Exhibit 10.4

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT, dated as of September 19, 2005 (as amended, supplemented
or modified from time to time, this “Pledge Agreement”) is made by FOUNTAIN
POWERBOAT INDUSTRIES, INC., a Nevada corporation with its principal office at
1653 Whichard’s Beach Road, Washington, North Carolina 27889 (the “Pledgor”), in
favor of REGIONS BANK, an Alabama chartered bank with offices in Charlotte,
North Carolina (the “Bank”). Except as otherwise provided herein, capitalized
terms used herein without definition shall have the meanings given to them in
the Loan Agreement referred to below.

 

BACKGROUND STATEMENT

 

A. The Borrower, the Parent and the Bank are parties to a Loan Agreement, dated
as of even date herewith (as amended, modified or supplemented from time to
time, the “Loan Agreement”), providing for the availability of a $16,500,000
term loan facility (the “Loan”) to the Borrower upon the terms and conditions
set forth therein.

 

B. As a condition to making the Loan to the Borrower, the Parent has guaranteed
to the Bank the payment in full of the Obligations under the Loan Agreement and
the other Loan Documents.

 

C. It is a further condition to the making of the Loan to the Borrower that the
Pledgor shall have agreed, by executing and delivering this Agreement, to secure
the payment in full of their respective obligations under the Loan Agreement and
the other Loan Documents. The Bank is relying on this Agreement in their
decision to extend credit to the Borrower under the Loan Agreement, and would
not enter into the Loan Agreement without the execution and delivery of this
Agreement by the Pledgor.

 

D. The Pledgor will obtain benefits as a result of the making of the Loan to the
Borrower, which benefits are hereby acknowledged, and, accordingly, desire to
execute and deliver this Agreement.

 

STATEMENT OF AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor and the Bank, for themselves, their successors and
assigns, hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1 Defined Terms. In addition to the terms defined elsewhere in this Pledge
Agreement, the following terms shall have the meanings set forth below:

 

“Pledged Collateral” means (i) the shares of Capital Stock described on Schedule
I hereto (the “Pledged Shares”), and all dividends, distributions, cash,
instruments and other property and proceeds from time to time received,
receivable or otherwise made upon or

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distributed in respect of or in exchange for any or all of the Pledged Shares;
(ii) all additional shares of Capital Stock of any issuer of the Pledged Shares
from time to time acquired by any Pledgor in any manner, and the certificates
representing such additional shares, and all dividends, distributions, cash,
instruments and other property from time to time received, receivable or
otherwise made upon or distributed in respect of or in exchange for any or all
of such shares; and (iii) to the extent not otherwise excluded in the foregoing,
all cash and non-cash proceeds thereof. Notwithstanding the foregoing, “Pledged
Collateral” shall not include the Parent’s treasury stock.

 

1.2 UCC Terms. Unless otherwise defined herein, or unless the context otherwise
requires, all terms used herein which are defined in the North Carolina Uniform
Commercial Code (the “UCC”) shall have the meanings therein stated.

 

1.3 Capitalized Terms. All capitalized terms not defined herein shall have the
meanings given to them in the Loan Agreement.

 

ARTICLE II

 

CREATION OF SECURITY INTEREST

 

2.1 Pledge and Grant of Security Interest. The Pledgor hereby pledges, assigns
and delivers to the Bank and grants to the Bank a Lien upon and security
interest in all of its right, title and interest in and to the Pledged
Collateral.

 

2.2 Security for Secured Obligations. This Agreement and the Pledged Collateral
secure the full and prompt payment, at any time and from time to time as and
when due (whether at the stated maturity, by acceleration or otherwise), of all
liabilities and obligations of the Borrower and the Pledgor, whether now
existing or hereafter incurred, created or arising and whether direct or
indirect, absolute or contingent, due or to become due, under, arising out of or
in connection with the Loan Agreement, this Agreement, or any of the other Loan
Documents to which it is or hereafter becomes a party, or any Hedge Agreement
required or permitted under the Loan Agreement and to which the Borrower and the
Bank are parties, including, without limitation, (i) in the case of the
Borrower, all obligations, including, without limitation, all principal of and
interest on the Loan, all fees, expenses, indemnities and other amounts payable
by the Borrower under the Loan Agreement or any other Loan Document (including
interest accruing after the filing of a petition or commencement of a case by or
with respect to the Borrower seeking relief under any applicable federal and
state laws pertaining to bankruptcy, reorganization, arrangement, moratorium,
readjustment of debts, dissolution, liquidation or other debtor relief,
specifically including, without limitation, the Bankruptcy Code and any
fraudulent transfer and fraudulent conveyance laws, whether or not the claim for
such interest is allowed in such proceeding), and all obligations of the
Borrower to the Bank under any Hedge Agreement required or permitted under the
Loan Agreement and to which the Borrower and the Bank are parties, and (ii) in
the case of the Pledgor, all of its liabilities and obligations under the
Guaranty; and in each case under (i) and (ii) above, (a) all such liabilities
and obligations that, but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, would become due, and (b) all fees, costs and
expenses payable by the Pledgor under Section 7.1 (the liabilities

