FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT ("Agreement") dated as of July
22, 2005 by and between AMERICAN WATER STAR, INC., a Nevada
corporation ("Company") and LAURUS MASTER FUND, LTD., a Cayman
Islands company ("Laurus").
BACKGROUND
Laurus is the holder of Secured Convertible Term Note dated
as of October 26, 2004 in the original principal amount of
$5,000,000 made by Company in favor of Laurus (as amended,
supplemented, restated or modified from time to time, the "Note")
which was issued pursuant to a Securities Purchase Agreement
dated as of October 26, 2004 by and between Company and Laurus
(as amended, supplemented, restated or modified from time to
time, the "Purchase Agreement").
In connection with the Purchase Agreement, Company entered
into, among other agreements, a Registration Rights Agreement
dated as of October 26, 2004 (as amended, supplemented, restated
or modified from time to time, the "Registration Rights
Agreement" and together with the Note, the Purchase Agreement and
the other Related Agreements (as defined in the Purchase
Agreement), collectively, the "Documents").
Simultaneously with the execution of this Agreement each of
All Star Beverages, Inc., All Star Beverages Arizona, Inc., All
Star Beverages JAX, Inc., All Star Beverages Mississippi, Inc.
and Hawaiian Tropicals, Inc. (each, a "Subsidiary" and
collectively the "Subsidiaries") shall execute and deliver in
favor of Laurus a Subsidiary Guaranty and a Master Security
Agreement (collectively, the "Subsidiary Documents").
Various defaults have occurred under the Documents as listed
on Exhibit A annexed hereto ("Designated Defaults") by reason of
which Laurus has the full legal right to exercise its rights and
remedies under the Documents. Company has requested that Laurus
forbear for a period of time from exercising its rights and
remedies under the Documents. Laurus is prepared to establish a
period of forbearance on the terms and conditions set forth
below.
AGREEMENT
In consideration of the foregoing and of the mutual promises
and covenants herein contained, it is agreed:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Note.
2. Acknowledgement. Company acknowledges that the Designated
Defaults have occurred and exist as of the date hereof, that any
and all cure periods set forth in the Documents have expired, and
that Company is unconditionally obligated to pay all of its
obligations and liabilities to Laurus (collectively, the
"Obligations"), all without defense, setoff or counterclaim of
any kind or nature whatsoever.
3. Outstanding Obligations. Company hereby affirms and
acknowledges that (i) as of the date hereof, the aggregate
outstanding principal amount of the Obligations owing by the
Company to Laurus under the Documents equals $5,000,000, (ii) as
of July 31, 2005, the aggregate accrued interest and fees owing
by the Company to Laurus equals $1,286,098.61 ((i) and (ii)
collectively, the "Amount") and (iii) the Amount is a valid
obligation of Company and is due and owing without defense,
claim, setoff or counterclaim of any kind or nature whatsoever.
4. Forbearance. During the period commencing on the date
hereof and ending on the earlier to occur of (i) October 26, 2007
or (ii) the date of any Forbearance Default (as hereinafter
defined) (the "Forbearance Period"), Laurus will forbear from
exercising its rights and remedies with respect to the Designated
Defaults. Such forbearance shall not derogate from Laurus' right
to collect, receive and/or apply proceeds of Company's accounts
receivable to the Obligations. Subject to the provisions of
Section 6 hereof, all Obligations owing by the Company to Laurus
under the Documents shall be due and payable in full at the end
of the Forbearance Period, unless such payment terms are
otherwise modified by such other written agreement by and between
Company and Laurus.
