THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO AMERICAN WATER STAR, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, AMERICAN WATER STAR, INC., a Nevada
corporation (the "Borrower"), hereby promises to pay to LAURUS
MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box
309 GT, ▇▇▇▇▇▇ House, South Church Street, ▇▇▇▇▇▇ Town, Grand
Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the "Holder") or its
registered assigns or successors in interest, on order, the sum
of One Million Two Hundred Eighty-Six Thousand Ninety-Eight
Dollars and Sixty-One Cents ($1,286,098.61), together with any
accrued and unpaid interest hereon, on October 26, 2007 (the
"Maturity Date") if not sooner paid.
Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in that certain Securities
Purchase Agreement dated as of October 26, 2004 between the
Borrower and the Holder (as amended, modified or supplemented
from time to time, the "Purchase Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & MATURITY DATE
1.1 (a) Interest Rate. Subject to Sections 4.12 and 5.6
hereof, interest payable on this Note shall accrue at a rate per
annum (the "Interest Rate") equal to the "prime rate" published
in The Wall Street Journal from time to time, plus three percent
(3.00%). The Interest Rate shall be increased or decreased as
the case may be for each increase or decrease in the prime rate
in an amount equal to such increase or decrease in the prime
rate; each change to be effective as of the day of the change in
such rate. Subject to Section 1.1(b) hereof, the Interest Rate
shall not be less than six percent (6.0%), nor more than nine
percent (9.00%). Interest shall be (i) calculated on the basis
of a 360 day year, and (ii) payable monthly, in arrears,
commencing on September 1, 2005 and on the first business day of
each consecutive calendar month thereafter until the Maturity
Date (and on the Maturity Date), whether by acceleration or
otherwise (each, a "Repayment Date"). The amount due and payable
on each Repayment Date shall be referred to herein as the
"Monthly Amount".
(b) Interest Rate Adjustment. The Interest Rate shall be
calculated on the last business day of each month hereafter until
the Maturity Date (each a "Determination Date") and shall be
subject to adjustment as set forth herein. If (i) the Borrower
shall have registered the shares of the Borrower's common stock
underlying each of the conversion of this Note and that certain
warrant issued to Holder on a registration statement declared
effective by the Securities and Exchange Commission (the "SEC"),
and (ii) the market price (the "Market Price") of the Common
Stock as reported by Bloomberg, L.P. on the Principal Market (as
defined below) for the five (5) trading days immediately
preceding a Determination Date exceeds the then applicable Fixed
Conversion Price by at least twenty five percent (25%), the
Interest Rate for the succeeding calendar month shall
automatically be reduced by 200 basis points (200 b.p.) (2.00%)
for each incremental twenty five percent (25%) increase in the
Market Price of the Common Stock above the then applicable Fixed
Conversion Price. Notwithstanding the foregoing (and anything to
the contrary contained in herein), in no event shall the Interest
Rate be less than zero percent (0%).
1.2 Maturity Date. The principal amount due under this Note
(the "Principal Amount"), all unpaid interest thereon and all
other sums due, accrued or payable to the Holder arising under
this Note, the Purchase Agreement or any Related Agreement shall
be due and payable on the Maturity Date. For purposes of this
Note, the term "Payment Amount" shall mean, collectively, the
Monthly Amount and the Principal Amount.
ARTICLE II
CONVERSION REPAYMENT
2.1 (a) Payment of Payment Amount in Cash or Common Stock. If
any Payment Amount (or a portion of any such Payment Amount if
such portion of any Payment Amount would have been converted into
shares of Common Stock but for Section 3.2) is required to be
paid in cash pursuant to Section 2.1(b), then the Borrower shall
pay the Holder an amount equal to 102% of the Payment Amount due
and owing to the Holder on the Repayment Date or Maturity Date,
as applicable, in cash. If any Payment Amount (or a portion of
any such Payment Amount if not all of any such Payment Amount may
be converted into shares of Common Stock pursuant to Section 3.2)
is required to be paid in shares of Common Stock pursuant to
Section 2.1(b), the number of such shares to be issued by the
Borrower to the Holder on such Repayment Date or Maturity Date,
as applicable (in respect of such portion of any such Payment
Amount converted into shares of Common Stock pursuant to Section
2.1(b)), shall be the number determined by dividing (x) the
portion of such Payment Amount converted into shares of Common
Stock, by (y) the then applicable Fixed Conversion Price. For
purposes hereof, the initial "Fixed Conversion Price" means
$0.57.
