Document:

usdc_8k-ex1001.htm

     

    Exhibit 10.1

    
 

    SECURED
PARTY SALE AGREEMENT

    

    This Secured Party Sale Agreement (the
“Agreement”) is entered
into as of March 21, 2008, by and between NewStar Financial, Inc., a Delaware
corporation (“Seller”),
as administrative agent and  lender under the Credit Agreement (as
hereinafter defined), USDC Portsmouth, Inc., a California corporation (“Purchaser”), and U.S. Dry
Cleaning Corporation, a Delaware corporation (“Parent”).

    

    WITNESSETH

    

    WHEREAS, Seller has a duly
perfected security interest in and lien on substantially all of the assets of
Zoots Corporation, a Delaware corporation (“Zoots”), Zoots Holding
Corporation, a Delaware corporation (“Holding”), Delivery LLC, a
Delaware limited liability company (“Delivery,” and together with
Zoots and Holding, the “Companies,” each of which may
be referred to from time to time herein individually as a “Company”), and Widmer’s, LLC,
a Delaware limited liability company (“Widmer’s”), to secure all
liabilities, obligations and indebtedness owing to Seller under that certain
Credit and Security Agreement dated as of April 1, 2005 among Zoots as
borrower, Holding, Delivery and Widmer’s as guarantors, and Seller (as successor
lender thereunder) (as amended from time to time, the “Credit Agreement”), and the
other agreements, documents and instruments entered into in connection therewith
(collectively, the “Credit
Documents”);

     

    WHEREAS, Events of Default (as
defined in the Credit Agreement) have occurred and are continuing;

     

    WHEREAS, as a result of such
Events of Default and contemporaneously with the execution and delivery hereof,
Seller is conducting a private sale to Purchaser pursuant to Section 9-610 of
the UCC (as defined below) of certain of the assets of the
Companies;

     

    WHEREAS, the Companies have
consented to the sale provided for in this Agreement and have entered into an
Assignment and Assumption Agreement with Purchaser of even date herewith (the
“Assignment Agreement”),
which, among other things, provides for the assignment to Purchaser at Closing
of certain contracts to which the Companies are party; and

     

    WHEREAS, the parties desire to
memorialize the terms and conditions under which Seller will sell to Purchaser,
and Purchaser will purchase from Seller, certain of the assets of the
Companies.

     

    NOW THEREFORE, in
consideration of the mutual covenants and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ARTICLE
1

    THE
TRANSACTIONS; CLOSING

     

    1.1.           Purchase and Sale of Purchased
Assets.  Subject to the terms and conditions of this Agreement,
at the Closing (as hereinafter defined), Seller, in its capacity as a secured
creditor conducting a private foreclosure sale pursuant to Section 9-610 of the
UCC, shall sell, transfer, assign and deliver to Purchaser, and Purchaser shall
purchase from Seller, all of the Companies’ rights in and to the assets of the
Companies’ assets described on Schedule
1.1 hereof (all of such assets being referred to herein as the “Purchased
Assets”).

     

    1.2.           Excluded Assets.
Notwithstanding anything to the contrary contained in this Agreement, the
Purchased Assets do not include:  (a) those assets described in
clauses (i), (vi) (to the extent that any fixtures are deemed are to be real
estate requiring a filing with local records), (xii) and (xiii) of Section 2(q)
to the Assignment Agreement (to the extent  Seller does not have a
perfected security interest under applicable law), and those assets described on
Schedule 3(a)
of the Assignment Agreement (to the extent  Seller does not have a
perfected security interest under applicable law), (b) except $15,000 of the
Companies cash on hand in Virginia and $52,400 of deposits currently in
possession of landlords under real estate leases being assigned to the Purchaser
under the Assignment Agreement, the Companies’ cash, including deposits and
escrows held by others, (c) all amounts due to any Company from any other
Company or Widmer’s, (d) any equity interests owned or held by any Company, (e)
any deposit or investment account of any Company at any financial institution,
(f) any real estate assets, including, without limitation, any rights under any
leases and fixtures (to the extent perfection of the security interest in such
fixtures requires a filing with land records), (g) motor vehicles, (h) any other
assets in which Seller does not have a perfected security interest, and (i)
rights of the Companies in its trademarks and trade names and the rights of
third parties to use such trademarks and tradenames in any jurisdictions other
than Georgia, Maryland,  North Carolina, South Carolina and
Virginia.

     

    1.3.           Certain
Definitions.  Capitalized terms not defined herein shall have
the meaning set forth in the Assignment Agreement.  For purposes of
this Agreement, the following terms shall have the meanings indicated
below:

     

    (a)           “Affiliate” means, with respect
to any specified Person, any other Person directly or indirectly controlling,
controlled by or under common control with such specified Person.

     

    (b)           “Key Landlord Consents” means,
collectively, written estoppels and consents from the Companies’ landlords with
respect to the following stores:   Store No. 76, in form and
substance reasonably satisfactory to Purchaser.

     

    (c)           “Lien” means any security
interest, mortgage, lien, pledge, adverse claim, interest, charge, option,
conditional sale or other title retention agreement, or other similar
encumbrance.

     

    
      
         

      

      
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    (d)           “Person” means an individual, a
corporation, a partnership, a limited liability company, a trust, an
unincorporated association, a governmental entity or any agency, instrumentality
or political subdivision of a governmental entity, or any other entity or
body.

     

    (e)           “UCC” means the Uniform
Commercial Code as in effect from time to time in the Commonwealth of
Massachusetts.  Section references herein with respect to the UCC are
to Article 9 of the Uniform Commercial Code as in effect from time to time in
the Commonwealth of Massachusetts.

     

    1.4.           Consideration.  The
consideration (the “Consideration”) to be given by
Purchaser for the Purchased Assets shall consist of the following:

     

    (a)           $764,929
which shall be paid in cash to Seller on the Closing Date (less the deposit
amount paid by Purchaser pursuant to Section 1.4(c) below and the amount paid to
the Seller in escrow pursuant to Section 1.7 below) in immediately available
funds via wire transfer, in accordance with wire instructions to be provided by
Seller at or prior to the Closing; and

     

    (b)           Purchaser’s
10% Senior Secured Note in the initial principal amount of $975,000 made to the
order of Seller (the “Note”), as described in
Section 1.5 below (the sum of Sections 1.4(a) and 1.4(b) are the “Purchase Price”), the payment
of which Note shall be unconditionally guaranteed by the Parent pursuant to a
guaranty substantially in the form of Exhibit A (the “Guaranty”).

     

    (c)           Upon
execution of this Agreement, Purchaser shall have paid to Seller a deposit in
the amount of $100,000 (the “Deposit”), to be
credited against the Purchase Price for the Purchased Assets conveyed pursuant
to the Sale Agreement.  The Deposit shall be held in escrow until
Closing, and shall be refunded unless (i) the Assignment Agreement is terminated
in accordance with Section 8(a)(iii) thereof, (ii) this Agreement is terminated
pursuant to Section 6.1(c) hereof, or (iii) the transactions contemplated by
this Agreement and the Assignment Agreement has closed on the Closing
Date.  If the deposit is to be refunded, the Seller shall promptly
cause the Deposit to be returned to Purchaser on March 25, 2008 unless otherwise
agreed by the parties hereto in writing.

     

    1.5.           Note, Security Agreement and
Pledge.  The Note to be delivered by Purchaser to Seller
pursuant to Section 1.4(b) above shall be in substantially the form of Exhibit B
hereto.  The Note shall mature six (6) months after the Closing Date,
with interest payable on a bi-monthly basis.  The Note will be secured
by (i) a second priority security interest in all tangible and intangible
property, whether now existing or hereafter acquired or created, of Purchaser,
and (ii) a second priority pledge of the shares of the Purchaser by the Parent
((i) and (ii) are collectively, the “Collateral”) pursuant to a
security agreement substantially in the form of Exhibit C (the “Security Agreement”), and a
pledge agreement substantially in the form of Exhibit D (the “Pledge
Agreement”).  Purchaser would be prohibited from pledging the
Collateral to secure any other indebtedness, liability or obligation, provided
that nothing herein, or in the Security Agreement, shall prohibit Purchaser from
granting purchase money security interests solely in assets financed by
unrelated third parties.

     

    
      
         

      

      
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    1.6.           Closing.  The
transactions contemplated hereby (the “Transactions”) shall take
place at a closing (the “Closing”) to be held on (a)
the earlier of March 24, 2008, and five (5) business days after the satisfaction
or waiver of the conditions at Closing specified in Article 5 hereof (other than
those conditions which are normally performed at the Closing, but subject to the
satisfaction or waiver of such conditions), or (b) such other date as agreed to
in writing by Seller and Purchaser (the “Closing Date”).  The
Closing may be conducted remotely by exchanging signatures via electronic
transmission, with original signatures to be exchanged via overnight
mail.

     

    1.7.           Retention in Connection with Key
Landlord Consents.  If the Companies fail to deliver the Key
Landlord Consent on or prior to the Closing Date, Purchaser shall pay in escrow
to Seller on the Closing Date $38,744, less 50% of each Retained Amount (as
hereinafter defined) with respect to which a Key Landlord Consent has been
obtained on or before the Closing Date and the related security
deposit.  The Consideration may be reduced by the following amounts
(collectively, the “Retained
Amounts”):  (i) with respect to Store No. 76, $70,000, and (ii)
the amount of the security deposit under the foregoing lease, as hereinafter
provided.  On May 1, 2008, with respect to lease above for which a Key
Landlord Consent has not been timely obtained, Purchaser shall promptly instruct
the Seller, in writing, to transfer 50% of the Retained Amount (together with
the related security deposit) to Purchaser from the escrow, and 50% shall be
set-off by Purchaser against the payments due under the Note (in which event the
Note shall be deemed to be automatically amended accordingly)(effective May 1,
2008) in accordance with the terms hereinafter set forth.  In the
event that the Companies or the Seller subsequently deliver any such Key
Landlord Consent to Purchaser on or prior to April 30, 2008, Purchaser shall
promptly instruct Seller, in writing, to transfer to Seller the cash component
of the Retained Amount, together with the related security deposit, with respect
to such Key Landlord Consent..  In the event that the Companies fail
to deliver the Key Landlord Consent to Purchaser on or prior to April 30, 2008,
the Consideration shall automatically be reduced by an amount equal to the
relevant Retained Amount and the amount of the related security deposit, and (x)
Purchaser shall promptly instruct Seller, in writing, to transfer to Purchaser
from the escrow the cash component of such Retained Amount and the related
security deposit and (y) Purchaser shall set-off the remaining 50% of the
relevant Retained Amount against the payments due under the Note, in which event
the Note shall be deemed to be automatically amended accordingly (effective May
1, 2008).  If the principal amount of Note is deemed to be
automatically amended in accordance with this Section 1.7, Purchaser shall
promptly deliver to Seller a replacement Note (identical in all regards to the
previous Note other than with respect to the reduced principal amount) which
Seller shall exchange for such previous Note.

