EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April ___,
2006, by and among FEARLESS YACHTS, LLC, a Missouri limited liability company,
with an address at 9 Gateway Drive, Collinsville, Illinois 62234, (the
"COMPANY"), Robert Kornstein, as Purchaser Designee (the "PURCHASER DESIGNEE")
and each of the purchasers set forth on SCHEDULE A hereto (each a "Purchaser,"
and collectively, the "PURCHASERS"). (The Company, the Purchasers and the
Purchaser Designee may sometimes be referred to herein individually as a "PARTY"
and collectively as the "PARTIES.")
RECITALS:
A. The Purchasers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement (i) 10% Senior
Secured Promissory Notes of the Company, in the form attached hereto as EXHIBIT
A, in the aggregate principal amount of Eight Hundred Thousand ($800,000)
Dollars (each, a "PROMISSORY NOTE" and collectively, the "PROMISSORY NOTES"),
and (ii) Membership Interest Purchase Warrants of the Company, in the form
attached hereto as EXHIBIT B, to purchase such indeterminate percentage of
membership interests (the "INTERESTS") of the Company (the "WARRANTS") as
provided for in the Warrant, upon the terms and subject to the limitations and
conditions set forth in such Warrants; PROVIDED, HOWEVER, that the percentage of
Interests for which the Warrant is exercisable (the "WARRANT INTERESTS") and the
exercise price shall be determined at the close of a private offering of the
Company resulting in gross proceeds to the Company of at least $5,000,000 (the
"QUALIFIED OFFERING").
B. Each Purchaser wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Promissory Notes and amount of
Warrants as is set forth opposite the name of such Purchaser on SCHEDULE A
hereto.
C. The obligations of the Company under the Promissory Note will be (i)
secured by a perfected security interest in and lien upon the assets of the
Company pursuant to the terms of a Security Agreement (the "SECURITY
AGREEMENT"), in the form as attached hereto as EXHIBIT C, (ii) guaranteed by
Gary R. Fears ("FEARS") pursuant to the terms of a guaranty (the "GUARANTY"), in
the form as attached hereto as EXHIBIT D, (iii) further secured by confessions
of judgment executed by the Company (the "COMPANY CONFESSION OF JUDGMENT") and
Fears (the "FEARS CONFESSION OF JUDGMENT" and, together with the Company
Confession of Judgment, the "CONFESSIONS OF JUDGMENT") in the forms as attached
hereto as EXHIBIT E and EXHIBIT F, respectively, and which Confessions of
Judgment will be deposited into escrow at the Closing Date pursuant to the
Escrow Agreement (as hereinafter defined).
D. Contemporaneous with the issuance and sale of the Promissory Notes and
Warrants to the Purchasers, (i) the Company and the Purchasers will enter into a
Registration Rights Agreement (the "REGISTRATION RIGHTS Agreement") in the form
as annexed hereto as EXHIBIT G, (ii) the Company, the Purchaser Designee, Fears,
and Anthony G. Tumminello, as escrow agent (the "ESCROW AGENT") will enter into
an escrow agreement in the form as attached hereto as EXHIBIT H, relating to the
Confessions of Judgment (the "ESCROW AGREEMENT" and, together with this
Agreement, the Promissory Note, the Guaranty, the Confessions of Judgment and
the Security Agreement, are collectively referred to herein as the "CREDIT
DOCUMENTS" and, the Credit Documents together with the Warrant and the
Registration Rights Agreement, are collectively referred to as the "TRANSACTION
DOCUMENTS").
