usdcc_8k-1001.htm


    
      

    

    Exhibit
      10.1

    
      


       

      THESE
        SECURITIES HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE
        COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
        ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
        OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
        THE
        SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
        NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
        ACT.

       

      THIS
        NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTIONS 1271,
        1272
        AND 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.  BEGINNING
        NO LATER THAN 10 DAYS AFTER THE ISSUE DATE OF THIS NOTE, F. KIM COX, C/O
        U.S.
        DRY CLEANING CORPORATION, 125 E. TAHQUITZ CANYON, SUITE 203, PALM SPRINGS,
        CA
        92262, WILL MAKE AVAILABLE, UPON REQUEST OF THE HOLDER OF THIS NOTE, THE
        ISSUE
        PRICE OF THIS NOTE PER PRINCIPAL AMOUNT OF $1,000 AT MATURITY; THE ISSUE
        DATE OF
        THIS NOTE; THE YIELD-TO-MATURITY OF THIS NOTE PER ANNUM, COMPOUNDED
        SEMI-ANNUALLY; AND THE TOTAL AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE
        AS
        OF THE ISSUE DATE PER PRINCIPAL AMOUNT OF $1,000 AT
        MATURITY.

       

      U.S.
        DRY CLEANING CORPORATION

       

      10%
        SENIOR SECURED CONVERTIBLE NOTE

       

      
        	
                Note
                  No.:  ___

              	
                Original
                  Principal Amount: $______________________

              
	
                Issuance
                  Date:  ________, 2007

              	
                Palm
                  Springs, California

              


      

       

      This
        Note
        (this “Note”) is one of a duly authorized issue of Notes issued
        by U.S. DRY CLEANING CORPORATION, a corporation duly organized
        and existing under the laws of the State of Delaware (the
“Company”), designated as the Company's 10% Senior Secured
        Convertible Notes in an aggregate principal amount of up to Twenty Million
        U.S.
        Dollars (U.S. $20,000,000) (the “Notes”).  All
        principal and unpaid interest under this Note shall become due and payable
        on
        ________, 2009 (the “Maturity Date”).

       

      For
        Value
        Received, the Company hereby promises to pay to the order of
        ________________, or its registered assigns or
        successors-in-interest (“Holder”), the principal sum of
        _________________________________ (U.S. $__________) together with all accrued
        but unpaid interest thereon, if any, on the Maturity Date, in accordance
        with
        the terms hereof.  Interest on the unpaid principal balance hereof
        shall accrue at the rate of 10.0% per annum from the issuance date specified
        above (the “Issuance Date”), until the same becomes due and
        payable on the Maturity Date, or such earlier date upon acceleration in
        accordance with the terms hereof or of the other Transaction Documents (as
        defined below).  Interest on this Note shall accrue daily commencing
        on the Issuance Date and shall be computed on the basis of a 360-day year,
        30-day months and actual days elapsed and shall be payable in accordance
        with
        Section 1 hereof.  Unless otherwise agreed or required by applicable
        law, payments will be applied first to any unpaid collection costs, then
        to
        unpaid interest and fees and any remaining amount to principal.

       

      Except
        as
        otherwise provided herein, all payments of principal and interest on this
        Note
        shall be made in lawful money of the United States of America by wire transfer
        of immediately available funds to such account as the Holder may from time
        to
        time designate by written notice in accordance with the provisions of this
        Note.  This Note may be prepaid in whole or in part at any time
        without penalty.  Whenever any amount expressed to be due by the terms
        of this Note is due on any day which is not a Business Day (as defined below),
        the same shall instead be due on the next succeeding day which is a Business
        Day.

       

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

      Capitalized
        terms used herein and not otherwise defined shall have the meanings set forth
        in
        the Subscription Agreement dated on or about the Issuance Date pursuant to
        which
        the Note was originally issued (the “Subscription
        Agreement”).  For purposes hereof the following terms shall
        have the meanings ascribed to them below:

       

      “Affiliate”
        shall mean, with respect to any specified Person, any other Person who,
        directly, or indirectly through one or more intermediaries, is in control
        of, is
        controlled by, or is under common control with, such specified Person. For
        purposes of this definition: (a) "control" (including its correlative meanings,
        the terms "controlling," "controlled by" and "under common control with")
        means
        the possession directly or indirectly of the power to direct or cause the
        direction of the management and policies of a Person, whether through the
        ownership of voting securities or other equity interest, or by contract or
        otherwise; and (b) “Person” means any individual, corporation, partnership,
        trust, limited liability company, association or other entity.

       

      “Business
        Day” shall mean any day other than a Saturday, Sunday
        or
        a day on which commercial banks in the City of New York are authorized or
        required by law or executive order to remain closed.

       

      “Common
        Stock” shall mean the shares of common stock, par value $.001 per
        share, of the Company.

       

      “Conversion
        Price” shall be $2.50 (U.S.) per share, as adjusted as
        set forth herein.

