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As of April 1, 2014

 

JR Licensing, LLC
475 Tenth Avenue
New York, New York 10018

 

Ladies and Gentlemen:

 

We are pleased to advise that Bank Hapoalim B.M. (the “Bank”) has agreed,
subject to the conditions set forth below, to extend a term loan (the “Term
Loan”) to JR Licensing, LLC, a Delaware limited liability company (the
“Borrower”), in the maximum principal amount of NINE MILLION AND 00/100 DOLLARS
($9,000,000.00) (the “Term Loan”).

 

The Term Loan (1) shall be evidenced by a Promissory Note dated as of the date
hereof executed by Borrower in favor of the Bank in the amount of $9,000,000.00
(the Promissory Note, together with any riders referred to in paragraph 3
thereto, as each may be amended, restated, supplemented or otherwise modified
from time to time, shall collectively be referred to as the “Promissory Note”),
(2) shall mature on January 1, 2019, and (3) shall be repaid by Borrower in
accordance with the terms and conditions of the Promissory Note.

 

 

 

 

1.          Conditions Precedent

 

The effectiveness of the Term Loan is subject to the satisfaction, in the Bank’s
sole discretion, of the following conditions: (a) the Bank’s receipt of such
documentation as it may request, including without limitation, the following,
each in form and substance satisfactory to the Bank in all respects: (i) this
Letter Agreement duly executed by the Borrower; (ii) the Promissory Note; (iii)
(A) a Security Agreement executed by Borrower in favor of the Bank (as amended,
restated, supplemented or otherwise modified from time to time, the “Asset
Security Agreement”) and (B) an Intellectual Property Security Agreement
executed by Borrower in favor of the Bank (as amended, restated, supplemented or
otherwise modified from time to time, the “IP Security Agreement”; the Security
Agreement and the IP Security Agreement shall be collectively referred to herein
as the “Security Agreement”); (iv) a guaranty to perform the obligations of
Borrower to the Bank executed on behalf of Xcel Brands, Inc.(“Parent”) and IM
Brands, LLC (“IM Brands” together with Parent each a “Guarantor” and
collectively, “Guarantors”); (v) a Pledge Agreement executed by Parent. with
respect to all of the Stock of Borrower (as amended, restated, supplemented or
otherwise modified from time to time, the “Pledge Agreement”); (vi) an amendment
with respect to the loan documentation between IM Brands and the Bank (the “IM
Brands Amendment”); (vii) an opinion of the Borrower’s and Guarantors’ legal
counsel, covering such issues as the Bank may reasonably request; (viii) a
resolution by Borrower’s Manager approving and authorizing the execution,
delivery and performance of the Loan Documents (as defined below) and any
transaction contemplated thereby as well as the incumbency and signatures of
those authorized to sign and act with respect to the Loan Documents; (ix) a
resolution by IM Brands’ Manager approving and authorizing the execution,
delivery and performance of the IM Brands Amendment and any transaction
contemplated thereby; (x) a letter of direction from Borrower to the Bank with
respect to the disbursements of the proceeds of the Term Loan; (xi) a
subordination agreement in favor of the Bank with respect to the indebtedness
and obligations of Borrower and Parent to Judith Ripka Berk; and (xii) any other
documents as the Bank may reasonably require; (b) the Borrower’s entering into
such various collateral, security and/or control documents designed to create
and perfect the Bank’s security interest in certain assets of Borrower and any
other documents or instruments related thereto as required by the Bank and its
counsel; (c) certified copies of UCC, intellectual property, tax lien and
judgment searches or other evidence satisfactory to Lender, listing all
effective financing statements which name Borrower(under present name, any
previous name or any trade or doing business name) as debtor and covering all
jurisdictions requested by the Bank, together with copies of such other
financing statements and recordations; (d) the Bank’s receipt of a current
appraisal of the Borrower’s Trademarks (as such term is defined in the IP
Security Agreement) conducted at the Borrower’s expense in form and substance
acceptable to the Bank and performed by a firm acceptable to the Bank; (e) the
Bank shall have received a fully executed payoff letter satisfactory to Lender
confirming (i) the amount of all obligations owing by Sellers to Rosenthal &
Rosenthal, Inc. will be repaid in full from the proceeds of the Term Loan, (ii)
that all liens and security interests upon any property of Sellers shall be
terminated immediately upon receipt of such payment by such parties; (f) the
Bank’s receipt of a field examination with respect to the business and assets of
Borrower performed by a field examiner acceptable to the Bank with results
satisfactory to the Bank; (g) the Bank’s receipt of a copy of a life insurance
policy insuring the life of Judith Ripka for an amount at least equal to
$10,000,000 naming Borrower as the beneficiary thereof together with a
collateral assignment of the proceeds of such life insurance policy in the favor
of the Bank; (h) Borrower shall have furnished the Bank (i) a summary of all of
the Borrower’s existing insurance coverage and (ii) evidence acceptable to the
Bank that the insurance policies required by Section 4(s) hereof have been
obtained and are in full force and effect (and, if requested by the Bank, copies
of such policies); (i) the Bank shall have received satisfactory evidence that
Borrower and Guarantors have obtained all required consents and approvals of all
Persons including all requisite governmental authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents; (j) the
Bank shall have completed its business and legal due diligence, including
agreements relating to the Trademark Licenses with results satisfactory to the
Bank; (k) payment to the Bank of a commitment fee in the amount of $45,000, such
payment to be made from the proceeds of the Term Loan; (l) the Liabilities shall
not exceed fifty percent (50%) of the current fair market value of the
Borrower’s Trademarks, as such value is set forth in the most recent appraisal
acceptable to the Bank of the Borrower’s Trademarks, as prepared by an
independent appraisal firm acceptable to the Bank; and (m) the Bank shall be
satisfied that, subject only the funding of the Term Loan and the use of
proceeds thereof, all conditions precedent to the consummation of the
Acquisition will have been satisfied or duly waived with the consent of the Bank
and the Acquisition will have been consummated in accordance with the
Acquisition Agreement.

 

This Letter Agreement, the Promissory Note, the Security Agreement, each
Guaranty, the Pledge Agreement, any Rate Contract between Borrower and Bank or
an affiliate of Bank and any documents or instruments entered into in connection
with any of the foregoing shall be referred to herein as the “Loan Documents”.

