the Lender harmless from
any and all loss or liability arising out of any violation of the
representations, covenants and obligations contained in this
Section 6, or resulting from the recording of the Deed of Trust.
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Section 7. Events Default.
Each of the following shall be Events of Default hereunder:
7.01 The failure to make payment of any installment of
principal or interest on the Note when due or payable after the
passage of any applicable cure period set out in the Note.
7.02 Any representation or warranty made in the Loan
Documents shall prove to be false or misleading in any material
respect.
7.03 Any report, certificate, financial statement or other
document furnished prior to the execution of or pursuant to the
terms of this Agreement shall prove to be false or misleading in
any material respect.
7.04 Any Fountain Corporation shall default in the payment
of any other obligation for money borrowed when due or in the
performance of any obligation incurred in connection with such
money borrowed. Notwithstanding the foregoing, it shall not
constitute an Event of Default hereunder if such default is with
respect to indebtedness of less than $25,000 individually and
$50,000 in the aggregate for all indebtedness of all Fountain
Corporations.
7.05 The breach of any covenant, condition, or agreement
made by any Fountain Corporation under any Loan Document after
the passage of any applicable cure period set out in such Loan
Document.
7.06 Except as expressly permitted herein, liquidation or
dissolution of any Fountain Corporation, or suspension of the
business of any Fountain Corporation or filing by any Fountain
Corporation of a voluntary petition in bankruptcy or a voluntary
petition or an answer seeking reorganization, arrangement,
readjustment of its debts or for any other relief under the
United States Bankruptcy Code, as amended, or under any other
insolvency act of law, state or federal, now or hereafter
existing, or any other action of any Fountain Corporation
indicating its consent to, approval of, or acquiescence in any
petition or proceedings; the application by any Fountain
Corporation for, or the appointment by consent or acquiescence
of, a receiver, a trustee or a custodian of such Fountain
Corporation, or an assignment for the benefit of creditors, the
inability of such Fountain Corporation or the admission by such
Fountain Corporation in writing of its inability to pay its debts
as they mature.
7.07 Filing of an involuntary petition against any Fountain
Corporation in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts or for any other relief under the
United States Bankruptcy Code, as amended, or under any other
insolvency act or law, state or federal, now or hereafter
existing; or the involuntary appointment of a receiver, a trustee
or a custodian of any Fountain Corporation or for all or a
substantial part of its property; the issuance of a warrant of
attachment, execution or similar process against any substantial
part of the property of any Fountain Corporation and the
continuance of any of the events referred to in this Section 7.07
for thirty (30) days undismissed or undischarged.
7.08 Final judgment for the payment of money shall be
rendered against the Borrower or any Fountain Corporation which
is in excess of $10,000 individually and which shall remain
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undischarged for a period of 30 days unless such judgment or
execution thereon be effectively stayed under the laws of the
jurisdiction in which such judgment was rendered.
7.09 The occurrence of an Event of Default under the
Guaranty or any guaranty hereafter delivered.
7.10 Should any lien or security interest granted to the
Lender to secure payment of the Note terminate, fail for any
reason to have the priority believed by the Lender on the date
granted, or become unperfected for any reason.
Section 8. Remedies Upon Default.
Upon the occurrence of any Event of Default, the Lender may
at any time thereafter, at its option, take any or all of the
following actions at the same or at different times:
8.01 Declare the balance of the Note to be immediately due
an payable, both as to principal and interest, without
presentment, demand, protest, or notice of any kind, all of which
are hereby expressly waived by each of the Fountain Corporations,
and such balance shall accrue interest at the Default Rate (as
specified in the Note).
8.02 Take immediate possession of and foreclosure upon any
or all collateral including real and personal property which may
be granted to the Lender as security for the Loan and obligations
of the Borrower under the Loan Documents.
8.03 Exercise such other rights and remedies as the Lender
may be provided in the Loan Documents, as a secured party under
the North Carolina Uniform Commercial Code, or as otherwise
provided by law.
8.04 Any obligation of the Lender to advance funds under the
Note(s) and all other obligations (if any) of the Lender shall
immediately cease and terminate unless and until Lender shall
reinstate such obligation in writing.
8.05 Institute any action against the Borrower to collect on
sums due under the Note and institute any action against any one
or more of the Fountain Corporations that have executed the
Guaranty or any subsequent guaranty.
8.06 Take any other action permitted to be taken as
specified in the Loan Documents upon the occurrence of an Event
of Default and take any other action permitted to be taken and
available at law or in equity.
Section 9. Miscellaneous Provisions.
9.01 Definitions.
(a) "Consolidated Current Assets" and "Consolidated
Current Liabilities" mean, at any time, all assets or
liabilities, respectively, of the parent Corporation and its
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Consolidated Subsidiaries that, in accordance with GAAP, should
be classified as current assets or current liabilities,
respectively, on a consolidated balance sheet of the Parent
Corporation.
(b) "Consolidated Liabilities" means the sum of (i)
all liabilities that, in accordance with GAAP, should be
classified as liabilities on a consolidated balance sheet of
Parent Corporation, and (ii) to the extent not included in clause
(i) of this definition, all redeemable preferred stock.
(c) "Consolidated Tangible Net Worth" means, at any
time, stockholders' equity, less the sum of the value, as set
forth or reflected on the most recent consolidated balance sheet
of the Parent Corporation, prepared in accordance with GAAP, of
(A) Any surplus resulting from any write-up
of assets subsequent to June 30, 1996;
(B) All assets which would be treated as
intangible assets for balance sheet presentation
purposes under GAAP, including without limitation
goodwill (whether representing the excess of cost over
book value of assets acquired, or otherwise),
trademarks, tradenames, copyrights, patents and
technologies, and unamortized debt discount and
expenses.
(C) To the extent not included in (B) of
this definition, any, amount at which shares of capital
stock of the Parent Corporation appear as an asset on
the consolidated balance sheet of the Parent
Corporation;
(D) Loans or advances to stockholders,
directors, officers or employees; and
(E) To the extent not included in (B) of
this definition, deferred expenses.
(d) "Consolidated Subsidiary" means at any date any
Subsidiary or any other entity the accounts of which, in
accordance with GAAP, would be consolidated with those of the
Parent Corporation in its consolidated financial statements as of
such date. "Subsidiary" means any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time
directly or indirectly owned by the Parent Corporation.
(e) "Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all
obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable
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arising in the ordinary course of business, (iv) all obligations
of such Person as lessee under capital leases, (v) all
obligations of such Person to reimburse any bank or other Person
in respect of amounts payable under a banker's acceptance, (vi)
all redeemable preferred stock of such Person (in the event such
Person is a corporation), (vii) all obligations (absolute or
contingent) of such Person to reimburse any bank or other Person
in respect of amounts paid under a letter of credit or similar
instrument, (viii) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such
Person, and (ix) all Debt of others Guaranteed by such Person.
(f) "Default Rate" shall have the meaning given such
term in the Note.
(g) "Dividends" means for any period the sum of all
dividends paid or declared during such period in respect to any
capital stock and redeemable preferred stock (other than
dividends paid or payable in the form of additional capital
stock).
(h) "Environmental Laws" shall mean all federal and
state laws, rules and regulations which affect or may affect any
real property, including Property, including without limitation
the Comprehensive Environmental Response Compensation and
Liability Act (42 U.S.C. Section 9601 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.),
the Federal Water Pollution Control Act (33 U.S.C. Section 1251
et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.),
the Sedimentation Pollution Control Act (N.C.G.S. Section 113A-5
et seq.), the Hazardous Chemicals Right to Know Act (N.C.G.S.
Section 95-173 et seq.), the Oil Pollution and Hazardous
Substances Control Act (N.C.G.S. Section 143-215.75 et seq.), the
North Carolina Solid Waste Management Act (N.C.G.S. Section 130A-
290 et seq.), and the Coastal Area Management Act (N.C.G.S.
Section 113A-100 et seq.), as such laws, rules or regulations
have been amended or may be amended.
(i) "GAAP" shall mean generally accepted accounting
principles, applied on a consistent basis.
(j) "Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other obligation of any other Person
and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or
services, to provide collateral security , to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the
obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in
whole or in part), provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
- 16 -
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<PAGE>
(k) "Hazardous Materials" means and includes any
hazardous, toxic or dangerous waste, substance or material
(including without limitation any materials containing asbestos)
defined as such in (or for purposes of) any Environmental Laws.
(l) "Lien" means, with respect to any asset, any
mortgage, deed to secure debt, deed of trust, lien, pledge,
charge, security interest, security title, preferential
arrangement which has the practical effect of constituting a
security interest or encumbrance, servitude or encumbrance of any
kind in respect of such asset to secure or assure payment of a
Debt or a Guarantee, whether by consensual agreement or by
operation of statute or other law, or by any agreement,
contingent or otherwise, to provide any of the foregoing. For
the purposes of this Agreement, the Parent Corporation or any
Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
(m) "Loan Documents" shall mean this Agreement, the
Note, the Deed of Trust, the Security Agreement, all UCC-1
Financing Statements, the Guaranty, the Assignment of Rents, the
Assignment of Life Insurance Agreement, any additional guaranty
agreements hereafter executed, and all other documents,
certificates and instruments executed in connection therewith,
and all renewals, extensions, modifications, substitutions, and
replacements thereto and therefor.
(n) "Net Income" means, as applied to any Person for
any period, the aggregate amount of net income of such Person,
after taxes, for such period, as determined in accordance with
GAAP.
(o) "Person" shall mean an individual, partnership,
corporation, limited liability company, trust, incorporated
organization, association, joint venture, or a government agency
or political subdivision thereof.
(p) "Related Party" has the meaning given to such term
in the Internal Revenue Code.
9.02 Non-Impairment. If any one or more provisions
contained in the Loan Documents shall be held invalid, illegal,
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained therein
shall not in any way be affected or impaired thereby and shall
otherwise remain in full force and effect.
9.03 Applicable Law. This Agreement shall be construed
in accordance with and governed by the laws of the State of North
Carolina.
9.04 Waiver. Neither the failure or any delay on the
part of the Lender in exercising any right, power or privilege
granted in the Loan Documents shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any
other or further exercise of any other right, power or privilege
which may be provided in any Loan Document or provided by law.
- 17 -
R#0202662.05
<PAGE>
9.05 Modification. No modification, amendment or
waiver of any provisions of any of the Loan Documents shall be
effective unless in writing and signed by the parties thereto.
9.06 Renewal/Modification. If the Lender elects to
modify/renew this Agreement, the Note or other Loan Documents,
the Lender reserves the right to assess a fee in consideration
for such modification/renewal.
9.07 Stamps and Fees. The Borrower shall pay all
federal or state stamps, taxes, or other fees, or changes, if any
are payable or are determined to be payable by reason of the
execution, delivery or issuance of the Loan Documents or any
security granted to the Lender (but specifically excluding any
tax on income owed by the Lender as a result of income generated
by the loan evidenced by this Agreement); and the Borrower agrees
to indemnify and hold harmless the Lender against any and all
liability in respect thereof.
9.08 Attorneys' Fees. In the event the Borrower shall
default in any of its obligations to Lender and the Lender
believes it necessary to employ an attorney to assist in the
enforcement or collection of the indebtedness of the Borrower to
the Lender, to enforce the terms and provisions of the Loan
Documents or in the event the Lender voluntarily or otherwise
should become a party to any suit or legal proceeding relating to
its obligations hereunder (including a proceeding conducted under
the United States Bankruptcy Code), the Borrower agrees to pay
the reasonable attorneys' fees of the Lender and all related
costs that may be reasonably incurred by the Lender. The
Borrower shall be liable for such attorneys' fees and costs
whether or not any suit or proceeding commences. Any attorneys'
fees, however, shall be calculated on the basis of such
attorneys' standard hourly billing rate for time in fact
incurred, without regard to any statutory presumption.
9.09 Lender Making Required Payments. In the event any
Fountain Corporation shall fail to maintain insurance, pay taxes
or assessments, costs and expenses which such Fountain
Corporation is, under any of the terms hereof or of any Loan
Document, required to pay, or shall fail to keep any of the
properties and assets constituting collateral free from new
security interests, liens, or encumbrances, except as permitted
herein, the Lender may at its election make expenditures for any
or all such purposes and the amounts expended together with
interest thereon at the Default Rate, shall become immediately
due and payable to the Lender, and shall have the benefit of and
be secured by the Collateral to the extent permitted by law. The
Lender shall be under no duty or obligation whatever with respect
to any of the foregoing expenditures.
9.10 Loan Agreement Controls. In the event of any
inconsistency between the terms of the Loan Documents (other than
this Agreement) and this Agreement, the terms of this Agreement
shall control, except in the case of the Note (which shall be
controlling in the event of a conflict with this Agreement).
9.11 Notices. All notices, requests or other
communications provided for or permitted to be given pursuant to
the Loan Agreement, the Deed of Trust, the Note or any other Loan
Document (herein called a "notice") must be in writing (which
includes by telephonic facsimile transmission) and shall be
served by personal delivery or by depositing in the United States
of America mail, postage prepaid, registered or certified, return
receipt requested, and addressed to the addresses set forth
below. All notices shall be effective upon personal delivery or
on the third (3rd) day after being deposited in the
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<PAGE>
United States mail. Personal delivery may be accomplished
through the use of a reputable commercial courier or air freight
service or through the use of a telephone facsimile transmitter
(telecopier). Rejection or other refusal to accept or the
inability to deliver because of changed address of which no
notice was given shall be deemed to be receipt of the notice
sent. A notice shall not be ineffective solely because a non-
party to be copied on a notice, as indicated below, did not
receive such copy. By giving at least fifteen (15) days' written
notice thereof, any party hereto shall have the right to specify
as its address any other address in the United States of America.
Each notice given by telecopy shall be deemed given on the date
shown on the sender's copy thereof bearing the proper "answer
back code" for the telecopy number to which the notice is sent,
provided such telecopy number is the correct number of the
receiving party at the time such notice is sent.
The Borrower:
Fountain Powerboats, Inc.
Whichards Beach Road
P.O. Drawer 457
Washington, North Carolina 27889
Attn: Reginald M. Fountain, Jr.
Telecopy: (919) 975-6793
The Lender:
General Electric Capital Corporation
6100 Fairview Road Suite 1450
Charlotte, North Carolina 28210
Attention: Waller Blackwell
Telecopy: (704) 554-0726
9.12 Consent to Jurisdiction. Each Fountain
Corporation hereby irrevocably agrees that any legal action or
proceeding arising out of or relating to this Agreement or the
other Loan Documents may be instituted in the Superior Court in
Mecklenburg County, North Carolina, or the United States District
Court for the Western District of North Carolina or in such other
appropriate court and venue as the Lender may choose at its sole
discretion Each Fountain Corporation consents to the
jurisdiction of such courts and waives any objection relating to
the basis for personal or in rem jurisdiction or to venue which
such Fountain Corporation may now or hereafter have in any such
legal action or proceedings.
9.13 Arbitration. Any controversy or claim arising out
of or relating to this Loan Agreement shall be determined by
arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. The number of
arbitrators shall be three. One arbitrator shall be appointed by
each of the parties and the third arbitrator, who shall serve as
chairman of the tribunal, shall be appointed by the American
Arbitration Association. The place of arbitration shall be
Charlotte, North Carolina. Any arbitral award arising from any
arbitration pursuant to this paragraph shall be final and binding
upon all parties hereto.
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R#0202662.05
<PAGE>
9.14 Counterparts. This Agreement may be executed by
one or more parties on any number of separate counterparts and
all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
9.15 Entire Agreement. The Loan Documents embody the
entire agreement among the parties hereto with respect to the
Loan, and there are no oral or parol agreements existing between
the Lender and the Fountain Corporations with respect to the Loan
which is not expressly set forth in the Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the date first above
written.
BORROWER:
ATTEST: FOUNTAIN POWERBOATS, INC., a North Carolina
corporation
/s/Blanche C. Williams By: /s/Reginanld M. Fountain, Jr.
_______ Secretary ________ President
[CORPORATE SEAL]
LENDER:
ATTEST: GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
/s/Kerry S. Thomas By: /s/Waller T. Blackwell
_______ Secretary ________ Region Credit Analyst
[CORPORATE SEAL]
PARENT CORPORATION:
ATTEST: FOUNTAIN POWERBOAT INDUSTRIES, INC.
a Nevada corporation
/s/Blanche C. Williams By: Reginald M. Fountain, Jr.
_______ Secretary ________ President
[CORPORATE SEAL]
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R#0202662.05
<PAGE>
PRESENT SUBSIDIARIES:
ATTEST: FOUNTAIN TRUCKING, INC.
a North Carolina corporation
/s/Blanche C. Williams By: /s/Reginald M. Fountain,Jr.
_______ Secretary ________ President
[CORPORATE SEAL]
ATTEST: FOUNTAIN AVIATION, INC.
a North Carolina corporation
/s/Blanche C. Williams By: /s/Reginald M. Fountain, Jr.
_______ Secretary ________ President
[CORPORATE SEAL]
ATTEST: FOUNTAIN UNLIMITED, INC.
a North Carolina corporation
/s/Blanche C. Williams By: /s/Reginald M. Fountain, Jr.
_______ Secretary ________ President
[CORPORATE SEAL]
ATTEST: FOUNTAIN POWER, INC.
a North Carolina corporation
/s/Blanche C. Williams By: /s/Reginald M. Fountain, Jr.
_______ Secretary ________ President
[CORPORATE SEAL]
- 21 -
R#0202622.05
<PAGE>
ATTEST: FOUNTAIN SPORTSWEAR, INC.
a North Carolina corporation
/s/Blanche C. Williams By: /s/Reginald M. Fountain, Jr.
_______ Secretary ________ President
[CORPORATE SEAL]
- 22 -
R#0202662.05
<PAGE>
SCHEDULE 1(a)
FOUNTAIN POWERBOATS, INC.
SCHEDULE OF DEBTS TO BE PAID OFF FROM PROCEEDS
AS OF DECEMBER 31, 1996
1. MetLife Capital Corporation
Bellevue, Washington
Reference: Fountain Powerboats, Inc.
Loan number 2046493-001
Pay-off Amount: $5,316,563.15
2. Deutsche Financial Services
Troy Michigan
Reference: Fountain Powerboats, Inc.
Loan number 90475
Pay-off Amount: $1,234,702.96
3. General Electric Capital Corporation
Charlotte, NC
Reference: Fountain Powerboats, Inc.
Loan number 4060713-001
Pay-off Amounts: $
4. Branch Bank & Trust Leasing Corporation
Charlotte, NC
Reference: Fountain Powerboats, Inc.
Loan number 3423449-001
Pay-off Amount: $54,287.30
Loan number 3423449-002
Pay-off Amount: $4,114.40
Loan number 3423449-003
Pay-off Amount: $60,342.53
5. Waster Industries, Inc.
Raleigh, NC
Reference: Fountain Powerboats, Inc.
Loan number 019-259565
Pay-off Amount: $9,860.00
6. Toyota Acceptance Corporation
Atlanta, GA
Reference: Fountain Powerboats
Loan number 01023303300600064319
Pay-off Amount: $4,657.18
<PAGE>
Schedule 2.05
Receivables, Inventory or Tangible Personal Property
Owned by Subsidiaries
As of November 30, 1996
A. Fountain Aviation, Inc. - Asset Value $ 0
B. Fountain Sportswear, Inc. - Asset Value $ 181,129.00
C. Fountain Trucking, Inc. - Asset Value $ 67,287.00
D. Fountain Unlimited, Inc. - Asset Value $ 0
E. Fountain Power, Inc. - Asset Value $ 1,709,967.32
<PAGE>
Schedule 2.09
Litigation
1. Environmental Matters - Fountain was notified by the United
State Environmental Protection Agency ("EPA") and the North
Carolina Department of Environment, Health and Natural
Resources ("NCDEHNR") that it has been identified as a
potentially responsible party ("PRP") and may incur, or may
have incurred, liability for the remediation of
contamination at the Spectron/Galaxy Waste Disposal Site
located in Elkton, Maryland, and the Seaboard Disposal Site,
located in High Point, North Carolina, also referred to as
the Jamestown, North Carolina site, respectively, resulting
from the disposal of hazardous substances at those sites by
a third party contractor. Fountain has been informed that
the EPA and NCDEHNR ultimately may identify a total of 1,000
to 2,000, or more, PRP's with respect to each site.
Fountain believes that the amounts of hazardous substances
generated by Fountain, which were disposed of at both sites,
are minimal in relation to the total amount of hazardous
substances disposed of by all PRP's at the sites. At
present, the environmental conditions at the sites and the
cost of remediation, to the best of Fountain's knowledge,
have not been determined fully by the EPA and NCDEHNR,
respectively, and Fountain is not able to determine at this
time the amount of any potential liability it may ultimately
have in connection with remediation at either site. Without
any acknowledgment or admission of liability, Fountain has
made payments as a nonperforming cash-out participant in an
EPA-supervised response and removal program at the
Spectron/Galaxy Site, and in a NCDEHNR-supervised removal
and preliminary assessment program at the Seaboard Disposal
Site. A cash-out proposal for the next phase of the project
is expected to be forthcoming from the PRP Group for the
Spectron/Galaxy Site. According to the PRP Group,
Fountain's full cash-out amount is estimated too be
approximately $10,000 for the Spectron/Galaxy Site in
Elkton, Maryland, based on an estimated 3,304 gallons of
waste disposed of at that site by Fountain. A cash-out
proposal in the approximate amount of $66,000 based on an
estimated 19,245 gallons of waste is anticipated from the
PRP Group for the Seaboard Disposal Site in North Carolina
following completion of a Remedial Investigation and
Feasibility Study in early 1998, according to the PRP Group
administrator. Any cash-out agreement will be subject to
approval by EPA and NCDEHNR, respectively.
2. Anglo American Insurance Company, Ltd. on behalf of Richard
Kall v. Fountain Powerboats, Inc. and Adventure Marine and
Outdoors, Inc. - This matter involves one federal lawsuit
and two state lawsuits, described below, all currently
pending in Louisiana. Local counsel for
<PAGE>
Fountain's defense for all three suits is Christopher J.
Fransen of Fransen and Hardin, New Orleans, Louisiana. The
federal suit was filed in the Eastern District of Louisiana
on September 28, 1995. The plaintiff alleges negligence on
the part of Fountain and its dealer co-defendant due to
damages caused by the eruption of a fire on a boat while
being trailered on the Louisiana Interstate. The plaintiff
paid $75,460.00 to Richard D. Kall, the insured boat owner,
on his claim, and the insurance carrier now is seeking to
recover that amount from Fountain and its co-defendant.
Richard D. Kall v. Fountain Powerboats, Inc. and Adventure
Marine and Outdoors, Inc. - The two state court suits
involve Petitions for damages filed on October 2, 1995 in
the District Courts of both Jefferson Parish, and Orleans
Parish, Louisiana. Mr. Kall claims that the value of the
boat at the time of the fire was $90,000.00, plus additional
equipment and gear in the boat of $1,500.00 He claims
negligence on the part of Fountain and its co-defendant, and
asserts claims for mental anguish and distress as a result
of the fire and loss of his boat. The petition seeks sums
"as are just and reasonable under the premises, including
attorneys' fees and all coast in bringing these proceedings
plus interest from date of judicial demand until paid."
3. Michael Jordan/Air Jordan Trademark Claim - Fountain
received a demand letter, dated February 22, 1996, from
David Falk, representative and agent for Michael Jordan, for
damages in connection with an advertisement for Fountain
which used Michael Jordan's name and the phrase "Air
Reggie." The initial monetary demand was for $1 million if
the claim was resolved prior to institution of a lawsuit,
which also has been threatened. Fountain put its primary
and umbrella insurance carriers on notice.
4. M & G Electronics Corp. v. Fountain Powerboats, Inc. - This
is a collection suit filed August 16, 1995 in Wake County,
and later moved to Beaufort County. The plaintiff alleges
that it sold and delivered certain goods to Fountain, for
which $10,960.41 remains due. The suit seeks to recover
this amount, plus costs and interest. Fountain's Answer and
Counterclaims were filed on November 15, 1995. Fountain
denies owing the plaintiff any money and asserts that the
plaintiff supplied defective and/or faulty materials, and
additionally did not provide some of the materials ordered
by Fountain.
<PAGE>
5. Allstate Insurance Company, as subrogee of Michael Centanzo
v. Fountain Powerboats, Inc. - This suit was filed on
September 25, 1995 in the Superior Court of Camden County,
New Jersey. The plaintiff alleges that the boat Centanzo
bought from Fountain began to take on a considerable amount
of water while it was in use. The plaintiff further alleges
that the problem was due to a defective water pressure
fitting installed by Fountain. Plaintiff paid Centanzo
$19,234.96 on his claim for the water damage, and plaintiff
is seeking to recover this sum, plus court costs and
attorney fees. The case is being handled by New Jersey
counsel. The New Jersey counsel reports directly to
Fountain.
6. Manoocher Fateh, M.D. v. Fountain Powerboats, Inc. - This
suit was filed on September 12, 1994, in the Superior Court
of Essex County, New Jersey. The plaintiff alleges that he
contracted in December 1993 with Fountain's dealer, Trenton
Marine, to purchase a new Fountain 47' Sport Cruiser for
$230,000, but that when the boat was delivered to him by
Trenton Marine on May 13, 1994, its cabin area filled with
water due to an alleged structural defect, extensively
damaging the interior. The plaintiff seeks trebled damages
in an unspecified amount, pursuant to the New Jersey
Consumer Fraud Act, and rescission of his contract to
purchase the boat. Fountain's Answer, filed on October 25,
1994, denied liability in the matter and asserted various
affirmative defenses. The case is being handled by New
Jersey counsel.
7. North Carolina Escheat Audit - Fountain has been audited by
the State of North Carolina under the Escheat and Unclaimed
Property Statute. The State Treasurer's audit report, dated
November 1, 1996, sets forth a total of $14,015.48 and 4,535
shares in property deemed escheatable. A response to the
audit was submitted on December 6, 1996, wherein Fountain
agrees to an amount of $480.44 and 25 shares in escheatable
property. Fountain maintains that the remaining funds and
shares are not escheatable for various reasons.
WSMAIN/205824.
<PAGE>
Schedule 6.01
Environmental
1. Fountain was notified by the United States Environmental
Protection Agency ("EPA") and the North Carolina Department
of Environment, Health and Natural Resources ("NCDEHNR")
that it has been identified as a potentially responsible
party ("PRP") and may incur, or may have incurred, liability
for the remediation of contamination at the Spectron/Galaxy
Waste Disposal Site located in Elkton, Maryland, and the
Seaboard Disposal Site, located in High Point, North
Carolina, also referred to as the Jamestown, North Carolina
site, respectively, resulting from the disposal of hazardous
substances at those sites by a third party contractor.
Fountain has been informed that the EPA and NCDEHNR
ultimately may identify a total of 1,000 to 2,000, or more,
PRP's with respect to each site. Fountain believes that the
amounts of hazardous substances generated by Fountain, which
were disposed of at both sites, are minimal in relation to
the total amount of hazardous substances disposed of by all
PRP's at the sites. At present, the environmental
conditions at the sites and the cost of remediation, to the
best of Fountain's knowledge, have not been determined fully
by the EPA and NCDEHNR, respectively, and Fountain is not
able to determine at this time the amount of any potential
liability it may ultimately have in connection with
remediation at either site. Without any acknowledgment or
admission of liability, Fountain has made payments as a
nonperforming cash-out participant in an EPA-supervised
response and removal program at the Spectron/Galaxy Site,
and in a NCDEHNR-supervised removal and preliminary
assessment program at the Seaboard Disposal Site. A cash-
out proposal for the next phase of the project is expected
to be forthcoming from the PRP Group for the Spectron/Galaxy
Site. According to the PRP Group, Fountain's full cash-out
amount is estimated to be approximately $10,000 for the
Spectron/Galaxy Site in Elkton, Maryland, based on an
estimated 3,304 gallons of waste disposed of at that site by
Fountain. A cash-out proposal in the approximate amount of
$66,000 based on an estimated 19,245 gallons of waste is
anticipated from the PRP Group for the Seaboard Disposal
Site in North Carolina following completion of a Remedial
Investigation and Feasibility Study in early 1988, according
to the PRP Group administrator. Any cash-out agreement will
be subject to approval by EPA and NCDEHNR, respectively.
2. Fountain sustained a fire at its plant in 1989, and the fire
caused a discharge of environmental contaminants on the
Property. A clean-up operation was conducted and based on
information from the State and the engineers, it is believed
that all necessary clean-up activities were performed and
completed in accordance with the
<PAGE>
requirements. A copy of the related correspondence is
attached hereto.
<PAGE>
State of North Carolina
Department of Natural Resources and Community Development
Northeastern Region
1424 Carolina Avenue, Washington, North Carolina 27889
James G. Martin, Governor Lorraine G. Shinn
William W. Cobey, Jr., Secretary Regional Manager
DIVISION OF ENVIRONMENTAL MANAGEMENT
May 30, 1989
Mr. Thomas W. Harwell
Carolina Benchmark, Inc.
10 Oakmont Drive
P.O. Box 2687
Greenville, NC 27836
SUBJECT: Fountain Power Boats, Inc.
Remedial Action
Beaufort County
Dear Mr. Harwell
This office of the Division of Environmental Management has
reviewed the analytical laboratory reports submitted to us May 9,
1989. It has been determined that your proposal to mitigate the
site, pond #1 area, is acceptable. You should be made aware,
though, that if the evaporation rate of the air exchangers is
such that a discharge of treated water will result, an NPDES
permit will be required.
Please notify this office of the proposed schedule of activity
and completion date of this project . If you have any questions
or comments, please call this office at 946-6481.
Sincerely
/s/Jim Mulligan
Jim Mulligan
Regional Supervisor
P.O. Box 1507, Washington, North Carolina 27889-1507 Telephone
919-946-6481
An Equal Opportunity Affirmative Action Employer
<PAGE>
CB
CAROLINA BENCHMARK
ENGINEERS-SURVEYORS-PLANNERS
INCORPORATED
June 5, 1989
Mr. John Ward
Ward & Smith
P.O. Box 867
New Bern, NC 28560
RE: Fountain Powerboats, Inc.
Remedial Action
Beaufort County
Dear Sir:
Herein enclosed is the latest letter from the State on the
cleanup. This basically is their approval.
Very truly your,
/s/Thomas W. Harwell
Thomas W. Harwell
Chairman
TWH/nwd
Enclosure
Copy to: Fountain Power Boats
CAROLINA BENCHMARK 102 OAKMONT DRIVE P.O. BOX 2687 (ECU
STATION) GREENVILLE, N.C. 27836 TELEPHONE (919) 756-8440
<PAGE>
CB
CAROLINA BENCHMARK
ENGINEERS-SURVEYORS-PLANNERS
INCORPORATED
July 13, 1989
Mr. Ken Bornstein
Fountain Powerboats, Inc.
P.O. Drawer 457
Washington, NC 27889
RE: Fountain Powerboats, Inc.
Beaufort County
Dear Sir:
This is a report of the status of the environmental concern
involving the canal system at the Fountain Powerboats, Inc. site.
These concerns were raised by the Northeastern Regional Office of
the Division of Environmental Management, NC Department of
Natural Resources and Community Development.
Reference the attached correspondence:
a. Carolina Benchmark ltr dated January 31, 1989
b. NC Division of Environmental Management ltr dated March
15, 1989
c. Carolina Benchmark ltr dated March 28, 1989
d. Carolina Benchmark ltr dated May 1, 1989
e. NC Division of Environmental Management lrt dated May
30, 1989
f. Results of Pond #1 Acetone and 2-Butanone testing dated
May 25, 1989
In essence, as shown, the above referenced correspondence
concludes that the State (NC Division of Environmental
Management) has agreed with the proposal to mitigate the site,
Pond #1 area.
The test of May 25, 1989 shows that Acetone and 2-Butanone
levels are below the quantitation limit as is 1,1,1-
Trichlorethane in Pond #2. A retesting to confirm this
mitigation is scheduled this week. If the anticipated results of
this confirmation testing are the same as the May 25, 1989
results, a request will be made to the State (NC Division of
Environmental Management) to declare cleanup and mitigation
successfully conducted and allow final filling of Pond #1 for
which a permit has already been issued (See attached Permit #32-
87, issued May 23, 1989).
Very truly yours,
/s/Thomas W. Harwell
Thomas W. Harwell
Chairman
CAROLINA BENCHMARK 102 OAKMONT DRIVE P.O. BOX 2687 (ECU
STATION) GREENVILLE, N.C. 27836 TELEPHONE (919) 756-8440
<PAGE>
CB
CAROLINA BENCHMARK
ENGINEERS-SURVEYORS-PLANNERS
INCORPORATED
August 13, 1990
Mr. David L. Ward, Jr.
Ward & Smith, PA
P.O. Box 867
New Bern, NC 28563
RE: Fountain Powerboats, Inc.
Beaufort County, NC Plant
Dear Sir:
In accordance with Mr. Leon Smith's request of this date I am
enclosing copies of our letters of last year (July 13, 1989 &
August 14, 1989) concerning the status of environmental concern
involving the canal systems after the fire at the subject
facility. A plan of mitigation was approved from the state.
Reports of the sampling indicated results below the quantitation
limits after mitigation that was conducted in accordance with the
approved plan. A permit (Addenda to permit 32-87) was received
authorizing the canal fill.
To the best of my knowledge the mitigation of the chemicals
entering the canal as a direct result of the fire (ie. Acetone
and 2-Butanone) was completed. The sampling and testing program
ended and the remedial action plan was concluded. We did not
direct the cleanup operations or supervise the endeavors. We did
prepare the mitigation plan and monitored the results.
Very truly yours,
/s/Thomas W. Harwell
Thomas W. Harwell, PE
Copy to: Fountain Powerboats
CAROLINA BENCHMARK 102 OAKMONT DRIVE P.O. BOX 2687 (ECU
STATION) GREENVILLE, N.C. 27836 TELEPHONE (919) 756-8440
<PAGE>
CB
CAROLINA BENCHMARK
ENGINEERS-SURVEYORS-PLANNERS
INCORPORATED
August 14, 1989
Mr. Alton R. Hodge, Environmental Engineer
Division of Environmental Management
Water Quality Section
P.O. Box 1507
Washington, NC 27889
RE: Site Investigation/Remedial Action Plan
Fountain Powerboats, Inc.
References:
a. Carolina Benchmark ltr dated January 31, 1989
b. NC Division of Environmental Management ltr dated March
15, 1989
c. Carolina Benchmark ltr dated March 28, 1989
d. Carolina Benchmark ltr dated May 1, 1989
e. NC division of Environmental Management ltr dated May
30, 1989
f. Carolina Benchmark ltr dated June 5, 1989
Enclosed is the result of test of Pond #1 Acetone and 2-
Butanone dated May 25, 1989 and rechecked on July 18, 1989
(Recheck analyzed July 28, 1989 and reported August 8, 1989).
The test of May 25, 1989 shows that Acetone and 2-Butanone
levels in Pond #1 area was below the quantitation limit as was
1,1,1-Trichlorethane in Pond #2. Retesting to confirm that
result was done on July 18, 1989 and the results reported August
8, 1989. This report showed Acetone at less than 25 ug/1 and 2-
Butanone at less than 25 ug/1 also. Sampling was made by Brian
E. Gray, Geologist of our office with testing by IEA of Research
Triangle Park NC.
In light of the above test results, it is requested that the
final filling of Pond #1 be authorized.
Very truly yours,
/s/Thomas W. Harwell
Thomas W. Harwell
Chairman
TWH/nwd
CAROLINA BENCHMARK 102 OAKMONT DRIVE P.O. BOX 2687 (ECU
STATION) GREENVILLE, N.C. 27836 TELEPHONE (919) 756-8440
<PAGE>
State of North Carolina
Department of Environment, Health and Natural Resources
Northeastern Region
1424 Carolina Avenue, Washington, North Carolina 27889
James G. Martin, Governor Lorraine G. Shinn
William W. Cobey, Jr. Secretary Regional Manager
DIVISION OF ENVIRONMENTAL MANAGEMENT
August 27, 1990
Mr. Reggie Fountain
Fountain Powerboats, Inc.
P.O. Box 457
Washington, NC 27889
SUBJECT: Status of Site
Beaufort County
Dear Mr. Fountain:
At your request, this letter is written to inform the company of
the status of the site following the fire. Fountain Powerboats,
Inc. cooperated with this Division during every phase of the
emergency, fire, and cleanup. The containment, monitoring, and
cleanup efforts were evaluated as satisfactory by staff members
of this Division.
If you have any questions or we can be of any further help,
please call.
Sincerely,
/s/Jim Mulligan
Jim Mulligan
Regional Supervisor
cc: Lorraine Shinn
Ted Dennis
Tom Harwell
P.O. Box 1507, Washington, North Carolina 27889-1507 Telephone
919-946-6481
An Equal Opportunity Affirmative Action Employer
<PAGE>
CB
CAROLINA BENCHMARK
ENGINEERS-SURVEYORS-PLANNERS
INCORPORATED
September 6, 1990
Mr. John L. Ward, Jr.
Attorney-at-Law
Ward & Smith, P.A.
P.O. Box 867
New Bern, NC 28560
RE: Fountain Power Boats, Inc.
Dear Sir:
I have forwarded to you a copy of the August 27, 1990 letter
from the NC Division of Environmental Management concerning the
Status of Site following the fire.
