THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF
SECTIONS 1271, 1272 AND 1273 OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED. BEGINNING NO LATER THAN 10 DAYS AFTER THE
ISSUE DATE OF THIS NOTE, F. KIM COX, C/O U.S. DRY CLEANING
CORPORATION, 125 E. TAHQUITZ CANYON, SUITE 203, PALM SPRINGS, CA
92262, WILL MAKE AVAILABLE, UPON REQUEST OF THE HOLDER OF THIS
NOTE, THE ISSUE PRICE OF THIS NOTE PER PRINCIPAL AMOUNT OF $1,000
AT MATURITY; THE ISSUE DATE OF THIS NOTE; THE YIELD-TO-MATURITY OF
THIS NOTE PER ANNUM, COMPOUNDED SEMI-ANNUALLY; AND THE TOTAL AMOUNT
OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE AS OF THE ISSUE DATE PER
PRINCIPAL AMOUNT OF $1,000 AT MATURITY.
U.S. DRY CLEANING CORPORATION
10% SENIOR SECURED CONVERTIBLE NOTE
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Note No.: ___
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Original Principal Amount:
$______________________
|
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Issuance Date: ________, 2007
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Palm Springs, California
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This
Note (this “ Note ”) is one of a
duly authorized issue of Notes issued by U.S. DRY
CLEANING CORPORATION , a corporation duly organized
and existing under the laws of the State of Delaware (the
“ Company ”), designated as the
Company's 10% Senior Secured Convertible Notes in an aggregate
principal amount of up to Twenty Million U.S. Dollars (U.S.
$20,000,000) (the “ Notes”
). All principal and unpaid interest under this
Note shall become due and payable on ________, 2009 (the
“ Maturity Date ”).
For
Value Received, the Company hereby promises to pay to the
order of ________________, or its
registered assigns or successors-in-interest (
“Holder” ), the principal sum of
_________________________________ (U.S. $__________) together
with all accrued but unpaid interest thereon, if any, on the
Maturity Date, in accordance with the terms
hereof. Interest on the unpaid principal balance
hereof shall accrue at the rate of 10.0% per annum from the
issuance date specified above (the “Issuance
Date” ), until the same becomes due and payable
on the Maturity Date, or such earlier date upon acceleration
in accordance with the terms hereof or of the other
Transaction Documents (as defined below). Interest
on this Note shall accrue daily commencing on the Issuance
Date and shall be computed on the basis of a 360-day year,
30-day months and actual days elapsed and shall be payable in
accordance with Section 1 hereof. Unless otherwise
agreed or required by applicable law, payments will be applied
first to any unpaid collection costs, then to unpaid interest
and fees and any remaining amount to principal.
Except
as otherwise provided herein, all payments of principal and
interest on this Note shall be made in lawful money of the
United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to
time designate by written notice in accordance with the
provisions of this Note. This Note may be prepaid
in whole or in part at any time without
penalty. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a
Business Day (as defined below), the same shall instead be due
on the next succeeding day which is a Business
Day.
Capitalized
terms used herein and not otherwise defined shall have the
meanings set forth in the Subscription Agreement dated on or
about the Issuance Date pursuant to which the Note was
originally issued (the “Subscription
Agreement” ). For purposes hereof
the following terms shall have the meanings ascribed to them
below:
“Affiliate” shall mean, with respect
to any specified Person, any other Person who, directly, or
indirectly through one or more intermediaries, is in control of, is
controlled by, or is under common control with, such specified
Person. For purposes of this definition: (a) "control" (including
its correlative meanings, the terms "controlling," "controlled by"
and "under common control with") means the possession directly or
indirectly of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership
of voting securities or other equity interest, or by contract or
otherwise; and (b) “Person” means any individual,
corporation, partnership, trust, limited liability company,
association or other entity.
“ Business Day
” shall mean any day other than a Saturday, Sunday
or a day on which commercial banks in the City of New York are
authorized or required by law or executive order to remain
closed.
“Common Stock” shall mean the shares
of common stock, par value $.001 per share, of the
Company.
“ Conversion Price
” shall be $2.50 (U.S.) per share, as adjusted as
set forth herein.
“ Convertible Securities
” means any convertible securities, warrants, stock
options or other rights to subscribe for or to purchase or exchange
for, shares of Common Stock.
