Document:

Exhibit 10.52

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of June 30, 2014 (the “Effective Date”) by and among the TAYLOR FAMILY TRUST (“TFT”) and WILSON FAMILY TRUST (“WFT”) on the one hand (each a “Holder” and together the “Holders”), and U.S. DRY CLEANING SERVICES CORPORATION, a Delaware corporation (“Maker”) on the other, provides the terms on which Holders shall lend to Maker and Maker shall repay Holders.  The parties agree as follows:

 

1.                                      LOAN AND TERMS OF PAYMENT.

 

1.1                               Promise to Pay.  Maker hereby unconditionally promises to pay Holders the outstanding principal amount of any Advances and accrued and unpaid interest thereon as and when due in accordance with this Agreement.  Advances; Interest; Repayment.

 

(a)                                 Advances.  Subject to the terms and conditions of this Agreement, Holders may advance to Maker (each an “Advance” and collectively, the “Advances”) from time to time on or prior to January 31, 2015, one or more term loans of newly-committed funds. On the Effective Date, Holders shall advance Maker $150,000 (the “Initial Advance”) to be used by Maker as set forth on Schedule A attached hereto and made a part hereof.  Any and all future Advances shall be added to Schedule A by Maker concurrently with the funding of any such Obligations.  Subject to the provisions of Section 1.2(e), all Advances and any accrued but unpaid interest shall be due and payable on or before July 31, 2015 (the “Demand Date”).

 

(b)                                 Interest; Repayment; and Prepayment.

 

(i)                                     Interest on Advances.  Commencing on the date of each Advance, interest shall accrue on the unpaid principal amount of each Advance at a rate of 18% per annum, with 9% compounded monthly and monthly cash payments of .75% (equaling payments of 9% annually) of the original amount of the Advance (e.g., $750 per month on a $100,000 Advance) payable beginning one month following the date of each Advance (each, an “Interest Payment Date”).  Notwithstanding the foregoing, if any Event of Default occurs and is not cured within thirty (30) days, simple interest shall accrue on each Advance at a default rate equal to the lesser of 24% per annum or the maximum rate permitted under applicable law, with interest compounded monthly and cash payments made on the same terms applicable to Advances as set forth in this Section 1.2(b)(ii).  Further, a late fee of 5% of the monthly cash payment amount shall apply and attach to any monthly cash payment not received by Holders on or before the fifteenth (15th) day after such payment is due.

 

(c)                                  Repayment.  All Obligations hereunder are due and payable in full upon the earlier of the Demand Date or ten (10) Business Days after Maker closes a financing transaction, the net proceeds of which are equal to or greater than the aggregate amount of all outstanding Obligations owed pursuant to this Agreement.

 

(d)                                 Mandatory Prepayment Upon an Acceleration.  If the Advances are accelerated following the occurrence of an Event of Default, Maker shall immediately pay to Holders all outstanding Obligations due and owing under this Agreement.

 

 

(e)                                  Permitted Prepayment of Advances.  Maker shall have the option at any time to prepay, in whole or in part, any Advances.

 

1.2                               Payments. All payments (including prepayments) to be made by Maker under any Transaction Document shall be made in immediately available funds in U.S. Dollars, without set-off or counterclaim.

 

2.                                      CONDITIONS OF ADVANCE(S).

 

2.1                               Conditions Precedent to Advance(s).  Holders’ obligation to make the Initial Advance is subject to the condition precedent that each Holder shall have received, in form and substance satisfactory to such Holder, all documents, and completion of such other matters, as Holders may reasonably deem necessary or appropriate, including, without limitation:

 

(a)                                 duly executed original signatures to the Transaction Documents;

 

(b)                                 the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date hereof; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; provided, further, that no Event of Default shall have occurred and be continuing (unless otherwise waived) or result from the Advances; and

 

(c)                                  in Holders’ discretion, there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations.

 

Any subsequent Advance shall be at the discretion of Holders and is subject to the reasonable satisfaction of the conditions precedent set forth in Sections 2.1(b)-(c) on the date of such subsequent Advance.

 

2.2                               Covenant to Deliver.  Maker agrees to deliver to the Holders all items required to be delivered to Holders under this Agreement as a condition precedent to the Initial Advance.

 

3.                                      CREATION OF SECURITY INTEREST.

 

3.1                               Grant of Security Interest.  Maker hereby grants Holders, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Holders, the Collateral, wherever located and all proceeds and products thereof.

 

If this Agreement is terminated, each of the Holders Liens in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and at such time, such Holder shall terminate its security interest in the Collateral and all rights therein shall revert to Maker.  In the event (a) all Obligations (other than inchoate indemnity obligations) are satisfied in full and (b) this Agreement is terminated, the security interest granted herein shall terminate.

 

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3.2                               Priority of Security Interest.  Maker represents, warrants, and covenants that the security interest granted herein, upon each Holder joining that certain Intercreditor Agreement, dated January 17, 2014, a copy of which is attached hereto as Exhibit A and made a part hereof the (“Intercreditor Agreement”), is and shall at all times continue to be a perfected security interest with the same rights and preferences in the Collateral as granted the Second Priority Creditors (as defined in the Intercreditor Agreement), subject only to Permitted Liens that expressly or by right vested under the Code have superior priority to any Holder’s Lien under this Agreement; notwithstanding the foregoing, each Holder acknowledges and agrees that it shall have a second priority security interest (behind the seller in an Approved Acquisition) in the real or personal property acquired by Maker in connection with an Approved Acquisition.  Parties hereto acknowledge and agree that the Intercreditor Agreement requires the execution of the Joinder of Additional Secured Creditor signature page (set forth on Exhibit E thereto), and Maker agrees to amend the appropriate schedules to the Intercreditor Agreement to reflect the Obligations of Holders.