 

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2.          Representations and Warranties

 

In order to induce the Bank to enter into this Letter Agreement and to make
available the Term Loan provided for herein, Borrower makes the following
representations and warranties to the Bank, all of which shall survive the
execution and delivery of the Loan Documents: (a) Organization, Good Standing
and Due Qualification. Borrower is a limited liability company duly organized
and existing under the laws of the State of Delaware and has the full power,
authority and legal right to own its assets and conduct its business as it is
now being conducted. (b) Company Power and Authority. Borrower has the requisite
power and authority to execute, deliver and carry out the terms of the Loan
Documents and has taken all necessary limited liability company action to
authorize the execution, delivery and performance of the Loan Documents. Each of
the Loan Documents constitutes its legal, valid and binding obligation
enforceable in accordance with its terms, except to the extent that
enforceability of any such Loan Document may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors’ rights generally or limiting the right
of specific performance. The execution and delivery of, the performance of its
obligations under, and compliance with the provisions of the Loan Documents by
Borrower will not: (i) contravene any existing applicable law, statute, rule or
regulation or any judgment decree or permit to which Borrower is subject, the
contravention of which would have a material adverse effect on the Borrower’s
operations; (ii) conflict with, or result in any breach of any of the terms of,
or constitute a default under, any material agreement or other instrument to
which Borrower is a party or is subject or by which it or any of its property is
bound; (iii) contravene or conflict with any provisions of the Borrower’s
Certificate of Formation and Limited Liability Company Agreement; or (iv) result
in the creation or imposition of, or oblige Borrower to create, any lien or
encumbrance on the Borrower’s assets, rights or revenues, except as provided for
in the Loan Documents. (c) Litigation. No litigation, arbitration or
administrative proceeding is pending or, to the knowledge of Borrower and its
respective officers, threatened against Borrower or any other Person affiliated
with Borrower, which could have a material adverse effect on the Borrower’s
intellectual property or the business, assets or financial condition of Borrower
or any other Person affiliated with Borrower, except as specifically set forth
on Schedule I hereto. (d) Disputes. There is not in existence nor to the
Borrower’s knowledge is there likely to occur any dispute with any governmental
or other authority or any other dispute of any kind which in any such case may
materially adversely affect it or its business or assets. (e) Undisclosed
Obligations. Except as set forth in on Schedule II hereto, there are no
liabilities of any Person of any kind, whether accrued, contingent, absolute,
determined, determinable or otherwise, which could reasonably be expected to
result in a material adverse effect, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than liabilities under the Loan Documents. (f)
Immunity. To the knowledge of the Borrower, neither Borrower nor any of its
assets is entitled to immunity on the grounds of sovereignty or otherwise from
any legal action or proceeding (which shall include, without limitation, suit,
attachment prior to judgment, execution or other enforcement). (g) Consents,
Approvals. Every consent, authorization, license or approval of, or registration
with or declaration to, governmental or public bodies or authorities or courts
required by Borrower to authorize, or required by Borrower in connection with
the execution, delivery, validity, enforceability or admissibility in evidence
of the Loan Documents or the performance by Borrower of its obligations under
the Loan Documents has been obtained or made and is in full force and effect and
there has been no default in the observance of the conditions or restrictions
(if any) imposed in, or in connection with, any of the same. (h) Investment
Company. Borrower is not an “investment company” or a company controlled by an
“investment company”, within the meaning of the Investment Company Act of 1940,
as amended. Borrower is not subject to regulation under any federal or state
statute or regulations that limit its ability to incur any indebtedness. (i)
Margin Stock. Borrower is not engaged principally in the business of extending
credit for the purpose of purchasing or carrying any “Margin Stock” as defined
in Regulation U, and no part of the proceeds of any Extension of Credit will be
used in a manner that would result in the Extensions of Credit being deemed to
be a “purpose credit” under Regulation U of the Federal Reserve Board, as the
same may at any time be amended or modified and in effect. (j) No Default.
Borrower is not, nor would it be with the giving of notice or lapse of time, in
breach of or in default under any agreement relating to indebtedness to which it
is a party or by which it may be bound or under any material agreement binding
upon it which could reasonably be expected to have a material adverse effect on
the Borrower’s business assets or financial condition. (k) Security Documents.
The Security Agreement is effective to create in favor of the Bank a legal,
valid and enforceable security interest in the collateral as defined and
qualified therein. (l) Subsidiaries. Set forth on Schedule III is a true and
complete list of all of the Subsidiaries of the Borrower, together with, for
each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary,
(ii) each Person holding ownership interests in such Subsidiary and (iii) the
nature of the ownership interests held by each such Person and the percentage of
ownership of such Subsidiary represented by such ownership interests. (m)
Financial Statements. The internally prepared financial statements of Parent and
its Subsidiaries on a consolidated basis for the fiscal quarter ending September
30, 2013 and drafts of the consolidated financial statement of Parent and its
Subsidiaries for the fiscal year ending December 31, 2013 and the most recent
annual balance sheets of Guarantor and its Subsidiaries, together (in each case)
with the related statements of income and the related notes and supplemental
information delivered to the Bank, have been prepared in accordance with GAAP in
effect as of such date consistently applied, except as otherwise indicated in
the notes to such financial statements. All of such financial statements fairly
present the financial position or the results of operations of Parent and its
Subsidiaries at the dates or for the periods indicated, and reflect all known
liabilities, contingent or otherwise, that GAAP requires, as of such dates, to
be shown or reserved against. (n) Intellectual Property. Schedules A and B to
the IP Security Agreement contain a true, correct and complete list of all of
the Borrower’s registered Copyrights, registered Trademarks and Revenue
Licenses. (o) License Agreements. Borrower has provided to the Bank true,
correct and complete copies of each Revenue License, including all material
amendments, schedules, exhibits and other attachments thereto, all conditions to
the effectiveness of each Revenue License have been satisfied on or prior to the
date hereof, and to the knowledge of Borrower no material defaults exist with
respect to any of the Revenue Licenses except as disclosed to the Bank on
Schedule IV hereto. (p) Acquisition Agreements. As of the date of this
Agreement, Borrower has delivered to the Bank a complete and correct copy of the
Acquisition Agreement (including all schedules, exhibits, amendments,
supplements, modifications, assignments and all other documents delivered
pursuant thereto or in connection therewith). Neither Borrower, any Guarantor
nor to the best of Parent’s and Borrower’s knowledge, any other Person party
thereto is in default in the performance or compliance with any provisions
thereof. The Acquisition Agreement complies with, and the Acquisition has been
consummated in accordance with, all applicable laws. The Acquisition Agreement
is in full force and effect as of the date of this Agreement and has not been
terminated, rescinded or withdrawn. All requisite approvals by governmental
authorities having jurisdiction over Borrower, any Guarantor or, to the best of
Parent’s and Borrower’s knowledge, any Seller with respect to the transactions
contemplated by the Acquisition Agreement have been obtained, and no such
approvals impose any conditions to the consummation of the transactions
contemplated by the Acquisition Agreement or to the conduct by any Guarantor or
by Borrower of its business thereafter. To the best of Borrower’s knowledge,
none of any Seller’s representations or warranties in the Acquisition Agreement
contain any untrue statement of a material fact or omit any fact necessary to
make the statements therein not misleading. Each of the representations and
warranties given by each of Parent and Borrower in the Acquisition Agreement is
true and correct in all material respects.