5. Forbearance Defaults. Each of the following shall
constitute a Forbearance Default:
(a) the existence of any default (other than a Designated
Default) under any Document or any Subsidiary Document;
(b) Company shall fail to keep or perform any of the terms,
obligations, covenants or agreements contained herein;
(c) any representation or warranty of Company herein shall be
false, misleading or incorrect in any respect; or
(d) the occurrence of a Fraud Event or Laurus' reasonable belief
that a Fraud Event has occurred. For purposes hereof, the term
"Fraud Event" shall mean the occurrence of any of the following
events: (i) Company or any Subsidiary has misappropriated (or
any Subsidiary or Company has caused the other to misappropriate)
any proceeds of any Collateral (as defined in the Documents),
(ii) Company or any Subsidiary has embezzled funds from the
other, (iii) any Subsidiary and/or Company has converted (or
Company or any Subsidiary has caused the other to convert) any
real or personal property of Company or any Subsidiary, including
but not limited to any Collateral, (iv) any Subsidiary and/or
Company has committed (or Company or any Subsidiary has caused
the other to commit) fraud against Laurus, including any material
and willful misrepresentation made (or caused to be made) by any
Subsidiary and/or by Company with respect to any of the
representations and warranties contained in the Documents or the
accuracy of any information provided to Laurus concerning the
Collateral, or in any other document delivered to Laurus in
connection with the transactions contemplated by the Documents
or, (v) any director or shareholder of Company or of any
Subsidiary shall have taken any action referred to in any of the
foregoing clauses (i) - (iv).
6. Rights and Remedies. Upon the occurrence of a Forbearance
Default, at the option of Laurus, all Obligations shall be
immediately due and payable. Upon all Obligations becoming due
and payable, Laurus shall be immediately entitled to enforce all
of its rights and remedies under the Documents.
7. Additional Note. In consideration of the agreements set
forth herein and notwithstanding anything contained in the
Documents to the contrary, all accrued and unpaid interest and
fees owing pursuant to the Note and the other Documents through
July 31, 2005 shall be evidenced by and payable by Company in
accordance with the terms of a Secured Convertible Term Note,
dated as of the date hereof (the "Additional Note"), in the form
set forth in Exhibit B hereto. The Additional Note will be
issued in addition to, and not in replacement or satisfaction of,
the Note.
8. Covenants and Acknowledgments. The Company and All-Star
Beverages, Inc., as applicable, (a) shall register the shares of
the Company's Common Stock issuable upon the conversion of the
Additional Note in the Company's next Registration Statement (as
defined in the Registration Rights Agreement), (b) acknowledges
that the term "Note" set forth in the Registration Rights
Agreement shall mean the collective reference to the Original
Note and the Additional Note and (c) the obligations and
liabilities secured by the Master Security Agreement dated as of
October 26, 2004 shall include, without limitation, the Company's
obligations and liabilities to Laurus hereunder and under the
Additional Note.
9. Representations and Warranties. Company hereby represents
and warrants as follows:
(a) This Agreement, the Additional Note and the Documents are
and shall continue to be legal, valid and binding obligations of
Company and are enforceable against Company in accordance with
their respective terms.
(b) Company has the corporate power, and has been duly
authorized by all requisite corporate action, to execute and
deliver this Agreement and the Additional Note and to perform its
obligations hereunder and thereunder. This Agreement and the
Additional Note have been duly executed and delivered by Company.
(c) Company's execution, delivery and performance of this
Agreement and the Additional Note does not and will not (i)
violate any law, rule, regulation or court order to which Company
is subject, (ii) conflict with or result in a breach of Company's
Articles of Incorporation or by-laws or any agreement or
instrument to which Company is a party or by which it or its
properties are bound or (iii) result in the creation or
imposition of any lien, security interest or encumbrance on any
property of Company, whether not owned or hereafter acquired,
other than liens in favor of Laurus.
(d) Company has no defense, counterclaim or setoff with respect
to the Documents or the Additional Note.
(e) The Designated Defaults are the only Events of Default
existing under the Documents as of the date hereof and no other
Events of Default would exist after giving effect to this
Agreement and the Additional Note.
(f) The recitals set forth in the Background paragraph above are
truthful and accurate and are an operative part of this
Agreement.
(g) Laurus has and will continue to have a valid first priority
lien and security interest in all Collateral, and Company
expressly reaffirms all security interests and liens granted to
Laurus pursuant to the Documents.
10. Reaffirmation. Upon the effectiveness of this Agreement,
Company hereby reaffirms all covenants, representations and
warranties made in the Documents and acknowledges that all such
covenants, representations and warranties shall be deemed to have
been remade and are true and correct as of the effective date of
this Agreement.