E. The Purchasers and the Company wish to hereby designate Robert
Kornstein, or any other person designated in writing from time to time by the
Purchasers holding a majority of the outstanding principal and interest on the
Promissory Notes to act on behalf of the Purchasers on all matters relating to
the Credit Documents as Purchaser Designee, and to receive notice on behalf of
such Purchasers for such documents
NOW THEREFORE, the Company and each of the Purchasers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PROMISSORY NOTES AND WARRANTS.
a. PURCHASE OF PROMISSORY NOTES AND WARRANTS. On the Closing Date
(as defined below), and subject to satisfaction by all parties (or waivers) to
the conditions for closing set forth herein, the Company shall issue and sell to
each Purchaser and each Purchaser severally agrees to purchase from the Company
such principal amount of Promissory Notes and number of Warrants as is set forth
opposite their names on SCHEDULE A hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below), and
subject to satisfaction by all parties (or waiver) to the conditions for Closing
set forth herein, each Purchaser shall pay a purchase price for each Promissory
Note and the Warrants to be issued and sold to it at the Closing (as defined
below) in an amount equal to the principal amount of the Promissory Note
purchased by such purchaser as is set forth beside such purchaser's name on
SCHEDULE A hereto (the "PURCHASE PRICE") by wire transfer of immediately
available funds (or as otherwise mutually agreed) to the Company, in accordance
with the Company's written wiring instructions.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions set forth in Section 5 and Section 6 below, the date and time of the
issuance and sale of the Promissory Notes and the Warrants pursuant to this
Agreement (the "CLOSING DATE") shall be April 15, 2006, or such other mutually
agreed upon time. The closing of the transactions contemplated by this Agreement
(the "CLOSING") shall occur on the Closing Date at the offices of Hodgson Russ
LLP, located at 60 East 42nd Street, New York, New York 10165, or at such other
location as may be agreed to be the parties.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each Purchaser severally
(and not jointly) represents and warrants to the Company solely as to such
Purchaser that:
a. INVESTMENT PURPOSE. As of the date hereof (and in the case of the
Warrants, the date of exercise thereof), each Purchaser is purchasing the
Promissory Notes, the Warrants and the Interests issuable upon exercise thereof
(the "WARRANT INTERESTS" and, collectively with the Promissory Notes and
Warrants, the "SECURITIES"), for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the Securities Act of 1933, as
amended (the "1933 ACT"); PROVIDED, HOWEVER, that by making the representations
herein, the Purchaser does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Purchaser understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
d. INFORMATION. The Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Purchaser or its advisors. The Purchaser and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or any of its advisors or representatives shall modify,
amend or affect Purchaser's right to rely on the Company's representations and
warranties contained in Section 3 below. The Purchaser understands that its
investment in the Securities involves a significant degree of risk.
e. EVALUATION OF RISKS. The Purchaser, on its own and after
conferring with its professional advisors and counsel, has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of
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protecting its interests in connection with this transaction. The Purchaser
recognizes that its investment in the Company involves a high degree of risk and
illiquidity.
f. NO LEGAL ADVICE FROM THE COMPANY. The Purchaser acknowledges that
it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his, her or its own legal counsel and
investment and tax advisors. The Purchaser is relying solely on such counsel and
advisors and not on any statements or representations of the Company or any of
its representatives or agents for legal, tax or investment advice with respect
to this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
g. GOVERNMENTAL REVIEW. The Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon, reviewed or made any recommendation or endorsement of the
Securities.
h. TRANSFER OR RE-SALE. The Purchaser understands that (i) the sale
or re-sale of the Securities has not been and is not being registered under the
1933 Act or any applicable state securities laws, and the Securities may not be
transferred unless (A) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (B) the Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall be
reasonably acceptable to counsel for the Company) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration, (C) the Securities are sold or transferred to
an "AFFILIATE" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Purchaser who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(h) and who is an
Accredited Investor, or (D) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder other then as specifically provided for herein.