 

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3.          Financial Reporting Requirements

 

(a)          Borrower and Parent each hereby agrees that, so long as the Term
Loan remains in effect and any amount is due and owing to Bank thereunder, it
shall submit to the following reporting requirements:

 

(i)          Annual Financial Statements.  Furnish to Bank within one hundred
and twenty (120) days after the close of each fiscal year of Parent, a copy of
the audited financial statement of Parent and its Subsidiaries on a consolidated
basis as at the end of such fiscal year and statements of income and of cash
flows for such fiscal year, prepared by CohnReznick LLP or other independent
certified public accountants of nationally recognized standing reasonably
acceptable to the Bank. In addition, no later than the delivery of such audited
financial statements, the Borrower shall furnish to the Bank the corresponding
consolidating balance sheets of Parent and each of its Subsidiaries as at the
end of each fiscal year and statements of income and of cash flows for such
fiscal year.

 

(ii)         Quarterly Financial Statements.  As soon as available and in any
event within sixty (60) days after the end of each of the first three quarterly
periods of each fiscal year of Parent, a copy of internally prepared financial
statement of Parent and its Subsidiaries on a consolidated basis together with
consolidating balance sheets of Parent and each of its Subsidiaries as of the
end of such quarter and the related statements of income and of cash flows for
such quarter and the portion of the fiscal year through the end of such quarter,
setting forth commencing with the fiscal quarter ending June 30, 2015 in each
case in comparative form the figures as of the end of and for the corresponding
period, in the previous year (subject to normal year-end audit adjustments).

 

(iii)        Covenant Compliance Certificate. Simultaneously with the delivery
of each set of financial statements referred to in clause (a)(i) and (a)(ii) of
this Section 3, provide a covenant compliance certificate of an authorized
officer or Manager of Parent and Borrower substantially in the form of Exhibit A
hereto and otherwise in form and substance satisfactory to the Bank in all
respects.

 

(iv)         Royalty Collections Reports. Borrower shall furnish to the Bank
within sixty (60) days after the close of each calendar quarter a copy of its
Quarterly Royalty Collections Report showing actual royalties billed and
collected in the period covered thereby and setting forth the GMR for such
period. For purposes of this Letter Agreement, the term “Quarterly Royalty
Collections Report” shall mean a report substantially in the form of Exhibit B
hereto and “GMR” shall mean guaranteed minimum royalties.

 

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(b)          Borrower further agrees that, so long as the Term Loan remains in
effect and any amount is due and owing to Bank thereunder:

 

(i)          Complete Statements. All financial statements required pursuant to
paragraphs (a)(i) and (a)(ii) of this Section 3 shall be complete and correct in
all material respects and shall be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein except with respect to interim financial statements the absence of
footnotes and subject to year-end adjustments.

 

(ii)         Fiscal Year. The fiscal year of Parent and Borrower shall conclude
on December 31st of each year.

 

4.          Financial and Other Covenants

 

Borrower and Guarantor hereby agree that, so long as the Term Loan remains in
effect and any amount is due and owing to Bank thereunder, Borrower and Parent
shall submit to the following requirements:

 

(a)          Minimum Net Worth. Net Worth of Parent and its Subsidiaries on a
consolidated basis shall not be less than $31,000,000 at the end of any fiscal
quarter.

 

(b)          Minimum Liquid Assets. Liquid Assets of Parent and its Subsidiaries
on a consolidated basis shall be at least $3,000,000 at all times.

 

(c)          Fixed Charge Coverage Ratio. The Fixed Charge Ratio of Parent and
its Subsidiaries on a consolidated basis at the end of each fiscal quarter for
the twelve fiscal month period ending on such fiscal quarter shall not be less
than 1.20 to 1.00 for the periods ending on or prior to December 31, 2015 and
not less than 1.10 to 1.00 for periods commencing on and after March 31, 2016.

 

(d)          Capital Expenditures. Capital Expenditures of Parent and its
Subsidiaries on a consolidated basis in any fiscal year shall not exceed
$1,300,000.

 

(e)          Minimum EBITDA of Borrower. EBITDA of Borrower shall not be less
than $3,000,000 for the fiscal year ending December 31, 2014, not less than
$4,000,000 for the fiscal year ending December 31, 2015 and not less than
$5,000,000 for the fiscal year ending December 31, 2016 and each fiscal year end
thereafter.

 

(f)          Minimum EBITDA of Parent. EBITDA of Parent shall not be less than
$5,500,000 for the fiscal year ending December 31, 2014, not less than
$7,500,000 for the fiscal year ending December 31, 2015, not less than
$11,000,000 for the fiscal year ending on December 31, 2016 and not less than
$12,000,000 for fiscal year ending December 31, 2017 and each fiscal year end
thereafter.

 

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(g)          Financial Information. Borrower and Parent shall (i) provide the
Bank with such financial and other information concerning Parent, Borrower,
Guarantor and their affairs, as the Bank may from time to time reasonably
request, (ii) promptly inform the Bank of any occurrence of which it becomes
aware which might adversely affect its ability to perform its obligations under
the Loan Documents and of any default under the Loan Documents forthwith upon
becoming aware thereof, and (iii) promptly inform the Bank of any threatened
litigation or administrative or arbitration proceedings before or of any court,
tribunal, arbitrator of other relevant authority that may be Material to
Borrower or affect a Material part of the Borrower’s assets.

 

