Deed of Trust

After recording, please return by mail to:


LOEB & LOEB LLP 345 Park Avenue New York, New York 10154 Attention: Scott Giordano, Esq. Recorder's Use


DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING


THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING made as of the 22nd day of July, 2005, by AMERICAN WATER STAR, INC., a Nevada corporation, having a mailing address of 4560 S. Decatur Boulevard, Suite 301, Las Vegas, Nevada, (the "Grantor" or "Trustor"), to Chicago Title Insurance Company, having a mailing address of 9747 North 90th Place, Suite 107, Scottsdale, Arizona 85258 (the "Trustee") for the benefit of LAURUS MASTER FUND, LTD., having a mailing address of 825 Third Avenue, 14th Floor, New York, New York (the "Beneficiary").


WITNESSETH, pursuant to a certain Securities Purchase Agreement dated as of October 26, 2004 by and between the Grantor and the Beneficiary (the `Purchase Agreement'), the Grantor agreed to sell to the Beneficiary and Beneficiary agreed to purchase from the Grantor a note in the aggregate principal amount of $5,000,000 (the "Original Note"). The Original Note shall mature on October 26, 2007 (the "Maturity Date").


WITNESSETH, certain events of default have occurred under the Purchase Agreement and pursuant to a certain Forbearance Agreement (the "Forbearance Agreement") dated as of the date hereof between the Grantor and the Beneficiary, the Beneficiary has agreed to forbear from exercising certain of its rights and remedies under the Purchase Agreement and the Original Note.


WITNESSETH, in connection with the execution of the Forbearance Agreement, the Grantor has agreed to make and the Beneficiary has agreed to receive a note in favor of the Beneficiary in the original principal amount of One Million Two Hundred Eighty-Six Thousand Ninety-Eight and 61/100 ($1,286,098.61) (the "Additional Note", together with the Original Note, collectively, the "Notes") which amount represents all accrued but unpaid interest, fees and expenses owing by the Grantor to the Beneficiary pursuant to the terms of the Purchase Agreement and the Original Note.


WITNESSETH, that to secure the payment of all amounts due and owing under the Notes, the Purchase Agreement and the Related Agreements (as defined in the Purchase Agreement) as said Notes, Purchase Agreement and Related Agreements may be hereinafter modified, amended, extended, renewed or substituted for, and any and all sums, amounts and expenses paid hereunder or thereunder by the Beneficiary according to the terms hereof and all other obligations and liabilities of the Grantor under this Deed of Trust, the Notes, the Purchase Agreement and the Related Agreements together with all interest on the said indebtedness, obligations, liabilities, sums, amounts and expenses and any and all other obligations and liabilities now due and owing or which may hereafter be or become due and owing by the Grantor or any guarantor of the Grantor to the Beneficiary (all of the aforesaid are hereinafter collectively, the `Indebtedness'), the Grantor, as hereinafter provided, hereby grants, bargains, sells, warrants, conveys, alienates, remises, releases, assigns, sets over and confirms to the Trustee and grants to the Trustee a security interest in:


I. All of the right, title and interest of the Grantor in and to that certain lot, piece or parcel of land (the `Real Property') more particularly described as on Schedule `A' annexed hereto and made a part hereof; and


II. All of the right, title and interest of the Grantor in and to the buildings and improvements (hereinafter, collectively, together with all building equipment, the `Improvements') now or hereafter located on the Real Property and all of its right, title and interest, if any, in and to the streets and roads abutting the Real Property to the center lines thereof, and strips and gores within or adjoining the Real Property, the air space and right to use said air space above the Real Property, all rights of ingress and egress by motor vehicles to parking facilities on or within the Real Property, all easements now or hereafter affecting the Real Property or the Improvements, all royalties and all rights appertaining to the use and enjoyment of the Real Property or the Improvements, including, without limitation, alley, drainage, crop, timber, agricultural, horticultural, mineral, water, oil and gas rights; and