 

3.3                               Subordination.  Maker and Holders herby covenant and agree that the Obligations created hereunder are expressly made subordinate and subject in right of the prior payment in full of all Senior Carve-Out Indebtedness and the Pro Notes.

 

3.4                               Authorization to File Financing Statements.  Maker hereby authorizes Holders to file financing statements, without notice to Maker, with all appropriate jurisdictions to perfect or protect each Holder’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Maker or any other Person, shall be deemed to violate the rights of the Holders under the Code.  Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in each Holder’s discretion.

 

3.5                               Release of Security Interest; Application of Proceeds.  Upon the request of Maker in connection with a bona fide sale of Collateral approved in writing by Holders (a “Sale of Collateral”), each Holder will sign and deliver to Maker one or more termination statements or amendments to any existing financing statements, previously filed pursuant to Section 3.4, as required to release the Collateral to consummate the proposed Sale of Collateral; provided, however, that the proceeds of such Sale of Collateral shall be applied to satisfaction of the Obligations, after which Maker shall be entitled to any surplus proceeds.  If, upon consummation of a Sale of Collateral, the proceeds thereof are insufficient to pay all amounts to which each Holder is legally entitled, Maker will be liable for the deficiency.

 

4.                                      REPRESENTATIONS AND WARRANTIES.

 

Maker represents and warrants as follows:

 

4.1                               Authorization; Power and Authority.  The execution, delivery and performance by Maker of the Transaction Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Maker’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Maker or any of its property or assets may be bound or affected, or (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect).

 

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4.2                               Collateral.  Maker has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.

 

4.3                               Regulatory Compliance.  Maker is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Maker is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Maker has complied in all material respects with the Federal Fair Labor Standards Act.  Maker is not a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005.  Maker has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Maker’s properties or assets has been used by Maker or, to the best of Maker’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Maker has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue its business as currently conducted.

 

4.4                               Full Disclosure.  No written representation, warranty or other statement of Maker in any certificate or written statement given to Holders, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Holders, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading.

 

4.5                               Definition of “Knowledge.”  For purposes of the Transaction Documents, whenever a representation or warranty is made to Maker’s knowledge or awareness, to the “best of” Maker’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge of the Responsible Officers.

 

5.                                      AFFIRMATIVE COVENANTS.

 

Maker shall do all of the following:

 

5.1                               Government Compliance.  Maker shall comply with all laws, ordinances and regulations to which it is subject, noncompliance with which would reasonably be expected to have a material adverse effect on Maker’s business.

 

5.2                               Access to Collateral; Books and Records.  Allow Holders, or their agents, at reasonable times, on five (5) Business Days’ notice (provided, however, that no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Maker’s Books.

 

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5.3                               Further Assurances.  Execute any further instruments and take further action as a Holder reasonably requests to perfect or continue such Holder’s Lien in the Collateral or to affect the purposes of this Agreement.

 

6.                                      NEGATIVE COVENANTS.

 

Maker shall not do any of the following without each Holder’s prior written consent (such consent not to be unreasonably withheld):

 

6.1                               Changes in Business, Management, and Ownership.  (a) Engage in any business other than the businesses currently engaged in by Maker or reasonably related thereto; (b) liquidate or dissolve; or (c) enter into any transaction or series of related transactions in which the stockholders of Maker who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Maker immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Maker’s equity securities in a public offering or to venture capital or other institutional investors so long as Maker identifies to Holders the investors prior to the closing of the transaction and provides to each Holder a description of the material terms of the transaction).  Maker shall not, without at least thirty (30) days’ prior written notice to Holders: (1) change its jurisdiction of organization, (2) change its organizational structure or type, (3) change its legal name, or (4) change any organizational number (if any) assigned by its jurisdiction of organization.

 

6.2                               Mergers or Acquisitions.  Merge or consolidate with any other Person, or acquire all or substantially all of the capital stock or property of another Person.

 

6.3                               Indebtedness.  Create, incur, assume, or be liable for any Indebtedness, other than Permitted Indebtedness.

 

6.4                               Encumbrance.  Create, incur, allow, or suffer any Lien on any of the Collateral, except for Permitted Liens or permit any Collateral not to be subject to the first priority security interest granted herein.

 

7.                                      EVENTS OF DEFAULT.

 

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

 

7.1                               Payment Default.  Maker fails to (a) make any payment of principal on the Demand Date or interest on any Advance within thirty (30) business days of an Interest Payment Date, or (b) pay any other Obligations when such Obligations are due and payable.