       

      “Convertible
        Securities” means any convertible securities, warrants,
        stock options or other rights to subscribe for or to purchase or exchange
        for,
        shares of Common Stock.

       

       

      “Debt”
        shall mean indebtedness of any kind including without limitation (a) all
        obligations for borrowed money; (b) any direct or contingent obligations
        arising under letters of credit (including standby and commercial), banker’s
        acceptances, bank guaranties, surety bonds and similar instruments; (c) all
        obligations to pay the deferred purchase price of property or services, and
        indebtedness secured by a lien on property owned or being purchased (including
        indebtedness arising under conditional sales or other title retention
        agreements), whether or not such indebtedness shall have been assumed by
        the
        Company or is limited in recourse; and (d) all guarantees in respect of the
        foregoing, including without limitation any assurance, agreement, letter of
        responsibility, letter of awareness, undertaking or arrangement with respect
        to
        the payment or performance of any of the foregoing, whether direct, indirect
        or
        contingent.

       

      “Exchange
        Act” shall mean the Securities Exchange Act of 1934, as
        amended.

       

      “Guarantees”
        shall mean, collectively, the Guarantees provided by each of the operating
        subsidiaries of the Company on the signature page thereof.

       

      “Principal
        Amount” shall refer to any unpaid principal amounts outstanding
        under this Note.

       

      “Principal
        Market” shall mean the principal market, exchange or
        quotation service on which the Common Stock is then listed for trading or
        quoted.

       

      “Registration
        Statement” shall have the meaning set forth in the Subscription
        Agreement.

       

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      “Securities
        Act” shall mean the Securities Act of 1933, as
        amended.

       

      “Trading
        Day” shall mean a day on which there is trading on the Principal
        Market.

       

      “Transaction
        Documents” shall mean, collectively, this Note, the Subscription
        Agreement, the Security Agreement (as defined below), the Guarantees, and
        all
        other documents, certificates, resolutions and agreements to be entered into,
        executed and/or delivered in connection with the loan evidenced by this
        Note.

       

      “Underlying
        Shares”  means the shares of Common Stock into which
        this Note is convertible in accordance with the terms hereof.

       

       

      The
        following terms and conditions shall apply to this Note:

       

       

      Section
        1.              Payments
        of Principal and Interest.

       

       

      (a)           Interest
        Payments.  The Company shall pay all accrued but unpaid interest
        on the Principal Amount of this Note (the “Quarterly Amount”),
        on the first business day of each consecutive calendar quarter (each an
“Interest Payment Date”) beginning on __________,
        2008.  The Quarterly Amount shall be paid in cash.

       

      (b)           Payment
        of Principal.  Subject to the provisions hereof, the Principal
        Amount of this Note and all remaining accrued and unpaid interest shall be
        due
        and payable on the Maturity Date.  Payment of the Principal Amount
        shall be effected in cash.

       

      (c)           Taxes.  The
        Company may withhold and pay over to the relevant authorities any appropriate
        tax or other legally required withholdings from any interest payment to be
        made
        to the Holder to the extent that such withholding is required by the Internal
        Revenue Code or any other applicable law, rule, or regulation.

       

      (d)           Security.  This
        Note is secured by a security interest in certain assets of the Company pursuant
        to that certain Security Agreement, dated of even date herewith, among the
        Company, the Holder, and the other “Subscribers” under the Subscription
        Agreement (the “Security Agreement”). The obligations of the
        Company under this Note are guaranteed by the Guarantees provided by each
        operating subsidiary of the Company.

       

      Section
        2.              Seniority.  The
        obligations of the Company hereunder shall rank senior to all other Debt
        of the
        Company and its subsidiaries, whether now or hereinafter existing, except
        for a
        credit facility with a bank or other financial institution whose lending
        activities are regulated by law, in an amount of not more than $5,000,000
        entered into after the date hereof secured solely by accounts receivable
        and
        inventory, and equipment (capital) leases, and the proceeds
        thereof.

       

       

      
        
           

        

        
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      Section
        3.              Defaults
        and Remedies.

       

       