 

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and obligations of the Pledgor described in this Section 2.2, collectively, the
“Secured Obligations”).

 

2.3 Security Interests Absolute. All rights of the Bank and security interests
hereunder, and all obligations of the Pledgor hereunder, shall be absolute and
unconditional and, without limiting the generality of the foregoing, shall not
be released, discharged or otherwise affected by:

 

(i) any extension, renewal, settlement, compromise or waiver in respect of any
Secured Obligation, the Note or any other document evidencing or securing such
Secured Obligation, by operation of law or otherwise;

 

(ii) any modification or amendment or supplement to the Loan Agreement, the Note
or any other document evidencing or securing any Secured Obligation;

 

(iii) any non-perfection or invalidity of any direct or indirect security for
any Secured Obligation;

 

(iv) any insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Borrower or its assets or any resulting disallowance, release or
discharge of all or any portion of the Secured Obligations;

 

(v) the existence of any claim, set-off or other right which the Pledgor may
have at any time against the Borrower, the Bank or any other corporation or
person, whether in connection herewith or any unrelated transactions; provided,
that nothing herein shall prevent the assertion of any such claim by separate
suit or compulsory counterclaim;

 

(vi) any invalidity or unenforceability relating to or against the Borrower or
the Pledgor for any reason of any Secured Obligation, or any provision of
applicable law or regulation purporting to prohibit the payment by the Borrower
or the Pledgor of the Secured Obligations;

 

(vii) any failure by the Bank (A) to file or enforce a claim against the
Borrower or the Pledgor (in a bankruptcy or other proceeding), (b) to give
notice of the existence, creation or incurring by the Borrower of any new or
additional indebtedness or obligation under or with respect to the Secured
Obligations, (c) to commence any action against the Borrower or the Pledgor, (d)
to disclose to the Pledgor any facts which the Bank may now or hereafter know
with regard to the Borrower or (e) to proceed with due diligence in the
collection, protection or realization upon any collateral securing the Secured
Obligations; or

 

(viii) any other act or omission to act or delay of any kind by the Borrower,
the Pledgor or the Bank or any other corporation or person or any other
circumstance whatsoever which might, but for the provisions of this clause,
constitute a legal or equitable discharge of the Pledgor’s obligations
hereunder.

 

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ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

The Pledgor represents and warrants as follows:

 

3.1 Ownership of Pledged Collateral. The Pledgor owns, or has valid rights as a
lessee or licensee with respect to, all Pledged Collateral purported to be
pledged by it hereunder, free and clear of any Liens except for the Liens
granted to the Bank pursuant to the Security Documents, and except for other
Permitted Liens.

 

3.2 Pledged Shares. All Pledged Shares have been duly authorized and validly
issued, and are fully paid and non-assessable, and are subject to no options to
purchase or similar rights of any Person. The Pledgor will not become a party to
or otherwise bound by any agreement, other than this Pledge Agreement, which
restricts in any manner the rights of any present or future holder of any of the
Pledged Shares with respect thereto.

 

3.4 Validity, Perfection and Priority of Security Interests. Upon delivery of
all certificates or instruments representing or evidencing the Pledged
Collateral to the Bank, the Bank will have a valid and perfected security
interest in the Pledged Collateral subject to no prior Lien. No registration,
recordation or filing with any governmental body agency or official is required
in connection with the execution or delivery of this Pledge Agreement, or
necessary for the validity or enforceability hereof or for the perfection of the
security interests of the Bank granted hereby. The Pledgor has not performed any
acts which might prevent the Bank from enforcing any of the terms and conditions
of this Pledge Agreement or which would limit the Bank in any such enforcement.