In response to an inquiry by Sandra of your office on
September 5, 1990, we faxed a copy of our August 14, 1989 and
July 13, 1989 letters. For the record, I am enclosing herein:
a. Carolina Benchmark letter of July 113, 1989
b. NC Division of Environment letter of May 30, 1989
c. Carolina Benchmark letter of August 14, 1989
d. Carolina Benchmark letter of June 5, 1989
e. Carolina Benchmark letter of August 13, 1990
f. NC division of Environmental letter of August 27, 1990
On August 27, 1990, the NC Division of Environmental
Management by letter stated "The containment, monitoring, and
cleanup efforts were evaluated as satisfactory by staff members
of this Division".
Regards,
/s/Thomas W. Harwell
Thomas W. Harwell
Chairman
TWH/nwd
Enclosures
CAROLINA BENCHMARK 102 OAKMONT DRIVE P.O. BOX 2687 (ECU
STATION) GREENVILLE, N.C. 27836 TELEPHONE (919) 756-8440
<PAGE>
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of December 31, 1996
("Agreement"), by and between GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation with an address at 6100
Fairview Road, Suite 1450, Charlotte, North Carolina ("Secured
Party"), and FOUNTAIN POWERBOATS, INC., a corporation organized
and existing under the laws of the State of North Carolina, with
its chief executive offices located at Whichard's Beach Road,
Washington, North Carolina 27889 ("Debtor").
This Security Agreement is given simultaneously with that
certain Loan Agreement between the Debtor, the Secured Party, and
certain other parties, dated of even date herewith (the "Loan
Agreement"). In addition, to further secure the Note
(hereinafter defined), the Debtor has executed that certain Deed
of Trust, Assignment of Rents and Security Agreement, dated of
even date herewith, with respect to certain real property now
owned by the Debtor and located in Beaufort County, North
Carolina and described in Exhibit B attached hereto and
incorporated herein by reference (the "Real Property") (such deed
of trust being referred to as the "Deed of Trust") and has also
executed certain other loan documents in connection with the
Indebtedness.
In consideration of the promises herein contained and
certain other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor and Secured
Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST
Debtor hereby gives, grants and assigns to Secured Party,
its successors and assigns forever, a security interest in and
against any and all of the following property:
(a) Tangible Personal Property. All furniture,
furnishings, machinery, apparatus, equipment [specifically
including but not limited to that attached to any collateral
schedule (the "Collateral Schedule") now or hereafter attached
hereto as an Exhibit A], fittings, fixtures and other articles of
tangible personal property now owned or leased or hereafter
acquired by the Debtor, wherever located [but specifically
including any such property now or hereafter located on the Real
Property and any additional real property now or hereafter owned
by the Debtor (the "Additional Property") (the Real Property and
the Additional Property hereinafter referred to as the
"Property"), including but not limited to, goods, machinery,
tools, equipment (including fire, sprinkler and alarm systems;
air conditioning, heating, refrigerating, electronic monitoring,
entertainment, and recreational equipment; window or structural
cleaning rigs; maintenance equipment; equipment relating
exclusion of vermin or insects, removal of dust, refuse or
garbage; and all other equipment of every kind), elevators,
indoor and outdoor furniture (including tables, chairs, planters,
desks, sofas, shelves, lockers and cabinets), wall beds wall
safes, furniture, furnishings, appliances (including ice boxes,
refrigerators, fans, heaters, stoves, water heaters and
incinerators), rugs, carpets and other floor coverings, draperies
and drapery rods and brackets, awnings, window shades, venetian
blinds, curtains, lamps, chandeliers, and other lighting fixtures
and office maintenance and
R#0202392.04
<PAGE>
other supplies and the proceeds and products of all of the
foregoing and all replacements and renewals thereof (the
foregoing being hereafter referred to as the "Tangible Personal
Property").
(b) Inventory. All of the Debtor's inventory now owned or
hereafter acquired, including but not limited to (i) goods
intended for sale, use or lease by the Debtor or to be furnished
by the Debtor under contracts of service, (ii) all raw materials,
goods in process, finished goods, materials and supplies of every
nature used or usable in connection with the manufacture,
packing, shopping, advertising, selling, leasing or furnishing of
such goods (specifically including, but not limited to, all
molds, metals, plastics, upholstery, windscreens, fiberglass, and
other components in boat manufacture), and any and all items
including machinery and equipment used or consumed in the
operation of the business of the Debtor or which contribute to
the finished product or to the sale, promotion, and shipment
thereof, in which the Debtor now or at any time hereafter may
have an interest, whether or not such inventory is listed on any
reports furnished to the Secured Party from time to time; (iii)
all inventory whether or not the same is in transit or in the
constructive, actual, or exclusive occupancy or possession of the
Debtor or is held by the Debtor or by others for the Receivables
(as hereafter defined), including, without limitation, all goods
covered by purchase orders, and contracts with suppliers and all
goods billed and held by suppliers; (iv) all inventory which may
be located on premises of the Debtor or of any carrier,
forwarding agents, truckers, warehousemen, vendors, selling
agents, or third parties; (v) all general intangibles relating to
or arising out of inventory; (vi) all documents evidencing or
representing the same, all documents of title, all negotiable and
non-negotiable warehouse receipts representing the same; and
(vii) all products and proceeds of the foregoing (including cash,
accounts receivable, non-cash trade ins, and non-cash-proceeds),
wherein the foregoing may be located (referred to herein
collectively as "Inventory").
(c) Insurance Policies. All rights in and to all pertinent
present and future fire and/or hazard insurance policies
(including, but not limited to, insurance proceeds) covering the
Property, and improvements thereon (the "Improvements") or the
property described in (a) and (b) above.
(d) Awards. All awards made by any public body or decreed
by any court of competent jurisdiction for a taking or for
degradation of value of the Property, the Improvements or the
property described in (a) above in any eminent domain proceeding
and all payments made in respect of a conveyance made in lieu of
any such taking.
(e) Lease Rights and Security Deposits. All of the
Debtor's rights and interests in and to all present and future
leases of the Property and Improvements or any part thereof
and/or all rental income and/or security deposits, whether
payable pursuant to any present or future lease or otherwise
growing out of any occupancy or use of the Property and the
Improvements.
(f) Accounts Receivable and General Intangibles Relating to
Debtor. (i) All obligations and indebtedness of every kind at
any time owing to the Debtor from whatever source arising, and
including (without limitation) all accounts, accounts receivable,
tax refunds, refunds, payments or proceeds under any insurance
policies, instruments, contract rights, chattel paper, general
intangibles and documents, whether secured or unsecured, now
existing or hereafter created; (ii) any and all sums and property
recovered by the Debtor or any trustee, receiver or fiduciary
acting on the
2
R#0202392.04
<PAGE>
Debtor's behalf as a result of or arising from a fraudulent or
preferential transfer or payment (as determined under present or
future federal or state law or regulations relating to
bankruptcy, insolvency or other relief or debtors) made by the
Debtor or on the Debtor's behalf; (ii) all of the Debtor's rights
as an unpaid seller, including stoppage in transit, replevin,
detinue and reclamation; (iv) all customer lists and other
documents containing names, addresses and other information
regarding the Debtor's customers, subscribers and those to whom
the Debtor provides any services, and all supplier lists of the
Debtor; (v) all books, records, files, computer tapes, programs,
software, discs and other material or documents relating to the
recording, billing or analyzing of any of the above; (vi) all now
or hereafter existing balances, credits, deposits (general or
special, time or demand, provisional of final), accounts and all
other sums credited by, maintained with or due from the Debtor
the Debtor or any of the Debtor's affiliates to the Debtor or
subject to withdrawal by the Debtor, together with all goods,
inventory, and merchandise returned by or reclaimed by or
repossessed from customers wherever such goods, inventory and
merchandise are located, and all proceeds thereto; and (vii) all
products and proceeds of any of the foregoing in any form,
including cash, insurance proceeds, negotiable instruments and
other evidences of indebtedness, chattel paper, security
agreements and other documents (all of the foregoing being herein
referred to as "Receivables").
All trade names (specifically including without limitation,
the name "Fountain Powerboats"), symbols, logos, copyrights,
patents, patent applications, federal trademark registrations,
any trademark applications now or hereafter filed with respect
thereto and any federal trademark registrations issued or issuing
with respect thereto, and all goodwill associated with the
trademarks and patents.
All goodwill and all other general intangibles of every kind
and description now or hereafter owned by the Debtor. Together
with all items listed in Exhibit C.
(g) Motor Vehicles. All motor vehicles and trailers now or
hereafter owned by the Debtor.
(h) Proceeds. All proceeds or sums payable in lieu of or
as compensation for the loss or damage to any property described
in (a) through (g) above.
(i) Additions, Accessions, Substitutes. Any and all
additions, attachments, accessories and accessions thereto, any
and all substitutions, replacements or exchanges therefor, and
any and all insurance and/or other proceeds thereof.
All of the foregoing personal property is hereinafter
individually and collectively referred to as the "Collateral".
The foregoing security interest is given to secure the
payment and performance of any and all debts, obligations and
liabilities of any kind, nature or description whatsoever
(whether primary, secondary, direct, contingent, sole, joint or
several, or otherwise and whether due or to become due) of Debtor
to Secured Party, now existing or hereafter arising, including
but not limited to the payment and performance of a certain
Promissory Note from the Debtor to the Secured Party in the
3
R#0202392.04
<PAGE>
principal amount of $10,000,000, dated of even date herewith
(hereinafter referred to as the Note"), and any renewals,
extensions and modifications of such Note and any other debts,
obligations and liabilities of the Debtor to the Secured Party
(all of the foregoing being hereinafter referred to as the
"Indebtedness"). Notwithstanding the foregoing, and
notwithstanding anything to the contrary contained elsewhere in
this Agreement, to the extent that Secured party asserts a
purchase money security interest in any items of the Tangible
Personal Property constituting a portion of the Collateral ("PMSI
Collateral"): (i) the PMSI Collateral shall secure only that
portion of the Indebtedness which has been advanced by Secured
Party to enable Debtor to purchase, or acquire rights in or the
use of such PMSI Collateral (the " PMSI Indebtedness"), and (ii)
no other Collateral shall secure the PMSI Indebtedness.
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the
date hereof and as of the date of execution of each Collateral
Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing
and in good standing under the laws of the State set forth in the
first paragraph of this Agreement, has its chief executive
offices at the location set forth in such paragraph, and is, and
will remain, duly qualified and licensed in every jurisdiction
wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into,
and to perform its obligations, under this Agreement, the Note
and any other documents evidencing, or given in connection with,
any of the Indebtedness (all of the foregoing being hereinafter
referred to as the "Debt Documents");
(c) This Agreement and the other Debt Documents have been
duly authorized, executed and delivered by Debt and constitute
legal, valid and binding agreements enforceable under all
applicable laws n accordance with their terms, except to the
extent that the enforcement of remedies may be limited under
applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is
required from any governmental authority or instrumentality with
respect to the entry into, or performance by, Debtor of any of
the Debt Documents, except such as may have already been
obtained;
(e) The entry into, and performance by, Debtor of the Debt
Documents will not (i) violate any of the organizational
documents of Debtor or any judgment, order, law or regulation
applicable to Debtor, or (ii) result in any breach of, constitute
a default under, or result in the creation of any lien, claim or
encumbrance on any of Debtor's property (except for liens in
favor of Secured Party) pursuant to, any indenture, mortgage,
deed of trust, bank loan, credit agreement, or other agreement or
instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened
in court or before any commission, board or other administrative
agency against or affecting Debtor which could, in the aggregate,
have a material adverse effect on Debtor, its business or
operations, or its ability to
4
R#0202392.04
<PAGE>
perform its obligations under the Debt Documents, except those
disclosed in Schedules to the Loan Agreement;
(g) All financial statements delivered to Secured Party in
connection with the Indebtedness have been prepared in accordance
with generally accepted accounting principles, and since the date
of the most recent financial statement, there has been no
material adverse change;
(h) The Collateral is not, and will not be, used by Debtor
for personal, family or household purposes;
(i) The Collateral constituting Tangible Personal Property
and Inventory is, and will remain, in good condition and repair
and Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner,
and in possession of the Collateral (except for Inventory in
transit to dealers for sale and except for Inventory sold in the
ordinary course of business), and has the sole right and lawful
authority to grant the security interest described in this
Agreement; and
(k) The Collateral is, and will remain, free and clear of
all liens, claims and encumbrances of every kind, nature and
description, except for (i) liens in favor of Secured party, (ii)
liens for taxes not yet due or for taxes being contested in good
faith and which do not involve, in the reasonable judgment of
Secured Party, any risk for the sale, forfeiture or loss of any
of the Collateral, and (iii) inchoate materialmen's mechanic's,
repairmen's and similar liens arising by operation of law in the
normal course of business for amounts which are not delinquent
(all of such permitted liens being hereinafter referred to as
"Permitted Liens").
3. COLLATERAL.
(a) Until the declaration of any default hereunder, Debtor
shall remain in possession of the Collateral; provided, however,
that Secured Party shall have the right to possess (i) any
chattel paper or instrument that constitutes a part of the
Collateral, and (ii) any other Collateral which because of its
nature may require that Secured Party's security interest therein
be perfected by possession. Secured Party, its successors and
assigns, and their respective agents, shall have the right to
examine and inspect any of the Collateral at any time during
normal business hours. Upon any request from Secured Party,
Debtor shall provide Secured Party with notice of the then
current locations of the Collateral, specifically including the
names and addresses of dealers to whom Inventory is sent from
time to time.
(b) Debtor shall (i) use the Collateral only in its trade
or business, (ii) maintain all of the Collateral in good
condition and working order, (iii) use and maintain the
Collateral only in compliance with all applicable laws, and (iv)
keep all of the Collateral free and clear of all liens, claims
and encumbrances (except for Permitted Liens).
5
R#0202392.04
<PAGE>
(c) Debtor shall not, without the prior written consent of
Secured Party, (i) part with possession of any of the Collateral
(except to dealers for sale of Inventory, to Secured Party, or
for maintenance and repair), (ii) remove any of the Collateral
from the continental United States, or (iii) sell, rent, lease,
mortgage, grant a security interest in or otherwise transfer or
encumber (except for Permitted Liens) any of the Collateral.
Notwithstanding the foregoing, the Debtor may ship Inventory to
dealers outside the continental United States for sale, provided
payment is made in full prior to shipment or is secured by an
irrevocable letter of credit from a domestic bank.
(d) Debtor shall pay promptly when due all taxes, license
fees, assessments and public and private charges levied or
assessed on any of the Collateral, on the use thereof, or on this
Agreement or any of the other Debt Documents. At its option,
Secured Party may discharge taxes, liens, security interests or
other encumbrances at any time levied or placed on the Collateral
and may pay for the maintenance, insurance and preservation of
the Collateral or to effect compliance with the terms of this
Agreement or any of the other Debt Documents. Debtor shall
reimburse Secured Party, on demand, for any and all costs and
expenses incurred by Secured Party in connection therewith and
agrees that such reimbursement obligation shall be secured
hereby.
(e) Debtor shall, at all times, keep accurate and complete
records of the Collateral, and Secured Party, its successors ad
assigns, and their respective agents, shall have the right to
examine, inspect, and make extracts from all of Debtor's books
and records relating to the Collateral at any time during normal
business hours. Such reports shall be in such detail, form and
scope as the Secured Party shall require. The Secured Party and
the Secured Party's agents and representatives may at all times
have access to, examine and inspect the Inventory, the Tangible
Personal Property, and all records pertaining thereto. The
Debtor now keeps and shall continue to keep correct and accurate
records itemizing and describing the kind, type, quality and
quantity of Inventory, the Debtor's cost therefor and the selling
price thereof, the daily withdrawals therefrom and the additions
thereto. Any equipment and molding designated by the Secured
Party shall be tagged so as to disclose the security interest of
the Secured Party in such personalty.
(f) If agreed by the parties, Secured Party may, but shall
in no event be obligated to, accept substitutions and exchanges
of property for property, and additions to the property,
constituting all or any part of the Collateral. Such
substitutions, exchanges and additions may be accomplished at any
time and from time to time, by the substitution of a revised
Collateral Schedule for the Collateral Schedule now or hereafter
annexed. Any property which may be substituted, exchanged or
added as aforesaid shall constitute a portion of the Collateral
and shall be subject to the security interest granted herein.
Additions to, reductions or exchanges of, or substitutions for,
the Collateral, payments on account of any obligation or
liability secured hereby, increases in the obligations and
liabilities secured hereby, or the creation of addition
obligations and liabilities secured hereby, may from time to time
be made or occur without affecting the provisions of this
Agreement or the provisions of any obligation or liability which
this Agreement secures.
(g) Any third person at any time and from time to time
holding all or any portion of the Collateral shall be deemed to,
and shall, hold the Collateral as the agent, and as pledge holder
for, Secured Party. At any time and from time to time, Secured
party may give notice to any third
6
R#0202392.04
<PAGE>
person holding all or any portion of the Collateral that such
third person is holding the Collateral as the agent of, and as
pledge holder for, the Secured Party.
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk,
and Debtor shall keep it insured against loss or damage by fire
and extended coverage perils, theft, burglary, and for any or all
Collateral which are vehicles, for risk of loss by collision, and
where requested by Secured Party, against other risks as required
thereby, for the full replacement value thereof, with companies
in amounts and under policies acceptable to Secured Party.
Debtor shall, if Secured Party so requires, deliver to Secured
Party policies of certificates of insurance evidencing such
coverage. Each policy shall name Secured Party as loss payee
thereunder, shall provide for coverage to Secured Party
regardless of the breach by Debtor of any warranty or
representation made therein, shall not be subject to co-
insurance, and shall provide for thirty (30) days written notice
to Secured Party of the cancellation or material modification
thereof (unless such insurance coverage is not obtainable).
Debtor hereby appoints Secured Party as its attorney in fact to
make proof of loss, claim for insurance and adjustments with
insurers, and to execute or endorse all documents, checks or
drafts in connection with payment made as a result of any such
insurance policies. Proceeds of insurance shall be applied, at
the option of Secured Party, to repair or replace the Collateral
or to reduce any of the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event
of (i) any change in the name of Debtor, (ii) any relocation of
its chief executive offices, (iii) any relocation of any of the
Collateral, (iv) any of the Collateral being lost, stolen,
missing, destroyed, materially damaged or worn out, or (v) any
lien, claim or encumbrance attaching or being made against any of
the Collateral other than Permitted Liens.
(b) Debtor agrees to furnish its annual financial
statements and such interim statements as Secured Party may
require in form satisfactory to Secured Party and as required in
the Loan Agreement. Any and all financial statements submitted
and to be submitted to Secured Party have and will have been
prepared on a basis of generally accepted accounting principles,
and are and will be complete and correct and fairly present
Debtor's financial condition as at the date thereof. Secured
Party may at any reasonable time examine the books and records of
Debtor and make copies thereof.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to
Secured Party such further information, execute and deliver to
Secured Party such documents and instruments (including, without
limitation, Uniform Commercial Code financing statements) and do
such other acts and things, as Secured Party may at any time
reasonably request relating to the perfection or protection of
the security interest created by this Agreement or for the
purpose of carrying out the intent of this
7
R#0202392.04
<PAGE>
Agreement. Without limiting the foregoing, Debtor shall
cooperate and do all acts deemed necessary or advisable by
Secured Party to continue in Secured Party a perfected first
security interest in the Collateral, and shall obtain and furnish
to Secured Party any subordinations, releases, landlord, lessor,
or mortgagee waivers, and similar documents as may be from time
to time requested by, and which are in form and substance
satisfactory to, Secured Party.
The Debtor shall provide to the Secured Party a schedule of
all Receivables, Tangible Personal Property, and Inventory at
least once every fiscal quarter, as described in the Loan
Agreement. The Debtor shall also notify the Secured Party of any
patent and trademark applications filed each fiscal quarter and
take such measures as the Secured Party may require to confirm
the assignment and to perfect the security interests granted
hereby.
If any Inventory is in the possession or control of any of
the Debtor's agents or processors, the Debtor shall notify them
of the Secured Party's security interest therein, and upon the
Secured Party's request, instruct them to hold all such Inventory
for the Secured Party's account and subject them to the Secured
Party's instructions.
If at any time the Secured Party determines that the Secured
Party's security interest in any boat constituting a portion of
Inventory is required to be perfected by the filing of a marine
vessel mortgage, the Debtor agrees to execute such a vessel
mortgage (in form and substance satisfactory to the Secured
Party) and cause such mortgage to be filed in appropriate
governmental offices so as to perfect the Secured Party's
security interests in such vessel.
(b) Debtor hereby grants to Secured Party the power to sign
Debtor's name and generally to act on behalf of Debtor to execute
and file applications for title, transfers of title, financing
statements, notices of lien and other documents pertaining to any
or all of the Collateral. Debtor shall, if any certificate of
title be required or permitted by law for any of the Collateral,
obtain such certificate showing the lien hereof with respect to
the Collateral and promptly deliver same to Secured Party.
(c) Debtor shall indemnify and defend the Secured Party,
its successors and assigns, and their respective directors,
officers and employees, from and against any and all claims,
actions and suits (including, without limitation, related
attorneys' fees) of any kind, nature or description whatsoever
arising, directly or indirectly, in connection with any of the
Collateral.
(d) The Secured Party shall have no duty or care with
respect to the Collateral, except that the Secured Party shall
exercise reasonable care with respect to Collateral in its
custody, but shall be deemed to have exercised reasonable care if
such property is accorded treatment substantially equal to that
which it accords its own property, or if it takes such action
with respect to the Collateral as the Debtor shall request in
writing. No failure to comply with any such request nor any
omission to do any such act requested by the Debtor shall be
deemed a failure to exercise reasonable care, nor shall the
Secured Party's failure to take steps to preserve rights against
any parties or property be deemed a failure to have exercised
reasonable care with respect to Collateral in its custody.
8
R#0202392.04
<PAGE>
7. EVENTS OF DEFAULT
Debtor shall be in default under this Agreement and each of
the other Debt Documents upon the occurrence of any of the
following "Event(s) of Default":
(a) Debtor fails to pay any installment or other amount due
or coming due under any of the Debt Documents within ten (10)
days after its due date;
(b) Any attempt by Debtor, without the prior written
consent of Secured Party, to sell, rent, lease, mortgage, grant a
security interest in, or otherwise transfer or encumber (except
for Permitted Liens and except as elsewhere permitted herein) any
of the Collateral;
(c) Debtor fails to procure, or maintain in effect at all
times, any of the insurance on the Collateral in accordance with
Section 4 of this Agreement;
(d) Debtor breaches any of its other obligations under any
of the Debt Documents and fails to cure the same within thirty
(30) days after written notice thereof;
(e) Any warranty, representation or statement made by
Debtor in any of the Debt Documents or otherwise in connection
with any of the Indebtedness shall be false or misleading in any
material respect;
(f) Any of the Collateral being subjected to, or being
threatened with, attachment, execution, levy, seizure or
confiscation in any legal proceeding or otherwise;
(g) The occurrence of an "Event of Default" under the Deed
of Trust or the Loan Agreement; or any default by Debtor under
any other agreement between Debtor and Secured Party after the
passage of any applicable cure period set out in such agreement;
(h) Any dissolution, termination of existence, merger,
consolidation, change in controlling ownership, insolvency, or
business failure of Debtor or any guarantor or other obligor for
any of the Indebtedness (collectively "Guarantor"), except as
permitted in the Loan Agreement, or if Debtor or any Guarantor is
a natural person, any death or incompetency of Debtor or such
Guarantor;
(i) The appointment of a receiver for all or any part of
the property of Debtor or any Guarantor, or any assignment for
the benefit of creditors by Debtor or any Guarantor; or
(j) The filing of a petition by Debtor or any Guarantor
under any bankruptcy, insolvency or similar law, or the filing of
any such petition against Debtor or any Guarantor if the same is
not dismissed within thirty (30) days of such filing.
9
R#0202392.04
<PAGE>
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this
Agreement, the Secured Party, at its option, may declare any or
all of the Indebtedness, including without limitation the Note,
to be immediately due and payable, without demand or notice to
Debtor or any Guarantor. The obligations and liabilities
accelerated thereby shall bear interest (both before and after
any judgment) until paid in full at the lower of eighteen percent
(18%) per annum or the maximum rate not prohibited by applicable
law.
(b) Upon such declaration of default, Secured Party shall
have all of the rights and remedies of a Secured Party under the
Uniform Commercial Code, and under any other applicable law.
Without limiting the foregoing, Secured Party shall have the
right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to
make payment to the Secured party, (ii) with or without legal
process, enter any premises, where the Collateral may be and take
possession and/or remove said Collateral from said premises,
(iii) sell the Collateral at public or private sale, in whole or
in part, and have the right to bid and purchase at said sale,
(iv) lease or otherwise dispose of all or part of the Collateral,
applying proceeds therefrom to the obligations then in default,
and/or (v) use, without charge or liability to the Secured Party,
any of the Debtor's labels, trade names, trademarks, patents,
patent applications, licenses, certificates of authority,
advertising materials, or any of the Debtor's other properties or
interests in properties of similar nature in advertising for
sale, selling or otherwise realizing upon any of the Collateral.
If requested by Secured Party, Debtor shall promptly assemble the
Collateral and make it available to Secured Party at a place to
be designated by Secured Party which is reasonably convenient to
both parties. Secured Party may also render any or all of the
Collateral unusable at the Debtor's premises and may dispose of
such Collateral on such premises without liability for rent or
costs. Any notice which Secured Party is required to give to
Debtor under the Uniform Commercial Code of the time and place of
any public sale or the time after which any private sale or other
intended disposition of the collateral is to be made shall be
deemed to constitute reasonable notice if such notice is given to
the last known address of Debtor at least five (5) days prior to
such action.
(c) Proceeds from any sale or lease or other disposition
shall be applied: first, to all costs of repossession, storage,
and disposition including without limitation attorneys',
appraisers', and auctioneers' fees; second, to discharge the
obligations then in default; third, to discharge any other
Indebtedness of Debtor to Secured Party, whether as obligor,
endorser, guarantor, surety or indemnitor; fourth, to expenses
incurred in paying or settling liens and claims against the
Collateral; and lastly, to Debtor, if there exists any surplus.
Debtor shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt
Documents are placed in the hands of an attorney for collection
of money due or to become due or to obtain performance of any
provision thereof, Debtor agrees to pay all reasonable attorneys'
fees incurred by Secured Party at such attorneys' standard hourly
rates for time in fact incurred (without regard to any statutory
presumption), and further agrees that payment of such fees is
secured hereunder. Debtor and Secured Party agree that such fees
to the extent not in excess of fifteen percent (15%) of subject
amount owing after default (if permitted by law, or such lesser
sum as may otherwise be permitted by law) shall be deemed
reasonable.
10
R#0202392.04
<PAGE>
(e) Secured Party's rights and remedies hereunder or
otherwise are cumulative and may be exercised singularly or
concurrently. Neither the failure nor any delay on the part of
the Secured Party to exercise any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other
right power or privilege. Secured Party shall not be deemed to
have waived any of its rights hereunder or under any other
agreement, instrument or paper signed by Debtor unless such
waiver be in writing and signed by Secured Party. A waiver on
any one occasion shall not be construed as a bar to or waiver of
any right or remedy on any future occasion.
(f) Any controversy or claim arising out of or relating to
this Master Security Agreement shall be determined by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The number of arbitrators
shall be three. One Arbitrator shall be appointed by each of the
parties and the third arbitrator, who shall serve as chairman of
the tribunal, shall be appointed by the American Arbitration
Association. The place of arbitration shall be Charlotte, North
Carolina. Any arbitral award arising from any arbitration
pursuant to this paragraph shall be final and binding upon all
parties hereto.
9. INVENTORY AND RECEIVABLES COVENANTS.
The following are covenants applicable to Inventory and
Receivables generally:
(a) The Secured Party's security interest in the Inventory
will continue through all stages of manufacturing and will,
without further act, attach to raw materials, to goods in
process, to finished goods, to all products of the foregoing, to
the Receivables (as defined in the Agreement) and all other
proceeds resulting from the sale or other disposition thereof and
to all such Inventory that may be rejected, returned, reclaimed,
repossessed or stopped in transit.
(b) Inventory shall be kept only at the address identified
on the first page of this Security Agreement, and shall not be
removed therefrom except for purposes of sale and promotion in
the regular course of the Debtor's business.
(c) No Inventory has been or shall be consigned without the
Secured Party's prior written consent; no Inventory is or shall
ever be stored with a bailee, warehouseman or similar party
without the Secured Party's prior written consent, and in such
event the Debtor will, concurrently with delivery to such party,
cause any such party to issue and deliver to the Secured Party,
in form acceptable to the Secured Party, warehouse receipts in
the Secured Party's name evidencing the storage of such
Inventory.
(d) Until the occurrence of an Event of Default, the Debtor
may, subject to the provisions of this Agreement, sell finished
Inventory, but only in the ordinary course of the Debtor's
business; however, in no event shall the Debtor make any sale of
Inventory which would cause a breach of the Debtor's warranties,
representations and covenants under this Agreement. A sale of
Inventory in the ordinary course of the Debtor's business does
not include a transfer in partial or total satisfaction of a debt
owing by the Debtor. The Debtor agrees to report the receipt or
creation of all sales or other dispositions of Inventory to the
Secured Party. The Debtor hereby agrees to execute
11
R#0202392.04
<PAGE>
and deliver to the Secured Party, in form satisfactory to the
Secured Party, a formal assignment or schedule of accounts
receivable or other proceeds resulting from the sale or other
disposition of Inventory but in the absence of such assignment or
schedule this Agreement shall constitute such assignment or
schedule and the grant of a security interest therein.
(e) The Secured Party shall not, under any circumstance, be
liable for any error or omission or delay of any kind occurring
in the settlement, collection or payment of any Receivables or
any instrument received in payment thereof or for any damage
resulting therefrom. The Secured Party shall not be liable for
or prejudiced by any loss, depreciation or other damage to
Receivables or other Collateral unless caused by the Secured
Party's willful and malicious act, and the Secured Party shall
have no duty to take any action to preserve or collect any
Receivable or other Collateral.
(f) The Secured Party may notify customers at any time that
Receivables have been assigned to the Secured Party and collect
them directly in the Secured Party's own name but, unless and
until the Secured party does so or gives the Debtor other
instructions, the Debtor shall, at its cost and expense, collect
and otherwise hold for the Secured party as trustee of an express
trust for the Secured party's benefit all amounts of unpaid
Receivables, and, if so requested by the Secured Party, shall not
commingle such collections with the Debtor's own funds or use the
same for any purpose.
(g) As to any Receivable forming part of the Collateral,
unless the Secured Party otherwise consents in writing: (i) all
Receivables are and will be bona fide existing obligations of the
customer named therein, for a fixed sum as set forth in the
invoice relating thereto, created by the sale and actual delivery
of goods or other property or the rendition of services or the
furnishing of other good and sufficient consideration to the
customer in the regular course of business; (ii) all unpaid
balances appearing on the Debtor's books and records and any
invoice or statement delivered or to be delivered to the Secured
Party relating to any Receivable are and shall be true and
correct in all respects; (iii) all shipping or delivery receipts
and other documents furnished or to be furnished to the Secured
Party in connection therewith are all and will be genuine,
complete, correct, valid and enforceable in accordance with the
Debtor's terms; and (vi) no Receivable has arisen or shall arise
out of a contract or purchase order containing provisions
prohibiting assignment thereof or the creation of a security
interest therein and the Debtor has not received and shall not
accept any note, or other instrument with respect to any
Receivable or in payment thereof which is not assigned and
delivered to the Secured Party immediately.
(h) To facilitate the maintenance of the Secured party's
records, the Debtor shall: (I) hold in trust for the Secured
party's benefit all items constituting proof of shipment or
delivery of all goods sold and services rendered together with
copies of all of the Debtor's invoices to customers; and (ii)
furnish the Secured party promptly with copies of such
information as the Secured Party may reasonable require. The
Debtor's billing of customers on such invoices or otherwise shall
by conclusive evidence of the assignment to the Secured Party of
the Receivables represented thereby whether or not the Debtor
executes any other document. The items to be provided under this
paragraph are to be in form satisfactory to the Secured Party and
are executed and delivered to the Secured Party from time to time
solely for the Secured Party convenience in maintaining records
of the Collateral; the Debtor's failure to give any of such items
to the Secured Party shall not affect, terminate, modify or
otherwise limit the Secured party's lien or security interest in
the Collateral.
12
R#0202392.04
<PAGE>
10. MISCELLANEOUS
(a) This Agreement, the Note and/or any of the other Debt
Documents may be assigned, in whole or in part, by Secured Party
without notice to Debtor, and Debtor hereby waives any defense,
counterclaim or cross-complaint by Debtor against any assignee,
agreeing that Secured Party shall be solely responsible therefor.
(b) All notices to be given in connection with this
Agreement shall be in writing, shall be addressed to the parties
at their respective addresses set forth hereinabove (unless and
until a different address may be specified in a written notice to
the other party), and shall be deemed given when given in the
manner prescribed by the Deed of Trust.
(c) Secured Party may correct patent errors herein and fill
in all blanks herein or in any Collateral Schedule consistent
with agreement of the parties.
(d) Time is of the essence hereof. This Agreement shall be
binding, jointly and severally, upon all parties described as the
"Debtor" and their respective heirs, executors, representatives,
successors and assigns, and shall inure to the benefit of Secured
Party, its successors and assigns.
(e) This Agreement and its Collateral Schedules, the Note
and the other loan documents executed on the date hereof
constitute the entire agreement between the parties with respect
to the subject matter hereof and supersede all prior
understandings (whether written, verbal, or implied) with respect
thereto. This Agreement and its Collateral Schedules shall not
be changed or terminated orally or by course of conduct, but only
by a writing signed by both parties hereto. Section headings
contained in this Agreement have been included for convenience
only, and shall not affect the construction or interpretation
hereof.
(f) This Agreement shall continue in full force and effect
until all of the Indebtedness has been indefeasibly paid in full
to Secured Party. The surrender, upon payment or otherwise, of
the Note or any of the other documents evidencing any of the
Indebtedness shall not affect the right of Secured Party to
retain the Collateral for such other Indebtedness as may then
exist or (with the consent of the Borrower) as it may be
reasonably contemplated will exist in the future. This Agreement
shall automatically be reinstated in the event that Secured Party
is ever required to return or restore the payment of all or any
portion of the Indebtedness (all as though such payment had never
been made).
13
R#0202392.04
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be
legally bound hereby, have duly executed this Agreement in one or
more counterparts, each of which shall be deemed to be an
original, as of the day and year first aforesaid.
DEBTOR:
FOUNTAIN POWERBOATS, INC.,
a North Carolina corporation
ATTEST:
/s/Blanche C. Williams________________ By: /s/Reginald M.
Fountain, Jr.
____________ Secretary ___________ President
SECURED PARTY:
GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By: /s/Waller T. Blackwell
Region Credit Analyst
14
R#0202392.04
<PAGE>
EXHIBIT A
Description Year/Model Serial Number Location
Fountain Asset # 27' Fever Sport Boat: Washington, NC
721 27' II Fixture Molds
845 27' Vent Mold
857 27' Proto Dev
1088 27' SB Dash Mold
1096 27' SB Dash Mold/Plug
1106 27' Hull Mold
1237 MLD.MA. 27' SB Hull 2
1283 27' SB Deck Splash
1322 27' SB Deck Splash
1397 Pos. Lift 27' SB
32' Fever Sport Boat
1093 Mold Maint/32SB Hull
1100 27'/32' Dash Mld/Plg
1142 29'/32' SB Eng. Vent
1178 Mold Maint/32' SB DK
1390 Mold Maint/32' SB
1401 Pos. Lift 32' SB
35' Lightning Sport Boat
722 33' Radar Arch Mold
730 27 II Footbox Mold
736 27 SB Deck & Hull
740 33LB Dec & Hull
741 33SB Deck & Hull
1077 35' Fuel Fill Mold
1099 35' Eng. Hatch Plug
1162 Mold Maint/35' Deck
1203 35' L Deck & Mold
1380 Mold Maint. 35' S.B.
1391 Mold Maint. 35' S.B.
1392 Mold Maint. 35' S.B.
1402 Pos. Lift 35' S.B.
38' Sport Boat and Sport Cruiser:
742 36 Radar Arch
743 36 Windscreen Brkt
744 36 Deck Mold
745 36SB Deck & Hull
746 36SB Mold Foot Boxes
754 36 Radar Arch Modifi
837 38C Deck Splashes
841 33SC Deck Prep
876 38' Radar Arch Tool
877 38' S.C. Patterns
891 38' S.C. Deck Mold
893 38' S.B. Venturi Mold
1008 38' S.C. Side Store
1104 38' SB Eng. Hatch Mld.
1164 Mold Maint/38' SC HL
1179 Mold Maint/38' SC HL
1236 MLD.MA 38' Deck #2
1240 MLD.MA 38' SC Deck
1246 38' SC Windshld Mold
1268 38' SC Eng. Vent
1300 38' SC Step Insert
1371 38' SC Step Insert
1393 Mold Maint. 38' S.B.
1394 Mold Maint. 38' S.B.
1403 Pos. Lift 38' S.B.
<PAGE>
1404 38' S.C. Deck & Liner
1455 38' S.C. Tooling
1479 38' Lightning Deck
31' Fishboats (All Models)
725 31' Liner Plug
739 31SF Deck & Hull
838 31SF Hull
840 31SF LNR Strge Bx
846 31SF Seat Box Doors
847 31SF Lnr Strge Bx Mo
875 31' Cuddy Splash Plug
902 31' Cuddy Splash Plug
931 31' Cuddy Int. Pattrn
933 31' Cuddy Liner Mold
934 31' Cuddy Liner Plug
947 31' 32' S.F. Liner/Deck/Pl
948 31' S.F. Cab. Deck Mold
949 31' S.F. Cab. Deck Plug
951 31' S.F. Cab. Linr Plug
964 31' S.F. Cab. Design RT
975 31' S.F. Cuddy Design
976 31' S.F. Cuddy Molds
998 31' S.F. Cuddy Design
1009 31' S.F. Cuddy Parts
1010 31' S.F. Cuddy Store
1024 31' S.F. Cuddy Deck Mold
1025 31' S.F. Cuddy I/B Dk Mld
1140 31' S.F. Cuddy I/B Dk Plg
1141 31' I/B Liner Plug
1152 32' Deck & Liner Mld.