      (a)           Events
        of Default.      An “Event of
        Default” is:  (i) a default in payment of the Principal
        Amount, when due, or failure to pay any accrued but unpaid interest thereon
        of
        the Note within five (5) days after the date such interest payment is due;
        (ii)
        a default in the timely issuance of the Underlying Shares upon and in accordance
        with the terms hereof (where for purposes of this Note, the term timely shall
        mean within ten (10) days following the conversion date); (iii) failure by
        the
        Company for thirty (30) days after written notice has been received by the
        Company to comply with any other material provision of this Note, the
        Subscription Agreement or the Transaction Documents; (iv) a material breach
        by
        the Company of its representations or warranties in the Subscription Agreement
        or  Transaction Documents that remains uncured for thirty (30) days
        after notice  to the Company; (v) any event or condition shall occur
        which (x) results in the acceleration of the maturity of any material Debt
        (other than this Note) of the Company or any of its subsidiaries, or (y)
        enables
        (or, with the giving of notice or lapse of time or both, would enable) the
        holder of such material Debt or any or person acting on behalf of such holder’s
        behalf to accelerate the maturity thereof; or (vi) if the Company or any
        of its
        subsidiaries is subject to any Bankruptcy Event.  “Bankruptcy
        Event” means any of the following events: (a) the Company or any
        subsidiary commences a case or other proceeding under any bankruptcy,
        reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
        insolvency or liquidation or similar law of any jurisdiction relating to
        the
        Company or any subsidiary thereof; (b) there is commenced against the Company
        or
        any subsidiary any such case or proceeding that is not dismissed within 60
        days
        after commencement; (c) the Company or any subsidiary is adjudicated insolvent
        or bankrupt or any order of relief or other order approving any such case
        or
        proceeding is entered; (d) the Company or any subsidiary suffers any appointment
        of any custodian or the like for it or any substantial part of its property
        that
        is not discharged or stayed within 60 days; (e) the Company or any subsidiary
        makes a general assignment for the benefit of creditors; (f) any material
        writ
        of attachment shall be levied against any property or other assets of the
        Company or any subsidiary; (g) the Company or any subsidiary, by any act
        or
        failure to act, indicates its consent to, approval of or acquiescence in
        any of
        the foregoing or takes any corporate or other action for the purpose of
        effecting any of the foregoing; (h) the Company or any subsidiary is unable,
        or
        admits in writing its inability, to pay its debts generally as they mature;
        or
        (i) the Company ceases to carry on all or substantially all of its business
        or
        operations for a period in excess of 15 consecutive days (other than due
        to
        force majeure).

       

      (b)           Remedies.  If
        an Event of Default occurs and is continuing with respect to this Note, all
        outstanding principal and accrued but unpaid interest payable by the Company
        hereunder, together with all fees, costs and expenses (including without
        limitation reasonable attorneys’ fees and expenses) as may be incurred by the
        Holder in collecting any sums due on this Note or otherwise enforcing any
        of its
        rights, shall, upon written notice to the Company (except in the case of
        a
        Bankruptcy Event, which shall be without notice), become immediately due
        and
        payable.  In addition to the foregoing remedies, upon the occurrence
        and during the continuance of any Event of Default, Holder may exercise any
        other right, power or remedy granted to it by this Note, the Transaction
        Documents or otherwise permitted to it by law, either by suit in equity or
        by
        action at law, or both, it being expressly understood that no such remedy
        is
        intended to be exclusive of any other remedy or remedies; but each and every
        remedy shall be cumulative and shall be in addition to every other remedy
        given
        herein or now or hereafter existing at law or in equity or by statute, and
        may
        be exercised from time to time as often as may be deemed expedient by the
        Holder, nor shall the giving, taking or enforcement of any other or additional
        security, collateral or guaranty for the payment of the indebtedness under
        this
        Note operate to prejudice, waive or affect the security of this Note or any
        rights, powers or remedies hereunder, nor shall the Holder be required to
        first
        look to, enforce or exhaust such other or additional security, collateral
        or
        guaranties. All covenants, conditions, provisions, warranties, guaranties,
        indemnities and other undertakings of the Company contained in this Note,
        or in
        any document referred to herein or in any agreement supplementary hereto
        or in
        any other Transaction Documents, shall be deemed cumulative to and not in
        derogation or substitution of any of the terms, covenants, conditions, or
        agreements of the Company contained herein.

       

       

       

      
        
           

        

        
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      Section
        4.               Covenants;
        Representations and Warranties.

       

      (a)           Covenants.  The
        Company hereby covenants and agrees that, for so long as any Notes remain
        outstanding, unless the Required Holders (as defined in Section 6(e)(i) below)
        shall otherwise consent in writing, the Company shall not, and shall not
        permit
        any subsidiary to, directly or indirectly after the date hereof (a) create,
        assume, or otherwise become or remain obligated in respect of, or permit
        or
        suffer to exist or to be created, assumed or incurred or to be outstanding
        any
        Debt, other than as permitted in Section 2 of this Note; (b) assign, transfer,
        create any encumbrance, mortgage pledge, lien or charge upon, or otherwise
        dispose of, any Collateral (as defined in the Security Agreement) or any
        other
        assets, except in the ordinary course of business or to create Permitted
        Liens
        (as defined in the Security Agreement) and except that the Company may sell
        assets if within 180 days after completing any such sale substantially all
        of
        the proceeds thereof are used to purchase additional assets for use in the
        Company’s business; (c) declare or pay any dividends, or make any distribution
        of cash or property, or both, to any person or entity in respect of any of
        the
        shares of the capital stock or other equity securities of the Company, or
        redeem, purchase or otherwise acquire for consideration any securities or
        shares
        of the capital stock or other equity securities of the Company; (d) enter
        into
        any contract, agreement or transaction with any Affiliate of the Company
        except
        in the ordinary course of business consistent with past practice; (e) merge
        with
        or consolidate into any other corporation or other entity, or sell, lease
        or
        other transfer all or substantially all of its business, properties or assets
        to
        any other corporation or other entity, unless in each such case the successor
        corporation or entity executes an agreement, in form and substance reasonably
        acceptable to the Holders, pursuant to which such successor shall assume
        all of
        the Company’s obligations under this Note; or (f) make any material change in
        the character of its business.