     

    ARTICLE
2

    REPRESENTATIONS
AND WARRANTIES OF SELLER

     

    Seller hereby represents and warrants
to Purchaser that each of the statements contained in this Article 2 is true and
correct on the date hereof, and as of the Closing Date:

     

    2.1.           Organization, Power and
Standing.  Seller and Lender is duly organized, validly
existing and in good standing under the laws of the state of its organization,
and in the case of Seller, has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations
hereunder.  Seller is the duly appointed and acting agent of the
Lender, with full power and authority to act on its behalf in the manner set
forth in, or as contemplated by, this Agreement.

     

    
      
         

      

      
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    2.2.           Due
Authorization.  Seller has full power and authority and has
taken all required action on its part necessary to permit it to execute and
deliver and to carry out the terms of this Agreement and the other agreements,
instruments and documents contemplated hereby.

     

    2.3.           Seller Liens; Sale
Process.  The Companies’ liabilities to Seller (as agent for
the Lenders) are secured by valid, duly perfected liens on and security
interests in favor of Seller against all of the Purchased Assets.  The
Companies are in default under the Credit Documents and, as a result, Seller is
entitled to conduct the private foreclosure sale provided for in this Agreement
and exercise all available remedies under the UCC and to sell, transfer and
convey all of the Companies’ rights in and to the Purchased Assets to Purchaser
pursuant to this Agreement.  Neither Seller nor any Lender has
transferred or otherwise assigned or conveyed any right, title or interest of
any Company in and to the Purchased Assets pursuant to Section 9-610 of the UCC
or otherwise to any Person or entered into any agreement, other than this
Agreement, providing therefor.  Seller has or at Closing will have
appropriate access to the Purchased Assets to allow for a sale to be completed
pursuant to the Credit Documents and Section 9-610 of the UCC.  Seller
has taken, or will take at or prior to Closing, all actions necessary under the
UCC and the Credit Documents to conduct a commercially reasonable sale of the
Purchased Assets under the UCC pursuant to a private foreclosure sale under
Section 9-610 thereof, and to transfer the rights of the Companies in and to the
Purchased Assets in accordance with the provisions of the UCC and this
Agreement.  The conveyance contemplated in this Agreement complies
with the requirements of Article 9 of the UCC with respect to the Purchased
Assets.

     

    2.4.           Validity and
Enforceability.  This Agreement is, and each of the other
agreements, documents and instruments contemplated hereby to which Seller or any
Lender is a party shall be when executed and delivered by Seller or such Lender,
the valid and binding obligations of Seller or such Lender enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, and by laws related to the
availability of specific performance, injunctive relief or other equitable
remedies.

     

    2.5.           No
Conflict.  Neither the execution and delivery of this Agreement
nor the consummation of the Transactions will (i) violate the organizational
documents or governing instruments of Seller or any Lender; (ii) violate, be in
conflict with, or constitute a default under, or require the consent of any
third party to, any contract or other agreement to which Seller or any Lender is
a party (including but not limited to the Credit Agreement, any forbearance or
other agreement any Company and Seller), or any contract or other agreement
included in the Purchased Assets or to be assigned to Purchaser pursuant to the
Assignment Agreement; or (iii) violate any statute, law, regulation, judgment,
order or decree of any Governmental Authority applicable to Seller or any
Lender.

     

    
      
         

      

      
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    2.6.           Brokers;
Agents.  Seller has not dealt with any agent, finder, broker or
other representative in any manner which could result in Purchaser being liable
for any fee or commission in connection with the subject matter of this
Agreement or the Transactions.

     

    2.7.           Litigation.  To the
knowledge of Seller, there is no order, litigation, action or proceeding pending
or threatened against Seller to be brought before any Governmental Authority
seeking to enjoin, restrain or prohibit the Transactions or that may (or be
reasonably expected to) adversely effect the ability of Purchaser to own or
operate the Purchased Assets.  To the knowledge of Seller, there is no
litigation or action pending or threatened against Seller that might call into
question the validity of this Agreement or the other documents evidencing the
Transactions, or any action taken or to be taken pursuant hereto or
thereto.

     

    2.8.           Companies’ Obligations to
Seller.  Seller is the sole holder of all promissory notes
evidencing the Companies’ obligations under the Credit Agreement, and is
currently the sole lender thereunder.

     

    2.9.           No Other Representations or
Warranties.  Seller acknowledges that neither Purchaser nor any
of its managers, officers, members, subsidiaries, employees, consultants, agents
or advisors makes or has made any representation or warranty to Seller, any
Lender, or their Affiliates, except for the representations and warranties made
by Purchaser and expressly set forth in Article 3 of this
Agreement.

     

    ARTICLE
3

    REPRESENTATIONS
AND WARRANTIES OF PURCHASER AND PARENT

     

    Purchaser and Parent each represents
and warrants to Seller that each of the statements contained in this Article 3
is true and correct as of the date hereof and as of the Closing
Date:

     

    3.1.           Organization, Power and
Standing.  Purchaser is duly organized, validly existing and in
good standing under the laws of the State of California, and has all requisite
power and authority to execute and deliver this Agreement, the Note, and the
Security Agreement and to perform its obligations hereunder and
thereunder.  Parent is duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite power
and authority to execute and deliver this Agreement and the Pledge Agreement and
to perform its obligations hereunder and thereunder.

     

    3.2.           Authority.  Purchaser
and Parent each has full power and authority and has taken all required action
on its part (including board and stockholder approval, as applicable) necessary
to permit it to execute and deliver and to carry out the terms of this Agreement
and the other agreements, instruments and documents of Purchaser and Parent
contemplated hereby.

     

    3.3.           No-Conflict.  Neither
the execution and delivery of this Agreement nor the consummation of the
Transactions will (i) violate the organizational documents or governing
instruments of Purchaser or Parent; (ii) violate, be in conflict with, or
constitute a default under, or require the consent of any third party to, any
contract or other agreement to which Purchaser or Parent is a party; or (iii)
violate any statute, law, regulation, judgment, order or decree of any
Governmental Authority applicable to Purchaser or Parent.

     

    
      
         

      

      
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    3.4.           Validity and
Enforceability.  This Agreement is, and each of the other
agreements, documents and instruments contemplated hereby to which Purchaser and
/or Parent is a party shall be when executed and delivered by Purchaser and/or
Parent, the valid and binding obligations of Purchaser and Parent,
respectively,  enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, and by laws related to the availability of specific performance,
injunctive relief or other equitable remedies.

     

    3.5.           Financial
Ability.  Purchaser has the financial capability to consummate
the Transactions contemplated by this Agreement and Purchaser understands that
Purchaser’s obligations hereunder are not in any way contingent or otherwise
subject to (i) Purchaser’s consummation of any financing arrangements or
Purchaser obtaining any financing or (ii) the availability of any financing to
Purchaser.

     

    3.6.           No Other Representations or
Warranties.  Purchaser and Parent each acknowledges that
neither Seller nor any of its directors, officers, stockholders, employees,
consultants, agents or advisors makes or has made any representation or warranty
to Purchaser, Parent, its Affiliates or its financing sources and that the
Purchased Assets are being conveyed to Purchaser “as-is and where-is,” except
for the representations and warranties made by Seller expressly set forth in
Article 2 of this Agreement.

     

    3.7.           Existing Liens and Creditors
Rights.  The Purchaser and Parent warrant and represent
that:

     

    (a)           Other
than Seller’s security interests contemplated hereunder, Setal 2, LLC is the
sole party with security interests in (i) tangible and intangible property of
the Purchaser, and (ii) the capital stock of the Purchaser.

     

    (b)           There
are no existing intercreditor agreements between any parties with respect to the
assets described in Section 3.7(a)(i) and (ii).

     

    ARTICLE
4

    COVENANTS

     

    4.1           Efforts.  Pending
the Closing, Seller and Purchaser will use commercially reasonable efforts to
take or cause to be taken all action and do or cause to be done all things
necessary, proper or advisable to consummate the Transactions contemplated by
this Agreement.

     

    4.2           Confidentiality. Pending the
Closing of all of the transactions contemplated hereby, all trade secrets or
other information of a business, financial, marketing, technical or other nature
pertaining to the Companies or any Company obtained by Purchaser from or on
behalf of Seller or the Companies will be kept confidential and will not be
disclosed by Purchaser other than to its officers, employees, advisors and
financing sources; provided that the
foregoing restriction shall not apply to information which (a) is lawfully and
independently obtained by Purchaser from a third party without restriction as to
disclosure by Purchaser, (b) was known by Purchaser prior to its disclosure by
or on behalf of Seller or the Companies, (c) is in the public domain or enters
into the public domain through no fault of Purchaser, or (d) Purchaser is
required by law or legal process to disclose.  If this Agreement is
terminated, Purchaser will cause to be delivered to Seller, and/or the
Companies, as applicable, all materials obtained by Purchaser from or on behalf
of Seller or the Companies, whether obtained before or after the date of this
Agreement.  Following the Closing, Purchaser shall not, directly or
indirectly, disclose, divulge or make use of any trade secrets or other
information of a business, financial, marketing, technical or other nature
pertaining to Seller or the Companies that does not solely relate to the
Purchased Assets, including information of others that Seller and/or the
Companies have agreed to keep confidential.  Nothing in this
Agreement, including, without limitation, this Section 4.2, shall prevent
Purchaser from making any public announcement and/or filings that it may be
required to make under applicable Law.

