EXHIBIT 10.10
FORBEARANCE AGREEMENT
This Forbearance Agreement (this "Agreement") is made effective as of May
8, 2006 (the "Effective Date"), by and between Occidental Engineering
Consultants Limited, a Republic of Cyprus corporation ("Lender"), and WaterChef,
Inc., a Delaware corporation (the "Borrower").
RECITALS
A. Borrower delivered to Lender that certain Secured Promissory Note, dated
May 4, 2001, in the original principal amount of $400,000 (the "Note"),
evidencing Lender's loan to Borrower, which was secured by the certain Security
Agreement, dated May 4, 2001 (the "Security Agreement").
B. The Note and the Security Agreement and all other related agreements or
instruments evidencing or securing the foregoing are hereinafter sometimes
collectively referred to as the "Loan Documents."
C. Borrower is in default of its obligations to pay the outstanding
principal and interest balance of the Note, which was all due and payable on
November 4, 2001 (the "Default Date"). Lender has sent various default notices
and demands for payment since the Default Date, including a letter dated
September 29, 2005.
D. After delivering the September 29, 2005 letter, Lender agreed to forbear
on taking legal action for a short period ending on or about October 31, 2005
(which period has expired) in consideration for Borrower's issuance of 100,000
shares of its common stock as consideration therefore (and not in payment of
amounts due under the Note).
E. Lender has agreed to further forbear on exercising certain of its rights
and remedies under the Loan Documents pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the mutual duties and obligations
herein, and intending to be legally bound, the parties hereto agree as follows:
AGREEMENT:
1. Acknowledgments by Borrower. Borrower hereby acknowledges the following:
(a) The recitals set forth in paragraphs A through D above are true
and correct;
(b) That on and as of March 31, 2006, (i) Borrower is indebted to
Lender for the following amounts (collectively, the "Indebtedness"): (A)
principal under the Note in the amount of $400,000.00 ($5,000 recently paid by
Borrower was deducted from the principal balance is offset by the amount of
$5,000 incurred by Lender in connection with the matters relating to this
Agreement which upon execution hereof was added to principal), and (B) interest
under the Note in the amount of $470,533; (ii) all such amounts remain
outstanding and unpaid; and (iii) all such amounts are due and immediately
payable in full, without offset, deduction or counterclaim of any kind or
character whatsoever, but are subject to increase, decrease or other adjustment
as a result of any and all payments, accrued interest, fees and other charges
including, without limitation, attorneys' fees and costs of collection (accruing
after the date hereof), which are payable to Lender under the Loan Documents;
(c) That the Note and all other liabilities and obligations of
Borrower to Lender under the Loan Documents shall, except as expressly modified
hereby, remain in full force and effect, and shall not be released, impaired,
diminished or in any other way modified or amended as a result of the execution
and delivery of this Agreement or by the agreements and undertakings of the
parties contained herein.
2. Additional Payment. Concurrently herewith, Borrower has delivered to
Lender an additional 3,000,000 shares of its common stock (the "Shares"), which
shall be deemed to be fully paid and nonassesable, the value of which (as
determined below) shall be applied first to penalties (due under the
Registration Agreement defined below), then accrued interest and costs and then
to principal due under the Note. The Shares shall be registered with the
Securities Exchange Commission pursuant to that certain Registration Rights
Agreement, attached hereto as Exhibit A (the "Registration Agreement"). The
Shares shall be valued as follows: 3,000,000 x (0.80, multiplied by the average
of the twenty lowest closing bid prices for the Company's common stock, as
reported by Bloomberg, during the 60-trading days immediately following the
effective date the shares have been registered for resale pursuant to the
Registration Agreement). If the Registration Statement for the Shares (filed
pursuant to the Registration Rights Agreement) is not declared effective by July
1 , 2006, the Shares will be valued as follows: 3,000,000 x (0.70, multiplied by
the average of the twenty lowest closing bid prices, as reported by Bloomberg,
during the 60-trading days immediately following the effective date the shares
have been registered for resale pursuant to the Registration Agreement. If the
Registration Statement for the Shares (filed pursuant to the Registration Rights
Agreement) is not declared effective by September 1, 2006, the Shares will be
valued as follows: 3,000,000 x (0.50, multiplied by the average of the twenty
lowest closing bid prices, as reported by Bloomberg, during the 60-trading days
immediately following the earlier of date the shares have been registered for
resale pursuant to the Registration Agreement, or the one (1) year anniversary
of the date hereof.