(h)          Consents; Taxes. Borrower and Parent shall (i) obtain or cause to
be obtained, maintain in full force and effect and comply in all material
respects with the conditions and restrictions (if any) imposed in, or in
connection with, every material consent, authorization, material license or
approval of governmental or public bodies or authorities or courts and do, or
cause to be done, all other acts and things, which may from time to time be
necessary or desirable under applicable law for the continued due performance of
all its obligations under the Loan Documents; (ii) comply in all material
respects with all applicable laws, rules, regulations and orders of any
governmental agency having jurisdiction over Borrower or Parent; (iii) pay to
the appropriate governmental authorities when due, all Federal, state, local and
other Taxes required to be paid or deposited by Borrower or Parent, except that
Borrower or Parent may defer any such payment while Borrower or Parent is
diligently contesting the respective Taxes in good faith by appropriate
proceedings, but any such deferment shall not extend beyond the time when such
unpaid Taxes would become a lien upon any of Borrower’s or Parent’s assets.
Borrower will furnish the Bank promptly at the Bank’s request with evidence
satisfactory to the Bank establishing payment of such Taxes, assessments and
contributions. In the Bank’s discretion, the Bank shall have the right (but
shall not be obligated) to pay any such Tax, assessment or contribution
(including any interest or penalties thereon) for Borrower’s or Parent’s benefit
in the event Borrower or Parent shall fail timely to do so and provided the
non-payment of such Tax will result in a lien or security interest encumbering
the assets which will be prior to the lien and security interest held by the
Bank; any such payment shall be deemed an advance hereunder bearing interest at
the Loan Rate (as such term is defined in the Promissory Note) and payable in
the manner specified therein. Borrower shall, promptly on demand, reimburse the
Bank for any such payment and any costs and expenses (including reasonable
attorneys’ fees) which the Bank may incur in connection therewith.
Notwithstanding anything in any of the Loan Documents to the contrary, Borrower
and Parent shall furnish to the Bank within twenty (20) days of when filed
copies of its annual tax returns as filed with the applicable taxing authority,
and to the extent that Borrower or Parent fails to file its annual Federal tax
return with the United States Internal Revenue Service by the March 15th
deadline, Borrower and Parent shall furnish to the Bank no later than three (3)
Business Days after such deadline a copy of Borrower’s and Parent’s properly
filed extension request.

 

(i)          Company Existence. Borrower will maintain its existence as a
limited liability company and carry on its business in substantially the same
manner and in substantially the same fields as such business is now carried on
and maintained. Parent will maintain its existence as a corporation and carry on
its business in substantially the same manner and in substantially the same
fields as such business is now carried on and maintained.

 

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(j)          Encumbrances. Borrower shall not create, effect or permit to exist
any Encumbrance over all or any part of its assets except for (i) liens for
taxes not yet due or that are being contested in good faith by appropriate
proceedings, provided that adequate reserves with respect thereto are maintained
on the books of Borrower or Parent in conformity with GAAP; (ii) carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like liens
arising in the ordinary course of business; (iii) pledges or deposits in
connection with workers’ compensation, unemployment insurance and other social
security legislation; (iv) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (v) easements, rights-of-way,
restrictions and other similar encumbrances incurred in the ordinary course of
business that do not materially interfere with the ordinary conduct of the
business of Borrower or Parent; (vi) liens in existence on the date hereof
listed on Schedule IV hereto, provided that no such lien is spread to cover any
additional property after the date hereof and that the amount of indebtedness
secured thereby is not increased; (vii) liens securing indebtedness of Borrower
or Parent incurred to finance the acquisition of fixed or capital assets,
provided that (x) such liens shall be created substantially simultaneously with
the acquisition of such fixed or capital assets, (y) such liens do not at any
time encumber any property other than the property financed by such indebtedness
and (z) the amount of indebtedness secured thereby is not increased; (viii)
liens created pursuant to the Security Agreement and the Pledge Agreement; (ix)
any interest or title of a lessor under any lease entered into by Parent,
Borrower or any other Subsidiary in the ordinary course of its business and
covering only the assets so leased; and (x) the interests of non-exclusive
licensees under license agreements entered into in the ordinary course of
business. Parent shall not create, effect or permit to exist any Encumbrance
over all or any part of any of its assets pledged as collateral security for the
Liabilities.

 

(k)          Indebtedness. Neither Borrower nor Parent shall incur, create,
assume, become or be liable in any manner with respect to, or permit to exist,
any indebtedness for borrowed money, reimbursement or payment obligations or any
obligation evidenced by notes, bonds, debentures or similar instruments other
than (a) pursuant to the Loan Documents; (b) indebtedness to Parent or any of
its Subsidiaries; provided that any such indebtedness to Parent or any of its
Subsidiaries shall be subordinated to the Liabilities on terms and conditions
reasonably satisfactory to the Bank; (c) indebtedness (including, without
limitation, capital lease obligations) secured by liens permitted by clause
(vii) of Section 4(j) in an aggregate principal amount not to exceed $750,000 at
any one time outstanding; (d) indebtedness outstanding on the date hereof and
listed on Schedule II hereto and any refinancings, refundings, renewals or
extensions thereof (without any increase in the principal amount thereof and any
shortening of the maturity of any principal amount thereof) except that Borrower
and Parent may amend the indebtedness listed on Schedule II to (i) modify the
manner, calculations or mechanics by which amounts thereunder are payable in
capital stock of Parent and (ii) extend the maturity of all or any portion of
the indebtedness evidenced thereby; (e) unsecured indebtedness not to exceed
$500,000 in the aggregate at any time outstanding; (f) indebtedness under Rate
Contracts entered in the ordinary course of business in order to mitigate
interest rate, currency or similar risks and not for speculative purposes with
respect to the Term Loan; (g) guarantee obligations of Parent with respect to
the obligations of any Subsidiary of Parent; (h) guarantee obligations of
Borrower with respect to the obligations of IM Brands to the Bank; and (i)
indebtedness in the amount of the Holdback Amount representing the deferred
portion of the purchase price under the Acquisition Agreement.

 

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(l)          No Merger. Neither Borrower nor Parent shall merge or consolidate
with any other Person, acquire all or substantially all of the assets or Stock
of any Person except (a) any Subsidiary of Borrower may be merged or
consolidated with or into Borrower provided Borrower shall be the continuing or
surviving entity; (b) any Subsidiary of Borrower may dispose of any or all of
its assets (upon voluntary liquidation or otherwise) to Borrower only; (c) any
Subsidiary of Parent (other than Borrower and IM Brands) may be merged or
consolidated with or into Parent provided Parent shall be the continuing or
surviving entity; (d) any Subsidiary of Parent (other than Borrower and IM
Brands) may dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to Parent; (e) as otherwise expressly permitted pursuant to the terms
of the Promissory Note; and (f) Parent may acquire the assets or stock of any
Person provided that such acquisition is not financed in whole or in part from
any distributions, loans or other assets of Borrower or any Subsidiary of
Borrower.

 

(m)          Dispositions. Borrower shall not sell, transfer, lend or otherwise
dispose of or cease to exercise direct control over any part of its assets,
undertakings or revenues which, in the commercially reasonably opinion of the
Bank, is material, other than (a) dispositions of obsolete, worn out or damaged
equipment not used in the Borrower’s business; (b) as permitted pursuant to the
terms of the IP Security Agreement; (c) the sale of inventory in the ordinary
course of business; (d) dispositions permitted by clause (b) of Section 4(l);
(e) the disposition of any or all of the assets of Borrower to any of its
Subsidiaries; (f) the disposition of other assets having a fair market value not
to exceed $750,000 in the aggregate for any of the Borrower’s fiscal years; (g)
any settlement of or payment in respect of any property or casualty insurance
claim or any condemnation proceeding relating to any property of Borrower,
Parent or any of their respective Subsidiaries if such property is Collateral
(as defined in the Security Agreement or the Pledge Agreement); (h)
non-exclusive licenses of intellectual property in the ordinary course of
business; and (i) subject to the prior written consent of the Bank, payments of
an amount not to exceed the Holdback Amount with respect to the deferred portion
of the purchase price under the Acquisition Agreement.

