Exhibit 10.5

 

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS (I)
PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR (II) IN COMPLIANCE WITH AN
EXEMPTION THEREFROM AND ACCOMPANIED, IF REQUESTED BY THE ISSUER, WITH AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH AN EXEMPTION THEREFROM.

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED
UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON

TRANSFER SET FORTH IN ARTICLE II OF THIS WARRANT

 

Warrant No.  ________   Number of Shares: ________ Date of Issuance August 15,
2014   (subject to adjustment) Void after December 31, 2019    

  

SEQUENTIAL BRANDS GROUP, INC.

 

Form of Common Stock Purchase Warrant

 

THIS IS TO CERTIFY THAT, for value received, ___________ or its permitted
assigns (collectively, the “Registered Holder”) is entitled to purchase from
Sequential Brands Group, Inc., a Delaware corporation (the “Company”), at the
place where the Warrant Office designated pursuant to Section 2.1 is located, at
a purchase price per share of $11.20 (as adjusted pursuant to the terms of this
Warrant, the “Exercise Price”), __________ shares (the “Warrant Shares”) of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock,
$0.001 par value per share, of the Company (the “Common Stock”), and is entitled
also to exercise the other appurtenant rights, powers and privileges hereinafter
set forth. The number of shares of the Common Stock purchasable hereunder and
the Exercise Price are subject to adjustment in accordance with Article III
hereof. This Warrant shall expire at 5:00 p.m., New York time, on December 31,
2019 (the “Expiration Date”). Receipt of this Warrant by the Registered Holder
shall constitute acceptance of and agreement to the terms and conditions set
forth herein.

 

This Warrant is issued in connection with that certain Agreement and Plan of
Merger, dated as of June 24, 2014 (the “Merger Agreement”), by and among the
Company, SBG Universe Brands, LLC, Universe Galaxy Merger Sub, Inc., Galaxy
Brand Holdings, Inc., solely in its capacity as the Stockholder Representative
(as defined in the Merger Agreement) Carlyle Equity Opportunity GP, L.P, and,
for purposes of Section 6.5(b) only, Carlyle Galaxy Holdings, L.P.

 

 

 

 

ARTICLE I

 

Exercise of Warrant

 

1.1           Method of Exercise. The Vested Warrant Shares pursuant to this
Warrant may be exercised by the Registered Holder as a whole or in part at any
time and from time to time subsequent to the date hereof and until the
Expiration Date at which time this Warrant shall expire and be of no further
force or effect; provided, however, that the minimum number of Warrant Shares
that may be purchased on a single exercise shall be 1,000 or the entire number
of shares remaining available for exercise hereunder, whichever is less. To
exercise this Warrant, the Registered Holder shall deliver to the Company, at
the Warrant Office designated in Section 2.1(a), a written notice in the form of
the Purchase Form attached as Exhibit A hereto, stating therein the election of
the Registered Holder to exercise this Warrant in the manner provided in the
Purchase Form, along with payment in full of the Exercise Price (in the manner
described below) for all Vested Warrant Shares purchased hereunder. Subject to
compliance with Section 3.1(a)(vi), this Warrant shall be deemed to be exercised
on the date of receipt by the Company of the Purchase Form, accompanied by
payment for the Vested Warrant Shares to be purchased and surrender of this
Warrant, as aforesaid, and such date is referred to herein as the “Exercise
Date.” Upon such exercise (subject as aforesaid), the Company shall promptly
(and in any event within three Business Days (as defined in the Merger
Agreement) following the Exercise Date) issue and deliver to the Registered
Holder a certificate or statement evidencing ownership in book-entry form for
the full number of the Vested Warrant Shares purchasable by the Registered
Holder hereunder, against the receipt by the Company of the total Exercise Price
payable hereunder for all such Vested Warrant Shares, (a) in cash or by
certified or cashier’s check or (b) pursuant to the Net Exercise provisions of
Section 1.2. The person or entity in whose name the certificate(s) or book-entry
statements for Common Stock is to be issued shall be deemed to have become a
holder of record of such Common Stock on the Exercise Date. If the Company fails
to deliver such certificate or statement during the time period specified above,
then the Registered Holder will have the right to rescind such exercise;
provided, that nothing herein shall limit a Registered Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance or injunctive relief with
respect to the Company’s failure to deliver such certificate or statement in
accordance with the terms of this Warrant.