 

7.2                               Covenant Default.

 

(a) Maker fails or neglects to perform any obligation contained in Sections 5 or 6; or

 

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(b) Maker fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Transaction Documents or any other existing or future debt instruments, the failure or neglect of which could reasonably have a materially adverse effect on Maker’s business, and as to any default (other than those specified in this Section 7) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within thirty (30) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the thirty (30)  day period or cannot after diligent attempts by Maker be cured within such thirty (30) day period, and such default is likely to be cured within a reasonable time, then Maker shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default.  Cure periods provided under this Section 7(b) shall not apply, among other things, to financial covenants or any other covenants set forth in Section 7(a).

 

7.3                               Insolvency (a) Maker is unable to pay its debts (including trade debts) as they become due; (b) Maker begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Maker and not dismissed or stayed within thirty (30) days.

 

7.4                               Misrepresentations.  Maker or any Person acting for Maker makes any representation, warranty, or other statement now or later in this Agreement, any Transaction Document or in any writing delivered to Holders or to induce Holders to enter this Agreement or any Transaction Document, and such representation, warranty, or other statement is incorrect in any material respect when made.

 

7.5                               Key Man Life Insurance Payment.  Maker receives payment from any claim made on the term life insurance policy for the Maker’s Chief Executive Officer.

 

8.                                      HOLDER’S RIGHTS AND REMEDIES.

 

8.1                               Rights and Remedies.  While an Event of Default occurs and continues for a period of more than thirty (30) days, Holders may, without notice or demand, do any or all of the following, subject at all times to the rights of any secured interest holders or senior debtors, as the case may be:

 

(a)                                 declare all Obligations immediately due and payable;

 

(b)                                 apply to the Obligations any balances and deposits of Maker it holds;

 

(c)                                  demand and receive possession of Maker’s Books; and

 

(d)                                 exercise all rights and remedies available to Holders under the Transaction Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

 

8.2                               Power of Attorney.  Maker hereby irrevocably appoints each Holder as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Maker’s name on any checks or other forms of payment or security and

 

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access and control deposits into and distributions from any of Maker’s bank accounts; (b) sign Maker’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms such Holder determines reasonable; (d) make, settle, and adjust all claims under Maker’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of either Holder or a third party as the Code permits.  Maker hereby appoints each Holder as its lawful attorney-in-fact to sign Maker’s name on any documents necessary to perfect or continue the perfection of either Holder’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full.  Each Holder’s foregoing appointment as Maker’s attorney in fact, and all of Holders’ rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed.

 

8.3                               Application of Payments and Proceeds Upon Default.  If an Event of Default has occurred and is continuing, either Holder may apply any funds in its possession, whether from Maker account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Holders together shall determine.  Any surplus shall be paid to Maker or other Persons legally entitled thereto; Maker shall remain liable to Holders for any deficiency.  If either Holder, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, such Holder shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Holders of cash therefor.

 

8.4                               No Waiver; Remedies Cumulative.  The failure by either Holder, at any time or times, to require strict performance by Maker of any provision of this Agreement or any other Transaction Document shall not waive, affect, or diminish any right of the Holders thereafter to demand strict performance and compliance herewith or therewith.  No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given.  Holders’ rights and remedies under this Agreement and the other Transaction Documents are cumulative.  Holders have all rights and remedies provided under the Code, by law, or in equity.  Any Holder’s exercise of one right or remedy is not an election and shall not preclude either Holder from exercising any other remedy under this Agreement or other remedy available at law or in equity, and any Holder’s waiver of any Event of Default is not a continuing waiver.  Any delay in exercising any remedy by either Holder is not a waiver, election, or acquiescence.

 

8.5                               Demand Waiver.  Maker waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Holders on which Maker is liable.

 

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9.                                      NOTICES.

 

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Transaction Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below.  Either Holder or Maker may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 9.

 

If to Maker:                                                                             U.S. Dry Cleaning Services Corporation
                                                                                                                                                  20250 Acacia St., Suite 230

Newport Beach, CA 92660

 

Attn:  Timothy N. Stickler, General Counsel
                                                                                                                                                  Fax:  (949) 734-7284
                                                                                                                                                  Email: tstickler@usdrycleaning.com

 

If to TFT:                                                                                          Taylor Family Trust
                                                                                                                                                  P.O. Box 1687
                                                                                                                                                  Bellflower, CA 90707

 

Attn:  Lester E. Taylor, Jr., Trustee
                                                                                                                                                  Fax:  (562) 925-5831
                                                                                                                                                  Email: skip.taylor1@gmail.com

 

If to WFT:                                                                                      Wilson Family Trust
                                                                                                                                                  P.O. Box 1687

 

Bellflower, CA 90707

 

Attn:  Clyde Wilson, Trustee
                                                                                                                                                  Fax:  (562) 925-5831 
                                                                                                                                                  Email: [kristenatpps@gmail.com]

 

10.                               CHOICE OF LAW, VENUE, AND JURY TRIAL WAIVER.

 

California law governs the Transaction Documents without regard to principles of conflicts of law.  Maker and Holders each submit to the exclusive jurisdiction of the State and Federal courts in Orange County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude either Holder from bringing suit or taking other legal action to enforce a judgment or other court order in favor of the Holders.  Maker expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Maker hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court.  Maker hereby waives personal service of the summons, complaints, and other process issued in such action or suit and

 

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agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Maker at the address set forth in Section 9 and that service so made shall be deemed completed upon the earlier to occur of Maker’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

TO THE EXTENT PERMITTED BY LAW, MAKER AND HOLDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR ANY TRANSACTION DOCUMENT, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

11.                               GENERAL PROVISIONS.

 

11.1                        Successors and Assigns.  This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Maker may not assign this Agreement or any rights or obligations under it without each Holder’s prior written consent (which may be granted or withheld in Holders’ discretion).  Holders have the right, without the consent of or notice to Maker, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Holders obligations, rights, and benefits under this Agreement and the other Transaction Documents.