 

(n)          Affiliate Transactions. None of Borrower, Parent nor any of their
respective subsidiaries shall enter into any transaction with any of its
affiliates, unless such transaction is on terms not materially less favorable
than if the transaction had been negotiated in good faith on an arm’s length
basis with a non-affiliate; provided, however, Parent may allocate to Borrower
general administrative and other corporate expenses of Parent (“Parent Allocable
Expenses”) in accordance with Parent’s expense allocation method that is an
acceptable methodology with segment reporting.

 

8

 

 

(o)          Distributions. Neither Parent nor Borrower shall declare or pay any
dividends on or make any other distribution with respect to any equity
interests, except that: (i) any Subsidiary of Borrower may make such payments to
Borrower; (ii) Borrower may make such payments to Parent in order to permit
Parent to make Capital Expenditures and pay overhead, employment cost and
expenses and similar expenses to the extent incurred in connection with the
operation of the business of Borrower and the Borrower’s Subsidiaries; provided,
however, that (x) such expenses shall not include interest expense of Parent,
scheduled payments of principal on funded debt of Parent or capital expenditures
of Parent that do not relate to the business of Borrower and Borrower’s
Subsidiaries and (y) to the extent Parent has any Subsidiary other than
Borrower, any such expenses which do not relate exclusively to the business and
operations of Borrower and the Borrower’s Subsidiaries or any such other
Subsidiary shall be allocated ratably among Borrower and each such other
Subsidiary and Borrower shall only make such payments to Parent in an amount
equal to its ratable share of such expenses and any such expenses which relate
directly to the operations of such other Subsidiary shall be paid directly or
indirectly by such other Subsidiary (such distributions, the “Expense
Distributions”); provided that Borrower must accrue and not pay to Parent the
first five hundred thousand dollars ($500,000) of Expense Distributions from the
date hereof until such time as the principal amount of the Term Loan and the
principal amount of the term loan made by the Bank to IM Brands has been reduced
by $1,000,000 in the aggregate (other than as a result of a scheduled
amortization payment); (iii) Borrower may make such payments to Parent in an
amount equal to the estimated federal, state and local tax liability of Parent
resulting from any taxable income (net of all losses, including for prior years
to the extent permitted to be deducted) of the Borrower, which such distribution
may be made on a quarterly basis not more than five (5) business days prior to
the date on which any quarterly estimated tax payment is payable by Parent;
provided, however, that, upon determination of the actual tax liability of
Parent with respect to the taxable income of Borrower for any tax year, the next
quarterly estimated payment shall be increased or reduced by the difference
between the estimated payments made during such tax year and such actual tax
liability (such distributions, the “Tax Distributions”); (iv) Borrower may make
such payments to Parent in amount equal to the franchise and other tax liability
(other than for the tax liability covered by clause (iii) above) of Parent as
respects the business of Borrower and Borrower’s Subsidiaries; and (v) subject
to compliance with Section 4(p), Borrower may make distributions on or after
January 1, 2015, in an amount not to exceed fifty percent (50%) of Excess Cash
Flow.

 

(p)          Cash Flow Recapture. On and after January 1, 2015, Borrower shall
prepay the outstanding amount of the Term Loan from Excess Cash Flow for the
prior fiscal year in an amount equal to fifty percent (50%) of such Excess Cash
Flow (the “Cash Flow Recapture Requirement”). Such payments shall be received by
the Bank no later than the date of delivery of the financial statements required
pursuant to Section 3(a)(i) and shall be applied by the Bank to the principal
amount of the Term Loan in the reverse order of maturity.

 

(q)          Bank Accounts. Within sixty (60) days of the date hereof Borrower
shall have established its primary operating bank accounts at the Bank, and
thereafter Parent and its Subsidiaries and Borrower shall, during the term
hereof, maintain its primary deposit accounts and operating accounts at the Bank
in accordance with the standard account documents of the Bank such that at least
80% of the aggregate amount of cash of such Persons are in deposit accounts at
the Bank.

 

(r)          Subsidiaries. Borrower shall not permit or suffer to exist the
formation of additional Subsidiaries unless the Bank consents to such new
Subsidiary in writing.

 

9

 

 

(s)          Trademarks and License Agreements. Borrower shall provide (i)
written notice to the Bank immediately upon any occurrence described in
paragraph D(6) of the Promissory Note and (ii) within forty-five (45) days after
the close of each calendar quarter a written report summarizing all material
changes to and material Defaults under any Revenue License.

 

(t)          Use of Proceeds. Borrower shall use the proceeds of the Term Loan
(i) to finance in part the Acquisition, including, without limitation, to
finance in part the satisfaction of all obligations of Sellers to Rosenthal &
Rosenthal, Inc., (ii) to pay transaction fees and expenses incurred in
connection with the transactions contemplated by the Acquisition, this Letter
Agreement and the other Loan Documents and (iii) and for general working capital
purposes.

 

(u)          Inspections and Appraisals. At all times during normal business
hours upon reasonable advance notice to Borrower (provided that no notice shall
be required if an Event of Default has occurred and is continuing), the Bank
and/or any agent of the Bank shall have the right to (i) have access to, visit,
inspect, review, evaluate and make physical verification and appraisals of
Borrower’s properties and the collateral securing the Term Loan, (ii) inspect,
audit, photograph and copy and make extracts from Borrower’s and Parent’s Books
and Records, including management letters prepared by independent accountants,
and (iii) discuss with Borrower’s and Parent’s principal officers and
independent accountants Borrower’s and Parent’s business, assets, liabilities,
financial condition, results of operations and business prospects. The Bank’s
inspection rights under this clause (s) shall be at the sole cost and expense of
the Bank and, except upon the occurrence and during the continuance of an Event
of Default, be limited to no more than twice in any calendar year. Borrower and
Parent each will deliver to the Bank any instrument necessary for the Bank to
obtain records from any service bureau maintaining records for Borrower or
Parent.

 

(v)          Exchange Controls. To the extent that Borrower or Parent trades or
purchased foreign currency, Borrower and Parent each shall obtain any Exchange
Control Permit deemed by the Bank to be necessary or appropriate; and obtain the
renewal of any such Exchange Control Permit at least thirty (30) days prior to
its expiration.

