RELEASE AND TRANSITION SERVICES AGREEMENT

THIS RELEASE AND TRANSITION SERVICES AGREEMENT (this “Agreement”) is dated as of
August 16, 2011 (the “Execution Date”), by and among EARTHBOUND LLC, a Delaware
limited liability and its affiliated entities, including without limitation IM
LICENSING LLC (collectively, “Earthbound”), XCEL BRANDS, INC., a Delaware
corporation (“XCel”) and IM READY-MADE, LLC, a New York limited liability
company (“IM”).  For the purposes of this Agreement, Earthbound, XCel and IM
shall each be referred to as a “Party” and collectively referred to as the
“Parties”.

RECITALS

WHEREAS, Earthbound and IM (as assignee of Laugh Club, Inc) are parties to an
Agreement, dated as of November 6, 2001 (the “Brand Management Agreement”),
whereby, among other agreements, Earthbound was granted certain brand-expansion
and marketing rights with respect to IM’s products and trademarks (the “IM
Business”);

WHEREAS, IM, XCel and IM Brands, LLC (“IMB”) are parties to that certain Asset
Purchase Agreement, dated May 19, 2011 and as amended July 28, 2011 and as may
be amended by the parties thereto in their sole discretion (the “APA”), pursuant
to which XCel and IMB have agreed to purchase certain assets, and assume certain
liabilities, of IM, in accordance with the terms thereof; and

WHEREAS, in order to induce XCel and IMB to consummate the transactions
contemplated by the APA, IM and Earthbound have agreed that Earthbound will
contribute cash and various assets, including but not limited to the Brand
Management Agreement and the intellectual property rights, brand-expansion and
marketing rights associated therewith to XCel or its successor in interest,
pursuant to the terms of that certain contribution agreement between Earthbound,
XCel and IM ("Contribution Agreement").

NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereby agree as follows:

1.           Defined Terms.  Capitalized terms used but not otherwise defined in
this Agreement shall have the meanings and definitions attributed to such terms
in the APA.

2.           Effective Date. Contemporaneously with the closing of the
transactions contemplated by the APA, and payment of the Initial Payment as set
forth in paragraph 3 ("Effective Date"), this Agreement will become effective.
In the event the transactions contemplated by the APA do not close on or before
December 31, 2011 or Earthbound does not receive payment of the Initial Payment
as set forth in paragraph 3 this Agreement shall be null and void.

3.           Transitional Services.

 
(i)
As consideration for the transition services provided by Earthbound to IM in
preparation for and in connection with the transactions contemplated by the APA,
on the Effective Date, IM will pay Earthbound Six Hundred Thousand Dollars
($600,000) (the "Initial Payment") contemporaneously with the closing of the
transactions contemplated by the APA, which amount shall be paid by wire
transfer of immediately available funds to an account designated by Earthbound,
and without any offset or deduction whatsoever and .

 
 

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(ii)
One Million Five Hundred Thousand Dollars ($1,500,000.00) (the "Future
Payments") payable during the five calendar years following the Effective Date
pursuant to the payment schedule set forth below.  Such payments will be paid by
wire transfer of immediately available funds to an account designated by
Earthbound within 45 days following the end of each calendar quarter, as
follows:

 
Quarters Ending
 
Payment per Quarter
 
March 31, 2012, June 30, 2012, September 30, 2012, December 31, 2012
  $ 37,500.00  
March 31, 2013, June 30, 2013, September 30, 2013, December 31, 2013
  $ 81,250.00  
March 31, 2014, June 30, 2014, September 30, 2014, December 31, 2014
  $ 81,250.00  
March 31, 2015, June 30, 2015, September 30, 2015, December 31, 2015
  $ 87,500.00  
March 31, 2016, June 30, 2016, September 30, 2016, December 31, 2016
  $ 87,500.00  

Earthbound and IM agree that IM shall assign all of its obligations under this
Section 3(ii) to a purchaser of all or substantially all of its assets (the
“Buyer”) and, upon such assignment, (a) IM shall automatically be released,
without any further action on the party of any party, from all of its
obligations under this Section 3(ii), and (b) the Buyer shall make all
installment payments of the Future Payments directly to Earthbound.

In the event any installment of the Future Payments is not paid when due, and
payment is not made within thirty (30) days after notice of non-payment is sent
to IM and XCel, interest shall accrue and be paid on such unpaid balance,
computed from the original due date, at a rate of interest equal to the prime
rate of interest as reported by Citibank on the date payment was due plus four
(4) percentage points.