1195 32' Cuddy I/B Dk. Mld
1196 31' I/B Liner Mold
1199 31' SF Fuel Tank Lid
1202 Modify 32' Liner MLD
1238 MLD.MA 31' SF Liner
1239 MLD.MA. 31' SF Deck
1244 31' SF Eng. Box Mld
1247 31' SF Liverwell Mold
1265 32" I/O S.F.C. Plug
1269 31' S.F. Livewell
1271 35' S.B. Deck Splash
1284 31' SF Livewell
1299 31' SF Livewell Mold
1325 31' SF Livewell Mold
1326 31' SF Eng. Box Lid
1346 Mold Maint. 31' S.F.
1351 31' C.C. Open Bow Mold
<PAGE>
EXHIBIT B
TRACT I:
All that certain tract or parcel of land lying and being situate in
Chocowinity Township, Beaufort County, North Carolina, and being
more particularly described as follows:
Beginning at a point in the southern right-of-way line of NCSR 1166
(Whichards Beach Road); said point being located the following
courses and distances from a concrete monument located at the
southeasterly corner of the subdivision known as Harbor Estates, as
shown on a plat thereof recorded in Plat Cabinet A, Slide 113A in
the office of the Register of Deeds of Beaufort County, North
Carolina (said concrete monument also being the southwesterly
corner of Tract II described below): South 35- 52' 54" East 62.93
feet; South 36- 20' 33" West 30.61 feet; and South 64- 01' 09" East
16.66 feet to a point. THENCE FROM SAID POINT OF BEGINNING BEING
SO LOCATED, along and with the southern right-of-way line of
Whichards Beach Road South 64- 01' 03" East 132.39 feet to a point;
thence South 64- 00' 52" East 49.07 feet to a point; thence South
64- 01' 18" East 50.66 feet to a point; thence South 64- 01' 12"
East 220.27 feet to a point; thence South 64- 01' 09" East 45.61
feet to a point; thence continuing along and with the southern
right-of-way line of NCSR 1166 with a curve to the right in a
southeastwardly direction which has a chord bearing and distance of
South 57- 55' 13" East 341.99 feet to a point; thence South 51- 52'
17" East 22.40 feet to a point; thence continuing South 51- 52' 17"
East 300.00 feet to a point in the southern right-of-way line of
NCSR 1166 (all previous calls being along and with the southern
right-of-way line of NCSR 1166); thence leaving NCSR 1166 South 38-
00' 08" West 140.26 feet to a point; thence South 51- 52' 37" East
31.00 feet to a point; thence South 51- 52' 19" East 131.00 feet to
a point; thence South 38- 00' 08" West 50.00 feet to a point;
thence North 51- 59' 55" West 21.00 feet to a point; thence South
37- 59' 26" West 137.56 feet to a point; thence South 52- 57' 27"
East 107.66 feet to a point; thence South 35- 48' 31" West 49.16
feet to a point; thence South 37- 39' 39" West 149.73 feet to a
point; thence continuing South 37- 39' 39" West 18.38 feet to a
point in a ditch; thence along and with said ditch the following
courses: North 56- 10' 32" West 114.97 feet to a point; North 57-
56' 27" West 120.08 feet to a point; thence North 59- 09' 12" West
105.20 feet to a point; thence North 57- 02' 11" West 105.33 feet
to a point; thence North 64- 27' 40" West 506.54 feet to a point;
thence North 56- 33' 24" West 99.24 feet to a point; thence North
48- 59' 54" West 220.23 feet to a point; thence North 47- 02' 51"
West 145.55 feet to a point; thence North 36- 19' 37" East 158.65
feet to a point; thence North 36- 20' 38" East 20.00 feet to a
point; thence North 36- 19' 33" East 51.10 feet to a point; thence
North 36- 20' 24" East 24.66 feet to a point; thence North 36- 20'
20" East 100.34 feet to a point; thence North 36- 20' 41" East
166.95 feet to a point; thence with a curve to the right (which
curve has radius of 20 feet, a chord bearing
<PAGE>
and distance of North 76- 08' 47" East 25.60 feet, and an arc
distance of 27.78 feet) to the point of beginning.
Together with a perpetual non-exclusive easement for ingress,
egress and regress across a 60-foot wide private right-of-way
running southwardly from NCSR 1166 at point (C) in the Ottis M.
Crisp line as shown on the plat entitled "Plan of Land surveyed for
Jennis M. Crisp" recorded in Plat Cabinet A, Slide 42A, in the
Beaufort County Registry.
TRACT II:
All that certain tract or parcel of land lying and being situate in
Chocowinity Township, Beaufort County, North Carolina, and being
more particularly described as follows:
Beginning at an existing concrete monument in the northern right-
of-way line of NCSR 1166 (Whichards Beach Road), said concrete
monument being also the southeasterly corner of the subdivision
known as Harbor Estates, as shown on a plat thereof recorded in
Plat Cabinet A, Slide 113A in the office of the Register of Deeds
of Beaufort County, North Carolina. THENCE FROM SAID POINT OF
BEGINNING BEING SO LOCATED, North 30- 36' 00" East 375.64 feet to a
point; thence North 30- 36' 00" East 17.0 feet to a point in a
canal; thence continuing with the canal North 48- 42' 00" East
23.43 feet to a point; thence continuing with the canal North 30-
26' 00" East 476.44 feet to a point; thence North 31- 42' 00" East
427.85 feet to a point in the mean high water line of the Pamlico
River; thence along and with the mean high water line of the
Pamlico River the following courses and distances; North 71- 11'
00" East 88.88 feet to a point; thence North 78- 57' 00" East 77.78
feet to a point; thence North 51- 09' 00" East 53.88 feet to a
point; thence South 21- 39' 00" East 42.48 feet to a point; thence
South 55" 23' 00" East 82.19 feet to a point; thence North 65- 06'
00" East 38.64 feet to a point; thence South 45- 07' 00" East
146.64 feet to a point; thence South 59- 32' 00" East 106.73 feet
to a point; thence South 65- 55' 46" East 91.98 feet to a point;
thence South 87- 44' 21" East 82.14 feet to a point; thence South
83- 21' 00" East 96.80 feet to a point; thence North 78- 56' 00"
East 251.10 feet to a point; thence South 63- 13' 00" East 91.37
feet to a point; thence South 63- 13' 00" East 182.56 feet to a
point; thence South 63- 13' 00" East 107.00 feet to a point; thence
leaving said river South 38- 18' 41 " West 21.94 feet to a concrete
monument; thence continuing South 38- 18' 41" West 701.64 feet to a
concrete monument; thence continuing South 38- 18' 41" West 64.72
feet to a concrete monument; thence continuing South 38- 18' 41"
West 108.03 feet to a concrete monument; thence South 38- 18' 41"
West 106.26 feet to a concrete monument; thence continuing South
38- 18' 41" West 104.29 feet to a concrete monument; thence
continuing South 38- 18' 41" West 102.43 feet to a concrete
monument; thence South 38- 18' 41" West 127.21 feet to a concrete
monument; thence South 38- 18' 41" West 35.74 feet to a concrete
<PAGE>
monument; thence South 38- 18' 41" West 63.98 feet to a concrete
monument; thence continuing South 38- 18' 41" West 99.54 feet to a
concrete monument; thence continuing South 38- 18' 41" West 99.16
feet to a concrete monument; thence conitinuing South 38- 18' 41'
West 106.40 feet to a concrete monument in the northern right-of-
way line of NCSR 1166; thence continuing along and with the
northern right-of-way line of NCSR 1166 along a curve to the left
in a northwestwardly direction to a point (which curve has a chord
bearing and distance of North 51- 41' 19" West 100.00 feet); thence
continuing along and with the northern right-of-way line of NCSR
1166 along a curve to the left in a northwestwardly direction to a
point (which curve has a chord bearing and distance of North 55-
31' 51" West 396.18 feet); thence continuing along and with the
northern right-of-way line of NCSR 1166 North 62- 36' 41" West
58.52 feet to a point; thence continuing along and with the
northern right-of-way line of NCSR 1166 North 63- 28' 00" West
100.00 feet to a point; ;thence continuing along and with the
northern right-of-way line of NCSR 1166 North 64- 04' 00" West
470.44 feet to the point or place of beginning.
Together with all property lying between the northern property line
of the above-described property, the eastern and western property
line of the above-described property extended in a northeasterly
direction to the mean high water line of the Pamlico River and the
mean high water line of the southern shore of the Pamlico River.
81-0242 (DV)
12/28/96
CDR/DCR
WSMAIN/205631
<PAGE>
EXHIBIT C
Northwestern Mutual Life Insurance Policy #12-839-890 on the life
of Reginald M. Fountain, Jr. and all claims, options, privileges,
rights, title, and interest therein and thereunder.
The aircraft hangar (60 feet x 80 feet) and all personal property
owned by Fountain Powerboats, Inc. which is located in or about the
aircraft hangar which is located on the Washington Airport in
Beaufort County, North Carolina on an area of land 200 feet x 200
feet being immediately adjacent to and south of the Hackney Hangar
Site, said site leased to Fountain Powerboats, Inc. by lease
recorded in Book 922, Page 236 in the office of the Register of
Deeds of Beaufort County, North Carolina. The record owner of the
real property on which the aircraft hangar is located is Warren
Field Airport Commission of Beaufort County, North Carolina. The
real property upon which the aircraft hangar is located on or used
in connection with or otherwise pertaining to is described in
Exhibit D attached hereto and incorporated herein by reference.
<PAGE>
EXHIBIT D
Being an area 200 feet by 200 feet being immediately adjacent
to and to the South of the Hackney Hangar Site and being more
particularly described according to the general airport plan as
follows:
Beginning at the easternmost corner of that parcel of land
leased to J. A. Hackney & Sons Inc. from Warren Field Airport
Commission by lease dated 8-1-71, recorded in Book G72, Page
416, Beaufort County Registry; running, thence S. 70- 30' W.
200 feet; thence S. 19- 30' E. 200 feet; thence N. 70--30' E.
200 feet; thence N. 19--30' W. 200 feet to the point of
beginning.
<PAGE>
PROMISSORY NOTE
December 31, 1996
Beaufort County
Washington, North Carolina
FOR VALUE RECEIVED, FOUNTAIN POWERBOATS, INC., a North Carolina
corporation ("Maker"), promises, jointly and severally if more then
one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or
any subsequent holder hereof (each, a "Payee") at its office
located at 6100 Fairview Road, Suite 1450, Charlotte, NC 28210 or
at such other place as Payee of the holder hereof may designate,
the principal sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00), or so much thereof as shall have been disbursed
from time to time and remains unpaid, with interest hereon in
arrears, from the date hereof through and including dates of
payment, at a floating per annum simple interest rate ("Contract
Rate") as hereinafter calculated.
Until the Option to Convert (as defined below) is exercised, the
Contract Rate for a given period (the "Effective Period") shall be
equal to the sum of (i) two and 68/100 percent (2.68%) per annum
plus (ii) a variable per annum interest rate ("Current CPR") which
shall be equal to the rate listed for "1-Month" Commercial Paper
under the column indicating an average rate for the second calendar
month preceding the month in which the Effective Period ends, as
stated in the Federal Reserve Statistical Release H.15 (519)
published in the calendar month preceding the month in which the
Effective Period ends. The first Effective Period shall begin on
the date hereof, an shall continue through the earlier of (w) the
date the first Periodic Installment (or part thereof) is received
by Payee or (x) the date on which the first Periodic Installment is
due. Each subsequent Effective Period shall begin on the day after
the last day of the previous Effective Period and shall continue
through the earlier of (y) the date the earliest due and unpaid
Periodic Installment (or part thereof) is received by Payee of (z)
the date on which the next Periodic Installment is due after the
beginning of the current Effective Period.
If, for any reason whatsoever, the Federal Reserve Statistical
Release H.15 (519) is no longer published, the Current CPR shall be
equal to the latest Commercial Paper Rate for high grade unsecured
notes of 30 days maturity sold through dealers by major
corporations in multiples of $1,000, as indicated in the "Money
Rates" column of the Wall Street Journal, Eastern Edition,
published on the first Business Day of the calendar month in which
the Effective Period ends. As used herein, the term "Business Day"
shall mean and include any calendar day other than a day on which
all commercial banks in the City of New York, New York, are
required or authorized to be closed.
So long as no default exists hereunder and all of the terms and
conditions of this Note are fulfilled, Maker may elect to convert
(the "Option to Convert") the Contract Rate to a fixed per annum
simple interest rate (which, determined as hereinafter set out, is
referred to as the `Fixed Contract Rate") as of any date on which a
Periodic Installment is due upon at least 30 but no more than 60
days prior
R#0202454.04
<PAGE>
written notice (the "Notice Date") to Payee accompanied by a
Conversion Fee of $500.00 (which notice shall be irrevocable and
shall be sent to the attention of Payee's Business Center Manager,
44 Old Ridgebury Road, Danbury, CT 06810-5105). Such notice shall
state the due date of a Periodic Installment on which Maker elects
the Fixed Contract Rate to apply (the "Fixed Contract Rate
Effective Date"). Upon receipt of notice of such Option to
Convert, and the accompanying sums due, the Payee shall calculate
the amount of the Periodic Installments thereafter due commencing
on the Fixed Contract Rate Effective Date using the following: (i)
the outstanding principal balance of this Note on the date the
Periodic Installment is recalculated, (ii) the Fixed Contract Rate
(determined as hereinafter set out), and (iii) the balance of the
original Amortization Period (hereinafter defined). In addition,
Maker shall pay to Payee, if necessary, prior to the Fixed Contract
Rate Effective Date, an additional sum sufficient to amortize the
then-unpaid principal over the balance of the Amortization Period
at the Contract Rate applicable for the first Periodic Installment.
If the Option to Convert is elected prior to the date on which
additional loan proceeds can no longer be advanced under the Loan
Agreement, the Periodic Installment shall be recalculated by the
Lender on each occasion that additional principal is advanced, but
using the Fixed Contract Rate determined initially.
If Maker elects to exercise this Option to Convert, the Fixed
Contract Rate shall be equal to the sum of
(i) Two and 93/100 percent (2.93%) per annum plus
(ii) the applicable Current Rate (as defined below):
(a) If there are eighteen (18) months or less than eighteen
(18) months remaining before the Final Installment of
this Note is due, the "Current Rate" shall be the per
annum interest rate listed for "1-Year" Treasury,
constant maturity, under the column indicating an average
rate as stated in the Federal Reserve Statistical Release
H.15 (519) for the second calendar month preceding the
calendar month in which the Fixed Contract Rate will be
effective. If, for any reason whatsoever the Federal
Reserve Statistical Release H.15 (519) is no longer
published, the Current Rate shall be equal to the latest
annualized interest rate for "one year" U.S. Treasury
Bills as reported by the Federal Reserve Board on a
weekly-average basis, adjusted for constant maturity as
indicated in the "Money Rates" column of the Wall Street
Journal, Eastern Edition, published on the first Business
Day of the calendar month preceding the month in which
the fixed Contract Rate will be effective.
(b) If there are more than eighteen (18) months but either
(42) forty-two months or less than forty-two (42) months
remaining before the Final Installment of this Note is
due, the "Current Rate" shall be determined in the same
manner as noted in subparagraph (a) above except it shall
be based upon the rate listed for "2-Year" Treasury
bills.
2
R#0202454.04
<PAGE>
(c) If there are forty-three (43) months or more than forty-
three (43) months remaining before the Final Installment
of this Note is due, the "Current Rate" shall be
determined in the same manner as noted in subparagraph
(a) above except it shall be based upon the rate listed
for "3-Year" Treasury bills.
Subject to the other provisions hereof, the principal and interest
on this Note is payable in lawful money of the United States in
fifty-nine (59) consecutive monthly installments of Ninety-One
Thousand Two Hundred Seventy-Three and 30/100 Dollars ($91,273.30)
(each, whether or not increased as described below, a "Periodic
Installment") and a final installment ("Final Installment") in the
amount of the total outstanding unpaid principal and accrued but
unpaid interest. THIS IS A BALLOON NOTE, AND ON THE MATURITY DATE
A SUBSTANTIAL PORTION OF THE PRINCIPAL AMOUNT OF THIS NOTE WILL
REMAIN UNPAID BY THE MONTHLY PAYMENTS HEREIN REQUIRED. The first
Periodic Installment shall be due and payable on February 1, 1997,
and the following Periodic Installments shall be due and payable on
the same day of each succeeding month (each, a "Payment Date").
All payments shall be applied first to interest and then to
principal The acceptance by Payee of any payment which is less
than payment in full of all amounts due and owing at such time
shall not constitute a waiver of Payee's right to receive payment
in full at such time or at any prior or subsequent time. Interest
shall be calculated on the basis of a 365 day year ( 366 day leap
year) and will be charged at the Contract Rate for principal
outstanding hereunder for each calendar day on which any principal
is outstanding.
The amount of the foregoing Periodic Installment is based upon
(i) the outstanding principal balance of this Note on the date
hereof ($7,500,000), (ii) a per annum interest rate of eight and
07/100 percent (the "Payment Rate"), and (iii) a ten year
amortization period (the "Amortization Period"). The amount of
each future Periodic Installment shall be recalculated from time to
time as and if additional principal is advanced under this Note,
using the Payment Rate, the remaining term of the Amortization
period, and the then-outstanding principal balance of the Note in
such computations. In the absence of any additional principal
being advanced under this Note or the Borrower's election of the
Option to Convert, the amount of the Periodic Installments will not
change.
The amount and number of the Periodic Installments, moreover, will
not change with fluctuations in the Contract Rate. Any increase in
the Contract Rate shall be reflected by a corresponding decrease in
the portion of the Periodic Installment credited to the remaining
unpaid principal balance. Any decrease in the Contract Rate shall
be reflected as a corresponding increase in the portion of the
Periodic Installment credited to the remaining unpaid principal
balance. Notwithstanding the foregoing, at the end of each three
(3) month period commencing with the first Payment Date hereof,
Maker agrees to pay to Payee forthwith an additional sum
("Quarterly Payment") sufficient to amortize the then-unpaid
principal over the balance of the original Amortization Period
hereof at the Contract Rate applicable for the first Periodic
Installment.
If, and for so long as, the amount of interest due exceeds the
amount of the Periodic Installment, Maker agrees to pay forthwith,
in addition to (i) any Periodic Installment then due and (ii) any
Quarterly Payment, the amount by which said interest exceeds the
Periodic Installment. In the event
3
R#0202454.04
<PAGE>
interest only is required to be paid during any period, the
interest for such period shall be due and payable monthly as it
accrues in arrears and the amount of such "interest only"
installment shall be calculated on the unpaid principal balance
existing at the commencement of such period but the amount of such
installment in excess of interest due at the Contract Rate o the
principal balance during such period shall be applied to repayment
of principal.
This Note is secured by a deed of trust, by an assignment of rents
and by a security agreement, chattel mortgage, or like instrument
and certain other loan documents (each of which is hereinafter
called a "Security Agreement").
Time is of the essence hereof. If any installment or any other sum
due under this Note or any Security Agreement is not received
within fifteen (15) days after its due date, the Maker agrees to
pay, in addition to the amount of each such installment or other
sum, a late payment charge of four percent (4%) of said installment
or other sum in order to compensate the Payee for extra costs and
expenses caused by such late payment.
If (i) Maker fails to make payment of any amount due hereunder
within ten (10) days after the same becomes due and payable; or
(ii) maker is in default, or fails to perform after the passage of
any applicable cure period, under any term or condition contained
in any Security Agreement or in any Loan Agreement between the
Maker and the Payee, then the entire principal sum remaining
unpaid, together with all interest thereon and any other sum
payable under this Note or the Security Agreement, at the election
of payee, shall immediately become due and payable, with interest
thereon at the lesser of 18% per annum or the highest rate not
prohibited by applicable law from the date of such accelerated
maturity until paid (both before and after an judgment).
The Maker may prepay in full, but not in part, its entire
indebtedness hereunder upon payment of an additional sum as a
premium equal to the following percentages of the original
principal balance for the indicated period:
Prior to the first annual anniversary date of
this Note: two percent (2%)
Thereafter and prior to the second annual anniversary date of
this Note: two percent (2%)
Thereafter and prior to the third annual anniversary date
of this Note: one percent (1%)
and zero percent (0%) thereafter, plus all other sums due hereunder
or under any Security Agreement.
It is the intention of the parties hereto to comply with the
applicable usury laws; accordingly, it is agreed that,
notwithstanding any provision to the contrary in this Note or any
Security Agreement, in no event shall this Note or any Security
Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If
any such excess interest is contracted for, charged or received
under this Note or any Security Agreement, or if all of the
principal balance shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, charged or
received under this Note or the Security Agreement on the principal
balance shall exceed the maximum amount of interest permitted by
applicable law, then in such event (a) the provisions of this
paragraph shall govern and control, (b) neither Maker nor any
4
R#0202454.04
<PAGE>
other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest
permitted by applicable law, (c) any such excess which may have
been collected shall be either applied as a credit against the then
unpaid principal balance or refunded to maker, at the option of the
Payee, and (d) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed
under applicable law as now or hereafter construed by the courts
having jurisdiction thereof. It is further agreed that without
limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under this Note or the
Security Agreement which are made for the purpose of determining
whether such rate exceeds the maximum lawful contract rate, shall
be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading in equal parts during the
period of the full stated term of the indebtedness evidenced
hereby, all interest at any time contracted for, charged or
received from Maker or otherwise by Payee in connection with such
indebtedness; provided, however, that if any applicable state law
is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for the Payee to
receive a greater interest per annum rate than is presently
allowed, the Maker agrees that, on the effective date of such
amendment or preemption, as the case may be, the lawful maximum
hereunder shall be increased to the maximum interest per annum rate
allowed by the amended state law or the law of the United States of
America.
The Maker and all sureties, endorsers, guarantors or any others
(each such person, other than the Maker, an "Obligor") who may at
any time become liable for the payment hereof jointly and severally
consent hereby to any and all extensions of time, renewals, waivers
or modifications of, and all substitutions or release of, security
or of any party primarily or secondarily liable on this Note or any
Security Agreement or any term and provision of either, which may
be made, granted or consented to by Payee and agree that suit may
be brought and maintained against any one or more of them, at the
election of Payee without joinder of any other as a party thereto,
and that Payee shall not be required first to foreclose, proceed
against, or exhaust any security hereof in order to enforce payment
of this Note. The Maker and each Obligor hereby waive presentment
demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection
herewith, as well as filing of suit (if permitted by law) and
diligence in collecting this Note or enforcing any of the security
hereof, and agree to pay (if permitted by law) all expenses
incurred in collection, including Payee's actual attorneys' fees
for time in fact incurred at such attorneys' standard hourly
billing rates, without regard to any statutory presumption.
Any controversy or claim arising out of or relating to this Note
shall be determined by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association. The number of arbitrators shall be three. On
arbitrator shall be appointed by each of the parties and the third
arbitrator, who shall serve as chairman of the tribunal, shall be
appointed by the American Arbitration Association. The place of
arbitration shall be Charlotte, North Carolina. Any arbitral award
arising from any arbitration pursuant to this paragraph shall be
final and binding upon all parties hereto.
This Note and any Security Agreement constitute the entire
agreement of the Maker and Payee with respect to the subject matter
hereof and supersedes all prior understandings, agreements and
representations, express or implied.
5
R#0202454.04
<PAGE>
THIS NOTE SHALL BE GOVERNED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NORTH CAROLINA.
No variation or modification of this Note, or any waiver of any of
its provisions or conditions, shall be valid unless in writing and
signed by an authorized representative of Maker and payee. Any
such waiver, consent, modification or change shall be effective
only in the specific instance and for the specific purpose given.
Any provisions in this Note or any Security Agreement which is in
conflict with an statute, law or applicable rule shall be deemed
omitted, modified or altered to conform thereto.
IN WITNESS WHEREOF, this Note has been executed, UNDER SEAL, the
day and year first above written.
FOUNTAIN POWERBOATS, INC.
ATTEST:
By: /s/Reginald M. Fountain, Jr.
_______________ President
/s/Blanche C. Williams
_____________Secretary
[CORPORATE SEAL]
6
R#0202454.04
<PAGE>
BK 1063 PG 337
This document prepared by (and return to):
William C. Matthews, Jr.
Womble Carlyle Sandridge & Rice, P.L.L.C.
P.O. Box 831
Raleigh, North Carolina 27602
STATE OF NORTH CAROLINA )
) DEED OF TRUST, ASSIGNMENT
COUNTY OF BEAUFORT ) OF RENTS AND SECURITY AGREEMENT
COLLATERAL INCLUDES FIXTURES
THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
(hereinafter referred to as this "Deed of Trust"), made this 31st
day of December, 1996, by and among FOUNTAIN POWERBOATS, INC., a
North Carolina corporation, whose address is Whichard's Beach Road,
Washington, North Carolina 27889 (hereinafter referred to as the
"Grantor"), WILLIAM C. MATTHEWS, JR., the Trustee, a resident of
Wake County, North Carolina, whose address is Womble Carlyle
Sandridge & Rice, P.L.L.C., 2100 First Union Capitol Center,
Raleigh, North Carolina 27601 (hereinafter referred to as the
"Trustee"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation whose address is 6100 Fairview Road, Suite 1450,
Charlotte, North Carolina 28210 (hereinafter referred to as the
"Beneficiary");
W I T N E S S E T H
Grantor has requested the Beneficiary make available to the
Grantor credit, and the Beneficiary has agreed to extend to the
Grantor, subject to the terms and provisions of that certain Loan
Agreement between the Grantor, the Beneficiary, and certain other
parties, dated of even date herewith (the "Loan Agreement"), and
any modifications, extensions or replacements thereof, credit of up
to the sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00);
The Grantor therefore is indebted to the Beneficiary in the
principal amount of up to TEN MILLION AND NO/100 DOLLARS
($10,000,000.00), or so much thereof as shall be advanced from time
to time and remain outstanding, as evidenced by its promissory
note, in such principal amount, of even date herewith (which,
together with any amendments, renewals, and extensions hereof, is
hereinafter referred to as the "Note"), reference to which is
hereby made and which is payable in installments and with interest
as set out therein;
This Deed of Trust is given to secure all present and future
obligations of Grantor to Beneficiary. The period in which future
obligations may be incurred and secured by this Deed of Trust is
the period between the date hereof and that date which is fifteen
(15) years from the date hereof. The amount of present obligations
secured by this Deed of Trust is SEVEN MILLION FIVE HUNDRED
THOUSAND DOLLARS ($7,500,000.00). and the maximum principal amount,
including present and future obligations, which may be secured by
this Deed of Trust at any one time is TEN MILLION AND
R#0202455.04
<PAGE>
BK 1063 PG 338
NO/100 DOLLARS ($10,000,000.00). Grantor need not sign any
instrument or notation evidencing or stipulating that future
advances are secured by this Deed of Trust.
The Grantor desires to secure the payment of the Note with
interest and any renewals or extensions thereof, in whole or in
part, and of the additional payments hereinafter agreed to be made,
by a conveyance of the lands and a grant of the security interests
hereinafter described;
NOW, THEREFORE, to secure the repayment of the indebtedness
evidenced by the Note and any extensions or renewals thereof, the
performance of such other obligations of the Grantor as are set
forth herein and the payment of all other sums herein covenanted to
be paid, the Grantor hereby irrevocably grants, transfers, conveys
and assigns to the Trustee, successors and assigns IN TRUST, WITH
POWER OF SALE, for the benefit and security of the Beneficiary,
under and subject to the terms and conditions herein after set
forth, the real property located in the County of Beaufort, State
of North Carolina, described in EXHIBIT A attached hereto and by
this reference incorporated herein (the "Property");
TOGETHER WITH all rents, issues, profits, royalties, income
and other benefits derived from the Property (collectively the
"Rents"), subject to the right, power and authority hereinafter
given to the Grantor to collect and apply such Rents. The Rents
have also been assigned to the Beneficiary pursuant to a separate
Assignment of Rents and Leases of even date herewith (the
"Assignment of Rents");
TOGETHER WITH all leasehold estate, right, title and interest
of the Grantor in and to all leases or subleases covering the
Property or any portion thereof now or hereafter existing or
entered into, and all right, title and interest of the Grantor
thereunder, including, without limitation, all cash or security
deposits, advance rentals and deposits or payments of similar
nature;
TOGETHER WITH all right, title and interest of the Grantor in
and to all options to purchase or lease the Property or any portion
thereof or interest therein, and any greater estate in the Property
owned or hereafter acquired;
TOGETHER WITH all interests, estates or other claims, both in
law and in equity, which the Grantor now has or may hereafter
acquire in the Property;
TOGETHER WITH all easements, rights-of-way and rights used in
connection therewith or as a means of access thereto and all
tenements, hereditaments and appurtenances thereof and thereto;
TOGETHER WITH all right, title and interest of the Grantor,
now owned or hereafter acquired, in and to any land lying within
the right-of-way of any street, open or proposed, adjoining the
Property, and any and all sidewalks, alleys and strips and gores of
land adjacent to or used in connection with the Property;
TOGETHER WITH any and all buildings and improvements now or
hereafter erected thereon, including, but not limited to, all the
Grantor's right, title and interest in and to the fixtures,
attachments, appliances, equipment, machinery, and other articles
attached to the buildings and other improvements on the Property
(hereinafter called the "Improvements");
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BK 1063 PG 339
EXHIBIT A
TRACT I:
All that certain tract or parcel of land lying and being situate in
Chocowinity Township, Beaufort County, North Carolina, and being
more particularly described as follows:
Beginning at a point in the southern right-of-way line of NCSR 1166
(Whichards Beach Road); said point being located the following
courses and distances from a concrete monument located at the
southeasternly corner of the subdivision known as Harbor Estates,
as shown on a plat thereof recorded in Plat Cabinet A, Slide 113A
in the office of the Register of Deeds of Beaufort County, North
Carolina (said concrete monument also being the southwesterly
corner of Tract II described below): South 35- 52' 54" East 62.93
feet; South 36- 20' 33" West 30.61 feet; and South 64- 01' 09" East
16.66 feet to a point. THENCE FROM SAID POINT OF BEGINNING BEING
SO LOCATED, along and with the southern right-of-way line of
Whichards Beach Road South 64- 01' 03" East 132.39 feet to a point;
thence South 64- 00' 52" East 49.07 feet to a point; thence South
64- 01' 18" East 50.66 feet to a point; thence South 64- 01' 12"
East 220.27 feet to a point; thence South 64- 01' 09" East 45.61
feet to a point; thence continuing along and with the southern
right-of-way line of NCSR 1166 with a curve to the right in a
southeastwardly direction which has a chord bearing and distance of
South 57- 55' 13" East 341.99 feet to a point; thence South 51- 52'
17" East 22.40 feet to a point; thence continuing South 51- 52' 17"
East 300.00 feet to a point in the southern right-of-way line of
NCSR 1166 (all previous calls being along and with the southern
right-of-way line of NCSR 1166); thence leaving NCSR 1166 South 38-
00' 08" West 140.26 feet to a point; thence South 51- 52' 37" East
31.00 feet to a point; thence South 51- 52' 19" East 131.00 feet to
a point; thence South 38- 00' 08" West 50.00 feet to a point;
thence North 51- 59' 55" West 21.00 feet to a point; thence South
37- 59' 26" West 137.56 feet to a point; thence South 52- 57' 27"
East 107.66 feet to a point; thence South 35- 48' 31" West 49.16
feet to a point; thence South 37- 39' 39" West 149.73 feet to a
point; thence continuing South 37- 39' 39" West 18.38 feet to a
point in a ditch; thence along and with said ditch the following
courses: North 56- 10' 32" West 114.97 feet to a point; North 57-
56' 27" West 120.08 feet to a point; thence North 59- 09' 12" West
105.20 feet to a point; thence North 57- 02' 11" West 105.33 feet
to a point; thence North 64- 27' 40" West 506.54 feet to a point;
thence North 56- 33' 24" West 99.24 feet to a point; thence North
48- 59' 54" West 220.23 feet to a point; thence North 47- 02' 51"
West 145.55 feet to a point; thence North 36- 19' 37" East 158.65
feet to a point; thence North 36- 19' 33" East 51.10 feet to a
point; thence North 36- 20' 24" East 24.66 feet to a point; thence
North 36- 20' 24" East 24.66 feet to a point; thence North 36- 20'
20" East 100.34 feet to a point; thence North 36- 20' 41" East
166.95 feet to a point; thence with a curve to the right (which
curve has radius of 20 feet, a chord bearing
<PAGE>
BK 1063 PG 340
and distance of North 76- 08' 47" East 25.60 feet, and an arc
distance of 27.78 feet) to the point of beginning.
Together with a perpetual non-exclusive easement for ingress,
egress and regress across a 60-foot wide private right-of-way
running southwardly from NCSR 1166 at point (C) in the Ottis M.
Crisp line as shown on the plat entitled "Plan of Land surveyed for
Jennis M. Crisp" recorded in Plat Cabinet A, Slide 42A, in the
Beaufort County Registry.
TRACT II:
All that certain tract or parcel of land lying and being situate in
Chocowinity Township, Beaufort County, North Carolina, and being
more particularly described as follows:
Beginning at an existing concrete monument in the northern right-
of-way line of NCSR 1166 (Whichards Beach Road), said concrete
monument being also the southeasterly corner of the subdivision
known as Harbor Estates, as shown on a plat thereof recorded in
Plat Cabinet A, Slide 113A in the office of the Register of Deeds
of Beaufort County, North Carolina. THENCE FROM SAID POINT OF
BEGINNING BEING SO LOCATED, North 30- 36' 00" East 375.64 feet to a
point; thence North 30- 36' 00" East 17.0 feet to a point in a
canal; thence continuing with the canal North 48- 42' 00" East
23.43 feet to a point; thence continuing with the canal North 30-
26' 00" East 476.44 feet to a point; thence North 31- 42' 00" East
427.85 feet to a point in the mean high water line of the Pamlico
River; thence along and with the mean high water line of the
Pamlico River the following courses and distances; North 71- 11'
00" East 88.88 feet to a point; thence North 78- 57' 00" East 77.78
feet to a point; thence North 51- 09' 00" East 53.88 feet to a
point; thence South 21- 39' 00" East 42.48 feet to a point; thence
South 55" 23' 00" East 82.19 feet to a point; thence North 65- 06'
00" East 38.64 feet to a point; thence South 45- 07' 00" East
146.64 feet to a point; thence South 59- 32' 00" East 106.73 feet
to a point; thence South 65- 55' 46" East 91.98 feet to a point;
thence South 87- 44' 21" East 82.14 feet to a point; thence South
83- 21' 00" East 96.80 feet to a point; thence North 78- 56' 00"
East 251.10 feet to a point; thence South 63- 13' 00" East 91.37
feet to a point; thence South 63- 13' 00" East 182.56 feet to a
point; thence South 63- 13' 00" East 107.00 feet to a point; thence
leaving said river South 38- 18' 41 " West 21.94 feet to a concrete
monument; thence continuing South 38- 18' 41" West 701.64 feet to a
concrete monument; thence continuing South 38- 18' 41" West 64.72
feet to a concrete monument; thence continuing South 38- 18' 41"
West 108.03 feet to a concrete monument; thence South 38- 18' 41"
West 106.26 feet to a concrete monument; thence continuing South
38- 18' 41" West 104.29 feet to a concrete monument; thence
continuing South 38- 18' 41" West 102.43 feet to a concrete
monument; thence South 38- 18' 41" West 127.21 feet to a concrete
monument; thence South 38- 18' 41" West 35.74 feet to a concrete
<PAGE>
BK 1063 PG 341
monument; thence South 38- 18' 41" West 63.98 feet to a concrete
monument; thence continuing South 38- 18' 41" West 99.54 feet to a
concrete monument; thence continuing South 38- 18' 41" West 99.16
feet to a concrete monument in the northern right-of-way line of
NCSR 1166; thence continuing South 38- 18' 41" West 106.40 feet to
a concrete monument along and with the northern right-of-way line
of NCSR 1166 along a curve to the left in a northwestwardly
direction to a point (which curve has a chord bearing and distance
of North 51- 41' 19" West 100.00 feet); thence continuing along and
with the northern right-of-way line of NCSR 1166 along a curve to
the left in a northwestwardly direction to a point (which curve has
a chord bearing and distance of North 55- 31' 51" West 396.18
feet); thence continuing along and with the northern right-of-way
line of NCSR 1166 North 62- 36' 41" West 58.52 feet to a point;
thence continuing along and with the northern right-of-way line of
NCSR 1166 North 63- 28' 00" West 100.00 feet to a point; ;thence
continuing along and with the northern right-of-way line of NCSR
1166 North 64- 04' 00" West 470.44 feet to the point or place of
beginning.
Together with all property lying between the northern property line
of the above-described property, the eastern and western property
line of the above-described property extended in a northeasterly
direction to the mean high water line of the Pamlico River and the
mean high water line of the southern shore of the Pamlico River.