 

1.2           Net Exercise. In lieu of exercising the Vested Warrant Shares by
delivering payment of the Exercise Price to the Company in cash, if the fair
market value of one share of Common Stock is greater than the Exercise Price (at
the date of calculation as set forth below), the Registered Holder of this
Warrant may elect to receive a number of shares of Common Stock equal to the
value of this Warrant (or of any portion of this Warrant being canceled) by
surrender of this Warrant at the Warrant Office together with a properly
completed and executed Purchase Form, in which event the Company shall issue the
Registered Holder a number of shares of Common Stock computed as follows

 

X = Y (A – B) A

 

2

 

 

  Where:

X = the number of shares of Common Stock to be issued to the Registered Holder.
      Y = the number of shares of Common Stock purchasable under the Warrant or,
if only a portion of the Warrant is being exercised, the portion of the Warrant
being canceled (at the date of such calculation).       A = the Current Market
Price of one share of Common Stock (at the date of such calculation).  For
purposes of this Section 1, “Current Market Price” means, the volume-weighted
average, rounded to the nearest cent, of the closing sales price of shares of
Common Stock on the NASDAQ Stock Market, as reported by The Wall Street Journal
for the immediately preceding ten (10) trading days.       B = Exercise Price
(as adjusted to the date of such calculation).

 

1.3           Fractional Shares. No fractional shares of Common Stock shall be
issued in connection with any exercise of this Warrant. In lieu of any
fractional shares that would otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the Current Market Price of
one share of Common Stock at the date of exercise.

 

1.4           Termination. Notwithstanding any other provision of this Warrant,
the right to exercise this Warrant shall terminate upon the Expiration Date;
provided, however, if this Warrant shall not have been exercised in full prior
to a Change of Control of any kind described in clause (i) of the definition
thereof, this Warrant shall be automatically exercised upon the closing of such
Change of Control pursuant to the Net Exercise provisions of Section 1.2.

 

1.5           Delivery of New Warrants Upon Exercise. If this Warrant shall have
been exercised in part, the Company shall, at the request of the Registered
Holder and upon surrender of this Warrant, at the time of delivery of the
certificate or statement evidencing ownership in book-entry form for the Vested
Warrant Shares purchased by the Registered Holder hereunder, deliver to the
Registered Holder a new Warrant evidencing the rights of the Registered Holder
to purchase the unpurchased Warrant Shares pursuant to this Warrant, which new
Warrant shall in all other respects be identical to this Warrant.

 

1.6           Withholding. Solely to the extent required by applicable law and
upon prior notice, Parent shall be entitled to deduct and withhold from any
amounts or Warrant Shares to be delivered hereunder to a Registered Holder which
constitute compensation, any amounts required to be deducted and withheld with
respect to the making of such payment. Any amounts so deducted and withheld
shall be timely paid over to the appropriate governmental authority and shall be
treated for all purposes of this Warrant as having been paid to the Registered
Holder in respect of which such deduction and withholding was made.

 

3

 

 

ARTICLE II

 

Warrant Office; Transfer

 

2.1           Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the “Warrant Office”), which office shall initially
be the Company’s principal office, and may subsequently be such other office of
the Company or of any transfer agent of the Common Stock in the continental
United States of which written notice has previously been given to the
Registered Holder. The Company shall maintain, at the Warrant Office, a register
for the Warrant in which the Company shall record the name and address of the
Registered Holder, as well as the name and address of each permitted assignee of
the rights of the Registered Holder.

 

2.2           Ownership of Warrant. The Company may deem and treat the
Registered Holder as the holder and owner hereof (notwithstanding any notations
of ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer as provided in this
Article II.