4.           Release and Indemnification by Earthbound.

(a)           As of the Effective Date, excepting only obligations arising under
this Agreement and obligations explicitly referenced in this Agreement as
surviving the Effective Date, Earthbound, on behalf of itself and the other
Earthbound Parties (as defined in Section 5), remises, releases and forever
discharges IM and each of IM’s current and former employees, directors,
managers, officers, members, affiliates (including Laugh Club Inc.), agents,
assigns, representatives, attorneys, and/or successors in interest
(collectively, the “IM Parties”), of and from any and all obligations, debts,
reckonings, promises, covenants, agreements, contracts, endorsements, bonds,
controversies, suits, actions, causes of actions, guaranties, judgments,
executions, damages, debts, sums of money, dues, controversies, claims or
demands, in law or in equity, known or unknown (“Claims”) against any or all of
the IM Parties, which Earthbound or any of the other Earthbound Parties, ever
had, now has or hereafter can, shall, or may have from the beginning of the
world to the Effective Date, including, but not limited to, any Claims arising
under, or in connection with, the Brand Management Agreement, or otherwise with
respect to the general business relationship between IM and Earthbound as it
existed at any time on or prior to the Effective Date.  Earthbound agrees to
indemnify and hold harmless all IM Parties from and against any and all actions,
liabilities, damages and costs arising from, or in connection with, any action
or proceeding, brought by, or prosecuted by, or on the initiative of Earthbound
and/or any person or entity acting on Earthbound’s behalf, contrary to the
provisions of this Section 4.  Earthbound agrees that this agreement of
indemnity shall be deemed breached and a cause of action shall be deemed to have
accrued thereon immediately upon commencement of any action contrary to this
Section 4(a), and that this Section 4(a) may be pleaded as a defense or asserted
by way of counterclaim or cross-claim in any such action.

 
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(b)           As of the Effective Date, excepting only obligations arising under
this Agreement and the Contribution Agreement, Earthbound on behalf of itself
and the other Earthbound Parties, remises, releases and forever discharges XCel
and each of XCel’s current and former employees, directors, officers,
shareholders, affiliates, agents, assigns, representatives, attorneys,
subsidiaries, and/or successors in interest (collectively, the “XCel Parties”),
of and from any and all Claims against any or all of the XCel Parties, which
Earthbound, or any of the other Earthbound Parties, ever had, now has or
hereafter can, shall, or may have from the beginning of the world to the
Effective Date. Earthbound agrees to indemnify and hold harmless all XCel
Parties from and against any and all actions, liabilities, damages and costs
arising from, or in connection with, any action or proceeding, brought by, or
prosecuted by, or on the initiative of Earthbound and/or any person or entity
acting on Earthbound’s behalf, contrary to the provisions of this Section
4(b).  Earthbound agrees that this agreement of indemnity shall be deemed
breached and a cause of action shall be deemed to have accrued thereon
immediately upon commencement of any action contrary to this Section 4(b), and
that this Section 4(b) may be pleaded as a defense or asserted by way of
counterclaim or cross-claim in any such action.

(c)           Earthbound further agrees to indemnify and hold harmless the IM
Parties and the XCel Parties from and against any and all actions, liabilities
damages and costs arising from, or in connection with the breach by Earthbound
of any of its obligations under this Agreement.

5.           Release and Indemnification by IM.  As of the Effective Date,
excepting only obligations arising under this Agreement and obligations
explicitly referenced in this Agreement as surviving the Effective Date, IM, on
behalf of itself and the other IM Parties (as defined in Section 4), remises,
releases and discharges Earthbound and each of Earthbound’s current and former
employees, directors, members, managers, officers, shareholders, subsidiaries,
affiliates (including Laugh Club Inc.), agents, assigns, representatives,
attorneys, and/or successors in interest (collectively, the “Earthbound
Parties”), of and from any and all Claims against any or all of the Earthbound
Parties, which IM, or any of the other IM Parties, ever had, now has or
hereafter can, shall, or may have from the beginning of the world to the
Effective Date, including, but not limited to, any Claims arising under, or in
connection with, the Brand Management Agreement, or otherwise with respect to
the general business relationship between Earthbound and IM as it existed at any
time on or prior to the Effective Date.  IM agrees to indemnify and hold
harmless all Earthbound Parties from and against any and all actions,
liabilities, damages and costs arising from, or in connection with, any action
or proceeding, brought by, or prosecuted by, or on the initiative of IM and/or
any person or entity acting on IM’s behalf, contrary to the provisions of this
Section 6.  IM agrees that this agreement of indemnity shall be deemed breached
and a cause of action shall be deemed to have accrued thereon immediately upon
the commencement of any action contrary to this Section 5, and that this Section
5 may be pleaded as a defense or asserted by way of counterclaim or cross-claim
in any such action. IM further agrees to indemnify and hold harmless the
Earthbound Parties and the XCel Parties from and against any and all actions,
liabilities damages and costs arising from, or in connection with the breach by
IM of any of its obligations under this Agreement.