i. LEGENDS. The Purchaser understands that the Promissory Notes and
the Warrants and, until such time as the Warrant Interests have been registered
under the 1933 Act, or otherwise, may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, such
Security is registered for sale under an effective registration statement filed
under the 1933 Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold. The Purchaser agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
j. AUTHORIZATION; ENFORCEMENT. This Agreement, and all of the other
documents executed by Purchaser has been duly executed and delivered by or on
behalf of the Purchaser, and each such agreement
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constitutes a valid and binding agreement of the Purchaser enforceable in
accordance with its terms. The Purchaser hereby appoints the Purchaser Designee
to act on its behalf for all matters where consent of the Purchaser is required.
k. RESIDENCY. The Purchaser is a resident of the jurisdiction set
forth immediately below such Purchaser's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Purchaser that, as of the Closing Date:
a. ORGANIZATION AND QUALIFICATION. The Company is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Florida. The Company is duly qualified as a foreign
limited liability company to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE Effect" means any material adverse effect on the
business, operations, assets, financial condition or prospects of the Company,
if any, taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
limited liability company power and authority to enter into and perform to terms
of this Agreement, and Transaction Documents to which it is a party, and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, and Transaction Documents to which it is a party
by the Company and the consummation by it of the transactions contemplated
hereby and thereby (including without limitation, the issuance of the Promissory
Notes and the Warrants and the issuance and reservation for issuance of the
Warrant Interests issuable upon exercise thereof) have been, or will be prior to
their issuance, duly authorized by the Company's [MANAGERS] and, no further
consent or authorization of the Company, its managers or members is required,
(iii) this Agreement has been duly executed and delivered by the Company, and
(iv) this Agreement constitutes, and upon execution and delivery by the Company
of the Transaction Documents to which the Company is a party, each of such
documents will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally.
c. CAPITALIZATION. The Company currently has 3 members which had one
class of Interest as set forth on SCHEDULE 3(C). All of the members are parties
to the Operating Agreement (as herein defined). No membership interests of the
Company are subject to preemptive rights or any other similar rights of the
members of the Company or any liens or encumbrances imposed through the actions
or failure to act of the Company. Except as disclosed in SCHEDULE 3(C), as of
the effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any membership interests of the Company, or arrangements by
which the Company is or may become bound to issue Interests or other Securities
of the Company, and (ii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Promissory Notes, the Warrants, or Warrant Interests. The Company has
furnished to the Purchaser true and correct copies of the Company's Articles of
Organization as in effect on the date hereof ("ARTICLES OF ORGANIZATION"), the
limited liability company operating agreement entered into among the Company and
its members as in effect on the date hereof (the "OPERATING AGREEMENT"), and the
terms of all securities convertible into or exercisable for Interests and the
material rights of the holders thereof in respect thereto.
d. ISSUANCE OF INTERESTS. The Warrant Interests are (or shall be)
duly authorized and reserved for issuance and, upon exercise by a Purchaser of
the Warrants in accordance with their respective terms and execution by the
Purchaser of the Operating Agreement (which hereinafter shall be deemed to
include any similar shareholders or other agreement that may be entered into
between the successors of the Company and the members), will, when issued, cause
the Purchaser to be duly admitted as a member of the Company holding the
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percentage of Interests as provided for in the Operating Agreement, and free
from all liens, claims and encumbrances with respect to the issue thereof
subject only to the terms of the Operating Agreement and shall not be subject to
preemptive rights or other similar rights of members or equity owners of the
Company and will not impose personal liability upon the holder thereof other
then tax liabilities that may accrue to the Purchaser as a result of the
allocation of profits to such Purchaser.
e. NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents to which the Company is a party and the consummation by
the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance and reservation for issuance of the Warrant
Interests) will not (i) conflict with or result in a violation of any provision
of the Articles of Organization or Operating Agreement, or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The Company is not in violation of its Articles of
Organization, Operating Agreement or other organizational documents and the
Company is not in default (and no event has occurred which with notice or lapse
of time or both could put the Company in default) under, and the Company has not
taken any action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party or by which
any property or assets of the Company is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Promissory Notes, the Security Agreement or the Warrants in accordance with the
terms hereof or thereof or to issue and sell the Promissory Notes and Warrants
in accordance with the terms hereof and to issue the Warrant Interests upon
exercise of the Warrants and execution by the Purchaser of the Operating
Agreement. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof.
f. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, or its
officers or directors in their capacity as such, that could have a Material
Adverse Effect.
g. NO MATERIALLY ADVERSE CONTRACTS, ETC. To the best of the
Company's knowledge, the Company is not subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which, to the knowledge of the Company, has or is expected in the future to have
a Material Adverse Effect.
h. CERTAIN TRANSACTIONS. Except for arm's length transactions or as
contemplated by the Operating Agreement or as disclosed in this Agreement, none
of the managers, officers, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees, managers
and officers), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, manager or such employee.
i. DISCLOSURE. To the best of the Company's knowledge, all
information relating to or concerning the Company or any of its Subsidiaries set
forth in this Agreement and provided to the Purchasers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to
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make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading.
j. ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF SECURITIES. The
Company acknowledges and agrees that the Purchasers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Purchasers' purchase of the Securities.
k. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Purchasers.
l. BROKER'S AND FINDER'S FEES. Except as set forth on SCHEDULE 3(L),
no person is or will be entitled to, or will have any claim for, a broker's,
finder's, investment banker's, financial adviser's or similar fee from the
Company in connection with this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby.
m. PERMITS; COMPLIANCE. To the best of the Company's knowledge, the
Company is in possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "COMPANY PERMITS"), and
there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. The Company
has not received any notification with respect to possible conflicts, defaults
or violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
n. TITLE TO PROPERTY. The Company has good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company, in each
case free and clear of all liens, encumbrances and defects as would not have a
Material Adverse Effect.
o. INSURANCE. The Company is insured by insurers set forth on
SCHEDULE 3 (P).
p. FOREIGN CORRUPT PRACTICES. To the best of the Company's
knowledge, neither the Company, nor any officer or Manager or other person
acting on behalf of the Company has, in the course of his actions for, or on
behalf of, the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
q. NO INVESTMENT COMPANY. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by an
Investment Company.
4. COVENANTS.
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a. BEST EFFORTS. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 5 and 6 of this Agreement as
applicable to them.
b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers at
the applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Purchaser on or prior to the Closing Date.
c. USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Promissory Notes and the Warrants in the manner set forth in SCHEDULE
4(C) attached hereto and made a part hereof.
d. FINANCIAL INFORMATION. For as long as the Promissory Notes are
outstanding, the Company agrees to make available to the Purchasers through
their representative a copy of its annual financial statements within 90 days
after the end of each fiscal year.
e. RESERVATION OF INTERESTS. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
Interests to provide for the full exercise of the outstanding Warrants and
issuance of the Warrant Interests in connection therewith (based on the Exercise
Price of the Warrants in effect from time to time).
