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
pro
