SERIES A CONVERTIBLE DEBENTURE
SERIES
A CONVERTIBLE DEBENTURE
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US
$________________
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Palm
Springs, California
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December
_, 2006
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U.S.
Dry
Cleaning Corporation, a Delaware corporation (the “Company”),
for
value received, hereby promises to pay to the order of ______________
(the
“Holder”),
the
sum of ____________________ Dollars ($_____________) plus interest thereon
in
lawful currency of the United States of America. Payment for all amounts due
hereunder shall be made by December 3, 2007 (the “Maturity
Date”).
1. No
Interest.
No
interest shall accrue on the principal balance of this Series A Convertible
Debenture (this "Note").
2. Late
Fee.
If the
principal amount of this Note is not paid in full or converted by Holder
pursuant to Section 5
below,
on or before the Maturity Date, then the Company shall pay to Holder, in
addition to the principal balance hereunder, five percent (5%) of the principal,
unpaid balance of this Note on the Maturity Date.
3. Security
Agreement as Security.
This
Note is secured by, among other things, a Security Agreement of even date
herewith (the “Security
Agreement”)
executed by each of Company and its subsidiaries, as debtor, in favor of an
agent of Holder, as secured party, which encumbers all of the assets of the
Company (the “Collateral”).
The
Company will cause each of its current operating subsidiaries (as defined below)
to execute the Security Agreements. The “Operating
Subsidiaries”
are
USDCC CVR Merger Sub, LLC, a California limited liability company, and Enivel,
Inc. Once this Note has been paid in full, all of the foregoing security
interests will be released with respect to the holder hereof.
4. Prepayment.
This
Note may be prepaid at any time without penalty upon delivering at least
forty-five (45) days advance written notice to ▇▇▇▇▇▇.
5. Conversion
into Common Stock.
5.1 Voluntary
Conversion.
At the
Holder’s option, any portion of this Note (including the principal and any
accrued interest) may be converted into fully-paid and nonassessable shares
of
Common Stock of the Company at the Conversion Price specified
below.
5.2 Conversion
Procedure.
At any
time prior to the Maturity Date, the Holder may notify the Company in writing
that it intends to convert the Note. Such notification shall be accompanied
by
the original of the Note. The Company shall, as soon as practicable, issue
and
deliver to the Holder of this Note a certificate in the name of the Holder
for
the number of shares of the Common Stock to which the Holder of this Note shall
be entitled. Such conversion shall be deemed to have been made as of the date
of
such surrender of the Notes, and the person or persons entitled to receive
the
Common Stock issuable upon such conversion shall be treated for all purposes
as
the record holder or holders of such Common Stock on such date.
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5.3 Mechanics
and Effect of Conversion.
No
fractional shares of capital stock shall be issued upon conversion of this
Note.
In lieu of the Company issuing any fractional shares to the Holder upon the
conversion of this Note, the Company shall pay to the Holder the amount of
outstanding principal and interest that is not so converted. Upon conversion
of
this Note, the Company shall be forever released from all its obligations and
liabilities under this Note, except that the Company shall be obligated to
pay
the Holder, within ten (10) days after the date of such conversion, any interest
accrued and unpaid or unconverted to and including the date of such conversion,
and no more.
5.4 Conversion
Price.
5.4.1 Definitions.
For
purposes of this Note, the following terms shall have the meanings set forth
below:
(1) "Common
Stock"
shall
mean the common stock of the Company.
(2) "Common
Stock Equivalents"
shall
mean Convertible Securities and rights entitling the holder thereof to receive,
directly or indirectly, additional shares of Common Stock without the payment
of
any consideration by such holder for such additional shares of Common Stock
or
Common Stock Equivalents.
(3) "Conversion
Price"
shall
mean the price, determined pursuant to this Section 5.4,
at
which shares of Common Stock shall be deliverable upon conversion of this
Note.
(4) "Convertible
Securities"
shall
mean any indebtedness or shares of stock convertible into or exchangeable for
Common Stock, including this Note.
(5) "Current
Conversion Price"
shall
mean the Conversion Price immediately before the occurrence of any event, which,
pursuant to this Section 5.4,
causes
an adjustment to the Conversion Price.
(6) "Options"
shall
mean any rights, warrants or options to subscribe for or purchase Common Stock
or Convertible Securities.
5.4.2 Initial
Conversion Price.
The
initial Conversion Price shall be $3.00 per share of Common Stock. The
Conversion Price shall be subject to adjustment from time to time in certain
instances as hereinafter provided.
5.4.3 Adjustments
to Conversion Price.
Subject
to 5.4.1(4)
below,
the Conversion Price in effect from time to time shall be subject to adjustment
in certain cases as follows:
(1) Stock
Splits; Dividends; Distributions and Combinations.