 
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6.           Indemnification by XCel.  XCel agrees to indemnify and hold
harmless the IM Parties from and against any and all actions, liabilities,
damages and costs arising from, or in connection with, the breach by XCel or any
of its affiliates of any of their respective obligations under this Agreement
other than any claims which may be governed by the APA.

7.           Confidentiality.  Each Party agrees to treat the other’s trade
secrets and nonpublic information and the terms and conditions of this Agreement
as confidential information (the “Confidential Information”).  Each party shall
only transmit the Confidential Information to such of its directors, officers,
employees, Affiliates, attorneys, accountants, consultants and advisors who need
to know such information for purposes of effecting this Agreement or performing
business hereunder and who shall agree to be bound by the terms and conditions
of this Section.  Each party agrees that the Confidential Information shall not
be disclosed to others, except as necessary to carry out or enforce the terms of
this Agreement or as may be required by law, securities regulations, or legal
process; provided, however, that the party making such disclosure shall provide
notice to the other party prior to such disclosure and shall use reasonable
commercial efforts to secure confidential protection of such information and to
limit such disclosure to the extent possible.
 
8.           Separate Counsel.  The Parties hereto acknowledge and agree that
(i) each Party has reviewed and negotiated the terms and provisions of this
Agreement and has had the opportunity to contribute to its revision, and (ii)
each Party has been represented by independent counsel of their choice in
reviewing and negotiating such terms and provisions.  Accordingly, the rule of
construction to the effect that ambiguities are resolved against the drafting
party shall not be employed in the interpretation of this Agreement.  Any
controversy over construction of this Agreement shall be decided without regard
to events of authorship or negotiation.
 
9.           Governing Law.  This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York, including
Sections 5-1401 and 5-1402 of the New York General Obligations Law.  Each party
hereto (a) submits to the jurisdiction of any state or federal court sitting in
the State of New York in any action or proceeding arising out of or relating to
this Agreement, (b) agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court, (c) waives any claim
of inconvenient forum or other challenge to venue in such court, (d) agrees not
to bring any action or proceeding arising out of or relating to this Agreement
in any other court and (e) waives any right it may have to a trial by jury with
respect to any action or proceeding arising out of or relating to this
Agreement.

10.           Amendments and Waivers.  No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties hereto.  No waiver by any Party hereto of any right or remedy
hereunder shall be valid unless the same shall be in writing and signed by the
Party giving such waiver.  No waiver by any party hereto with respect to any
default, misrepresentation, or breach of warranty or covenant hereunder shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.

 
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11.           Entire Agreement.  This Agreement constitutes the entire Agreement
among the Parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements, representations and understandings of the
Parties with respect thereto.

12.           Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.  This Agreement may be
executed by facsimile or digital signature.

[signature page follows]

 
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IN WITNESS WHEREOF, each of the Parties hereto has executed this Agreement as of
the date first written above.
 

 
IM READY-MADE LLC
         
By:
/s/ Isaac Mizrahi
   
Name:  Isaac Mizrahi
   
Title:
         
IM READY-MADE LLC
         
By:
/s/ Marisa Gardini
   
Name:  Marisa Gardini
   
Title: President and CEO
         
EARTHBOUND LLC
         
By:
/s/ Jack Dweck
   
Name:  Jack Dweck
   
Title:
         
EARTHBOUND LLC
         
By:
/s/ Jeff Cohen
   
Name:  Jeff Cohen
   
Title: Co-Chairman
         
XCEL BRANDS, INC.
         
By:
/s/ Robert W. D’Loren
   
Name: Robert W. D’Loren
   
Title:
 

 
[Signature Page to Release and Transition Services Agreement]

 
 

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