III. All of the right, title and interest of the Grantor in and to all fixtures and articles of personal property and all appurtenances and additions thereto and substitutions or replacements thereof, now or hereafter attached to, or contained in, the Real Property and/or the Improvements or placed on any part thereof, though not attached thereto, including, but not limited to, all screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, furniture and furnishings, heating, lighting, plumbing, ventilating, air conditioning, refrigerating, incinerator and/or compacting and elevator plants, stoves, ranges, vacuum cleaning systems, call systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, appliances, equipment, fittings and fixtures, and the trade name, good will and books and records relating to the business operated on the Real Property and/or the Improvements. Without limiting the foregoing, the Grantor hereby grants to the Beneficiary a security interest in all of its present and future `equipment' and `general intangibles' (as said quoted terms are defined in the Uniform Commercial Code of the State wherein the Real Property and/or the Improvements are located) and the Beneficiary shall have, in addition to all rights and remedies provided herein, and in any other agreements, commitments and undertakings made by the Grantor to the Beneficiary, all of the rights and remedies of a `secured party' under the said Uniform Commercial Code. To the extent permitted under applicable law, this Deed of Trust shall be deemed to be a `security agreement' (as defined in the aforesaid Uniform Commercial Code). If the lien of this Deed of Trust is subject to a security interest covering any such personal property, then all of the right, title and interest of the Grantor in and to any and all such property is hereby assigned to the Beneficiary, together with the benefits of all deposits and payments now or hereafter made thereon by the Grantor; and


IV. All of the right, title and interest of the Grantor in and to all leases, lettings and licenses of the Real Property, the Improvements and/or any other property or rights encumbered or conveyed hereby, or any part thereof, now or hereafter entered into and all right, title and interest of the Grantor thereunder, including, without limitation, cash and securities deposited thereunder, the right to receive and collect the rents, issues and profits payable thereunder and the right to enforce, whether by action at law or in equity or by other means, all provisions, covenants and agreements thereof; and


V. All right, title and interest of the Grantor in and to all unearned premiums, accrued, accruing or to accrue under insurance policies now or hereafter obtained by the Grantor and all proceeds of the conversion, voluntary or involuntary, of the Real Property, the Improvements and/or any other property or rights encumbered or conveyed hereby, or any part thereof, into cash or liquidated claims, including, without limitation, proceeds of hazard and title insurance and all awards and compensation heretofore and hereafter made to the present and all subsequent owners of the Real Property, the Improvements and/or any other property or rights encumbered or conveyed hereby by any governmental or other lawful authority for the taking by eminent domain, condemnation or otherwise, of all or any part of the Real Property, the Improvements and/or any other property or rights encumbered or conveyed hereby or any easement therein, including, but not limited to, awards for any change of grade of streets; and


VI. All right, title and interest of the Grantor in and to all extensions, improvements, betterments, renewals, substitutions and replacements of and all additions and appurtenances to the Real Property, the Improvements and/or any other property or rights encumbered or conveyed hereby, hereafter acquired by or released to the Grantor or constructed, assembled or placed by the Grantor on the Real Property, the Improvements and/or any other property or rights encumbered or conveyed hereby, and all conversions of the security constituted thereby which, immediately upon such acquisition, release, construction, assembling, placement or conversion as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by the Grantor, shall become subject to the lien of this Deed of Trust as fully and completely, and with the same effect, as though now owned by the Grantor and specifically described herein (the Real Property and the Improvements, together with the fixtures and other property, rights, privileges and interests encumbered or conveyed hereby hereinafter, collectively, the `Premises').


TO HAVE AND TO HOLD the Premises unto the Trustee and his heirs, successors and assigns forever.


IN TRUST, to secure the payment in full to the Beneficiary of the Indebtedness, and the performance of all covenants and agreements in the Notes and this Deed, whereupon this Deed of Trust shall cease and be void and the Premises shall be released at the cost of the Grantor.


AND the Grantor covenants and agrees as follows:


ARTICLE I


Representations and Warranties of the Grantor


The Grantor represents and warrants to the Beneficiary as follows:


Section 1.01. Title to the Premises. (i) The right, title and interest of the Grantor constitutes good, marketable and insurable title to the Premises free and clear of all liens other than those set forth on Schedule A attached hereto; (ii) the Grantor has full power and lawful authority to encumber the Premises in the manner and form set forth hereunder; (iii) the Grantor owns all fixtures and articles of personal property now or hereafter comprising part of the Premises, subject to the rights of space tenants in and to any such fixtures, personal property or installations, including any substitutions or replacements thereof free and clear of all liens and claims other than the matters set forth in this Section; (iv) this Deed of Trust is and will remain a valid and enforceable first lien on the Premises; and (v) the Grantor will preserve such title, and will forever warrant and defend the validity and priority of the lien hereof against the claims of all persons and parties whatsoever.