 

3.5 Authorization; Consent. The execution, delivery and performance by the
Pledgor of this Pledge Agreement require no action by or in respect of, or
filing with, any Governmental Authority and do not contravene, or constitute
(with or without the giving of notice or lapse of time or both) a default under,
any provision of applicable law or of any agreement, judgment, injunction,
order, decree or other instrument binding upon or affecting the Pledgor.

 

3.6 No Restrictions. There are no statutory or regulatory restrictions,
prohibitions or limitations on the Pledgor’s ability to grant to the Bank a Lien
upon and security interest in the Pledged Collateral pursuant to this Agreement
or (except for the provisions of the federal Anti-Assignment Act and Anti-Claims
Act, as amended) on the exercise by the Bank of its rights and remedies
hereunder (including any foreclosure upon or collection of the Pledged
Collateral), and there are no contractual restrictions on the Pledgor’s ability
so to grant such Lien and security interest.

 

3.7 Capital Stock. As of the date hereof, the Capital Stock required to be
pledged hereunder by the Pledgor consists of the number and type of shares of
Capital Stock as identified on Schedule I for the Pledgor. All of the Capital
Stock has been duly and validly issued and is fully paid and nonassessable and
not subject to any preemptive rights, warrants, options or similar rights or
restrictions in favor of third parties or any contractual or other restrictions
upon transfer. As to each issuer thereof, the Capital Stock pledged hereunder
constitutes 100% of the outstanding capital stock or other equity interest in
such issuer, except as set forth on Schedule I.

 

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ARTICLE IV

 

COVENANTS

 

The Pledgor agrees that so long as any Secured Obligation remains unpaid:

 

4.1 Liens on Pledged Collateral. The Pledgor will not sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral or create
or suffer to exist any Lien (other than security interests in favor of the Bank)
on any Pledged Collateral. The Pledgor agrees that he will cause each issuer of
the Pledged Shares not to issue any stock or other securities in addition to or
in substitution for the Pledged Shares issued by such issuer, except to the
Pledgor and the Pledgor will pledge hereunder, immediately upon his acquisition
(directly or indirectly) thereof, any and all additional shares of stock or
other securities of each issuer of the Pledged Shares.

 

4.2 Delivery of Pledged Collateral. All certificates or instruments representing
or evidencing the Pledged Collateral shall be delivered to and held by or on
behalf of the Bank pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, with signatures appropriately guaranteed, and accompanied
in each case by any required transfer tax stamps, all in form and substance
satisfactory to the Bank.

 

4.3 Change in Law. The Pledgor will promptly notify the Bank in writing of any
change in law known to him (and will use his best efforts to become aware of any
such change in law) which (i) adversely affects or will adversely affect the
validity, perfection or priority of the security interests or (ii) requires or
will require a change in the procedures to be followed in order to maintain and
protect the validity, perfection and priority of the security interests.

 

4.4 Protection of Security Interest; Further Assurances. The Pledgor will, at
his expense and in such manner and form as the Bank may require, execute,
deliver, file and record any financing statement, specific assignment or other
paper and take any other action that may be necessary or desirable, or that the
Bank may request, in order to create, preserve, perfect or validate the security
interests granted hereby or to enable the Bank to exercise and enforce its
rights hereunder with respect to any of the Pledged Collateral. To the extent
permitted by applicable law, the Pledgor hereby authorizes the Bank to execute
and file, in its name, a Uniform Commercial Code financing statement which the
Bank in its sole discretion may deem necessary or appropriate to further perfect
the security interests.

 

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ARTICLE V

 

CERTAIN PROVISIONS RELATING TO PLEDGED COLLATERAL

 

5.1 Ownership. Except to the extent otherwise expressly permitted by or pursuant
to the Loan Agreement, the Pledgor will cause the Capital Stock pledged by it
hereunder to constitute at all times 100% of the Capital Stock in each issuer
held by the Pledgor.

 

5.2 Right to Receive Distributions on Pledged Collateral; Voting.

 

(a) So long as no Event of Default shall have occurred and be continuing:

 

(i) The Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof for
any purpose not inconsistent with the terms of this Pledge Agreement or the Loan
Agreement.