       

      (b)           Representations
        and Warranties.  The Company represents and warrants to Holder
        that:

       

      (i)           The
        Company is a corporation duly organized, validly existing and in good standing
        under the laws of Delaware; has all requisite corporate power and authority
        to
        own or lease and operate its properties and to carry on its business as now
        conducted; and is duly qualified or licensed to do business as a foreign
        corporation in all jurisdictions in which it owns or leases property or in
        which
        the conduct of its business requires it to so qualify or be licensed, except
        where the failure to be so qualified could not reasonably be expected to
        have a
        material adverse effect on the Company.

       

      (ii)           The
        Company has all requisite power and authority to enter into and perform all
        of
        its obligations under this Note and the other Transaction Documents and to
        carry
        out the transactions contemplated hereby and thereby. The Company has taken
        all
        corporate or stockholder actions necessary to authorize it to enter into
        and
        perform all of its obligations under this Note and the other Transaction
        Documents and to consummate the transactions contemplated hereby and thereby.
        The execution and delivery of this Note and the other Transaction Documents
        does
        not, and the consummation of the transactions contemplated hereby and thereby,
        and compliance with the provisions hereof and thereof, will not conflict
        with,
        or result in any violation of, or default (with or without notice or lapse
        of
        time, or both) under, or give rise to a right of termination, cancellation
        or
        acceleration of any obligation or loss of a benefit under, or result in the
        creation of any lien upon any of the properties or assets of the Company
        under,
        (i) its certificate of incorporation, by-laws or other governing documents,
        (ii)
        any agreement, contract, lease, license, mortgage, indenture, guarantee,
        or
        other instrument, undertaking or commitment to which the Company is a party
        or
        by which it or its properties or assets are bound or (iii) any judgment,
        order,
        injunction, decree, statute, law, ordinance, rule or regulation applicable
        to
        the Company or its properties or assets.

       

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      (iii)           This
        Note has been duly executed and delivered and is, and each other Transaction
        Document will be, when executed and delivered, the legal, valid and binding
        obligation of the Company, enforceable in accordance with their respective
        terms, except as (A) the enforceability thereof may be limited by bankruptcy,
        insolvency or similar laws affecting the enforcement of creditors’ rights
        generally and (B) the availability of equitable remedies may be limited by
        equitable principles of general applicability.

       

       

      Section
        5.              Conversion.

       

      (a)           Conversion
        by Holder.  From and after the Issuance Date and subject to the
        terms hereof and restrictions and limitations contained herein, the Holder
        shall
        have the right, at Holder's option, at any time and from time to time to
        convert, in part or in whole, the outstanding Principal Amount and all accrued
        and unpaid interest under this Note into shares of the Company’s common stock,
        par value $.001 per share (“Common Stock”), at the then
        applicable Conversion Price, by delivering to the Company a fully executed
        notice of conversion in the form of conversion notice attached hereto as
        Exhibit A (the “Conversion Notice”), which may be
        transmitted by facsimile (with the original mailed on the same date by certified
        or registered mail, postage prepaid and return receipt
        requested).  The Conversion Notice shall specify a date for the
        conversion to be effective, which date shall be no earlier than the date
        on
        which the Conversion Notice is delivered (the “Conversion
        Date”), and the Conversion Notice shall be irrevocable when
        delivered.

       

      (b)           Conversion
        Procedures.  Upon conversion of this Note pursuant to this Section
        5, the outstanding Principal Amount and/or accrued interest hereunder shall
        be
        converted into such number of fully paid, validly issued and non-assessable
        shares of Common Stock, free of any liens, claims and encumbrances, as is
        determined by dividing the outstanding Principal Amount and/or accrued interest
        being converted by the then applicable Conversion Price.  The Company
        will deliver to the Holder not later than five (5) Trading Days after the
        Conversion Date, a certificate or certificates which shall be free of
        restrictive legends and trading restrictions (assuming that the Registration
        Statement has been declared effective), representing the number of shares
        of
        Common Stock being acquired upon the conversion of this Note.

       

      (c)           Conversion
        Price Adjustments.