81-0242 (DV)
12/28/96
CDR/DCR
WSMAIN/205631
<PAGE>
BK 1063 PG 342
TOGETHER WITH all right, title and interest of the Grantor in
and to all tangible and intangible personal property now or
hereafter owned or leased by the Grantor relating to or associated
with the property, including, without limitation, all the Grantor's
right, title and interest in, to and under (a) all furniture,
furnishings, machinery, apparatus, equipment, fittings, fixtures
and other articles of tangible personal property now owned or
leased or hereafter acquired by the Grantor and now or at any time
hereafter located on or at the Property and the Improvements now or
hereafter erected thereon or used in connection with the Property
and/or the Improvements, and the operation and maintenance thereof;
(b) all proceeds or sums payable in lieu of or as compensation for
the loss or damage to any property described in (a) above or to the
Property or the Improvements; (c) all rights in and to all
pertinent present and future fire and/or hazard insurance policies
(including, but not limited to, insurance proceeds) covering the
Property, the Improvements or the property described in (a) above;
(d) all awards made by any public body or decreed by any court of
competent jurisdiction for a taking or for degradation of value of
the Property, the Improvements or the property described in (a)
above in any eminent domain proceeding and all payments made in
respect of a conveyance made in lieu of any such taking; (e) all
proceeds of every kind and description of the property described in
clauses (a) through (d) above (all of the foregoing is referred to
herein collectively as the "Personal Property");
TOGETHER WITH all other interest of every kind and character
which the Grantor now has or at any time hereafter acquires, in and
to the real and personal property described herein, and all
property which is used or useful in connection therewith, including
rights of ingress and egress and all reversionary rights or
interests of the Grantor with respect to such property; and any
proceeds thereof (including insurance proceeds), any additions and
accessions thereto, and any replacements or renewals of all of the
foregoing;
TOGETHER WITH all the estate, interest, right, title, other
claim or demand, including claims or demands with respect to the
proceeds (including premium refunds) of insurance in effect with
respect to the Trust Estate, as herein defined, which the Grantor
now has or may hereafter acquire in the Property and Improvements,
and any and all awards made for the taking by eminent domain, or by
any proceeding or purchase in lieu thereof, of the whole or any
part of the Trust Estate (as hereinafter defined), including
without limitation, any awards resulting from a change of grade of
streets and awards for severance damages;
TOGETHER WITH all (to the full extent legally assignable)
licenses, permits and authorizations (issued in the name of the
Grantor) necessary for the operation of the Property and
Improvements as a boat manufacturing facility;
The entire estate, property and interest hereby conveyed to
the Trustee may be hereinafter referred to as the "Trust Estate".
TO HAVE AND TO HOLD the Property and Improvements, with all
rights, privileges and appurtenances thereunto belonging or
appertaining, as hereinabove described, to the Trustee, his heirs,
successors and assigns in fee simple forever, upon the trusts and
for the uses and purposes hereinafter set forth;
AND THE GRANTOR COVENANTS WITH THE TRUSTEE that it is seized
of the Property and Improvements in fee simple and has the right to
convey the same; that it will warrant and
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defend the title to the Trust Estate against the lawful claims of
all persons whomsoever and that the Property and Improvements are
free and clear of all liens and encumbrances, except those set
forth in EXHIBIT B attached hereto and incorporated herein by
reference.
THIS CONVEYANCE IS MADE IN TRUST
FOR THE PURPOSES OF SECURING
a. Payment of the indebtedness in the maximum principal
amount of $10,000,000.00, with interest thereon, evidenced by the
Note executed by the Grantor, which has been delivered to and is
payable to the order of the Beneficiary, and which by this
reference is hereby made a part hereof, and any and all
modifications, extensions and renewals thereof. This Deed of Trust
also secures all attorney's fees, court costs and expenses of
whatever kind incident to the collection of the indebtedness and
the enforcement or protection of the Beneficiary's interest under
this Deed of Trust;
b. Payment of all sums advanced by the Beneficiary to protect
the Trust Estate, with interest thereon at the Default Rate, as
defined in the Note;
c. Performance of the Grantor's obligations and agreements
contained in this Deed of Trust, the Note, the Assignment of Rents,
that certain Master Security Agreement of even date herewith
between the Grantor and the beneficiary (the "Security Agreement"),
the Loan Agreement and any other instrument or modifications or
amendments thereof given to evidence or further secure the payment
and performance of any obligation secured hereby.
This Deed of Trust, the Note, the Assignment of Rents, the
Security Agreement, the Loan Agreement, and any other instrument
given to evidence or further secure the payment and performance of
any obligation secured hereby may hereafter be referred to herein
as the "Loan Instruments."
PROVIDED, HOWEVER, if the Grantor shall pay the Note secured
hereby in accordance with its terms, together with interest
thereon, and any renewals or extensions thereof, and any advances
made by the Beneficiary for the protection of the Trust Estate, and
shall comply with all of the Grantor's covenants, terms and
conditions contained in this Deed of Trust, then this conveyance
shall be null and void and shall be canceled of record by the
Beneficiary at the request and at the cost of the Grantor.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, THE GRANTOR
HEREBY COVENANTS AND AGREES AS FOLLOWS:
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BK 1063 PG 344
EXHIBIT B
Permitted Exceptions
Permitted Exceptions consist of the exceptions set forth in
Schedule B - Section 2 (Exceptions) in the title insurance
commitment issued by Fidelity National Title Insurance Company of
Pennsylvania for this loan.
WSMAIN/205912
<PAGE>
BK 1063 PG 345
ARTICLE I
COVENANTS AND AGREEMENTS OF THE GRANTOR
1.01 Payment of Secured Obligations. The Grantor covenants
and agrees to pay when due the principal of, and the interest on,
the indebtedness evidenced by the Note, charges, fees and all
other sums as provided in the Loan Instruments, and the principal
of, and interest on, any advances made by the Beneficiary to
protect the Property or the Improvements, the repayment of which
is secured by this Deed of Trust.
1.02 Maintenance, Repair, Alterations. The Grantor
covenants and agrees to keep the Trust Estate in good conditions
and repair; not to remove, demolish or substantially alter
(except such alterations as may be required by laws, ordinances
or regulations or as may not materially adversely affect the
value of the Improvements and except such non-structural
demolition and renovation of tenant space as may be deemed
necessary or appropriate by the Grantor in connection with
preparing such space for leasing) any of the Improvements; to
complete promptly and in a good and workmanlike manner any
Improvements and to promptly restore in like manner any of the
Improvements which may be damaged or destroyed and to pay when
due all claims for labor performed and materials furnished
therefor; to comply with all laws, ordinances, regulations,
covenants, conditions and restrictions now or hereafter affecting
the Trust Estate or any part thereof or requiring any alterations
or improvements; not to commit or permit any waste or
deterioration of the Trust Estate; to keep and maintain grounds,
sidewalks, and landscape areas located on the Property in good
and neat order and repair; to comply with the provisions of any
lease, if this Deed of trust is on a leasehold; not to commit,
suffer or permit any act to be done in or upon the Trust Estate
in violation of any law, ordinance or regulation or provision of
any lease the violation of which could result in a termination of
such leasehold. Notwithstanding the foregoing, the Grantor's
obligation to repair and restore the Improvements following any
casualty damage or any Condemnation (as defined in Section 1.14
below) shall be subject to the terms and provisions in Sections
1.05 and 1.14 below.
1.03 Required Insurance. The Grantor covenants and agrees
at all times to provide, maintain and keep in force (or to cause
to be provided, maintained, and kept in force) the following
policies of insurance:
(a) Insurance against loss or damage to the Improvements by
fire and any of the risks covered by insurance of the type now
known as "special cause of loss," in an amount not less than (1)
the original principal amount of the Note or (2) the full
insurable value of the Improvements, including cost of the debris
removal (exclusive of the cost of excavations, foundations, and
footings below the lowest basement floor), whichever is greater,
with not more than a $50,000 deductible from the loss payable for
any casualty. The policies of insurance carried in accordance
with this subparagraph (a) shall contain the "Replacement Cost
Endorsement";
(b) Commercial general liability insurance (including
coverage for elevators and escalators, if any, on the Trust
Estate) on an "occurrence basis" against claims for "personal
injury," including, without limitation, bodily injury, death or
property damage occurring on, in or about the Trust Estate and
the adjoining streets, sidewalks and passageways, such insurance
to afford immediate minimum protection to a limit of not less
than $3 million for personal injury or death to any one or more
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BK 1063 PG 346
persons or damage to property with respect to any one or more
occurrences and $4 million for all such occurrences in the
aggregate;
(c) During the course of any construction or repair of
Improvements on the Property, workers' compensation insurance
(including employer's liability insurance, if requested by the
Beneficiary) for all employees of the Grantor engaged on or with
respect to the Trust Estate in such amount as is reasonably
satisfactory to the Beneficiary, or, if such limits are
established by law, in such amounts;
(d) During the course of any construction or repair of
Improvements on the Property, builder's completed value insurance
against those risks of loss covered by the "special cause of
Loss" form, including collapse and transit coverage, during
construction of such Improvements, with deductibles not to exceed
$50,000, in nonreporting form, covering the total insurable value
of work performed and equipment, supplies and materials
furnished, with the policy of insurance to contain the
"permission to occupy upon completion of work or occupancy"
endorsement;
(e) Boiler and machinery insurance covering pressure
vessels, air tanks, boilers, machinery, pressure piping, heating,
air conditioning and elevator equipment and escalator equipment,
provided the improvements contain equipment of such nature, and
insurance against loss of occupancy or use arising from any
breakdown of any of the items referred to in this subparagraph
(e), in such amounts as are reasonably satisfactory to the
Beneficiary;
(f) Insurance against loss or damage to the Personal
Property by fire and other risks covered by insurance of the type
now known as "special cause of loss,"
(g) Business income insurance and/or loss of "rental value"
insurance in such amounts as are reasonably acceptable to the
Beneficiary; and
(h) Such other insurance and in such amounts as may from
time to time be maintained by similar businesses using prudent,
commercially reasonable judgment.
All policies of insurance required by the terms of this Deed
of Trust shall contain an endorsement or agreement by the
insurer, if such an endorsement is generally obtainable from
insurance companies, that any loss shall be payable in accordance
with the terms of such policy notwithstanding any act or
negligence of the Grantor which might otherwise result in
forfeiture of such insurance and the further agreement of the
insurer waiving all rights of setoff, counterclaim or deductions
against the Grantor.
1.04 Delivery of Policies, Payment of Premiums. All
policies of insurance shall be issued by companies and in amounts
in each company satisfactory to the Beneficiary in its sole
discretion. All policies of insurance [except for that required
in Section 1.03(b)] shall have attached thereto a lender's loss
payable endorsement for the benefit of the Beneficiary in a form
satisfactory to the Beneficiary. The grantor shall provide to
the Beneficiary certificates of insurance with respect to the
policies required hereunder. If requested by the Beneficiary,
the Grantor shall furnish the Beneficiary with an original policy
of all policies of required insurance or certified copies of such
policies. If the Beneficiary consents to the Grantor providing
any of the required insurance through blanket policies
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carried by the Grantor and covering more than one location, then
the Grantor shall furnish the Beneficiary with a certificate of
insurance for each such policy setting forth the coverage, the
limits of liability as to the Trust Estate, the name of the
carrier, the policy number, and the expiration date. At least
fifteen (15) days prior to the expiration of each such policy,
the Grantor shall furnish the Beneficiary with evidence
satisfactory to the Beneficiary of the reissuance of continuation
of a policy continuing insurance in force as required by this
Deed of Trust. The Grantor shall pay al insurance premiums
promptly as billed by the issuing insurance companies, and in any
event prior to delinquency; and the Grantor shall furnish the
Beneficiary with evidence satisfactory to the Beneficiary of the
timely payment of such insurance premiums. To the extent such
endorsements can be generally obtained from insurance companies,
all such policies shall contain a provision that such policies
will not be canceled including any reduction in the scope or
limits of coverage) without at least thirty (30) days prior
written notice to the Beneficiary. In the event the Grantor
fails to provide, maintain, keep in force or deliver and furnish
to the Beneficiary the polices of insurance required by this Deed
of Trust, the Beneficiary may procure such insurance or single-
interest insurance for such risks covering the Beneficiary's
interest. The Grantor will pay all premiums thereon promptly
upon demand by the Beneficiary. Until the Grantor makes such
payment, the amount of all such premiums, together with interest
thereon at the Default Rate, shall be secured by this Deed of
Trust.
Upon written request by the Beneficiary, the Grantor shall
deposit with an escrow agent selected by the Beneficiary (such
party being hereinafter referred to as the "Escrow Agent") in
monthly installments an amount equal to one-twelfth (1/12) of the
estimated aggregate annual insurance premiums on all policies of
insurance required by this Deed of Trust in order to accumulate
sufficient funds to pay such premiums 30 days prior to their due
date. In such case, should the Grantor fail to deposit sums
sufficient to fully pay such insurance premiums at least thirty
(30) days before delinquency thereof, the Beneficiary may, at the
Beneficiary's election (but shall not be obligated to), advance
any amounts required to make up the deficiency. Such advances,
if any, shall be secured hereby and, together with interest
thereon, shall be repayable to the Beneficiary in like manner as
herein elsewhere provided for the repayment on sums advanced by
the Beneficiary to pay insurance premiums. At the option of the
Beneficiary, if the Grantor has failed to deposit sufficient
funds to fully pay such insurance, the Beneficiary instead may,
without making any advance whatever, apply any sums held by the
Escrow Agent upon any obligation of the Grantor secured hereby
following the occurrence of an Event of Default. Should any
Event of Default (as hereinafter defined) occur or exist on the
part of the Grantor in the payment or performance of any of the
Grantor's obligations under the terms of the Loan Instruments,
the Beneficiary may apply any sums or amounts in its hands
received as rents or income of the Trust Estate, or otherwise,
upon any indebtedness or obligation of the Grantor secured hereby
in such manner and order as the Beneficiary may elect. The
receipt, use or application of any such sums paid by the Grantor
to the Escrow Agent hereunder shall not be construed to affect
the maturity of any indebtedness secured by this Deed of Trust or
any of the rights or powers of the Beneficiary or the Trustee
under the terms of the Loan Instruments or any of the obligations
of the Grantor.
The Grantor further agrees, upon the Beneficiary's request,
to cause originals or true and complete copies of all bills,
statements and other documents relating to the foregoing
insurance premiums to be sent or mailed directly to the
Beneficiary. Upon receipt of such bills, statements or other
documents, and provided the Grantor has deposited sufficient
funds pursuant to this Section 1.04, the Escrow Agent, upon
instructions from the Beneficiary, shall pay such amounts as may
be due thereunder out of the funds so deposited. If at any time
and for any reason such funds are or will be insufficient to
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pay such amounts as may then or subsequently be due, the
Beneficiary shall so notify the Grantor, and the Grantor shall
immediately deposit an amount equal to such deficiency with the
Escrow Agent. Notwithstanding the foregoing, nothing contained
herein shall cause the Beneficiary or the Escrow Agent to be
obligated to pay any amounts in excess of the amount of funds
deposited with the Escrow Agent pursuant to this Section 1.04.
The Escrow Agent may commingle the reserve with its own funds,
and the Grantor shall be entitled to no interest thereon.
1.05 Insurance Proceeds. After the happening of any
casualty to the Trust Estate or any part thereof, the Grantor
shall give prompt written notice thereof to the Beneficiary and
shall, whether or not any insurance proceeds are available or
adequate for such purpose and regardless of the dollar amount of
such damage or loss, with reasonable diligence, at the Grantor's
own sole cost and expense, repair, restore or reconstruct the
Improvements or the portion thereof so damaged.
(a) In the event of any damage or destruction of the
Improvements, the Beneficiary shall have the option in its sole
discretion of applying all or part of the insurance proceeds (i)
to any indebtedness secured hereby and in such order as the
Beneficiary may determine, or (ii) to the restoration of the
Improvements, or (iii) to the Grantor.
(b) In the event of such loss or damage, all proceeds of
insurance shall be payable to the Beneficiary. The Grantor
hereby authorizes and directs any affected insurance company to
make payment of such proceeds directly to the Beneficiary. The
Grantor hereby authorizes and empowers the Beneficiary to settle,
adjust or compromise any claims for loss, damage or destruction
under any policy or policies of insurance.
(c) The Grantor's obligation under this Deed of Trust to
repair and restore the Trust Estate following any casualty damage
shall be limited to the extent that, pursuant to Section 1.05(a)
above or any other Loan Instrument, the Beneficiary elects not to
make the insurance proceeds available to the Grantor to fund such
repair and restoration. Except to the extent that insurance
proceeds are received by the Beneficiary and applied to the
indebtedness secured hereby, nothing herein contained shall be
deemed to excuse the Grantor from repairing or maintaining the
Trust Estate as provided in Section 1.02 hereof or restoring all
damage or destruction to the Trust Estate, regardless of the
availability or sufficiency of insurance proceeds.
(d) The application or release by the Beneficiary of any
insurance proceeds pursuant to this Deed of Trust shall not cure
or waive any default or notice of default under this Deed of
Trust or invalidate any act done pursuant to such notice.
1.06 Assignment of Policies upon Foreclosure. In the event
of foreclosure of this Deed of Trust or other transfer of title
or assignment of the Trust Estate in extinguishment, in whole or
in part, of the debt secured hereby, all right, title and
interest of the Grantor in and to all policies of insurance
required by this Deed of Trust, including refunds of premiums
thereon, (unless insurance is provided by a so-called "blanket"
policy covering multiple property locations) shall inure to the
benefit of and pass to the successor in interest to the Grantor
or the purchaser or grantee of the Trust Estate. To the extent
that the policies will not permit such rights and benefits to
pass automatically, the Grantor shall execute such documentation
(and forward such refunds of premiums for such policies) to
effectuate the intent of this Section.
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1.07 Indemnification; Subrogation; Waiver of Offset.
(a) If the Beneficiary is made a party defendant to any
proceeding or litigation concerning this Deed of Trust or the
Trust Estate or any part thereof or interest therein, or the
occupancy thereof by the Grantor, then the Grantor shall
indemnify, defend and hold the Beneficiary and the Trustee
harmless from all liability by reason of such proceeding or
litigation, including attorneys' fees and expenses incurred by
the Beneficiary or the Trustee in any such proceeding or
litigation, whether or not any such proceeding or litigation is
prosecuted to judgment. If the Beneficiary or the Trustee
commences an action against the Grantor to enforce any of the
terms hereof or because of the breach by the Grantor of any of
the terms hereof, or for the recovery of any sum secured hereby,
the Grantor shall pay to the Beneficiary or the Trustee, as the
case may be, attorneys' fees and expenses. The right to such
attorneys' fees and expenses shall be deemed to have accrued on
the commencement of such action and shall be enforceable whether
or not such action is prosecuted to judgment or otherwise
completed. If the Grantor breaches any term of this Deed of
Trust, the Beneficiary or the Trustee may employ an attorney or
attorneys to protect its rights hereunder. In the event of such
employment following any breach by the Grantor, the Grantor shall
pay the Beneficiary or the Trustee, as the case may be,
attorneys' fees and expenses incurred by such party, whether or
not an action is actually commenced against the Grantor by reason
of such breach.
(b) The Grantor waives any and all right to claim or
recover against the Trust and the Beneficiary, its officers,
employees, agents and representatives, for loss of or damage to
the Grantor, the Trust Estate, the Grantor's property or the
property of others under the Grantors control from any cause
insured against or required to be insured against by the
provisions of this Deed of Trust.
(c) All sums payable by the Grantor hereunder shall be paid
without notice, demand, counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment, diminution
or reduction. The obligations and liabilities of the Grantor
hereunder shall in no way be released, discharged or otherwise
affected (except as expressly provided herein) by reason of: (i)
any damage to or destruction of or any condemnation or similar
taking of the Trust Estate or any part thereof; (ii) any
restriction or prevention of or interference with any use of the
Trust Estate or any part thereof; (iii) any title defect or
encumbrance or any eviction from the Property or the Improvements
or any part thereof by title paramount or otherwise; (iv) any
bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation, or other like proceeding relating to
the Beneficiary or the Grantor, or any action taken with respect
to this Deed of Trust by any trustee or receiver of the
Beneficiary or the Grantor, or by any court, in any such
proceeding; (v) any claim which the Grantor has, or might have,
against the Beneficiary; (vi) any default or failure on the part
of the Beneficiary to perform or comply with any of the terms
hereof or of any other agreement with the Grantor; or (vii) any
other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not the Grantor shall have notice or
knowledge of any of the foregoing. Except as expressly provided
herein and to the extent waivable by the Grantor, the Grantor
waives all rights now or hereafter conferred by statute or
otherwise to any abatement, suspension, deferment, diminution, or
reduction of any sum secured hereby and payable by the Grantor.
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1.08 Taxes and Impositions.
(a) Subject to its obligations under Section 1.08(e) below,
the Grantor agrees to pay, at least ten days prior to
delinquency, all applicable real property and personal property
taxes and assessments, general and special; all applicable
payments in lieu of taxes; and all other applicable taxes, fees
and assessments of any kind or nature whatsoever (including,
without limitation, nongovernmental review or assessments such as
maintenance charges; owner association dues, charges or fees;
levies or charges resulting from covenants, conditions and
restrictions affecting the Trust Estate) which are assessed or
imposed upon the Trust Estate, or become due and payable, and
which create, may create or appear to create a lien upon the
Trust Estate, or any part thereof, or upon any Personal Property,
equipment or other facility used in the operation or maintenance
thereof (all of which taxes, assessments and other governmental
and nongovernmental charges of like nature are hereinafter
referred to as "Impositions"). If, by law, any such Imposition
is payable, of may, at the option of the taxpayer, be paid in
installments, the Grantor may pay the same, together with any
accrued interest on the unpaid balance of such Impositions, in
installments as the same become due and before any fine, penalty,
interest or cost may be added thereto for the nonpayment of any
such installment and interest.
(b) If at any time after the date hereof there shall be
assessed or imposed (i) a tax or assessment on the Trust Estate
in lieu of or in addition to the Imposition payable by the
Grantor pursuant to subparagraph (a) hereof, or (ii) a license,
fee, tax or assessment imposed on the Beneficiary and measured by
or based in whole or in part upon the amount of the outstanding
obligations secured hereby, then all such taxes, assessments or
fees shall be deemed to be included within the term "Impositions"
as defined in subparagraph (a) hereof. The Grantor shall pay and
discharge such Impositions as herein provided with respect to the
payment of other Impositions. Anything to the contrary herein
not withstanding, the Grantor shall have no obligation to pay any
franchise, estate, inheritance, income, excess profits or similar
tax levied on the Beneficiary or on the obligations secured
hereby.
(c) Subject to the provisions of Section 1.08(d) below, the
Grantor covenants to furnish the Beneficiary, within thirty (30)
days after the date upon which any such Imposition must be paid
by the Grantor in order to avoid a delinquency, official receipts
of the appropriate taxing authority, or other proof satisfactory
to the Beneficiary, evidencing the payments thereof.
(d) The Grantor shall have the right before any delinquency
occurs to contest or object to the amount or validity of any such
Imposition by appropriate legal proceedings. This right shall
not be deemed or construed in any way as relieving, modifying or
extending the Grantor's covenant to pay any such Imposition at
the time and in the manner provided in this Section 1.08, (1)
unless the Grantor gives prior written notice to the Beneficiary
of the Grantor's contest of any Imposition within three (3) days
of filing such contest, and (2) unless, at the Beneficiary's sole
option, (i) the Grantor demonstrates to the Beneficiary's sole
satisfaction that the legal proceedings shall conclusively
operate to prevent the sale of the Trust Estate or any part
thereof to satisfy such Imposition prior to final determination
of such proceedings; or (ii) the Grantor shall furnish a good and
sufficient bond or surety as requested by and satisfactory to the
Beneficiary; or (iii) the Grantor shall have provided a good and
sufficient undertaking as may be required or permitted by law to
accomplish a stay of such proceedings.
(e) The Grantor shall pay to the Escrow Agent on the day
monthly installments of principal and interest are payable under
the Note, until the Note is paid in full, an amount equal to one-
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twelfth of the annual Impositions reasonably estimated by the
Beneficiary to pay at least thirty (30) days prior to their
delinquency the installment of taxes (or payment due in lieu of
taxes) next due on the Trust Estate. The Grantor further agrees
to cause originals or true and complete copies of all bills,
statements, and other documents relating to Impositions to be
sent or mailed directly to the Beneficiary. Upon receipt of such
bills, statements and other documents, and provided the Grantor
has deposited sufficient funds with the Escrow Agent pursuant to
this Section 1.08, the Escrow Agent, upon instructions from the
Beneficiary, shall pay such amounts as may be due thereunder out
of the funds so deposited. If at any time and for any reason
such funds deposited are or will be insufficient to pay such
amounts as may then or subsequently be due, the Beneficiary shall
so notify the Grantor and the Grantor shall immediately deposit
an amount equal to such deficiency with the Escrow Agent.
Notwithstanding the foregoing, nothing contained herein shall
cause the Beneficiary or the Escrow Agent to be obligated to pay
any amounts in excess of the amount of funds so deposited
pursuant to this Section 1.08. The Escrow Agent may commingle
the reserve with its own funds and shall not be obligated to pay
or allow any interest on any sums so held pending disbursement or
application hereunder. Should the Grantor fail to deposit with
the Escrow Agent sums sufficient to fully pay such Impositions at
least thirty (30) days before delinquency thereof, the
Beneficiary may, at the Beneficiary's election (but shall not be
obligated to), advance any amounts required to make up the
deficiency. Such advances, if any, shall be secured hereby and,
together with interest thereon, shall be repayable to the
Beneficiary in like manner as herein elsewhere provided for the
repayment on sums advanced by the Beneficiary to pay insurance
premiums. At the option of the Beneficiary, if the Grantor has
failed to deposit such funds sufficient to fully satisfy the
Impositions, the Beneficiary instead may, without making any
advance whatever, apply any sums held by the Escrow Agent upon
any obligation of the Grantor secured hereby following the
occurrence of an Event of Default. Should any Event of Default
occur or exist on the part of the Grantor in the payment or
performance of any of the Grantor's obligations under the terms
of the Loan Instruments, the Beneficiary may apply any sums or
amounts in its hands received as rents or income of the Trust
Estate, or otherwise, upon an indebtedness or obligation of the
Grantor secured hereby in such manner and order as the
Beneficiary may elect. The receipt, use or application of any
sums paid by the Grantor to the Escrow Agent hereunder shall not
be construed to affect the maturity of any indebtedness secured
by this Deed of Trust or any of the rights or powers of the
Beneficiary or the Trustee under the terms of the Loan
Instruments or any of the obligations of the Grantor under any of
the Loan Instruments.
(f) The Grantor covenants and agrees not to suffer, permit
or initiate the joint assessment of the real and personal
property herein described as the Trust Estate with any other real
and personal property of the Grantor or any other procedure
whereby the lien of the real property and personal property taxes
shall be assessed, levied or charged to the Trust Estate and
other real and personal property of the Grantor as a single lien.
The Grantor agrees to furnish to the Beneficiary documentation
establishing to the Beneficiary's satisfaction that the Trust
Estate is not taxed together with other real or personal
property.
1.09 Utilities. The Grantor covenants and agrees to pay
when due all utility charges which are incurred by the Grantor
for the benefit of the Trust Estate or which may become a charge
or lien against the Trust Estate for gas, electricity, water or
sewer services furnished to the Trust Estate and all other
assessments or charges of a similar nature, whether public or
private, affecting the Trust Estate or any portion thereof,
whether or not such taxes, assessments or charges are liens
thereon.
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1.10 Licenses, Permits and Authorizations. The Grantor
covenants and agrees to apply for, obtain and continue in full
force all licenses, authorizations and permits necessary for the
operation of the Property and Improvements as a boat
manufacturing facility.
1.11 Actions Affecting Trust Estate. The Grantor covenants
and agrees to appear in and contest any action or proceeding
purporting to affect the security hereof or the rights or powers
of the Beneficiary or the Trustee, and to pay all costs and
expenses (including cost of evidence of title and attorneys'
fees) in any such action or proceeding in which the Beneficiary
or the Trustee may appear.
1.12 Actions By the Trustee and/or the Beneficiary to
Preserve Trust Estate. Should the Grantor fail to make any
payment or to do any act as and in the manner provided in any of
the Loan Instruments, the Beneficiary and/or the Trustee, each in
its own discretion, without notice to or demand upon the Grantor
(except as may be otherwise provided herein) and without
releasing the Grantor from any obligation, may (but shall not be
obligated to) make or do the same in such manner and to such
extent as either may deem necessary to protect to security
hereof. In connection therewith (without limiting their general
powers), the Beneficiary and/or the Trustee shall have, and are
hereby given, the right, but not the obligation, upon the
occurrence of such a failure as hereinabove described, (i) to
enter upon and take possession of the Trust Estate (ii) to make
additions, alterations, repairs and improvements to the Trust
Estate which they or either of them may consider necessary or
proper to keep the Trust Estate in good condition and repair;
(iii) to appear and participate in any action or proceeding
affecting or which may affect the security hereof or the rights
or powers of the Beneficiary or the Trustee; (iv) to pay,
purchase, contest, or compromise any encumbrance, claim, charge,
lien or debt which in the sole judgment of either affects the
security of this Deed of Trust or is prior or superior hereto
(excluding easements, encroachments, leases and subleases
existing as of the date of this Deed of Trust which have been
disclosed to the Beneficiary); and (v) in exercising such powers,
to pay necessary expenses, including employment of counsel or
other necessary or desirable consultants. the Grantor shall,
immediately upon demand therefor by the Beneficiary or the
Trustee, as the case may be, pay all costs and expenses incurred
by such party in connection with the exercise by such party of
the foregoing rights, including without limitation, costs of
evidence of title, court costs, appraisals, surveys and
attorneys' fees.
1.13 Further Assurances. At any time, and from time to
time, upon request by the Beneficiary, and provided the request
does not increase the Grantor's obligations under the Loan
Instruments, the Grantor will execute and deliver to the
Beneficiary and, where appropriate, cause to be recorded and/or
filed and from time to time thereafter to be re-recorded and or
refiled at such time and in such offices and places as shall be
reasonably required by the Beneficiary, any and all such other
and further deeds of trust, security agreements, financing
statements, continuation statements, instruments of further
assurance, certificates and other documents as may, in the
reasonable opinion of the Beneficiary, be necessary or desirable
in order to effectuate, complete or perfect , or to continue and
preserve (i) the obligation of the Grantor under the Note and
under this Deed of Trust and (ii) the security interest created
by this Deed of Trust as a first and prior security interest upon
security title in and to all of the Trust Estate, whether now
owned or hereafter acquired by the Grantor. Upon any failure by
the Grantor so to do, the Beneficiary may execute, record, file,
re-record and/or refile any and all such deeds of trust, security
agreements, financing statements, continuation statements,
instruments, certificates and documents for and in the name of
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the Grantor, and the Grantor hereby irrevocable appoints the
Beneficiary the agent and attorney-in-fact of the Grantor so to
do.
1.14 Eminent Domain. Should the Trust Estate, or any part
thereof or interest therein, be taken or damaged by reason of any
public improvement or condemnation proceeding, or in any other
manner ("Condemnation"), or should the Grantor receive any notice
or other information regarding such proceeding, the Grantor shall
give prompt written notice thereof to the Beneficiary.
(a) The Beneficiary shall be entitled to all compensation,
awards and other payments or relief for Condemnation to the
extent of the outstanding indebtedness and unpaid interest
thereon and all other sums secured by this Deed of Trust. The
Beneficiary shall be entitled, at its option, to commence, appear
in and prosecute in its own name any action or proceedings (and
shall also be entitled to make any compromise or settlement) in
connection with such taking or damage. All such compensation,
awards, damages, rights of action and proceeds awarded to the
Grantor (the "Proceeds") are hereby assigned to the Beneficiary.
The Grantor covenants and agrees to execute such further
assignments of the Proceeds as the Beneficiary or the Trustee may
require.
(b) In the event any portion of the Trust Estate is so
taken or damaged, the Beneficiary shall have the option, in its
sole and absolute discretion (with or without causing the entire
indebtedness evidenced by the Note to be accelerated) to apply
all such Proceeds, after deducting therefrom all costs and
expenses (regardless of the particular nature thereof and whether
incurred with or without suit), including attorneys' fees,
incurred by it in connection with such Proceeds, upon any
indebtedness secured hereby and in such order as the Beneficiary
may determine, or (without accelerating the indebtedness) to
apply all such Proceeds after such deductions, to the restoration
of the Trust Estate upon such conditions as the Beneficiary may
determine.
(c) If less than the entire Trust Estate is taken in the
Condemnation and if the Trust Estate remaining after the
Condemnation is capable of being repaired and restored to an
architectural, functional and economic whole, the Grantor shall,
at the Grantor's cost and expense, so repair and restore the
remaining portion of the Trust Estate with reasonable diligence;
provided, however, the Grantor's obligation under this Deed of
Trust to repair and restore the remaining portion of the Trust
Estate following any Condemnation shall be limited to the extent
that, pursuant to Section 1.14(b) above or any other Loan
Instrument, the Beneficiary elects not to make the proceeds
available to the Grantor to fund such repair and restoration.
(d) The application or release by the Beneficiary of any
Condemnation Proceeds pursuant to this Deed of Trust shall not
cure or waive any default or notice of default under this Deed of
Trust or invalidate any act done pursuant to such notice.
1.15 Additional Security. In the event the Beneficiary at
any time holds additional security for any of the obligations
secured hereby, it may enforce the sale thereof or otherwise
realize upon the same, at its option, either before, concurrently
with or after a sale made hereunder.
1.16 Appointment of Successor Trustee. The Beneficiary
shall at any time have the irrevocable right to remove the
Trustee herein named without notice or cause and to appoint his
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successor by an instrument in writing, duly acknowledged, in such
form as to entitle such written instrument to be recorded in the
State of North Carolina. In the event of the death or
resignation of the Trustee herein named, the Beneficiary shall
have the right to appoint his successor by such written
instrument. Any Trustee so appointed shall be vested with the
title to the Trust Estate and shall possess all the powers,
duties and obligations herein conferred on the Trustee in the
same manner and to the same extent as though he were named herein
as the Trustee.
1.17 Inspections. The Beneficiary, or its agents,
representatives or workers are authorized to enter at any
reasonable time upon or in any part of the Trust Estate for the
purpose of inspecting the Trust Estate and performing any of the
acts it is authorized to perform under the terms of any of the
Loan Instruments. The Beneficiary and its agents, however, shall
conduct such inspections in such a manner that does not interfere
unreasonably with any tenant's operations and in accordance with
the terms of all leases affecting or encumbering the Trust
Estate.
1.18 Liens. The Grantor covenants and agrees to pay and
promptly discharge, a t the Grantor's cost and expense, all
liens, encumbrances and charges upon the Trust Estate, or any
part thereof or interest therein. The existence of any
mechanic's laborer's, materialman's, supplier's or vendor's lien
or right thereto shall not constitute a violation of this Section
if payment is not yet due under the contract which is the
foundation thereof and if such contract does not postpone payment
for more than sixty (60) days after the performance thereof. The
Grantor shall have the right to contest in good faith the
validity of any such lien, encumbrance or charge, provided the
Grantor shall first deposit with the Beneficiary a bond or other
security satisfactory to the Beneficiary in such amounts as the
Beneficiary shall reasonably require (but not more than one and
one-half (1-1/2) times the amount of the claim) and provided
further that the Grantor shall thereafter diligently proceed to
cause such lien, encumbrance or charge to be removed and
discharged. If the Grantor shall fail to discharge any such
lien, encumbrance or charge or provide such reasonable security,
then, in addition to any other right or remedy of the
Beneficiary, the Beneficiary may (but shall not be obligated to)
discharge the same, either by paying the amount claimed to be
due, or by procuring the discharge of such lien by depositing in
court a bond for the amount claimed or otherwise giving security
for such claim, or in such manner as is or may be prescribed by
law. The Beneficiary shall be entitled to recover from the
Grantor all expenses it incurs in discharging such a lien
(including, but not limited to, its attorneys' fees), in addition
to the amount paid by the Beneficiary for such discharge.
1.19 Trustee's Powers. At any time, or from time to time,
without liability therefor and without notice, upon written
request of the Beneficiary and presentation of this Deed of Trust
and the Note secured hereby for endorsement, and without
affecting the personal liability of any remainder of the Trust
Estate, the Trustee may (i) release or reconvey any part of the
Trust Estate, (ii) consent in writing to the recording of any map
or plat thereof, (iii) join in granting any easement with respect
to the Trust Estate, (iv) or join in any extension agreement or
any agreement subordinating the lien or charge hereof.
1.20 Beneficiary's Powers. Without affecting the liability
of any other person liable for the payment of any obligation
herein mentioned, if any, and without affecting the lien or
charge of this Deed of Trust upon any portion of the Trust Estate
not then or theretofore released as security
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for the full amount of all unpaid obligations, the Beneficiary
may, from time to time and without notice, (i) release any person
so liable, (ii) extend the maturity or alter any of the terms of
any such obligation, (iii) grant other indulgences, (iv) release
or reconvey (or cause to be released or reconveyed at any time at
the Beneficiary's option) any parcel, portion or all of the Trust
Estate, (v) take or release any other or additional security for
any obligation herein mentioned, (vi) make compositions or other
arrangements with debtors in relation thereto or (vii), as
provided herein, advance additional funds to protect the security
hereof or pay discharge the obligations of the Grantor hereunder,
or under the Loan Instruments, and all amounts so advanced, with
interest thereon, at the Default Rate, shall be secured hereby.
The Grantor consents that the provisions of N.C. Gen. Stat. 45-
45.1 or any similar statute hereafter enacted in replacement or
in substitution thereof shall be inapplicable to this Deed of
Trust.