     

    
      
         

      

      
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    4.3           Exclusivity.  From
the date of this Agreement through the Closing Date, unless this Agreement is
earlier terminated pursuant to Section 6, except as required by applicable law,
Seller shall deal exclusively with Purchaser and agrees that neither Seller nor
any shareholder, employee, agent, or other Affiliate of Seller will solicit,
initiate, knowingly encourage, or participate in discussions or negotiations
with any third party other than Purchaser regarding any proposals or offers
relating to (i) the issuance, sale or other disposition of any capital stock or
any portion of the business or assets of any of the Companies or (ii) the
merger, consolidation, or other business combination of any of the Companies
with any other Person.  Seller hereby agrees that it will immediately
notify Purchaser in the event it is contacted by, or receives an unsolicited bid
or offer, from any Person or their representatives concerning any transaction
that is covered by this Section 4.3.

     

    ARTICLE
5

    CONDITIONS
TO CLOSING

     

    5.1.           Conditions to Obligations of
Purchaser.  Unless waived in writing by Purchaser, the
obligation of Purchaser hereunder to consummate the Transactions is subject to
the satisfaction at or prior to the Closing of the following
conditions:

     

    (a)           Representations and Warranties True.
The representations and warranties of Seller contained in Article 2 shall
be true and accurate in all material respects (except that each representation
or warranty already qualified by materiality shall be true and correct in all
respects) on and as of the date of the Closing with the same effect as though
made on and as of such date.

     

    (b)           Covenants Performed. Seller
shall have performed and complied in all material respects with the covenants,
agreements and conditions required to be performed or complied with by them
hereunder on or prior to the date of the Closing.

     

    (c)           Deliveries By
Seller.  At the Closing, Seller shall deliver, or cause to be
delivered, to Purchaser, the following:

     

    (i)           a
duly executed Secured Party Bill of Sale, in form and substance satisfactory to
Purchaser and Seller, transferring the rights of the Companies in the Purchased
Assets to Purchaser, free and clear of any subordinate Liens to the extent
provided in UCC Section 9-617, together with a transfer statement (as defined in
the UCC) signed by Seller;

    
      
         

      

      
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    (ii)           a
duly executed letter of direction to the Companies, in form and substance
satisfactory to Purchaser and Seller, directing the Companies to immediately
deliver possession of the Purchased Assets to Purchaser;

    

    (iii)           a
receipt duly executed by Seller evidencing payment of the Purchase
Price;

    

    (iv)           a
certificate, dated the Closing Date, signed by Seller certifying as to Seller’s
compliance with clauses 5.1 (a) and (b) above; and

    

    (v)           such
other instruments or documents as Purchaser reasonably may request to fully
effect the transfer of the Purchased Assets and to confer upon Purchaser the
benefits contemplated by this Agreement, including, without limitation, such
title transfer documents, mortgage and lien releases, registration instruments
and other documents as may be necessary to convey to Purchaser debtor’s rights
in the Purchased Assets.

    

    (d)           Assignment
Agreement.  All conditions to the closing of the transactions
contemplated by the Assignment Agreement shall have been waived or satisfied,
and the transactions contemplated by the Assignment Agreement shall be
consummated simultaneously with the transactions contemplated
hereby.

     

    (e)           No Injunction.  The
consummation of the Transactions contemplated hereby shall not violate any
order, decree or judgment of any court or governmental body having competent
jurisdiction.

     

    (f)           Actions and
Proceedings.  Prior to the Closing, all actions, proceedings,
instruments and documents required to carry out the Transactions contemplated
hereby or incident hereto and all other legal matters required for such
Transactions shall have been reasonably satisfactory to counsel for
Purchaser.

     

    (g)           Continuous
Operation.  From the date of this Agreement through the Closing
Date, the Companies shall have continued to operate the Business in the ordinary
course, consistent with current practices, including, without limitation, to
service the Purchased Routes, to operate the Purchased Stores and the Purchased
Facilities and to maintain the Conveyed Assets.

     

    (h)           Acknowledgments.  At
or prior to the Closing, the Companies and Charlesbank Capital Partners, LLC
(“Charlesbank”), in its
capacity as agent for the purchasers under that certain Note Purchase Agreement
dated February 16, 2007 between the purchasers, Holding, and Charlesbank, shall
acknowledge in writing (in form and substance reasonably satisfactory to
Purchaser) that the Transactions contemplated hereby are commercially reasonable
and that the Purchase Price is adequate, fair and reasonable.  The
Companies and Charlesbank (as agent) shall also have waived in writing any
rights of redemption they may have with respect to the Purchased
Assets.

     

    
      
         

      

      
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    (i)           Credit
Documents.  Purchaser shall have received evidence reasonably
satisfactory to it that Seller has the right, and has been duly authorized
under, the Credit Documents to enter into this Agreement and consummate the
Transactions.

     

    5.2.           Conditions to Obligations of
Seller.  Unless waived in writing by Seller, the obligation of
Seller hereunder to consummate the Transactions is subject to the satisfaction
at or prior to the Closing of the following conditions:

     

    (a)           Representations and Warranties
True.  The representations and warranties contained in Article
3 shall be true and accurate in all material respects on and as of the date of
the Closing with the same effect as though made on and as of such
date.

     

    (b)           Covenants
Performed.  Purchaser shall have performed and complied in all
material respects with the covenants, agreements and conditions required to be
performed or complied with by it under this Agreement on or prior to the date of
the Closing.

     

    (c)           Deliveries By
Purchaser.  At the Closing, Purchaser and Parent shall deliver,
or cause to be delivered, to Seller, the following:

     

    (i)           the
Purchase Price (including any amounts required to be paid to the Seller in
escrow), the Note and the Security Agreement, each duly executed by Purchaser,
and the Pledge Agreement and Guaranty, each duly executed by the
Parent;

    

    (ii)           a
certificate from the Secretary of Purchaser attesting to the incumbency of the
officers of Purchaser signing the Transaction documents, to Purchaser’s
organizational documents and to the resolutions of Purchaser’s authority
regarding the execution, delivery and performance of this Agreement and the
other Transaction documents to which Purchaser is a party and the authority of
the officers of Purchaser to execute the same.

    

    (iii)           a
certificate from the Secretary of Parent attesting to the incumbency of the
officers of Parent signing the Transaction documents, to the Parent’s
organizational documents and to the resolutions of Parent’s authority regarding
the execution, delivery and performance of this Agreement, the Guaranty and the
Pledge Agreement and the other Transaction documents to which Parent is a party
and the authority of the officers of Parent to execute the same.

    

    (iv)           a
good standing certificate for Purchaser from the Secretary of State of
California; and

    

    (v)           a
good standing certificate for Parent from the Secretary of State of
Delaware;

    

    
      
         

      

      
        - 10
-

        
          

        

      

      
         

      

    

    (vi)           evidence
satisfactory to Seller that the Parent has secured the Guaranty with a perfected
security interest in the capital stock of Purchaser by delivering the original
certificates and signed stock powers to Setal 2,LLC; and

    

    (vii)           such
other instruments or documents as Seller reasonably may request to fully effect
the transfer of the Purchased Assets and to confer upon Seller the benefits
contemplated by this Agreement.

    

    (d)           No Injunction.  The
consummation of the Transactions contemplated hereby shall not violate any
order, decree or judgment of any court or governmental body having competent
jurisdiction.

     

    (e)           Intercreditor
Agreement.  Seller shall have entered in an intercreditor
agreement, in form and substance satisfactory to Seller, with the Purchaser,
Parent, and the party holding a first priority security interest in the
Collateral, with respect to certain matters relating to such Collateral,
providing, among other things, (1)
limits the maximum amount of first lien debt issued by Purchaser to $1,500,000;
(2) allows Seller to foreclose on Collateral sixty (60) days after default
unless senior lender diligently pursues its enforcement rights against
Collateral; and (3) allows Seller the unfettered right to pursue other right and
remedies against Purchaser and Parent after default under the Note and
related documents.

     

    (f)           Credit
Documents.  Purchaser shall have executed and delivered to
Seller the Note and Security Agreement, and Parent shall have executed and
delivered to Seller the Guaranty and Pledge Agreement.

     

    (g)           First Lien Loan
Documents.  Purchaser shall have furnished the Seller, on the
Closing Date, a complete set of fully executed loan documents relating the first
lien loan to the Purchaser, including without limitation a stock pledge
agreement and amendment to the first lien security agreement..

     

    Seller’s delivery of the Secured Party
Bill of Sale and receipt for the Purchase Price shall be deemed to evidence
Seller’s agreement that all conditions set forth in this Article 5 are satisfied
or deemed waived.

     

    ARTICLE
6

    TERMINATION

     

    6.1.           Termination.  This
Agreement and the Transactions contemplated hereby may be terminated at any time
prior to the Closing:

     

    (a)           by
mutual written consent of Purchaser and Seller;

     

    (b)           by
Purchaser, if Seller shall have breached or failed to perform in any material
respect any of its obligations, covenants or agreements under this Agreement, or
if any of the representations and warranties of Seller set forth in this
Agreement shall not be true and correct to the extent set forth in Article 2,
and such breach, failure or misrepresentation is not cured to Purchaser’s
reasonable satisfaction within 10 days after Purchaser gives Seller written
notice identifying such breach, failure or misrepresentation;

     

    
      
         

      

      
        - 11
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    (c)           by
Seller, if Purchaser shall have breached or failed to perform in any material
respect any of its obligations, covenants or agreements under this Agreement, or
if any of the representations and warranties of Purchaser set forth in this
Agreement shall not be true and correct to the extent set forth in Article 3,
and such breach, failure or misrepresentation is not cured to Seller’s
reasonable satisfaction within 10 days after Seller gives Purchaser written
notice identifying such breach, failure or misrepresentation;

     

    (d)           by
Purchaser, if the conditions set forth in Section 5.1 become incapable of
satisfaction;

     

    (e)           by
Seller, if the conditions set forth in Section 5.2 become incapable of
satisfaction;

     

    (f)           by
Purchaser or Seller, if the Closing shall not have occurred on or before March
17, 2008 or such other date, if any, as Purchaser and Seller may agree in
writing.