       

      (i)           Stock
        Dividends, Splits and Combinations.  If the Company or any of its
        subsidiaries, at any time while the Note is outstanding (A) shall pay a stock
        dividend or otherwise make a distribution or distributions on any equity
        securities (including instruments or securities convertible into or exchangeable
        for such equity securities) in shares of Common Stock, (B) subdivide outstanding
        Common Stock into a larger number of shares, (C) combine outstanding Common
        Stock into a smaller number of shares, or (D) issues new securities by
        reclassification of the shares of Common Stock of the Company, then, and
        in each
        such case, the Conversion Price in effect immediately prior to such event
        or the
        record date therefor, whichever is earlier, shall be adjusted so that the
        Holder
        shall be entitled to receive the number of shares of Common Stock or other
        securities of the Company which such Holder would have owned or have been
        entitled to receive after the occurrence of any of the events described above,
        had such Note been surrendered for conversion immediately prior to the
        occurrence of such event or record date therefore, whichever is
        earlier.  Any adjustment made pursuant to this Section 5(c) shall
        become effective (x) in the case of any such dividend or distribution,
        immediately after the close of business on the record date for the determination
        of holders of shares of Common Stock entitled to receive such dividend or
        distribution, or (y) in the case of such subdivision, reclassification or
        combination, at the close of business on the day upon which such corporate
        action becomes effective.

       

       

      
        
           

        

        
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      (ii)           Distributions.  If
        the Company or any of its subsidiaries, at any time while this Note is
        outstanding, shall distribute to all holders of Common Stock evidences of
        its
        indebtedness or assets or cash or rights or warrants to subscribe for or
        purchase any security of the Company or any of its subsidiaries (excluding
        those
        referred to in Section 5(c)(i) above), then concurrently with such distributions
        to holders of Common Stock, the Company shall distribute to the Holder of
        this
        Note the amount of such indebtedness, assets, cash or rights or warrants
        which
        the Holder of this Note would have received had this Note been converted
        into
        Common Stock at the then applicable the Conversion Price immediately prior
        to
        the record date for such distribution.

       

      (iii)           Rounding
        of Adjustments. All calculations under this Section
        5(c) shall be made to the nearest cent or the nearest 1/100th of a share,
        as the
        case may be.

       

      (iv)           Notice
        of Adjustments. Whenever the Conversion Price is
        adjusted pursuant to this Section 5(c), the Company shall promptly deliver
        to
        the Holder of this Note, a written notice setting forth the Conversion Price
        after such adjustment and setting forth a brief statement of the facts requiring
        such adjustment, provided that any failure to so provide such notice shall
        not
        affect the automatic adjustment hereunder.

       

      (v)           Fundamental
        Changes.  In case any transaction or event (including, without
        limitation, any merger, consolidation, combination, recapitalization, sale
        of
        assets, tender or exchange offer, reclassification, compulsory share exchange
        or
        liquidation) shall occur in which all or substantially all outstanding shares
        of
        Common Stock are converted into or exchanged or acquired for or constitute
        the
        right to receive stock, or other securities, cash, property or assets (each,
        “Fundamental Change”), the Holder of this Note outstanding
        immediately prior to the occurrence of such Fundamental Change shall have
        the
        right upon any subsequent conversion to receive the kind and amount of stock,
        other securities, cash, property or assets that such holder would have received
        if such share had been converted immediately prior to such Fundamental
        Change.

       

      (d)           Reservation
        and Issuance of Underlying Securities.  The Company covenants that
        it will at all times reserve and keep available out of its authorized and
        unissued Common Stock solely for the purpose of issuance upon conversion
        of this
        Note, free from preemptive rights or any other actual contingent purchase
        rights
        of persons other than the Holder of this Note, not less than such number
        of
        shares of Common Stock as shall be issuable (taking into account the adjustments
        under this Section 5) upon the conversion of this Note hereunder in Common
        Stock.  The Company covenants that all shares of Common Stock that
        shall be so issuable shall, upon issue, be duly authorized, validly issued,
        fully paid, nonassessable and freely tradable, and free of all taxes, liens
        and
        charges created by the Company.  If the Common Stock is or becomes
        listed on any national securities exchange or quoted on The Nasdaq Stock
        Market,
        the Company shall at its expense cause all shares of Common Stock issuable
        upon
        conversion of this Note to be listed on such exchange subject to notice of
        issuance or quoted on The Nasdaq Stock Market, as the case may be.

       

      (e)           No
        Fractions.  Upon a conversion hereunder the Company shall not be
        required to issue stock certificates representing fractions of shares of
        Common
        Stock, but may if otherwise permitted, make a cash payment in respect of
        any
        final fraction of a share based on the closing price of a share of Common
        Stock
        at such time.  If the Company elects not, or is unable, to make such
        cash payment, the Holder shall be entitled to receive, in lieu of the final
        fraction of a share, one whole share of Common Stock.