 

(w)          Insurance. Borrower and Parent shall each (i) keep its assets which
are of an insurable character insured (to the extent and for the time periods
consistent with or greater than normal industry standards) by financially sound
and reputable insurers against loss or damage by fire, explosion, theft,
terrorism or other hazards which are included under extended coverage in amounts
not less than the replacement value of the property insured, and Borrower shall
maintain with financially sound and reputable insurers, insurance against other
hazards and risks and liability to Persons and property (including officers and
directors liability coverage) to the extent and in the manner consistent or
greater than normal industry standards, (ii) within thirty (30) days of the date
hereof, provide to the Bank copies of its insurance policies evidencing to the
reasonable satisfaction of the Bank that endorsements have been made to such
policies adding the Bank as additional insured and/or lender’s loss payee, as
applicable, and (iii) within ten (10) business days of the date hereof, provide
to the Bank certificates of insurance reasonably satisfactory to the Bank with
respect to all existing insurance coverage, which certificates shall name the
Bank as additional insured and/or lender’s loss payee, as applicable (including,
without limitation, naming the Bank as additional insured under any umbrella
policy), and shall evidence the Borrower’s compliance with this Section 4(w)
with respect to all insurance coverage existing as of the date hereof. Borrower
shall maintain at all times life insurance insuring the life of Judith Rikpa in
an amount at least equal to $10,000,000 issued by an insurer acceptable to the
Bank and the proceeds of such policy shall have been assigned to the Bank.

 

10

 

 

(x)          Acquisition Agreement Amendments. Neither Borrower nor Parent shall
waive or otherwise modify any term of the Acquisition Agreement, except for
those that do not materially affect the rights and privileges of any of Borrower
or Parent and do not materially affect the interests of the Bank under the Loan
Documents or in the Collateral.

 

(y)          Retail Stores. Neither Borrower nor any Subsidiary of Borrower
shall establish or acquire a Retail Store.

 

5.          Miscellaneous

 