11. Waiver. Company waives and affirmatively agrees not to
allege or otherwise pursue any or all defenses, affirmative
defenses, counterclaims, claims, causes of action, setoffs or
other rights that it may have to contest (a) any Designated
Defaults which could be declared by Laurus; (b) any provision of
the Documents, this Agreement or the Additional Note; (c) the
security interest of Laurus in any property, whether real or
personal, tangible or intangible, or any right or other interest,
now or hereafter arising in connection with the Collateral; or
(d) the conduct of Laurus in administering the financing
arrangements between Company and Laurus.
12. Release. Company hereby releases, remises, acquits and
forever discharges Laurus and Laurus' employees, agents,
representatives, consultants, attorneys, fiduciaries, officers,
directors, partners, predecessors, successors and assigns,
subsidiary corporations, parent corporations, and related
corporate divisions (all of the foregoing hereinafter called the
"Released Parties"), from any and all actions and causes of
action, judgments, executions, suits, debts, claims, demands,
liabilities, obligations, damages and expenses of any and every
character, known or unknown, direct and/or indirect, at law or in
equity, of whatsoever kind or nature, for or because of any
matter or things done, omitted or suffered to be done by any of
the Released Parties prior to and including the date of execution
hereof, and in any way directly or indirectly arising out of or
in any way connected to this Agreement, the Additional Note, the
Documents or the Subsidiary Documents (all of the foregoing
hereinafter called the "Released Matters"). Company acknowledges
that the agreements in this Section are intended to be in full
satisfaction of all or any alleged injuries or damages arising in
connection with the Released Matters.
13. Effect and Construction of Agreement. Except as expressly
provided herein, the Documents shall remain in full force and
effect in accordance with their respective terms, and this
Agreement shall not be construed to:
(a) impair the validity, perfection or priority of any lien or
security interest securing the Obligations;
(b) waive or impair any rights, powers or remedies of Laurus
under, or constitute a waiver of, any provision of the Documents
upon termination of the Forbearance Period; or
(c) constitute an agreement by Laurus or require Laurus to
extend the Forbearance Period, grant additional forbearance
periods, or extend the time for payment of any of the
Obligations.
14. Conflicts. In the event of any express conflict between the
terms of this Agreement and any of the Documents, this Agreement
shall govern.
15. Presumptions. Company acknowledges that it has consulted
with and been advised by its counsel and such other experts and
advisors as it has deemed necessary in connection with the
negotiation, execution and delivery of this Agreement and has
participated in the drafting hereof. Therefore, this Agreement
shall be construed without regard to any presumption or rule
requiring that it be construed against any one party causing this
Agreement or any part hereof to be drafted.
16. Conditions of Effectiveness. This Agreement shall become
effective upon satisfaction of the following conditions
precedent: Laurus shall have received (i) two (2) copies of this
Agreement executed by Company and consented and agreed to by All-
Star Beverages, Inc., (ii) an executed original of the Additional
Note, (iii) fully executed originals of the Subsidiary Documents
and (iv) such other certificates, instruments, documents,
agreements and opinions of counsel as may be required by Laurus
or its counsel, each of which shall be in form and substance
satisfactory to Laurus and its counsel.
17. Expenses. Company shall pay all costs, fees and expenses of
Laurus (including the costs, fees and expenses of Laurus'
counsel) incurred by Laurus in connection with the negotiation,
preparation, administration and enforcement of this Agreement,
which such obligations shall constitute Obligations secured by
the Collateral.
18. Entire Agreement. This Agreement sets forth the entire
agreement among the parties hereto with respect to the subject
matter hereof. Company has not relied on any agreements,
representations, or warranties of Laurus, except as specifically
set forth herein. Any promises, representations, warranties or
guarantees not herein contained and hereinafter made shall have
no force and effect unless in writing, signed by each party
hereto. Company acknowledges that it is not relying upon oral
representations or statements inconsistent with the terms and
provisions of this Agreement.
19. Further Assurance. Company shall execute such other and
further documents and instruments as Laurus may reasonably
request to implement the provisions of this Agreement.