       

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      (f)           Charges,
        Taxes and Expenses.  Issuance of certificates for shares of Common
        Stock upon the conversion of this Note shall be made without charge to the
        holder hereof for any issue or transfer tax or other incidental expense in
        respect of the issuance of such certificate, all of which taxes and expenses
        shall be paid by the Company, and such certificates shall be issued in the
        name
        of the Holder or in such name or names as may be directed by the Holder;
        provided, however, that in the event certificates for shares of
        Common Stock are to be issued in a name other than the name of the Holder,
        this
        Note when surrendered for conversion shall be accompanied by an assignment
        form;
        and providedfurther, that the Company shall not be required to pay
        any tax or taxes which may be payable in respect of any such
        transfer.

       

      (g)           Cancellation.  After
        all of the Principal Amount and all accrued but unpaid interest and default
        payments at any time owed on this Note have been paid in full or converted
        into
        Common Stock, this Note shall automatically be deemed canceled and the Holder
        shall promptly surrender the Note to the Company at the Company’s principal
        executive offices.

       

      (h)           Mandatory
        Conversion.

       

      (i)           If
        at any time after the Issuance Date, the closing per share price of the Common
        Stock exceeds $5.00 (as such price may be proportionally adjusted for stock
        splits, reverse splits, combinations of shares, stock dividends and
        recapitalizations or other such events) for 20 consecutive Trading Days (the
        “Pricing Event”), and further provided that at all times from
        the first day of such 20 Trading Day period up to and including the Mandatory
        Conversion Date (as defined below) (i) the Registration Statement shall be
        effective, (ii) the Principal Market for the Common Stock shall be a national
        securities exchange or the Nasdaq Stock Market, and (iii) the Underlying
        Shares
        shall not be subject to any lock-up agreement or other contractual restrictions
        on transferability, the Company shall have the option, exercisable by delivering
        an irrevocable notice to the Holder (the “Mandatory Conversion
        Notice”) to provide that the Note (including the Principal Amount and
        all accrued and unpaid interest) shall be converted at the then-applicable
        Conversion Price on a date (the “Mandatory Conversion Date”) at
        least 30 but no more than 60 days from the date of the Mandatory Conversion
        Notice.  The foregoing shall not affect the right of the Holder to
        convert this Note pursuant to Section 5(a) above at all times up to and
        including the Mandatory Conversion Date.

       

      (ii)           Notwithstanding
        the preceding subsection (h)(i), the Holder of this Note shall not be obligated
        to convert this Note on a Mandatory Conversion Date unless and until each
        of the
        following conditions has been satisfied at all times from the date of the
        Mandatory Conversion Notice up to and including the Mandatory Conversion
        Date:

       

       

      
        	
                 

              	
                (A)

              	
                The
                  Registration Statement has been
                  effective;

              


      

       

       

      
        	
                 

              	
                (B)

              	
                No
                  Event of Default has occurred and is continuing;
                  and

              


      

       

       

      
        	
                 

              	
                (C)

              	
                The
                  Holder has received unlegended certificates representing shares
                  of Common
                  Stock with respect to all conversions for which Conversion Notices
                  have
                  been given.

              


      

       

      (iii)           A
        mandatory conversion shall be subject to and governed by all the provisions
        relating to voluntary conversion of the Note contained herein.

       

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      Section
        6.              General

       

      (a)           Payment
        of Expenses.  The Company agrees to pay all reasonable charges and
        expenses, including attorneys' fees and expenses, which may be incurred by
        the
        Holder in successfully enforcing this Note and/or collecting any amount due
        under this Note.

       

      (b)           Savings
        Clause.  In case any provision of this Note is held by a court of
        competent jurisdiction to be excessive in scope or otherwise invalid or
        unenforceable, such provision shall be adjusted rather than voided, if possible,
        so that it is enforceable to the maximum extent possible, and the validity
        and
        enforceability of the remaining provisions of this Note will not in any way
        be
        affected or impaired thereby.  In no event shall the amount of
        interest paid hereunder exceed the maximum rate of interest on the unpaid
        principal balance hereof allowable by applicable law.  If any sum is
        collected in excess of the applicable maximum rate, the excess collected
        shall
        be applied to reduce the principal debt.  If the interest actually
        collected hereunder is still in excess of the applicable maximum rate, the
        interest rate shall be reduced so as not to exceed the maximum allowable
        under
        law.

       

      (c)           Amendment.  Neither
        this Note nor any term hereof may be amended, waived, discharged or terminated
        other than by a written instrument signed by the Company and the
        Holder.

       

      (d)           Assignment,
        Etc.  The Holder may assign or transfer this Note to any
        transferee.  The Holder shall notify the Company of any such
        assignment or transfer promptly.  This Note shall be binding upon the
        Company and its successors and shall inure to the benefit of the Holder and
        its
        successors and permitted assigns.

       

      (e)           Amendments
        and Waivers.