f. COVENANTS RELATING TO PROMISSORY NOTE. For so long as any
principal or interest is outstanding on the Promissory Notes the Company shall
not, without consent of the Purchaser Designee or, if no Purchaser Designee is
then appointed, then by consent of holders of a majority of the outstanding
principal amount of Promissory Notes that will be outstanding immediately after
the consummation of taking such action:
(i) effect a merger or consolidation resulting in a Change of
Control (as hereinafter defined). The term "CHANGE OF CONTROL" shall mean
any merger or consolidation or similar transaction in which securities
possessing more then fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person
or persons different from the persons holding those securities immediately
prior to such transaction, whether or not the Company or a subsidiary is
the surviving corporation;
(ii) sell, transfer or otherwise dispose of more than 25% of
the consolidated assets of the Company (computed either on the basis of
book value, as determined in accordance with generally accepted accounting
principles consistently applied, or fair market value) in any transaction
or series of related transactions outside of the ordinary course of the
Company's business consistent with past practice;
(iii) sell or transfer in any transaction or series of related
transactions, any of the Company's assets to any person or entity that is
an Affiliate of the Company, other then a sale or transfer in the ordinary
course of business;
(iv) declare or pay any distribution or dividend, in cash or
otherwise on any of the Interests of the Company, or redeem, purchase or
otherwise acquire any of its Interests now or hereafter outstanding;
(v) issue any notes or other securities with preferences in
seniority or payment that are superior to the rights granted in the
Promissory Notes, or enter into any other transaction or make
modifications to the Company's Operating Agreement that materially and
adversely affects the Promissory Notes as a class;
(vi) issue to any Manager or member holding greater then 5% of
the Interests any Interests or other equity securities (other then
issuances in accordance with any currently existing warrants,
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options or derivative securities), options, warrants, convertible
securities or other securities of the Company other than in accordance
with a distribution, stock-split, reclassification or reorganization in
which the purchase of Interests issuable under the warrants are
appropriately adjusted. Notwithstanding the foregoing, the increase in any
Manager's or member's percentage of Interest resulting from a redemption
by the Company of Interests of any member shall not be deemed an issuance
of any Interests or other securities in violation of this subparagraph
(vi);
(vii) enter into any transaction with any Manager or
Affiliate, except for any arms-length employment agreements; and
(viii) incur any indebtedness other than (1) trade payables
incurred in the ordinary course of business and (2) all existing
indebtedness or otherwise resulting from existing agreements or
obligations of the Company;
PROVIDED, HOWEVER, that the Company may take any of the foregoing
actions without the consent of the Purchaser Designee, if contemporaneous with
the consummation of such action, the principal and interest on the Promissory
Notes are repaid in full; and PROVIDED FURTHER, that the Company may take any of
the actions set forth in subparagraphs (i), or (ii) above without the consent of
the Purchaser Designee, if, in addition to the foregoing payment of principal
and interest, the obligations of the Company with respect to the Warrants and
the Warrant Interests shall be assumed by any successor entity to the Company.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Promissory Notes and Warrants to a
Purchaser at the Closing is subject to the satisfaction, at or before the
Closing Date of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The Purchasers shall each have executed this Agreement and any
other Transaction Documents to which it is a party and delivered the same to the
Company.
b. The Purchasers shall have delivered the Purchase Price in
accordance with Section 1(b) above such that the full $800,000 in cleared and
available funds is in escrow.
c. The representations and warranties of the Purchasers in the
Transaction Documents to which they are a party (including, for the avoidance of
doubt, all Credit Documents executed on their behalf), shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and the applicable Purchaser shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Transaction Documents to be performed, satisfied
or complied with by the applicable Purchaser at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
6. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The obligation
of each Purchaser hereunder to purchase the Promissory Notes and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions, provided that these conditions are for such
Purchaser's sole benefit and may be waived by such Purchaser at any time in its
sole discretion:
a. The Company shall have executed this Agreement and delivered the
same to the Purchaser.
8
b. The Company shall have delivered to such Purchaser duly executed
Promissory Notes (in such denominations as the Purchaser shall request),
Warrants and the Registration Rights Agreement in accordance with Section 1(b)
above.
c. The Company shall have executed and delivered to the Purchaser
Designee the Security Agreement.
d. The Company shall have executed the Escrow Agreement and
delivered the same to the Escrow Agent along with the executed Company
Confession of Judgment.
e. Gary M. Fears shall have executed and delivered to the Purchaser
Designee the Guaranty.
f. Gary M. Fears shall have executed and delivered to the Escrow
Agent the Escrow Agreement and the executed Fears Confession of Judgment.
g. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Purchaser
shall have received a certificate or certificates, executed by a Manager of the
Company, executed on behalf of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Purchaser.
h. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH STATE, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. THE PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
9
c. HEADINGS. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. In the event that any provision of this Agreement
is invalid or enforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser or the Purchaser
Designee makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the Company and the Purchasers
Designee.
f. NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Fearless Yachts, LLC
9 Gateway Drive
Collinsville, Illinois 01803
Attn.: Gary R. Fears
Tel.: (800) 495-0711
Fax: (618) 346-9022
With copy to:
Hodgson Russ LLP
60 East 42nd St., 37th Floor
New York, New York 10022
Attn.: Jeffrey A. Rinde, Esq.