Capitalized terms not defined in this Letter Agreement shall have the meaning
ascribed thereto in the Promissory Note. As used herein, the following terms
shall have the following meanings: “Acquisition” means the acquisition of all or
substantially all of the intellectual property assets of Sellers pursuant to the
terms of the Acquisition Agreement. “Acquisition Agreement” shall mean the Asset
Purchase Agreement dated as of April 1, 2014 among Parent, Borrower and Sellers.
“Books and Records” shall mean all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records, financial statements (actual and pro
forma), filings with Governmental Authorities and any and all records and
instruments relating to the collateral securing the Term Loan or otherwise
necessary or helpful in the collection thereof or the realization thereupon.
“Capital Expenditures” shall mean all payments or accruals (including
obligations under capital leases) for any fixed assets or improvements or for
replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP. “Cash
Flow From Operations” shall mean as respects Borrower, cash flow from operations
as determined in accordance with GAAP. “EBITDA of Borrower” shall mean, for any
period for Borrower (without duplication), an amount equal to (a) Net Income
(Loss) for Borrower for such period before Parent Allocable Expenses, minus, (b)
to the extent included in calculating Net Income (Loss) for Borrower, the sum
of, without duplication, (i) interest income (whether cash or non-cash) for such
period, (ii) income tax credits for such period, (iii) gain from extraordinary
or non-recurring items for such period (including, without limitation, non-cash
items related to purchase accounting) and (iv) deferred compensation payments
(regardless of when accrued), plus (c) the following to the extent deducted in
calculating such Net Income (Loss), (i)  interest charges for such period,
(ii) the provision for all federal, state, local and foreign taxes payable for
such period and the amount of permitted payments in Section 4(o)(iii) deducted
in calculating Net Income (Loss), (iii) the amount of depreciation and
amortization expense for such period, (iv) the transaction fees, costs and
expenses incurred in connection with the negotiation and execution of this
Letter Agreement and the other Loan Documents and any amendments hereto or
thereto and in connection with the transactions contemplated by the Acquisition,
(v) all other extraordinary or non-recurring non-cash charges (including,
without limitation, non-cash items related to purchase accounting), (vi)
deferred management salaries (accrued but not paid) and (vii) all non-cash
compensation (including without limitation, stock or equity compensation) in
such period. “EBITDA of Parent” shall mean, for any period for Parent and its
Subsidiaries on a consolidated basis (without duplication), an amount equal to
(a) Net Income (Loss) for Parent and its Subsidiaries on a consolidated basis
for such period, minus, (b) to the extent included in calculating Net Income
(Loss) for Parent and its Subsidiaries on a consolidated basis, the sum of,
without duplication, (i) interest income (whether cash or non-cash) for such
period, (ii) income tax credits for such period, (iii) gain from extraordinary
or non-recurring items for such period (including, without limitation, non-cash
items related to purchase accounting) and (iv) deferred compensation payments
(regardless of when accrued), plus (c) the following to the extent deducted in
calculating such Net Income (Loss), (i)  interest charges for such period,
(ii) the provision for all federal, state, local and foreign taxes payable for
such period and the amount of permitted payments in Section 4(o)(iii) deducted
in calculating Net Income (Loss), (iii) the amount of depreciation and
amortization expense for such period, (iv) the transaction fees, costs and
expenses incurred in connection with the negotiation and execution of this
Letter Agreement and the other Loan Documents and any amendments hereto or
thereto and the transactions contemplated by the Acquisition, (v) all other
extraordinary or non-recurring non-cash charges (including, without limitation,
non-cash items related to purchase accounting), (vi) deferred management
salaries (accrued but not paid) and (vii) all non-cash compensation (including
without limitation, stock or equity compensation) in such period. “Encumbrance”
shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge or other security interest or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including without limitation, any conditional
sale or other title retention agreement and any financing lease having
substantially the same economic effect as any of the foregoing) or any options
or rights of first refusal with respect to securities, or any shareholders or
stockholders agreement or arrangement of any kind or nature whatsoever. “Excess
Cash Flow” shall mean (without duplication), for any fiscal period, Cash Flow
from Operations for such period less (a) Capital Expenditures not made through
the incurrence of indebtedness less (b) all cash interest and principal
(including indebtedness owed to the Bank) paid or payable during such period
less (c) the portion of the Holdback Amount paid or payable during such period
less (d) all Tax Distributions made during such period. “Exchange Control
Permit” shall mean any permit or license issued by a Governmental Authority
outside the United States under which any Party is permitted (a) to incur and
pay any of the Liabilities in the United States in any currency(ies) in which
denominated or (b) to enter into, incur and/or perform any other obligation or
Loan Document. “Expense Distributions” shall have the meaning given to such term
in Section 4(o). “Fixed Charge Coverage Ratio” shall mean for any period, as
respects any Person, the ratio of (a) EBITDA of such Person for such period plus
Liquid Assets minus Capital Expenditures of such Person to (b) the Fixed Charges
for such period. “Fixed Charges” shall mean for any period, as respects any
Person, the sum of (a) the cash interest expense of such Person for such period,
(b) the principal amount of total debt of such Person having a scheduled due
date during such period (excluding the payment of the Holdback Amount), (c) all
Tax Distributions and (d) all other cash distributions or dividends made by such
Person. “GAAP” shall mean generally accepted accounting principles in the United
States of America in effect from time to time consistently applied (except for
accounting changes in response to FASB releases or other authoritative
pronouncements). “Holdback Amount” shall mean collectively, the Initial Holdback
Amount and the Second Holdback Amount. “Initial Holdback Amount” shall mean an
amount equal to $1,000,000. “JR Advance” shall mean the advance payment in the
amount of $1,000,000 made to Borrower on the date of this Agreement pursuant to
the JR Agreement which amount shall be comprised of an advance payment of
$800,000 toward the payment of the guaranteed minimum royalties and an advance
payment of $200,000 toward the payment of the guaranteed minimum advertisement
royalties. “JR Agreement” shall mean the Trademark License Agreement dated as of
April 1, 2014 between Borrower and JR Jewelery, LLC. “Letter Agreement” shall
mean this letter agreement, as may be amended, restated, supplemented or
otherwise modified from time to time. “Licenses” shall have the meaning assigned
to such term in the IP Security Agreement. “Liquid Assets” shall mean (a) assets
(which are unencumbered except as permitted pursuant to the terms of the Loan
Documents) in the form of cash and cash equivalents consisting of certificates
of deposit and money market funds issued by a commercial bank having net assets
of not less than $500 million less (b) the amount of any Encumbrances thereon
and any unsatisfied judgment, writ, order of attachment, levy or garnishment
entered or issued against Borrower, Parent or any of its Subsidiaries. “Net
Income (Loss)” shall mean with respect to Borrower and for any period, the
aggregate net income (or loss) after taxes for such period, determined in
accordance with GAAP but excluding for all purposes (a) net income of
minority-owned Subsidiaries (except to the extent of net income distributed or
representing a management fee or other similar fee), (b) the net income of any
Subsidiary to the extent that the declaration of dividends or similar
distributions of such income is not permitted by the organizational documents of
such Subsidiary or by operation of law, (c) unrealized gains or losses due
solely to fluctuations in currency values, (d) earnings (or losses) resulting
from my revaluation or write-up or write-down of assets and (d) unrealized gains
or losses under all interest rate or currency forwards, options, swaps, caps or
collar agreements, foreign exchange agreements, commodity contracts or similar
arrangements entered into by Borrower providing for protection against
fluctuations in interest rates, currency exchange rates, commodity prices, or
the exchange of nominal interest obligations, either generally or under specific
contingencies. “Net Worth” shall mean, as at any date of determination an amount
equal to (a) all of the assets of Parent and its Subsidiaries on a consolidated
basis that, in accordance with GAAP, are properly classified as assets on such
date, minus (b) all liabilities of Parent and its Subsidiaries on a consolidated
basis that, in accordance with GAAP, are properly classified as liabilities at
such date. “Parent Allocable Expenses” shall have the meaning given to such term
in Section 4(n). “Person” shall mean any individual, partnership, corporation
(including a business trust and a public benefit corporation), joint stock
company, estate, association, firm, enterprise, trust, limited liability
company, unincorporated association, joint venture and any other entity or
Governmental Authority. “QVC Advance” shall mean the advance payment in the
amount of $1,500,000 made by QVC to Borrower on the date of this Agreement
pursuant to the QVC Agreement. “QVC Agreement” shall mean the License Agreement
dated as of April 1, 2014 among QVC Inc., Borrower, Parent, Judith Ripka Berk
and Beth Vogel. “Rate Contracts” shall mean swap agreements and any other
agreements or arrangements designed to provide protection against fluctuations
in interest or currency exchange rates. “Retail Stores” shall mean retail store
locations of Borrower or any Subsidiary of Borrower, but shall not include
e-commerce retail locations. “Revenue License” shall mean each License pursuant
to which Borrower is entitled to receive revenue from the licensee party
thereto. “Royalty Revenue Amount” shall mean an amount equal to the gross
royalty revenue of Borrower for the immediately preceding fiscal year. “Second
Holdback Amount” shall mean an amount equal to $1,190,247.09. “Sellers” means
collectively, Judith Ripka Creations Inc., Judith Ripka Companies, Inc., Judith
Ripka Designs, Ltd., JSB Marketing Corp. and Judith Ripka. “Stock” shall mean
all certificated and uncertificated shares, options, warrants, membership
interests, general or limited partnership interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity whether voting or nonvoting,
including common stock, preferred stock, or any other “equity security” (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended). “Subsidiary” shall mean, with respect to Parent and the
Borrower, a corporation, exempted company, partnership, exempted limited
partnership, joint venture, limited liability company or other business entity
of which a majority of the shares of securities or other interests having
ordinary voting power for the election of directors or other governing body are
at the time beneficially owned by Parent or the Borrower, as the case may be.
“Tax Distributions” shall have the meaning given to such term in Section 4(o).
“Taxes” shall mean any and all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority, including interest, additions to tax and penalties
applicable thereto. “Trademark Licenses” shall have the meaning assigned to such
term in the IP Security Agreement.

 

11

 

 

Until the maturity of the Term Loan and the payment in full of all obligations
thereunder and all of Borrower’s obligations under the Loan Documents, the Bank
shall retain the security interests in the collateral granted under the Security
Agreement and the Pledge Agreement and the ability to exercise any and all
rights and remedies available to it pursuant to the Loan Documents and
applicable law.

 