       

      (i)           The
        provisions of this Note, including, but not limited to, any waiver of the
        restrictive covenants, may from time to time be amended, modified or waived,
        if
        such amendment, modification or waiver is in writing and consented to by
        the
        Company and the Holders of not less than 50% in Principal Amount of the Notes
        then outstanding (the “Required Holders”); provided,
however, that no such amendment, modification
        or waiver which would (i)
        modify this Section 6(e), (ii) extend the Maturity Date, (iii) reduce the
        Principal Amount or any amounts payable hereunder, (iv) change the Conversion
        Price or the adjustments thereto, or (v) not be uniform and non-discriminatory
        as to any particular Note, shall be made without the consent of the Holder
        of
        each Note so affected.

       

      (ii)           Except
        as provided herein, no failure or delay on the part of the Holder in exercising
        any power or right under this Note shall operate as a waiver thereof, nor
        shall
        any single or partial exercise of any such power or right preclude any other
        or
        further exercise thereof or the exercise of any other power or
        right.  No notice to or demand on the Company in any case shall
        entitle it to any notice or demand in similar or other
        circumstances.  No waiver or approval by the Holder shall, except as
        may be otherwise stated in such waiver or approval, be applicable to subsequent
        transactions.  No waiver or approval hereunder shall require any
        similar or dissimilar waiver or approval thereafter to be granted
        hereunder.

       

      (f)           Governing
        Law; Jurisdiction.

       

      (i)           Governing
        Law.  THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
        WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO ANY CONFLICTS
        OF LAWS
        PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW
        OF
        ANY OTHER JURISDICTION.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

      (ii)           Jurisdiction.  The
        Company irrevocably submits to the jurisdiction of any State or Federal Court
        sitting in the State of California, County of Orange, over any suit, action,
        or
        proceeding arising out of or relating to this Note.  The Company
        irrevocably waives, to the fullest extent permitted by law, any objection
        which
        it may now or hereafter have to the laying of the venue of any such suit,
        action, or proceeding brought in such a court and any claim that suit, action,
        or proceeding has been brought in an inconvenient forum.

       

       

      The
        Company agrees that the service of process upon it mailed by certified or
        registered mail, postage prepaid and return receipt requested (and service
        so
        made shall be deemed complete three days after the same has been posted as
        aforesaid) or by personal service shall be deemed in every respect effective
        service of process upon it in any such suit or proceeding.  Nothing
        herein shall affect Holder's right to serve process in any other manner
        permitted by law.  The Company agrees that a final non-appealable
        judgment in any such suit or proceeding shall be conclusive and may be enforced
        in other jurisdictions by suit on such judgment or in any other lawful
        manner.

       

      (iii)           No
        Jury Trial.  The Company hereby knowingly and voluntarily waives
        any and all rights it may have to a trial by jury with respect to any litigation
        based on, or arising out of, under, or in connection with, this
        Note.

       

      (g)           Replacement
        Notes.  This Note may be exchanged by Holder at any time and from
        time to time for a Note or Notes with different denominations representing
        an
        equal aggregate outstanding Principal Amount, as reasonably requested by
        Holder,
        upon surrendering the same.  No service charge will be made for such
        registration or exchange.  In the event that Holder notifies the
        Company that this Note has been lost, stolen or destroyed, a replacement
        Note
        identical in all respects to the original Note (except for registration number
        and Principal Amount, if different than that shown on the original Note),
        shall
        be issued to the Holder, provided that the Holder executes and delivers to
        the
        Company an agreement reasonably satisfactory to the Company to indemnify
        the
        Company from any loss incurred by it in connection with the Note.

       

      (h)           Cancellation.  After
        all of the Principal Amount and all accrued but unpaid interest and default
        payments at any time owed on this Note have been paid in full or converted
        into
        Common Stock, this Note shall automatically be deemed canceled and the Holder
        shall promptly surrender the Note to the Company at the Company’s principal
        executive offices.

       

      (i)           Notices
        Procedures.  Any and all notices or other communications or
        deliveries to be provided by the Holder hereunder, shall be in writing and
        delivered personally, by confirmed facsimile, or by a nationally recognized
        overnight courier service to the Company at the facsimile telephone number
        or
        address of the principal place of business of the Company as set forth in
        the
        Purchase Agreement.  Any and all notices or other communications or
        deliveries to be provided by the Company hereunder shall be in writing and
        delivered personally, by facsimile, or by a nationally recognized overnight
        courier service addressed to the Holder at the facsimile telephone number
        or
        address of the Holder appearing on the books of the Company, or if no such
        facsimile telephone number or address appears, at the principal place of
        business of the Holder.  Any notice or other communication or
        deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered
        personally, (ii) when sent by facsimile, upon receipt if received on a Business
        Day prior to 5:00 p.m. (Pacific Time), or on the first Business Day following
        such receipt if received on a Business Day after 5:00 p.m. (Pacific Time)
        or
        (iii) upon receipt, when deposited with a nationally recognized overnight
        courier service.

