U.S. Dry Cleaning Services Corp - FORM 8-K - EX-10 - EXHIBIT 10.1 - September 29, 2011

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8-K - U.S. Dry Cleaning Services Corps9281108k.htm
EX-10 - EXHIBIT 10.3 - U.S. Dry Cleaning Services Corpex10_3.htm
EX-10 - EXHIBIT 10.2 - U.S. Dry Cleaning Services Corpex10_2.htm
EX-10 - EXHIBIT 10.4 - U.S. Dry Cleaning Services Corpex10_5.htm
EX-10 - EXHIBIT 10.4 - U.S. Dry Cleaning Services Corpex10_4.htm
EX-99.1 - EXHIBIT 99.1 - U.S. Dry Cleaning Services Corpex99_1.htm
Exhibit 10.1
 
EXECUTION COPY
 
 
SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made by and among U.S. Dry Cleaning Services Corporation, a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”) effective as of the date this Agreement is executed by the Company.
 
Subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
 
NOW, THEREFORE, in consideration of the agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
 
ARTICLE I
DEFINITIONS
 
1.1           Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
 
“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.
 
“Action” shall have the meaning ascribed to such term in Section 3.1(j).
 
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
 
“Available Undersubscription Amount” shall have the meaning ascribed to such term in Section 4.15(b).
 
“Bankruptcy Court” means the United States Bankruptcy Court for the Central District of California, Santa Ana Division.
 
“Bankruptcy Plan” means the Company’s Joint and Consolidated Chapter 11 Plan of Reorganization (as may be amended or modified, the “Plan”) filed in their Chapter 11 bankruptcy cases, which are jointly administered under case number 8:10-bk-12735-RK.
 
“Base Conversion Price” shall have the meaning ascribed to such term in Section 4.3.
 
“Basic Amount” shall have the meaning ascribed to such term in Section 4.15(a).
 
 
 
 
 
“Board of Directors” means the board of directors of the Company.
 
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.
 
“Closings” means each of the First Closing and the Subsequent Closings.
 
“Commission” means the United States Securities and Exchange Commission.
 
“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
 
“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
 
“Consulting Expense Amount” shall have the meaning ascribed to such term in Section 4.19(b).
 
“Conversion Price” shall have the meaning ascribed to such term in the Debentures.
 
“Conversion Shares” means shares of Common Stock issued and issuable upon conversion of the Principal Amount of the Debentures.
 
“Counsel Expense Amount” shall have the meaning ascribed to such term in Section 4.19(a).
 
“Debentures” means, collectively, the 10% Senior Secured Original Issue Discount Convertible Debentures Due September 23, 2013, issued by the Company to the Purchasers hereunder with an aggregate Principal Amount not to exceed $8,800,000, in the form of Exhibit A attached hereto.
 
“Dilutive Issuance” shall have the meaning ascribed to such term in Section 4.3.
 
“Disclosure Materials” shall have the meaning ascribed to such term in Section 3.2(f).
 
“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.
 
“Disclosure Statement” shall mean the Company’s First Amended Disclosure Statement Dated April 22, 2011, as Modified (as may be further amended or modified) [Docket No. 627 in bankruptcy case number 8:10-bk-12735-RK].
 
 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
 
 
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“Exempt Issuance” means the issuance of (a) shares of Common Stock or Common Stock Equivalents to employees, consultants, officers or directors of the Company approved by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) shares of Common Stock or Common Stock Equivalents upon the exercise or exchange of or conversion of any Securities issued hereunder or the Junior Secured Subordinated Convertible Debentures and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities, (c) shares of Common Stock or Common Stock Equivalents issued in or in connection with the Subsequent Public Offering and (d) shares of Common Stock or Common Stock Equivalents issued in connection with the acquisition of another corporation by the Company by merger, purchase of substantially all the assets or other reorganization, provided that such issuances are approved by the Board of Directors.
 
“First Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1(a).
 
“First Closing Date” means the date when the Segregated Accounts hold Subscription Amounts equal to the Minimum Investment Amount (i.e., $4,950,000).
 
“GAAP” means generally accepted accounting principles in the United States.
 
“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(x).
 
“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).
 