20. Benefit of Agreement. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto
and their respective permitted successors and assigns. No other
person or entity shall be entitled to claim any right or benefit
hereunder, including, without limitation, any third-party
beneficiary of this Agreement. Laurus' agreement to forbear from
enforcing certain of its remedies does not in any manner limit
Company's obligations to comply with, and Laurus' right to insist
upon compliance with, each and every one of the terms of the
Documents except as specifically modified herein.
21. Severability. The provisions of this Agreement are intended
to be severable. If any provisions of this Agreement shall be
held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or enforceability
without in any manner affecting the validity or enforceability of
such provision in any other jurisdiction or the remaining
provisions of this Agreement in any jurisdiction.
22. Governing Law, Jurisdiction, Venue. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applied to contracts to be performed wholly
within the State of New York. Any judicial proceeding brought by
or against Company with respect to this Agreement or any related
agreement may be brought in any court of competent jurisdiction
in the State of Xxx Xxxx, Xxxxxx xx Xxx Xxxx, Xxxxxx Xxxxxx of
America, and, by execution and delivery of this Agreement,
Company accepts for itself and in connection with its properties,
generally and unconditionally, the non-exclusive jurisdiction of
the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement.
Nothing herein shall affect the right to serve process in any
manner permitted by law or shall limit the right of Laurus to
bring proceedings against Company in the courts of any other
jurisdiction. Company waives any objection to jurisdiction and
venue of any action instituted hereunder and shall not assert any
defense based on lack of jurisdiction or venue or based upon
forum non conveniens. Any judicial proceeding by Company against
Laurus involving, directly or indirectly, any matter or claim in
any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a
federal or state court located in the County of New York, State
of New York.
23. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT, THE
DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED
OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT, THE
DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED
OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE
AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY. IN ADDITION, EACH PARTY WAIVES THE
RIGHT TO CLAIM OR RECOVER IN ANY SUCH SUIT, ACTION OR PROCEEDING
ANY DAMAGES OTHER THAN OR IN ADDITION TO ACTUAL DAMAGES.
24. Relief From Automatic Stay. In the event any case is
commenced by or against Company under any state or federal
bankruptcy or similar laws (as now or hereafter in effect),
Company hereby acknowledges and consents that (i) Laurus is
entitled to immediate relief from any automatic stay imposed and
(ii) it will not oppose any motion filed by or on behalf of
Laurus seeking relief from any automatic stay.
25. Counterparts; Telecopied Signatures. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original and all of which taken together shall
constitute one and the same agreement. Any signature delivered
by a party by facsimile transmission shall be deemed to be an
original signature hereto.
26. Survival. All representations, warranties, covenants,
agreements, undertakings, waivers and releases of Company
contained herein shall survive the termination of the Forbearance
Period and payment in full of the Obligations.
27. Amendment. No amendment, modification, rescission, waiver
or release of any provision of this Agreement shall be effective
unless the same shall be in writing and signed by the parties
hereto.
28. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute
a part of this Agreement for any other purpose.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first written above.
AMERICAN WATER STAR, INC.
By:________________________
Name:_________________
Title:________________
LAURUS MASTER FUND, LTD.
By:________________________
Name:_________________
Title:________________
ACCEPTED AND AGREED TO:
ALL-STAR BEVERAGES, INC.
By:_______________________
Name:_____________________
Title:____________________
EXHIBIT A
DESIGNATED DEFAULTS
The Events of Default arising from Company's failure to pay
interest, principal and fees owing to Laurus on and after March
4, 2005 in violation of Section 4.1 of the Note.
EXHIBIT B
FORM OF ADDITIONAL NOTE
STATE OF ________________ )
) ss.:
COUNTY OF _______________ )
On this _____ day of July, 2005, before me personally came
_____________, to me known, who, being by me duly sworn, did
depose and say that she/he is the ________________ of American
Water Star, Inc., the corporation described in and which executed
the foregoing instrument and that she/he is authorized to execute
said instrument on behalf of said corporation.
___________________________
Notary Public