Tel.: (212) 661-3535
Fax.: (212) 972-1677
If to a Purchaser:
To the address set forth beside such Purchaser's name
on SCHEDULE A hereto, with a copy to the Purchaser
Designee to the address set forth on SCHEDULE A
hereto.
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns.
Notwithstanding the foregoing, subject to Section 2(h), any Purchaser may assign
its rights hereunder to any person that purchases Securities in a private
transaction from a Purchaser or to any of its "AFFILIATES" without the consent
of the Company, provided that such person duly executes this Agreement and the
other documents that the assigning Purchaser is required to execute.
10
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, and 7 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Purchasers.
j. PUBLICITY. Except as may be required by applicable law, neither
the Purchasers nor the Purchaser Designee may issue a publicity or press release
or announcement or otherwise make any public disclosure concerning this
Agreement, any of the other Transaction Documents or the transactions
contemplated hereby or thereby, without prior written approval by the Company.
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Purchasers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Purchaser Representative, on behalf of the Purchasers shall be entitled, in
addition to all other available remedies at law or in equity, and in addition to
the penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce specifically
the terms and provisions hereof, without the necessity of showing economic loss
and without any bond or other security being required. Purchasers acknowledge
that Purchaser Representative is solely responsible for all actions taken by it
on behalf of the Purchasers and Purchaser's sole remedy with respect to any
losses or damages sustained by Purchaser as a result of Purchaser
Representative's actions or failure to timely act, shall be limited to claims
against Purchaser Representative.
n. EXPENSES/APPOINTMENT OF PURCHASER DESIGNEE. The Company shall pay an
aggregate of up to Twenty - Five Thousand Dollars ($25,000) of the out-of-pocket
costs and expenses incurred by the Purchaser Designee in connection with the
Transaction Documents and the transactions contemplated hereby and thereby,
including without limitation, the fees and expenses of counsel to the
Purchasers, the out-of-pocket expenses incurred in connection with Purchaser's
due diligence investigation of the Company (including fees of any consultants),
and travel and other out-of-pocket expenses of Purchaser relating to the
transactions contemplated by this Agreement and the other Transaction Documents.
The Purchasers each hereby irrevocably appoint Robert Kornstein as the Purchaser
Designee, as representative and attorney-in-fact of such Purchaser for the
purposes specified in this Agreement and under the Credit Documents. Without
prior notice to any Purchaser, the Purchaser Designee shall have full, exclusive
and irrevocable authority on behalf of each of the Purchasers to (a) receive on
each Purchaser's behalf the documents and instruments to be delivered at the
Closing pursuant to this Agreement; (b) waive any condition, or right to any of
the Credit Documents which is of general applicability to all Purchasers to the
obligation of Purchaser under this Agreement; (c) modify, amend or supplement
this Agreement or any of the Credit Documents, unless such modification,
amendment or supplement would have a disproportionate material adverse effect on
any particular Purchaser as compared to all Purchasers; (d) take any other
action in connection with this Agreement, the Credit Documents and the
transactions contemplated hereby, unless such action would have a
disproportionate material adverse effect on any particular Purchaser as compared
to all Purchasers; and (e) execute and deliver any document or instrument in
furtherance of Credit Documents that are deemed by the Purchaser Designee to be
necessary or desirable in the exercise of his authority, but in all other
respects as attorney-in-fact and agent on behalf of Purchasers with respect to
any matter relating to the Credit Documents or enforcement thereof. The
foregoing authorization is granted and conferred by the Purchasers in
consideration of the grant of such
11
authorization by each of the Purchasers and in consideration of the agreements
and covenants of the Company contained herein. In consideration of, and except
as provided by, the foregoing, this authorization granted to the Purchaser
Designee shall be absolute and unconditional and shall only be terminated by the
Purchasers upon written consent of Purchaser's holding a majority of the
outstanding principal amount of Promissory Notes. The Purchaser Designee shall
also act as the Lender's Agent as defined in the Collateral Documents. The
Purchaser Designee may resign or may be replaced from time to time by consent of
holders of the majority of outstanding principal and interest on the Promissory
Notes. The Company shall be entitled to rely on the acts of Purchaser Designee
on all matters without further investigation. In the event no Purchaser Designee
is appointed then all actions requiring consent of Purchaser Designee shall only
require consent of a majority of outstanding principal amount of Promissory
Notes.