 

11.2                        Indemnification.  Maker agrees to indemnify, defend and hold each Holder and its agents, attorneys, or any other Person affiliated with or representing either Holder (each, an “Indemnified Person”) harmless against:  (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party, including without limitation former debt holders security holders and/or vendors, in connection with the transactions contemplated by the Transaction Documents; and (b) all losses or expenses in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Holders and Maker contemplated by the Transaction Documents (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

 

11.3                        Fees.  Maker shall reimburse legal counsel, tax counsel, appraisal costs (if necessary) to holder for costs and expenses incurred by it in connection with the transactions contemplated by the Transaction Documents.  Concurrently with the execution of this Agreement, Maker shall pay, by wire transfer in U.S. Dollars and immediately available funds, the invoice(s) with respect to these expense amounts.

 

11.4                        Time of Essence.  Time is of the essence for the performance of all Obligations in this Agreement.

 

11.5                        Severability of Provisions.  Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

 

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11.6                        Correction of Transaction Documents.  Either Holder may correct patent errors and fill in any blanks in the Transaction Documents consistent with the agreement of the parties.

 

11.7                        Amendments in Writing; Waiver; Integration.  No purported amendment or modification of any Transaction Document, or waiver, discharge or termination of any obligation under any Transaction Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought; notwithstanding the foregoing, Maker may amend Schedule A at any time and from time to time during the term of this Agreement to identify any Advances.  The Transaction Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Transaction Documents merge into the Transaction Documents.

 

11.8                        Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

 

11.9                        Survival.  All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied.  The obligation of Maker in Section 11.2 to indemnify Holders shall survive until the statutes of limitations with respect to such claim or cause of action shall have run.

 

11.10                 Confidentiality.  In handling any confidential information, Holders shall exercise the same degree of care that they exercise for their own proprietary information, but disclosure of information may be made: (a) to either Holder’s Affiliates (such Affiliates, together with Holders, collectively, “Holder Entities”); (b) as required by law, regulation, subpoena, or other order; and (c) as either Holder considers appropriate in exercising remedies under the Transaction Documents.  Confidential information does not include information that is either: (i) in the public domain or in either Holder’s possession when disclosed to such Holder, or becomes part of the public domain after disclosure to such Holder; or (ii) disclosed to either Holder by a third party if such Holder does not know that the third party is prohibited from disclosing the information.

 

Holder Entities may use the confidential information for reporting purposes and the development and distribution of databases and market analyses so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly permitted by Maker.  The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

 

11.11                 Electronic Execution of Documents.  The words “execution,” “signed,” “signature” and words of like import in any Transaction Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

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11.12                 Captions.  The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

11.13                 Construction of Agreement.  The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement.  In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

 

11.14                 Relationship.  The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.  The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

11.15                 Third Parties.  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

11.16                 Usury.  The Advances, including the total obligation amount, are hereby expressly limited so that in no event whatsoever, whether by reason of acceleration of maturity of the loan evidenced hereby or thereby, or otherwise, shall the amount paid or agreed to be paid to Holders hereunder for the Advances, use, forbearance or detention of money exceed that permissible under California law.  If at any time the performance of any provision hereof involves a payment exceeding the limit of the price that may be validly charged for the Advances, use, forbearance or detention of money under applicable law, then automatically and retroactively, ipso facto, the obligation to be performed shall be reduced to such limit, it being the specific intent of Maker and Holders that all payments under this Agreement are to be credited first to interest as permitted by law, but not in excess of (i) the agreed rate of interest set forth herein or (ii) that permitted by California law, whichever is the lesser, and the balance toward the reduction of principal.  The provisions of this Section 11.16 shall never be superseded or waived and shall control every other provision of the Transaction Documents.  Maker represents and warrants that the proceeds of the Advances evidenced hereby will only be used for business purposes, as that term is defined in the Code.

 

12.                               DEFINITIONS.

 

12.1                        Definitions.  As used in the Transaction Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative.  As used in this Agreement, the following capitalized terms have the following meanings:

 

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“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Maker.

 

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

 

“Affiliate” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

 

“Agreement” is defined in the preamble hereof.

 

“Approved Acquisition” means Maker acquires, directly or indirectly (i) through any sale, lease, license, assignment, transfer, conveyance or other disposition all or substantially all of the assets of another Person in one or a series of related transactions or (ii) in one or more related transactions (including, without limitation, through a merger or series of mergers) more than 50% of the voting securities of another Person, where any such acquisition is approved by the Maker’s Board.

 

“Board” is Maker’s board of directors.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which banks are closed.