 

2.3           Transfer of Warrants. The Company agrees to maintain at the
Warrant Office books for the registration and transfer of this Warrant. This
Warrant may be transferred by any Registered Holder (including, for the
avoidance of doubt, any subsequent transferee) in whole or in part only in
compliance with applicable law and only to his, her or its Permitted
Transferees. The Company, from time to time, shall register the transfer in
whole or in part of this Warrant in such books upon surrender of this Warrant at
the Warrant Office, properly endorsed, together with a written assignment of
this Warrant, substantially in the form of the Assignment attached as Exhibit B
hereto. Upon any such transfer, a new Warrant shall be issued to the transferee,
and the Company shall cancel the surrendered Warrant. The Registered Holder
shall pay all taxes and all other expenses and charges payable in connection
with the transfer of Warrants pursuant to this Section 2.3. For purposes of this
Warrant, “Permitted Transferees” shall mean (a) in the case of an individual,
the individual’s spouse, child, estate, personal representative, heir or
successor, a trust for the benefit of any of the foregoing persons, or a
partnership or limited liability company the partners or members of which
consist solely of any of the foregoing persons and (b) in the case of any
Registered Holder that is not a natural person (other than a trust as described
in clause (a) of this sentence, for whom transfers may be made to the persons
described in such clause (a)), to a person or entity that is an Affiliate (as
defined in the Merger Agreement), direct partner, member or stockholder of such
Registered Holder.

 

2.4           No Rights as Shareholder Until Exercise. No holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be deemed to
be a stockholder of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the Registered Holder of this Warrant,
as such, any rights of a stockholder of the Company or any right to vote, give
or withhold consent to any corporate action, receive notice of meetings, receive
dividends or subscription rights, or otherwise. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to the Registered Holder as the
record owner of such shares as of the close of business on the later of the date
of such surrender or payment.

 

4

 

 

2.5           Expenses of Delivery of Warrants. Except as provided in Section
2.3, the Company shall pay all reasonable expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of Warrants
and related Warrant Shares hereunder.

 

2.6           Compliance with Securities Laws. The Registered Holder (and its
transferees and assigns), by acceptance of this Warrant, covenants and agrees
that such Registered Holder is acquiring the Warrants evidenced hereby, and,
upon exercise hereof, the Warrant Shares, for its own account as an investment
and not with a view to distribution thereof in violation of applicable law.
Neither this Warrant nor the Warrant Shares issuable hereunder have been
registered under the Securities Act or any state securities laws and no transfer
of this Warrant or any Warrant Shares shall be permitted unless the Company has
received notice of such transfer in the form of the assignment attached hereto
as Exhibit B, accompanied, if requested by the Company, by an opinion of counsel
reasonably satisfactory to the Company that an exemption from registration of
such Warrant or Warrant Shares under the Securities Act is available for such
transfer, except that no such opinion shall be required after a registration for
resale of the Warrant Shares has become effective. Upon any exercise of the
Warrants prior to effective registration for resale or except as in accordance
with Rule 144 under the Securities Act, certificates representing the Warrant
Shares shall bear a restrictive legend substantially identical to that set forth
as follows:

 

“The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any state
(collectively, the “Acts”). Neither the shares nor any interest therein may be
offered, sold, transferred, pledged, or otherwise disposed of in the absence of
an effective registration statement with respect to the shares under all of the
applicable Acts, or an opinion of counsel reasonably satisfactory to the Company
to the effect that such registrations are not required.”

 

Any purported transfer of the Warrant or Warrant Shares not in compliance with
the provisions of this section shall be null and void. Stop transfer
instructions have been or will be imposed with respect to the Warrant Shares so
as to restrict resale or other transfer thereof, subject to this Section 2.6.

 

ARTICLE III

 

Anti-Dilution Provisions

 

3.1           Adjustment of Exercise Price and Number of Warrant Shares. The
number of shares of Common Stock for which this Warrant is exercisable and/or
the Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events as follows:

 

5

 