Section 1.02. Deed of Trust Authorized. The execution and delivery of this Deed of Trust and the Notes have been duly authorized by the directors of the Grantor and there is no provision in the certificate of incorporation or by-laws of the Grantor requiring further consent for such action by any other entity or person. The Grantor is duly organized, validly existing and is in good standing under the laws of the state of its formation, and has (i) all necessary licenses, authorizations, registrations, permits and/or approvals and (ii) full power and authority to own its properties and carry on its business as presently conducted and the execution and delivery by it of, and performance of its obligations under, this Deed of Trust and the Notes will not result in the Grantor being in default under any provision of its certificate of incorporation or by-laws or of any mortgage, lease, credit or other agreement to which it is a party or which affects it or the Premises, or any part thereof. Section 1.03. Flood Insurance Status. The Premises are not located in an area identified by the Secretary of Housing and Urban Development as an area having special flood hazards pursuant to the terms of the National Flood Insurance Act of 1968, or the Flood Disaster Protection Act of 1973, as same may have been amended to date.


Section 1.04. Operation of the Premises. (i) The Grantor has all necessary certificates, licenses, authorizations, registrations, permits and/or approvals necessary for the operation of the Premises or any part thereof, including but not limited to, a Permanent Certificate of Occupancy and, if applicable, a Board of Fire Underwriters Certificate for the Improvements and all required environmental permits, all of which as of the date of the signing hereof are in full force and effect and not, to the knowledge of the Grantor, subject to any revocation, amendment, release, suspension, forfeiture or the like, (ii) the present use and/or occupancy of the Premises and/or Improvements does not conflict with or violate any such certificate, license, authorization, registration, permit and/or approval, or any applicable law, ordinance, statute, rule, order, requirement or regulation and (iii) the Grantor has delivered to the Beneficiary, prior to the signing hereof, duplicate originals or appropriately certified copies of all such certificates, licenses, authorizations, registrations, permits and/or approvals.


ARTICLE II


Covenants of the Grantor


Section 2.01. Payment of the Indebtedness. The Grantor will punctually pay the Indebtedness in same day funds as provided herein and in the Notes, all in the coin and currency of the United States of America which is legal tender for the payment of public and private debts.


Section 2.02. Maintenance of the Improvements.


(i) The Grantor shall maintain the Improvements in good repair, shall comply with the requirements of any governmental authority claiming jurisdiction over the Premises within the lesser of thirty (30) days after an order (an `Order') containing such requirement has been issued by any such authority (unless such requirement cannot be complied with within such thirty (30) day period, in which event Grantor shall have such longer period as necessary to cause compliance provided, however, that Grantor shall promptly commence and diligently prosecute to completion such compliance and provided, further, that such period shall not exceed the time required pursuant to the terms of such Order) or the time required pursuant to the terms of such Order and shall permit the Beneficiary to enter upon the Improvements and inspect the Improvements at all reasonable hours and without prior notice. The Grantor shall not, without the prior written consent of the Beneficiary, threaten, commit, permit or suffer to occur any waste, material alteration, demolition or removal of the Improvements or any part thereof; provided, however, that fixtures and articles of personal property owned by Grantor may be removed from the Improvements if the Grantor concurrently therewith replaces same with equivalent items which do not reduce the value of the Premises or the Improvements, free of any lien, charge or claim superior to the lien and/or security interest created hereby.


(ii) Nothing in this Section 2.02 shall require the compliance by the Grantor with any Order so long as (a) the failure so to do shall not be a default or event of default under any deed of trust, mortgage or security agreement affecting the Premises, any part thereof or interest therein, (b) the failure so to do shall not result in the voiding, rescission or invalidation of the certificate of occupancy or any other license, certificate, permit or registration in respect of the Premises, (c) the failure so to do shall not prevent, hinder or interfere with the lawful use and occupancy of the entirety of the Improvements for their present use and occupancy, (d) the failure so to do shall not void or invalidate any insurance maintained by the Grantor in respect of the Premises, or result in an increase of any premium therefor or a decrease in any coverage provided thereby, and (e) the Grantor in good faith and at its own expense shall contest the Order or the validity thereof by appropriate legal proceedings, which proceedings must operate to prevent (1) the occurrence of any of the events described in the preceding clauses (a) through (d) of this paragraph (ii) and (2) the collection or other realization on any sums due or payable as a consequence of the Order, the sale of any lien arising in respect of the Order, and/or the sale or forfeiture of the Premises, any part thereof or interest therein, or the sale of any lien connected therewith; provided that during such contest the Grantor shall, at the option of the Beneficiary, provide security satisfactory to the Beneficiary assuring the discharge of the Grantor's obligations hereunder and of any interest, charge, fine, penalty, fee or expense arising from or incurred as a result of such contest; and provided further if at any time compliance with any obligation imposed upon the Grantor by the Order shall become necessary to prevent (1) the occurrence of any of the events described in clauses (a) through (d) of this paragraph (ii) or (2) the delivery of a deed conveying the Premises or any portion thereof or interest therein because of noncompliance, or the sale of a lien in connection therewith, or (3) the imposition of any penalty, fine, charge, fee, cost or expense on the Beneficiary, then the Grantor shall comply with the Order in sufficient time to prevent the occurrence of any such events, the delivery of such deed or the sale of such lien, or the imposition of such penalty, fine, charge, fee, cost or expense on the Beneficiary.