“ Debt ” shall
mean indebtedness of any kind including without limitation
(a) all obligations for borrowed money; (b) any direct or
contingent obligations arising under letters of credit (including
standby and commercial), banker’s acceptances, bank
guaranties, surety bonds and similar instruments; (c) all
obligations to pay the deferred purchase price of property or
services, and indebtedness secured by a lien on property owned or
being purchased (including indebtedness arising under conditional
sales or other title retention agreements), whether or not such
indebtedness shall have been assumed by the Company or is limited
in recourse; and (d) all guarantees in respect of the
foregoing, including without limitation any assurance,
agreement, letter of responsibility, letter of awareness,
undertaking or arrangement with respect to the payment or
performance of any of the foregoing, whether direct, indirect or
contingent.
“
Exchange Act ” shall mean the
Securities Exchange Act of 1934, as amended.
“Guarantees” shall mean,
collectively, the Guarantees provided by each of the operating
subsidiaries of the Company on the signature page
thereof.
“
Principal Amount ” shall refer
to any unpaid principal amounts outstanding under this
Note.
“ Principal Market
” shall mean the principal market, exchange or
quotation service on which the Common Stock is then listed for
trading or quoted.
“
Registration Statement ” shall
have the meaning set forth in the Subscription
Agreement.
“
Securities Act ” shall mean
the Securities Act of 1933, as amended.
“ Trading Day” shall
mean a day on which there is trading on the Principal
Market.
“Transaction Documents” shall mean,
collectively, this Note, the Subscription Agreement, the Security
Agreement (as defined below), the Guarantees, and all other
documents, certificates, resolutions and agreements to be entered
into, executed and/or delivered in connection with the loan
evidenced by this Note.
“
Underlying Shares
” means the shares of Common Stock into which
this Note is convertible in accordance with the terms
hereof.
The
following terms and conditions shall apply to this
Note:
Section
1.
Payments of Principal and Interest .
(a)
Interest Payments . The Company shall pay
all accrued but unpaid interest on the Principal Amount of
this Note (the “ Quarterly Amount
”), on the first business day of each consecutive
calendar quarter (each an “ Interest Payment
Date ”) beginning on __________,
2008. The Quarterly Amount shall be paid in
cash.
(b)
Payment of Principal . Subject to the
provisions hereof, the Principal Amount of this Note and all
remaining accrued and unpaid interest shall be due and payable
on the Maturity Date. Payment of the Principal
Amount shall be effected in cash.
(c)
Taxes . The Company may withhold and pay
over to the relevant authorities any appropriate tax or other
legally required withholdings from any interest payment to be
made to the Holder to the extent that such withholding is
required by the Internal Revenue Code or any other applicable
law, rule, or regulation.
(d)
Security . This Note is secured by a
security interest in certain assets of the Company pursuant to
that certain Security Agreement, dated of even date herewith,
among the Company, the Holder, and the other
“Subscribers” under the Subscription Agreement
(the “ Security Agreement” ). The
obligations of the Company under this Note are guaranteed by
the Guarantees provided by each operating subsidiary of the
Company.
Section 2.
Seniority . The obligations of
the Company hereunder shall rank senior to all other Debt of the
Company and its subsidiaries, whether now or hereinafter existing,
except for a credit facility with a bank or other financial
institution whose lending activities are regulated by law, in an
amount of not more than $5,000,000 entered into after the date
hereof secured solely by accounts receivable and inventory, and
equipment (capital) leases, and the proceeds thereof.
Section
3.
Defaults and Remedies .
(a)
Events of Default . An
“ Event of Default ”
is: (i) a default in payment of the Principal
Amount, when due, or failure to pay any accrued but unpaid
interest thereon of the Note within five (5) days after the
date such interest payment is due; (ii) a default in the
timely issuance of the Underlying Shares upon and in
accordance with the terms hereof (where for purposes of this
Note, the term timely shall mean within ten (10) days
following the conversion date); (iii) failure by the Company
for thirty (30) days after written notice has been received by
the Company to comply with any other material provision of
this Note, the Subscription Agreement or the Transaction
Documents; (iv) a material breach by the Company of its
representations or warranties in the Subscription Agreement
or Transaction Documents that remains uncured for
thirty (30) days after notice to the Company; (v)
any event or condition shall occur which (x) results in the
acceleration of the maturity of any material Debt (other than
this Note) of the Company or any of its subsidiaries, or (y)
enables (or, with the giving of notice or lapse of time or
both, would enable) the holder of such material Debt or any or
person acting on behalf of such holder’s behalf to
accelerate the maturity thereof; or (vi) if the Company or any
of its subsidiaries is subject to any Bankruptcy
Event. “ Bankruptcy Event
” means any of the following events: (a) the Company or
any subsidiary commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or any
subsidiary thereof; (b) there is commenced against the Company
or any subsidiary any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company
or any subsidiary is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any subsidiary
suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or
stayed within 60 days; (e) the Company or any subsidiary makes
a general assignment for the benefit of creditors; (f) any
material writ of attachment shall be levied against any
property or other assets of the Company or any subsidiary; (g)
the Company or any subsidiary, by any act or failure to act,
indicates its consent to, approval of or acquiescence in any
of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing; (h) the Company
or any subsidiary is unable, or admits in writing its
inability, to pay its debts generally as they mature; or (i)
the Company ceases to carry on all or substantially all of its
business or operations for a period in excess of 15
consecutive days (other than due to force
majeure).