 

(ii) The Pledgor shall be entitled to receive and retain any and all dividends,
interest and other payments and distributions made upon or with respect to the
Pledged Collateral, provided, however, that any and all

 

(A) dividends and interest paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral,

 

(B) dividends and other distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus, and

 

(C) cash paid, payable or otherwise distributed in respect of principal of, in
redemption of, or in exchange for, any Pledged Collateral,

 

shall be, and shall be forthwith delivered to the Bank to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust for the
benefit of the Bank, be segregated from the other property or funds of the
Pledgor and be forthwith delivered to the Bank as Pledged Collateral in the same
form as so received (with any necessary endorsement).

 

(iii) The Bank shall execute and deliver (or cause to be executed and delivered)
to the Pledgor all such proxies, powers of attorney, consents, ratifications and
waivers and other instruments as the Pledgor may reasonably request for the
purpose of enabling each the Pledgor to exercise the voting and other rights
which he is entitled to exercise pursuant to paragraph (i) above and to receive
the dividends or interest payments which he is authorized to receive and retain
pursuant to paragraph (ii) above.

 

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(b) Upon the occurrence and during the continuance of an Event of Default:

 

(i) All rights of the Pledgor to receive the dividends and interest payments
which he would otherwise be authorized to receive and retain pursuant to Section
5.2(a)(ii) shall cease, and all such rights shall thereupon become vested in the
Bank which shall thereupon have the sole right to receive and hold as Pledged
Collateral such dividends and interest payments.

 

(ii) All dividends and interest payments which are received by the Pledgor
contrary to the provisions of paragraph (i) of this Section 5.2(b) shall be
received in trust for the benefit of the Bank, shall be segregated from other
funds of the Pledgor and shall be forthwith paid over to the Bank as Pledged
Collateral in the same form as so received (with any necessary endorsement).

 

(c) Upon the occurrence and during the continuance of an Event of Default and
upon notice by the Bank to the Pledgor, all rights of the Pledgor to exercise
the voting and other consensual rights which he would otherwise be entitled to
exercise pursuant to Section 5.2(a)(i) shall cease, and all such rights shall
thereupon become vested in the Bank which shall thereupon have the sole right to
exercise such voting and other consensual rights.

 

ARTICLE VI

 

GENERAL AUTHORITY; REMEDIES

 

6.1 General Authority. The Pledgor hereby irrevocably appoints the Bank and any
officer or agent thereof, with full power of substitution, as his true and
lawful attorney-in-fact, in the name of the Pledgor or its own name, for the
sole use and benefit of the Bank, but at the Pledgor’s expense, at any time
during the occurrence and continuance of an Event of Default, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to carry out the terms of this Pledge
Agreement and, without limiting the foregoing, the Pledgor hereby gives the Bank
the power and right on its behalf, without notice to or further assent by the
Pledgor to do the following:

 

(i) to receive, take, endorse, assign and deliver any and all checks, notes,
drafts, acceptances, documents and other negotiable and nonnegotiable
instruments taken or received by the Pledgor as, or in connection with, the
Pledged Collateral;

 

(ii) to demand, sue for, collect, receive and give acquittance for any and all
monies due or to become due upon or in connection with the Pledged Collateral;

 

(iii) to commence, settle, compromise, compound, prosecute, defend or adjust any
claim, suit, action or proceeding with respect to, or in connection with, the
Pledged Collateral;

 

(iv) to sell, transfer, assign or otherwise deal in or with the Pledged
Collateral or any part thereof, as fully and effectually as if the Bank were the
absolute owner thereof; and

 

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(v) to do, at its option, but at the expense of the Pledgor, at any time or from
time to time, all acts and things which the Bank deems necessary to protect or
preserve the Pledged Collateral and to realize upon the Pledged Collateral.

 

6.2 Rights and Remedies. If an Event of Default shall have occurred and be
continuing, the Bank shall be entitled to exercise in a commercially reasonable
manner in respect of the Pledged Collateral all of its rights, powers and
remedies provided for herein or otherwise available to it under any other Loan
Document, by law, in equity or otherwise, including all rights and remedies of a
secured party under the UCC, and shall be entitled in particular, but without
limitation of the foregoing, to exercise the following rights, which the Pledgor
agrees to be commercially reasonable:

 

(a) Without notice to the Pledgor, to cause any or all of the Pledged Shares or
other Pledged Collateral to be transferred of record into the name of the Bank
or its nominee;

 