If the
Company at any time or from time to time after the date of this Note fixes
a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or Common Stock Equivalents, then, following such record date
(or
the date of such dividend, distribution, split or subdivision if no record
date
is fixed), the Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of this Note shall
be
increased in proportion to such increase in the number of outstanding shares
of
Common Stock (including for this purpose, Common Stock Equivalents). If the
number of shares of Common Stock outstanding at any time after the date of
this
Note is decreased by a combination of the outstanding shares of Common Stock,
then, following the record date of such combination, the Conversion Price shall
be appropriately increased so that the number of shares of Common Stock issuable
on conversion of this Note shall be decreased in proportion to such decrease
in
the number of outstanding shares of Common Stock.
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(2) Recapitalizations.
If at
any time or from time to time there shall be a recapitalization of the Common
Stock (other than a subdivision, combination or merger, sale of the voting
stock
of the Company or a sale of assets transaction provided for elsewhere in this
Section 5.4.3),
provision shall be made so that the holder of this Note shall thereafter be
entitled to receive upon conversion of this Note the number of shares of stock
or other securities or property of the Company or otherwise, to which a holder
of the number of shares of Common Stock of the Company which the Holder is
then
entitled to receive upon conversion of this Note would have been entitled to
on
such recapitalization. In any such case, appropriate adjustment shall be made
in
the application of the provisions of this Section 5.4.3
with
respect to the rights of the holder of this Note after the recapitalization
to
the end that the provisions of this Section 5.4.3
(including adjustment of the Conversion Price then in effect and the number
of
shares purchasable upon conversion of this Note) shall be applicable after
that
event in as nearly an equivalent manner as may be practicable.
(3) Successive
Changes.
The
provisions of this Section shall similarly apply to successive issuances, sales,
dividends or other distributions, subdivisions and combinations on or of the
Common Stock after the date of this Note.
(4) No
Impairment.
The
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5.4.3
and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holder of this Note against
impairment.
(5) Excluded
Events.
Notwithstanding any other provision in this Section 5.4.3
which is
inconsistent with or contrary to the terms of this paragraph (8), the Conversion
Price shall not be adjusted by virtue of (a) the issuance of securities in
connection with acquisition transactions, (b) the issuance of securities to
financial institutions, suppliers or lessors in connection with commercial
credit arrangements, equipment financings or similar transactions, or
(c) conversion of the Note.
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(6) Certificate
as to Adjustments.
Upon
the occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Section 5.4.3,
the
Company, at its expense and upon request by the holder of this Note, shall
compute such adjustment or readjustment in accordance with the terms hereof
and
prepare and furnish to the holder of this Note a certificate setting forth
such
adjustment or readjustment and showing in reasonable detail the facts upon
which
such adjustment or readjustment is based. The Company shall, upon the written
request at any time of the holder of this Note, furnish or cause to be furnished
to such holder a like certificate setting forth (a) such adjustment and
readjustment, (b) the Current Conversion Price, and (c) the number of shares
of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of this Note.
5.4.4 Business
Combination, Merger; Sale of Company.
After
the date of this Note, in the event of any proposed business combination,
consolidation or merger of the Company with or into another corporation (other
than a business combination, consolidation or merger in which the Company is
the
continuing corporation and which does not result in any reclassification of,
or
change in, the outstanding shares of Common Stock), in the event of any proposed
sale or transfer to another corporation of all or substantially all of the
assets of the Company, or in the event of any proposed sale of more than fifty
percent (50%) of the voting stock or equity securities of the Company, the
holder of this Note may, upon delivery of this Note and election pursuant to
Section 5.2.
above,
have this Note treated for all purposes as if it had been converted into Common
Stock on the earlier of (a) the record date, if any, for voting by holders
of
Common Stock on such event, and (b) the date of such event.
5.5 Reservation
of Stock Issuable Upon Conversion.
The
Company shall ensure that it has at all times available out of its authorized
but unissued shares of capital stock a sufficient number of shares of stock
so
that this Note can be converted into Common Stock, if the Holder elects to
do
so.
6. Assignment.
The
rights and obligations of the Company and the Holder of this Note shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Holder of this Note may transfer or assign
its
rights herein, but only in accordance with the Securities Act of 1933, as now
or
hereinafter amended, and any applicable state securities laws, and by delivering
to the Company an opinion of legal counsel, in form and substance reasonably
acceptable to the Company, stating that such transfer or assignment complies
with the Securities Act of 1933 and applicable state securities
laws.
7. Due
on
Sale/Encumbrance.