 

a)Subdivision or Combination of Common Stock. If at any time on or after the
date of this Warrant the Company shall (i) subdivide its outstanding shares of
Common Stock into a greater number of shares, or (ii) shall pay a dividend with
respect to its outstanding shares of Common Stock in shares of Common Stock or
any other equity or equity-equivalent securities, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of Warrant Shares receivable shall be proportionately increased so that
Registered Holder after such date shall be entitled to receive, upon payment of
the same aggregate Exercise Price as would have been payable before such date,
the aggregate number of shares of Common Stock that, if this Warrant had been
exercised immediately prior to such date, the Registered Holder would have owned
upon such exercise and been entitled to receive by virtue of such dividend or
subdivision; and, conversely, if at any time on or after the date of this
Warrant the outstanding number of shares of Common Stock shall be combined into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of shares
receivable upon exercise of the Warrant shall be proportionately decreased so
that the Registered Holder after such date shall be entitled to receive, upon
payment of the same aggregate Exercise Price as would have been payable before
such date, the aggregate number of shares of Common Stock that, if this Warrant
had been exercised immediately prior to such date, the Registered Holder would
have owned upon such exercise and been entitled to receive by virtue of such
combination. Any adjustment under this subsection (a) shall become effective
when the applicable dividend, subdivision or combination becomes effective.

 

b)Reclassification, Reorganization, Consolidation or Merger. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than as a result of a subdivision or combination
pursuant to Section 3.1(a)), or in case of any reorganization, consolidation or
merger of the Company with or into another entity, the Company, or such
successor entity, as the case may be, shall execute a new Warrant, providing
that the holder of this Warrant shall have the right to exercise such new
Warrant and procure upon such exercise in lieu of each Warrant Share theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change, reorganization, consolidation or merger by a holder of one share of
Common Stock. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 3. The provisions of this subsection shall similarly apply to successive
reclassifications, changes, reorganizations, consolidations and mergers.

 

c)Pro Rata Distributions. Except to the extent that Sections 3.1(a) or 3.1(b)
would otherwise apply, during such time as this Warrant is outstanding, if the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”), at any time after
the issuance of this Warrant, then, in each such case, the Registered Holder
shall be entitled to participate in such Distribution to the same extent that
the Registered Holder would have participated therein if the Holder had held the
Vested Warrant Shares immediately before the date of which a record is taken for
such Distribution, or, if no such record is taken, the date as of which the
record holders of shares of Common Stock are to be determined for the
participation in such Distribution; provided, however, that any such
Distributions made with respect to unvested Warrant Shares that are not Expired
Warrant Shares shall be held by Parent and released to the Registered Holder
promptly upon such time, if any, as such unvested Warrant Shares shall have
become Vested Warrant Shares and shall have been exercised by the Registered
Holder.

 

6

 

  

d)Adjustment of Number of Shares. Upon each adjustment in the Exercise Price,
the number of shares of Common Stock purchasable hereunder shall be adjusted, to
the nearest whole share, to the product obtained by multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment in the
Exercise Price by a fraction, the numerator of which shall be the Exercise Price
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price immediately thereafter.

 

e)Rounding of Calculations; Minimum Adjustment. All calculations under this
Section 3.1(a) and under Section 3.1(b) shall be made to the nearest cent. Any
provision of this Section 3.1 to the contrary notwithstanding, no adjustment in
the Exercise Price shall be made if the amount of such adjustment would be less
than one percent, but any such amount shall be carried forward and an adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate one percent or more.

 

3.2           Statement Regarding Adjustments. Whenever the Exercise Price shall
be adjusted as provided in Section 3.1, and upon each change in the number of
shares of the Common Stock issuable upon exercise of this Warrant, the Company
shall forthwith file, at the office of any transfer agent for this Warrant and
at the principal office of the Company, a statement showing in detail the facts
requiring such adjustment and the Exercise Price and new number of shares
issuable that shall be in effect after such adjustment, and the Company shall
also cause a copy of such statement to be given to the Registered Holder. Each
such statement shall be signed by the Company’s chief financial or accounting
officer.

 

3.3           Costs. The Company shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of the
Warrant Shares or any certificate or other document evidencing such Warrant
Shares upon exercise of this Warrant. The Company shall, upon request, reimburse
the Registered Holder for any such documented taxes assessed against the
Registered Holder.