“Interest Shares” means shares of Common Stock issued and issuable upon conversion of the Debentures in satisfaction of accrued and unpaid interest thereon.
 
“Junior Secured Subordinated Convertible Debentures” shall mean approximately $9.1 million in principal amount of Junior Secured Subordinated Convertible Debentures to be issued by the Company in connection with the Bankruptcy Plan.
 
“Lead Investor” means Setal 7, LLC, a California limited liability company.
 
“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).
 
“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
 
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
 
“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).
 
 
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“Maximum Rate” shall have the meaning ascribed to such term in Section 5.19.
 
“Minimum Investment Amount” means Debentures with an aggregate Principal Amount of $4,950,000, which provide aggregate gross proceeds to the Company of $4,500,000.
 
“MORs” shall have the meaning ascribed to such term in Section 3.1(h).
 
“Notice of Acceptance” shall have the meaning ascribed to such term in Section 4.15(b).
 
“Offer” shall have the meaning ascribed to such term in Section 4.15(a).
 
“Offer Notice” shall have the meaning ascribed to such term in Section 4.15(a).
 
“Offer Period” shall have the meaning ascribed to such term in Section 4.15(b).
 
“Offered Securities” shall have the meaning ascribed to such term in Section 4.15(a).
 
“Permitted Liens” shall have the meaning ascribed to such term in Section 1 of the Debenture.
 
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
 
“Plan Effective Date” means the effective date of the Bankruptcy Plan determined in accordance therein.
 
“Principal Amount” means, as to each Purchaser, the amount set forth on such Purchaser’s signature page attached hereto, in United States Dollars, which shall equal such Purchaser’s Subscription Amount multiplied by 1.10.
 
“Professional Notes” means the Company’s 10% Senior Secured Promissory Notes due September 23, 2013 issued to certain professionals and advisors to the Company and certain employees of the Company as partial payment for services rendered to the Company in the aggregate principal amount equal to $1,430,000, which 10% Senior Secured Promissory Notes due September 23, 2013 shall be pari passu with the Debentures with respect to right of payment and shall be secured by the assets of the Company under the terms of the Security Agreement.
 
“Public Offering Price” shall have the meaning ascribed to such term in Section 4.14.
 
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
 
“Refused Securities” shall have the meaning ascribed to such term in Section 4.15(c).
 
“Registration Rights Agreement” means that certain Registration Rights Agreement between the Company and each Purchaser in the form of Exhibit B attached hereto.
 
 
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“Registration Statement” means a registration statement filed, registering the resale, by the Purchasers, of all of the Conversion Shares, Warrant Shares and Interest Shares.
 
“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
 
“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures.
 
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
 
“Securities” means the Debentures, the Warrants, the Warrant Shares, the Conversion Shares and the Interest Shares.
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
 
“Security Agreement” means the Security Agreement among the Company, the Purchasers and the holders of the Professional Notes, in the form of Exhibit C attached hereto.
 
“Security Documents” shall mean the Security Agreement and any other documents and filing required thereunder in order to grant the Purchasers a first priority security interest in the assets of the Company as provided in the Security Agreement, including all UCC-1 filing receipts.
 
“Segregated Accounts” means non-interest bearing accounts established for the benefit of the Company into which Subscription Amounts are deposited and held until Closing.
 
“Senior Indebtedness” shall have the meaning ascribed to such term in Section 1 of the Debentures.
 
“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for the Units purchased at the First Closing or any Subsequent Closing, as the case may be, and as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.
 
“Subsequent Closings” means one or more closings, after the First Closing Date, of the purchase and sale of the Securities.
 
“Subsequent Closing Dates” means each Business Day mutually agreed upon by the Company and a Purchaser after the First Closing Date and no later than the Termination Date and after which the Segregated Accounts hold Subscription Amounts for any amount of Units, all of the Transaction Documents have been executed and delivered by the applicable parties thereto pursuant to Section 2.2(a) and Section 2.2(b), and all conditions precedent to (i) the Purchasers’ obligation to pay the Subscription Amount as of the Subsequent Closing and (ii) the Company’s obligations to deliver the Securities as of the Subsequent Closing, in each case, have been satisfied or waived.
 