(b) To exercise (i) all voting, consensual and other rights and powers
pertaining to the Capital Stock (whether or not transferred into the name of the
Bank), at any meeting of shareholders, partners, members or otherwise, and (ii)
any and all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to the Capital Stock as if it were the absolute
owner thereof (including, without limitation, the right to exchange at its
discretion any and all of the Capital Stock upon the merger, consolidation,
reorganization, reclassification, combination of shares or interests, similar
rearrangement or other similar fundamental change in the structure of the
applicable issuer, or upon the exercise by the Pledgor or the Bank of any right,
privilege or option pertaining to such Capital Stock), and in connection
therewith, the right to deposit and deliver any and all of the Capital Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Bank may determine, and give all
consents, waivers and ratifications in respect of the Capital Stock, all without
liability except to account for any property actually received by it, but the
Bank shall have no duty to exercise any such right, privilege or option or give
any such consent, waiver or ratification and shall not be responsible for any
failure to do so or delay in so doing; and for the foregoing purposes the
Pledgor will promptly execute and deliver or cause to be executed and delivered
to the Bank, upon request, all such proxies and other instruments as the Bank
may request to enable the Bank to exercise such rights and powers; AND IN
FURTHERANCE OF THE FOREGOING AND WITHOUT LIMITATION THEREOF, EACH PLEDGOR HEREBY
IRREVOCABLY CONSTITUTES AND APPOINTS THE ADMINISTRATIVE AGENT AS THE TRUE AND
LAWFUL PROXY AND ATTORNEY-IN-FACT OF SUCH PLEDGOR, WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES, TO EXERCISE ALL SUCH VOTING, CONSENSUAL AND OTHER
RIGHTS AND POWERS TO WHICH ANY HOLDER OF ANY INVESTMENTS WOULD BE ENTITLED BY
VIRTUE OF HOLDING THE SAME, WHICH PROXY AND POWER OF ATTORNEY, BEING COUPLED
WITH AN INTEREST, IS IRREVOCABLE AND SHALL BE EFFECTIVE FOR SO LONG AS THIS
AGREEMENT SHALL BE IN EFFECT; and

 

(c) To sell, resell, assign and deliver, in its sole discretion, in accordance
with the UCC, all or any of the Pledged Collateral, in one or more parcels, on
any securities exchange on which any Capital Stock may be listed, at public or
private sale, at any of the Bank’s offices or elsewhere, for cash, upon credit
or for future delivery, at such time or times and at such price or

 

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prices and upon such other terms as the Bank may deem satisfactory. If any of
the Pledged Collateral is sold by the Bank upon credit or for future delivery,
the Bank shall not be liable for the failure of the purchaser to purchase or pay
for the same and, in the event of any such failure, the Bank may resell such
Pledged Collateral. In no event shall the Pledgor be credited with any part of
the Proceeds of sale of any Pledged Collateral until and to the extent cash
payment in respect thereof has actually been received by the Bank. Each
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right of whatsoever kind, including any equity or right of
redemption of the Pledgor, and the Pledgor hereby expressly waives all rights of
redemption, stay or appraisal, and all rights to require the Bank to marshal any
assets in favor of the Pledgor or any other party or against or in payment of
any or all of the Secured Obligations, that it has or may have under any rule of
law or statute now existing or hereafter adopted. No demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law,
as referred to below), all of which are hereby expressly waived by the Pledgor,
shall be required in connection with any sale or other disposition of any part
of the Pledged Collateral. If any notice of a proposed sale or other disposition
of any part of the Pledged Collateral shall be required under applicable law,
the Bank shall give the Pledgor at least ten (10) days’ prior notice of the time
and place of any public sale and of the time after which any private sale or
other disposition is to be made, which notice the Pledgor agrees is commercially
reasonable. The Bank shall not be obligated to make any sale of Pledged
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale may have been given. The Bank may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. Upon each public sale and, to the extent permitted by applicable law,
upon each private sale, the Bank may purchase all or any of the Pledged
Collateral being sold, free from any equity, right of redemption or other claim
or demand, and may make payment therefor by endorsement and application (without
recourse) of the Secured Obligations in lieu of cash as a credit on account of
the purchase price for such Pledged Collateral.

