Exhibit 10.4

 
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the 29th
day of July, 2005, by and between U.S. Dry Cleaning Corporation ("the Company")
a Delaware Corporation, and Michael Eugene Drace ("Employee").

1. Term of Employment. The Company hereby employs Employee, and Employee hereby
agrees to serve the Company, under and subject to all of the terms, conditions
and provisions of this Agreement for a period from the date hereof through July
31, 2007, in the capacity of Chief Executive Officer of the Company, or to serve
in such other executive capacity with the Company as the Company's board of
directors (the "Board") may from time to time designate, provided such
assignment is consistent with Employee's level of experience and expertise. This
Agreement may be extended for up to three additional years upon mutual written
agreement of the Company and the Employee. Company shall give Employee six
months advance notice of its intentions regarding such extension. In the
performance of his duties and the exercise of his discretion, Employee shall
report only to the Board of Directors. Employee's duties shall be designated by
the Board and shall be subject to such policies and directions as may be
established or given by the Board from time to time.

2. Devotion of Time to Company Business. Employee shall devote substantially all
of his productive time, ability and attention to the business of the Company
during the term of this Agreement. Employee shall not, without the prior written
consent of the Board, directly or indirectly render any services of a business,
commercial or professional nature to any other person or organization, whether
for compensation or otherwise, which may compete or conflict with the Company's
business or with Employee's duties to the Company.

3. Compensation.

3.1 Base Salary. For all services rendered by Employee under this Agreement, the
Company shall pay Employee a base salary ("Base Salary") payable semi-monthly,
at the rate of$14,585.00 per month for the first year and $15,300.00 per month
for the second year.

3.2 Bonuses. In addition to the amount specified in Section 3.1, at the sole
discretion of the Board of Directors (with Employee not voting and not present
during the deliberations of the Board of Directors), the Company may award
discretionary cash bonuses to Employee for significant accomplishments that
produce material benefits for the Company. In considering whether to award any
such discretionary bonus, the Board shall take into account the size such
discretionary bonus, the Board shall take into account the size and nature of
the matter, the extra efforts of Employee, the difficulty of attaining the
result that he has attained, the time required to accomplish the result, the
merits and benefits to the Company, the effect on the market price of the
Company's stock, and such other factors as the Board may deem appropriate. The
Board shall not be required to award any such bonus, and neither the Company nor
the directors shall have any liability to Employee for any action or non-action
under this Section 3.2.

 
 

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3.3 In addition to the Base Salary and bonuses, if any, the Employee shall
participate in the Company's stock option plan at a level commensurate with the
position of Chief Operating Officer. The option shall be granted under the
Company's stock option plan and shall be evidenced by a stock option agreement
containing terms and conditions satisfactory to the Company and consistent with
stock options granted by fair market value of the Company's Common Stock on the
date of grant, as determined in good faith by the Board of Directors (with
Employee not voting and not present during the deliberations of the Board of
Directors.)

4. Benefits.

4.1 In addition to the compensation set forth in Section 3, Employee will be
entitled to participate in all benefits of employment available to other members
of the Company's management, on a commensurate basis as they may be offered from
time to time by the Board of Directors to the Company's other management
employees. Such benefits include, but are not limited to, full medical, dental
and long term disability insurance for Employee, participation in group life
insurance and retirement plans, and whole life insurance of$ 1,000,000.00
payable to Employee's designees, provided premium for such policy shall not
exceed $18,000 annually. (The company may also purchase and maintain up to
$1,000,000.00 of term life insurance on Employee's life payable to the Company.)

4.2 It is anticipated that Employee will spend considerable amount of time
traveling on behalf of the Company in the discharge of his duties. During the
period of his employment hereunder, a company credit card will be available for
reasonable business, travel and entertainment expenses incurred in accordance
with Company policy on behalf of the Company in connection with his employment.
Additional out of pocket expenses will be reimbursed when necessary. Employee
will be required to submit appropriate expense reports for approval by signature
of the Chief Financial Officer or Chairman of the Board as a condition of
reimbursement of such expenses. Frequent traveler bonus points thus earned will
accrue to the personal account of Employee as additional compensation.

4.3 In lieu of a company provided automobile, the Company will pay an expense
allowance for an automobile owned by Employee, in an amount of $1,500 per month.