 
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“Subsequent Placement” means the issuance, offer, sale, grant, disposition or announcement by the Company, directly or indirectly, of any option or right to purchase, or otherwise dispose of any equity security or any equity-linked or related security (including, without limitation, any “equity security” (as that term is defined under Rule 405 promulgated under the Securities Act), any convertible securities, any debt, any preferred stock or any purchase rights), other than Exempt Issuances.
 
“Subsequent Placement Agreement” shall have the meaning ascribed to such term in Section 4.15(c).
 
“Subsequent Placement Documents” shall have the meaning ascribed to such term in Section 4.15(g).
 
“Subsequent Public Offering” shall have the meaning set forth in the Bankruptcy Plan.
 
“Termination Date” means later of (i) the 90th day following the Plan Effective Date or (ii) the day immediately prior to the date on which the Registration Statement is filed with the Commission.
 
“Trading Day” means a day on which the principal Trading Market is open for trading.
 
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE AMEX, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).
 
“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Security Agreement, the Registration Rights Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
 
“Transfer Agent” means the transfer agent of the Company.
 
“Undersubscription Amount” shall have the meaning ascribed to such term in Section 4.15(a).
 
“Unit” means a security consisting of (i) a Debenture and (ii) the right to receive a Warrant to acquire the number of shares of Common Stock set forth in Section 4.14.
 
“Underlying Shares” means the Warrant Shares, the Conversion Shares and the Interest Shares.
 
“Warrants” means, collectively, the Common Stock purchase warrants, to delivered to the Purchasers in accordance with Section 4.14 which shall be exercisable upon the earlier of (i) closing of the Subsequent Public Offering or (ii) nine (9) months after the Plan Effective Date, and have a term of exercise equal to five (5) years, in the form of Exhibit D attached hereto.
 
 
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“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.
 
ARTICLE II
PURCHASE AND SALE
 
2.1           Closings.
 
(a)           On the First Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell and issue, and each Purchaser who has executed and delivered to the Company the signature page to this Agreement prior to the First Closing Date agrees to subscribe for and purchase, a Debenture with a Principal Amount set forth in such Purchaser’s signature page to this Agreement.  On or prior to the First Closing Date, each Purchaser shall deliver to a Segregated Account, via wire transfer or a certified check of immediately available funds, an amount equal to such Purchaser’s Subscription Amount as set forth on such Purchaser’s signature page to this Agreement, and the Company shall deliver to each such Purchaser its respective Debenture, as determined pursuant to Section 2.2(a)(iii), and the Company and each such Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the First Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the First Closing shall occur at the offices of the Company or such other location as the parties shall mutually agree. The Company shall return all Subscription Amounts in the Segregated Accounts to the appropriate Purchasers, without interest, if the First Closing does not occur with respect to such Purchasers’ subscriptions.
 
(b)           Subsequent Closings.  On each Subsequent Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and each Purchaser who has executed and delivered to the Company the signature page to this Agreement prior to the Subsequent Closing Date agrees to subscribe for and purchase, a Debenture with a Principal Amount set forth in such Purchaser’s signature page to this Agreement.  On or prior to a Subsequent Closing Date, each Purchaser shall deliver to a Segregated Account, via wire transfer or a certified check of immediately available funds, an amount equal to such Purchaser’s Subscription Amount as set forth on such Purchaser’s signature page to this Agreement, and the Company shall deliver to each such Purchaser its respective Debenture, as determined pursuant to Section 2.2(a)(iii), and the Company and each such Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Sebsequent Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Subsequent Closing shall occur at the offices of the Company or such other location as the parties shall mutually agree. The Company shall return all Subscription Amounts in the Segregated Accounts to the appropriate Purchasers, without interest, if the Subsequent Closing does not occur with respect to such Purchasers’ subscriptions..

 
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2.2           Deliveries.
 
(a)           On or prior to each Closing, the Company shall deliver or cause to be delivered to each Purchaser the following:
 
(i)           this Agreement, duly executed by the Company;
 
(ii)           a Debenture with a Principal Amount set forth in such Purchaser’s signature page hereto, registered in the name of such Purchaser;
 
(iii)           the Security Agreement, duly executed by the Company;
 
(iv)           an Intellectual Property Security Agreement in the form attached to the Security Agreement; and
 
(v)           the Registration Rights Agreement, duly executed by the Company.
 