     

    (g)           by
mutual agreement if the landlord for the premises at 3303 Airline Boulevard,
Portsmouth, Virginia has not consented to the assignment of such lease to
Purchaser on or before the Closing Date.

     

    (h)           this
Agreement shall automatically terminate upon termination of the Assignment
Agreement.

     

    6.2.           Effect
of Termination.

     

    (a)           If
this Agreement is terminated under Section 6.1, all further obligations of each
party to the other will terminate without further liability of any party, except
to the extent that any party has breached its obligations under this
Agreement.

     

    (b)           The
obligations of Purchaser under Section 4.2 shall survive the termination of this
Agreement for a period of eighteen (18) months.

     

    ARTICLE
7

    INDEMNIFICATION

     

    7.1.           Survival of Representations and
Warranties; Indemnification.

     

    (a)           The
representations and warranties of Seller and Purchaser contained in this
Agreement, or in any certificate or other instrument delivered in connection
herewith, shall survive the Closing and shall expire upon the first to occur of
(x) six (6) months
after the Closing Date, or (y) the date the Note is paid
in full, provided that
if any party hereto, before the expiration date of a representation or warranty
given by another party hereto, delivers to such other party in good faith a
written notice alleging a bona fide breach of such representation or warranty
with sufficient detail to identify the claim and the amount of the indemnity
being sought, the applicable representation or warranty shall survive until, but
only for purposes of, the resolution of the matter covered by such notice. Any
amounts under the Note not subject to bona fide set-off claims as herein
provided shall be paid in full on the scheduled maturity date of the
Note.  If the Purchaser shall fail to timely pay all amounts due as
described in the preceding sentence, all rights of set-off against the Note,
including any pending claims, shall be extinguished automatically, and the
Purchaser shall have no further rights under Article 7.

     

    
      
         

      

      
        - 12
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    (b)           From
and after the date hereof, and at all times subject to (e) below, Seller shall
defend, indemnify and hold harmless Purchaser (each a “Purchaser Indemnified Party”)
from, against and in respect of any and all claims, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies (including,
without limitation, interest, penalties and reasonable attorneys’ fees) (“Losses”), that such Purchaser
Indemnified Party may incur, sustain or suffer resulting from or arising out of
(i) any breach of or any inaccuracy in any representation or warranty of Seller
contained in this Agreement, or any other certificate or other document
delivered by Seller pursuant to this Agreement, or in any Schedule or Exhibit
hereto or thereto, and/or (ii) any breach or failure to perform any covenant or
agreement of Seller contained in this Agreement, and/or (iii) the reasonable
legal costs and expenses incurred by Purchaser attributable to claims brought
against the Purchaser by the following parties: Wharton’s Inc., Clothing Care,
Inc., and William J. Griggs, Jr., seeking to: (1) enjoin the purchaser from
operating business or dispose of its assets; (2) attach or encumber any
Purchased Assets or Conveyed Assets (as that term is defined in the Assumption
Agreement) or any proceeds generated by the Purchaser in operating its
businesses in Virginia, or (3) avoid the transactions effected by this Agreement
or the Assignment Agreement; provided that, subject to
Section 7.1(e) below, the sole recourse of each Purchaser Indemnified Party with
respect to claims under (i), (ii) and (iii) above shall be against the Note (as
described in Section 7.1(d) below).

     

    (c)           From
and after the date hereof, Purchaser shall defend, indemnify and hold harmless
Seller (each a “Seller
Indemnified Party”) from, against and in respect of any and all Losses
that such Seller Indemnified Party may incur, sustain or suffer resulting from
or arising out of (i) any breach of or any inaccuracy in any representation or
warranty of Purchaser contained in this Agreement, or any other certificate or
other document delivered by Purchaser pursuant to this Agreement, or in any
Schedule or Exhibit hereto or thereto, and/or (ii) any breach or failure to
perform any covenant or agreement of Purchaser contained in this Agreement,
provided that the liability of the Purchaser with respect to such indemnity
shall not exceed $1,000,000 in the aggregate, if the Transactions contemplated
hereby have closed, and any claims asserted by the Purchaser under Section
7.1(a) are bona fide and made in good faith.

     

    (d)           In
the event that any Purchaser Indemnified Party shall have incurred, sustained or
suffered any Loss with respect to which it is entitled to be indemnified under
Section 7.1(b) above, the sole recourse of such Purchaser Indemnified Party
(subject to Section 7.1(e) below) shall be for Purchaser to set-off the
full amount of such Loss against the unpaid principal amount the Note, in which
event the Note shall be deemed to be automatically amended
accordingly.  In addition, Purchaser shall have the right to set-off
against the unpaid principal amount of the Note the full amount of the Losses
arising as a result of breaches by the Companies under Section 3(c) and Section
9(f)(iv) of the Assignment Agreement, in which event the unpaid principal Note
shall be deemed to be automatically amended accordingly.  For the
avoidance of doubt, no offsets against the Note contemplated by the previous
sentence can be effected for claims asserted after the scheduled maturity date
of the Note.  Upon transfer by the Companies or their designees of the
zoots.com web-site and
800 number in compliance with Section 9(f)(iv) of the Assignment Agreement, the
Purchaser shall have no right of set-off against the Note with respect to such
Section 9(f)(iv).  In addition, subject to Section 7.1(e) below, the
sole recourse of each Purchaser Indemnified Party with respect to claims under
this Section 7.1(d) shall be against the Note.

     

    
      
         

      

      
        - 13
-

        
          

        

      

      
         

      

    

    (e)           Except
as hereinafter provided, Purchaser’s sole remedy with respect to this Article 7
shall be to offset any Losses against the then outstanding principal balance of
the Note (as the same may be reduced under Section 1.7 hereof), and there shall
be no other recourse against Seller.  If, however, the Seller elects
to collect upon the Note on the scheduled maturity date, and Parent has paid the
Note without effecting one or more of the set-offs that it was entitled to make
under this Article 7, notwithstanding anything contained herein to the contrary,
the Seller shall be liable to make indemnity payments to Purchaser under this
Article 7 up to an aggregate maximum amount equal to the outstanding principal
amount paid in cash by the Purchaser to Seller on account of the
Note.  The limitation on the Seller’s liability under this Section 7.1
will terminate automatically if the Seller has asserted claims under Section
7.1(c) that are not bona fide and made in good faith.

     

    (f)           All
disputes arising under Section 7.1 of this Agreement (including the scope of
this agreement to arbitrate) shall be resolved by binding arbitration which
shall be administered by AAA in accordance with AAA’s Commercial Arbitration
Rules.  The arbitration shall be conducted and the award shall be
rendered in New York, New York or such other place as the parties to the
arbitration agree before a single arbitrator that is mutually
designated.  Each arbitrator shall be a retired judge or a practicing
attorney with no less than fifteen (15) years of experience in arbitration and
in commercial law. The arbitrator shall be required to follow the law of the
Commonwealth of Massachusetts and the provisions of this
Agreement.  For purposes of this Section 7.1, Seller and Parent shall
be considered the same party to a dispute.  The arbitration shall be
commenced not later than forty-five (45) days after the scheduled maturity date
of the Note, and must be completed within forty-five (45) days of the
arbitration’s commencement.  The failure to timely commence and
prosecute such arbitration in accordance with this provision shall serve as a
bar to any set-off or other recovery hereunder.

     

    7.2.           Expenses.  The
parties hereto agree that expenses under Section 7.1 hereof, shall be borne and
paid as follows:

     

    (a)           The
fees and expenses of the arbitrator shall be borne one-half by Purchaser and
one-half by Seller.  The Purchase shall pay such fees, and the
principal amounts due under the Note shall be reduced by the portion paid on
behalf of Seller.

     

    (b)           If
a party asserts a claim under and in accordance with Section 7.1, and is awarded
at least 75% of the amount of its claim, the losing party shall pay the claimant
the lesser of (x) the claimant’s actual costs and expenses for pursuing the
claim, and (y) $50,000 within ten (10) days of the arbitrator’s
decision.

     

    (c)           If
a party asserts a claim under and in accordance with Section 7.1, and is awarded
less than 75% of the amount of its claim but more than 35% of such claim, each
party shall bear its own actual costs and expenses.

     

    
      
         

      

      
        - 14
-

        
          

        

      

      
         

      

    

    (d)           If
a party asserts a claim under and in accordance with Section 7.1, and is awarded
less than 35% of the amount of its claim, the claimant shall pay the other party
the lesser of (x) the other party’s actual costs and expenses for defending the
claim, and (y) $50,000 within ten(10) days of the arbitrator’s
decision.

     

    (e)           If
the prevailing party is the Purchaser, the Purchaser shall off set the expense
reimbursement against any amounts due Seller under the Note.  If the
amount due from the Seller exceeds amounts owing to it under the Note after
giving effect to the set-off, the Seller shall pay the Purchaser any amount due
Purchaser within ten (10) days after the arbitrator’s decision.  The
Purchaser shall provide satisfactory documentation of its fees and expenses
contemporaneously with the exercise of set-off or within five (5) days after the
arbitrator’s decision.

     

    (f)           If
the prevailing party is the Seller, the Purchaser shall pay the Purchaser any
amount due Purchaser within ten (10) days after the arbitrator’s decision,
including, without limitation, any amounts due under the Note..  The
Seller shall provide satisfactory documentation of its fees and expenses or
within five (5) days after the arbitrator’s decision..

     

    (g)           If
the Purchaser fails to pay any amounts then due under the Note within within ten
(10) days after the arbitrator’s decision, interest shall commence to accrue on
the amounts due under the Note at the Default rate set forth therein until paid
in full.