Section 2.03. Insurance; Coverage. The Grantor shall keep the Improvements insured against (i) damage by fire and the other hazards covered by the standard extended coverage all risk insurance policy, and (ii) damage by vandalism, malicious mischief, and such other hazards against which the Beneficiary shall require insurance, and each policy of insurance required pursuant to this Section 2.03 shall be endorsed to name the Beneficiary as a mortgagee-loss payee thereunder, as its interest may appear, with loss payable to the Beneficiary without contribution or assessment, under a New York Standard Beneficiary Clause. All insurance policies and endorsements required pursuant to this Section 2.03 shall be fully paid for, nonassessable and contain such provisions (including, without limitation, inflation guard and replacement cost endorsements) and expiration dates and shall be in such form and amounts and issued by such insurance companies with a rating of `A' or better as established by Best's Rating Guide, or an equivalent rating with such other publication of a similar nature as shall be in current use, or such other companies, as shall be approved by the Beneficiary. In addition to the insurance policies above described, the Grantor shall keep and maintain in effect insurance policies in respect of rental loss, Workmen's Compensation, employees' liability coverage, comprehensive public liability insurance (including contractual coverage), boiler and machinery, and such other insurance as the Beneficiary may require; all in such form, with such coverage, in such amounts and issued by such insurance companies with a rating of `A' or better as established by Best's Rating Guide or equivalent rating of such other publications of similar nature as shall be in current use, as shall be approved by the Beneficiary. Without limiting the foregoing, each policy of insurance required hereunder shall provide that such policy may not be cancelled, expire, or be terminated (whether due to nonpayment of premiums, surrender by the insured, or other reason) except upon thirty (30) days' prior written notice to the Beneficiary and that no act or thing done by the Grantor shall invalidate the policy as against the Beneficiary. In addition, the Beneficiary may require the Grantor to carry such other insurance on the Improvements in such amounts as may from time to time be reasonably required by institutional lenders, against insurable casualties (including, without limitation, risks of war and nuclear explosion) which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the site and the type of the building, the type of construction, the stage of construction, location, utilities and occupancy or any replacements or substitutions therefor. The Grantor shall additionally keep the Improvements insured against loss by flood if the Premises are located in an area identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which the Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as the same may have been or may hereafter be amended or modified (and any successor acts thereto) in an amount at least equal to the outstanding Indebtedness or the maximum limit of coverage available with respect to the Improvements under said Act, whichever is less, and in a company or companies to be approved by the Beneficiary. In all events and without a modification of or limitation on the foregoing the Grantor will assign and deliver the policy or policies (or true copies thereof) of all such insurance to the Beneficiary, which policy or policies shall have endorsed thereon the New York Standard Beneficiary Clause (provided, however, the Beneficiary shall have thirty (30) days' notice from the insurer prior to the expiration, cancellation or termination (for any reason whatsoever) of any policy) in the name of the Beneficiary, so and in such manner and form that the Beneficiary and its successors and assigns shall at all times have and hold said policy or policies as collateral and further security for the payment of the Indebtedness until the full payment of the Indebtedness. In addition, from time to time, upon the occurrence of any change in the use, operation or value of the Premises or any part thereof, or in the availability of insurance in the area in which the Premises are located, the Grantor shall promptly notify the Beneficiary of such change and shall, within five (5) days after demand by the Beneficiary, take out such additional amounts and/or such other kinds of insurance as the Beneficiary may reasonably require. Otherwise, the Grantor shall not take out or permit any separate or additional insurance which is contributing in the event of loss unless it is endorsed in favor of the Beneficiary in accordance with the requirements hereof and otherwise satisfactory to the Beneficiary in all respects. Insurance required hereunder may be carried by the Grantor pursuant to blanket policies, provided that all other requirements herein set forth are satisfied and that the underlying policy in respect of the Premises is assigned and delivered to the Beneficiary as herein required. In the event that the Grantor fails to keep the Premises insured in compliance with this Section 2.03, the Beneficiary may, but shall not be obligated to, obtain insurance and pay the premiums therefor and the Grantor shall, on demand, reimburse the Beneficiary for all sums, advances and expenses incurred in connection therewith and such sums, advances and expenses shall bear interest at the Default Rate (as defined in Section 2.13 of this Deed) until reimbursed. The Grantor shall deliver copies of all original policies to the Beneficiary together with the endorsements thereto required hereunder. The proceeds of insurance paid on account of any damage or destruction to the Premises or any part thereof shall be paid over to the Beneficiary to be applied as hereinafter provided. Notwithstanding anything to the contrary contained herein or in any provision of applicable law, the proceeds of insurance policies coming into the possession of the Beneficiary shall not be deemed trust funds and the Beneficiary shall be entitled to dispose of such proceeds as hereinafter provided in Section 2.04. In the event of a foreclosure of the Premises or transfer of the Premises in lieu of foreclosure or purchase of the Premises at a foreclosure or a Trustee's sale, all of Grantor's interest in insurance policies then in force with respect to the Premises shall inure to the benefit of and pass to the transferee or purchaser of the Premises, as the case may be.