 
 

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4.4 Employee shall be entitled to one (1) week vacation upon completion of every
three (3) full months of employment under this Agreement. To the extent that
Employee does not take vacation, Employee may accumulate such vacation time
throughout the term of this Agreement up to a maximum of six (6) weeks. Upon the
termination of this Agreement, with or without cause, and to the extent that
Employee has accumulated vacation time up to the maximum allowed, the Company
shall pay to Employee, in addition to all other consideration due Employee in
the event of termination herein, the full value of such accumulated vacation
time commensurate with the Base Salary provided above.

4.5 Employee shall not be required to move his principle residence during the
first term of this agreement. If a change of residence becomes a condition for
subsequent extensions, the Company shall pay reasonable relocation costs,
including but not limited to moving expenses.

5. Authority. So long as Employee serves as Chief Executive Officer of the
Company under this Agreement he shall have the authority specified in the
By-Laws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors; and
under no circumstances shall Employee, without express prior authorization by
the Board of Directors, make any change in capital structure or issue any stock
of the Company, incur additional debt, change the Company's lines of business,
or make any other material changes to the corporate structure and provided
further that any payments or checks in excess of $75,000.00 shall require the
signature of two persons designated by resolution of the Board of Directors.

6. Termination. This Agreement shall terminate in advance of the time specified
in Section 1 above (and except as provided herein, Employee shall have no right
to receive any compensation due and payable to his or his estate at the time of
such termination) under any of the following circumstances:

6.1 Upon the death of Employee during the term of this Agreement, the Company
shall pay to the estate of Employee Base Salary, bonuses, and any other
compensation accrued or earned by Employee as of the date of death, plus an
amount equal to (a) six (6) months of Base Salary or (b) the Base Salary that
Employee would have received up to the expiration of the Agreement, whichever
period is less.

6.2 In the event that Employee shall become either physically or mentally
incapacitated so as to not be capable of performing his duties as required
hereunder, and if such incapacity shall continue for a period of three months
consecutively, the Company may, at its option, terminate this Agreement by
written notice to Employee at that time or at any time thereafter while such
incapacity continues. In case of termination under this Section, Employee or his
estate shall be entitled to receive Base Salary, bonuses and any other
compensation accrued or earned as of or to the date of termination, and for six
months following such termination or until the expiration of the term of this

 
 

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Agreement, whichever is earlier. In addition, the Company shall permit Employee
to participate in Company's medical, dental, and long term disability and long
term care insurance plans, if any, at Employee’s cost, for a period of one (1)
year following termination herein and to the extent permitted by law.

6.3 By Employee, if the Company shall have materially breached any of the
provisions of this Agreement; provided, that the Company shall pay Employee his
Base Salary through the remaining term of this Agreement.

6.4 By the Company at any time, without Cause; provided that the Company shall
pay Employee his Base Salary and any bonuses which would otherwise have become
payable under Section 3.2 above, for six months following such termination or
until the expiration of the term of this Agreement, whichever is later.

6.5 By the Company for Cause. The term "Cause" used in this Section (6.5) means
Employee., (i) after repeated notices and warnings, fails to perform his
reasonably assigned duties as reasonably determined by the Company, (ii)
materially breaches any of the terms or conditions of Sections 1 or 2 of this
Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages or may damage the Company's
business or reputation. If the Company terminates Employee for Cause, no
payments or benefits under this

Agreement shall become payable after the date of Employee's termination.

7. Loyalty, Non-Competition and Confidentiality.

7.1 Non- Competition. Employee agrees and covenants that, except for the benefit
of the Company (and/or successor, parent or subsidiary) during the
Non-Competition Period (as defined in Section 7(b)) he will not engage, directly
or indirectly (whether as an officer, director, consultant, employee,
representative, agent, partner, owner, stockholder, or otherwise) in any
business engaged in by the Company in the Non-Competition Area (as defined in
Section 7.3 nor will Employee compete against the Company for any transaction or
corporate opportunity which the Company has or may have an interest in pursuing.
It is the parties' express intention that if a court of competent jurisdiction
finds or holds the provisions of this Section 7 to be excessively broad as to
time, duration, geographical scope, activity or subject, this Section 7 shall
then be construed by limiting or reducing it so as to comport with then
applicable law.

 
 

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7.2 Non-Competition Period. As used herein, the ''Non-Competition Period" means
the period beginning on the date hereof and ending on a date which is one year
after the later to occur of (i) July 31, 2007 or (ii) the date on which
Employee's employment with the Company terminates; provided however. that if
Employee's employment is terminated by the Company without Cause, the
Non-competition Period shall end on the date of such termination.