       

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      (j)           Waivers.  Except
        for any notice specifically required hereunder, or under any other Transaction
        Document(s), the Company hereby waives notice (including without limitation
        notice of default, notice of intention to accelerate maturity, notice of
        acceleration of maturity, notice of on payment or dishonor and notice of
        protest), demand, presentment for payment, protest, bringing of suit and
        diligence in taking any action to collect amounts owing hereunder or in
        proceeding against any of the rights and properties securing payment hereof,
        and
        is directly and primarily liable for the amount of all sums owing or to be
        owing
        hereon.  The Company consents to the acceptance of further security or
        the release of any existing security for this Note without in any manner
        affecting the Company’s liability with respect to this Note.  The
        Company agrees that its liability on or with respect to this Note shall not
        be
        affected by any release of or change in any guaranty or security at any time
        or
        by any failure to perfect or maintain perfection of any lien against or security
        interest in any such security or the partial or complete unenforceability
        of any
        guaranty or other surety obligation, in each case in whole or in part, with
        or
        without notice and before or after maturity. No extension of the time for
        the
        payment of this Note made by agreement with any person now or hereafter liable
        for the payment of this Note shall operate to release, discharge, modify,
        change
        or affect the original liability of the Company under this Note.

       

      


       

      ***Signatures
        on following page***

       

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

       

      IN
        WITNESS WHEREOF, the Company has caused this Note to be duly executed
        on the date first set forth above.

       

       

      
        	 	
                U.S.
                  DRY CLEANING CORPORATION

                 

                 

                By:                                                                           

                Robert
                  Y. (Robbie) Lee

                President
                  and Chief Executive Officer

              


      

       

      

      

      The
        undersigned, being all the current operating subsidiaries of the Company,
        each
        hereby jointly and severally, absolutely and unconditionally, guarantees
        for the
        benefit of the Holders the payment and performance by the Company of all
        of its
        obligations under the foregoing Note.  This is a guaranty of payment
        and performance (and not merely of collection), and the Holder may proceed
        directly against the undersigned without any requirement to first proceed
        or
        obtain any judgment against or exhaust any remedies with respect to the
        Company.  This guaranty shall in no manner be affected or impaired by
        (a) any amendment, modification, waiver, consent, compromise or other indulgence
        granted to the Company under or in respect of the foregoing Note or any related
        agreement, (b) any failure by the Holder to insist upon strict performance
        or
        observance by the Company of any of the terms of the foregoing Note or any
        related agreement, (c) any forbearance by the Holder, (d) any bankruptcy,
        insolvency, receivership, reorganization, liquidation or other such proceeding
        relating to the Company, or (e) any relief of the Company from any of its
        obligations as aforesaid by operation of law, in equity or
        otherwise.

       

       

      
        	 	
                STEAM
                  PRESS HOLDINGS, INC.

                (dba
                  Young Laundry & Dry Cleaning)

                 

                By:                                                                

                Robert
                  Y. (Robbie) Lee

                President

                 

                CLEANERS
                  CLUB ACQUISITION SUB, INC.

                (dba
                  Boston Cleaners)

                 

                By:                                                                

                Robert
                  Y. (Robbie) Lee

                President

                 

                USDCC
                  CVR MERGER SUB, LLC

                (dba
                  Roadrunner Cleaners)

                 

                By:                                                                

                Robert
                  Y. (Robbie) Lee

                President

              


      

       

       

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      EXHIBIT
        A

       

      FORM
        OF CONVERSION NOTICE

       

       

      (To
        be
        Executed by the Holder

      in
        order
        to Convert a Note)

       

      The
        undersigned hereby elects to convert the aggregate outstanding Principal
        Amount
        (as defined in the Note) and/or accrued interest indicated below of this
        Note
        into shares of Common Stock, par value $.001 per share (the “Common Stock”), of
        U.S. DRY CLEANING CORPORATION (the “Company”) according to the conditions
        hereof, as of the date written below.  If shares are to be issued in
        the name of a person other than the undersigned, the undersigned will pay
        all
        transfer taxes payable with respect thereto and is delivering herewith such
        certificates and opinions as reasonably requested by the Company in accordance
        therewith.  No fee will be charged to the holder for any conversion,
        except for such transfer taxes, if any.

       

      
        	
                Conversion
                  information:

              	
                
                  
                    

                  

                  Date
                    to Effect Conversion

                

              
	 	
                 

              
	 	 
	 	
                 

              
	 	
                
                  

                

                Aggregate
                  Principal Amount and/or Accrued Interest of Note Being
                  Converted

              
	 	
                 

              
	 	
                
                  

                

                Number
                  of shares of Common Stock to be Issued

              
	 	
                 

              
	 	
                
                  

                

                Applicable
                  Conversion Price

              
	 	
                 

              
	 	
                
                  

                

                Signature

              
	 	
                 

              
	 	
                
                  

                

                Name

              
	 	
                 

              
	 	
                
                  

                

                Address

              
	 	
                 

              
	 	
                
                  

                

                Taxpayer
                  Identification/Social Security
                  Number

              


      

      


       

       

      


      13