(b) Payment Amount Conversion Guidelines. Subject to Sections
2.1(a), 2.2, and 3.2 hereof, the Holder shall convert into shares
of Common Stock all or a portion of the Payment Amount due on
each Repayment Date or Maturity Date, as applicable, if the
following conditions are satisfied (the "Conversion Criteria"):
(i) the average closing price of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market for the five (5) trading
days immediately preceding such Repayment Date or Maturity Date,
as applicable, shall be greater than or equal to 110% of the
Fixed Conversion Price and (ii) the amount of such conversion
does not exceed twenty five percent (25%) of the aggregate dollar
trading volume of the Common Stock for the twenty two (22) day
trading period immediately preceding such Repayment Date or
Maturity Date, as applicable. If the Conversion Criteria are not
met, the Holder shall convert only such part of the applicable
Payment Amount that meets the Conversion Criteria. Any part of
any Payment Amount due on a Repayment Date or Maturity Date, as
applicable, that the Holder has not been able to convert into
shares of Common Stock due to failure to meet the Conversion
Criteria, shall be paid by the Borrower in cash at the rate of
102% of the Payment Amount otherwise due on such Repayment Date
or Maturity Date, as applicable, within three (3) business days
of the applicable Repayment Date or, as applicable, on the
Maturity Date.
2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, none of the Borrower's obligations to the
Holder may be converted into Common Stock unless (i) either
(x) an effective current Registration Statement (as defined in
the Registration Rights Agreement) covering the shares of Common
Stock to be issued in connection with satisfaction of such
obligations exists or (y) an exemption from registration of the
Common Stock is available to pursuant to Rule 144 of the
Securities Act and (ii) no Event of Default hereunder exists and
is continuing, unless such Event of Default is cured within any
applicable cure period or is otherwise waived in writing by the
Holder in whole or in part at the Holder's option.
2.3 Optional Redemption in Cash. The Borrower will have the
option of prepaying this Note ("Optional Redemption") by paying
to the Holder a sum of money equal to one hundred twenty five
percent (125%) of the principal amount of this Note, together
with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Holder arising under this
Note, the Purchase Agreement, or any Related Agreement (the
"Redemption Amount") outstanding on the Redemption Payment Date
(as defined below). The Borrower shall deliver to the Holder a
written notice of redemption specifying the date for such
Optional Redemption (the "Redemption Payment Date"), which date
shall be seven (7) business days after the date of the Notice of
Redemption (the "Redemption Period"). A Notice of Redemption
shall not be effective with respect to any portion of this Note
for which the Holder has a pending election to convert pursuant
to Section 3.1, or for conversions initiated or made by the
Holder pursuant to Section 3.1 during the Redemption Period. The
Redemption Amount shall be determined as if such ▇▇▇▇▇▇'s
conversion elections had been completed immediately prior to the
date of the Notice of Redemption. On the Redemption Payment Date,
the Redemption Amount must be paid in good funds to the Holder.
In the event the Borrower fails to pay the Redemption Amount on
the Redemption Payment Date as set forth herein, then such
Redemption Notice will be null and void.
ARTICLE III
CONVERSION RIGHTS
3.1 Holder's Conversion Rights. The Holder shall have the
right, but not the obligation, to convert all or any portion of
the then aggregate outstanding principal amount of this Note,
together with interest and fees due hereon, into shares of Common
Stock subject to the terms and conditions set forth in this
Article III. The Holder may exercise such right by delivery to
the Borrower of a written notice of conversion not less than one
(1) day prior to the date upon which such conversion shall occur.
The shares of Common Stock to be issued upon such conversion are
herein referred to as the "Conversion Shares."
3.2 Conversion Limitation. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to
convert pursuant to the terms of this Note an amount that would
be convertible into that number of Conversion Shares which would
exceed the difference between 4.99% of the outstanding shares of
Common Stock of the Borrower and the number of shares of Common
Stock beneficially owned by such Holder or issuable upon exercise
of warrants held by such Holder. For the purposes of the
immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act
and Regulation 13d-3 thereunder. The Holder may void the
Conversion Share limitation described in this Section 3.2 upon 75
days prior notice to the Borrower or without any notice
requirement upon an Event of Default.
Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to
the terms of this Note an amount that would be convertible into
that number of shares of Common Stock which, when added to the
number of shares of Common Stock otherwise beneficially owned by
such Holder including those issuable upon exercise of warrants
held by such Holder would exceed 4.99% of the outstanding shares
of Common Stock of the Borrower at the time of conversion. For
the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Exchange Act and Regulation 13d-3 thereunder. The conversion
limitation described in this Section 3.2 shall automatically
become null and void without any notice to Borrower upon the
occurrence and during the continuance beyond any applicable grace
period of an Event of Default, or upon 75 days prior notice to
the Borrower, except that at no time shall the beneficial
ownership exceed 19.99% of the Common Stock. Notwithstanding
anything contained herein to the contrary, the number of shares
of Common Stock issuable by the Borrower and acquirable by the
Holder at a price below $0.60 per share pursuant to the terms of
this Note, the Purchase Agreement or any Related Agreement, shall
not exceed an aggregate of 13,078,317 shares of the Borrower's
Common Stock (subject to appropriate adjustment for stock splits,
stock dividends, or other similar recapitalizations affecting the
Common Stock) (the "Maximum Common Stock Issuance"), unless the
issuance of shares hereunder in excess of the Maximum Common
Stock Issuance shall first be approved by the Borrower's
shareholders. If at any point in time and from time to time the
number of shares of Common Stock issued pursuant to the terms of
this Note, the Purchase Agreement or any Related Agreement,
together with the number of shares of Common Stock that would
then be issuable by the Borrower to the Holder in the event of a
conversion or exercise pursuant to the terms of this Note, the
Purchase Agreement or any Related Agreement, would exceed the
Maximum Common Stock Issuance but for this Section 3.2, the
Borrower shall promptly call a shareholders meeting to solicit
shareholder approval for the issuance of the shares of Common
Stock hereunder in excess of the Maximum Common Stock Issuance.
3.3 Mechanics of ▇▇▇▇▇▇'s Conversion. (a) In the event that
the Holder elects to convert this Note into Common Stock, the
Holder shall give notice of such election by delivering an
executed and completed notice of conversion ("Notice of
Conversion") to the Borrower and such Notice of Conversion shall
provide a breakdown in reasonable detail of the Principal Amount,
accrued interest and fees being converted. On each Conversion
Date (as hereinafter defined) and in accordance with its Notice
of Conversion, the Holder shall make the appropriate reduction to
the Principal Amount, accrued interest and fees as entered in its
records and shall provide written notice thereof to the Borrower
within two (2) business days after the Conversion Date. Each
date on which a Notice of Conversion is delivered or telecopied
to the Borrower in accordance with the provisions hereof shall be
deemed a Conversion Date (the "Conversion Date"). A form of
Notice of Conversion to be employed by the Holder is annexed
hereto as Exhibit A.
(b) Pursuant to the terms of the Notice of Conversion, the
Borrower will issue instructions to the transfer agent
accompanied by an opinion of counsel within one (1) business day
of the date of the delivery to Borrower of the Notice of
Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by
crediting the account of the Holder's designated broker with the
Depository Trust Corporation ("DTC") through its Deposit
Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of
Conversion (the "Delivery Date"). In the case of the exercise of
the conversion rights set forth herein the conversion privilege
shall be deemed to have been exercised and the Conversion Shares
issuable upon such conversion shall be deemed to have been issued
upon the date of receipt by the Borrower of the Notice of
Conversion. The Holder shall be treated for all purposes as the
record holder of such Common Stock, unless the Holder provides
the Borrower written instructions to the contrary.
3.4 Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that
portion of the principal and interest and fees to be converted,
if any, by the then applicable Fixed Conversion Price. In the
event of any conversions of outstanding principal amount under
this Note in part pursuant to this Article III, such conversions
shall be deemed to constitute conversions of outstanding
principal amount.