(b)           On or prior to each Closing, each Purchaser shall deliver or cause to be delivered to the Company the following:
 
(i)           this Agreement duly executed by such Purchaser;
 
(ii)           such Purchaser’s Subscription Amount;
 
(iii)           the Security Agreement duly executed by such Purchaser; and
 
(iv)           the Registration Rights Agreement duly executed by such Purchaser.
 
2.3           Closing Conditions.
 
(a)           The obligations of the Company hereunder in connection with each Closing (unless otherwise provided below) are subject to the following conditions being met:
 
(i)           the accuracy in all material respects on the applicable Closing of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein);
 
(ii)           all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the applicable Closing shall have been performed;
 
(iii)           the delivery by each Purchaser of the items set forth in Section 2.2(b), as applicable;
 
(iv)           with respect to the First Closing, the Minimum Investment Amount shall have been deposited in the Segregated Accounts; and
 
 
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(v)           an order confirming the Bankruptcy Plan shall have been entered by the Bankruptcy Court.
 
(b)           The respective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions being met:
 
(i)           the accuracy in all material respects when made and on the applicable Closing of the representations and warranties of the Company contained herein (unless as of a specific date therein);
 
(ii)           all obligations, covenants and agreements of the Company required to be performed at or prior to the applicable Closing shall have been performed;
 
(iii)           the delivery by the Company of the items set forth in Section 2.2(a), as applicable;
 
(iv)           there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
 
(v)           the Bankruptcy Plan shall have been confirmed by the Bankruptcy Court.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
3.1           Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser as of the applicable Closing:
 
(a)           Subsidiaries.  Except as set forth in Section 3.1(a) of the Disclosure Schedule, the Company has no direct or indirect subsidiaries.
 
(b)           Organization and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation nor default of any of the provisions of its respective articles of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to conduct business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
 
 
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(c)           Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals.  Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
 
(d)           No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not: (i) conflict with or violate any of the provisions of the Company’s certificate of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
 
(e)           Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the Bankruptcy Plan; (ii) the filings required by the Registration Rights Agreement, and (iii) the filing of a Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).
 
 
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(f)            Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock issuable pursuant to this Agreement and for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.
 
(g)           Capitalization. The capitalization of the Company is as of the Plan Effective Date set forth in Section 3.1(g) of the Disclosure Schedule. Other than each of the Purchasers, no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities and except as set forth in the Bankruptcy Plan, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and non-assessable, have been issued in compliance with all federal and state securities laws (subject to the filing of a Form D with the Commission and such other filings as are required to be made under applicable state securities laws), and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
 
(h)           SEC Reports; Financial Statements. The Company has not filed any reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or Section 15(d) thereof, since its Quarterly Report on Form 10-Q filed with the Commission on August 14, 2008.  The Company has filed all monthly operating reports (“MORs”) with the Bankruptcy Court covering periods ended March 31, 2010 through July 31, 2011.
 
 
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(i)            Material Changes; Undisclosed Events, Liabilities or Developments.  Since the Plan Effective Date: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s MORs, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans.
 
(j)            Litigation.  Except as set forth in Section 3.1(j) of the Disclosure Schedule, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or its properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) other than as disclosed in the Bankruptcy Plan. Neither the Company nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.
 
(k)           Labor Relations.  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s employees is a member of a union that relates to such employee’s relationship with the Company, and neither the Company is a party to a collective bargaining agreement, and the Company believes that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
 
(l)            Compliance. Other than as identified in the Bankruptcy Plan or as set forth in Section 3.1(l) of the Disclosure Schedule, the Company is not: (i) in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) in violation of any judgment, decree or order of any court, arbitrator or governmental body or (iii) in or has not been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
 
 
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(m)           Regulatory Permits. As of the Plan Effective Date, the Company possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its business, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and the Company has not received any notice of proceedings relating to the revocation or modification of any Material Permit.
 