 

“Claims” is defined in Section 11.2.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, however, that, to the extent that the Code is used to define any term herein or in any Transaction Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided, further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, a Holder’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

 

“Collateral” consists of all of Maker’s right, title and interest in and to all real and personal property of Maker, including but not limited to:

 

(a)                                 all Accounts, including (i) all accounts receivable, other receivables, book debts, and other forms of obligations (other than forms of obligations evidenced by chattel paper, documents, or instruments), whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligations that may be characterized as an account or

 

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contract right under the Code), (ii) all purchase orders or receipts for goods or services, (iii) all rights to any goods represented by any of the foregoing (including unpaid sellers’ rights of rescission, replevin, reclamation, and stoppage in transit and rights to returned, reclaimed, or repossessed goods), (iv) all monies due or to become due to Maker under all purchase orders and contracts for the sale of goods or the performance of services or both by Maker or in connection with any other transaction (whether or not yet earned by performance on the part of Maker), including the right to receive the proceeds of said purchase orders and contracts, and (v) all collateral security and guaranties of any kind given by any person or entity with respect to any of the foregoing;

 

(b)                                 all “chattel paper,” as such term is defined in the Code;

 

(c)                                  all “commercial tort claims,” as such term is defined in the Code;

 

(d)                                 all “contracts,” as such term is defined in the Code, including all contracts, undertakings, or agreements (other than rights evidenced by chattel paper, documents, or instruments), including any agreement relating to the terms of payment or the terms of performance of any account of Maker;

 

(e)                                  all “deposit accounts,” as such term is defined in the Code;

 

(f)                                   all “documents,” as such term is defined in the Code;

 

(g)                                  all Equipment, including all machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment, and all engineering, processing, and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock, and other equipment of every kind and nature, trade fixtures, and fixtures, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties, and rights with respect thereto;

 

(h)                                 all “fixtures,” as such term is defined in the Code;

 

(i)                                     all “goods,” as such term in defined in the Code;

 

(j)                                    all “instruments,” as such term is defined in the Code, including all certificated securities, all certificates of deposit, and all notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, chattel paper;

 

(k)                                 all Inventory, including inventory, merchandise, goods, and other personal property that are held by or on behalf of Maker for sale or lease or are furnished or are to be furnished under a contract of service, or that constitute raw materials, work in process, or materials used or consumed or to be used or consumed in Maker’s business or in the processing, production, packaging, promotion, delivery, or shipping of the same, including other supplies;

 

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(l)                                     all “investment property,” as such term is defined in the Code, including:  (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of Maker, including the rights of Maker to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts held by Maker; (iv) all commodity contracts held by any person or entity; and (v) all commodity accounts held by any person or entity;

 

(m)                             all “supporting obligation,” as such terms is defined in the Code;

 

(n)                                 all “letters of credit rights,” as such term is defined in the Code;

 

(o)                                 all money, cash, or cash equivalents of Maker;

 

(p)                                 all books and records (including, without limitation, customer lists, credit files, computer programs, printouts, and other computer materials and records) of Maker pertaining to any of the foregoing;

 

(q)                                 all General Intangibles, including, but not limited to all Intellectual Property;

 

(r)                                    to the extent not otherwise included, all “proceeds,” as such term is defined in the Code, of the foregoing in any form, including, without limitation: (i) any and all proceeds of any insurance, indemnity, warranty, or guaranty payable to any person or entity from time to time with respect to any of the foregoing, (ii) any and all payments (in any form whatsoever) made or due and payable to any person or entity from time to time in connection with any requisition, confiscation, condemnation, seizure, or forfeiture of all or any part of the foregoing by any governmental authority (or any person or entity acting under color of governmental authority), (iii) any claim of any person or entity against third parties (A) for past, present, or future infringement of any patent or patent license, or (B) for past, present, or future infringement or dilution of any copyright, copyright license, trademark, or trademark license, or for injury to the goodwill associated with any trademark or trademark license, (iv) any recoveries by any person or entity against third parties with respect to any litigation or dispute concerning any of the foregoing, and (v) any and all other amounts from time to time paid or payable under or in connection with any of the foregoing, upon disposition or otherwise.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

 

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“Copyrights” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

 

“Effective Date” is defined in the preamble hereof.

 

“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

 

“Event of Default” is defined in Section 7.

 

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

 

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

 

“Holder” is defined in the preamble hereof.

 

“Holder Entities” is defined in Section 11.10.

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

 

“Indemnified Person” is defined in Section 11.2.

 

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“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual Property” means all of Maker’s right, title, and interest in and to the following:

 

(a)                                 its Copyrights, Trademarks and Patents;

 

(b)                                 any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;

 

(c)                                  any and all source code;

 

(d)                                 any and all design rights which may be available to a Maker;

 

(e)                                  any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and

 

(f)                                   all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

 

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Maker’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

 

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

“Maker” is defined in the preamble hereof.

 

“Maker’s Books” are all Maker’s books and records including ledgers, federal and state tax returns, records regarding Maker’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

 

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“Obligations” are Maker’s obligations to pay when due any debts, principal, interest, and other amounts Maker owes either Holder now or later, whether under this Agreement, the Transaction Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Maker assigned to either Holder, and the performance of Maker’s duties under the Transaction Documents.

 

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

“Permitted Indebtedness” is:

 

(a)                                 Maker’s Indebtedness to Holders under this Agreement and the other Transaction Documents;

 

(b)                                 All Indebtedness in existence as of the Effective Date;

 

(c)                                  Indebtedness incurred after the Effective Date, approved by the Board, that is not secured by any Liens on the Collateral;

 

(d)                                 Indebtedness incurred after the Effective Date, approved by either Holder;

 

(e)                                  Senior Carve-Out Indebtedness;

 

(f)                                   Unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

 

(g)                                  Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

 

(h)                                 Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder; and

 

(i)                                     extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness under clauses (a) through (g) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Maker.