1.21 Operating Statements; Financial Statements. The
Grantor will cause to be delivered to the Beneficiary financial
information and reports required by the Loan Agreement.
1.22 Filings and Recordings. The Grantor covenants and
agrees to promptly cause this Deed of Trust and the Assignment of
Rents and any supplements, amendments, or modifications thereto
and financing statements and continuation statements under the
Uniform Commercial Code and other instruments with respect
thereto to be filed, registered and recorded (and when and if
necessary to be refiled, re-registered or re-recorded) in such
place or places as may be required by any law in order to create,
perfect or protect the lien of (and security interest created by)
this Deed of Trust, the Security Agreement and Assignment of
Rents; to protect the validity thereof to publish notice thereof
and to protect and maintain the estate, right, interest, claim
and demand of the Beneficiary in, to and under the Trust Estate,
the Rents and Leases described in the Assignment of Rents and the
Collateral described in the Security Agreement.
1.23 Trade Names. At the request of the Beneficiary, the
Grantor shall execute a certificate in form satisfactory to the
Beneficiary listing the trade names under which the Grantor
intends to operate the Trust Estate, and representing and
warranting that the Grantor does business under no other trade
names with respect to the Trust Estate. The Grantor shall
promptly notify the Beneficiary in writing of any change in these
trade names, and will, upon request of the Beneficiary, execute
any additional financing statements and other certificates
revised to reflect the change in trade name.
1.24 Leases. The Grantor shall not lease the Trust Estate
to any third party without the Beneficiary's prior written
consent.
1.25 Hazardous Materials.
(a) The Grantor warrants and covenants (1) that the
Property does not contain and that the Grantor will not cause or
permit the property to contain (i) asbestos in any form; (ii)
urea formaldehyde foam insulation (iii) transformers or other
equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million; or
(iv) except as disclosed in any schedule to the Loan Agreement,
any other chemical, material, or substance which is regulated as
toxic or hazardous or exposure to which is prohibited, limited,
or regulated by any federal, state, county, regional, local, or
other governmental authority (except for chemicals,
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materials or substances used, stored and disposed of in a manner
required by applicable laws and regulations) or which, even if
not so regulated, may or could pose a hazard to the health and
safety of the occupants of the Property or the owners of property
adjacent to the Property (such substances described in (i), (ii),
(iii) and (iv) above are referred to collectively herein as
"Hazardous Materials"); (2) that the Property is not now being
used nor has ever been used for any activities involving,
directly or indirectly, the use, generation, treatment, storage,
transportation, or disposal of any Hazardous Materials; (3) that
neither the Property nor the Grantor is subject to any existing,
pending, or threatened investigation or inquiry by any
governmental authority, or any remedial obligations under any
applicable laws, rules, or regulations pertaining to health or
the environment. The Grantor shall not install, store, use,
treat, transport or dispose (or permit or acquiesce in the
installation, storage, use, treatment, transportation or disposal
by the Grantor, its agents, employees, independent contractors or
tenants) on the Property of any Hazardous Materials. In the
event of any such installation, storage, use, treatment,
presence, transportation or disposal, whether prior to or during
the term of the loan secured by this Deed of Trust, and whether
by the Grantor or any predecessor in title, the Grantor promptly
shall remove any such Hazardous Materials if the presence of such
Hazardous Materials is violative of applicable law, or otherwise
comply with the regulations or orders of such authority, all at
the expense of the Grantor. If the Grantor shall fail to proceed
with such removal or otherwise comply with such regulations or
orders promptly, the Beneficiary may declare the indebtedness
secured hereby to be in default or the Beneficiary (without
regard to any applicable cure period provided for herein) may
(but shall not be obligated to) do whatever is necessary to
eliminate such Hazardous Materials from the Property or otherwise
cure any violation of the applicable regulation or order, and the
cost thereof shall constitute additional indebtedness secured
hereby and shall become immediately due and payable without
notice, and with interest thereon at the Default Rate. The
Grantor shall give to the Beneficiary and its agents and
employees access to the Property for such purposes and hereby
specifically grants to the Beneficiary a license to remove the
Hazardous Materials or otherwise cure any such violation. The
Grantor and its general partners (if the Grantor is a
partnership) shall indemnify the Beneficiary and hold the
Beneficiary harmless from and against all loss, damage, and
expense (including, without limitation, attorneys' fees and costs
incurred in the investigation, defense, and settlement of claims)
that the Beneficiary may incur as a result of or in connection
with the assertion against the Beneficiary of any claims, actions
or violations relating directly or indirectly, in whole or in
part, to the presence or removal of any Hazardous Materials on
the Property, or relating to any activity on or off the Property,
whether prior to or during the term of the loan secured by this
Deed of Trust, and whether such activity was carried on by the
Grantor or any predecessor in title or any employees, agents,
contractors or third parties, if such activity involved Hazardous
Materials, in whole or in part, directly or indirectly, or was in
violation of any federal, state, or local laws, rules regulations
or orders relating thereto.
(b) The representations, warranties and covenants of the
Grantor in Section 1.25(a) above specifically exclude Hazardous
Materials in the form of normal and customary janitorial cleaning
supplies and fluids stored and used in the Improvements in
connection with the maintenance and cleaning of the Improvements,
normal and customary office supplies and equipment stored and
used in the Improvements in connection with the operation of
tenant businesses therein and heating oil stored and used in the
Improvements.
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(c) The Grantor shall promptly notify the Beneficiary in
writing of any order or pending or threatened action by any
regulatory agency or other governmental body, or any claims made
by any third party, relating to Hazardous Materials on, or
emanating from, the Property, and shall promptly furnish the
Beneficiary with copies of any correspondence or legal pleadings
in connection therewith.
In addition, the Beneficiary shall have the right (but shall
not be obligated) to notify any state, federal or local
governmental authority of information which may come to its
attention with respect to Hazardous Materials on or emanating
from the Property. The Grantor irrevocably releases the
Beneficiary from any claims of loss, damage, liability, expense
or injury relating to or arising from, directly or indirectly any
such disclosure.
(d) The liability of the Grantor and its general partners
(if the Grantor is a partnership) to the Beneficiary under the
covenants of this Section is not limited by any exculpatory
provision in the Note, this Deed of Trust or in any other of the
Loan Instruments and shall survive any foreclosure of this Deed
of Trust or any transfer of the property by deed in lieu of
foreclosure.
(e) At any time during the term of this Deed of Trust, but
no more than once in any calendar year (unless the Beneficiary
has reasonable cause for suspecting the presence of Hazardous
Materials on the Trust Estate or unless an Event of Default has
occurred and is continuing), the Beneficiary may require the
Grantor to cause to be performed, at the expense of the Grantor,
an inspection or audit of the Property by a qualified consultant
approved by the Beneficiary, to furnish to the Beneficiary a
written report thereon by the consultant opining as to the
presence or absence of Hazardous Materials, or to permit the
Beneficiary to so inspect or audit the Property at the Grantor's
expense. The Grantor hereby grants the Beneficiary, its
employees, agents and independent contractors, the right to enter
upon the Property upon reasonable notice for the purpose of
conducting tests and soil borings, installing monitoring wells,
and conducting such other tests as the Beneficiary deems
necessary or desirable.
(f) If the Property or any of the Improvements now or
hereafter contains any material or product containing more than
0.1 percent asbestos by weight, the Grantor shall prepare,
implement, and comply with, on an ongoing basis, a written
asbestos operations and maintenance program prepared by a
qualified environmental consultant. Such program shall be
designed to assure that (i) all persons are protected from any
release of asbestos fibers, and (ii) asbestos fibers are not
distributed or released on the Property during maintenance,
repairs, alterations or improvements.
ARTICLE II
ASSIGNMENT OF RENTS, ISSUES AND PROFITS
2.01 Assignment of Rents. The Grantor hereby assigns and
transfers to the Beneficiary all the Rents, as hereinbefore
defined, of the Trust Estate, and hereby gives to and confers
upon the Beneficiary the right, power an authority to collect
such Rents. The Grantor irrevocably appoints the Beneficiary its
true and lawful attorney-in-fact, at the option of the
Beneficiary at any time and from time to time following an Event
of Default, to demand, receive and enforce payment, to give
receipts, releases and satisfactions, and to sue, in the name of
the Grantor or the Beneficiary, for all such Rents and apply the
same to the indebtedness secured hereby. The
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Grantor shall have the right to collect such Rents (but not more
than one month in advance) prior to or at any time there is not
an Event of Default under any of the Loan Instruments. The
assignment of the Rents of the Trust Estate in this Article II is
intended to be an absolute, present assignment from the Grantor
to the Beneficiary and not merely the passing of a security
interest. The Grantor hereby assigns absolutely the Rents to the
Beneficiary contingent only upon the occurrence of an Event of
Default under any of the Loan Instruments.
2.02 Assignment of Leases. The Grantor agrees to (and
hereby does) assign and transfer to the Beneficiary as additional
security for the payment of the indebtedness secured hereby, all
present and future leases upon all or any part of the Trust
Estate and to execute and deliver, at the request of the
Beneficiary, all such further assurances and assignments in the
Trust Estate as the Beneficiary shall from time to time
reasonably require. In the event the Grantor, as additional
security has sold, transferred and assigned, or may hereafter
sell, transfer and assign, to the Beneficiary, its successors and
assigns, any interest of the Grantor as lessor in any lease or
leases, the Grantor expressly covenants and agrees that the
Grantor, as lessor under such lease or leases so assigned, shall
perform and fulfill all terms, covenants, conditions and
provisions in such lease or leases, or any of them, on the
Grantor's part to be performed or fulfilled, at the times and in
the manner in such lease or leases provided. In the event of an
explicit conflict between the provisions hereof and the
provisions of the Assignment of Rents, the Deed of Trust shall
control.
2.03 Assignment of Security Deposits. The Grantor hereby
assigns to the Beneficiary all security deposits, if any,
received by the Grantor or any agent of the Grantor relative to
the Trust Estate. Prior to an Event of Default hereunder and
demand by the Beneficiary for delivery of such security deposits
to it or its designee, the Grantor shall maintain the security
deposits in a separate, identifiable account with a bank
acceptable to the Beneficiary. Upon delivery of such security
deposits to the Beneficiary, the Beneficiary shall hold such
deposits pursuant to the terms of the leases in respect of which
such deposits were obtained by the Grantor. In no event shall
the Beneficiary be liable to any lessee of any part of the Trust
Estate for the return of any security deposit in any amount in
excess of the amount delivered to the Beneficiary by the Grantor.
Any security deposits held by the Beneficiary shall not bear
interest.
2.04 Collection Upon Default. Upon any Event of Default
under any of the Loan Instruments, the Beneficiary may, at any
time without notice, either in person, by agent or by a receiver
appointed by a court and without regard to the adequacy of any
security for the indebtedness hereby secured, (1) enter upon and
take possession of the Trust Estate, or any part thereof, (2) in
its own name sue for or otherwise collect the Rents, including
those past due and unpaid, and apply the same, less costs and
expenses of operation and collection, including attorneys' fees,
upon any indebtedness secured hereby, and in such order as the
Beneficiary may determine. The collection of the Rents or the
entering upon and taking possession of the Trust Estate, or the
application thereof as aforesaid, shall not cure or waive any
default or notice of default hereunder or invalidate any act done
in response to such default or pursuant to such notice of
default.
2.05 Beneficiary's Right of Possession in Case of Default.
Upon the occurrence of an Event of Default, whether before or
after the whole principal sum secured hereby is declared to be
immediately due, or whether before or after the institution of
legal proceedings to foreclose the lien hereof or before or after
the sale thereunder, forthwith, upon demand of the Beneficiary,
the
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Grantor shall surrender to the Beneficiary and the Beneficiary
shall be entitled to take actual possession of the Trust Estate
or any part thereof personally, or by its agent or attorneys, as
for condition broken. In such event the Beneficiary in its
discretion may, with or without force and with or without process
of law, enter upon and take and maintain possession of all or any
part of the Trust Estate, together with all documents, books,
records, papers and accounts of the Grantor or the then owner of
the Trust Estate relating thereto, and may exclude the Grantor,
its agents or servants, wholly therefrom and may as attorney in
fact or agent of the Grantor, or in its own name as the
Beneficiary and under the powers herein granted , hold, operate,
manage and control the Trust Estate and conduct the business, if
any, thereof, either personally or by its agents, and with full
power to use such measures, legal or equitable, as in its
discretion or in the discretion of its successors or assigns, may
be deemed proper or necessary to enforce the payment or the
security of Rents of the Trust Estate, including actions for the
recovery of rent, actions in forcible detainer and actions in
distress for rent, and with full power:
(a) to cancel or terminate any lease or sublease for any
cause or on any ground which would entitle the Grantor to cancel
the same;
(b) to elect to disaffirm any lease of sublease which is
then subordinate to the lien hereof;
(c) to extend or modify any then existing leases and to
make new leases, which extensions, modifications and new leases
may provide for terms to expire, or for options to lessees to
extend or renew terms to expire, beyond the maturity date of the
indebtedness hereunder and beyond the date of the issuance of a
deed or deeds to a purchaser or purchasers at a foreclosure sale,
it being understood and agreed that any such leases, and the
options or other such provisions to be contained therein, shall
be binding upon the Grantor and all persons whose interests in
the Trust Estate are subject to the lien hereof and upon the
purchaser or purchasers at any foreclosure sale, notwithstanding
any redemption from sale, discharge of the mortgage indebtedness,
satisfaction of any foreclosure decree, or issuance of any deed
to any purchaser;
(d) to make all necessary or proper repairs, decorating,
renewals replacements, alterations, additions, betterments and
improvements to the Trust Estate as it may deem judicious;
(e) to insure and reinsure the same and all risks
incidental to the Beneficiary's possession, operation and
management thereof; and
(f) to receive all of such Rents.
The Grantor hereby grants full power and authority to
exercise each and every of the rights, privileges and powers
herein granted at any and all times hereafter, without notice to
the Grantor (except as otherwise provided herein).
The Beneficiary shall not be obligated to perform or
discharge (nor does it hereby undertake to perform or discharge)
any obligation, duty or liability under any leases. The Grantor
shall and does hereby agree to indemnify and hold the Beneficiary
harmless of and from any and all liability, loss or damage which
it may or might incur under such leases or under or by reason of
the
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assignment thereof and of and from any and all claims and demands
whatsoever which may be asserted against it by reason of any
alleged obligations or undertakings on its part to perform or
discharge any of the terms, covenants or agreements contained in
such leases. Should the Beneficiary incur any such liability,
loss or damage, under such leases or under or by reason of
assignment thereof, or in the defense of any claims or demands,
the amount thereof, including cots, expenses and reasonable
attorney's fees, shall be secured hereby, and the Grantor shall
reimburse the Beneficiary therefor promptly upon demand.
2.06 Application of Income Received by the Beneficiary.
The Beneficiary, in the exercise of the rights and powers
hereinabove conferred upon it by Sections 2.01, 2.04 and 2.05
hereof, shall have full power to use and apply the Rents of the
Trust Estate to the payment of or on account of the following, in
such order as the Beneficiary may determine:
(a) to the payment of the operating expenses of the Trust
Estate, including cost of management and leasing thereof (which
shall include reasonable compensation to the Beneficiary and its
agent or agents, if management be delegated to an agent or
agents, and shall also include reasonable and customary lease
commissions and other reasonable and customary compensation and
expenses of seeking and procuring tenants and entering into
leases), established claims for damages, if any, subsequent
claims for damages which arise (if any), and premiums on
insurance hereinabove authorized;
(b) to the payment of taxes and special assessments now due
or which may hereafter become due on the Trust Estate;
(c) to the payment of all repairs, decorating, renewals,
replacements, alterations, additions, betterments, and
improvements of the Trust Estate, and of placing the Trust Estate
in such condition as will, in the reasonable judgment of the
Beneficiary, make it readily rentable;
(d) to the payment of any indebtedness secured hereby, in
such order as the Beneficiary shall determine in its sole
discretion.
ARTICLE III
SECURITY AGREEMENT
3.01 Creation of Security Interest. The Grantor hereby
grants to the Beneficiary a security interest in the Personal
Property, as hereinbefore defined, including without limitation,
any and all property of similar type or kind, and any
replacements or renewals thereof, for the purpose of securing all
obligations of the Grantor contained in any of the Loan
Instruments. This Deed of Trust constitutes a Security agreement
as that term is used in the Uniform Commercial Code of North
Carolina (the "Uniform Commercial Code"). In the event of an
explicit conflict between the provisions hereof and the
provisions of any separate security agreement with respect to the
personal property described herein, this Deed of Trust shall
control.
3.02 Warranties, Representations and Covenants of the
Grantor Respecting the Personal Property. The Grantor hereby
warrants, represents and covenants as follows:
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(a) Except for the security interest granted hereby, the
Grantor is, and as to portions of the Personal Property to be
acquired after the date hereof will be, the sole owner (or lessee
in the case of Personal Property leased by the Grantor) of the
Personal Property, free from any adverse lien, security interest,
encumbrance or adverse claim thereon of any kind whatsoever. The
Grantor will notify the Beneficiary of, and will defend the
Personal Property against, all claims and demands of all persons
at any time claiming the same or any interest therein.
(b) The Grantor will not lease, sell, convey or in any
manner transfer the Personal Property without the prior written
consent of the Beneficiary, except as permitted under Section
3.02(d) below and except as permitted in the Security Agreement.
(c) The Personal Property is not used or bought for
personal, family or household purposes.
(d) The Personal Property will be kept on or at the
Property. The Grantor will not remove the Personal Property from
the Property without the prior written consent of the
Beneficiary, except such portions or items of Personal Property
which are consumed or worn out in ordinary usage, all of which
shall be promptly replaced by the Grantor with new items of equal
or greater quality.
(e) The Grantor has its principal place of business in the
State of North Carolina, and the Grantor will immediately notify
the Beneficiary in writing of any change in its principal place
of business as set forth in the beginning of this Deed of Trust.
(f) At the request of the Beneficiary, the Grantor will
execute one or more financing statements and renewals and
amendments thereof pursuant to the Uniform Commercial Code in
form satisfactory to the Beneficiary, and will pay the cost of
filing the same in all public offices wherever filing is deemed
by the Beneficiary to be necessary.
(g) All covenants and obligations of the Grantor contained
herein relating to the Trust Estate shall be deemed to apply to
the Personal Property whether or not expressly referred to
herein.
ARTICLE IV
REMEDIES UPON DEFAULT
4.01 Events of Default. Any of the following events shall
be deemed an Event of Default hereunder.
(a) Default in the payment of any installment of principal
and/or interest on the Note or any other sum secured hereby when
due, provided, however, the failure to make such payment when due
shall not constitute an Event of Default hereunder until after
the passage of ten (10) calendar days from the date on which such
payment is due;
(b) The Grantor, or any general partner of the Grantor, (1)
shall file a voluntary petition in bankruptcy or shall benefit
from or be subject to any order for relief entered by any court
of insolvency, or shall file any petition or answer seeking or
acquiescing in any reorganization,
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arrangement, composition, readjustment, liquidation, dissolution
or similar relief for itself under any present or future federal,
state or other statute, law or regulation relating to bankruptcy,
insolvency or other relief for debtors; (2) shall seek or
consent to or acquiesce in the appointment of any trustee,
receiver, or liquidator of the Grantor, or any general partner of
the Grantor, or of all or any part of the Trust Estate, or of any
or all of the Rents thereof; of (3) shall make any general
assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due;
(c) A court competent jurisdiction shall enter an order,
judgment, or decree approving a petition filed against the
Grantor, or any general partner of the Grantor, seeking any
reorganization, dissolution or similar relief under any present
or future federal, state, or other statute, law or regulation
relating to bankruptcy, insolvency or other relied for debtors,
and such order, judgment or decree shall remain unvacated and
unstayed for an aggregate of sixty (60) days (whether or not
consecutive) from the first date of entry thereof; or any
trustee, receiver or liquidator of the Grantor, or any general
partner of the Grantor, or of all or any part of the Trust
Estate, or of any or all of the Rents thereof, shall be appointed
without the consent or acquiescence of the Grantor, or any
general partner of the Grantor, an such appointment shall remain
unvacated and unstayed for an aggregate of sixty (60) days
(whether or not consecutive);
(d) A writ of execution or attachment or any similar
process shall be issued or levied against all or any part of or
interest in the Trust Estate, or any judgment involving monetary
damages shall be entered against the Grantor, or any general
partner of the Grantor, which shall become a lien on the Trust
Estate or any portion thereof or interest therein and such
execution, attachment or similar process or judgment is not
released, bonded satisfied, vacated or stayed within sixty (60)
days after its entry or levy;
(e) Except as otherwise provided below, the Grantor shall
voluntarily or involuntarily, directly or indirectly, without the
prior written consent of the Beneficiary, (i) sell, transfer or
convey (including, without limitation, by way of mortgage or deed
of trust) the Trust Estate or any portion thereof or interest
therein, (ii) change, or permit or suffer any change in, the
ownership (legal or beneficial), composition or form of business
association of the legal entity constituting the Grantor, except
for transfers of any limited partnership interest therein, (iii)
execute a contract of sale or record a condominium declaration
affecting the Trust Estate or any portion thereof or interest
therein (legal or beneficial), (iv) permit any other financing to
be secured by the Trust Estate or any portion thereof or interest
therein (legal or beneficial), (v) change the nature of the use
of the Trust Estate. The Grantor acknowledges and agrees that
the Beneficiary may require, as a condition to granting its
consent to any of the foregoing, the payment of a transfer fee
and/or that the Loan Instruments be modified so as to increase
the Interest Rate on the Note, alter the maturity of the Note, or
both.
(f) Failure to maintain hazard insurance with respect to
the Trust Estate as required in this Deed of Trust.
(g) There has occurred a breach of or default under any
other term, covenant, agreement, condition, provision,
representation or warranty in this Deed of Trust or under any
term,
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covenant, agreement, condition, provision, representation or
warranty contained in any of the other Loan Instruments or any
part thereof, whether or not referred to in this Section 4.01 and
such default has continued for a period of thirty (30) days after
the Beneficiary's written notice of default to the Grantor.
(h) The furnishing by the Grantor to the Beneficiary of any
document or statement (including a financial or operating
statement) which contains any untrue and materially adverse
statement of a material fact, or which omits a material fact,
necessary to make the statements made, in light of the
circumstances in which they were made, not misleading.
4.02 Acceleration upon Default, Additional Remedies. In
the event of any Event of Default, the Beneficiary may declare
all indebtedness secured hereby to be due and payable and the
same shall thereupon become due and payable without any
presentment, demand, protest or notice of any kind. Thereafter,
the beneficiary may:
(a) Either in person or by agent, with or without bringing
any action or proceeding, or by a receiver appointed by a court
and without regard to the adequacy of its security, (i) enter
upon and take possession of the Trust Estate, or any part
thereof, in its own name or in the name of the Trustee, and do
any acts which it deems necessary or desirable to preserve the
value, marketability or rentability of the Trust Estate, or part
thereof or interest therein, increase the income therefrom or
protect the security hereof, and (ii) with or without taking
possession of the Trust Estate, sue for or otherwise collect the
Rents thereof, including those Rents past due and unpaid and
apply the same, less costs and expenses of operation and
collection (including attorneys' fees), upon any indebtedness
secured hereby, all in such order as the Beneficiary may
determine. The entering upon and taking possession of the Trust
Estate, the collection of the Rents and the application thereof
as aforesaid shall not cure or waive any default or notice of
default hereunder or invalidate any act done in response to such
default or pursuant to such notice of default. Notwithstanding
the continuance in possession of the Trust Estate or the
collection, receipt and application of the Rents, the Trustee or
the Beneficiary shall be entitled to exercise every right
provided for in any of the Loan Instruments or by law upon
occurrence of any Event of Default, including the right to
exercise the power of sale, as authorized by law;
(b) Commence an action to foreclose this Deed of Trust (or
cause the Trustee to foreclose this Deed of Trust by power of
sale), appoint a receiver, or specifically enforce any of the
covenants hereof;
(c) Exercise any or all of the remedies available to a
secured party under the Uniform Commercial Code, including, but
not limited to:
(1) Either personally or by means of a court-appointed
receiver, take possession of all or any of the Personal
Property and exclude therefrom the Grantor and all others
claiming under the Grantor, and thereafter hold, store, use,
operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and
exercise all rights and powers of the Grantor in respect to
the Personal Property or any part thereof. In the event the
Beneficiary demands or attempts to take possession of the
Personal Property in the exercise of any rights under any of
the Loan Instruments, the Grantor promises and agrees to
promptly turn over and deliver complete possession thereof to
the Beneficiary;
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(2) Without notice to or demand upon the Grantor, make such
payments and do such acts as the Beneficiary may deem
necessary to protect its security interest in the Personal
Property, including without limitation, paying, purchasing,
contesting or compromising any encumbrance, charge or lien
which is prior to or superior to the security interest granted
hereunder and in exercising any such powers or authority to
pay all expenses incurred in connection therewith;
(3) Require the Grantor to assemble the Personal Property
or any portion thereof, at a place designated by the
Beneficiary, and promptly to deliver such Personal Property to
the Beneficiary or to an agent or representative designated by
it. The Beneficiary and its agents and representatives shall
have the right to enter upon any or all of the Grantor's
premises and property to exercise the Beneficiary's rights
hereunder;
(4) Sell, lease or otherwise dispose of the Personal
Property at public sale, with or without having the Personal
Property at the place of sale, and upon such terms and in such
manner as the Beneficiary may determine. The Beneficiary may
be a purchaser at any such sale;
(5) Unless the Personal Property is perishable or threatens
to decline speedily in value or is of a type customarily sold
on a recognized market, the Beneficiary shall give the Grantor
at least ten (10) days prior written notice at the address
specified in or pursuant to this Deed of Trust of the time and
place of any public sale of the Personal Property or other
intended disposition thereof. Such notice shall be mailed to
the Grantor in the manner set out in Section 5.06 of this Deed
of Trust.
(d) Upon the acceleration of the maturity of the
indebtedness as herein provided, a tender of payment of the
amount necessary to satisfy the entire indebtedness secured
hereby made at any time prior to foreclosure sale (including sale
under the power of sale) by the Trustee, shall constitute an
evasion of the prepayment terms of the Note and be deemed to be
a voluntary prepayment thereunder. Any such payment, to the
extent permitted by applicable law, will therefore include the
additional payment (if any) required under the prepayment
privilege contained in the Note. In no event shall the amount
due pursuant to this paragraph exceed the maximum non-usurious
amount permitted by applicable law.
4.03 Foreclosure by Power of Sale. Should the Beneficiary
elect to foreclosure by exercise of the power of sale herein
contained, the Beneficiary shall notify the Trustee and shall
deposit with the Trustee this Deed of Trust and the Note and such
receipts and evidence of expenditures made and secured hereby as
the Trustee may require.
Upon application of the Beneficiary, it shall be lawful for
and the duty of the Trustee, and he is hereby authorized and
empowered, to expose to sale and to sell the Property and the
Improvements (either in whole or in separate parcels and in such
order as the Trustee may determine), and the Personal Property at
public auction for cash. After having first compiled with all
applicable requirements of North Carolina law with respect to the
exercise of powers of sale contained in deeds of trust and upon
such sale, the Trustee shall convey title to the purchaser in fee
simple. After retaining from the proceeds of such sale just
compensation for his services and all
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expenses incurred by him, including a trustee's commission not
exceeding three percent (3%) of the bid, the Trustee shall apply
the residue of the proceeds first to the payment of all sums
expended by the Beneficiary under the terms of this Deed of
Trust; second, to the payment of the Note and interest thereon
secured hereby; and third, the balance, if any, to the parties
entitled to such proceeds. The Grantor agrees that in the event
of sale hereunder, the Beneficiary shall have the right to bid
thereat. The Trustee may require the successful bidder at any
sale to deposit immediately with the Trustee cash or certified
check in the amount not to exceed ten (10%) of the bid, provided
notice of such requirement is contained in the advertisement of
the sale. The bid may be rejected if the deposit is not
immediately made, and thereupon the next highest bidder may be
declared to be the purchaser. Such deposit shall be refunded in
case a resale is had; otherwise, it shall be applied to the
purchase price. If the Personal Property is sold hereunder, it
need not be at the place of sale. The published notice, however,
shall state the time and place where such property may be
inspected prior to sale. If a foreclosure proceeding is
commenced by the Trustee but not completed, the Trustee's fee
shall be one percent (1%) of the then-outstanding principal
balance of the Note if the termination occurs prior to the first
public auction sale and two percent (2%) of the then-outstanding
principal balance of the Note if the termination occurs after the
first public auction sale.
Before taking any action hereunder, the Trustee may require
that satisfactory indemnity be furnished for the reimbursement of
all costs and expenses to which he may be put and to protect him
against all liability, except liability which is adjudicated to
have resulted from his negligence or willful default by reason of
such action. The Trustee shall not be required to see that this
Deed of Trust is recorded nor be liable for its validity or its
priority as a first-priority Deed of Trust or otherwise, nor
shall the Trustee be answerable for the default or misconduct or
any agent or attorney appointed by him in good faith in pursuance
hereof. The Trustee may act upon any instrument believed by him
in good faith to be genuine and to be signed by the proper party
or parties and shall not be liable for any action taken or
suffered by him in reliance thereon. The Trustee shall be
entitled to reasonable compensation for all services rendered in
the execution of the trust hereby created. The Grantor agrees to
pay all reasonable costs, expenses and liability for which the
Trustee is indemnified hereunder or pursuant hereto, and until
the payment thereof, the Trust Estate is hereby charged with the
payment of the same in full as an obligation secured hereby. The
Trustee, at any time, may consult counsel for the purposes of
this trust and shall be protected in any action taken or suffered
by him in accordance with the opinion of such counsel.
The Beneficiary, at its option, is authorized to foreclose
this Deed of Trust subject to the rights of any tenants of the
Trust Estate. The notice of sale published by the Trustee shall
specify the tenants to which the sale of the Trust Estate is
subject. The failure to make any such tenants parties to any
such foreclosure proceedings and to foreclose their rights will
not be, nor be asserted by the Grantor as, a defense to any
proceedings instituted by the Beneficiary for repayment of the
Note.
4.04 Appointment of Receiver. If an Event of Default shall
have occurred and be continuing, the Beneficiary as a matter of
right and without notice to the Grantor or to anyone claiming
under the Grantor, and without regard to the value of the Trust
Estate at such time or the interest of the Grantor therein, shall
have the right to apply to any court having jurisdiction to
appoint a receiver or receivers of the Trust Estate. The Grantor
hereby irrevocably consents to such appointment and waives notice
of any application thereof. Any such receiver or receivers shall
have
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all the usual powers and duties of receivers in like or similar
cases and all the powers and duties of the Beneficiary in case of
entry as provided in Section 4.02(a) and shall continue as such
and exercise all such powers until the date of confirmation of
sale of the Trust Estate unless such receivership is sooner
terminated.
4.05 Remedies Not Exclusive. The Trustee and the
Beneficiary, and each of them, shall be entitled to enforce
payment and performance of any indebtedness or obligations
secured hereby and to exercise all rights and powers under this
Deed of Trust or under any other Loan Instrument or other
agreement or any laws now or hereafter in force, notwithstanding
some or all of the indebtedness and obligations secured hereby
may now or hereafter be otherwise secured, whether by mortgage,
deed of trust, pledge, lien, assignment or otherwise. Neither
the acceptance of this Deed of Trust nor its enforcement, whether
by court action or pursuant to the power of sale or other powers
herein contained, shall prejudice or in any manner affect the
Trustee's or the Beneficiary's right to realize upon or enforce
any other security now or hereafter held by the Trustee or the
Beneficiary. The Trustee and the Beneficiary, and each of them,
shall be entitled to enforce this Deed of Trust and any other
security now or hereafter held by the Beneficiary or the Trustee
in such order and manner as they or either of them may in their
absolute discretion determine. No remedy herein conferred upon
or reserved to the Trustee or the Beneficiary is intended to be
exclusive of any other remedy herein or by law provided or
preclusive of any other remedy herein or by law provided or
permitted but each shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. Every power or
remedy given by any of the Loan Instruments to the Trustee or the
Beneficiary (or to which either of them may be otherwise
entitled) may be exercised, concurrently or independently, from
time to time and as often as may be deemed expedient by the
Trustee or the Beneficiary and either of them may pursue
inconsistent remedies.
ARTICLE V
MISCELLANEOUS
5.01 Governing Law. This Deed of Trust shall be governed
by the laws of the State of North Carolina. In the event that
any provision or clause of any of the Loan Instruments conflicts
with applicable laws, such conflicts shall not affect other
provisions of such Loan Instruments which can be given effect
without the conflicting provision. To this end, the provisions
of the Loan Instruments are declared to be severable. This
instrument cannot be waived, changed, discharged or terminated
orally, but only by an instrument in writing signed by the party
against whom enforcement of any waiver, change, discharge or
termination is sought.
5.02 Successors and Assigns. This Deed of Trust applies
to, inures to the benefit of and binds all parties hereto, their
heirs, legatees, devisees, administrators, executors, successors
and assigns. The term "Beneficiary" shall mean the owner and
holder of the Note, whether or not named as the Beneficiary
herein.
5.03 Grantor's Waiver of Rights. The Grantor waives, to
the extent allowed by applicable law, the benefit of all laws now
existing or that hereafter may be enacted providing for (i) any
appraisement before sale of any portion of the Trust Estate and
(ii) any extension of the time for the enforcement of the
collection of the Note or the debt evidenced thereby or the
creation or
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extension of a period of redemption from any sale made in
collecting the debt. To the full extent the Grantor may do so,
the Grantor agrees that the Grantor will not at any time insist
upon, plead, claim or take the benefit or advantage of any law
now or hereafter in force providing for any appraisement,
valuation, stay, extension or redemption. The Grantor, the
Grantor's heirs, devisees, representatives, successors and
assigns, and for any and all persons ever claiming any interest
in the Trust Estate, to the extent permitted by law, hereby waive
and release all rights of redemption, valuation, appraisement,
stay or execution, notice of election to mature or declare due
the whole of the secured indebtedness and marshalling in the
event of foreclosure of the liens hereby created. If any law
referred to in this Section and now in force, of which the
Grantor, the Grantor's heirs, devisees, representatives,
successors and assigns or other persons might take advantage
despite this Section, shall hereafter be repealed or cease to be
in force, such law shall not thereafter be deemed to preclude the
application of this Section. To the extent permitted by
applicable law, the Grantor expressly waives and relinquishes any
and all rights and remedies which the Grantor may have or be able
to assert by reason of the laws of the State of North Carolina
pertaining to the rights and remedies of sureties.
5.04 Limitation of Interest. It is the intent of the
Grantor and the Beneficiary in the execution of this Deed of
Trust and the Note and all other instruments securing the Note to
contract in strict compilance with usury laws of the State of
North Carolina governing the loan evidenced by the Note. In
furtherance thereof, the Beneficiary and the Grantor stipulate
and agree that none of the terms and provisions contained in the
Loan Instruments shall ever be construed to create a contract for
the use, forbearance or detention of money requiring payment of
interest at a rate in excess of the maximum interest rate
permitted to be charged by the laws of the State of North
Carolina governing the loan evidenced by the Note. The Grantor
or any guarantor, endorser or other party now or hereafter
becoming liable for the payment of the Note, if any, shall never
be liable for unearned interest on the Note and shall never be
required to pay interest on the Note at a rate in excess of the
maximum interest that may be lawfully charged under the laws of
the State of North Carolina. The provisions of the Section shall
control over all other provisions of the Note and any other
instrument executed in connection herewith which may be in
apparent conflict herewith. In the event any holder of the Note
shall collect monies which are deemed to constitute interest
which would otherwise increase the effective interest rate on the
Note to a rate in excess of that permitted to be charged by the
laws of the State of North Carolina, all such sums deemed to
constitute interest in excess of the maximum permissible rate
shall be applied forthwith to the reduction of the principal
balance of the Note.
5.05 Statements by Grantor. The Grantor, within ten (10)
days after being given notice by mail, will furnish to the
Beneficiary a written statement stating the unpaid principal of
the Note and any other amounts secured by this Deed of Trust and
stating whether any offset or defense exists against such
principal and interest.
5.06 Notices. All notices, requests or other
communications provided for or permitted to be given pursuant to
this Deed of Trust, the Note or the Loan Instruments (herein
called a "notice") must be in writing (which includes by
telephonic facsimile transmission) and shall be served by
personal delivery or by depositing in the United States of
America mail, postage prepaid registered, return receipt
requested, and addressed to the addresses set forth below. All
notices shall be effective upon personal delivery or on the third
(3rd) day after being deposited in the United
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States mail. Personal delivery may be accomplished through the
use of a reputable commercial courier or air freight service or
through use of a telephonic facsimile transmitter (telecopier);
provided, however, notices sent by telecopy shall also be sent on
the same day by one of the other methods of giving notices
provided for herein. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no
notice was given shall be deemed to be receipt of the notice
sent. By giving at least fifteen (15) days' written notice
thereof, any party hereto shall have the right, from time to
time, to change their respective addresses and each shall have
the right to specify as its address any other address in the
Untied States of America. Each notice given by telecopy shall be
deemed given on the date shown on the sender's copy thereof
bearing the proper "answer back code" for the telecopy number to
which the notice is sent, provided such telecopy number is the
correct number of the receiving party at the time such notice is
sent.
Grantor: Fountain Powerboats, Inc.
Whichard's Beach Road
Washington, North Carolina 27889
Telecopy: (919) 975-6793
Attention: Reginald M. Fountain, Jr.