 

6.3 Application of Proceeds.

 

(a) All Proceeds collected by the Bank upon any sale, other disposition of or
realization upon any of the Pledged Collateral, together with all other moneys
received by the Bank hereunder, shall be applied as follows:

 

(i) first, to payment of the expenses of such sale or other realization,
including reasonable compensation to the Bank and its agents and counsel, and
all expenses, liabilities and advances incurred or made by the Bank, its agents
and counsel in connection therewith or in connection with the care, safekeeping
or otherwise of any or all of the Pledged Collateral, and any other unreimbursed
expenses for which the Bank is to be reimbursed pursuant to Section 7.1;

 

(ii) second, after payment in full of the amounts specified in clause (i) above,
to payment of the Secured Obligations; and

 

(iii) finally, after payment in full of the amounts specified in clauses (i) and
(ii) above, any surplus then remaining shall be paid to the Pledgor, or its
successors or

 

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assigns, or to whomsoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.

 

(b) The Pledgor shall remain liable to the extent of any deficiency between the
amount of all Proceeds realized upon sale or other disposition of the Pledged
Collateral pursuant to this Agreement. Upon any sale of any Pledged Collateral
hereunder by the Bank (whether by virtue of the power of sale herein granted,
pursuant to judicial proceeding, or otherwise), the receipt of the Bank or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Pledged Collateral so sold, and such purchaser or purchasers
shall not be obligated to see to the application of any part of the purchase
money paid over to the Bank or such officer or be answerable in any way for the
misapplication thereof.

 

6.4 Registration; Private Sales.

 

(a) If, at any time after the occurrence and during the continuance of an Event
of Default, the Pledgor shall have received from the Bank a written request or
requests that the Pledgor cause any registration, qualification or compliance
under any federal or state securities law or laws to be effected with respect to
all or any part of the Capital Stock, the Pledgor will, as soon as practicable
and at its expense, use its best efforts to cause such registration to be
effected and be kept effective and will use its best efforts to cause such
qualification and compliance to be effected and be kept effective as may be so
requested and as would permit or facilitate the sale and distribution of such
Capital Stock, including, without limitation, registration under the Securities
Act of 1933, as amended (the “Securities Act”), appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with any other applicable requirements of Governmental Authorities; provided,
that the Bank shall furnish to the Pledgor such information regarding the Bank
as the Pledgor may reasonably request in writing and as shall be required in
connection with any such registration, qualification or compliance. The Pledgor
will cause the Bank to be kept advised in writing as to the progress of each
such registration, qualification or compliance and as to the completion thereof,
will furnish to the Bank such number of prospectuses, offering circulars or
other documents incident thereto as the Bank from time to time may request, and
will indemnify the Bank and all others participating in the distribution of such
Capital Stock against all claims, losses, damages and liabilities caused by any
untrue statement (or alleged untrue statement) of a material fact contained
therein (or in any related registration statement, notification or the like) or
by any omission (or alleged omission) to state therein (or in any related
registration statement, notification or the like) a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same may have been caused by an untrue statement or
omission based upon information furnished in writing to the Pledgor by the Bank
expressly for use therein.

 

(b) The Pledgor recognizes that, by reason of certain prohibitions contained in
the Securities Act and applicable state securities laws as in effect from time
to time, the Bank may be compelled, with respect to any sale of all or any part
of the Capital Stock conducted without registration or qualification under the
Securities Act and such state securities laws, to limit purchasers to any one or
more Persons who will represent and agree, among other things, to acquire such
Capital Stock for their own account, for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges that any such private
sales may be

 

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made in such manner and under such circumstances as the Bank may deem necessary
or advisable in its sole and absolute discretion, including at prices and on
terms less favorable than those obtainable through a public sale without such
restrictions (including, without limitation, a public offering made pursuant to
a registration statement under the Securities Act), and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner and agrees that the Bank shall have no
obligation to conduct any public sales and no obligation to delay the sale of
any Capital Stock for the period of time necessary to permit its registration
for public sale under the Securities Act and applicable state securities laws,
and shall not have any responsibility or liability as a result of its election
so not to conduct any such public sales or delay the sale of any Capital Stock,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until after such registration. The Pledgor
hereby waives any claims against the Bank arising by reason of the fact that the
price at which any Capital Stock may have been sold at any private sale was less
than the price that might have been obtained at a public sale or was less than
the aggregate amount of the Secured Obligations, even if the Bank accepts the
first offer received and does not offer such Capital Stock to more than one
offeree.

 

(c) The Pledgor agrees that a breach of any of the covenants contained in this
Section 6.4 will cause irreparable injury to the Bank and the other Secured
Parties, that the Bank and the other Secured Parties have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 6.4 shall be specifically enforceable against
the Pledgor.