     

    ARTICLE
8

    MISCELLANEOUS

     

    8.1.           Notices.  All
notices, demands or other communications hereunder shall be in writing and shall
be deemed to have been duly given if delivered in person, by e-mail or fax, by
United States mail, certified or registered with return receipt requested, or by
a nationally recognized overnight courier service, or otherwise actually
delivered:

     

    (a)           if
to Seller, to:

     

    Robert Hornstein

    NewStar Financial, Inc.

    500 Boylston Street

    Boston, MA 02116

    

    with a
copy (which shall not constitute notice) to:

    

    Mark
Fogel

    Edwards
Angell Palmer & Dodge LLP

    111
Huntington Avenue

    Boston,
MA 02199

     

    
      
         

      

      
        - 15
-

        
          

        

      

      
         

      

    

    (b)           if
to Purchaser, to:

     

    U.S. Dry
Cleaning Corp.

    4040
MacArthur Blvd., Suite 305

    Newport
Beach, CA 92660

    Telecopier:  (949)
863-9657

    Attn.:  Mr.
Robert Y. (Robbie) Lee, Chief Executive Officer

    

    with
copies (which shall not constitute notice) to:

     

    Levene,
Neale, Bender, Rankin & Brill L.L.P.

    10250
Constellation, Suite 1700

    Los
Angeles, CA 90067

    Telecopier:  (310)
229-1244

    Attn.:  Mr.
Martin Brill

    

    and

    

    Greenberg
Traurig, LLP

    The Met
Life Building

    200 Park
Avenue, 15th
Floor

    New York,
NY 10166

    Telecopier:  (212)
801-6400

    Attn.:  Spencer
G. Feldman, Esq.

     

    or at
such other address as may have been furnished by such person in writing to the
other parties.  Any such notice, demand or communication shall be
deemed given on the date given, if delivered in person, e-mailed or faxed or
otherwise actually delivered, on the date received, if given by registered or
certified mail, return receipt requested or given by overnight delivery service,
or three days after the date mailed, if otherwise given by first class mail,
postage prepaid.

     

    8.2.          Governing Law;
Forum.  This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts
applicable to agreements executed and to be performed solely within such
Commonwealth.  Any judicial proceeding arising out of or relating to
this Agreement shall be brought in the courts of the Commonwealth of
Massachusetts, and, by execution and delivery of this Agreement, each of the
parties to this Agreement accepts the exclusive jurisdiction of such courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement.  Each of the parties further agrees that a
summons and complaint commencing an action or proceeding in any of such courts
shall be properly served and shall confer personal jurisdiction if served to it
at the address and in the manner set forth in Section 8.1 or as otherwise
provided under the laws of the Commonwealth of Massachusetts.  This
provision may be filed with any court as written evidence of the knowing and
voluntary irrevocable agreement between the parties to waive any objections to
jurisdiction, to venue or to convenience of forum.  The foregoing
consents to jurisdiction and appointments of agents to receive service of
process shall not constitute general consents to service of process in the
Commonwealth of Massachusetts for any purpose except as provided above and shall
not be deemed to confer rights on any Person other than the respective parties
to this Agreement.

     

    
      
         

      

      
        - 16
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    8.3.          Amendments, Waivers. This
Agreement may be amended or modified only with the written consent of Purchaser
and Seller.  No waiver of any term or provision hereof shall be
effective unless in writing signed by the party waiving such term or
provision.  No failure to exercise or delay in exercising any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.  The rights provided hereunder are cumulative and not
exclusive of any rights, powers or remedies provided by law.

     

    8.4.          Expenses.  Except as
otherwise expressly set forth herein, all legal and other costs and expenses
incurred in connection with this Agreement and the Transactions contemplated
hereby shall be paid by the party incurring such costs and
expenses.

     

    8.5.          Successors and Assigns. This
Agreement, and all provisions hereof, shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, provided
that this Agreement may not be assigned by any party without the prior written
consent of the other parties hereto except that this Agreement may be assigned
by Purchaser to any of its Affiliates or to any Person financing or acquiring a
material portion of the assets, business or securities of Purchaser, whether by
merger, consolidation, sale of assets or securities or otherwise.

     

    8.6.          Entire Agreement. This
Agreement, the attached exhibits and schedules, and the other agreements,
documents and instruments contemplated hereby and thereby contain the entire
understanding of the parties, and there are no further or other agreements or
understandings, written or oral, in effect between the parties relating to the
subject matter hereof unless expressly referred to herein.

     

    8.7.          Counterparts.  This
Agreement may be executed in one or more counterparts, and with counterpart
facsimile signature pages, each of which shall be an original, but all of which
when taken together shall constitute one and the same Agreement.

     

    8.8.          Headings.  The
headings of Articles and Sections herein are inserted for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.

     

    8.9.          Further Assurances. Following
the Closing, the parties will execute and deliver such documents and take such
other actions as may be reasonably requested from time to time by Purchaser or
Seller in order to fully consummate the Transactions.

     

    8.10.        Third Party Beneficiaries.
Nothing in the Agreement shall be construed to confer any right, benefit
or remedy upon any Person that is not a party hereto or a permitted assignee of
a party hereto, except as otherwise expressly set forth in this
Agreement.

     

    8.11.        No Strict
Construction.  The parties hereto have participated jointly in
the negotiation and drafting of this Agreement and the other agreements and
documents contemplated herein.  In the event an ambiguity or question
of intent or interpretation arises under any provision of this Agreement or any
other agreement or documents contemplated herein, this Agreement and such other
agreements or documents shall be construed as if drafted jointly by the parties
thereto, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of authoring any of the provisions of this
Agreement or any other agreements or documents contemplated herein.

     

    
      
         

      

      
        - 17
-

        
          

        

      

      
         

      

    

    8.12.        Schedules and
Exhibits.  All Schedules and Exhibits to this Agreement are an
integral part of this Agreement and are incorporated herein by reference in this
Agreement for all purposes of this Agreement.  Information set forth
on any Schedule shall be deemed to qualify each other section of this Agreement
to which such information is applicable (regardless of whether or not such other
section is qualified by reference to a Schedule).  No information set
forth on any Schedule shall be deemed to broaden in any way the scope of
Seller’s representations and warranties.  Neither the specification of
any dollar amount in the representations and warranties contained in this
Agreement nor the inclusion of any item on a Schedule is evidence of or intended
to imply the materiality of such item for purposes of the Agreement, or that
such item is a disclosure required under the Agreement.  Any
description of any agreement, document, instrument, plan, arrangement or other
item set forth in a Schedule is a summary only and is qualified in its entirety
by the terms of such agreement, document, instrument, plan, arrangement or item,
copies of which have been made available to Purchaser.  No disclosure
in any Schedule relating to any possible breach or violation of any agreement,
law or regulation shall be construed as an admission or indication that any such
breach or violation exists or has actually occurred, or shall constitute an
admission of liability to any third party.

     

    8.13.        Waiver of Jury Trial. EACH
PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.

     

    8.14.        Severability. This Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision hereof shall be prohibited or invalid under
any such law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating or nullifying the remainder of
such provision or any other provisions of this Agreement.  If any one
or more of the provisions contained in this Agreement shall for any reason be
held to be excessively broad as to duration, geographical scope, activity or
subject, such provisions shall be construed by limiting and reducing it so as to
be enforceable to the maximum extent permitted by applicable law.

     

    8.15.       Certain Taxes. All transfer,
documentary, sales, use, real property gains, stamp, registration, and other
such Taxes and fees incurred in connection with this Agreement shall be paid by
Seller when due.

     

    

    [Signature
page follows]

    
      
         

      

      
        - 18
-

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the parties hereto
have executed and delivered this Agreement as a sealed instrument as of the date
first above written.

     

    

       

      
        	 	      
                NEWSTAR
      FINANCIAL, INC., as

                   Administrative
      Agent and Lender

                

                

                By:  /s/ Robert
      Hornstein                           
      

                Name:     Robert
      Hornstein

                Title:     Managing
      Director

                

                

                USDC
      PORTSMOUTH, INC.

                

                

                By:                                                                           

                Name:

                Title:

                

                

                U.S.
      DRY CLEANING CORPORATION

                 

                By:                                                                       

                Name:

                Title:

              

      

       

    

     

    

    The
undersigned, being the sole stockholder of USDC Portsmouth, Inc., Purchaser
named in, and party to, the foregoing Agreement, hereby unconditionally
guarantees the timely payment and performance by such Purchaser of its
obligations under the foregoing Agreement, and agrees that such guarantee shall
not in any manner be affected or impaired by (a) any amendment or modification
of the Agreement or any other Transaction Documents, (b) any waiver or
indulgence granted or permitted under any of the Transaction Documents, (c) any
bankruptcy, insolvency, reorganization or other such proceeding at any time
against Purchaser, or (d) any other fact, event, circumstance or condition which
might constitute a legal or equitable defense to the obligations of a
guarantor.

     

    

       

      
        	 	      
                U.S.
      DRY CLEANING CORPORATION

                 

                By:                                                                           

                Name:

                Title:

              

      

       

    

     

    

    

    
      
         

      

      
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    Schedule
1.1

     

    Secured
Party Sale Agreement date as of March 21, 2008

    Among

    Newstar
Financial, Inc, as Administrative Agent, as Seller

    and

    USDC
Portsmouth, Inc, as Purchaser, and U.S. Dry Cleaning Corporation

     

    PURCHASED
ASSETS

    

    Each Company’s right, title and
interest in tangible and intangible property and assets of such Company used in
the operation of the business of such Company at those locations and zip codes
identified described below (the “Portsmouth
Locations”):

    

    (a)           all
tangible personal property, including without limitation, all goods, inventory
(including, without limitation, all merchandise, raw materials, work in process,
finished goods and supplies), machinery, equipment (subject to the rights of any
equipment lessor in such equipment), tools, furniture, fixtures (other than any
fixtures that are deemed to be real estate requiring a filing with local land
records), office supplies, computers and associated equipment (subject to the
rights of any equipment lessor in such equipment) used in the operation of the
business of the Company and located at any of the Portsmouth
Location;

    

    (b)           all
rights and privileges under all authorizations, permits, licenses and franchises
issued, granted or licensed to any Company for the operation of its business at
each Portsmouth Location to the extent such rights and privileges constitute
general intangibles;

    

    (c)           the
entire goodwill of the business of each Company associated exclusively with the
operation of the Portsmouth Locations; and

    

    (e)           all
other personal property of each Company, including, without limitation, all
accounts, accounts receivable, all lists, data, other general intangibles and
other documents and papers relating exclusively to the operation of the business
at the Portsmouth Locations, and all financial books and records and other books
and records relating exclusively to the business of each Company at the
Portsmouth Locations.