Beneficiary: General Electric Capital Corporation
6100 Fairview Road, Suite 1450
Charlotte, North Carolina 28210
Telecopy: (704) 554-0726
Trustee: William C. Matthews, Jr.
Womble Carlyle Sandridge & Rice, PLLC
2100 First Union Capitol Center
150 Fayetteville Street Mall
Raleigh, North Carolina 27601
Telecopy (919) 755-2150
5.07 Acceptance by Trustee. The Trustee accepts this trust
when this Deed of Trust duly executed and acknowledged is made a
public record as provided by law.
5.08 Captions. The captions or headings at the beginning
of each Section hereof are for the convenience of the parties and
are not a part of this Deed of Trust.
5.09 Invalidity of Certain Provisions. If this Deed of
Trust is invalid or unenforceable as to any part of the Trust
Estate or any part of the debt, the unsecured or partially
secured portion of the debt shall be completely paid prior to the
payment of the remaining and secured or partially secured portion
of the debt. All payments made on the debt, whether voluntary or
under foreclosure or other enforcement action or procedure, shall
be considered to have been first paid on and applied to the full
payment of that portion of the debt which is not secured or fully
secured by this Deed of Trust.
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5.10 Subrogation. To the extent that proceeds of the Note
or advances under this Deed of Trust are used to pay any
outstanding mortgage, deed of trust, lien, charge or prior
encumbrance against the Trust Estate, such proceeds or advances
have been or will be advanced by the Beneficiary at the Grantor's
request, and the Beneficiary shall be suborgated to any and all
rights and liens held or owned by an owner or holder of such
outstanding liens, charges and prior encumbrances irrespective of
whether these liens, charges or encumbrances are released.
5.11 No Merger. If both the lessor's and lessee's estates
under any lease or any portion thereof which constitutes a part
of the Trust Estate shall at any time become vested in one owner,
this Deed of Trust and the lien created hereby shall not be
destroyed or terminated by application of the doctrine of merger.
In such event, the Beneficiary shall continue to have and enjoy
all of the rights and privileges of the Beneficiary as to the
separate estates. In addition, upon the foreclosure of this Deed
of Trust pursuant to the provisions hereof, any leases or
subleases then existing and created by the Grantor shall not be
destroyed or terminated by application of the law of merger or as
matter of law or as a result of such foreclosure unless the
Beneficiary or any purchaser at any such foreclosure sale shall
so elect. No act by or on behalf of the Beneficiary or any such
purchaser shall constitute a termination of any lease or sublease
unless the Beneficiary or such purchaser shall give written
notice thereof of such tenant or subtenant.
5.12 Non-Waiver. The acceptance by the Beneficiary of any
sum after the same is due shall not constitute a waiver of the
right either to require prompt payment, when due, of all other
sums hereby secured or to declare a default as herein provided.
The acceptance by the Beneficiary of any sum in an amount less
than the sum then due shall be deemed an acceptance on account
only and upon condition that it shall not constitute a waiver of
the obligation of the Grantor to pay the entire sum then due.
The Grantor's failure to pay the entire sum then due shall be and
continue to be a default notwithstanding such acceptance of such
amount on account, as aforesaid. At all times thereafter and
without regard to whether the entire sum then due shall have been
paid (and notwithstanding the acceptance by Beneficiary thereof
of further sums on account, or otherwise), the Beneficiary and
the Trustee shall be entitled to exercise all rights in this
instrument conferred upon them, or either of them, upon the
occurrence of a default. The right to proceed with a sale under
any notice of default, and election to sell, or the right to
exercise any other rights or remedies hereunder, shall in no way
be impaired, whether any of such amounts are received prior or
subsequent to such proceeding, election or exercise. Consent by
the Beneficiary to any transaction or action of the Grantor which
is subject to consent or approval of the Beneficiary hereunder
shall not be deemed a waiver of the right to require such consent
or approval to future or successive transaction or actions.
5.13 Attorneys' Fees. Notwithstanding anything herein to
the contrary, where this Deed of Trust requires the Grantor to
pay for attorneys' fees incurred by the Beneficiary, such fees
shall be calculated at such attorneys' standard hourly rates for
time in fact spent, rather than on the basis of any statutory
presumption.
- 29 -
R#0202455.04
<PAGE>
BK 1063 PG 370
IN WITNESS WHEREOF, the Grantor has executed this Deed of
Trust under seal as of the day and year first above written.
FOUNTAIN POWERBOATS, INC., a
North Carolina corporation
By: /s/ Reginald M. Fountain, Jr.
_____________ President
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
- 30 -
R#0202455.04
<PAGE>
BK 1063 PG 371
NORTH CAROLINA
CRAVEN COUNTY
I, Stephanie C. Crosby, a Notary Public of Craven County,
North Carolina, do hereby certify that Blanche C. Williams
personally came before me this day and acknowledged that [s] he
is the - Secretary of Fountain Powerboats, Inc., a North
Carolina corporation, and that by authority duly given and as the
act of the corporation, the foregoing instrument was signed in
its name by its - President, sealed with its corporate
seal and attested by himself/herself as its -
Secretary.
WITNESS my hand and notarial seal, this 31st day of
December, 1996.
/s/ Stephanie C. Crosby
Notary Public
[NOTARY SEAL]
My commission expires:
11-30-99
North Carolina
Beaufort County
The foregoing Certificate of Stephanie C.
Crosby
Notary Public/Notaries Public is/are
certified to be correct This 31st day of
December, 1996 at 3:16 o'clock P.M.
By /s/Judy Till
Register of Deeds Ass't/Deputy Register of
Deeds
- 31 -
R#0202455.04
<PAGE>
BK 1063 PG 372
This document prepared by:
William C. Matthews, Jr.
Womble Carlyle Sandridge & Rice, PLLC
Post Office Box 831
Raleigh, North Carolina 27602
After recording please return to the draftsman.
STATE OF NORTH CAROLINA )
) ASSIGNMENT OF RENTS AND LEASES
COUNTY OF BEAUFORT )
THIS AGREEMENT OF RENTS AND LEASES (this "Assignment") made
this 31st day of December, 1996, by and between FOUNTAIN
POWERBOATS, INC., a North Carolina corporation (hereinafter
referred to as the "Assignor"), and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation (the "Assignee");
WITNESSETH:
THAT, the Assignor, in consideration of credit extended by
the Assignee, hereby conveys, transfers and assigns unto the
Assignee, its successors and assigns, all the rights, interests
and privileges that the Assignor as lessor has and may have in
the leases now existing or hereafter made and affecting the Trust
Estate (as defined and described below) or any part thereof (the
"Leases") as the Leases may have been or may from time to time be
hereafter modified, extended or renewed, with all rents, income
and profits due and becoming due therefrom (the "Rents"). The
Assignor will, on request of the Assignee, execute assignments of
any future leases affecting any part of certain real property
situated in Beaufort County, North Carolina and described in
EXHIBIT A attached hereto and incorporated by reference (such
real property, together with all improvements located thereon,
hereinafter referred to as the "Trust Estate"). Notwithstanding
any provision herein to the contrary, this Assignment is intended
to be an absolute present assignment from the Assignor to the
Assignee and not merely the passing of a security interest. The
Rents and Leases are hereby assigned absolutely by the Assignor
to the Assignee contingently only upon the occurrence of an Event
of Default (as defined in the Deed of Trust, as defined and
described below).
This Assignment is made as additional security for the
payment of a certain promissory note in the maximum principal sum
of $10,000,000.00 with interest, made by the Assignor to the
Assignee, dated of even date herewith (the "Note), and
performance by the Assignor of its obligations and agreements
contained in that certain Deed of Trust, Assignment of Rents and
Security Agreement dated of even date herewith (the "Deed of
Trust"), and all extensions or modifications thereof, made by the
Assignor to the trustee therein named for the benefit of the
Assignee, covering the Trust Estate.
The acceptance of this Assignment and the collection of
Rents or the payments under the Leases hereby assigned shall not
constitute a waiver of any rights of the Assignee under the terms
of the Note and the Deed of Trust. Before an Event of Default
occurs under the terms of the Note and the Deed of Trust, the
Assignor shall have the right to collect the Rents from the
Leases and to retain, use and enjoy the Rents. Even before an
Event of Default occurs, however, no Rent more than one month in
advance shall be collected or accepted without the prior written
consent of the Assignee. Anything to the contrary
notwithstanding, the Assignor hereby assigns to the Assignee (1)
any award made hereafter
R#0202465.02
<PAGE>
BK 1063 PG 373
EXHIBIT A
TRACT I:
All that certain tract or parcel of land lying and being situate in
Chocowinity Township, Beaufort County, North Carolina, and being
more particularly described as follows:
Beginning at a point in the southern right-of-way line of NCSR 1166
(Whichards Beach Road); said point being located the following
courses and distances from a concrete monument located at the
southeasternly corner of the subdivision known as Harbor Estates,
as shown on a plat thereof recorded in Plat Cabinet A, Slide 113A
in the office of the Register of Deeds of Beaufort County, North
Carolina (said concrete monument also being the southwesterly
corner of Tract II described below): South 35- 52' 54" East 62.93
feet; South 36- 20' 33" West 30.61 feet; and South 64- 01' 09" East
16.66 feet to a point. THENCE FROM SAID POINT OF BEGINNING BEING
SO LOCATED, along and with the southern right-of-way line of
Whichards Beach Road South 64- 01' 03" East 132.39 feet to a point;
thence South 64- 00' 52" East 49.07 feet to a point; thence South
64- 01' 18" East 50.66 feet to a point; thence South 64- 01' 12"
East 220.27 feet to a point; thence South 64- 01' 09" East 45.61
feet to a point; thence continuing along and with the southern
right-of-way line of NCSR 1166 with a curve to the right in a
southeastwardly direction which has a chord bearing and distance of
South 57- 55' 13" East 341.99 feet to a point; thence South 51- 52'
17" East 22.40 feet to a point; thence continuing South 51- 52' 17"
East 300.00 feet to a point in the southern right-of-way line of
NCSR 1166 (all previous calls being along and with the southern
right-of-way line of NCSR 1166); thence leaving NCSR 1166 South 38-
00' 08" West 140.26 feet to a point; thence South 51- 52' 37" East
31.00 feet to a point; thence South 51- 52' 19" East 131.00 feet to
a point; thence South 38- 00' 08" West 50.00 feet to a point;
thence North 51- 59' 55" West 21.00 feet to a point; thence South
37- 59' 26" West 137.56 feet to a point; thence South 52- 57' 27"
East 107.66 feet to a point; thence South 35- 48' 31" West 49.16
feet to a point; thence South 37- 39' 39" West 149.73 feet to a
point; thence continuing South 37- 39' 39" West 18.38 feet to a
point in a ditch; thence along and with said ditch the following
courses: North 56- 10' 32" West 114.97 feet to a point; North 57-
56' 27" West 120.08 feet to a point; thence North 59- 09' 12" West
105.20 feet to a point; thence North 57- 02' 11" West 105.33 feet
to a point; thence North 64- 27' 40" West 506.54 feet to a point;
thence North 56- 33' 24" West 99.24 feet to a point; thence North
48- 59' 54" West 220.23 feet to a point; thence North 47- 02' 51"
West 145.55 feet to a point; thence North 36- 19' 37" East 158.65
feet to a point; thence North 36- 19' 33" East 51.10 feet to a
point; thence North 36- 20' 24" East 24.66 feet to a point; thence
North 36- 20' 24" East 24.66 feet to a point; thence North 36- 20'
20" East 100.34 feet to a point; thence North 36- 20' 41" East
166.95 feet to a point; thence with a curve to the right (which
curve has radius of 20 feet, a chord bearing
<PAGE>
BK 1063 PG 374
and distance of North 76- 08' 47" East 25.60 feet, and an arc
distance of 27.78 feet) to the point of beginning.
Together with a perpetual non-exclusive easement for ingress,
egress and regress across a 60-foot wide private right-of-way
running southwardly from NCSR 1166 at point (C) in the Ottis M.
Crisp line as shown on the plat entitled "Plan of Land surveyed for
Jennis M. Crisp" recorded in Plat Cabinet A, Slide 42A, in the
Beaufort County Registry.
TRACT II:
All that certain tract or parcel of land lying and being situate in
Chocowinity Township, Beaufort County, North Carolina, and being
more particularly described as follows:
Beginning at an existing concrete monument in the northern right-
of-way line of NCSR 1166 (Whichards Beach Road), said concrete
monument being also the southeasterly corner of the subdivision
known as Harbor Estates, as shown on a plat thereof recorded in
Plat Cabinet A, Slide 113A in the office of the Register of Deeds
of Beaufort County, North Carolina. THENCE FROM SAID POINT OF
BEGINNING BEING SO LOCATED, North 30- 36' 00" East 375.64 feet to a
point; thence North 30- 36' 00" East 17.0 feet to a point in a
canal; thence continuing with the canal North 48- 42' 00" East
23.43 feet to a point; thence continuing with the canal North 30-
26' 00" East 476.44 feet to a point; thence North 31- 42' 00" East
427.85 feet to a point in the mean high water line of the Pamlico
River; thence along and with the mean high water line of the
Pamlico River the following courses and distances; North 71- 11'
00" East 88.88 feet to a point; thence North 78- 57' 00" East 77.78
feet to a point; thence North 51- 09' 00" East 53.88 feet to a
point; thence South 21- 39' 00" East 42.48 feet to a point; thence
South 55" 23' 00" East 82.19 feet to a point; thence North 65- 06'
00" East 38.64 feet to a point; thence South 45- 07' 00" East
146.64 feet to a point; thence South 59- 32' 00" East 106.73 feet
to a point; thence South 65- 55' 46" East 91.98 feet to a point;
thence South 87- 44' 21" East 82.14 feet to a point; thence South
83- 21' 00" East 96.80 feet to a point; thence North 78- 56' 00"
East 251.10 feet to a point; thence South 63- 13' 00" East 91.37
feet to a point; thence South 63- 13' 00" East 182.56 feet to a
point; thence South 63- 13' 00" East 107.00 feet to a point; thence
leaving said river South 38- 18' 41 " West 21.94 feet to a concrete
monument; thence continuing South 38- 18' 41" West 701.64 feet to a
concrete monument; thence continuing South 38- 18' 41" West 64.72
feet to a concrete monument; thence continuing South 38- 18' 41"
West 108.03 feet to a concrete monument; thence South 38- 18' 41"
West 106.26 feet to a concrete monument; thence continuing South
38- 18' 41" West 104.29 feet to a concrete monument; thence
continuing South 38- 18' 41" West 102.43 feet to a concrete
monument; thence South 38- 18' 41" West 127.21 feet to a concrete
monument; thence South 38- 18' 41" West 35.74 feet to a concrete
<PAGE>
BK 1063 PG 375
monument; thence South 38- 18' 41" West 63.98 feet to a concrete
monument; thence continuing South 38- 18' 41" West 99.54 feet to a
concrete monument; thence continuing South 38- 18' 41" West 99.16
feet to a concrete monument in the northern right-of-way line of
NCSR 1166; thence continuing South 38- 18' 41" West 106.40 feet to
a concrete monument along and with the northern right-of-way line
of NCSR 1166 along a curve to the left in a northwestwardly
direction to a point (which curve has a chord bearing and distance
of North 51- 41' 19" West 100.00 feet); thence continuing along and
with the northern right-of-way line of NCSR 1166 along a curve to
the left in a northwestwardly direction to a point (which curve has
a chord bearing and distance of North 55- 31' 51" West 396.18
feet); thence continuing along and with the northern right-of-way
line of NCSR 1166 North 62- 36' 41" West 58.52 feet to a point;
thence continuing along and with the northern right-of-way line of
NCSR 1166 North 63- 28' 00" West 100.00 feet to a point; ;thence
continuing along and with the northern right-of-way line of NCSR
1166 North 64- 04' 00" West 470.44 feet to the point or place of
beginning.
Together with all property lying between the northern property line
of the above-described property, the eastern and western property
line of the above-described property extended in a northeasterly
direction to the mean high water line of the Pamlico River and the
mean high water line of the southern shore of the Pamlico River.
81-0242 (DV)
12/28/96
CDR/DCR
WSMAIN/205631
<PAGE>
BK 1063 PG 376
to it in any court procedure involving any of the lessees under
the Leases in any bankruptcy, insolvency, or reorganization
proceedings in any state or federal court and (2) any and all
payments made by lessees in lieu of Rent. The Assignor hereby
appoints the Assignee as its irrevocable attorney-in-fact to
appear in action and/or to collect any such award or payment
following an Event of Default.
The Assignor hereby assigns to the Assignee all security
deposits received by the Assignor or any agent of the Assignor in
respect of any Leases. Prior to an Event of Default and demand
by the Assignee for delivery of such security deposits to it or
its designee, the Assignor shall maintain the security deposits
as required by the Deed f Trust. After an Event of Default and
upon demand by the Assignee, the Assignor shall deliver such
deposits to the Assignee or its designee. Upon delivery of such
security deposits to the Assignee, the Assignee shall hold such
deposits pursuant to the terms of the Leases in respect of which
such deposits were obtained by the Assignor. In no event,
however, shall the Assignee be liable under any Lease of any part
of the Trust Estate for the return of any security deposit in any
amount in excess of the amount delivered to the Assignee by the
Assignor. Any security deposits delivered to and held by the
Assignee shall not bear interest.
The Assignor, upon the occurrence of an Event of Default,
hereby authorizes the Assignee, at its option, to enter and take
possession of the Trust Estate; to manage and operate the Trust
Estate; to collect all or any Rents accruing therefrom and from
the Leases; to let the Trust Estate or any part thereof; to
cancel the Leases pursuant to the terms of the Leases and to
enter into any modification of any lease with tenant of such
Lease; to evict tenants in accordance with the terms of the
applicable Leases; to bring or defend any suits in connection
with the possession of the Trust Estate in its own name or the
Assignor's name; to make repairs as the Assignee deems
appropriate; and to perform such other acts in connection with
management and operation of the Trust Estate as the Assignee, in
its discretion, may deem proper.
The receipt by the Assignee of any Rents pursuant to this
instrument after the institution of foreclosure proceedings under
the Deed of Trust shall neither cure such default nor affect such
proceedings or any sale pursuant thereto.
The Assignee shall not be obligated to perform or discharge
any obligation or duty to be performed or discharged by the
Assignor under any of the Leases. The Assignor hereby agrees to
indemnify the Assignee for, and to save it harmless from, any and
all liability arising from any of the Leases or from this
Assignment, except for gross negligence or willful misconduct of
the Assignee during any period in which the Assignee is in
possession of the Trust Estate. This Assignment shall not place
responsibility for the control, care management or repair of the
Trust Estate upon the Assignee, or make the Assignee responsible
or liable for any negligence in the management, operation,
upkeep, repair or control of the Trust Estate resulting in loss
or injury or death to any lessee, licensee, employee or stranger
prior to the Assignee's assuming actual operation or management
of the Trust Estate following an Event of Default.
The Assignor covenants and represents: that the Assignor has
full right and title to assign the Leases and the Rents due or to
become due thereunder; that the terms of the Leases have not been
changed from the terms in the copies of the Leases submitted to
the Assignee for approval; that no other assignment of any
interest therein has been made; that, to Assignor's actual
knowledge, there are no existing defaults under the provisions
thereof; and that the Assignor will not hereafter cancel,
surrender or terminate any of the Leases, exercise any option
which might lead to such termination, or change, alter or modify
them or consent to the release of any party liable thereunder or
to the assignment of the lessees' interest in them without the
prior written consent of the Assignee.
- 2 -
R#0202465.02
<PAGE>
BK 1063 PG 377
The Assignor hereby authorizes the Assignee upon the
occurrence of an Event of Default, to give notice in writing of
this Assignment at any time to any lessee under any of the
Leases. The Assignor authorizes and directs each and every
tenant under the leases, upon receipt of written notice from the
Assignee that an Event of Default has occurred, to pay Rents to
the Assignee upon written demand for payment by the Assignee,
without any liability to the Assignor to inquire further as to
the existence of any Event of Default hereunder or under any of
the other Loan Instruments (as defined in the Deed of Trust) by
the Assignor.
Violation of any of the covenants, representations and
provisions contained herein by the Assignor is default under the
terms of the Note and the Deed of Trust.
A material default (one on the basis of which the tenant is
entitled to terminate its lease, to withhold rent, or to expend
funds and deduct the amount of such expenditure from rent) by the
Assignor under any of the terms of the Leases assigned herein
shall be deemed a default hereunder. Any expenditures made by
the Assignee in curing such a default on the Assignor's behalf
(including, without limitation, reasonable attorneys' fees for
services in fact provided, whether or not suit is commenced),
with interest thereon at the per annum rate of 18% or the highest
contract rate permitted by applicable law, whichever is less,
shall become part of the debt secured by this Assignment. If the
Assignor is liable for attorneys' fees incurred by the Assignee
pursuant to any provision in this Assignment, such attorneys'
fees for which the Assignor is liable shall be the actual
attorneys' fees incurred and shall be based on the normal hourly
rate of the attorneys and paralegals performing the work, without
regard to any statutory presumption.
Any controversy or claim arising our of or relating to this
Assignment of Rents and Leases shall be determined by arbitration
in accordance with Commercial Arbitration Rules of the American
Arbitration Association. The number of arbitrators shall be
three. One arbitrator shall be appointed by each of the parties
and the third arbitrator, who shall serve as chairman of the
tribunal, shall be appointed by the American Arbitration
Association. The place of arbitration shall be Charlotte, North
Carolina. Any arbitral award arising from any arbitration
pursuant to this paragraph shall be final and binding upon all
parties hereto.
All communications and notices provided for hereunder shall
be in writing and shall be given in the manner (and shall be
deemed effective at the time) prescribed by the Deed of Trust.
The full performance of the Deed of Trust and the duly
entered release or cancellation of the Deed of Trust of record
render this Assignment void.
Neither the existence of this Assignment nor the exercise of
its privilege to collect the Rents shall be construed as a waiver
by the Assignee, or its successors and assigns, of the right to
enforce payment of the debt hereinabove mentioned, in strict
accordance with terms and provisions of the Note and the Deed of
Trust for which this Assignment is given as additional security.
This Assignment applies to and binds the parties hereto and
their respective heirs, administrators, executors, successors and
assigns, as well as any subsequent owner of the Trust Estate and
any assignee of the Deed of Trust referred to herein.
- 3 -
R#0202465.02
<PAGE>
BK 1063 PG 378
IN WITNESS WHEREOF, the Assignor has signed and sealed this
instrument the date first above set out.
FOUNTAIN POWERBOATS, INC., a
North Carolina corporation
By: /s/ Reginald M. Fountain, Jr.
_____________ President
ATTEST:
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
- 4 -
R#0202465.02
<PAGE>
BK 1063 PG 379
NORTH CAROLINA
CRAVEN COUNTY
I, Stephanie C. Crosby, a Notary Public of Craven County,
North Carolina, do hereby certify that Blanche C. Williams
personally came before me this day and acknowledged that [s] he
is the ___-____ Secretary of Fountain Powerboats, Inc., a North
Carolina corporation, and that by authority duly given and as the
act of the corporation, the foregoing instrument was signed in
its name by its __-_____ President, sealed with its corporate
seal and attested by himself/herself as its ________-______
Secretary.
WITNESS my hand and notarial seal, this 31st day of
December, 1996.
/s/ Stephanie C. Crosby
Notary Public
[NOTARY SEAL]
My commission expires:
11-30-99
North Carolina
Beaufort County
The foregoing Certificate of Stephanie C.
Crosby
Notary Public/Notaries Public is/are
certified to be correct This 31st day of
December, 1996 at 3:16 o'clock P.M.
By /s/Judy Till
Register of Deeds Ass't/Deputy Register of
Deeds
- 5 -
R#0202465.02
<PAGE>
CORPORATE GUARANTY
Date: December 31, 1996
General Electric Capital Corporation
6100 Fairview Road, Suite 1450
Charlotte, North Carolina 28210
To induce you to enter into, purchase or otherwise acquire,
now or at any time hereafter, any promissory notes, security
agreements, chattel mortgages, pledge agreements, conditional
sale contracts, lease agreements, and/or any other documents or
instruments evidencing, or relating to, any lease, loan,
extension of credit or other financial accommodation,
specifically including, but not limited to, credit extended
pursuant to that certain promissory note dated December 31, 1996,
executed by the Customer (hereinafter defined) and payable to
you, in the amount of $10,000,000 (collectively "Account
Documents" and each an "Account Document") to FOUNTAIN
POWERBOATS, INC., a corporation organized and existing under the
laws of the State of North Carolina ("Customer"), but without in
any way binding you to do so, the undersigned for good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, does hereby guarantee to you, your
successors and assigns, the due regular and punctual payment of
any sum or sums of money which the Customer may owe to you now or
at any time hereafter, whether evidenced by an Account Document,
on open account or otherwise, and whether it represents
principal, interest, rent, late charges, indemnities, an original
balance, an accelerated balance, liquidated damages, a balance
reduced by partial payment, a deficiency after sale or other
disposition of any leased equipment, collateral or security, or
any other type of sum of any kind whatsoever that the Customer
may owe to you now or at any time hereafter, and does hereby
further guarantee to you, your successors and assigns, the due,
regular and punctual performance of any other duty or obligation
of any kind or character whatsoever that the Customer may owe to
you now or at any time hereafter (all such payment and
performance obligations being collectively referred to as
"Obligations"). Undersigned does hereby further guarantee to pay
upon demand all losses, costs, attorneys' fees and expenses which
may be suffered by you by reason of Customer's default or
default of the undersigned.
One of the undersigned, FOUNTAIN POWERBOAT INDUSTRIES, INC.,
a Nevada corporation (the "Parent Corporation"), owns all of the
stock of the Customer and therefore receives a direct financial
benefit as a result of the credit extended by you to the
Customer. The remaining undersigned guarantors are wholly owned
subsidiaries of the Customer and likewise shall be directly
benefited as a result of the credit extended by you to the
Customer. The undersigned acknowledge that they are familiar
with the financial condition of the Customer and acknowledge that
you have no obligation to provide the undersigned with
information regarding the present or future financial condition
of the Customer.
R#0202886.03
<PAGE>
The Guaranty is a guaranty of prompt payment and
performance (and not merely a guaranty of collection). Nothing
herein shall require you to first seek or exhaust any remedy
against the Customer, its successors and assigns, or any other
person obligated with respect to the Obligations, or to first
foreclose, exhaust or otherwise proceed against any leased
equipment, collateral or security which may be given in
connection with the Obligations. The undersigned hereby waives
any and all rights under N.C.G.S. 26-7 et seq. and any similar
subsequent law pursuant to which the undersigned might otherwise
be entitled to require that you pursue collection against
collateral and/or primary obligors. It is agreed that you may,
upon any breach or default of the Customer, or at any time
thereafter, make demand upon the undersigned and receive payment
and performance of the Obligations, with or without notice or
demand for payment or performance by the Customer, its successors
or assigns, or any other person. Suit may be brought and
maintained against the undersigned, at your election, without
joinder of the Customer or any other person as parties thereto.
The obligations of each signatory to this Guaranty shall be joint
and several.
The undersigned agrees that its obligations under this
Guaranty shall be primary, absolute, continuing and
unconditional, irrespective of and unaffected by any of the
following actions or circumstances (regardless of any notice to
or consent of the undersigned): (a) the genuineness, validity,
regularity and enforceability of the Account Documents or any
other document; (b) any extension, renewal, amendment, change,
waiver or other modification of the Account Documents or any
other document; (c) the absence of, or delay in, any action to
enforce the Account Documents, this Guaranty or any other
document; (d) your failure or delay in obtaining any other
guaranty of the Obligations (including, without limitation, your
failure to obtain the signature of any other guarantor
hereunder); (e) the release of, extension of time for payment or
performance by, or any other indulgence granted to the Customer
or any other person with respect to the Obligations by operation
of law or otherwise; (f) the existence, value, condition, loss,
subordination or release (with or without substitution) of , or
failure to have title to or perfect and maintain a security
interest in, or the time, place and manner of any sale or other
disposition of any leased equipment, collateral or security given
in connection with the Obligations, or any other impairment
(whether intentional or negligent, by operation of law or
otherwise) of the rights of the undersigned: (g) the Customers
voluntary or involuntary bankruptcy, assignment for the benefit
of creditors, reorganization, or similar proceedings affecting
the Customer or any of its assets; or (h) any other action or
circumstances which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor.
This Guaranty may be terminated upon delivery to you (at
your address shown above) of a written termination notice from
the undersigned. However, as to all Obligations (whether
matured, unmatured, absolute, contingent or otherwise) incurred
by the Customer prior to your receipt of such written termination
notice (and regardless of any subsequent amendment, extension or
other modification which may be made with respect to such
Obligations), this Guaranty shall nevertheless continue and
remain undischarged until all such Obligations are indefeasibly
paid and performed in full.
- 2 -
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<PAGE>
The undersigned agrees that this Guaranty shall remain in
full force and effect or be reinstated (as the case may be) if at
any time payment or performance of any of the Obligations (or any
part thereof) is rescinded, reduced or must otherwise be restored
or returned by you, all as though such payment or performance had
not been made. If, by reason of any bankruptcy, insolvency or
similar laws affecting the rights of creditors, you shall be
prohibited from exercising any of your rights or remedies against
the Customer or any other person or against any property, then,
as between you and the undersigned, such prohibition shall be of
no force and effect, and you shall have the right to make demand
upon, and receive payment from, the undersigned of all amounts
and other sums that would be due to you upon a default with
respect to the Obligations.
Notice of acceptance of this Guaranty and of any default by
the Customer or any other person is hereby waived. Presentment,
protest demand, and notice of protest, demand and dishonor of any
of the Obligations, and the exercise of possessory, collection or
other remedies for the Obligations, are hereby waived. The
undersigned warrants that it has adequate means to obtain from
the Customer of a continuing basis financial data and other
information regarding the Customer and is not relying upon you to
provide any such data or other information. Without limiting the
foregoing, notice of adverse change in the Customer's financial
condition or of any other fact which might materially increase
the risk of the undersigned is also waived. All settlements,
compromises, accounts stated and agreed balances made in good
faith between the Customer, its successors or assigns, and you
shall be binding upon and shall not affect the liability of the
undersigned.
Payment of all amounts now or hereafter owed to the
undersigned by the Customer or any other obligor for any of the
Obligations is hereby subordinated in right of payment to the
indefeasible payment in full to you of all Obligations and is
hereby assigned to you as a security therefor. The undersigned
hereby irrevocably and unconditionally waives and relinquishes
all statutory, contractual, common law,, equitable and all other
claims against the Customer, any other obligor for any of the
Obligations, any collateral therefor, or any other assets of the
Customer or any such other obligor, for subrogation,
reimbursement, exoneration, contribution, indemnification, setoff
or other recourse in respect of sums paid or payable to you by
the undersigned hereunder, and the undersigned hereby further
irrevocably and unconditionally waives and relinquishes any and
all other benefits which it might otherwise directly or
indirectly receive or be entitled to receive by reason of any
amounts paid by, or collected or due from, it, the Customer or
any other obligor for any of the Obligations, or realized from
any of their respective assets.
Any controversy or claim arising out of or relating to this
Corporate Guaranty shall be determined by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The number of arbitrators shall be
three. One arbitrator shall be appointed by each of the parties
and the third arbitrator, who shall serve as chairman of the
tribunal, shall be appointed by the American Arbitration
Association. The place of arbitration shall be Charlotte, North
Carolina. Any arbitral award arising form any arbitration
pursuant to this paragraph shall be final and binding upon all
parties hereto.
- 3 -
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<PAGE>
As used in this Guaranty, the word "person" shall include
any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization, or any government or any political subdivision
thereof.
This Guaranty is intended by the parties as a final
expression of the guaranty of the undersigned and is also
intended as a complete and exclusive statement of the terms
thereof. No course of dealing, course of performance or trade
usage, nor any paid evidence of any kind, shall be used to
supplement or modify any of the terms hereof. Nor are there any
conditions to the full effectiveness of this Guaranty. This
Guaranty and each of its provisions may only be waived, modified,
varied, released, terminated or surrendered, in whole or in part,
by a duly authorized written instrument signed by you. No
failure by you to exercise your rights hereunder shall give rise
to any estoppel against you, or excuse the undersigned from
performing hereunder. Your waiver of any right to demand
performance hereunder shall not be a waiver of any subsequent or
other right to demand performance hereunder.
This Guaranty shall bind the undersigned's successors and
assigns and the benefits thereof shall extend to and include your
successors and assigns. In the event of default hereunder, you
may at any time inspect undersigned's records, or at your option
undersigned shall furnish you with a current independent audit
report.
If any provisions of this Guaranty are in conflict with any
applicable statute, rule or law, then such provisions shall be
deemed null and void to the extent that they may conflict
therewith, but without invalidating any other provisions hereof.
Each signatory on behalf of a corporation guarantor warrants
that he had authority to sign on behalf of such corporation and
by so signing, to bind said guarantor corporation hereunder.
IN WITNESS WHEREOF, this Guaranty is executed the day and
year above written.
FOUNTAIN AVIATION, INC.
ATTEST:
By: /s/ Reginald M. Fountain, Jr.
_________________ President
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
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<PAGE>
FOUNTAIN SPORTSWEAR, INC.
ATTEST:
By: /s/ Reginald M. Fountain, Jr.
_________________ President
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
FOUNTAIN TRUCKING, INC.
ATTEST:
By: /s/ Reginald M. Fountain, Jr.
_________________ President
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
FOUNTAIN UNLIMITED, INC.
ATTEST:
By: /s/ Reginald M. Fountain, Jr.
_________________ President
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
FOUNTAIN POWER, INC.
ATTEST:
By: /s/ Reginald M. Fountain, Jr.
_________________ President
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
- 5 -
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC.
ATTEST:
By: /s/ Reginald M. Fountain, Jr.
_________________ President
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
- 6 -
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<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is made as
of this 31st day of December, 1996, in favor of GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation (the "Lender"), by
REGINALD M. FOUNTAIN, JR. (the foregoing individual hereinafter
referred to as the "Unsecured Creditor");
Recitals:
1. FOUNTAIN POWERBOATS, INC., a North
Carolina corporation (the "Borrower"), has applied to the Lender
for a loan in the principal amount of $10,000,000 (such loan
being referred to as the "Financial Accommodations") pursuant to
the provisions of a Loan Agreement of even date herewith, by and
between the Lender, the Borrower and certain other parties (the
"Loan Agreement"). The Financial Accommodations are to be
evidenced by, and repaid with interest in accordance with the
provisions of, a promissory note dated of even date herewith in
the amount of $10,000,000, executed by the Borrower and payable
to the Lender (the "Note").
2. The Unsecured Creditor has
requested the Lender to enter into the Loan Agreement with the
Borrower and to make the Financial Accommodations to the Borrower
pursuant thereto. The Unsecured Creditor has a substantial
interest in the Borrower and shall derive direct financial
benefit as a result of credit extended to the Borrower.
3. The Lender has required, as a
condition to the making of the Financial Accommodations, the
execution of this Agreement by the Unsecured Creditor.
NOW, THEREFORE, in consideration of the recitals and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Unsecured Creditor hereby
agrees with the Lender as follows:
1. Amount of Subordinated Indebtedness and Recitals. the
Unsecured Creditor represents and warrants that (a) as of the
date hereof the Subordinated Indebtedness is in the amount of __-
0-__ and No/100 Dollars ($__-0-_______) and after the date
hereof, the Subordinated Indebtedness shall not at any time
exceed $500,000; (b) the above Recitals are true, accurate, and
correct and are incorporated in this Agreement by reference; (c)
the Unsecured Creditor is the lawful owner of the Subordinated
Indebtedness, free and clear of all liens, assignments, security
interests and other encumbrances; and (d) the Unsecured Creditor
has not previously subordinated the subordinated Indebtedness.
2. Subordination to Lender's Obligations. The Unsecured
Creditor hereby subordinates and postpones the payment and the
time of payment of the Subordinated
R#0202895.03
<PAGE>
Indebtedness to and in favor of the payment and the time of
payment of the Lender's Obligations. Except as hereinafter
provided, so long as all or any part of the Lender's Obligations
remain unpaid, the Unsecured Creditor shall not, without the
prior written consent of the Lender, ask, demand, sue for, set
off, accept, or receive any payment of all or any part of the
Subordinated Indebtedness from the Borrower; provided, that until
the occurrence of an event of default under any of the Loan
Documents, the Unsecured Creditor may receive scheduled payments
of interest only and scheduled principal payments due in
accordance with the Subordinated Indebtedness. The Unsecured
Creditor agrees not to subordinate, grant a security interest or
lien on, assign, or transfer all or any part of the Subordinated
Indebtedness to any other person without the prior written
consent of the Lender. The Unsecured Creditor will not, without
the prior written consent of Lender: (a) commence, or join with
any other creditor in commencing, any bankruptcy,
reorganization, insolvency or similar proceedings with respect to
Borrower; or (b) extend, modify or renew any of the Borrower's
obligations under the Subordinated Indebtedness or the documents
evidencing or executed or delivered in connection with the
Subordinated Indebtedness, or release any surety or security for
such obligations or obtain additional collateral security or
exercise any other right under the Subordinated Indebtedness, or
the documents evidencing or executed or delivered in connection
with the Subordinated Indebtedness. the Unsecured Creditor shall
take no action, either within an Insolvency Proceeding or
otherwise, that would affect, contest or hinder the Lender's
entitlement to priority over the Subordinated Indebtedness.
The Borrower agrees that it will not give any security
agreement with respect to, convey, assign, or pledge any property
of the Borrower as security for or to be applied to the payment
of the Subordinated Indebtedness while this agreement is in
effect.