 

7

 

  

3.4           Reservations of Shares. The Company shall reserve at all times so
long as this Warrant remains outstanding, free from preemptive rights, out of
its treasury Common Stock or its authorized but unissued shares of Common Stock,
or both, solely for the purpose of effecting the exercise of this Warrant,
sufficient shares of Common Stock to provide for the exercise hereof. The
Company shall cause to be executed and issued the necessary certificate or
statement evidencing ownership in book-entry form for the Warrant Shares upon
the exercise of the purchase rights under this Warrant. The Company shall not by
any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Registered Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this Warrant.

 

3.5           Valid Issuance. All shares of Common Stock which may be issued
upon exercise of this Warrant will, upon issuance by the Company, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof attributable to any act or omission
by the Company, and the Company shall take no action which will cause a contrary
result (including without limitation, any action which would cause the Exercise
Price to be less than the par value, if any, of the Common Stock).

 

ARTICLE IV

 

Vesting

 

4.1           Vesting. The number of shares of Common Stock purchasable upon the
exercise of this Warrant shall be subject to vesting in accordance with the
following provisions:

 

a)Vested Warrant Shares. This Warrant shall vest and become exercisable for the
number of shares of Common Stock (such vested shares, the “Vested Warrant
Shares”) as follows:

 

(i)          one-sixth (_______) of the Warrant Shares shall vest at the end of
calendar year 2016 if the Net Royalties equal or exceed $10 million for calendar
year 2016;

 

(ii)         an additional one-third (_______) of the Warrant Shares shall vest
at the end of calendar year 2016 if the Net Royalties equal or exceed $15
million for calendar year 2016;

 

(iii)        one-sixth (_______) of the Warrant Shares shall vest at the end of
calendar year 2017 if the Net Royalties equal or exceed $10 million for calendar
year 2017; and

 

(iv)         an additional one-third (_______) of the Warrant Shares shall vest
at the end of calendar year 2017 if the Net Royalties equal or exceed $15
million for calendar year 2017.

 

8

 

 

b)Net Royalties. For purposes of this Warrant, “Net Royalties” shall mean, with
respect to any calendar year, the gross aggregate royalties and other similar
revenue that are both (1) earned by the Company (or any of its subsidiaries)
during the applicable calendar year and (2) subject to the Company’s compliance
with Section 4.1(d) below, received within 90 days after the date that such
royalties or similar payments have become due and payable in accordance with the
terms of the applicable royalty, licensing or other agreement between the
Company (or any of its subsidiaries) and the party obligated to make such
payment, in each case in respect of the licensing of the Linens ‘n Things Brand,
less the commissions and other amounts payable to Earthbound LLC (“Earthbound”)
pursuant to that certain Services Agreement, dated May 8, 2014, by and between
LNT Brands LLC (“LNT Brands”) and Earthbound or another broker during the
applicable calendar year and related to the licensing of the Linens ‘n Things
Brand. For purposes of this Warrant, “Linens ‘n Things Brand” shall mean the
intellectual property portfolio of registered trademarks, domain names and other
intellectual property rights that encompass the “Linens ‘n Things” brand,
licensed, used and exploited by LNT Brands, and its affiliates, contractual
counterparties and licensees.

 

c)Adjustments. The number of Warrant Shares subject to vesting set forth in
Section 4.1(a) above shall be adjusted to the extent and in the same manner as
the aggregate number of shares of Common Stock is adjusted under the provisions
of Section 3 hereof.

 

d)Operating Covenants. The Company hereby covenants that, from the date hereof
until the earlier to occur of (i) a Change of Control or (ii) the end of
calendar year 2017, (A) the Company and its subsidiaries shall use their
respective reasonable best efforts to collect such royalties and other payments
from such counterparties prior to the expiration of the 90-day period set forth
in Section 4.1(b)(2) and (B) neither the Company nor its subsidiaries shall take
or omit to take any action with the purpose or intent of depriving the
Registered Holder of the opportunity for the Warrant Shares to become Vested
Warrant Shares absent an independent and good faith business rationale for its
actions. Any payment received by the Company (or any of its subsidiaries) from
or on behalf of a party owing royalties or similar payments with respect to the
Linens ‘n Things Brand who otherwise also owes any other amount(s) to the
Company (or any of its subsidiaries) shall be deemed for purposes hereunder to
be a payment in discharge of such party’s obligation relating to the Linens ‘n
Things Brand to the extent such obligations are then due and payable.