    

    Notwithstanding the foregoing, the
“Applicable Collateral” shall not include the Excluded
Assets.

     

    Portsmouth
Locations

     

    
      	 	      
              Store
      #

            	 	      
              Street
      Address

            	      
              City

            	      
              State

            	      
              Zip

            
	 	 	 	 	 	 	 
	 
      	
              17

            	
              Lynnhaven,
      VA

            	
              1165
      Lynnhaven Pkwy

            	
              Lynnhaven

            	
              VA

            	 
      
	 
      	
              18

            	
              Chesapeake
      Sq, VA

            	
              4101
      Portsmouth Blvd

            	
              Chesapeake

            	
              VA

            	 
      
	 
      	
              19

            	
              Great
      Bridge, VA

            	
              213
      South Battlefield Blvd

            	
              Chesapeake

            	
              VA

            	 
      
	 
      	
              20

            	
              Cypress
      Point, VA

            	
              925
      Diamond Springs Road

            	
              Cypress
      Point

            	
              VA

            	 
      
	 
      	
              23

            	
              Pembroke,
      VA

            	
              4421
      Virginia Beach Blvd

            	
              Pembroke

            	
              VA

            	 
      
	 
      	
              35

            	
              Kempsville,
      VA

            	
              5401
      Indian River Rd

            	
              Indian
      River

            	
              VA

            	 
      
	 
      	
              37

            	
              Great
      Neck, VA

            	
              1416
      North Great Neck Rd

            	
              Great
      Neck

            	
              VA

            	 
      
	 
      	
              41

            	
              NAB
      - Little Creek VA

            	
              Building
      3370 Gator Blvd

            	
              Norfolk

            	
              VA

            	 
      
	 
      	
              46

            	
              Chesapeake
      (Greenbrier), VA

            	
              1412
      Greenbrier Pkwy

            	
              Greenbriar

            	
              VA

            	 
      
	 
      	
              55

            	
              Newport
      News, VA

            	
              12551
      Jefferson Ave, Ste. 259

            	
              Newport
      News

            	
              VA

            	 
      
	 
      	
              76

            	
              Dominion
      Mktplace.

            	
              910
      Great Bridge Blvd.

            	
              Chesapeake

            	
              VA

            	 
      
	 
      	
              Plant

            
	 
      	 
      	
              Portsmouth,
      VA

            	
              3303
      Airline Blvd.

            	
              Portsmouth

            	
              VAusdc_8k-ex1002.htm

    Exhibit 10.2

     

    
 

    TIME
NOTE

     

    

    
      	
              $975,000.00

            	
              March 24,
      2008

            

    

    

    FOR VALUE RECEIVED, USDC PORTSMOUTH,
INC., a California
corporation (“Borrower”), hereby promises to pay to the
order of NEWSTAR FINANCIAL,
INC., a Delaware corporation (“Lender”),
or to its order, at its office at 500 Boylston Street, Boston, Massachusetts
02116, the principal sum of Nine Hundred Seventy-Five Thousand Dollars
($975,000.00) (subject to Section 14 below), together with interest in arrears
on the unpaid principal balance from time to time outstanding hereunder from the
date hereof until the entire principal amount due hereunder is paid in full at
the rates hereinafter provided.

     

    1.           Interest
Rate.  Except as otherwise provided in Section 2.9 hereof, principal amounts
outstanding under this Note (and to the extent not prohibited by applicable law,
overdue interest) shall bear interest at an annual rate equal to ten percent
(10.00%) (the “Interest
Rate”), subject to the conditions and limitations provided for in this
Note.

     

    2.           Payment
of Interest and Principal.

     

    2.1.       Payment
and Calculation of Interest.  All interest shall be payable in
arrears at the end of each two-month period after the date of this Note (each an
“Interest
Period”) commencing on May 26, 2008, and on the Time Note Maturity Date
until the principal together with all interest and other charges payable with
respect to this Note shall be fully paid.  All computations of
interest shall be made on the basis of a three hundred sixty (360) day year and
the actual number of days elapsed.  Interest shall be computed from
and including the first day of the applicable Interest Period through the last
day thereof.

     

    2.2.       Maturity
Date.  The then unpaid principal balance outstanding hereunder
shall be due and payable in full on September 24, 2008 (the “Time Note
Maturity Date”).

     

    2.3.       Prepayment;
Set Off.  This Note or any portion thereof may be prepaid in
full or in part at any time.  Each principal prepayment shall be
accompanied by payment of the interest accrued on the principal payment so
prepaid through the date of prepayment.  The outstanding principal
amount of this Note may also be reduced by the amount of any set offs permitted
under Section 1.7 and Article 8 of the Secured Party Sale Agreement dated the
date hereof (the “Secured
Party Sale Agreement”) between Borrower and Lender.

     

    2.5.       Maturity.  At
Maturity all accrued interest, principal and other charges due with respect to
this Note shall be due and payable in full and the principal balance and such
other charges, but not unpaid interest, shall continue to bear interest at the
Default Rate until so paid.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2.6.       Method of
Payment; Date of Credit; Payment Date Adjustments; Automatic
Payments.

     

    2.6.1.    Method of
Payment.  All payments of interest, principal and fees shall be
made by Borrower to Lender, without counterclaim or setoff and free and clear
of, and without any deduction or withholding for, any taxes or other payments,
in lawful currency of the United States of America in immediately available
funds:  (i) by wire transfer to Lender or (ii) by check payable to
Lender and delivered to Lender at 500 Boylston Street, Suite 1600, Boston,
Massachusetts 02116, or (iii) to such other address as the holder of this Note
may from time to time specify in writing or (iv) to the extent provided in the
Secured Party Sale Agreement.  Payments shall be credited on the
Business Day on which immediately available funds are received prior to 3:00
p.m. (Boston, Massachusetts time); payments received after 3:00 p.m. (Boston,
Massachusetts time) shall be credited to this Note on the next Business
Day.  Payments that are by check shall be provisionally credited to
this Note until the item is finally paid by the payor bank and become
immediately payable funds.

     

    2.6.2.    Adjustment
for Non-Business Days.  All payments hereunder shall be
adjusted if any relevant date would otherwise fall on a day that is not a
Business Day so that the date will be the first following day that is a Business
Day.

     

    2.7.       Application
of Payments.  Except as otherwise expressly set forth herein,
all payments received will be applied first to interest, then to fees and then
to principal; provided, however, that after
the occurrence and during the continuance of an Event of Default, payments will
be applied to the obligations of Borrower to Lender as Lender determines in its
sole discretion.

     

    2.8.       Default
Rate.  Upon the occurrence and during the continuance of an
Event of Default (whether or not Lender has accelerated payment of this Note),
or after Maturity or after judgment has been rendered on this Note, the unpaid
principal of this Note shall, at the option of Lender, bear interest at a rate
which is four (4) percentage points per annum above the Interest Rate (the
“Default
Rate”).

     

    2.9.       Late
Fee.  If a regularly scheduled payment of interest is fifteen
(15) days or more late, Borrower will be charged 5.00% of the unpaid portion of
such regularly-scheduled payment or $10.00, whichever is greater.  If
Lender accelerates payment of this Note in accordance with the terms hereof, and
Borrower does not pay the outstanding principal balance hereof in full within
fifteen (15) days after Lender’s demand, Borrower will be charged either 5.00%
of the unpaid principal plus accrued unpaid interest or $10.00, whichever is
greater.  Late fees are:  (a) payable in addition to, and
not in limitation of, the Default Rate, (b) intended to compensate Lender
for administrative and processing costs incident to late payments, (c) are not
interest, and (d) shall not be subject to refund or rebate or credited against
any other amount due.

     

    3.           Certain
Definitions and Provisions Relating To Interest Rate.  In
addition to terms defined elsewhere in this Note, the following terms shall have
the definitions set forth below:

     

    
      
         

      

      
        - 2
-

        
          

        

      

      
         

      

    

    3.1.       Business
Day.  The term “Business Day”
shall mean any day other than a Saturday, Sunday or other day when commercial
banks are authorized or required to be closed in Boston,
Massachusetts.

     

    3.2.       Default
Rate.  The term “Default
Rate” shall have the meaning set forth in Section 2.9
hereof.

     

    3.3.       Dollars.  The
term “Dollars”
or “$”
means lawful money of the United States.

     

    3.4.       Interest
Period.  The term “Interest
Period” shall have the meaning set forth in Section 2.1
hereof.

     

    3.5.       Maturity.  The
term “Maturity”
means the earlier to occur of the Time Loan Maturity Date or the acceleration of
this Note by Lender upon an Event of Default.

     

    3.6.       Time Note
Maturity Date.  The term “Time Note
Maturity Date” has the meaning set forth in Section 2.2
above.

     

    4.           Additional
Provisions Related to Interest Rate Selection.

     

    4.1.       Payments
Net of Taxes.  All payments and prepayments of principal and
interest under this Note shall be made net of any taxes and
costs.  Without limiting the generality of the preceding obligation,
illustrations of such taxes and costs are taxes, or the withholding of amounts
for taxes, of any nature whatsoever including income, excise and interest
equalization taxes (other than United States or state income taxes) as well as
all levies, imposts, duties or fees whether now in existence or as the result of
a change in or promulgation of any treaty, statute, regulation, or
interpretation thereof or any directive guideline or otherwise by a central bank
or fiscal authority (whether or not having the force of law) or a change in the
basis of, or the time of payment of, such taxes and other amounts resulting
therefrom.