Section 2.04. Insurance; Proceeds. The Grantor shall give the Beneficiary prompt notice of any loss covered by insurance and the Beneficiary shall have the right to join the Grantor in adjusting any loss in excess of $20,000. The Beneficiary shall have the option, in its sole discretion, to apply any insurance proceeds it may receive pursuant to Section 2.03, or otherwise, to the payment of the Indebtedness or to allow all or a portion of such proceeds to be used for the restoration of the Improvements, subject, however, to the provisions of Section 2.06 hereof. In the event any such insurance proceeds shall be used to reduce the Indebtedness, the same shall be applied by the Beneficiary, after the deduction therefrom and repayment to the Beneficiary of any and all costs incurred by the Beneficiary in the recovery thereof, in any manner it shall designate, including but not limited to, the application of such proceeds to the then unpaid installments of the principal balance of the Indebtedness in the inverse order of their maturity, such that the regular payments, if any, under the Notes shall not be reduced or altered in any manner. In the event that the Beneficiary elects to allow the use of such proceeds for the restoration of the Improvements, then such use of the proceeds shall be governed as hereinafter provided in Section 2.06.


Section 2.05. Restoration of the Improvements. In the event of damage or destruction of the Improvements, or any part thereof, as a result of casualty, condemnation, taking or other cause, the Grantor shall give prompt written notice thereof to the Beneficiary and (except in the event of impossibility of restoration or repair in the event of condemnation or other taking), provided that the Beneficiary shall make available to the Grantor the insurance proceeds (if any) (or in the event of condemnation or taking, the award (if any) arising out of such condemnation or taking) recovered by the Beneficiary as herein provided, the Grantor shall promptly commence and diligently continue to perform the repair, restoration and rebuilding of that portion of the Improvements so damaged or destroyed (hereinafter, the `Work') so as to restore the Improvements in full compliance with all legal requirements and so that the Improvements shall be at least equal in value and general utility as they were prior to the damage or destruction, and if the Work to be done is structural or if the cost of the Work, as estimated by the Beneficiary, shall exceed Fifty Thousand ($50,000) Dollars (hereinafter, collectively, `Major Work'), the Grantor shall, prior to the commencement of the Major Work, furnish to the Beneficiary for its approval: (i) complete plans and specifications for the Major Work, with satisfactory evidence of the approval thereof (a) by all governmental authorities whose approval is required, (b) by all parties to or having an interest in the leases, if any, of any portion of the Premises whose approval is required, and (c) by an architect reasonably satisfactory to the Beneficiary (hereinafter, the `Architect') and which shall be accompanied by the Architect's signed estimate, bearing the Architect's seal, of the entire cost of completing the Major Work; (ii) certified or photostatic copies of all permits and approvals required by law in connection with the commencement of the Work and as and when obtainable, the conduct of the Work; and (iii) a surety bond and/or guaranty of the payment for and completion of the Major Work, which bond or guaranty shall be in form and substance satisfactory to the Beneficiary and shall be signed by a surety or sureties, or guarantor or guarantors, as the case may be, who are acceptable to the Beneficiary, and in an amount not less than the Architect's estimate of the entire cost of completing the Work, less the amount of insurance proceeds (or condemnation award), if any, then held by the Beneficiary for application toward the cost of the Work.


The Grantor shall not commence any of the Major Work until the Grantor shall have complied with the applicable requirements referred to in this Section, and after commencing the Major Work the Grantor shall perform the Major Work diligently and in good faith in accordance with the plans and specifications referred to in this Section 2.05, if applicable.


Section 2.06. Restoration; Advances. In the event that the Beneficiary, in its sole discretion, elects to apply insurance proceeds to the restoration of the Improvements, the insurance proceeds (or, in the case of condemnation or taking, the award therefor in the event that the Beneficiary, in its so ...