(n)           Title to Assets. Upon the Plan Effective Date, except as set forth in Section 3.1(n) of the Disclosure Schedule, the Company has good and marketable title in fee simple to all real property owned by it and good and marketable title in all personal property owned by it that is material to the business of the Company, in each case free and clear of all Liens, except for Permitted Liens and Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company. Any real property and facilities held under lease by the Company is held by the Company under valid, subsisting and enforceable leases with which the Company is in compliance.
 
(o)           Patents and Trademarks. The Company has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as necessary or material for use in connection with its business and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  The Company has not received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
 
(p)           Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company is engaged, including, but not limited to, directors and officers insurance coverage. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
 
(q)           Transactions With Affiliates and Employees. Except as set forth in Section 3.1(q) of the Disclosure Schedule and identified in the Bankruptcy Plan or Disclosure Statement, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.
 
 
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(r)            Certain Fees. Except as set forth in Section 3.1(r) of the Disclosure Schedule or in any orders of the Bankruptcy Court confirming the employment of investment bankers or advisors, no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
 
(s)           Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby.
 
(t)            Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
 
(u)           Registration Rights.  Other than each of the Purchasers and except as set forth in Section 3.1(u) of the Disclosure Schedule, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.
 
(v)           Disclosure. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2.
 
(w)           No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
 
 
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(x)            Solvency. Except as set forth in Section 3.1(x) of the Disclosure Schedule, based on the consolidated financial condition of the Company as of the First Closing, after giving effect to the receipt by the Company of the Minimum Investment Amount: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the First Closing or any Subsequent Closing, as the case may be. Except as identified in the Bankruptcy Plan, Schedule 3.1(x) of the Disclosure Schedule sets forth as of the Plan Effective Date all outstanding secured and unsecured Indebtedness of the Company, or for which the Company has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. The Company is not in default with respect to any Indebtedness.
 
(y)           Tax Status. Except as set forth in Section 3.1(y) of the Disclosure Schedule or as otherwise indentified in the Bankruptcy Plan, and except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company.
 
(z)            No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.
 
 
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(aa)          Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.
 
(bb)         Seniority. As of each Closing, except for Senior Indebtedness, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).  As of each Closing, except for the Indebtedness represented by the Professional Notes, no Indebtedness or other claim against the Company is pari passu with the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise.
 
(cc)          Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
 
3.2           Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof to the Company as follows (unless as of a specific date therein):
 
(a)           Organization; Authority. Such Purchaser is either an individual or an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
 
 
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(b)           Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Underlying Shares pursuant to the Registration Statement or to sell the Securities otherwise in compliance with applicable federal and state securities laws).
 
(c)           Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants or converts any Debentures it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
 
(d)           Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
 
(e)           General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
 
(f)           Receipt of Information. Such Purchaser has received and read carefully a copy of the Company’s Private Placement Memorandum, dated July 20, 2011, as it pertains to the description of the Company and its business and certain other matters not related to the offer and/or terms of the Securities and all other documents furnished to the undersigned relating to the Company and its business, including, without limitation, the MORs, the Bankruptcy Plan and the Disclosure Statement (hereinafter sometimes referred to collectively, as the “Disclosure Materials”).  The Purchaser has had the opportunity to ask questions of representatives of the Company concerning the finances, operations, business and prospects of the Company, and the Company has answered all inquiries that the Purchaser or its representatives have put to it relating to such matters.  The Purchaser has had access to all additional information necessary to verify the accuracy of the information set forth in the Disclosure Materials, including access via the Company’s website (www.usdrycleaning.com) to the Bankruptcy Plan and Disclosure Statement, and has taken all the steps necessary to evaluate the merits and risks of an investment in the Company. The Purchaser acknowledges that it has received no representations or warranties from the Company or any other person or entity in making this investment decision.
 
 
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The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.
 
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
 
4.1           Transfer Restrictions.
 
(a)           The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.
 
(b)           The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
 
NEITHER THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE 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 AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
 
 
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The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties; provided, however, that any such Securities pledged or transferred shall remain subject to the restrictions set forth in any lock-up agreement between the Purchaser and the Company. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.
 
(c)           Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b)): (i) following the sale of such Underlying Shares pursuant to a registration statement (including the Registration Statement), (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).  The Company agrees that at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4.1. Certificates for Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser or as otherwise directed by such Purchaser.
 
(d)           Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.
 