 

“Permitted Liens” are:

 

(a)                                 Liens existing on the Effective Date created or perfected in connection with any Permitted Indebtedness or arising under this Agreement and the other Transaction Documents;

 

(b)                                 Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable, (ii) being contested in good faith and for which Maker maintains adequate reserves on its Books, or (iii) was levied as part of a claim identified in Maker’s First Amended Joint and Consolidated Chapter 11 Plan of Reorganization Dated September 14, 2011, as Further Modified;

 

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(c)                                  purchase money Liens or capital leases (i) on Equipment acquired or held by Maker incurred for financing the acquisition of the Equipment securing no more than $100,000 in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

(d)                                 Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in clauses (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

 

(e)                                  licenses or sublicenses in the ordinary course of Maker’s business and, with respect to any licenses where any Maker is the licensee, any interest or title of a licensor or under any such license or sublicense;

 

(f)                                   carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Maker; and

 

(g)                                  deposits to secure the performance of bids, trade contracts (other than for borrowed money), contracts for the purchase of property, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case, incurred in the ordinary course of business and not representing an obligation for borrowed money.

 

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

 

“Pro Notes” means the 10% Senior Secured Promissory Notes issued to certain professionals and advisors to Maker as partial payment for services rendered to Maker in an original aggregate principal amount of $407,000.

 

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Responsible Officer” is any of the Chief Executive Officer, President and Chief Financial Officer of Maker.

 

“Senior Carve-Out Indebtedness” means any existing or new operating leases or loans not to exceed $750,000 in the aggregate secured by the existing collateral or replacement assets.

 

“Subsequent Public Offering” is a public offering of Maker’s securities closing after the Effective Date, whether in a bona fide firm commitment underwritten public offering or in a sale through retail brokers organized by an underwriter.

 

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“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Maker connected with and symbolized by such trademarks.

 

“Transaction Documents” are, collectively, this Agreement, the Intercreditor Agreement, any note, or notes or guaranties executed by Maker, and any other present or future agreement between Maker and/or for the benefit of Holders, all as amended, restated, or otherwise modified.

 

[Remainder of Page Intentionally Left Blank; Signature Page to Follow]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.

 

 

	
 
    	
MAKER:
    
	
 
    	
 
    
	
 
    	
U.S.   DRY CLEANING SERVICES CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/S/   Alex Bond
    
	
 
    	
Alex   Bond, Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
HOLDERS:
    
	
 
    	
 
    
	
 
    	
TAYLOR   FAMILY TRUST
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/S/   LESTER E. TAYLOR, JR.
    
	
 
    	
Lester   E. Taylor, Jr., Trustee
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
WILSON   FAMILY TRUST
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/S/   WILSON FAMILY TRUST
    
	
 
    	
Clyde   Wilson, Trustee
    

 

 

SCHEDULE A — ADVANCES

 

	
No.
    	
 
    	
Date
    	
 
    	
Amount
    	
 
    	
Purpose
    	
 
    
	
1.
    	
 
    	
Effective Date
    	
 
    	
$
    	
150,000
    	
 
    	
Working capital Advance funded 50% by the Taylor   Family Trust and 50% by the Wilson Family Trust
    	
 
    
	
2.
    	
 
    	
August 11, 2014
    	
 
    	
$
    	
150,000
    	
 
    	
Working capital Advance funded 100% by the Taylor   Family Trust
    	
 
    
	
3.
    	
 
    	
August 27, 2014
    	
 
    	
$
    	
100,000
    	
 
    	
Working capital Advance funded 100% by the Taylor   Family Trust
    	
 
    
	
4.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
5.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
6.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
7.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
8.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
9.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
10.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
11.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
12.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
13.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
14.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Total:
    	
 
    	
$
    	
400,000
    	
 
    	
 
    	
 
    

 

 

EXHIBIT A — INTERCREDITOR AGREEMENTExhibit 10.54

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into as of January 17, 2014 (the “Effective Date”) by and between U.S. Dry Cleaning Services Corporation, a Delaware corporation (the “Company”), and Setal 9 Trust (“Setal 9”) and Setal 10 Trust (“Setal 10” and together with Setal 9 each, including their successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

This Agreement is made in connection with (i) five-year Warrant (RN-1) issued to Setal 9 Trust on August 22, 2012 (the “Setal 9 Warrant “) for the purchase of up to 274,950 shares of the Company’s Common Stock (the “Setal 9 Shares”) and (ii) the five-year Warrant (WC-1) originally issued to Wattles Capital Management, LLC on February 23, 2012 and subsequently purchased by Setal 10 Trust on September 9, 2013 (the “Setal 10 Warrant”) for the purchase of up to 275,000 shares of the Company’s Common Stock (the “Setal 10 Shares”).