3. Forbearance Period. At the request of Borrower, and subject to the terms
of this Agreement, Lender agrees to forbear from the exercise of its rights and
remedies, whether under the Loan Documents, at law or in equity, available to
Lender commencing on the Effective Date (the "Forbearance Period") and
terminating on the earlier to occur of (a) 5:00 PM New York time ninety (90)
calendar days from the Effective Date (the "Expiration Date"), or (b) a
termination by Lender in accordance with this Agreement. In no event, however,
shall the Forbearance Period continue past the Expiration Date.
4. Covenants, Representations and Warranties of Borrower. Borrower
represents and warrants to Lender that:
(a) All of its representations and warranties contained in the Loan
Documents are true and correct as of the date hereof, except as set forth on
Schedule 4(a) attached hereto.
(b) Borrower has full right, power and authority to execute, deliver
and perform its obligations under this Agreement and the Registration Agreement
without the necessity of obtaining any consents or approvals of, or the taking
of any other action with respect to, any third parties (or if such consents,
approvals or other actions are required, the same have been accomplished prior
to the date hereof);
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(c) This Agreement and the Registration Agreement constitute the
valid, binding and enforceable agreement of Borrower in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditor's or secured party's rights generally and except as enforceability
may be subject to general principles of equity, whether applied in a proceeding
at law or in equity;
(d) The transactions, or any part thereof, contemplated by this
Agreement and the Registration Agreement are not restrained or prohibited by any
injunction, stay, order or judgment rendered by any court or other governmental
agency, and, to the best of Borrower's knowledge no proceeding has been
instituted or is pending in which any creditor of Borrower, or any other person
or entity, seeks to restrain such transactions, or any part thereof, and no
threat has been made by any person or entity to seek any such restraint,
attachment, sequester or other remedy;
(e) To the best of Borrower's knowledge, there is no action, suit or
proceeding before any court, governmental authority or arbitrator pending or
threatened in writing against or affecting the Borrower that would, if adversely
determined, have a material adverse effect on the transactions described in this
Agreement;
(f) Borrower shall pay Lender's legal fees in the amount of $5,000 in
connection with the drafting and negotiation of this Agreement, which amount
shall be added to principal as of the date hereof; and
Borrower hereby agrees that the truthfulness of each of the foregoing
representations and warranties is a condition precedent to the performance by
Lender of its obligations hereunder.
5. Breach or Default.
(a) Borrower will be, and is, in default of this Agreement if for any
reason:
(i) Borrower breaches or fails to comply with this Agreement or
the Registration Agreement or if any representation made by Borrower
in this Agreement is inaccurate;
(ii) Borrower files bankruptcy or seeks approval of a plan of
reorganization prior to the expiration of the Forbearance Period or
during the Forbearance Period to which Lender has not consented in
writing;
(iii) Borrower undertakes any action inconsistent with this
Agreement or the Registration Agreement;
(iv) Borrower breaches any other covenant contained in the Loan
Documents other than the failure to make monthly payments as set forth
herein;
(v) On or before the 60th day after the effectiveness of the
registration of the Lender's securities issued pursuant to the Loan
Documents (or upon conversion or exercise thereof), Borrower registers
any additional shares under S-8 by filing a new registration statement
or modifying an existing one.