 

6.5 Collateral Accounts. Upon the occurrence and during the continuance of an
Event of Default, the Bank shall have the right to cause to be established and
maintained, at its principal office or such other location or locations as it
may establish from time to time in its discretion, one or more accounts
(collectively, “Collateral Accounts”) for the collection of cash Proceeds of the
Pledged Collateral. Such Proceeds, when deposited, shall continue to constitute
Pledged Collateral for the Secured Obligations and shall not constitute payment
thereof until applied as herein provided. The Bank shall have sole dominion and
control over all funds deposited in any Collateral Account, and such funds may
be withdrawn therefrom only by the Bank. Upon the occurrence and during the
continuance of an Event of Default, the Bank shall have the right to apply
amounts held in the Collateral Accounts in payment of the Secured Obligations in
the manner provided for in Section 6.3.

 

6.6 Waivers. The Pledgor, to the greatest extent not prohibited by applicable
law, hereby (i) agrees that it will not invoke, claim or assert the benefit of
any rule of law or statute now or hereafter in effect, or take or omit to take
any other action, that would or could reasonably be expected to have the effect
of delaying, impeding or preventing the exercise of any rights and remedies in
respect of the Pledged Collateral, the absolute sale of any of the Pledged
Collateral or the possession thereof by any purchaser at any sale thereof, and
waives the benefit of all such laws and further agrees that it will not hinder,
delay or impede the execution of any power granted hereunder to the Bank, but
that it will permit the execution of every such power as though no such laws
were in effect, (ii) waives all rights that it has or may have under any rule of
law or statute now existing or hereafter adopted to require the Bank to marshal
any Pledged Collateral or other assets in favor of the Pledgor or any other
party or against or in payment of any or all of the Secured Obligations, and
(iii) waives all rights that it has or may have under any

 

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rule of law or statute now existing or hereafter adopted to demand, presentment,
protest, advertisement or notice of any kind (except notices expressly provided
for herein).

 

ARTICLE VII

 

MISCELLANEOUS

 

7.1 Indemnity and Expenses. The Pledgor agrees:

 

(a) To indemnify and hold harmless the Bank and each of its respective
directors, officers, employees, agents and affiliates from and against any and
all claims, damages, demands, losses, obligations, judgments and liabilities
(including, without limitation, reasonable attorneys’ fees and expenses) in any
way arising out of or in connection with this Pledge Agreement and the
transactions contemplated hereby, except to the extent the same shall arise as a
result of the gross negligence or willful misconduct of the party seeking to be
indemnified; and

 

(b) To pay and reimburse the Bank upon demand for all reasonable costs and
expenses (including, without limitation, reasonable attorneys’ fees and
expenses) that the Bank may incur in connection with (i) the custody, use or
preservation of, or the sale of, collection from or other realization upon, any
of the Pledged Collateral, including the reasonable expenses of re-taking,
holding, preparing for sale or lease, selling or otherwise disposing of or
realizing on the Pledged Collateral, (ii) the exercise or enforcement of any
rights or remedies granted hereunder (including, without limitation, under
Article VI), under any of the other Loan Documents or otherwise available to it
(whether at law, in equity or otherwise), or (iii) the failure by the Pledgor to
perform or observe any of the provisions hereof. The provisions of this Section
7.1 shall survive the execution and delivery of this Pledge Agreement, the
repayment of any of the Secured Obligations, the termination of the commitments
under the Loan Agreement and the termination of this Pledge Agreement or any
other Loan Document.

 

7.2 No Waiver. The Bank’s failure at any time or times hereafter to require
strict performance by the Pledgor of any of the provisions of this Pledge
Agreement shall not waive, affect or diminish any right of the Bank at any time
or times hereafter to demand strict performance therewith and with respect to
any other provision of this Pledge Agreement, and any waiver of any Event of
Default shall not waive or affect any other Event of Default, whether prior or
subsequent thereto, and whether of the same or a different type. None of the
provisions of this Pledge Agreement shall be deemed to have been waived by any
act or knowledge of the Bank, its agents, officers or employees except by an
instrument in writing signed by an officer of the Bank and directed to the
Pledgor specifying such waiver.

 

7.3 Binding Effect. This Pledge Agreement and all other instruments and
documents executed and delivered pursuant hereto or in connection herewith shall
be binding upon and inure to the benefit of the successors and assigns of the
parties hereto.