 

9

 

 

4.2           Determination of Vesting. On or before April 30 of the year
following the applicable calendar year, the Company shall deliver to the
Stockholder Representative (as defined in the Merger Agreement) a statement
setting forth in reasonable detail the amount of Net Royalties for such calendar
year and the number of Vested Warrant Shares (the “Net Royalties Statement”);
provided, however, that the Company shall, upon written notice from the
Stockholder Representative, postpone the delivery of the Net Royalties Statement
and the calculations thereunder until June 30 of such year following the
applicable calendar year if, in the Stockholder Representative’s good faith
judgment, any royalties or other similar revenue due and payable as of April 30
with respect to the applicable calendar year may be collected by June 30.
Following such time, the Company shall provide the Stockholder Representative
and its representatives reasonable access to the records, properties, personnel
and (subject to the execution of customary work paper access letters if
requested) auditors of the Company and its subsidiaries relating to the
preparation of the Net Royalties Statement and shall cause the personnel of the
Company and its subsidiaries to reasonably cooperate with the Stockholder
Representative in connection with its review of the Net Royalties Statement. If
the Stockholder Representative disagrees with the calculation of Net Royalties
set forth in the Net Royalties Statement, the Stockholder Representative may,
within 30 days after receipt of the Net Royalties Statement, deliver a Notice of
Disagreement (as defined in the Merger Agreement) to the Company, in which
event, the Stockholder Representative and the Company shall resolve such
disagreement using the procedures set forth in Section 2.3(d) of the Merger
Agreement. Following such resolution as provided in the preceding sentence, the
Net Royalties so determined shall be deemed the “Net Royalties” for the
applicable calendar year for all purposes under this Warrant. For the avoidance
of doubt, the Registered Holder shall have no right or entitlement in any
circumstances to challenge on its own behalf (unless such Registered Holder is
the Stockholder Representative at such time) any determination of the Net
Royalties hereunder.

 

4.3           Expired Warrant Shares. To the extent any Warrant Shares subject
to this Warrant do not vest in accordance with the terms of Section 4(a)(i),
(ii), (iii) and/or (iv) above, such Warrant Shares shall be deemed “Expired
Warrant Shares” and shall automatically expire, be canceled and shall not be
exercisable under any circumstances.

 

4.4           Change of Control. In each case, with respect to unvested Warrant
Shares that are not Expired Warrant Shares:

 

a)in the event of the consummation of a Change of Control of any kind described
in clause (i) of the definition thereof before April 30, 2017, all Warrant
Shares that are not already Vested Warrant Shares and are not Expired Warrant
Shares shall immediately vest and be deemed Vested Warrant Shares upon such
Change of Control; provided for the avoidance of doubt, in the event a Change of
Control described in clause (i) of the definition thereof is consummated after
April 30, 2017, the Warrant Shares shall vest, if applicable, in accordance with
the terms of Section 4.1; or

 

b)in the event of the consummation of a Change of Control of any kind described
in clause (ii) of the definition thereof before the end of calendar year 2017
(provided, for the avoidance of doubt, in the event a Change of Control
described in clause (ii) of the definition thereof is consummated after the end
of calendar year 2017, the Warrant Shares shall vest, if applicable, in
accordance with Section 4.1), the Warrant Shares that are not already Vested
Warrant Shares and are not Expired Warrant Shares shall vest as follows:

 

10

 

  

(i)          if the value of the aggregate consideration in such Change of
Control in respect of the Linens ‘n Things Brand as determined in good faith by
the Company’s board of directors is equal to or in excess of $50,000,000, all
such Warrant Shares shall immediately vest and be deemed Vested Warrant Shares,
and the holder of this Warrant shall be entitled to exercise this Warrant with
respect to all such Vested Warrant Shares at any time following consummation of
such Change of Control and prior to the Expiration Date; and

 

(ii)         if the value of the aggregate consideration in such Change of
Control in respect of the Linens ‘n Things Brand as determined in good faith by
the Company’s board of directors is less than $50,000,000, such Warrant Shares
shall vest proportionally based on the value of such consideration between $0
and $50,000,000 (e.g., if the consideration is $40,000,000, 80% of such Warrant
Shares shall vest) and be deemed Vested Warrant Shares, and the holder of this
Warrant shall be entitled to exercise this Warrant with respect to all such
Vested Warrant Shares at any time following consummation of such Change of
Control and prior to the Expiration Date.