3. Distributions, etc. In the event
of any distribution, division, or application, partial or
complete, voluntary or involuntary, by operation of law or
otherwise , of all or any part of the assets of the Borrower or
the proceeds thereof to creditors of the Borrower or to any
indebtedness, liabilities, and obligations of the Borrower by
reason of the liquidation, dissolution, or other winding up of
the Borrower or Borrower's business or in the event of any sale,
receivership, insolvency, or bankruptcy proceeding, or assignment
for the benefit of creditors, or any proceeding by or against the
Borrower for any relief under the Bankruptcy Code or any
insolvency law or other laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or
extensions (an "Insolvency Proceeding"), then and in any such
event, any payment or distribution of any kind or character,
whether in cash, securities, or with respect to all or any part
of the Subordinated Indebtedness, shall be paid or delivered
directly to the Lender for application to the Lender's
Obligations (whether due or not due and in such order and manner
as the Lender may elect). The Unsecured Creditor hereby
irrevocably authorizes and empowers the Lender to demand, sue
for, collect, and receive every such payment or distribution and
to give acquittance therefor and to file claims, vote, and take
such other proceedings in the Lender's own name or in the name of
the Unsecured Creditor or otherwise as the Lender may deem
necessary or advisable to carry out the provisions of this
Agreement. The Unsecured Creditor hereby agrees to execute and
deliver to the Lender such powers of attorney, assignments,
endorsements, or other instruments as may be required by the
Lender in order to enable the Lender to enforce any and all
claims upon or with respect to the Subordinated Indebtedness and
- 2 -
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<PAGE>
to collect and receive any and all payments or distributions
which may be payable or deliverable at any time upon or with
respect to the Subordinated Indebtedness.
4. Receipt of Payments by Unsecured
Creditor. Should any payment or distribution not permitted by
the provisions of this Agreement be received by the Unsecured
Creditor upon or with respect to all or any part of the
Subordinated Indebtedness, the Unsecured Creditor will deliver
the same to the Lender in precisely the form received (except for
the endorsement or assignment of the Unsecured Creditor where
necessary) for application to the Lender's Obligations (whether
due or not due and in such order and manner as the Lender may
elect) and, until so delivered, the same shall be held in trust
by the Unsecured Creditor as property of the Lender. In the
event of the failure of the Unsecured Creditor to make any such
endorsement or assignment, the Lender, or any of its officers or
employers on behalf of the Lender, is hereby irrevocably
authorized to make the same.
5. Consents, Waivers, ect. The
Unsecured Creditor hereby consents that at any time and from time
to time and with or without consideration, the Lender may,
without further consent of or notice to the Unsecured Creditor
and without in any manner affecting, impairing, lessening, or
releasing any of the provisions of this Agreement, renew, extend,
change the manner, time, place, and terms of payment of, sell,
exchange, release, substitute, surrender, realize upon, modify,
waive, grant indulgences with respect to, and otherwise deal with
in any manner: (a) all or any part of the Lender's Obligations;
(b) all or any of the Loan Documents; (c) all or any part of any
property at any time securing all or any part of the Lender's
Obligations; and (d) any person at any time primarily or
secondarily liable for all or any part of the Lender's
Obligations and/or any collateral and security therefor. The
Unsecured Creditor hereby waives demand, presentment for payment,
protest, notice of dishonor and of protest with respect to the
Subordinated Indebtedness, notice of acceptance of this Agreement
by the Lender, notice of the making of any of the Lender's
Obligations, and notice of the occurrence of an event of default
under any of the Loan Documents.
6. Notices and Communications. All
notices and other combinations hereunder shall be in writing and
shall be effective when sent by certified mail, return receipt
requested: (a) if to the Unsecured Creditor, addressed to
Reginald M. Fountain, Jr., at Whichard's Beach Road, Washington,
North Carolina 27889 or at such other address as the Unsecured
Creditor shall have furnished in writing to the Lender, or (b) if
to the Lender, addressed to it at 6100 Fairview Road, Suite 1450,
Charlotte, North Carolina 28210, or at such other address as the
Lender shall have furnished in writing to the Unsecured Creditor.
7. Transfer or Assignment of
Obligations. If any of the Lender's Obligations should be
transferred or assigned by the Lender, this Agreement will inure
to the benefit of the Lender's transferee or assignee to the
extent of such transfer or assignment, provided that the Lender
shall continue to have the unimpaired right to enforce this
Agreement as to any of the Lender's Obligations not so
transferred or assigned.
- 3 -
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<PAGE>
8. Acceleration of Lender's
Obligations. In the event that any of the agreements hereinabove
set out shall not be compiled with or shall be violated, the
Lender may, at its option, in any such event, terminate any
credit agreement or commitment for loans theretofore made to the
Borrower and (notwithstanding any of the provisions of any note
or other instrument evidencing the debts of the Borrower to the
Lender) immediately declare all or any part of such debt, with
interest, due and payable, and may without presentment for
payment, demand, protest, or any other notice or demand
whatsoever proceed to collect such debt.
9. Definitions.
The following terms have the following meanings:
"Lender Obligations" means all past, present, and future
indebtedness, liabilities, and obligations of any nature
whatsoever of the Borrower to the Lender in connection with the
Financial Accommodations including, without limitation, the Note
(as such Note may be amended, renewed, extended, provided the
principal amount of such Financial Accommodations may not be
increased above the principal amount of the Financial
Accommodations referenced herein or increased whatsoever upon
repayment of the principal evidenced by the Note, whether by
prepayment or through scheduled payments), and which are direct,
indirect, contingent, primary, secondary, alone, jointly with
others, due, to become due, unsecured, secured, future advances,
now existing, hereafter created, principal, interest, expense
payments, liquidation costs, and attorneys' fees and expenses.
"Loan Documents" means collectively any security agreement,
mortgage, deed of trust, indemnify deed of trust, collateral
pledge agreement, loan agreement, letter of credit application,
assignment, reimbursement agreement, promissory note, guaranty,
indemnity agreement, or any other instrument or agreement
previously, simultaneously, or hereafter executed and delivered
by the Borrower, or any other person as evidence of, security
for, guarantee of, or in connection with, the Financial
Accommodations, including, without limitation, the Loan Agreement
and the Note.
"Subordinated Indebtedness" means all past and present
indebtedness, liabilities, and obligations of any nature
whatsoever of the Borrower to the Unsecured Creditor (including
any renewals or extensions of present indebtedness), which are
direct, indirect, contingent, primary, secondary, alone, jointly
with others, due, to become due, unsecured, secured, future
advances, now existing, hereafter created, principal, interest,
expense payments, liquidation costs, and attorneys' fees and
expenses.
10. Arbitration. any controversy or
claim arising out of or relating to this Subordination Agreement
shall be determined by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association. The number of arbitrators shall be three. One
arbitrator shall be appointed by each of the parties and the
third arbitrator, who shall serve as chairman of the tribunal,
shall be appointed by the American Arbitration Association. The
place of
- 4 -
R#0202895.03
<PAGE>
arbitration shall be Charlotte, North Carolina. Any arbitral
award arising from any arbitration pursuant to this paragraph
shall be final and binding upon all parties hereto.
11. Miscellaneous. The Lender may, at
its option, by written instrument, waive any of its rights
hereunder without in any manner impairing or affecting any of its
other rights hereunder. This Agreement shall not be affected,
impaired, or released b the delay or failure of the Lender to
exercise any of its rights and remedies against the Borrower or
under any of the Loan Documents or against any collateral or
security for the Lender's Obligations. No delay or failure on
the part of the Lender to exercise any of its rights or remedies
hereunder or now or hereafter existing at law or in equity or by
statute or otherwise, or any partial or single exercise thereof,
shall constitute a waiver thereof. All such rights remedies are
cumulative and may be exercised singly or concurrently and the
exercise of any one or more of them will not be a waiver of any
other. No waiver of any of its rights and remedies hereunder and
no modification or amendment of this Agreement shall be deemed to
be made by the Lender unless the same shall be in writing, duly
signed on behalf of the Lender, and each such waiver, if any
shall apply only with respect to the specific instance involved
and shall in no way impair the rights and remedies of the Lender
hereunder in any other respect at any other time.
The Lender shall have the right to grant participation in
the Lender's Obligations to others at any time and from time to
time, and the Lender may divulge to any such participant or
potential participant all information, reports, financial
statements, and documents obtained in connection with this
Agreement, any of the Loan Documents, or otherwise.
If any term of this Agreement or any obligation thereunder
shall be held to be invalid, illegal, or unenforceable, the
remainder of this Agreement and any other application of such
term shall not be affected thereby.
This Agreement may be executed in duplicate originals or in
several counterparts, each of which shall be deemed an original
but all of which together shall constitute one instrument, and it
shall not be necessary in making proof hereof to produce or
account for more than one such duplicate, original, or
counterpart.
This Agreement shall be binding upon the heirs, personal
representatives, successors, and assigns of the Unsecured
Creditor and shall inure to the benefit of the successors and
assigns of the Lender. As used herein, the singular number shall
include the plural, the plural the singular, and the use of the
masculine, feminine, or neuter gender shall include all genders,
as the context may require, and the term "person" shall include
an individual, a corporation, an association, a partnership, a
trust, and an organization. The paragraph headings of this
Agreement are for convenience only and shall not limit or
otherwise affect any of the terms hereof.
This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina and shall
be deemed to be executed, delivered and accepted in the State of
North Carolina.
- 5 -
R#0202895.03
<PAGE>
IN WITNESS WHEREOF, the Unsecured Creditor has caused this
Agreement to be signed, sealed, and delivered on the day and year
first written above.
By: /s/ Reginald M. Fountain, Jr.
(SEAL)
_____________ President
The Borrower join in the execution of this Agreement so as
to signify their acceptance of and agreement and consent to the
provisions of this Agreement.
FOUNTAIN POWERBOATS, INC.,
a North Carolina corporation
By: /s/ Reginald M. Fountain, Jr.
_____________ President
Attest:
/s/ Blanche C. Williams
______________ Secretary
[CORPORATE SEAL]
- 6 -
R#0202895.03
<PAGE>
COLLATERAL ASSIGNMENT OF SECURITY INTEREST IN
PATENTS, TRADEMARKS AND RELATED APPLICATIONS
WHEREAS, Fountain Powerboats, inc., a North Carolina
corporation ("Assignor"), and General Electric Capital
Corporation, a New York corporation ("Assignee"), executed and
entered into that certain Loan Agreement, dated as of December
31, 196 (the "Loan Agreement"); and
WHEREAS, the Loan Agreement requires Assignor to submit to
Assignee, on a quarterly basis, a document confirming the
Security Interest of Assignee in any patent or trademark with
respect to which Assignor or any of its subsidiaries has filed an
application or an assignment during the preceding calendar month;
and
WHEREAS, Assignor has filed federal trademark registration
applications and/or received trademark applications or
registrations by assignment with respect to the trademarks listed
on Schedule A (collectively, the "Trademarks"); and
WHEREAS, the parties hereto desire to confirm and perfect
the security interest (the "Security Interest") granted to
Assignee in the Trademarks, in accordance with the Loan
Agreements;
NOW, THEREFORE, subject in the terms, conditions and
limitations set forth in the Loan Agreement, and in consideration
of the mutual covenants, warranties and promises set forth in the
Loan Agreement, and other good and valuable consideration, the
full receipt and sufficiency of which are hereby acknowledged.
Assignor hereby grants and conveys unto Assignee a first lien
Security Interest in and to the Trademarks, any trademark
applications filed with respect thereto and any federal trademark
registrations issued or issuing with respect thereto and all
goodwill associated with the Trademarks, such grant being hereby
effected for the purposes and subject to the terms, conditions
and limitations set forth in the Loan Agreement.
Assignor hereby appoints General Electric Capital
Corporation, with full power of substitution, to file and record
this Collateral Assignment of Security Interest in Patents,
Trademarks and Related Applications, to transact all business in
the United States Patent and Trademark Office in connection
therewith, to receive any confirmatory documents relating
thereto, and to take any and all action before the Patent and
Trademark Office to give effect to this collateral Assignment of
Security Interest in Patents, Trademarks and Related Applications
and to the Loan Agreement referred to herein.
IN WITNESS WHEREOF, Assignor has duly executed this
Collateral Assignment of Security Interest in Patents, Trademarks
and Related Applications as of the 31st day of December, 1996.
FOUNTAIN POWERBOATS, INC.,
By: /s/ Reginald M. Fountain, Jr.
President
R#0202980.01
<PAGE>
STATE OF NORTH CAROLINA )
)
COUNTY OF BEAUFORT )
On this 31st day of December, 1996, personally appeared
before me Reginald M. Fountain, Jr., President of Fountain
Powerboats, Inc., a North Carolina corporation, and, being by me
first duly sworn, signed the foregoing instrument and
acknowledged that he executed the same in the capacity and for
the purposes stated therein.
/s/ Stephanie C. Crosby
Notary Public
Stephanie C. Crosby
Printed Name of Notary Public
My commission expires:
11-30-99
[SEAL]
R#0202980.01
<PAGE>
THE UNITED STATES OF AMERICA
1604523
CERTIFICATE OF REGISTRATION
This is to certify that the records of the Patent and
Trademark Office show that an application was filed in said
Office for registration of the Mark shown herein, a copy of said
Mark and pertinent data from the Application being annexed hereto
and made a part hereof,
And there having been due compilance with the requirements
of the law and with the regulations prescribed by the
Commissioner of Patents and Trademarks,
Upon examination, it appeared that the applicant was
entitled to have said Mark registered under the Trademark Act of
1946, as amended, and the said Mark has been duly registered this
day in the Patent and Trademark Office on the
PRINCIPAL REGISTER
to the registrant named herein.
This registration shall remain in force for TEN years unless
sooner terminated as provided by law.
In Testimony Whereof I have
hereunto set my hand and
caused the seal of the Patent
and Trademark Office to be
affixed this third day of July
1990.
/s/ Harry F. Manbeck, Jr.
Commissioner of Patents and
Trademarks
<PAGE>
Int. Cl.: 12
Prior U.S. Cl.: 19
Reg. No. 1,604,523
United States Patent and Trademark Office
Registered July 3, 1990
TRADEMARK
PRINCIPAL REGISTER
FOUNTAIN
FOUNTAIN POWERBOATS, INC. (NORTH FIRST USE 11-25-1981:
CAROLINA CORPORATION) IN COMMERCE 11-25-1981.
P.O. DRAWER 457
WASHINGTON, NC 27889 SER. NO. 74-006.862, FILED 12-
1-1989.
FOR BOATS, IN CLASS 12 (U.S. Cl. 19) R.G. COLE. EXAMINING ATTORNEY
<PAGE>
THE UNITED STATES OF AMERICA
1606329
CERTIFICATE OF REGISTRATION
This is to certify that the records of the Patent and
Trademark Office show that an application was filed in said
Office for registration of the Mark shown herein, a copy of said
Mark and pertinent data from the Application being annexed hereto
and made a part hereof,
And there having been due compliance with the requirements
of the law and with the regulations prescribed by the
Commissioner of Patents and Trademarks,
Upon examination, it appeared that the applicant was
entitled to have said Mark registered under the Trademark Act of
1946, as amended, and the said Mark has been duly registered this
day in the patent and Trademark Office on the
PRINCIPAL REGISTER
to the registrant named herein.
This registration shall remain in force for TEN years unless
sooner terminated as provided by law.
In Testimony Whereof I have
hereunto set my hand and
caused the seal of the patent
and Trademark Office to be
affixed this third day of July
1990.
/s/ Harry F. Manbeck, Jr.
Commissioner of Patents and
Trademarks
<PAGE>
Int. Cl.: 12
Prior U.S. Cl.: 19
Reg. No. 1,606,329
United States Patent and Trademark Office
Registered July 17, 1990
TRADEMARK
PRINCIPAL REGISTER
FOUNTAIN POWERBOATS, INC. (NORTH FIRST USE 11-25-1981:
CAROLINA CORPORATION) IN COMMERCE 11-25-1981.
P.O. DRAWER 457
WASHINGTON, NC 27889 SER. NO. 74-007.625 FILED 12-1-
1989.
FOR BOATS, IN CLASS 12 (U.S. Cl. 19) ELLEN A. RUBEL EXAMINING ATTORNEY
<PAGE>
This FINANCING STATEMENT is presented to a Filing Officer for
No. of Additional
filing pursuant to the Uniform Commercial Code. Sheets
Presented: 10
(1) Debtor(s) (Last Name First) and Address(s): (2) Secured
Party(ies) (Names and Address(es)
(Please TYPE)
Fountain Powerboats, Inc. General Electric Captial Corporation
P.O. Drawer 457, 6100 Fairview Rd., Suite 1450
Whichards Beach Rd. Charlotte, NC 28210 961214
96 DEC 31 PM 3:17
Washington, NC 27889
(3)(a) x Collateral is or includes fixtures.
(b) 1
. Timber, Minerals or Accounts Subject
to G.S: 25-9-103(5) are covered
(c) 1. Crops Are Growing Or To Be Grown For
On Real Property Described In Section (5). Filing
If either block 3(a) or block 3(b) applies described real Officer
estate, including record owner(s) in section (5).
(4) Assignee(s) of Secured Party, Address(es):
(5) This financing Statement Covers the Following types [or
items] of property.
See Attached Exhibit A.
1. Products of the Colleteral Are Also Covered.
TERMINATION STATEMENT: This Statement of Termination of
Financing is presented to a filing Officer pursuant to the
Uniform commercial Code. The Secured party certifies that the
Secured Party no longer claims a security interest under the
financing statement bearing the file number shown above. (A
termination statement signed by a person other than the secured
party of record must include or be accompanied by the assignment
r a statement by the secured party of record that he has assigned
the security interest to the signer of the Termination
Statement.)
Date _______________________, 19_______________________
By _______________________________
(Signature of Secured Party or Assignee)
President
(3) Filing Officer Copy Acknowledgment. Filing Officer is requested
to note file Number and hour of filing on this copy and
return to the person filing as an acknowledgment. UCC-1
<PAGE>
WARD AND SMITH, P.A.
ATTORNEYS AT LAW
1001 COLLEGE COURT
120 WEST FIRE TOWER ROAD POST OFFICE BOX 867
POST OFFICE BOX 8088 NEW BERN, N.C. 28563-0867
GREENVILLE, N.C. 27835-8088 ___________
TELEPHONE (919) 355-3030 TELEPHONE (919) 633-1000
FACSIMILE (919) 756-3689 FACSIMILE (901) 636-2121
SUITE 2400
TWO HANNOVER SQUARE
FAYETTEVILLE STREET MALL
POST OFFICE BOX 2091
RALEIGH, N.C. 27602-2091
TELEPHONE (919) 836-1800
FACSIMILE (919) 836-1507
UNIVERSITY CORPORATE CENTER
127 RACINE DRIVE
POST OFFICE BOX 7068
WILMINGTON, N.C. 28406-7068
TELEPHONE (910) 392-5100
FACSIMILE (910) 392-2333
December 31, 1996
General Electric Capital Corporation
6100 Fairview Road, Suite 1450
Charlotte, North Carolina 28210
Ladies and Gentlemen:
We have acted as counsel to Fountain Powerboats, Inc., a
North Carolina corporation ("Borrower"), Fountain Powerboat
Industries, Inc., a Nevada corporation, Fountain Aviation, Inc.,
a North Carolina corporation, Fountain Sportswear, Inc., a North
Carolina corporation, Fountain Trucking, Inc., a North Carolina
corporation, Fountain Unlimited, Inc., a North Carolina
corporation, and Fountain Power, Inc., a North Carolina
corporation (collectively, "Guarantors"), in connection with that
certain $10,000,000.00 loan (the "Loan") from General Electric
Capital Corporation, a New York corporation ("Lender") to
Borrower.
For purposes of rendering this opinion, we have examined the
following documents, all dated of even date herewith, unless
otherwise noted below:
1. Loan Agreement ("Loan Agreement") among Borrower,
Guarantors, and Lender;
2. Promissory Note ("Note") in the original principal
amount of $10,000,000.00 executed by Borrower and payable to the
order of Lender;
3. Deed of Trust, Assignment of Rents and Security
Agreement ("Deed of Trust") executed by Borrower to William c.
Matthews, Jr., as trustee for Lender, encumbering certain real
property ("Real Property") located in Beaufort County, North
Carolina, as more particularly described therein, as security for
the Loan;
4. Assignment of Rents and Leases ("Assignment of Leases")
executed by Borrower to the benefit of Lender with respect to the
Real Property;
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 2
5. Master Security Agreement ("Security Agreement")
executed by Borrower and Lender granting Lender a security
interest in certain personal property described therein
("Personal Property") as security for the Loan (the Real Property
and the Personal Property being hereinafter collectively called
the "Property");
6. Collateral Assignment of Security Interest in Patents,
Trademarks and Related Applications ("Collateral Assignment")
executed by Borrower granting Lender a security interest in
certain personal property described therein as security for the
Loan;
7. One updated UCC-1 Financing Statement to be filed in
the office of the Register of Deeds of Beaufort County naming
Borrower as Debtor and Lender as Secured Party;
8. One undated UCC-1 Financing Statement to be filed in
the office of the Secretary of State of North Carolina naming
Borrower as Debtor and Lender as Secured Party (the two financing
statements collectively being referred to as the "Financing
Statements");
9. Corporate Guaranty ("Guaranty") executed by Guarantors
to the benefit of Lender;
10. Subordination Agreement ("Subordination Agreement")
executed by Reginald M. Fountain, Jr. and Borrower to the benefit
of Lender; and,
11. Assignment of Life Insurance Policy as Collateral
("Life Insurance Assignment") executed by Borrower granting
Lender a security interest in a specific life insurance policy on
the life of Reginald M. Fountain, Jr. as security for the Loan.
For purposes of this opinion, the Loan Agreement, the Note,
the Deed of Trust, the Assignment of Leases, the Security
Agreement, the Collateral Assignment, the Financing Statements,
and the Life Insurance Assignment collectively hereinafter are
called the "Loan Documents".
In connection with this opinion, we have requested Borrower
and Guarantors to provide us with specific documents and any and
all other documents which might be applicable to this
transaction, and we have examined all documents they have
provided to us. Our review of the documents provided to us by
Borrower and Guarantors did not notify us of any additional
documents which directly bear
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 3
on this transaction. The documents provided to us by Borrower
and Guarantors consisted of the articles of incorporation
(including amendments) and the bylaws (including amendments) of
Borrower and Guarantors.
In rendering this opinion, we have assumed, with your
express permission and without independent verification or
investigation, each of the following:
1. Each of the respective parties thereto (other than
Borrower and Guarantors) has the full right, power and authority
to execute, deliver and perform all of its obligations under the
Loan Documents, the Guaranty, and all other documents required or
permitted to be executed, delivered and performed thereunder and
has taken all necessary action to enter into, and has duly
executed and delivered, each such document;
2. All natural persons executing the Loan Documents and
the Guaranty are legally competent to do so; all signatures on
all documents submitted to us (other than signatures of Borrower
and Guarantors) are genuine; all documents submitted to us as
originals are authentic; and all documents submitted to us as
copies conform to the original documents, which themselves are
authentic;
3. To the extent that any Loan Document or the Guaranty
imposes any obligations upon Lender, the Loan documents and the
Guaranty are valid and binding obligations of Lender, enforceable
against Lender in accordance with their respective terms;
4. In connection with our opinion, we have assumed that
Fountain has good title to all non-real property as described in
the Loan Documents;
5. We have assumed that all necessary and proper actions
shall be taken by or on behalf of Lender to file continuation
financing statements or other documents required to continue the
perfection of its security interests, and that Lender will
enforce its rights under the loan documents in circumstances and
in a manner which is commercially reasonable; and,
6. We have assumed that the Financing Statement for the
office of the Secretary of State of North Carolina has been filed
properly in the office of the Secretary of State of North
Carolina, and that, except for the filing of that
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 4
Financing Statement, no additional financing statements
which named Borrower as the debtor were filed in the office
of the Secretary of State of North Carolina after 5:00 P.M.
on December 22, 1996, the effective date and time of the UCC
report of Jack B. Styles.
Based upon the foregoing assumptions and subject to the
qualifications, limitations and exceptions set forth herein, we
are of the opinion that:
A. Borrower is a corporation duly organized and validly
existing under the laws of the State of North Carolina with full
corporate power to borrow money and to undertake the other
obligations as contemplated by the Loan Documents, to execute and
to deliver the Loan Documents, to encumber the Property as
security and to perform Borrower's obligations under the Loan
Documents. The execution and delivery of the Loan Documents have
been duly authorized by all necessary corporate action on the
part of Borrower.
B. Fountain Powerboat Industries, Inc. is a corporation
duly organized and validly existing under the laws of the State
of Nevada with full corporate power to undertake the obligations
as contemplated by the Loan Agreement and the Guaranty which it
has executed, to execute and to deliver the Loan Agreement and
the Guaranty and to perform its obligations under the Loan
Agreement and the Guaranty. The execution and delivery of the
Loan Agreement and the Guaranty have been duly authorized by all
necessary corporate action on the part of Fountain Powerboat
Industries, Inc.
C. Fountain Aviation, Inc. is a corporation duly organized
and validly existing under the laws of the State of North
Carolina with full corporate power to undertake the obligations
as contemplated by the Loan Agreement and the Guaranty which it
has executed, to execute and to deliver the Loan Agreement and
the Guaranty and to perform its obligations under the Loan
Agreement and the Guaranty. The execution and delivery of the
Loan Agreement and the Guaranty have been duly authorized by all
necessary corporate action on the part of Fountain Aviation, Inc.
D. Fountain Sportswear, Inc. is a corporation duly
organized and validly existing under the laws of the State of
North Carolina with full corporate power to undertake the
obligations as contemplated by the Loan Agreement and the
Guaranty which it has executed, to execute and to deliver the
Loan Agreement and the Guaranty and to perform its obligations
under the Loan Agreement and the Guaranty. The execution and
delivery of the Loan Agreement
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 5
and the Guaranty have been duly authorized by all necessary
corporate action on the part of Fountain Sportswear, Inc.
E. Fountain Trucking, Inc. is a corporation duly organized
and validly existing under the laws of the State of North
Carolina with full corporate power to undertake the obligations
as contemplated by the Loan Agreement and the Guaranty which it
has executed, to execute and to deliver the Loan Agreement and
the Guaranty and to perform its obligations under the Loan
Agreement and the Guaranty. The execution and delivery of the
Loan Agreement and the Guaranty have been duly authorized by all
necessary corporate action on the part of Fountain Trucking, Inc.
F. Fountain Unlimited, Inc. is a corporation duly
organized and validly existing under the laws of the State of
North Carolina with full corporate power to undertake the
obligations as contemplated by the Loan Agreement and the
Guaranty which it has executed, to execute and to deliver the
Loan Agreement and the Guaranty and to perform its obligations
under the Loan Agreement and the Guaranty. The execution and
delivery of the Loan Agreement and the Guaranty have been duly
authorized by all necessary corporate action on the part of
Fountain Unlimited, Inc.
G. Fountain Power, Inc. is a corporation duly organized
and validly existing under the laws of the State of North
Carolina with full corporate power to undertake the obligations
as contemplated by the Loan Agreement and the Guaranty which it
has executed, to execute and to deliver the Loan Agreement and
the Guaranty and to perform its obligations under the Loan
Agreement and the Guaranty. The execution and delivery of the
Loan Agreement and the Guaranty have been duly authorized by all
necessary corporate action on the part of Fountain Power, Inc.
H. Each of the Loan Documents has been duly executed and
delivered by Borrower and is a valid and binding obligation of
Borrower, enforcement against Borrower in accordance with its
terms.
I. The Loan Agreement and Guaranty have been duly executed
and delivered by Guarantors and are valid and binding obligations
of Guarantors, enforceable against Guarantors in accordance with
their terms.
J. The Loan Documents and the performance by Borrower of
its obligations thereunder do not conflict with, or result in a
violation of the Articles of Incorporation and By-Laws of
Borrower. To the best of our knowledge, the execution, delivery
and performance of the Loan Documents by Borrower (a) do not and
will
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 6
not violate or conflict with any order, writ, injunction or
decree of any court, administrative agency or any other
governmental authority applicable to Borrower or the Property or
any agreement by which Borrower is bound and (b) will not result
in the creation or imposition of any lien, charge or encumbrance
upon any assets of Borrower, except as contemplated by the terms
of the Loan Documents.
K. The Loan Agreement and Guaranty and the performance by
Guarantors of their obligations thereunder do not conflict with,
or result in a violation of the Articles of Incorporation and By-
Laws of the Guarantors. To the best of our knowledge, the
execution, delivery and performance by Guarantors of their
obligations under the Loan Agreement and Guaranty does not and
will not violate or conflict with any order, writ, injunction or
decree of any court, administrative agency or any other
governmental authority applicable to any Guarantor or any
agreement by which any Guarantor is bound.
L. To the best of our knowledge, there is no action, suit
or proceeding at law or in equity, or by or before any
governmental instrumentality or agency or arbitral body now
pending, or overtly threatened against Borrower, any Guarantor or
the Property, except as set forth in Schedule 2.09 to the Loan
Agreement.
M. The Loan, as reflected in the Loan Documents, does not
violate any existing laws of the State of North Carolina relating
to interest or usury and will not violate any such law by virtue
of any fluctuations in any base, prime, index or equivalent rate
or rates in which interest charges may be based under the Loan
Documents.
N. The Deed of Trust and the Assignment of Leases have
been filed in the office of the Register of Deeds of Beaufort
County. The Deed of Trust creates for the Benefit of Lender a
valid lien on the Real Property described in Exhibit A to the
Deed of Trust.
O. The Security Agreement creates for the benefit of
lender a valid security interest in that portion of the Personal
Property owned by Borrower which consists of types or items of
personal property to which Article 9 the Uniform Commercial Code
of the State of North Carolina ("UCC") is applicable and in which
a security interest may be created thereunder. The financing
Statements are in proper form for filing in the office of the
Register of Deeds of Beaufort County and in the office of the
Secretary of State of North Carolina, the only offices in North
Carolina in which they are required to be filed to perfect under
the UCC the security interest granted to Lender under the Loan
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 7
Documents in the Personal Property. The Financing Statement for
the office of the Register of Deeds of Beaufort County has been
filed properly in the office of the Register of Deeds of Beaufort
County, and any and all filing fees therefor and stamp or
documentary taxes in connection therewith have been paid. The
filing of the Financing Statements in such offices will perfect
the security interest in that portion of the Personal Property
owned by Borrower and described in the Financing Statements and
Security Agreement which consist of types or items of personal
property to which Article 9 of the Uniform Commercial Code of the
State of North Carolina is applicable and in which a security
interest may be perfected by filing of financing statements in
the State of North Carolina. Our examination of the Uniform
Commercial Code Financing Statements records in the office of the
Register of Deeds of Beaufort County, North Carolina under the
names of the Borrower and Guarantors disclosed the following
financing statements as being effective as of December 31, 1996
at 3;17 p.m.:
a. 89-2003 to ITT Commercial Finance Corp.,
which has been continued by 94-0707;
b. 92-1204 to Mercury Marine, a division of
Brunswick Corporation;
c. 94-0404 to Southern National Leasing
Corp.;
d. 94-0426 to MetLife Capital Corporation;
e. 94-0628 to ITT Commercial Finance Corp.,
which has been amended to Deutsche
Financial Services Corporation;
f. 94-0829 to Southern National Leasing
Corp.;
g. 94-0880 to Southern National Leasing
Corp.;
h. 94-1030 to Sunox, Inc.;
i. 96-0014 to General Electric Capital
Corporation; and,
j. 96-0787 to Executive Leasing.
The opinions set forth herein are subject to the following
qualifications:
1. Enforceability of the Loan Documents and the Guaranty
may be limited by (i) applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance
and other similar state or federal debtor relief laws from time
to time in effect and which affect the enforcement of creditors'
rights or the collection of debtors' obligations in general, (ii)
general principles of equity, the application of which may deny
Lender certain of the rights and remedies granted to Lender under
the Loan Documents, including rights to specific performance,
injunctive relief and appointment of a receiver, and (iii)
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 8
general principles of commercial reasonableness and good faith to
the extent required of lender by applicable law;
2. Certain remedies, waivers and other provisions of the
Loan Documents or the Guaranty may not be enforceable, but such
unenforceability will not render the Loan Documents or the
Guaranty invalid as a whole or preclude (i) the judicial
enforcement of the obligation of Borrower or the Guarantor to
repay the principal, together with interest thereon, as provided
in the Note (to the extent not deemed a penalty), and (ii) the
foreclosure of the Deed of Trust. Provisions that may be
unenforceable due to public policy concerns may include, but are
not limited to, issues related to the waiver of procedural,
substantive or constitutional rights or other legal or equitable
rights, including, without limitation, the waiver of the right to
a jury trial and the right of statutory or equitable redemption;
the confession or consent to any judgment; the consent by
Borrower or the Guarantors to the jurisdiction of any court;
disclaimers or limitations of liabilities; discharges of
defenses; the exercise of self-help or other remedies without
judicial process; and the waiver of accountings for rent or sale
proceeds;
3. We express no opinion as to the enforceability of any
provisions of any of the Loan documents or the Guaranty which
impose liquidated damages, penalties, forfeitures, or an increase
in interest rate upon default; or that appoint Lender or others
as the agent or attorney-in-fact for Borrower or any Guarantor.
We are not aware of any North Carolina statute or case clearly
addressing the enforceability of a default rate of interest;
4. Pursuant to N.C.G.S. Section 40A-68, Lender may share
in the amount of condemnation compensation awarded for a partial
taking of the Real Property only to the extent determined
necessary to prevent a impairment of Lender's security, and
without imposition of any prepayment penalty, and pursuant to
N.C.G.S. Section 40A-31, a court may allocate the proceeds of a
private condemnation to the parties entitled thereto,
notwithstanding any agreement to the contrary;
5. We express no opinion as to the effectiveness of any
security contemplated by the Loan Documents in real property not
described specifically in Exhibit A in the Deed of Trust or in
real property acquired by Borrower after the date of recordation
of the Deed of Trust;
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 9
6. We express no opinion with respect to the description,
title or location of any of the Property or the priority of any
lien of security interest intended to be granted therein
pursuant to one or more of the Loan Documents; however, the
foregoing limitation does not detract from out opinion as to our
UCC searches in the office of the Register of Deeds of Beaufort
County under the names of the Borrower and the Guarantors;
7. We express no opinion as to the effectiveness of any
provisions of the Loan Documents that provide for the assignment
of transfer of any permits, licenses or similar rights of
Borrower or any Guarantor;
8. N.C.G.S. Section 6-21.2 sets forth the procedures and
limitations applicable to the collection of attorneys' fees
pursuant to the Loan Documents and the Guaranty, and North
Carolina caselaw requires that attorneys' fees charged to
borrowers by lenders be reasonable in amount. Accordingly, any
provisions in the Loan Documents and the Guaranty relating to the
ability of either the Lender or its trustee under the Deed of
Trust to collect attorneys' fees are subject to those
limitations;
9. In connection with the opinion set forth in paragraph O
above, we call your attention to the following:
(i) The perfected security interest of Lender in the
Personal Property requires the filing of continuation
statements duly executed by Lender within the period of six
(6) months prior to the expiration of five (5) years from
the date of filing of the Financing Statements;
(ii) Under certain circumstances described in N.C.G.S.
Section 25-9-306, the rights of a secured party to enforce a
perfected security interest in proceeds of collateral may be
limited:
(iii) Under certain circumstances described in
N.C.G.S. Section 25-9-307 and 25-9-308, purchasers of
collateral may take the same free and clear of a perfected
security interest;
(iv) Pursuant to N.C.G.S. Section 25-9-402(7),
perfection of the security interest of Lender in the
Personal Property will be terminated as to any property
acquired by Borrower more than four (4) months after the
date Borrower changes its name or identity so as to make
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 10
the filed Financing Statements seriously misleading unless
new appropriate financing statements indicating the new name
or identity of Borrower are properly filed before the
expiration of such four (4) month period;
(v) Certain provisions of the Uniform Commercial Code
do not govern the perfection of security interests in
certain types of personal property and the terms used in the
Loan Documents may include collateral in which the security
interest is not capable of being perfected by recordation of
financing statements, such as cash, investments, depository
accounts, patents, leases or rents, articles with
certificates of title or other matters. Except for the
filing of the Financing Statements, we will take no other
steps to perfect any security interests;
(vi) Certain super-priority security interests (such
as purchase money interests) and possessory liens may not be
defeated by the filing of UCC statements and accordingly,
Lender's security interests would be subject to any such
super-priority or possessory security interests now existing
or any super-priority security interests arising in the
future; and,
(vii) This opinion is subject to the sale of goods in
the ordinary course of business and the loss of security
interest in the collateral subject to such sales
notwithstanding the filing of appropriate UCC statements.
10. In rendering the opinions set forth in paragraph J, K,
and L above bases on our knowledge, we have, with your permission
advised you only as to such knowledge as we have obtained from
(a) affidavits from Reginald M. Fountain, Jr., President of
Borrower, and Allan L. Krehbiel, Chief Financial Officer of
Borrower, and interviews with lawyers presently in our firm whom
we have determined are likely, in the ordinary course of their
respective duties, to have knowledge of the transactions
contemplated by the Loan Documents, the Guaranty and the matters
covered by this opinion. In addition, with respect to the
opinions contained in paragraph 7 above, we have examined the
public records in the office of the Clerk of Superior Court of
Beaufort County, North Carolina, on December 31, 1996. Except to
the extent otherwise set forth above, for purposes of this
opinion, we have not made an independent review of any
agreements, instruments, writs, orders, judgments, rules or other
regulations or decrees which may have been executed by or which
may now be binding upon
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 11
Borrower or Guarantors or which may affect the Property, nor have
we undertaken to review our internal files or any files of
Borrower or Guarantors, relating to transactions to which
Borrower or Guarantors may be a party, or to discuss their
transactions or business with any other lawyers in our firm or
with any other officers, partners or any employees of Borrower.