12
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.
FEARLESS YACHTS, LLC
By:
--------------------------------
Name: Gary R. Fears, Manager
PURCHASER DESIGNEE:
------------------------------------
Robert Kornstein
PURCHASERS: [SIGNATURE PAGES FOLLOW]
13
PURCHASER SIGNATURE PAGE
The undersigned Purchaser has read the Securities Purchase Agreement dated
as of April __, 2006 and acknowledges that execution of this Purchaser Signature
Page shall constitute the undersigned's execution of such agreement.
I hereby subscribe for an aggregate of $_________ Promissory Notes and
Warrants hereby deliver good funds with respect to this subscription for the
Securities.
I am a resident of the State of __________________.
- --------------------------------------------------------------------------------
PLEASE PRINT ABOVE THE EXACT NAME(S) IN WHICH THE SECURITIES ARE TO BE HELD
My address is:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
14
I acknowledge that the offering of the Securities is subject to the
Federal securities laws of the United States and state securities laws of those
states in which the Securities are offered, and that, pursuant to the U.S.
Federal securities laws and state securities laws, the Securities may be
purchased by persons who come within the definition of an "ACCREDITED INVESTOR"
as that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act ("REGULATION D").
By initialing one of the categories below, I represent and warrant that I
come within the category so initialed and have truthfully set forth the factual
basis or reason I come within that category. All information in response to this
paragraph will be kept strictly confidential. I agree to furnish any additional
information that the Company deems necessary in order to verify the answers set
forth below.
NOTE: YOU MUST EITHER INITIAL THAT AT LEAST ONE CATEGORY.
INDIVIDUAL PURCHASER:
(A PURCHASER WHO IS AN INDIVIDUAL MAY INITIAL EITHER CATEGORY I, II, OR III)
Category I ______ I am a director or executive officer of the Company.
Category II ______ I am an individual (not a partnership, corporation,
etc.) whose individual net worth, or joint net worth
with my spouse, presently exceeds $1,000,000.
EXPLANATION. In calculation of net worth, you may
include equity in personal property and real estate,
including your principal residence, cash, short term
investments, stocks and securities. Equity in
personal property and real estate should be based on
the fair market value of such property less debt
secured by such property.
Category III ______ I am an individual (not a partnership, corporation,
etc.) who had an individual income in excess of
$200,000 in 2004 and 2005, or joint income with my
spouse in excess of $300,000 in 2004 and 2005, and I
have a reasonable expectation of reaching the same
income level in 2006.
15
ENTITY PURCHASERS:
(A PURCHASER WHICH IS A CORPORATION, LIMITED LIABILITY COMPANY, PARTNERSHIP,
TRUST, OR OTHER ENTITY MAY INITIAL EITHER CATEGORY IV, V, VI, VII OR VIII)
Category IV ______ The Purchaser is an entity in which all of the equity
owners are "ACCREDITED INVESTORS" as defined in Rule
501(a) of Regulation D. IF RELYING UPON THIS CATEGORY
ALONE, EACH EQUITY OWNER MUST COMPLETE A SEPARATE
COPY OF THIS AGREEMENT.