 

c)A “Change of Control” shall mean either (i) the consummation of any
transaction or series of transactions, including, without limitation, the sale,
transfer or disposition of all or substantially all of the Company’s assets or
the sale of capital stock of the Company or the reorganization or merger of the
Company with or into, or consolidation with, any other corporation, whereby the
holders of the Company’s voting securities prior to the Transaction do not hold
more than 50% of the voting securities of the surviving entity following
consummation of the Transaction or (ii) the sale, assignment, conveyance or
other transfer to a third party of all or substantially all of the Company’s
(and its subsidiaries’) rights and interests in the Linens ‘n Things Brand. In
the event of (A) a sale, assignment, conveyance or other transfer to a third
party of less than all or substantially all of the Company’s (and its
subsidiaries’) rights and interests in the Linens ‘n Things Brand or (B) any
other event that would make it impossible or substantially impractical to
calculate Net Royalties as currently defined, then the Company and the
Stockholder Representative shall mutually agree upon an equitable methodology
for calculating the applicable target for such period. Any disagreement
regarding the foregoing sentence shall be resolved pursuant to the procedures
set forth in Section 2.3(d) of the Merger Agreement.

 

4.5           Notice of Vesting. Within 30 days after the final determination of
Net Royalties pursuant to Section 4.2 for each of calendar year 2016 and 2017,
the Company will prepare and make available at the Warrant Office for the
Registered Holder a computation of the number of Vested Warrant Shares.

 

11

 

  

ARTICLE V

 

Miscellaneous

  

5.1           Entire Agreement. This Warrant contains the entire agreement
between the Registered Holder and the Company with respect to the Warrant Shares
that it can purchase upon exercise hereof and the related transactions and
supersedes all prior arrangements or understanding with respect thereto.

 

5.2           Governing Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without regard to
its conflict of law provisions.

 

5.3           Submission to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally submits in any suit, action or proceeding
arising out of or related to this Agreement or any of the transactions
contemplated hereby to the jurisdiction of the courts of the State of Delaware,
the courts of the United States of America for the District of Delaware (each, a
“Delaware Court”) and any appellate courts from any thereof and irrevocably
waives any immunity from the jurisdiction of such courts and any claim of
improper venue, forum non conveniens or any similar objection which it might
otherwise be entitled to raise in any such suit, action or proceeding. Each of
the parties hereto irrevocably agrees that service of process upon such party by
first-class mail to the address of such party pursuant to Section 5.7 shall be
deemed, in every respect, effective service of process upon such party. The
parties further agree that any suit, action or proceeding instituted by a party
to this Warrant against another party to this Warrant shall be initially
instituted exclusively in a Delaware Court, and each of the parties hereby
voluntarily and irrevocably waives all its rights, whether granted by statutory,
constitutional or common law, to seek a trial before a jury with respect to such
claim.

 

5.4           Waiver and Amendment. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof, and
any term or provision of this Warrant may be amended or supplemented at any time
by the written consent of the parties (it being agreed that an amendment to or
waiver under any of the provisions of Article III of this Warrant shall not be
considered an amendment of the number of Warrant Shares or the Exercise Price).
No waiver by any party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, 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 because of any prior
or subsequent such occurrence.

 

5.5           Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.

 

5.6           Copy of Warrant. A copy of this Warrant shall be filed among the
records of the Company.

 

5.7           Notice. Any notice or other document required or permitted to be
given or delivered to the Registered Holder shall be delivered at, or sent by
certified or registered mail to such Registered Holder at, the last address
shown on the books of the Company maintained at the Warrant Office for the
registration of this Warrant or at any more recent address of which the
Registered Holder shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
other than such notice or documents required to be delivered to the Warrant
Office, shall be delivered at, or sent by certified or registered mail to, the
principal office of the Company, or any other address within the continental
United States of America as shall have been designated in writing by the Company
delivered to the Registered Holder.