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(b) If any of the defaults identified in Section 5(a)(i) through
(a)(v) of this Agreement occur, Lender, at its sole option, may exercise its
rights and remedies under this Agreement, the Loan Documents and applicable law,
without providing any notice and opportunity to cure to Borrower. Lender may, at
its sole discretion, but is not required to, give notice of any such default.
6. Default Remedies. In the event of a default by Borrower under this
Agreement, Borrower agrees as follows:
(a) the Release (as defined in Section 8) and all acknowledgements,
agreements, waivers and representations of Borrower nonetheless remain in full
force and effect; and
(b) Lender shall be entitled to terminate this Agreement without
notice to Borrower and proceed with any and all remedies available to Lender
under the Loan Documents and this Agreement.
7. Usury Savings Clause. Notwithstanding anything to the contrary contained
elsewhere in this Agreement, Borrower and Lender hereby agree that all
agreements between them under this Agreement and with respect to the Note and
the Loan Documents, whether now existing or hereafter arising and whether
written or oral, are expressly limited so that in no contingency or event
whatsoever shall the amount paid, or agreed to be paid, to Lender for the use,
forbearance, or detention of the money loaned to Borrower, or for the
performance or payment of any covenant or obligation contained herein or
therein, exceed the maximum rate of interest under applicable law (the "Maximum
Rate"). If from any circumstance whatsoever, fulfillment of any provisions of
this Agreement at the time performance of such provisions shall be due shall
involve transcending the limit of validity prescribed by law, then,
automatically, the obligation to be fulfilled shall be reduced to the limit of
such validity, and if from any such circumstance Lender should ever receive
anything of value deemed interest by applicable law which would exceed the
Maximum Rate, such excessive interest shall be applied to the reduction of the
principal amount owing with respect to the Note or Loan Documents or on account
of the other indebtedness secured by the Loan Documents and not to the payment
of interest, or if such excessive interest exceeds the unpaid principal balance
of the Note and such other indebtedness, such excess shall be refunded to
Borrower. All sums paid or agreed to be paid to Lender for the use, forbearance,
or detention of the Note and other indebtedness of Borrower to Lender shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such indebtedness until payment in full so
that the actual rate of interest on account of all such indebtedness is uniform
throughout the actual term (as extended by amendments, forbearance agreements
and/or otherwise) of the Note or does not exceed the Maximum Rate throughout the
entire term of the Note. The terms and provisions of this paragraph 7 shall
control every other provision of this Agreement and all other agreements between
Borrower and Lender.
8. Release. As used in this Release, the following terms shall have the
meanings set forth below:
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"Claims" shall mean any and all claims, counterclaims, demands, actions,
causes of actions, suits, debts, costs, dues, sums of money, accounts, bonds,
bills, specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, executions, expenses and liabilities
whatsoever, known or unknown, at law or in equity, irrespective of whether such
claims arise out of contract, tort, violation of laws or regulations or
otherwise, which Borrower (hereafter the "Releasor") ever had, now has or
hereafter can, shall or may have against the Released Parties (as defined below)
or any of them for, upon, or by reason of any matter, cause or thing whatsoever
from the beginning of the world to and including the date of this Release
relating to the Loan Documents. Without limiting the generality of the
foregoing, the term "Claims" shall include, without limitation, any loss,
liability, expense and/or detriment, of any kind or character, in any way
arising out of, connected with, or resulting from the acts or omissions of the
Released Parties or any of them, including, without limitation, the contracting
for, charging, taking, reserving, collecting or receiving interest in excess of
the highest lawful rate, any breach of fiduciary duty, breach of any duty of
fair dealing, breach of confidence, cause of action or defenses based on the
negligence of Lender or Lender's predecessors in interest of any "lender
liability" theories, breach of funding commitment, undue influence, duress,
economic coercion, conflict of interest, negligence, bad faith, malpractice,
violations of the Racketeer Influenced and Corrupt Organizations Act,
intentional or negligent infliction of mental distress, tortious interference
with contractual relations, tortious interference with corporate governance or
prospective business advantage, breach of contract, fraud, mistake, deceptive
trade practices, libel, slander, conspiracy, or any claim for wrongfully taking
any action in connection with the Loan.