4.2           Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
 
 
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4.3           No Future Dilutive Issuances.  So long as any Debenture is outstanding, other than in connection with Exempt Issuances, the Company will not sell or grant any option to purchase or sell or grant any right to reprice, or otherwise disposes of or issue (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the proposed Dilutive Issuance).
 
4.4           Furnishing of Information; Public Information.  Upon the closing of the Subsequent Public Offering and until the earliest of the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or Section 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities, including without limitation, under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act, including without limitation, within the requirements of the exemption provided by Rule 144.
 
4.5           Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
 
4.6           Conversion and Exercise Procedures. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debentures set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
 
 
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4.7           Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.
 
4.8           Short Sales.  As long as Purchaser holds a Debenture or Warrant, Purchaser shall not engage in any short sales (as such term is defined in Rule 200 of Regulation SHO under the Exchange Act), puts, calls, futures contracts or hedging or arbitrage transactions with respect to the Company’s Common Stock.
 
4.9           Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder exclusively for (a) working capital, (b) repayment of unsecured creditors as outlined in the Bankruptcy Plan, (c) repayment of the DIP Lender (as defined in the Bankruptcy Plan), (d) repayment of $1,000,000 of the amounts owed to the Company’s current senior debt holders, (e) implementation of payment plans with current existing junior secured creditors as outlined in the Bankruptcy Plan, (f) payment of certain secured/lease amounts as outlined in the Bankruptcy Plan, and (g) bankruptcy and transaction fees.
 
4.10         Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by such Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.
 
 
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4.11         Reservation and Listing of Securities.
 
(a)           The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.
 
(b)           If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 90th day after such date.
 
(c)           The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.
 
4.12         Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective Principal Amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
 
 
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4.13         Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closings under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.
 
4.14         Warrants.  Concurrent with the effectiveness of the Subsequent Public Offering, the Company shall issue to each Purchaser a Warrant in the form of Exhibit D attached hereto registered in the name of such Purchaser (a) to purchase up to a number of shares of Common Stock equal to 100% of the Principal Amount of the Debentures issued to such Purchaser hereunder divided by the per share price to the public in the Subsequent Public Offering (the “Public Offering Price”); (b) with an exercise price equal to 100% of the Public Offering Price, subject to adjustment therein, and (c) with a five-year term from the closing of the Subsequent Public Offering; provided, however, that if the Subsequent Public Offering is not completed by the date nine (9) months after the Plan Effective Date, the Company shall issue to each Purchaser a Warrant in the form of Exhibit D attached hereto registered in the name of such Purchaser (i) to purchase up to a number of shares of Common Stock equal to 100% of the Principal Amount of the Debentures issued to such Purchaser hereunder divided by $2.00, (ii) with an exercise price equal to $2.00, subject to adjustment therein, and (iii) with a five-year term from the date thereof.
 
4.15         Participation Right. From the date hereof until no Debentures remain outstanding, the Company shall not, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this Section 4.15. The Company acknowledges and agrees that the right set forth in this Section 4.15 is a right granted by the Company, separately, to each Purchaser.
 
(a)           At least 5 Trading Days prior to any proposed or intended Subsequent Placement, the Company shall deliver to each Purchaser a written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (i) identify and describe the Offered Securities, (ii) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (iii) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (iv) offer to issue and sell to or exchange with such Purchaser in accordance with the terms of the Offer (x) such Purchaser’s a percentage of the Offered Securities equal to the ratio of the face value of the then outstanding Debentures to the amount raised in new capital based on such Purchaser’s pro rata portion of the aggregate original Principal Amount of the Debentures purchased hereunder by all Purchasers (the “Basic Amount”), and (y) with respect to each Purchaser that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Purchasers as such Purchaser shall indicate it will purchase or acquire should the other Purchasers subscribe for less than their Basic Amounts (the “Undersubscription Amount”).
 
 
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(b)           To accept an Offer, in whole or in part, such Purchaser must deliver a written notice to the Company prior to the end of the 5th Business Day after such Purchaser’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Purchaser’s Basic Amount that such Purchaser elects to purchase and, if such Purchaser shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Purchaser elects to purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts subscribed for by all Purchasers are less than the total of all of the Basic Amounts, then such Purchaser who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), such Purchaser who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Purchaser bears to the total Basic Amounts of all Purchasers that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company may deliver to each Purchaser a new Offer Notice and the Offer Period shall expire on the 5th Business Day after such Purchaser’s receipt of such new Offer Notice.
 
