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Forbearance Agreement

This is an actual contract by American Water Star.

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Sectors: Food, Beverages and Tobacco
Governing Law: New York, View New York State Laws
Effective Date: July 22, 2005
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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)
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