No delay on the part of the Bank in exercising any of its options, powers or
rights, or partial or single exercise thereof, shall constitute a waiver
thereof. The options, powers and rights of the Bank specified in the Loan
Documents are in addition to those otherwise created by law or under any other
agreement between Borrower and the Bank. No amendment, modification or waiver of
any provision of the Loan Documents, nor consent to any departure by Borrower
therefrom shall be effective, unless the same shall be in writing and signed by
the Bank. Any such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No consent to or demand on
Borrower in any case shall, of itself, entitle it to any other or further notice
or demand in similar or other circumstances. This Letter Agreement and the other
Loan Documents embody the entire agreement and understanding between the Bank
and Borrower with respect to the Term Loan and supersedes all prior agreements
and understandings relating to the subject matter hereof. In the event of any
conflict between this Letter Agreement and any other Loan Document, this Letter
Agreement shall control and govern. Borrower agrees to pay all reasonable costs
and expenses incurred or payable by the Bank in connection with the
documentation, administration and interpretation of the Loan Documents,
including reasonable attorneys’ fees and disbursements. Borrower agrees to pay
all costs and expenses incurred or payable by the Bank in connection with the
enforcement or collection of the Loan Documents, including court costs and
reasonable attorneys’ fees and disbursements. This Letter Agreement shall be
binding on Borrower and its successors and assigns, provided that Borrower shall
not have the right to assign its rights hereunder or thereunder or any interest
herein or therein without the Bank’s prior written consent. This Letter
Agreement shall be governed by, and for all purposes shall be construed in
accordance with, the laws of the State of New York. For purposes of any action,
suit or proceeding in connection with this Letter Agreement or any other credit
document, Borrower and the Bank hereby irrevocably submit to the jurisdiction of
the courts of the State of New York and of the United States District Court for
the Southern District of New York and irrevocably agrees that any such action,
suit or proceeding may be brought by any party in any such New York or federal
court and that a service of process may be made upon any party by mailing a copy
of the summons to it, by registered or certified mail, at its address set forth
in the Note. Nothing herein shall affect the Bank’s right to commence legal
proceedings or otherwise proceed against Borrower in any other jurisdiction or
to serve process in any other manner permitted by applicable law. IN ANY SUCH
ACTION, SUIT OR PROCEEDING THE PARTIES HERETO MUTUALLY WAIVE TRIAL BY JURY.

 

12

 

 

Section headings used herein or in any other Loan Document are for convenience
only and are not to affect the construction of or be taken into consideration in
interpreting this Letter Agreement or any other Loan Document.

 

This Letter Agreement may be executed in any number of counterparts, all of
which shall constitute one and the same instrument, and any party hereto may
execute this Letter Agreement by signing and delivering one or more
counterparts. Any signature delivered by a party by facsimile or electronic
transmission (including email transmission of a PDF image) shall be deemed an
original signature page hereto.

 

[remainder of page intentionally left blank]

 

13

 

 

Please indicate your acknowledgment of, and agreement to, the foregoing by
signing and returning the enclosed copy of this letter to the attention of the
Bank.

 

  Very truly yours,       BANK HAPOALIM B.M.         By:   /s/ Mitchell Barnett
    Name: Mitchell Barnett     Title: Senior Vice President, Middle Market
Lending         By: /s/ John Hetsko     Name: John Hetsko     Title: Vice
President

 

Acknowledged and Agreed to:

 

JR LICENSING, LLC       XCEL BRANDS, INC.,   Its Manager       By: /s/ James
Haran     Name: James Haran     Title: CFO         XCEL BRANDS, INC.         By:
/s/ Robert D’Loren     Name: Robert D’Loren     Title:  CEO  

 

SIGNATURE PAGE TO
LETTER AGREEMENT

 

 

  

Schedule I

 

to Letter Agreement between Bank Hapoalim B.M. and JR Licensing, LLC

 

LITIGATION

 

None

 

 

 

  

Schedule II

 

to Letter Agreement between Bank Hapoalim B.M. and JR Licensing, LLC

 

INDEBTEDNESS

 

Borrower may incur unsecured indebtedness for trade payables in the ordinary
course of business and payable on normal trade terms.

 

Subordinated Promissory Note in the principal amount of $3,000,000 issued by
Parent dated as of April 1, 2014 in favor of Judith Ripka Berk.

 

Subordinated Promissory Note in the principal amount of $3,000,000 issued by
Parent dated as of April 1, 2014 in favor of Judith Ripka Berk.

 

 

 

 

Schedule III

 

to Letter Agreement between Bank Hapoalim B.M. and JR Licensing, LLC

 

SUBSIDIARIES

 

None

 

 

 

 

Schedule IV

 

to Letter Agreement between Bank Hapoalim B.M. and JR Licensing, LLC

 

ENCUMBRANCES

 

None

 

 

 

 

Exhibit A

 

to letter agreement between Bank Hapoalim B.M. and JR Licensing, LLC

 

FORM OF COMPLIANCE CERTIFICATE

 

This Compliance Certificate (this “Certificate”) is delivered pursuant to
Section 3(a)(iii) of the Letter Agreement dated as of March [__], 2014 among
Bank Hapoalim B.M., Xcel Brands, Inc. and JR Licensing, LLC (as amended,
restated, supplemented or otherwise modified from time to time, the “Letter
Agreement”). All capitalized terms used but not defined herein shall have the
respective meanings ascribed to such terms in the Letter Agreement and/or the
Promissory Note.

 

I, the undersigned, an authorized officer or Manager of Xcel Brands, Inc. and JR
Licensing, LLC, do hereby certify pursuant to Section 3(a)(iii) of the Letter
Agreement that:

 

1.As of the date hereof, no Event of Default or event which with the giving of
notice or lapse of time, or both, would constitute an Event of Default has
occurred and is continuing.

 

2.Since _____________ there has been no material adverse change in the business,
condition (financial or otherwise) or operations of Xcel Brands, Inc. or JR
Licensing, LLC, and no event or condition has occurred that might have had a
material adverse effect on the legality, validity or enforceability of any of
the Loan Documents or the ability of Xcel Brands, Inc. or JR Licensing, LLC to
perform its obligations thereunder.

 

3.Xcel Brands, Inc. and JR Licensing, LLC are in compliance with the financial
covenants set forth in Section 4 of the Letter Agreement. Attached to this
Certificate as Annex A is a covenant compliance worksheet reflecting the
computation of such financial covenants as of the date and for the period
covered by the financial statements enclosed herewith. The information contained
herein and in the attached financial information is true, correct and complete
as of the last day of the period and for the period covered by the financial
statements enclosed herewith.

 

 

 

 

IN WITNESS WHEREOF I have affixed my signature as of ___ day of _________ 20__.

 

  JR LICENSING, LLC         By:   Xcel Brands, Inc.,     Manager         By: /s/
James Haran     Name: James Haran     Title: CFO         XCEL BRANDS, INC.      
  By: /s/ Robert D’Loren     Name: Robert D’Loren     Title: CEO

 

 

 

 

ANNEX A

 

to Compliance Certificate

 

1.          Net Worth as of ____________, 201__ is $_________________.

 

2.          Liquid Assets as of __________, 201__ are $_________________.

 

3.          Fixed Charge Coverage Ratio as of ____________, 201__ is ___ to
1.00.

 

4.          Capital Expenditures for the fiscal year ending _____________, 201__
are $___________.

 

5.          EBITDA of Parent for the fiscal year ending ___________, 201_ is
$___________.

 

6.          EBITDA of Borrower for the fiscal year ending ___________, 201_ is
$___________.

 

 

 

 

Exhibit B

 

to letter agreement between Bank Hapoalim B.M. and JR Licensing, LLC

 

FORM OF QUARTERLY ROYALTY COLLECTIONS REPORT

 

[See Attached]