The
Security Agreement provides in part:
Without
the prior written consent of Secured Party, Debtor shall not
(a)
directly
or indirectly sell, transfer, convey, mortgage, pledge, or assign any interest
in the Collateral or any part thereof (including any ownership interest in
Debtor);
or
(b) further
encumber, alienate, ▇▇▇▇▇ ▇ ▇▇▇▇ or ▇▇▇▇▇ any other interest in the Collateral
or any part thereof, whether voluntarily or involuntarily.
“[T]ransfer”
shall
include the sale, transfer, conveyance, mortgage, pledge, or assignment of
a
legal or beneficial ownership interest in the Collateral. “Transfer” shall not
include the leasing or subleasing of any portion of the Collateral, or the
sale
of Collateral in the ordinary course of business.
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8. Waiver
and Amendment.
The
provisions of this Note may only be amended, waived or modified upon the written
consent of the Company and the Holder.
9. Notices.
Any
notice required or permitted to be given under this Note shall be in writing
and
either shall be mailed by certified mail, postage prepaid, return receipt
requested, or sent by overnight courier service, or personally delivered to
a
representative of the receiving party, or sent by telecopy. Notices shall
mailed, sent, delivered, addressed as follows or to such other address as a
party may designate by proper notice hereunder:
| If to the Holder: |
_______________________________
_______________________________
_______________________________
Attn.:
__________________________
Facsimile:
_______________________
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with
a copy to:
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_______________________________
_______________________________
_______________________________
Attn.:
__________________________
Facsimile: _______________________
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| If to the Company: | U.S. Dry Cleaning Corporation
▇▇▇
▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇. ▇▇▇
▇▇▇▇▇▇▇▇▇:
(▇▇▇) ▇▇▇-▇▇▇▇
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| With a copy to: | |||
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▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇:
▇▇▇-▇▇▇-▇▇▇▇
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Any
communication so addressed and mailed shall be deemed to be given on the
earliest of (a) when actually delivered, (b) on the first business day
after deposit with an overnight courier service, or (c) on the third business
day after deposit in the United States mail, postage prepaid, in each case
to
the address of the intended addressee, and any communication so delivered in
person shall be deemed to be given when receipted for by, or actually received
by, Holder or the Company, as the case may be. If given by telecopy, a notice
shall be deemed given and received when the telecopy is transmitted to the
party’s telecopy number and confirmation of complete receipt is received by the
transmitting party during normal business hours or on the next business day
if
not confirmed during normal business hours. Any party may designate a change
of
address by written notice to the other by giving at least ten (10) days prior
written notice of such change of address.
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10. No
Shareholder Rights.
Nothing
contained in this Note shall be construed as conferring upon the Holder or
any
other person the right to vote or to consent or to receive notice as a
shareholder in respect of meetings of shareholders for the election of directors
of the Company or any other matters or any rights whatsoever as a shareholder
of
the Company.
11. Governing
Law.
This
Note shall be governed by and construed in accordance with the laws of the
State
of California; provided, however, that if any California law or laws require
or
permit the laws of any other jurisdiction to be applied in any proceeding,
such
California law or laws shall be disregarded with the effect that the remaining
laws of the State of California shall nonetheless be applied.
12. Heading:
References.
All
headings used herein are used for convenience only and shall not be used to
construe or interpret this Note.
13. Compliance
with Usury Laws.
It is
the intention of the parties to conform to applicable laws, and all agreements
between the Company and Holder, whether now existing or hereafter arising,
are
hereby expressly limited so that in no event shall the amount paid or agreed
to
be paid to Holder, or collected by ▇▇▇▇▇▇, for the use, forbearance or detention
of the money lent hereunder or otherwise, exceed the maximum amount permissible
under applicable laws. If under any circumstances fulfillment of any provision
hereof or of the Security Agreement or any other security document, at the
time
performance of such provision shall be due, shall involve exceeding the limit
of
validity prescribed by law, then the obligation to be fulfilled shall be reduced
to the limit of such validity; and if the Holder shall ever receive an amount
deemed interest, by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable laws shall be
applied to the reduction of the principal amount owing hereunder or to other
indebtedness and not to the payment of interest, or if such excessive interest
exceeds the unpaid principal amount and other indebtedness, the excess shall
be
deemed to have been a payment made by mistake and shall be refunded to the
Company.
14. Severability.
In case
any provision of this Note shall be invalid, illegal, or unenforceable, it
shall, to the extent practicable, be modified so as to make it valid, legal
and
enforceable and to retain as nearly as practicable the intent of the parties;
and the validity, legality, and enforceability of the remaining provisions
shall
not in any way be affected or impaired thereby.
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IN
WITNESS WHEREOF, the Company has caused this Note to be issued on the date
first
written above.
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U.S.
Dry Cleaning Corporation,
a Delaware corporation |
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▇▇▇▇▇▇ ▇. ▇▇▇
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| Title: | ||
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