"Released Parties" shall mean Lender, any subsidiary or affiliate of Lender
and any successors, or assigns of any of the foregoing, and the respective
agents, trustees, beneficiaries, officers, directors, shareholders, attorneys,
employees, independent contractors, partners, members, manager and
representatives of any of the foregoing.
(a) Releasor hereby irrevocably and unconditionally REMISES, RELEASES,
ACQUITS, SATISFIES, WAIVES, and FOREVER DISCHARGES the Released Parties and
their respective heirs, personal representatives, successors and assigns from
all Claims.
(b) This Release is accepted by the Released Parties as a condition to
executing this Agreement and Releasor expressly agrees that this Release
survives the termination of this Agreement.
(c) Releasor hereby represents and warrants to the Released Parties
that it has not assigned, pledged, or contracted to assign or pledge or
otherwise disposed of any of the Claims.
(d) This Release shall be binding upon Releasor and its legal
representatives, successors and assigns and shall inure to the benefit of the
Released Parties and their successors and assigns.
(e) This Release includes a release of, and shall inure to the benefit
of, all the Released Parties and their respective heirs, legal representatives,
successors, assigns, directors, trustees, officers, agents, servants, employees
and attorneys, past, present and future.
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(f) TO THE EXTEND PERMITTED BY APPLICABLE LAW, RELEASOR DOES HEREBY
INTENTIONALLY, KNOWINGLY, VOLUNTARILY, UNCONDITIONALLY AND IRREVOCABLY WAIVE ITS
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS RELEASE (INCLUDING, WITHOUT LIMITATION,
ANY ACTION TO RESCIND OR CANCEL THIS RELEASE OR ANY CLAIMS OR DEFENSES ASSERTING
THAT THIS RELEASE WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE).
THE FOREGOING WAIVER BY BORROWER IS A MATERIAL INDUCEMENT FOR THE RELEASED
PARTIES TO ACCEPT THIS RELEASE AND ENTER INTO THE FORBEARANCE AGREEMENT.
(g) Releasor hereby agrees, represents and warrants that it has had
advice of counsel of its own choosing in negotiations for and the preparation of
this Release, that it has read the provisions of this Release, and that it is
fully aware of its contents and legal effect. Releasor hereby acknowledge that
it has not relied upon any representation of any kind made by the Released
Parties in making the foregoing release.
9. Notices. Any notice, demand, request, statement or consent made
hereunder shall be delivered hereunder shall be made in accordance with and
governed by the notice provision contained in the Note.
10. Modifications, Waivers, Etc. Lender and Borrower, each reserves the
right to waive any of the conditions precedent to its obligations hereunder. No
such waiver, and no modification, amendment, discharge, or change of the
Agreement, except as otherwise provided herein, shall be valid unless the same
is in writing and signed by the party against which the enforcement of such
modification, waiver, amendment, discharge, or change is sought. This Agreement
and the exhibits hereto contains the entire agreement between the parties
relating to the transaction contemplated hereby, and all prior or
contemporaneous agreements, understandings, representations, and statements,
oral or written, are merged herein. This Agreement shall be construed and
enforced in accordance with the laws of the United States of America and, in the
absence of controlling federal law, in accordance with the laws of the State of
New York. This Agreement shall inure to the benefit of and shall be binding upon
all successors and assigns of the parties hereto.
11. Further Assurances. All parties to this Agreement agree to execute any
additional documents as necessary to fulfill the intent of this Agreement.
12. Waiver of Statute of Limitations. Borrower hereby waives any applicable
statute of limitations under the Loan Documents and agrees to the tolling of any
applicable statute of limitations which may be running under the Loan Documents
during the term of this Agreement and for a period of ninety (90) days after the
term of this Agreement.