 

12

 

  

5.8           Limitation of Liability; Not Stockholders. Until the exercise of
this Warrant, the Registered Holder shall not have or exercise any rights by
virtue hereof as a stockholder of the Company, including, without limitation,
the right to vote, to receive dividends and other distributions, or to receive
notice of, or attend meetings of stockholders or any other proceedings of the
Company. Until the exercise of this Warrant, no provision hereof, and no mere
enumeration herein of the rights or privileges of the Registered Holder, shall
give rise to any liability of such Registered Holder for the purchase price of
any shares of Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.

 

5.9         Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence reasonably satisfactory to the Company (provided, that an affidavit of
the Registered Holder shall be deemed reasonably satisfactory evidence) of the
loss, theft, mutilation or destruction of this Warrant or any certificate
relating to the Warrant Shares, and, in the case of any such loss, theft or
destruction, upon delivery of indemnity or security in such form and amount as
shall be reasonably satisfactory to the Company, or, in the event of such
mutilation upon surrender and cancellation of this Warrant, the Company will
make and deliver a new Warrant of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant; provided, however, that the original Registered
Holder of this Warrant shall not be required to provide any bond of indemnity
and may in lieu thereof provide their agreement of indemnity. Any Warrant issued
under the provisions of this Section 5.9 in lieu of any Warrant alleged to be
lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute
an original contractual obligation on the part of the Company. This Warrant
shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Registered Holder of this
Warrant shall pay all taxes (including securities transfer taxes) and all other
reasonable expenses and charges payable in connection with the preparation,
execution and delivery of replacement Warrant(s) pursuant to this Section5.9.

 

5.10        Headings. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.

 

5.11         Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Registered Holder. The provisions of this Warrant are
intended to be for the benefit of all Registered Holders from time to time of
this Warrant and shall be enforceable by any such Registered Holder.

 

5.12         Remedies. The parties hereto, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of their respective rights under this Warrant.
Each party agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this Warrant
and hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate. The rights and
remedies provided in this Warrant are cumulative and are not exclusive of, and
are in addition to and not in substitution for, any other rights or remedies
available at law, in equity or otherwise.

 

13

 

 

5.13         Counterparts. This Warrant may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall be deemed to
be one and the same agreement. A signed copy of this Warrant delivered by
facsimile, e-mail or other means of electronic transmission shall be deemed to
have the same legal effect as delivery of an original signed copy of this
Warrant.

 

5.14         Further Assurances. The Company and the Registered Holder will take
such actions as may be reasonably required or desirable to carry out the
provisions of this Warrant.

 

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

14

 

  

IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.

 

Dated: August __, 2014

 

  SEQUENTIAL BRANDS GROUP, INC.       By:     Name:     Title:

 

[Signature page to Warrant]

 

 

 

 

Accepted and Agreed,

 

[HOLDER]

 

    Name of Holder           Signature           Street Address           City
State  

 

[Signature page to Warrant]

 

 

 

  

EXHIBIT A

 

PURCHASE FORM

 

TO: Sequential Brands Group, Inc. (the “Company”)

 

1.          The undersigned hereby elects to purchase ___________ shares of the
Common Stock of the Company pursuant to the terms of the attached Warrant by:

 

¨A cash payment or cancellation of indebtedness, and tenders herewith payment of
the purchase price for such shares in full, together with all applicable
transfer taxes, if any.

¨The net exercise provisions of the attached warrant.

 

2.          Please issue a certificate(s) or statement evidencing ownership in
book-entry form representing said shares of Common Stock in the name of the
undersigned.

 

  Signature of Holder       By:     Name:   Title:

 

 

 

  

EXHIBIT B

 

ASSIGNMENT

 

For value received, _____________________________, hereby sells, assigns and
transfers unto __________________________ [all of][__________ shares of] the
within Warrant, together with all right, title and interest therein and does
hereby irrevocably constitute and appoint ______________________, attorney, to
transfer said Warrant on the books of the Company, with full power of
substitution.

 

     

 

Dated: ___________________, 201_