(b) The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion is subject to
adjustment from time to time upon the occurrence of certain
events, as follows:
A. Stock Splits, Combinations and Dividends. If the shares
of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Fixed Conversion
Price or the Conversion Price, as the case may be, shall be
proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such
event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
B. During the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common
Stock upon the full conversion of this Note. The Borrower
represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. The Borrower
agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
C. Share Issuances. Subject to the provisions of this
Section 3.4, if the Borrower shall at any time prior to the conversion or
repayment in full of the Principal Amount issue any shares of
Common Stock or securities convertible into Common Stock to a
person other than the Holder (except (i) pursuant to Subsections
A or B above; (ii) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof as
disclosed to Holder in writing; or (iii) pursuant to options that
may be issued under any employee incentive stock option and/or
any qualified stock option plan adopted by the Borrower) for a
consideration per share (the "Offer Price") less than the Fixed
Conversion Price in effect at the time of such issuance, then the
Fixed Conversion Price shall be immediately reset to such lower
Offer Price at the time of issuance of such securities. For
purposes hereof, the issuance of any security of the Borrower
convertible into or exercisable or exchangeable for Common Stock
shall result in an adjustment to the Fixed Conversion Price at
the time of issuance of such securities.
D. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into
the same or a different number of securities of any class or
classes, this Note, as to the unpaid Principal Amount and accrued
interest thereon, shall thereafter be deemed to evidence the
right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such
change with respect to the Common Stock immediately prior to such
reclassification or other change.
3.5 Issuance of New Note. Upon any partial conversion of this
Note, a new Note containing the same date and provisions of this
Note shall, at the request of the Holder, be issued by the
Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid. Subject to
the provisions of Article IV, the Borrower will pay no costs,
fees or any other consideration to the Holder for the production
and issuance of a new Note.
ARTICLE IV
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default
beyond any applicable grace period, the Holder may make all sums
of principal, interest and other fees then remaining unpaid
hereon and all other amounts payable hereunder immediately due
and payable. In the event of such an acceleration, the amount
due and owing to the Holder shall be one hundred thirty (130%) of
the outstanding principal amount of this Note (plus accrued and
unpaid interest and fees, if any) (the "Default Payment"). The
Default Payment shall be applied first to any fees due and
payable to Holder pursuant to this Note or the Related
Agreements, then to accrued and unpaid interest due on this Note
and then to outstanding principal balance of this Note.
The occurrence of any of the following events set forth in
Sections 4.1 through 4.11, inclusive, is an "Event of Default":
4.1 Failure to Pay Principal, Interest or other Fees. The
Borrower fails to pay when due any installment of principal,
interest or other fees hereon in accordance herewith, or the
Borrower fails to pay when due any amount due under any other
promissory note issued by Borrower, and in any such case, such
failure shall continue for a period of three (3) days following
the date upon which any such payment was due.
4.2 Breach of Covenant. The Borrower breaches any covenant or
any other term or condition of this Note, the Purchase Agreement
or any Related Agreement in any material respect, and, in any
such case, such breach, if subject to cure, continues for a
period of fifteen (15) days after the occurrence thereof.
4.3 Breach of Representations and Warranties. Any
representation or warranty made by the Borrower in this Note, the
Purchase Agreement or in any Related Agreement shall, in any such
case, be false or misleading in any material respect on the date
that such representation or warranty was made or deemed made.
4.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee
shall otherwise be appointed.
4.5 Judgments. Any money judgment, writ or similar final
process shall be entered or filed against the Borrower or any of
its property or other assets for more than $50,000, and shall
remain unvacated, unbonded or unstayed for a period of thirty
(30) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower.
4.7 Stop Trade. An SEC stop trade order or Principal Market
trading suspension of the Common Stock shall be in effect for
five (5) consecutive days or five (5) days during a period of ten
(10) consecutive days, excluding in all cases a suspension of all
trading on a Principal Market, provided that the Borrower shall
not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on
another Principal Market within sixty (60) days of such notice.
The "Principal Market" for the Common Stock shall include the
NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National
Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).
4.8 Failure to Deliver Common Stock or Replacement Note. The
Borrower shall fail (i) to timely deliver Common Stock to the
Holder pursuant to and in the form required by this Note, and
Section 9 of the Purchase Agreement, if such failure to timely
deliver Common Stock shall not be cured within two (2) business
days or (ii) to deliver a replacement Note to Holder within seven
(7) business days following the required date of such issuance
pursuant to this Note, the Purchase Agreement or any Related
Agreement (to the extent required under such agreements).
4.9 Default Under Related Agreements or Other Agreements. The
occurrence and continuance of any Event of Default (as defined in
the Purchase Agreement or any Related Agreement) or any event of
default (or similar term) under any other indebtedness.