(c)           The Company shall have 5 days from the expiration of the Offer Period above (i) to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Purchaser (the “Refused Securities”) pursuant to a definitive agreement (the “Subsequent Placement Agreement”), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer Notice and (ii) to publicly announce (A) the execution of such Subsequent Placement Agreement, and (B) either (x) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which shall be filed with the Commission on a Current Report on Form 8-K with such Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto.
 
(d)           In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4.14(c) above), then such Purchaser may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Purchaser elected to purchase pursuant to Section 4.14(b) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Purchasers pursuant to this Section 4.14 prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Purchaser so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Purchasers in accordance with Section 4.14(a) above.
 
 
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(e)           Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Purchaser shall acquire from the Company, and the Company shall issue to such Purchaser, the number or amount of Offered Securities specified in its Notice of Acceptance. The purchase by such Purchaser of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Purchaser of a separate purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to such Purchaser and its counsel.
 
(f)            Any Offered Securities not acquired by a Purchaser or other Persons in accordance with this Section 4.14 may not be issued, sold or exchanged until they are again offered to such Purchaser under the procedures specified in this Agreement.
 
(g)           The Company and each Purchaser agree that if any Purchaser elects to participate in the Offer, neither the Subsequent Placement Agreement with respect to such Offer nor any other transaction documents related thereto (collectively, the “Subsequent Placement Documents”) shall include any term or provision whereby such Purchaser shall be required to agree to any restrictions on trading as to any securities of the Company or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, any agreement previously entered into with the Company or any instrument received from the Company.
 
(h)           Notwithstanding anything to the contrary in this Section 4.14 and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose its intention to issue the Offered Securities, in either case, in such a manner such that such Purchaser will not be in possession of any material, non-public information, by the 5th Business Day following delivery of the Offer Notice. If by such 5th Business Day, no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide such Purchaser with another Offer Notice and such Purchaser will again have the right of participation set forth in this Section 4.14. The Company shall not be permitted to deliver more than one such Offer Notice to such Purchaser in any 60 day period.
 
(i)            The restrictions contained in this Section 4.14 shall not apply in connection with an Exempt Issuance or in connection with the Subsequent Public Offering. The Company shall not circumvent the provisions of this Section 4.14 by providing terms or conditions to one Purchaser that are not provided to all.
 
 
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4.16         Employment Agreements.  Within 20 days of the First Closing Date, the Company shall enter into employment agreements with members of the Company’s senior management, which employment agreements shall be reasonably acceptable to the Purchasers who purchased Units at the First Closing.
 
4.17         Lock-Up Agreement.  The Purchaser acknowledges and agrees that the Conversion Shares, the Warrant Shares and the Interest Shares shall be subject to the terms of a lock-up agreement to be executed by the Purchaser and the Company restricting the ability of the Purchaser to transfer Conversion Shares and/or Warrant Shares for a period not to exceed 6 months after the closing of the Subsequent Public Offering.
 
4.18         Lock-Up Release Participation Right.  If (a) the Company desires to increase the public float of its Common Stock by allowing any Purchaser or any holder of equity securities of the Company who are subject to a lock-up agreement to sell shares of Common Stock prior to the time such shares can be sold under the terms of such lock-up agreement, or (b) stockholders of the Company other than the Purchasers that are subject to lock-up agreements covering shares of the Company’s Common Stock seek the Company’s consent to sell shares of Common Stock subject to a lock-up agreement prior to the time such shares can be sold under the terms of such lock-up agreement, the Company shall provide to the Lead Investor (and its affiliates that also own shares of Common Stock and are subject to lock-up agreements) with the ability to sell such number of shares of Common Stock held by the Lead Investor (together with its affiliates) that are being allowed or requested to be sold as a result of the events described in clauses (a) and/or (b) immediately above.
 