11. To the extent that the Loan Documents have a "due on
sale clause" and also contain restrictions on secondary financing
or transfers of equity ownership interests, then the provisions
may be unenforceable. To the extent that the Loan Documents
provide for simultaneous enforcement of due on sale clauses and
prepayment penalties, and to the extent that Federal law does not
preempt the field, such simultaneous enforcement may not be
permitted under North Carolina law due to Crockett v. Savings and
Loan Association, 224 S.E.2d 580 (1976), although the court did
not state which of the provisions would stand and which would
fall.
12. No opinion is rendered as to whether any hazardous or
toxic materials are legally or illegally present or contained in,
under or upon the subject property or its waters or if any
hazardous or toxic materials have contaminated such property or
its waters in any way whatsoever. Further, no opinion is
rendered as to any violation of any environmental laws or
regulations, either Federal or state, in connection with this
opinion. For the purposes of this opinion, "hazardous or toxic
material" means and includes all types of petroleum products, any
flammable explosives, radioactive materials, asbestos or any
material containing asbestos, and/or any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for
the purpose of) the environmental laws. For the purposes of this
opinion, "environmental laws" includes the Comprehensive
Environmental Response, Compensation and Liability Act, the
Hazardous Materials Transportation and Liability Act, the
Hazardous Materials Transportation Act, the Resource Conversation
and Recovery Act, the Clean Water Act, the Clear Air Act, the
Toxic Substances Control Act, the Coastal Area Management Act,
any "Superfund" or "Superlien" law, the Oil Pollution and
Hazardous Substances Control Act or any other federal, state or
local law, regulation, rule, order, ordinance or decree
regulating, relating to or imposing liability, responsibility or
standards of conduct applicable to human health, safety,
environmental conditions and/or releases (or potential releases)
of hazardous or toxic materials in, on, at or affecting the
premises, as such may now or at any time hereafter be defined or
in effect.
<PAGE>
WARD AND SMITH, P.A.
General Electric Capital Corporation
December 31, 1996
Page 12
13. No opinion is expressed as to whether Fountain is in
compliance with the provisions or requirements imposed on it
under the Loan Documents or any other agreements with Lender.
We are admitted to practice only in the State of North
Carolina and we express no opinion as to matters under or
involving the laws of any jurisdiction other than the United
States of America and the State of North Carolina and its
political subdivisions. This opinion is rendered solely to
Lender in connection with the Loan and may not be relied upon by
any other party (except counsel to Lender) or for any other
purpose other than the purposes herein stated without our prior
written consent.
Yours very truly,
Ward and Smith, P.A.
81-0242 (DV)\WSMAIN/206466.
<PAGE>
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made this 31st day of
January, 1997 ("Agreement"), by and between GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation with an address at
6100 Fairview Road, Suite 1450, Charlotte, North Carolina
("Secured Party"), and FOUNTAIN POWER, INC., a corporation
organized and existing under the laws of the State of North
Carolina, with its chief executive offices located at Whichard's
Beach Road, Washington, North Carolina 27889 ("Debtor").
This Security Agreement is given in connection with the loan
evidenced by the certain Loan Agreement between the Fountain
Powerboats, Inc., a North Carolina corporation (the "Borrower"),
the Secured Party, the Debtor and certain other parties, dated
December 31, 1996 (the "Loan Agreement"). The Borrower has
previously executed that certain Master Security Agreement, dated
December 31, 1996 (the "Borrower's Security Agreement").
WITNESSETH:
WHEREAS, the Borrower is indebted to the Secured Party in
the principal amount of up to TEN MILLION AND NO/100 DOLLARS
($10,000,000), as evidenced by that certain Promissory Note in
such principal amount, dated December 31, 1996, executed by
Borrower, and payable to the order of the Secured Party (the
`Note"); and
WHEREAS, the Note is secured by a Deed of Trust, Assignment
of Rents and Security Agreement, dated December 31, 1996, from
the Borrower to a trustee designated therein for the benefit of
the Secured Party, encumbering certain real property located in
Beaufort County, North Carolina and described in Exhibit B
attached hereto and incorporated herein by reference (the "Real
Property"); and
WHEREAS, as a condition to the Secured Party's making of the
loan evidenced by the Note, the Secured party required and the
Debtor agreed to grant to the Secured Party the security
interests hereinafter set forth. The Debtor is a wholly-owned
subsidiary of the Borrower and shall derive direct financial
benefit from credit extended by the Secured Party to the
Borrower.
NOW, THEREFORE, in consideration of the promises herein
contained and of certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
Debtor and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party,
its successors and assigns forever, a security interest in and
against any and all of the following property:
R#0204908.03
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(a) Tangible Personal Property. All furniture,
furnishings, machinery, apparatus, equipment [specifically
including but not limited to that attached to any collateral
schedule (the "Collateral Schedule") now or hereafter attached
hereto as an Exhibit A], fittings, fixtures and other articles of
tangible personal property now owned or leased or hereafter
acquired by the Debtor, wherever located [but specifically
including any such property now or hereafter located on the Real
Property and any additional real property now or hereafter owned
by the Debtor (the "Additional Property") (the Real Property and
the Additional Property hereinafter referred to as the
"Property"), including but not limited to, goods, machinery,
tools, equipment (including fire, sprinkler and alarm systems;
air conditioning, heating, refrigerating, electronic monitoring,
entertainment, and recreational equipment; window or structural
cleaning rigs; maintenance equipment; equipment relating to
exclusion of vermin or insects, removal of dust, refuse or
garbage; and all other equipment of every kind), elevators,
indoor and outdoor furniture (including tables, chairs, planters,
desks, sofas, shelves, lockers and cabinets), wall beds wall
safes, furniture, furnishings, appliances (including ice boxes,
refrigerators, fans, heaters, stoves water heaters and
incinerators), rugs, carpets and other floor coverings, draperies
and drapery rods and brackets, awnings, window shades, venetian
blinds, curtains, lamps, chandeliers, and other lighting fixtures
and office maintenance and other supplies and the proceeds and
products of all of the foregoing and all replacements and
renewals thereof being hereafter referred to as the ("Tangible
Personal Property").
(b) Inventory. All of the Debtor's inventory now owned or
hereafter acquired, including but not limited to (I) goods
intended for sale, use or lease by the Debtor or to be furnished
by the Debtor under contracts of service, (ii) all raw materials,
goods in process, finished goods, materials and supplies of every
nature used or usable in connection with the manufacture,
packing, shopping, advertising, selling, leasing or furnishing of
such goods (specifically including, but not limited to, all
molds, metals, plastics, upholstery, windscreens, fiberglass, and
other components in boat manufacture), and any and all items
including machinery and equipment used or consumed in the
operation of the business of the Debtor or which contribute to
the finished product or to the sale, promotion, and shipment
thereof, in which the Debtor now or at any time hereafter may
have an interest, whether or not such inventory is listed on any
reports furnished to the Secured Party from time to time; (iii)
all inventory whether or not the same is in transit or in the
constructive, actual, or exclusive occupancy or possession of the
Debtor or is held by the Debtor or by others for the Receivables
(as hereafter defined), including, without limitation, all goods
covered by purchase orders, and contracts with suppliers and all
goods billed and held by suppliers; (iv) all inventory which may
be located on premises of the Debtor or of any carrier,
forwarding agents, truckers, warehousemen, vendors, selling
agents, or third parties; (v) all general intangibles relating to
or arising out of inventory; (vi) all documents evidencing or
representing the same, all documents of title, all negotiable and
non-negotiable warehouse receipts representing the same; and
(vii) all products and proceeds of the foregoing (including cash,
accounts receivable, non-cash trade ins, and non-cash-proceeds),
wherein the foregoing may be located (referred to herein
collectively as "Inventory").
(c) Insurance Policies. All rights in and to all pertinent
present and future fire and/or hazard insurance policies
(including, but not limited to, insurance proceeds) covering the
Property, and improvements thereon (the "Improvements") or the
property described in (a) and (b) above.
2
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<PAGE>
(d) Awards. All awards made by any public body or decreed
by any court of competent jurisdiction for a taking or for
degradation of value of the Property, the Improvements or the
property described in (a) above in any eminent domain proceeding
and all payments made in respect of a conveyance made in lieu of
any such taking.
(e) Lease Rights and Security Deposits. All of the
Debtor's rights and interests in and to all present and future
leases of the Property and Improvements or any part thereof
and/or all rental income and/or security deposits, whether
payable pursuant to any present or future lease of otherwise
growing out of any occupancy or use of the Property and the
Improvements.
(f) Accounts Receivable and General intangibles Relating to
Debtor. (i) All obligations and indebtedness of every kind at
any time owing to the Debtor from whatever source arising, and
including (without limitation) all accounts, accounts receivable,
tax refunds, refunds, payments or proceeds under any insurance
policies, instruments, contract rights, chattel paper, general
intangibles and documents, whether secured or unsecured, now
existing or hereafter created; (ii) any and all sums and property
recovered by the Debtor or any trustee, receiver or fiduciary
acting on the Debtor's behalf as a result of or arising from a
fraudulent or preferential transfer or payment (as determined
under present or future federal or state law or regulations
relating to bankruptcy, insolvency or other relief or debtors)
made by the Debtor or on the Debtor's behalf; (ii) all of the
Debtor's rights as an unpaid seller, including stoppage in
transit, replevin, detinue and reclamation; (iv) all customer
lists and other documents containing names, addresses and other
information regarding the Debtor's customers, subscribers and
those to whom the Debtor provides any services, and all supplier
lists of the Debtor; (v) all books, records, files, computer
tapes, programs, software, discs and other material or documents
relating to the recording, billing or analyzing of any of the
above; (vi) all now or hereafter existing balances, credits
deposits (general or special, time or demand, provisional of
final), accounts and all other sums credited by, maintained with
or due from the Debtor the Debtor or any of the Debtor's
affiliates to the Debtor or subject to withdrawal by the Debtor,
together with all goods, inventory, and merchandise returned by
or reclaimed by or repossessed from customers wherever such
goods, inventory and merchandise are located, and all proceeds
thereto; and (vii) all products and proceeds of any of the
foregoing in any form, including cash, insurance proceeds,
negotiable instruments and other evidences of indebtedness,
chattel paper, security agreements and other documents (all of
the foregoing being herein referred to as "Receivables").
All trade names, symbols, logos, copyrights, patents, patent
applications, federal trademark registrations, any trademark
applications now or hereafter filed with respect thereto and any
federal trademark registrations issued or issuing with respect
thereto, and all goodwill associated with the trademarks and
patents.
All goodwill and all other general intangibles of every kind
and description now or hereafter owned by the Debtor.
(g) Motor Vehicles. All motor vehicles and trailers now or
hereafter owned by the Debtor.
3
R#0204908.03
<PAGE>
(h) Proceeds. All proceeds or sums payable in lieu of or
as compensation for the loss or damage to any property described
in (a) through (g) above.
(i) Additions, Accessions, Substitutes. Any and all
additions, attachments, accessories and accessions thereto, any
and all substitutions, replacements or exchanges therefor, and
any and all insurance and/or other proceeds thereof.
All of the foregoing personal property is hereinafter
individually and collectively referred to as the "Collateral".
The foregoing security interest is given to secure the
payment and performance of any and all debts, obligations and
liabilities of any kind, nature or description whatsoever
(whether primary, secondary, direct contingent, sole, joint or
several, or otherwise and whether due or to become due) of Debtor
and the Borrower to Secured Party, now existing or hereafter
arising, including but not limited to the payment and performance
of the Note, and any renewals, extensions and modifications of
such Note and any other debts, obligations and liabilities of the
Borrower and the Debtor to the Secured Party (all of the
foregoing being hereinafter referred to as the "Indebtedness").
Notwithstanding the foregoing, and notwithstanding anything to
the contrary contained elsewhere in this Agreement, to the extent
that Secured Party asserts a purchase money security interest in
any items of the Tangible Personal Property constituting a
portion of the Collateral ("PMSI Collateral"): (i) the PMSI
Collateral shall secure only that portion of the Indebtedness
which has been advanced by Secured Party to enable Debtor to
purchase, or acquire rights in or the use of such PMSI Collateral
(the " PMSI Indebtedness"), and (ii) no other Collateral shall
secure the PMSI Indebtedness.
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the
date hereof and as of the date of execution of each Collateral
Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing
and in good standing under the laws of the State set forth in the
first paragraph of this Agreement, has its chief executive
offices at the location set forth in such paragraph, and is, and
will remain, duly qualified and licensed in every jurisdiction
wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into,
and to perform its obligations, under this Agreement and any
other documents evidencing, or given in connection with, any of
the Indebtedness (all of the foregoing being hereinafter referred
to as the "Debt Documents");
(c) This Agreement and the other Debt Documents have been
duly authorized, executed and delivered by Debt and constitute
legal, valid and binding agreements enforceable under all
applicable laws in accordance with their terms, except to the
extend that the enforcement of remedies may be limited under
applicable bankruptcy and insolvency laws;
4
R#0204908.03
<PAGE>
(d) No approval, consent or withholding of objections is
required from any governmental authority or instrumentality with
respect to the entry into, or performance by, Debtor of any of
the Debt Documents, except such as may have already been
obtained;
(e) The entry into, and performance by, Debtor of the Debt
Documents will not (I) violate any of the organizational
documents of Debtor or any judgment, order, law or regulation
applicable to Debtor, or (ii) result in any breach of, constitute
a default under, or result in the creation of any lien, claim or
encumbrance on any of Debtor's property (except for liens in
favor of Secured Party) pursuant to, any indenture, mortgage,
deed of trust, bank loan, credit agreement, or other agreement or
instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened
in court or before any commission, board or other administrative
agency against or affecting Debtor which could, in the aggregate,
have a material adverse effect on Debtor, its business or
operations, or its ability to perform its obligations under the
Debt Documents, except those disclosed in Schedules to the Loan
Agreement;
(g) All financial statements delivered to Secured Party in
connection with the Indebtedness have been prepared in accordance
with generally accepted accounting principles, and since the date
of the most recent financial statement, there has been no
material adverse change;
(h) The Collateral is not, and will not be, used by Debtor
for personal, family or household purposes;
(i) The Collateral constituting Tangible Personal Property
and Inventory is, and will remain, in good condition and repair
and Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner,
and in possession of the Collateral (except for Inventory in
transit to dealers for sale and except for Inventory sold in the
ordinary course of business), and has the sole right and lawful
authority to grant the security interest described in this
Agreement; and
(k) The Collateral is, and will remain, free and clear of
all liens, claims and encumbrances of every kind, nature and
description, except for (i) liens in favor of Secured Party, (ii)
liens for taxes not yet due or for taxes being contested in good
faith and which do not involve, in the reasonable judgment of
Secured Party, any risk for the sale, forfeiture or loss of any
of the Collateral, and (iii) inchoate materialmen's mechanic's,
repairmen's and similar liens arising by operation of law in the
normal course of business for amounts which are not delinquent
(all of such permitted liens being hereinafter referred to as
"Permitted Liens").
3. COLLATERAL.
(a) Until the declaration of any default hereunder, Debtor
shall remain in possession of the Collateral; provided, however,
that Secured Party shall have the right to possess (i) any
chattel
5
R#0204908.03
<PAGE>
paper or instrument that constitutes a part of the Collateral,
and (ii) any other Collateral which because of its nature may
require that Secured Party's security interest therein be
perfected by possession. Secured Party, its successors and
assigns, and their respective agents, shall have the right to
examine and inspect any of the Collateral at any time during
normal business hours. Upon any request from Secured party,
Debtor shall provide Secured Party with notice of the then
current locations of the Collateral, specifically including the
names and addresses of dealers to whom Inventory is sent from
time to time.
(b) Debtor shall (i) use the Collateral only in its trade
or business, (ii) maintain all of the Collateral in good
condition and working order, (iii) use and maintain the
Collateral only in compliance with all applicable laws, and (iv)
keep all of the Collateral free and clear of all liens, claims
and encumbrances (except for Permitted Liens).
(c) Debtor shall not, without the prior written consent of
Secured party, (i) part with possession of any of the Collateral
(except to dealers for sale of Inventory, to Secured Party, or
for maintenance and repair), (ii) remove any of the Collateral
from the continental United States, or (iii) sell, rent, lease,
mortgage, grant a security interest in or otherwise transfer or
encumber (except for Permitted Liens) any of the Collateral.
Notwithstanding the foregoing, the Debtor may ship Inventory to
dealers outside the continental United States for sale, provided
payment is made in full prior to shipment or is secured by an
irrevocable letter of credit from a domestic bank.
(d) Debtor shall pay promptly when due all taxes, license
fees, assessments and public and private charges levied or
assessed on any of the Collateral, on the use thereof, or on this
Agreement or any of the other Debt Documents. At its option,
Secured Party may discharge taxes, liens, security interests or
other encumbrances at any time levied or placed on the Collateral
and may pay for the maintenance, insurance and preservation of
the Collateral or to effect compliance with the terms of this
Agreement or any of the other Debt Documents. Debtor shall
reimburse Secured Party, on demand, for any and all costs and
expenses incurred by Secured Party in connection therewith and
agrees that such reimbursement obligation shall be secured
hereby.
(e) Debtor shall, at all times, keep accurate and complete
records of the Collateral, and Secured Party, its successors and
assigns, and their respective agents, shall have the right to
examine, inspect, and make extracts from all of Debtors books and
records relating to the Collateral at any time during normal
business hours. Such reports shall be in such detail, form and
scope as the Secured Party shall require. The Secured Party and
the Secured Party's agents and representatives may at all times
have access to, examine and inspect the Inventory, the Tangible
Personal Property, and all records pertaining thereto. The
Debtor now keeps and shall continue to keep correct and accurate
records itemizing and describing the kind, type, quality and
quantity of Inventory, the Debtor's cost therefor and the selling
price thereof, the daily withdrawals therefrom and the additions
thereto. Any equipment and molding designated by the Secured
Party shall be tagged so as to disclose the security interest of
the Secured Party in such personalty.
(f) If agreed by the parties, Secured Party may, but shall
in no event be obligated to, accept substitutions and exchanges
of property for property, and additions to the property,
6
R#0204908.03
<PAGE>
constituting all or any part of the Collateral. Such
substitutions, exchanges and additions may be accomplished at any
time and from time to time, by the substitution of a revised
Collateral Schedule for the Collateral Schedule now or hereafter
annexed. Any property which may be substituted, exchanged or
added as aforesaid shall constitute a portion of the Collateral
and shall be subject to the security interest granted herein.
Additions to, reductions or exchanges of, or substitutions for,
the Collateral, payments on account of any obligation or
liability secured hereby, increases in the obligations and
liabilities secured hereby, or the creation of addition
obligations and liabilities secured hereby, may from time to time
be made or occur without affecting the provisions of this
Agreement or the provisions of any obligation or liability which
this Agreement secures.
(g) Any third person at any time and from time to time
holding all or any portion of the Collateral shall be deemed to,
and shall hold the Collateral as the agent, and as pledge holder
for, Secured Party. At any time and from time to time, Secured
Party may give notice to any third person holding all or any
portion of the Collateral that such third person is holding the
Collateral as the agent of, and as pledge holder for, the Secured
Party.
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk,
and Debtor shall keep it insured against loss or damage by fire
and extended coverage perils, theft, burglary, and for any or all
Collateral which are vehicles, for risk of loss by collision, and
where requested by Secured Party, against other risks as required
thereby, for the full replacement value thereof, with companies
in amounts and under policies acceptable to Secured Party.
Debtor shall, if Secured Party so requires, deliver to Secured
Party policies of certificates of insurance evidencing such
coverage. Each policy shall name Secured Party as loss payee
thereunder, shall provide for coverage to Secured Party
regardless of the breach by Debtor of any warranty or
representation made therein, shall not be subject to co-
insurance, and shall provide for thirty (30) days written notice
to Secured Party of the cancellation or material modification
thereof (unless such insurance coverage is not obtainable).
Debtor hereby appoints Secured Party as its attorney in fact to
make proof of loss, claim for insurance and adjustments with
insurers, and to execute or endorse all documents, checks or
drafts in connection with payment made as a result of any such
insurance policies. Proceeds of insurance shall be applied, at
the option of Secured Party, to repair or replace the Collateral
or to reduce any of the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event
of (i) any change in the name of Debtor, (ii) any relocation of
its chief executive offices, (iii) any relocation of any of the
Collateral, (iv) any of the Collateral being lost, stolen,
missing, destroyed, materially damaged or worn out, or (v) any
lien, claim or encumbrance attaching or being made against any of
the Collateral other than Permitted Liens.
(b) Debtor agrees to furnish its annual financial
statements and such interim statements as Secured Party may
require in form satisfactory to Secured Party and as required in
the Loan
7
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<PAGE>
Agreement. Any and all financial statements submitted and to be
submitted to Secured Party have and will have been prepared on a
basis of generally accepted accounting principles, and are and
will be complete and correct and fairly present Debtor's
financial condition as at the date thereof. Secured Party may at
any reasonable time examine the books and records of Debtor and
make copies thereof.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to
Secured Party such further information, execute and deliver to
Secured Party such documents and instruments (including, without
limitation, Uniform Commercial Code financing statements) and do
such other acts and things, as Secured Party may at any time
reasonably request relating to the perfection or protection of
the security interest created by this Agreement or for the
purpose of carrying out the intent of this Agreement. Without
limiting the foregoing, Debtor shall cooperate and do all acts
deemed necessary or advisable by Secured Party to continue in
Secured Party a perfected first security interest in the
Collateral, and shall obtain and furnish to Secured Party any
subordinations, releases, landlord, lessor, or mortgagee waivers,
and similar documents as may be from time to time requested by,
and which are in form and substance satisfactory to, Secured
Party.
The Debtor shall provide to the Secured Party a schedule of
all Receivables, Tangible Personal Property, and Inventory at
least once every fiscal quarter, as described in the Loan
Agreement. The Debtor shall also notify the Secured Party of any
patent and trademark applications filed each fiscal quarter and
take such measures as the Secured Party may require to confirm
the assignment and to perfect the security interests granted
hereby.
If any Inventory is in the possession or control of any of
the Debtor's agents or processors, the Debtor shall notify them
of the Secured Party's security interest therein, and upon the
Secured Party's request, instruct them to hold all such Inventory
for the Secured Party's account and subject them to the Secured
Party's instructions.
If at any time the Secured Party determines that the Secured
Party's security interest in any boat constituting a portion of
Inventory is required to be perfected by the filing of a marine
vessel mortgage, the Debtor agrees to execute such a vessel
mortgage (in form and substance satisfactory to the Secured
Party) and cause such mortgage to be filed in appropriate
governmental offices so as to perfect the Secured Party's
security interests in such vessel.
(b) Debtor hereby grants to Secured Party the power to sign
Debtor's name and generally to act on behalf of Debtor to execute
and file applications for title, transfers of title, financing
statements, notices of lien and other documents pertaining to any
or all of the Collateral. Debtor shall, if any certificate to
title be required or permitted by law for any of the Collateral,
obtain such certificate showing the lien hereof with respect to
the Collateral and promptly deliver same to Secured Party.
8
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<PAGE>
(c) Debtor shall indemnify and defend the Secured Party,
its successors and assigns, and their respective directors,
officers and employees, from and against any and all claims,
actions and suits (including, without limitation, related
attorneys' fees) of any kind, nature or description whatsoever
arising, directly or indirectly, in connection with any of the
Collateral.
(d) The Secured Party shall have no duty or care with
respect to the Collateral, except that the Secured Party shall
exercise reasonable care with respect to Collateral in its
custody, but shall be deemed to have exercised reasonable care if
such property is accorded treatment substantially equal to that
which it accords its own property, or if it takes such action
with respect to the Collateral as the Debtor shall request in
writing. No failure to comply with any such request nor any
omission to do any such act requested by the Debtor shall be
deemed a failure to exercise reasonable care, nor shall the
Secured Party's failure to take steps to preserve rights against
any parties or property be deemed a failure to have exercised
reasonable care with respect to Collateral in its custody.
7. EVENTS OF DEFAULT
Debtor shall de in default under this Agreement and each of
the other Debt Documents upon the occurrence of any of the
following "Event(s) of Default":
(a) Either the Borrower or the Debtor fails to pay any
installment or other amount due or coming due under any of the
Debt Documents within ten (10) days after its due date;
(b) Any attempt by Debtor, without the prior written
consent of Secured Party, to sell, rent, lease, mortgage, grant a
security interest in, or otherwise transfer or encumber (except
for Permitted Liens and except as elsewhere permitted herein) any
of the Collateral;
(c) Debtor fails to procure, or maintain in effect at all
times, any of the insurance on the Collateral in accordance with
Section 4 of this Agreement.
(d) Debtor or the Borrower breaches any of its other
obligations under any of the Debt Documents and fails to cure the
same within thirty (30) days after written notice thereof;
(e) Any warranty, representation or statement made by
Debtor or the Borrower in any of the Debt Documents or otherwise
in connection with any of the Indebtedness shall be false or
misleading in any material respect;
(f) Any of the Collateral being subjected to, or being
threatened with, attachment, execution, levy, seizure or
confiscation in any legal proceeding or otherwise;
(g) The occurrence of an "Event of Default" under the Deed
of Trust or the Loan Agreement; or any default by Debtor or the
Borrower under any other agreement between Debtor
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<PAGE>
or the Borrower and Secured Party, specifically including (but
not limited to) the Borrower's Security Agreement, after the
passage of any applicable cure period set out in such agreement;
(h) Any dissolution, termination of existence, merger,
consolidation, change in controlling ownership, insolvency, or
business failure of Debtor, the Borrower or any guarantor or
other obligor for any of the Indebtedness (collectively
"Guarantor"), except as permitted in the Loan Agreement, or if
Debtor or any Guarantor is a natural person, any death or
incompetence of Debtor or such Guarantor;
(i) The appointment of a receiver for all or any part of
the property of Debtor, the Borrower or any Guarantor, or any
assignment for the benefit of creditors by Debtor, the Borrower
or any Guarantor; or
(j) The filing of a petition by Debtor, the Borrower or any
Guarantor under any bankruptcy, insolvency or similar law, or the
filing of any such petition against Debtor, the Borrower or any
Guarantor if the same is not dismissed within thirty (30) days of
such filing.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this
Agreement, the Secured Party, at its option, may declare any or
all of the Indebtedness, including without limitation the Note,
to be immediately due and payable, without demand or notice to
Debtor or any Guarantor. The obligations and liabilities
accelerated thereby shall bear interest (both before and after
any judgment) until paid in full at the lower eighteen percent
(18%) per annum or the maximum rate not prohibited by applicable
law.
(b) Upon such declaration of default, Secured Party shall
have all of the rights and remedies of a Secured Party under the
Uniform Commercial Code, and under any other applicable law.
Without limiting the foregoing, Secured Party shall have the
right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to
make payment to the Secured Party, (ii) with or without legal
process, enter any premises where the Collateral may be and take
possession and/or remove said Collateral from said premises,
(iii) sell the Collateral at public or private sale, in whole or
in part, and have the right to bid and purchase at said sale,
(iv) lease or otherwise dispose of all or part of the Collateral,
applying proceeds therefrom to the obligations then in default,
and/or (v) use, without charge or liability to the Secured Party,
any of the Debtor's labels, trade names, trademarks, patents,
patent applications, licenses, certificates of authority,
advertising materials, or any of the Debtor's other properties or
interests in properties of similar nature in advertising for
sale, selling or otherwise realizing upon any of the Collateral.
If requested by Secured Party, Debtor shall promptly assemble the
Collateral and make it available to Secured party at a place to
be designated by Secured Party which is reasonably convenient to
both parties. Secured Party may also render any or all of the
Collateral unusable at the Debtor's premises and may dispose of
such Collateral on such premises without liability for rent or
costs. Any notice which Secured Party is required to give to
Debtor under the Uniform Commercial Code of the time and place of
any public sale or the time after which any private sale or other
intended disposition of the Collateral is to be made shall be
deemed to constitute reasonable
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<PAGE>
notice if such notice is given to the last known address of
Debtor at least five (5) days prior to such action.
(c) Proceeds from any sale or lease or other disposition
shall be applied: first, to all costs of repossession, storage,
and disposition including without limitation attorneys',
appraisers', and auctioneers' fees; second, to discharge the
obligations then in default; third, to discharge any other
Indebtedness of Borrower or Debtor to Secured Party, whether as
obligor, endorser, guarantor, surety or indemnitor; fourth, to
expenses incurred in paying or settling liens and claims against
the Collateral; and lastly, to Debtor, if there exists any
surplus. Debtor and the Borrower (as the case may be) shall
remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt
Documents to which the Debtor is a party are placed in the hands
of an attorney for collection of money due or to become due or to
obtain performance of any provision thereof, Debtor agrees to pay
all reasonable attorneys' fees incurred by Secured Party at such
attorneys' standard hourly rates for time in fact incurred
(without regard to any statutory presumption), and further agrees
that payment of such fees is secured hereunder. Debtor and
Secured Party agree that such fees to the extent not in excess of
fifteen percent (15%) of subject amount owing after default (if
permitted by law, or such lesser sum as may otherwise be
permitted by law) shall be deemed reasonable.
(e) Secured Party's rights and remedies hereunder or
otherwise are cumulative and may be exercised singularly or
concurrently. Neither the failure nor any delay on the part of
the Secured Party to exercise any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other
right power or privilege. Secured Party shall not be deemed to
have waived any of its rights hereunder or under any other
agreement, instrument or paper signed by Debtor unless such
waiver be in writing and signed by Secured Party. A waiver on
any one occasion shall not be construed as a bar to or waiver of
any right or remedy on any future occasion.
(f) Any controversy or claim arising out of or relating to
this Master Security Agreement shall be determined by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The number of arbitrators
shall be three. One Arbitrator shall be appointed by each of the
parties and the third arbitrator, who shall serve as chairman of
the tribunal, shall be appointed by the American Arbitration
Association. The place of arbitration shall be Charlotte, North
Carolina. Any arbitral award arising from any arbitration
pursuant to this paragraph shall be final and binding upon all
parties hereto.
9. INVENTORY AND RECEIVABLES COVENANTS.
The following are covenants applicable to Inventory and
Receivables generally:
(a) The Secured Party's security interest in the Inventory
will continue through all stages of manufacture and will, without
further act, attach to raw materials, to goods in process, to
finished goods, to all products of the foregoing, to the
Receivables (as defined in the Agreement) and all
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other proceeds resulting from the sale or other disposition
thereof and to all such Inventory that may be rejected, returned,
reclaimed, repossessed or stopped in transit.
(b) Inventory shall be kept only at the address identified
on the first page of this Security Agreement, and shall not be
removed therefrom except for purposes of sale and promotion in
the regular course of the Debtor's business.
(c) No Inventory has been or shall be consigned without the
Secured Party's prior written consent; no Inventory is or shall
ever be stored with a bailee, warehouseman or similar party
without the Secured Party's prior written consent, and in such
event the Debtor will, concurrently with delivery to such party,
cause any such party to issue and deliver to the Secured Party,
in form acceptable to the Secured Party, warehouse receipts in
the Secured Party's name evidencing the storage of such
Inventory.
(d) Until the occurrence of an Event of Default, the Debtor
may, subject to the provisions of this Agreement, sell finished
Inventory, but only in the ordinary course of the Debtor's
business; however, in no event shall the Debtor make any sale of
Inventory which would cause a breach of the Debtor's warranties,
representations and covenants under this Agreement. A sale of
Inventory in the ordinary course of the Debtor's business does
not include a transfer in partial or total satisfaction of a debt
owing by the Debtor. The Debtor agrees to report the receipt or
creation of all sales or other dispositions of Inventory to the
Secured Party. The Debtor hereby agrees to execute and deliver
to the Secured Party, in form satisfactory to the Secured Party,
a formal assignment or schedule of accounts receivable or other
proceeds resulting from the sale or other disposition of
Inventory but in the absence of such assignment or schedule this
Agreement shall constitute such assignment or schedule and the
grant of a security interest therein.
(e) The Secured Party shall not, under any circumstance, be
liable for any error or omission or delay of any kind occurring
in the settlement, collection or payment of any Receivables or
any instrument received in payment thereof or for any damage
resulting therefrom. The Secured Party shall not be liable for
or prejudiced by any loss, depreciation or other damage to
Receivables or other Collateral unless caused by the Secured
Party's willful and malicious act, and the Secured Party shall
have no duty to take any action to preserve or collect any
Receivable or other Collateral.
(f) The Secured Party may notify customers at any time that
Receivables have been assigned to the Secured Party and collect
them directly in the Secured Party's own name but, unless and
until the Secured Party does so or gives the Debtor other
instructions, the Debtor shall, at its cost and expense, collect
and otherwise hold for the Secured Party as trustee of an express
trust for the Secured Party's benefit all amounts of unpaid
Receivables, and, if so requested by the Secured Party, shall not
commingle such collections with the Debtor's own funds or use the
same for any purpose.
(g) As to any Receivable forming part of the Collateral,
unless the Secured Party otherwise consents in writing: (i) all
Receivables are and will be bona fide existing obligations of the
customer named therein, for a fixed sum as set forth in the
invoice relating thereto, created by the sale and actual delivery
of goods or other property or the rendition of services or the
furnishing of other good and sufficient consideration to the
customer in the regular course of business; (ii) all unpaid
balances appearing on the Debtor's books and records and any
invoice or statement delivered
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or to be delivered to the Secured Party relating to any
Receivable are and shall be true and correct in all respects;
(iii) all shipping or delivery receipts and other documents
furnished or to be furnished to the Secured Party in connection
therewith are all and will be genuine, complete, correct, valid
and enforceable in accordance with the Debtor's terms; and (vi)
no Receivable has arisen or shall arise out of a contract or
purchase order containing provisions prohibiting assignment
thereof or the creation of a security interest therein and the
Debtor has not received and shall not accept any note, or other
instrument with respect to any Receivable or in payment thereof
which is not assigned and delivered to the Secured Party
immediately.
(h) To facilitate the maintenance of the Secured Party's
records, the Debtor shall: (I) hold in trust for the Secured
Party's benefit all items constituting proof of shipment or
delivery of all goods sold and services rendered together with
copies of all of the Debtor's invoices to customers; and (ii)
furnish the Secured Party promptly with copies of such
information as the Secured Party may reasonable require. The
Debtor's billing of customers on such invoices or otherwise shall
be conclusive evidence of the assignment to the Secured Party of
the Receivables represented thereby whether or not the Debtor
executes any other document. The items to be provided under this
paragraph are to be in form satisfactory to the Secured Party and
are executed and delivered to the Secured Party from time to time
solely for the Secured Party's convenience in maintaining records
of the Collateral; the Debtor's failure to give any of such items
to the Secured Party shall not affect, terminate, modify or
otherwise limit the Secured Party's lien or security interest in
the Collateral.
10. MISCELLANEOUS
(a) This Agreement, the Note and/or any of the other Debt
Documents may be assigned, in whole or in part, by Secured Party
without notice to Debtor, and Debtor hereby waives any defense,
counterclaim or cross-complaint by Debtor against any assignee,
agreeing that Secured Party shall be solely responsible therefor.
(b) All notices to be given in connection with this
Agreement shall be in writing, shall be addressed to the parties
at their respective addresses set forth hereinabove (unless and
until a different address may be specified in a written notice to
the other party), and shall be deemed given when given in the
manner prescribed by the Deed of Trust.
(c) Secured party may correct patent errors herein and fill
in all blanks herein or in any Collateral Schedule consistent
with agreement of the parties.
(d) Time is of the essence hereof. This Agreement shall be
binding, jointly and severally, upon all parties described as the
"Debtor" and their respective heirs, executors, representatives,
successors and assigns, and shall inure to the benefit of Secured
Party, its successors and assigns.
(e) This Agreement and its Collateral Schedules, the Note
and the other loan documents executed on December 31, 1996 and
the date hereof constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede
all prior understandings (whether written, verbal, or implied)
with respect thereto. This Agreement and its Collateral
Schedules shall not be changed or terminated orally or by course
of conduct, but only by a writing signed by both
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parties hereto. Section headings contained in this Agreement
have been included for convenience only, and shall not affect the
construction or interpretation hereof.
(f) This Agreement shall continue in full force and effect
until all of the Indebtedness has been indefeasible paid in full
to Secured Party. The surrender, upon payment or otherwise, of
the Note or any of the other documents evidencing any of the
Indebtedness shall not affect the right of Secured party to
retain the Collateral for such other Indebtedness as may then
exist or (with the consent of the Borrower) as it may be
reasonable contemplated will exist in the future. This Agreement
shall automatically be reinstated in the event that Secured Party
is ever required to return or restore the payment of all or any
portion of the Indebtedness (all as though such payment had never
been made).
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IN WITNESS WHEREOF, Debtor and Secured Party, intending to
be legally bound hereby, have duly executed this Agreement in one
or more counterparts, each of which shall be deemed to be an
original, as of the day and year first aforesaid.
DEBTOR:
FOUNTAIN POWERBOATS, INC.,
a North Carolina corporation
ATTEST:
/s/Carol J. Price By:/s/ R.M. Fountain, Jr.
Assistant Secretary ___________ President
[CORPORATE SEAL]
SECURED PARTY:
GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By: __________________________
Vice President
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