_____________________________________________________
_____________________________________________________
_____________________________________________________
(describe entity)
Category V ______ The Purchaser is a trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of
acquiring the Securities offered, whose purchase is
directed by a "SOPHISTICATED PERSON" as described in
Rule 506(b)(2)(ii) of Regulation D.
Category VI ______ The Purchaser is an organization described in Section
501(c)(3) of the Internal Revenue Code, corporation,
Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of
acquiring the Securities, with total assets in excess
of $5,000,000.
_____________________________________________________
_____________________________________________________
_____________________________________________________
(describe entity)
Category VII ______ The Purchaser is a private business development
company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
_____________________________________________________
_____________________________________________________
_____________________________________________________
(describe entity)
Executed this _____ day of __________, 2006 at ________________,
______________.
SIGNATURES
INDIVIDUAL
------------------------------------
Name
- ------------------------------------ ------------------------------------
16
Signature (Individual) Street address
Address to Which Correspondence
Should be Directed
- ------------------------------------ ------------------------------------
Signature (All record holders should City, State and Zip Code
sign)
- ------------------------------------ ------------------------------------
Name(s) Typed or Printed Tax Identification or Social
Security Number
( )
------------------------------------
Telephone Number
- ------------------------------------
Name(s) Typed or Printed (All
recorded holders should sign)
17
CORPORATION, PARTNERSHIP, TRUST ENTITY OR OTHER
Address to Which Correspondence
Should be Directed:
- ------------------------------------ ------------------------------------
Type of Entity (i.e., corporation, Street Address
partnership, etc.)
By:
-------------------------------- ------------------------------------
*Signature Tax Identification or Social
Security Number
- ------------------------------------ ------------------------------------
State of Formation of Entity City, State and Zip Code
- ------------------------------------
Name Typed or Printed
Its: ( )
-------------------------------- ------------------------------------
Title Telephone Number
*If Promissory Notes and Warrants are being subscribed for by an entity, the
Certificate of Signatory must also be completed.
18
CERTIFICATE OF SIGNATORY
To be completed if Securities are being subscribed for by an entity.
I,__________________________________, am the ___________________________
of ___________________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Securities Purchase Agreement and to purchase and
hold the Securities. The Securities Purchase Agreement has been duly and validly
executed on behalf of the Entity and constitutes a legal and binding obligation
of the Entity.
IN WITNESS WHEREOF, I have hereto set my hand this ______ day of April,
2006.
------------------------------------
Signature
19
ACCEPTANCE
AGREED AND ACCEPTED:
FEARLESS YACHTS, LLC.
By:
--------------------------------
Gary R. Fears
Manager
Date: April__, 2006
20
LIST OF SCHEDULES AND EXHIBITS
SCHEDULE A - LIST OF PURCHASERS
SCHEDULE 3(C) - OUTSTANDING SECURITIES AND OPTIONS
SCHEDULE 3(P) - INSURANCE
SCHEDULE 4(C) - USE OF PROCEEDS
EXHIBIT A - 10% SENIOR SECURED PROMISSORY NOTE
EXHIBIT B - MEMBERSHIP INTEREST PURCHASE WARRANTS
EXHIBIT C - SECURITY AGREEMENT
EXHIBIT D - GUARANTY
EXHIBIT E - FEARS CONFESSION OF JUDGMENT
EXHIBIT F - CONFESSIONS OF JUDGMENT
EXHIBIT G - REGISTRATION RIGHTS AGREEMENT
EXHIBIT H - ESCROW AGREEMENT
SCHEDULE A - LIST OF PURCHASERS
22
SCHEDULE 3(C) - OUTSTANDING SECURITIES AND OPTIONS
23
SCHEDULE 3(P) - INSURANCE
24
SCHEDULE 4(C) - USE OF PROCEEDS
25