 

The Company is obligated to register for resale shares of its Common Stock issuable upon exercise and/or conversion of the following securities: (i) 10% Senior Secured Original Issue Discount Convertible Debentures Due September 23, 2015 and Warrants issued pursuant to that certain Securities Purchase Agreement, dated September 23, 2011, (ii) 10% Senior Secured Original Issue Discount Convertible Debentures Due September 23, 2015 and Warrants issued pursuant to that certain Securities Purchase Agreement, dated September 27, 2011, and (iii) 10% Subordinated Secured Convertible Debentures and Warrants issued pursuant to that certain Securities Purchase Agreement, dated September 23, 2011 (collectively, including any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing, the “Previous Shares”).

 

The Company and the Purchaser hereby agree as follows:

 

1.             Definitions.  As used in this Agreement, the following terms shall have the following meanings:

 

“Advice” shall have the meaning set forth in Section 6(c).

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the Company’s common stock, par value $.001.

 

“Cut-back” and “Cut-back Shares” shall have the meanings set forth in Section 2(a).

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

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“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

“Losses” shall have the meaning set forth in Section 5(a).

 

“Other Shares” shall have the meaning set forth in Section 2(a).

 

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

 

“Previous Shares” shall have the meaning set forth in the Recitals.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means all of (i) Setal 9 Shares, (ii) Setal 10 Shares, and (iii) any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

 

“Registration Statement” means the registration statements required to be filed hereunder, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

“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 purpose and effect as such rule.

 

“Rule 415” means Rule 415 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 purpose and effect as such rule.

 

“Rule 424” means Rule 424 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 purpose and effect as such rule.

 

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“Securities Act” means the Securities Act of 1933, as amended.

 

“Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a).

 

“Subsequent Public Offering” is a public offering of the Company’s securities closing after the Effective Date, whether in a bona fide firm commitment underwritten public offering or in a sale through retail brokers organized by an underwriter.

 

“Transaction Documents” means this Agreement, the Setal 9 Warrant and the Setal 10 Warrant and all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

2.             Registration Statement.

 

(a)           Within six (6) months of the closing of a Subsequent Public Offering, subject to the Company’s obligation to register the Previous Shares, the Company shall prepare and file with the Commission a Registration Statement covering the resale of 100% of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415; provided, however, that if after the Company files a Registration Statement with the Commission covering the Registrable Securities the Commission takes the position that the offering of some or all of the securities included in the Registration Statement are not eligible to be made on a delayed or continuous basis under the provisions of Rule 415, the Company shall amend the Registration Statement prior to its effectiveness to remove from the Registration Statement such portion of the Registrable Securities (the “Cut-back Shares”) and/or agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the Commission may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”).  The Company’s obligation to file a Registration Statement pursuant to this Section 2 shall be subject to the Company first meeting its obligations to register the Previous Shares. The Company intends to meet its registration obligations with respect to the Previous Shares by including in the Registration Statement all Previous Shares along with the Registrable Securities.  In the event of a cut-back pursuant to this Section 2(a) (a “Cut Back”) and unless the SEC Restrictions require otherwise, the registration of the Registrable Securities shall be subject to the priority registration of the Previous Shares such that the securities that are entitled to be included in the registration shall first be allocated to the Previous Shares (subject to such allocation priorities as set forth in the registration rights agreements for such Previous Shares) and second to the Registrable Securities.  In the event that holders of securities other than the Registrable Securities and the Previous Shares are entitled to registration rights (“Other Shares”), the securities that are entitled to be included in the registration shall first be allocated to the Previous Shares, second to the Registrable Securities and, thereafter, to the Other Shares, subject to such allocation priorities as set forth in the registration rights agreements for such Other Shares.  The Registration Statement shall contain the “Plan of Distribution” section substantially in the form attached hereto as Annex A, with such changes as are reasonably required to respond to any comments to such section by the

 

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Commission and to comply with then applicable securities laws.  Subject to the terms of this Agreement, the Company shall use its reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until the earlier of (A) the date that is two years after the date the Registration Statement is initially declared effective, (B) the date that is six months after the date on which all the Warrant Shares and the Distribution Shares are issued to the Holders, (C) the date on which there ceases to be outstanding any Registrable Securities, and (D) the date on which the Company receives an opinion from its legal counsel to the effect that Rule 144 is available for the resale of all Registrable Securities except for the requirement for the Company to be in compliance with the current public information requirements of Rule 144 (the “Effectiveness Period”).

 

(b)           The parties hereto agree that the Company will not be required to use a Registration Statement for any registration in which securities of the Company are sold to an underwriter for reoffering to the public, and the Company will in no event be required to cooperate with or pay for any such underwritten offering.

 

3.             Registration Procedures.  In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a)           Not less than three trading days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of the “Principal and Selling Stockholders” and “Plan of Distribution” sections of such Registration Statement, if such sections have been revised since the previous filing of such Registration Statement or any amendment or supplement thereto, which sections will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than two trading days after the Holders have been so furnished copies of such documents.  In order to be included in such registration, each Holder agrees to furnish to the Company a completed questionnaire related to such registration (a “Questionnaire”) not less than three calendar days after written request therefore has been made by the Company.  The securities owned by any Holder who fails to timely forward to the Company the completed Questionnaire shall be excluded from the registration.