     

    5.           Security;
Guaranty.  This Note is secured by certain Security Documents
(which documents, together with any other instrument securing this Note and as
may be amended from time to time, are hereinafter collectively referred to as
the “Security
Documents”) including without limitation a Security Agreement dated as of
the date hereof between Borrower and Lender and a Pledge Agreement dated as of
the date hereof between Guarantor and Lender.  This Note is entitled
to all of the benefits of the Security Documents, and specific reference is
hereby made to such instruments for all purposes.  In addition Lender
shall benefit from a Guaranty dated the date hereof (the “Guaranty”
and together with this Note and the Security Documents, the “Loan
Documents”) by US Dry Cleaning Corporation (the “Guarantor”).

     

    6.           Events of Default;
Acceleration of Maturity.  (a)  The occurrence of any
one or more of the following continuing beyond applicable notice and cure
periods, if any, will constitute an “Event of
Default” hereunder:

     

    

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

    (i).         Payment
Default.  Borrower shall fail to make payment of any (a) principal due
and payable under this Note or (b) within five (5) days after the same becomes
due, interest or other amounts due and payable under this Note (no prior demand
therefor being necessary).

    

    (ii)         Other
Payment Defaults.  Borrower or Guarantor shall fail to make payment ,
within five (5) days of when due, of any other sum payable under the Loan
Documents, or any other documents, instruments or agreements (“Other
Documents”) now or hereafter securing this Note or executed by Borrower,
or any other person, corporation or other entity now or hereafter liable,
absolutely or contingently, for the whole or any part of the indebtedness
evidenced by this Note, including, without limitation, nonpayment of the
Guaranty by the Guarantor.

    

    (iii)         Limitation
on Indebtedness.  Borrower shall issue evidences of indebtedness, or
create, assume, become or remain contingently liable for, or suffer to exist, or
pledge any assets to secure, any indebtedness, except for (a) this Note, (b)
Borrower’s guaranty (as amended from time to time, the “Senior
Guaranty”) of the indebtedness of Guarantor under that certain
Convertible Note dated March 12, 2008 (as amended from time to time, the “Senior
Note” and collectively with the Senior Guaranty, the “Senior
Loan Documents”) in the original principal amount of $1,725,000.00 made
by Guarantor to the order of Setal 2, LLC (c) liabilities of Borrower (other
than liabilities incurred for borrowed money) which arise in the ordinary course
of its business, (d) liabilities under capitalized leases entered into by
Borrower in the ordinary course of its business for the lease of equipment used
in Borrower’s business and (e) purchase money indebtedness entered into by
Borrower in the ordinary course of its business for the acquisition of equipment
used in Borrower’s business (provided if such indebtedness is secured only the
acquired equipment (and no other assets of Borrower) shall secure any such
indebtedness).

    

    (iv)        Performance
Default.  Nonperformance or nonobservance of any of the other
representations, covenants, agreements, or conditions of the Loan Documents, or
any of the Other Documents (which has not been cured within ten (10) Business
Days after Lender delivering written notice of the same).

    

    (v)         Cross-Default:
Other Lender Documents. The occurrence of any “Event of Default” or any default,
breach or non performance under any other Loan Document or any of the Other
Documents, or the occurrence of any event or condition which would entitle
Lender to exercise any of its remedies under the Loan Documents or any of the
Other Documents.

    

    (vi)        Cross-Default:
Other Indebtedness.  Default in respect of the Senior Loan Documents
not cured within thirty (30) days of such default, maturity of any indebtedness
of Borrower or the Guarantor owing to persons or entities other than the Lender
without full payment at maturity; provided, that the amount due at
maturity shall be equal to or exceed $2,000,000, or acceleration of the any
indebtedness of Borrower or the Guarantor owing to persons or entities other
than the Lender; provided, that the principal
amount of such indebtedness shall equal or exceed $2,000,000 or shall be in
respect of the Senior Loan Documents.

    
      
         

      

      
        - 4
-

        
          

        

      

      
         

      

    

    

    (vii)         (a)
Insolvency. (i) The insolvency or inability of Borrower or the Guarantor to pay
its debts as they mature; (ii) the appointment of a receiver, trustee, custodian
or other fiduciary, for, or for any of the property of, Borrower or the
Guarantor; or (iii) the making of an assignment for the benefit of creditors, or
the making of or entering into a trust mortgage or deed or other instrument of
similar import for the benefit of creditors, by Borrower or the Guarantor;
or

     

    (b)
Bankruptcy.  (1) The filing of a petition, complaint, motion or other
pleading seeking any relief under any receivership, insolvency, or debtor relief
law, or seeking any readjustment of indebtedness, reorganization, composition,
extension or any similar type of relief, or the filing of a petition, complaint,
or motion under any chapter of the federal bankruptcy code, 11 U.S.C. §101 et
seq., as the same now exists or may hereafter be amended (the “Bankruptcy
Code”), in each case in respect of by Borrower or the Guarantor and by or
with the consent of Borrower or the Guarantor.

    

    (2)         
The filing of a petition, complaint, motion or other pleading seeking any relief
under any receivership, insolvency, or debtor relief law, or seeking any
readjustment of indebtedness, reorganization, composition, extension or any
similar type of relief, or the filing of a petition, complaint, or motion under
any chapter of the Bankruptcy Code against Borrower or the Guarantor, which is
not dismissed within sixty (60) days.

    

    (viii)      Judgments,
Etc.  The entry of any judgment against, or the attachment or
garnishment of any of the property, goods or credits of, Borrower in excess of
$1,000,000 or the Guarantor in excess of $2,000,000 which remains unpaid,
unstayed, undismissed or unbonded for a period of sixty (60) days; or if any
foreclosure is instituted (by judicial proceedings, by publication of notice
pursuant to a power of sale or otherwise) against Borrower or the Guarantor
under any mortgage, deed of trust or security agreement and is not dismissed or
terminated for a period of fifteen (15) days (other than any judgment,
attachment or garnishment relating to any claim for which Borrower is entitled
to be indemnified under the Secured Party Sale Agreement; provided that Borrower
has delivered timely notice of any such claim in accordance with the Secured
Party Sale Agreement (such claims, the “Excluded
Claims”)).

    

    (ix)         Dissolution.
Etc.  The dissolution, liquidation or termination of existence of
Borrower or the Guarantor or a sale of assets of Borrower or the Guarantor out
of the ordinary course of business.

    

    (x)          Change
in Control.  Guarantor shall cease to own 100% of the capital stock of
the Borrower.

    

    (xi)         Mergers.
Etc.  The merger or consolidation with any corporation by Borrower, or
the transfer of any of the capital stock of Borrower by any of the present
stockholders thereof, or dilution of the percentage of the outstanding capital
stock of, or voting rights in Borrower held by any of the present stockholders
thereof, without the prior written consent of the Lender.

    

    
      
         

      

      
        - 5
-

        
          

        

      

      
         

      

    

    (xiii)       Lien
Priority.  Lender fails to have an enforceable and perfected lien on
or security interest in any property given as security for this Note (or any
guaranty) (other than such failures that result from an Excluded Claim) or any
party to any Security Document or Guaranty shall contest its obligations
thereunder, which lien shall be subject only to the liens granted under the
Senior Loan Documents.

    

    (b)         Upon
the occurrence and during the continuance of any Event of Default and the
expiration of any period provided in such instrument to cure such Event of
Default, then Lender may declare the entire unpaid principal balance hereunder
immediately due and payable without notice, demand or presentment and may
exercise any of its rights under the Security Documents.  In the event
that Lender or any subsequent holder of this Note shall exercise or endeavor to
exercise any of its remedies hereunder or under the Security Documents, Borrower
shall pay on demand all reasonable costs and expenses incurred in connection
therewith, including, without limitation, reasonable attorneys’ fees and Lender
may take judgment for all such amounts in addition to all other sums due
hereunder.

     

    7.           Certain
Waivers, Consents and Agreements.  Each and every party liable
hereon or for the indebtedness evidenced hereby whether as maker, endorser,
guarantor, surety or otherwise hereby:  (a) waives presentment,
demand, protest, suretyship defenses and defenses in the nature thereof; (b)
waives any defenses based upon and specifically assents to any and all
extensions and postponements of the time for payment, changes in terms and
conditions and all other indulgences and forbearances which may be granted by
the holder to any party now or hereafter liable hereunder or for the
indebtedness evidenced hereby; (c) agrees to any substitution, exchange,
release, surrender or other delivery of any security or collateral now or
hereafter held hereunder or in connection with the Security Documents, or any of
the other Loan Documents, and to the addition or release of any other party or
person primarily or secondarily liable; (d) agrees that if any security or
collateral given to secure this Note or the indebtedness evidenced hereby or to
secure any of the obligations set forth or referred to in the Security
Documents, or any of the other Loan Documents, shall be found to be
unenforceable in full or to any extent, or if Lender or any other party shall
fail to duly perfect or protect such collateral, the same shall not relieve or
release any party liable hereon or thereon nor vitiate any other security or
collateral given for any obligations evidenced hereby or thereby; and (e)
consents to all of the terms and conditions contained in this Note, the Security
Documents, and all other instruments now or hereafter executed evidencing or
governing all or any portion of the security or collateral for this Note and for
any one or more of the other Loan Documents.

     

    8.           Delay Not
A Bar.  No delay or omission on the part of the holder in
exercising any right hereunder or any right under any instrument or agreement
now or hereafter executed in connection herewith, or any agreement or instrument
which is given or may be given to secure the indebtedness evidenced hereby or
any other agreement now or hereafter executed in connection herewith or
therewith shall operate as a waiver of any such right or of any other right of
such holder, nor shall any delay, omission or waiver on any one occasion be
deemed to be a bar to or waiver of the same or of any other right on any future
occasion.

     

    9.           Partial
Invalidity.  The invalidity or unenforceability of any
provision hereof, of the other Loan Documents, or of any other instrument,
agreement or document now or hereafter executed in connection herewith made
pursuant hereto and thereto shall not impair or vitiate any other provision of
any of such instruments, agreements and documents, all of which provisions shall
be enforceable to the fullest extent now or hereafter permitted by
law.