13. Judicial Interpretation. Should any provision of this Agreement require
judicial interpretation, it is agreed that a court interpreting or construing
the same shall not apply a presumption that the terms hereof shall be more
strictly construed against any party by reason of the rule of construction that
a document is to be construed more strictly against the party who itself or
through its agent prepared the same.
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14. Miscellaneous.
(a) Entire Agreement. This Agreement reflects the entire understanding
of the parties with respect to the subject matter herein, contained and
supersedes any prior agreements, whether written or oral, in regard thereto.
(b) Full Force and Effect. Except as expressly modified herein during
the Forbearance Period, all terms of the Loan Documents shall be and shall
remain in full force and effect and shall constitute the legal, valid, binding
and enforceable obligations of Borrower to Lender.
(c) No Waiver. This Agreement is not intended to operate as, and shall
not be construed as, a waiver of any event of default, whether known to Lender
or unknown, as to which all rights of Lender shall remain reserved.
(d) Governing Law. This Agreement shall be governed by, and shall be
construed in accordance with, the laws of the State of New York and all
applicable laws of the United States of America. The venue provision of the Note
shall govern the venue of any action brought to enforce this Agreement.
(e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which, taken
together, shall constitute but one and the same agreement among the parties.
(f) Binding Nature. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
(g) Captions. The captions to the Sections and paragraphs of the
Agreement are for the convenience of the parties only, and are not a part of
this Agreement.
(h) Time of the Essence. Time is of the essence under this Agreement.
(i) Free and Voluntary Act. Borrower acknowledges and agrees that it
is freely and voluntarily entering into this Agreement and each of the other
documents executed in connection herewith to which it is a party after full
consultation with legal, financial and other advisors of its choosing.
(j) Attorneys' Fees. If any party shall default in the performance of
any of the terms and conditions of this Agreement, the non-defaulting party
shall be entitled to recover all costs, changes, and expenses of enforcing this
Agreement including reasonable attorneys' fees, paralegals' fees, and costs,
which reasonable fees shall include any such fees incurred in any trial or
appellate proceedings.
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(k) Survival of Representations. Warranties and Covenants. All
representations, warranties, covenants and other agreements contained herein and
in all documents delivered hereunder shall survive any termination of this
Agreement or the expiration of the Forbearance Period and continue in full force
and effect.
(l) Accrued Interest. Notwithstanding anything to the contary herein,
the parties have heretofore disagreed as to whether the interest accruing on the
Note should be calculated by compounding the interest annually (which is the
Lender's position) or by calculating simple interest without any compounding
(which is the Borrower's position). In consideration for Borrower's agreement to
deliver and Register the Shares pursuant hereto and the Registration Agreement,
Lender has agreed (as a concession to Borrower) to the calculation of simple
interest (with no compounding) as set forth in Section 1(b) above, on the
condition that the Registration Statement for the Shares is declared effective
on or before November 1, 2006. If the Registration Statement is not declared
effective by said date, the parties' agreement as to the amount of accrued
interest shall be null and void and the Borrower hereby acknowledges that Lender
will thereafter be free to take the position that interest due on the Note shall
be calculated by compounding accrued interest.
(m) On the condition that Borrower is not in default of this Agreement
or the Registration Agreement, Lender agrees, that during the 60-trading day
period immediately after the Shares have been registered, to limit its aggregate
daily sales of the Shares to the greater of (i) 15% of the higher of the
previous day's trading volume or the current day's trading volume, or (ii)
125,000 shares.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LENDER: Occidental Engineering Consultants Limited, a
- ------- Republic of Cyprus corporation
By: /s/ Stathis Basios
--------------------------------
Name: Stathis Basios
Title: Authorized Represenative
BORROWER: WaterChef, Inc., a Delaware corporation
- --------
By: /s/ David A. Conway
--------------------------------
Name: David A. Conway
Title: President & CEO