(b)
Remedies . If an Event of Default occurs and
is continuing with respect to this Note, all outstanding
principal and accrued but unpaid interest payable by the
Company hereunder, together with all fees, costs and expenses
(including without limitation reasonable attorneys’ fees
and expenses) as may be incurred by the Holder in collecting
any sums due on this Note or otherwise enforcing any of its
rights, shall, upon written notice to the Company (except in
the case of a Bankruptcy Event, which shall be without
notice), become immediately due and payable. In
addition to the foregoing remedies, upon the occurrence and
during the continuance of any Event of Default, Holder may
exercise any other right, power or remedy granted to it by
this Note, the Transaction Documents or otherwise permitted to
it by law, either by suit in equity or by action at law, or
both, it being expressly understood that no such remedy is
intended to be exclusive of any other remedy or remedies; but
each and every remedy shall be cumulative and shall be in
addition to every other remedy given herein or now or
hereafter existing at law or in equity or by statute, and may
be exercised from time to time as often as may be deemed
expedient by the Holder, nor shall the giving, taking or
enforcement of any other or additional security, collateral or
guaranty for the payment of the indebtedness under this Note
operate to prejudice, waive or affect the security of this
Note or any rights, powers or remedies hereunder, nor shall
the Holder be required to first look to, enforce or exhaust
such other or additional security, collateral or guaranties.
All covenants, conditions, provisions, warranties,
guaranties, indemnities and other undertakings of the Company
contained in this Note, or in any document referred to herein
or in any agreement supplementary hereto or in any other
Transaction Documents, shall be deemed cumulative to and not
in derogation or substitution of any of the terms, covenants,
conditions, or agreements of the Company contained
herein.
Section 4.
Covenants; Representations and Warranties
.
(a)
Covenants . The Company hereby covenants and
agrees that, for so long as any Notes remain outstanding,
unless the Required Holders (as defined in Section 6(e)(i)
below) shall otherwise consent in writing, the Company shall
not, and shall not permit any subsidiary to, directly or
indirectly after the date hereof (a) create, assume, or
otherwise become or remain obligated in respect of, or permit
or suffer to exist or to be created, assumed or incurred or to
be outstanding any Debt, other than as permitted in Section 2
of this Note; (b) assign, transfer, create any encumbrance,
mortgage pledge, lien or charge upon, or otherwise dispose of,
any Collateral (as defined in the Security Agreement) or any
other assets, except in the ordinary course of business or to
create Permitted Liens (as defined in the Security Agreement)
and except that the Company may sell assets if within 180 days
after completing any such sale substantially all of the
proceeds thereof are used to purchase additional assets for
use in the Company’s business; (c) declare or pay any
dividends, or make any distribution of cash or property, or
both, to any person or entity in respect of any of the shares
of the capital stock or other equity securities of the
Company, or redeem, purchase or otherwise acquire for
consideration any securities or shares of the capital stock or
other equity securities of the Company; (d) enter into any
contract, agreement or transaction with any Affiliate of the
Company except in the ordinary course of business consistent
with past practice; (e) merge with or consolidate into any
other corporation or other entity, or sell, lease or other
transfer all or substantially all of its business, properties
or assets to any other corporation or other entity, unless in
each such case the successor corporation or entity executes an
agreement, in form and substance reasonably acceptable to the
Holders, pursuant to which such successor shall assume all of
the Company’s obligations under this Note; or (f) make
any material change in the character of its
business.
(b)
Representations and Warranties . The Company
represents and warrants to Holder that:
(i) The
Company is a corporation duly organized, validly existing and
in good standing under the laws of Delaware; has all
requisite corporate power and authority to own or lease and
operate its properties and to carry