4.19         Fees.
 
(a)           The Company shall reimburse Rutan & Tucker, LLP (counsel to the Lead Investor) for all reasonable costs and expenses incurred by it in connection with the transactions contemplated by the Transaction Documents (including, without limitation, all reasonable legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence in connection therewith up to a maximum amount of $75,000 (the “Counsel Expense Amount”).  At the First Closing the Company shall pay, by wire transfer in U.S. Dollars and immediately available funds, the invoice with respect to the Transaction Expense Amount, dated on or about the First Closing Date and delivered to the Company on or prior to the First Closing Date.
 
(b)           The Company shall reimburse the Lead Investor for all reasonable third party consulting fees and disbursements in connection therewith up to a maximum amount of $50,000 (the “Consulting Expense Amount”).  At the First Closing the Company shall pay, by wire transfer in U.S. Dollars and immediately available funds, the invoice with respect to the Consulting Expense Amount, dated on or about the First Closing Date and delivered to the Company on or prior to the First Closing Date.
 
(c)           The Company shall reimburse the Lead Investor for all reasonable costs  and expenses incurred by it in connection with any filings to be made by the Lead Investors or the Class 14 Claimants under the Bankruptcy Plan with the Comission.
 
 
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ARTICLE V
MISCELLANEOUS
 
5.1           Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the First Closing has not been consummated on or before the Termination Date; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).  The Company shall return such Purchaser’s Subscription Amount held in the Segregated Account to such Purchaser upon a termination effected under this Section 5.1.
 
5.2           Fees and Expenses. Except as expressly set forth in this Agreement, the Transaction Documents or the Bankruptcy Plan to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.
 
5.3           Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
 
5.4           Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto or by electronic mail at the e-mail address set forth on the signature pages attached hereto prior to 5:30 p.m. (California time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto or by electronic mail at the e-mail address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (California time) on any Trading Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto or such other address as the recipient party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.
 
5.5           Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 51% in Principal Amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
 
 
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5.6           Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
 
5.7           Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the Purchasers.
 
5.8           No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.
 
5.9           Governing Law.  This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
 
5.10         Dispute Resolution.  The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal and state courts located within the geographic boundaries of Orange County, California for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal and state courts located within the geographic boundaries of Orange County, California and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. The prevailing party shall be entitled to reasonable attorney’s fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.
 
5.11         Survival. The representations and warranties contained herein shall survive each Closing and the delivery of the Securities for the applicable statute of limitations.
 
5.12         Attorneys’ Fees.  If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of the Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
 
 
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5.13         Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
 
5.14         Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
 
5.15         Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, from and after the Plan Effective Date any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
 
5.16         Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
 
5.17         Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
 
 
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5.18         Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
 
5.19         Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.
 
5.20         Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.
 
 
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5.21         Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
 
5.22         Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
 
5.23         Corporate Securities Law.  THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
 
[SIGNATURE PAGES FOLLOW]
 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the dates set forth below.
 
 
U.S. DRY CLEANING SERVICES
CORPORATION, a Delaware corporation
     
     
     
 
By:
  
   
Robert Y. Lee, Chief Executive Officer
     
     
     
 
Dated: September __, 2011
     
     
     
 
Address for notice:
   
 
4040 MacArthur Blvd., Suite 305
Newport Beach, CA 92660
Fax: (949) 863-9657
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
 
 
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PURCHASER SIGNATURE PAGE TO U.S. DRY CLEANING SERVICES CORPORATION SECURITIES PURCHASE AGREEMENT
 
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date set forth below.
 
Name of Purchaser:
  

Signature of Purchaser or Authorized Signatory (if an entity):
  
 
Name of Authorized Signatory (if an entity):  
  

Title of Authorized Signatory (if an entity):
  

Address for Notice of Purchaser:
  

Email Address of Purchaser:
  

Facsimile Number of Purchaser:
  

Telephone Number of Purchaser:
  

Principal Amount:
  

Subscription Amount:
  

EIN Number:
  

Dated:
  
 
 
 
 
 
EXHIBIT A
 
Debenture
 
 

 
 
 
 
A-1
 
 
EXHIBIT B
 
Registration Rights Agreement

 
 
 
 
 
 
B-1
 
 
EXHIBIT C
 
Security Agreement
 
 
 
 

 
 
C-1
 
 
EXHIBIT D
 
Warrant
 
 
 
 
 
D-1