4.10 Default Under the Original Note. The occurrence and
continuance of any Event of Default (as defined in the Original
Note (as hereafter defined)) under the $5,000,000 Secured
Convertible Term Note, dated as of October 26, 2004, issued by
the Borrower in favor of the Holder (the "Original Note").
4.11 Change in Control. The occurrence of a change in the
controlling ownership of the Borrower.
DEFAULT RELATED PROVISIONS
4.12 Default Interest Rate. Following the occurrence and during
the continuance of an Event of Default, the Borrower shall pay
additional interest on this Note in an amount equal to two
percent (2%) per month, and all outstanding obligations under
this Note, including unpaid interest, shall continue to accrue
such additional interest from the date of such Event of Default
until the date such Event of Default is cured or waived.
4.13 Conversion Privileges. The conversion privileges set forth
in Article III shall remain in full force and effect immediately
from the date hereof and until this Note is paid in full.
4.14 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder hereof in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any
other right, power or privilege. All rights and remedies
existing hereunder are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
5.2 Notices. Any notice herein required or permitted to be
given shall be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party notified, (b) when sent
by confirmed telex or facsimile if sent during normal business
hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day
after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of
receipt. All communications shall be sent to the Borrower at the
address provided in the Purchase Agreement executed in connection
herewith, with a copy to ▇▇▇▇▇▇▇▇▇▇ Law Group, ▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇,
and to the Holder at the address provided in the Purchase Agreement
for such Holder, with a copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ number (▇▇▇) ▇▇▇-▇▇▇▇,
or at such other address as the Borrower or the
Holder may designate by ten days advance written notice to the
other parties hereto. A Notice of Conversion shall be deemed
given when made to the Borrower pursuant to the Purchase
Agreement.
5.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented, and any
successor instrument issued pursuant to Section 3.5 hereof, as it
may be amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower
and its successors and assigns, and shall inure to the benefit of
the Holder and its successors and assigns, and may be assigned by
the Holder in accordance with the requirements of the Purchase
Agreement. This Note shall not be assigned by the Borrower
without the consent of the Holder.
5.5 Governing Law. This Note shall be governed by and construed
in accordance with the laws of the State of New York, without
regard to principles of conflicts of laws. Any action brought by
either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state
courts of New York or in the federal courts located in the state
of New York. Both parties and the individual signing this Note
on behalf of the Borrower (solely in his capacity as an officer
of the Borrower) agree to submit to the jurisdiction of such
courts. The prevailing party shall be entitled to recover from
the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note is invalid or unenforceable
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 such provision which may prove
invalid or unenforceable under any law shall not affect the
validity or unenforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action
against the Borrower in any other jurisdiction to collect on the
Borrower's obligations to Holder, to realize on any collateral or
any other security for such obligations, or to enforce a judgment
or other court in favor of the Holder.
5.6 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or
other charges in excess of the maximum permitted by applicable
New York law. In the event that the rate of interest required to
be paid or other charges hereunder exceed the maximum permitted
by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the Holder and
thus refunded to the Borrower.
5.7 Security Interest. The holder of this Note has been granted
a security interest in certain assets of the Borrower as more
fully described in a Master Security Agreement dated as of
October 26, 2004, as amended, and in certain assets of the
Borrower's subsidiaries as more fully described in a Master
Security Agreement dated as of the date hereof.
5.8 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Note and,
therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall
not be applied in the interpretation of this Note to favor any
party against the other.
5.9 Cost of Collection. If default is made in the payment of
this Note, the Borrower shall pay to Holder reasonable costs of
collection, including reasonable attorney's fees.
[Balance of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, the Borrower has caused this Note to be
signed in its name effective as of this 22nd day of July, 2005.
AMERICAN WATER STAR, INC.
By:________________________________
Name:______________________________
Title:_____________________________
WITNESS:
_______________________________
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of
the Note into Common Stock)
[Name and Address of Holder]
The undersigned hereby converts $_________ of the principal due
on [specify applicable Repayment Date] under the Secured
Convertible Term Note issued by AMERICAN WATER STAR, INC. dated
July __, 2005 by delivery of Shares of Common Stock of AMERICAN
WATER STAR, INC. on and subject to the conditions set forth in
Article III of such Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
By:_______________________________
Name:_____________________________
Title:_____________________________
_