     

    
      
         

      

      
        - 6
-

        
          

        

      

      
         

      

    

    10.         Waiver of
Trial by Jury.  BORROWER AND LENDER (BY ACCEPTANCE OF THIS
NOTE) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT
TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING,
WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR
ACTIONS OF LENDER RELATING TO THE ADMINISTRATION OF DEBT DESCRIBED HEREIN OR
ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NO PARTY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED.  EXCEPT AS PROHIBITED BY LAW, EACH OF
BORROWER AND LENDER HEREBY WAIVEs ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN
ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.  BORROWER
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF LENDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER.  THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR LENDER TO ACCEPT THIS NOTE AND MAKE THE LOANS DESCRIBED
HEREIN.

     

    11.         Governing Law;
Consent to Jurisdiction.  This Note and the rights and
obligations of the parties hereunder shall be governed by and construed and
interpreted in accordance with the laws of The Commonwealth of Massachusetts,
except to the extent that such laws are superseded by Federal enactments and
excluding the laws applicable to conflicts or choice of law.  Borrower
hereby consents to personal jurisdiction in any state or Federal court located
within The Commonwealth of Massachusetts.

     

    12.         Payment
of Fees and Expenses.  Borrower shall jointly and severally pay
on demand all reasonable expenses of Lender in connection with the preparation,
administration, default, collection, waiver or amendment of loan terms, or in
connection with Lender’s exercise, preservation or enforcement of any of its
rights, remedies or options hereunder, including, without limitation, reasonable
fees of outside legal counsel or the allocated costs of in-house legal counsel,
accounting, consulting, brokerage or other similar professional fees or
expenses, and any fees or expenses associated with travel or other costs
relating to any appraisals or examinations conducted in connection with the loan
or any collateral therefor, and the amount of all such expenses shall, until
paid, bear interest at the rate applicable to principal hereunder (including any
default rate) and be an obligation secured by any collateral.

     

    
      
         

      

      
        - 7
-

        
          

        

      

      
         

      

    

    13.         Compliance
with Usury Laws.  Borrower shall not be obligated to pay
and Lender shall not collect interest at a rate higher than the maximum
permitted by applicable law or the maximum that will not subject Lender to any
civil or criminal penalties.  If, because of the acceleration of
maturity, the payment of interest in advance or any other reason, Borrower is
required, under the provisions of any Loan Document or otherwise, to pay
interest at a rate in excess of such maximum rate, the rate of interest under
such provisions shall immediately and automatically be reduced to such maximum
rate and any payment made in excess of such maximum rate, together with interest
thereon at the rate provided herein from the date of such payment, shall be
immediately and automatically applied to the reduction of the unpaid principal
balance of this Note as of the date on which such excess payment was
made.  If the amount to be so applied to reduction of the unpaid
principal balance exceeds the unpaid principal balance, the amount of such
excess shall be refunded by Lender to Borrower.  As used herein, the
term “applicable
law” shall mean the law in effect as of the date hereof; provided, however, that in the
event there is a change in the law which results in a higher permissible rate of
interest, then this Note shall be governed by such new law as of its effective
date.  In this regard, it is expressly agreed that it is the intent of
Borrower and Lender in the execution, delivery and acceptance of this Note to
contract in strict compliance with the laws of the Commonwealth of Massachusetts
from time to time in effect.  This provision shall control every other
provision of all agreements between Borrower and Lender.

     

    14.         Right of
Setoff.  Borrower hereby grants to Lender, a continuing lien,
security interest and right of setoff as security for all liabilities and
obligations of Borrower to Lender, whether now existing or hereafter arising,
upon and against all deposits, credits, collateral and property, now or
hereafter in the possession, custody, safekeeping or control of Lender or any
entity under the control of Lender and its successors and assigns, or in transit
to any of them.  At any time during the continuance of an Event of
Default, without demand or notice (any such notice being expressly waived by
Borrower), Lender may setoff the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing this Note.  ANY AND ALL
RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THIS NOTE, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

     

    15.         Right to
Sell a Loan to a Third Party.  Lender shall have the right at
any time or from time to time, to assign all or any portion of its rights and
obligations hereunder to one or more banks or other entities (each, an “Assignee”),
and Borrower (and each Guarantor) agree that they shall execute, or cause to be
executed, such documents, including without limitation, amendments to this Note
and to any other documents, instruments and agreements executed in connection
herewith as Lender shall reasonably require to effect the foregoing; provided that (a) unless an
Event of Default has occurred and is continuing, (i) such assignment shall
require Borrower’s consent (such consent not to be unreasonably withheld or
delayed), and (ii) no Assignee may be a competitor of Borrower and/or Guarantor
and (b) any such assignment of all of Lender’s rights under this Note shall also
include an assignment of all of Lender’s rights and obligations under the
Secured Party Sale Agreement.  In addition, at the request of Lender
and any such Assignee, Borrower shall issue one or more new promissory notes, as
applicable, to any such Assignee and, if Lender has retained any of its rights
and obligations hereunder following such assignment, to Lender, which new
promissory notes shall be issued in replacement of, but not in discharge of, the
liability evidenced by this Note held by Lender prior to such assignment and
shall reflect the amount of the respective commitments and loans held by such
Assignee and Lender after giving effect to such assignment.  Upon the
execution and delivery of appropriate assignment documentation, amendments and
any other documentation reasonably required by Lender in connection with such
assignment, and the payment by Assignee of the purchase price agreed to by
Lender and such Assignee, such Assignee shall be a party to this Note and the
other Loan Documents and shall have all of the rights and obligations of Lender
hereunder and thereunder (and under any and all other guaranties, documents,
instruments and agreements executed in connection herewith) to the extent that
such rights and obligations have been assigned by Lender pursuant to the
assignment documentation between Lender and such Assignee, and Lender shall be
released from its obligations hereunder, thereunder and under the Secured Party
Sale Agreement to a corresponding extent.  Lender may furnish any
information concerning Borrower in its possession from time to time to
prospective Assignees, provided that Lender shall require any such prospective
Assignees to agree in a writing (in form and substance reasonably satisfactory
to the Borrower) to maintain the confidentiality of such
information.

     

    
      
         

      

      
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    16.         Right to
Sell a Portion of a Loan to a Prospective Participant.  Lender
shall have the unrestricted right at any time and from time to time, and without
the consent of or notice to Borrower, to grant to one or more banks or other
financial institutions (each, a “Participant”)
participating interests in this Note.  In the event of any such grant
by Lender of a participating interest to a Participant, whether or not upon
notice to Borrower, Lender shall remain responsible for the performance of its
obligations hereunder and Borrower shall continue to deal solely and directly
with Lender in connection with Lender’s rights and obligations
hereunder.  Lender may furnish any information concerning Borrower in
its possession from time to time to prospective Participants, provided that
Lender shall require any such prospective Participant to agree in writing to
maintain the confidentiality of such information.

     

    17.         Integration
Clause.  This Note and other Loan Documents, is intended by the
parties as the final, complete and exclusive statement of the transactions
evidenced by this Note.  All prior or contemporaneous promises,
agreements and understandings, whether oral or written, are deemed to be
superseded by this Note, and no party is relying on any promise, agreement or
understanding not set forth in this Note or such other Loan
Documents.  This Note may not be amended or modified except by a
written instrument describing such amendment or modification executed by
Borrower and Lender.  In no event shall any oral agreements, promises,
actions, inactions, knowledge, course of conduct, course of dealing, or the like
be effective to amend, terminate, extend or otherwise modify this Note or any of
the other Loan Documents.

     

    18.         Replacement
of Promissory Note.  Upon receipt of an affidavit of an officer
of Lender as to the loss, theft, destruction or mutilation of this Note or any
other Security Document(s) that is not of public record and, in the case of any
such destruction or mutilation, upon surrender and cancellation of this Note or
other Security Document(s), Borrower will issue, in lieu thereof, a replacement
note or other Security Document(s) in the same principal amount thereof and
otherwise of like tenor; provided that Lender executes and delivers to Borrower
an agreement reasonably satisfactory to Borrower that indemnifies Borrower and
Guarantor for any damages, loss or expenses incurred by Borrower and/or
Guarantor in connection with the Note being replaced.

     

    19.         Continued Liability of Borrower.  Borrower
shall remain primarily liable on this Note and the Security Documents until full
payment, unaffected by any forbearance or extension of time, guaranty or
assumption by others, or by any other matter, as to all of which notice is
hereby waived by Borrower.

     

    20.         Election
of Remedies.  Borrower waives
all rights and defenses arising out of an election of remedies by Lender, even
though that election of remedies, such as a nonjudicial foreclosure with respect
to security for a guaranteed obligation, has destroyed Lender’s rights of
subrogation and reimbursement against Borrower by the operation of
Section 580(d) of the California Code of Civil Procedure, any comparable
statute, or otherwise.  As provided in Section 11, this
Agreement shall be governed by, and construed in accordance with, the laws of
the Commonwealth of Massachusetts.  The foregoing provisions are
included solely out of an abundance of caution and shall not be construed to
mean that any of the above referenced provisions of California law are in any
way applicable to this Note or the other Loan Documents.

     

    
      
         

      

      
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    21.         Secured
Party Sale Agreements.  The amounts due
the Lender under this Note shall be subject to certain set-off rights of
Borrower as more particularly set forth in Section 1.7 and Article 8 of the
Secured Party Sale Agreement.

     

    [The
Next Page is the Signature Page]

     

     

     

     

     

     

     

    
 

    
      
         

      

      
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    IN
WITNESS WHEREOF, Borrower has caused this Note to be executed by its duly
authorized representative, officer or agent, as applicable, as an instrument
under seal as of the day and year first above written.

     

     

    
    

     

    
      	 	
              USDC
      PORTSMOUTH, INC.

              

              

              By:                                                                

              Name:

              Title:

            

    

     

    
 

     

     

     

     

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