 

(b)           (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously

 

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effective as to the Registrable Securities not subject to the Cut-Back for the Effectiveness Period; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and, upon written request by the Holders of at least 25% of the Registrable Securities included in such Registration Statement, as promptly as reasonably possible provide such Holders with true and complete copies of all material written correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c)           Use its commercially reasonable efforts to notify the Holders (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible and (if requested by any Holder of at least 25% of the Registrable Securities included in a Registration Statement) confirm such notice in writing (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement has been filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided that any and all of such information shall be kept confidential by

 

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each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, that notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information.

 

(d)           Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(e)           Furnish to each Holder, without charge, to the extent requested in writing by such Holder, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to such Registration Statement (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

 

(f)            Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Holder may reasonably request in writing in connection with resales by such Holder.  Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(c).

 

(g)           Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

(h)           If requested by a selling Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

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(i)            Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in accordance with clauses (ii) through (vi) of Section 3(c) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(i) to suspend the availability of a Registration Statement and Prospectus for a period not to exceed 40 trading days (which need not be consecutive days) in any 12 month period.

 

(j)            Comply with all applicable rules and regulations of the Commission until the end of the Effectiveness Period.

 

(k)           The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and the person who has voting and dispositive control over such shares.  The Company shall have no obligation to keep a Prospectus usable or to give notice that a Prospectus is not usable by a particular Holder, and the Company will have no liability for, to the extent such Prospectus is not usable by such Holder because current information with respect to such Holder is not included therein because such Holder has not provided information to the Company in accordance with Section 3(a) or this Section 3(k).

 

(l)            Notwithstanding any provision of this Agreement to the contrary, it shall not be a breach or violation of any obligation of the Company hereunder if the Company fails to take any action otherwise required hereunder because, in its reasonable determination, such action would require the Company to disclose material, non-public information that the Company has a bona fide business or legal reason for not disclosing regardless of whether the Company caused such material, non-public information to exist.

 

4.             Registration Expenses.  All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement.  The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the trading market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the

 

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Company in writing (including without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested in writing by the Holders), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in a Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any trading market as required hereunder.  In no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

5.             Indemnification.

 

(a)           Indemnification by the Company.  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that each Holder has expressly approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the

 

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Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.

 

(b)           Indemnification by Holders.  Each Holder shall, severally and not jointly, indemnify and hold harmless each other Holder, the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act, or (y) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) or (z) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or (ii) to the extent that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement (it being understood that each Holder has expressly approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto.  In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c)           Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

 

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten trading days following written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.

 

(d)           Contribution.  If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by

 

10

 

such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

 

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6.             Miscellaneous.

 

(a)           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.

 

(b)           Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

(c)           Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable.

 

(d)           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 portable document format (“PDF”) email attachment to

 

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the e-mail address set forth on the signature page(s) attached hereto prior to 5:30 p.m. (California time) on a Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via PDF email attachment to the e-mail address set forth on the signature page(s) attached hereto on a day that is not a Business Day or later than 5:30 p.m. (California time) on any Business Day, (c) the 2nd Business 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 page(s) 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.

 

(e)           Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majority of the then outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

 

(f)            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.

 

(g)           Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder.  The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities except in the case of a merger (or similar transaction) in which case the surviving entity shall succeed to the rights and obligations of the Company.

 

(h)           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.

 

(i)            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.

 

(j)            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,

 

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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.

 

(k)           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.

 

(l)            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.

 

(m)          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.

 

(n)           Remedies.  In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

 

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(o)           No Inconsistent Agreements.  The Company has not, as of the date hereof, nor shall the Company, during the period beginning on or after the date of this Agreement and ending at the end of the Effectiveness Period, enter into any agreement with respect to its securities without the prior written consent of all of the Holders of the then-outstanding Registrable Securities, that would conflict with the provisions hereof.

 

(p)           Independent Nature of Holders’ Obligations and Rights.  The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder.  Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement.  Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any Proceeding for such purpose.

 

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

 

	
 
    	
U.S.   DRY CLEANING SERVICES CORPORATION, a Delaware corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Alex M. Bond
    
	
 
    	
Alex   M. Bond, Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SETAL   9 TRUST
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Lester E. Taylor, Jr.
    
	
 
    	
Lester   E. Taylor, Jr., Trustee
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SETAL   10 TRUST
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Lester E. Taylor, Jr.
    
	
 
    	
Lester   E. Taylor, Jr., Trustee
    

 

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ANNEX A

 

The selling security holders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or quoted in private transactions.  These sales may be at prevailing market prices at the time of sale, or at privately negotiated prices.  The selling security holders may use any one or more of the following methods when selling shares of our common stock:

 

·                  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

·                  block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

·                  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

·                  an exchange distribution in accordance with the rules of the applicable exchange;

 

·                  privately negotiated transactions;

 

·                  broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;

 

·                  a combination of any such methods of sale; and

 

·                  any other method permitted pursuant to applicable law.

 

The selling security holders may also sell shares of our common stock under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

The selling security holders may not “short sell” (as defined in Rule 200 of Regulation SHO under the Exchange Act) any share of our common stock.

 

Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated.  The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.  Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act.  Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling security holder.  The selling security holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

A-1

 

The selling security holders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

 

The selling security holders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.

 

The selling security holders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

We are required to pay all fees and expenses incident to the registration of the shares of common stock.  We have agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

The selling security holders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling security holder.  If we are notified by any selling security holder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus.  If the selling security holders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.

 

The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the selling security holders.

 

A-2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00236-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00236-of-00352.parquet"}]]