 

7.4 Governing Law. This Agreement shall be construed and interpreted in
accordance with the internal laws and judicial decisions of the State of North
Carolina without giving effect to the conflict of laws principles thereof,
except to the extent that matters of perfection and validity of the security
interests hereunder, or remedies hereunder, are governed by the laws of a
jurisdiction other than the State of North Carolina.

 

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7.5 Survival of Agreement. All representations and warranties of the Pledgor and
all obligations of the Pledgor contained herein shall survive the execution and
delivery of this Pledge Agreement.

 

7.6 Continuing Security Interest; Term; Successors and Assigns; Assignment;
Termination and Release; Survival. This Agreement shall create a continuing
security interest in the Pledged Collateral and shall secure the payment and
performance of all of the Secured Obligations as the same may arise and be
outstanding at any time and from time to time from and after the date hereof,
and shall (i) remain in full force and effect until the Maturity Date or when
all of the Secured Obligations have been paid and finally discharged in full
(the “Termination Requirements”), (ii) be binding upon and enforceable against
the Pledgor and its successors and assigns (provided, however, that the Pledgor
may not sell, assign or transfer any of its rights, interests, duties or
obligations hereunder without the prior written consent of the Bank) and (iii)
inure to the benefit of and be enforceable by the Bank and its successors and
assigns. Upon any sale or other disposition by the Pledgor of any Pledged
Collateral in a transaction expressly permitted hereunder or under or pursuant
to the Loan Agreement or any other applicable Loan Document, the Lien and
security interest created by this Agreement in and upon such Pledged Collateral
shall be automatically released, and upon the satisfaction of all of the
Termination Requirements, this Agreement and the Lien and security interest
created hereby shall terminate; and in connection with any such release or
termination, the Bank, at the request and expense of the Pledgor, will execute
and deliver to the Pledgor such documents and instruments evidencing such
release or termination as the Pledgor may reasonably request and will assign,
transfer and deliver to the Pledgor, without recourse and without representation
or warranty, such of the Pledged Collateral as may then be in the possession of
the Bank (or, in the case of any partial release of Pledged Collateral, such of
the Pledged Collateral so being released as may be in its possession).

 

7.7 Notice. Except as otherwise provided herein, notice to the Pledgor or to the
Bank shall be given or delivered in the manner set forth in Section 10.05 of the
Loan Agreement.

 

7.8 Severability. To the extent any provision of this Pledge Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Pledge Agreement.

 

7.9 Captions. The captions to the sections of this Pledge Agreement have been
inserted for convenience only and shall not limit or modify any of the terms
hereof.

 

7.10 Counterparts. This Pledge Agreement may be executed in two or more
counterparts, which when assembled shall constitute one and the same agreement.

 

7.11 Amendments and Waivers. Any provision of this Pledge Agreement may be
amended or waived, if, but only if, such amendment or waiver is in writing and
is signed by the Pledgor and the Bank.

 

7.12 Conflict of Terms. The terms of this Pledge Agreement and the terms of the
Loan Agreement shall be construed and interpreted to the full extent possible to
give effect to all such

 

13

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terms. In the event of any conflict between the terms of this Pledge Agreement
and the Loan Agreement, the terms of the Loan Agreement shall control.

 

[The remainder of this page is left blank intentionally.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be
duly executed as of the day and year first above written.

 

FOUNTAIN POWERBOATS, INC. By:   /s/    REGINALD M. FOUNTAIN, JR.         Name:  
Reginald M. Fountain, Jr. Title:   President FOUNTAIN POWERBOAT INDUSTRIES, INC.
By:   /s/    REGINALD M. FOUNTAIN, JR.         Name:   Reginald M. Fountain, Jr.
Title:   President

 

ACCEPTED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN:

 

REGIONS BANK By:   /s/    KEMP SIMMONS         Name:   Kemp Simmons Title:  
Vice President

 

Signature Page to Pledge Agreement

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SCHEDULE I

 

PLEDGED SHARES

 

Pledgor

--------------------------------------------------------------------------------

  

Name of Issuer

--------------------------------------------------------------------------------

   Type of
Interests

--------------------------------------------------------------------------------

   Certificate
Number, if
Applicable

--------------------------------------------------------------------------------

   No. of
Shares/Units,
if Applicable

--------------------------------------------------------------------------------

   Percentage of
outstanding
Interests
in Issuer

--------------------------------------------------------------------------------

  Fountain Powerboat Industries, Inc.    Fountain Powerboats, Inc.    Common
Stock    5    784,314    100 %