7.3 Non-Competition Area. As used herein, the term ''Non- Competition Area"
means anywhere with a three-mile radius of any store operated by the Company
during the term of this agreement.

7.4 Other Employees. Employee agrees that during the Non- Competition Period he
shall not, directly or indirectly, for his own account or as agent, servant or
employee of any business entity, engage, hire or offer to hire or entice away in
any other manner persuade any officer, employee or agent of the Company or any
subsidiary to discontinue his relationship with the Company or any subsidiary.

7.5 Confidentiality. Employee acknowledges that he has learned and will learn
Confidential Information, as defined in Section 7.6, relating to the business of
the Company. Employee agrees that he will not, except in the normal and proper
course of his duties, disclose or use, either during the Non-Competition Period
or subsequently thereto, any such Confidential Information without prior written
approval of the Chairman of the Board of the Company.

7.6 Confidential Information. "Confidential Information" shall include, but is
not limited to, the following types of information regarding the Company:
corporate information, including contractual arrangements, plans, locations,
strategies, tactics, potential acquisitions or business combinations or joint
venture possibilities, policies and negotiations; marketing information,
including sales, purchasing and inventory plans, strategies, tactics, methods,
customers, advertising, promotion or market research data; financial
information, including operating results and statistics, costs and performance
data, projections, forecasts, investors, and holdings; and operational
information, including trade secrets, secret formulae, control and inspection
practices, accounting systems and controls, computer programs and data,
personnel lists, resumes, personal data, organizational structure and
performance evaluations. Confidential Information does not include skills,
knowledge and experience acquired by Employee during his employment with any
prior employer.

7.7 Corporate Documents. Employee agrees that all documents of any nature
pertaining to activities of the Company or to any of the forgoing, matters in
his possession now or at any time during the Non-Competition Period, including,
without limitation, memoranda, notebooks, notes, computer records, disks,
electronic information data sheets, records and blueprints, are and shall be the
property of the Company and that they and all copies of them shall be
surrendered to the Company whenever requested by the Company from time to time
during the Non-Competition Period and thereafter and with or without request
upon termination of Employee's employment with the Company.

 
 

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8. Equitable Remedies. In the event of a breach by Employee of any of the
provisions of the Section 7, the Company, in addition to any other remedies it
may have, shall be entitled to an injunction restraining Employee from doing or
continuing to do any such act in violation of the Section 7.

9. Attorney Fees. The successful party in any litigation relating to matters
covered by this Agreement shall be entitled to an award of reasonable attorneys'
fees in such action.

10. Assignment. Neither this Agreement nor any of the rights or obligations of
either party hereunder shall be assignable by either Employee or the Company,
except that this Agreement shall, be assignable by the Company to and shall
inure to the benefit of and be binding upon (i) any successor of the Company by
way of merger, consolidation or transfer of all or substantially all of the
assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.

11. Binding Effect. The terms, conditions, covenants and agreements set forth
herein shall inure to the benefit of, and be binding upon, the heirs,
administrators, successors and assigns of each of the parties hereto, and upon
any corporation, entity or person with which the Company may become merged,
consolidated, combined or otherwise affiliated.

12. Amendment. This Agreement may not be altered or modified except by further
written agreement by the parties.

13. Notices. Any notice required or permitted to be given under this Agreement
by one party to the other shall be sufficient if given or confirmed in writing
and delivered personally or mailed by first class mail, registered or certified,
return receipt requested (if mailed from the Untied States), postage prepaid, or
sent by facsimile transmission, addressed to such party as respectively
indicated below or as otherwise designated by such party in writing.

If to the Company, to:
   
U.S. Dry Cleaning Corporation
 
32-325 Date Palm Drive Suite 211
 
Cathedral City, CA. 92234
 
Attn: Chairman of the Board
 
Fax: (760)324-7345

 
If to Employee, to:
   
Michael E. Drace
 
224 Kuuhale Street
 
Kailua, HI 96734

14. California Law. This Agreement is being executed and delivered and is
intended to be performed and shall be governed by and construed in accordance
with the laws of the State of California.

15. Indemnification. The Company has entered or shall enter into and
Indemnification Agreement with Employee indemnifying him against personal
liability to the fullest extent permissible under applicable corporate law.
 
 
 
 
 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.

U.S. Dry Cleaning Corporation

/s/ Robert Y. Lee                        
By: Robert Y. Lee, Chairman of the Board of Directors

/s/ Michael Eugene Drace                    
Michael Eugene Drace