Document:

As of July 31, 2013

 

IM Brands, 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 IM Brands, LLC, a Delaware limited liability company (the “Borrower”),
in the maximum principal amount of THIRTEEN MILLION AND 00/100 DOLLARS ($13,000,000.00) (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 $13,000,000.00
(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 July 1, 2018, and (3) shall be repaid by Borrower in accordance with the terms and conditions of the Promissory
Note.

 

1177 Avenue of the Americas, New York, New York 10036-2790

www.bhiusa.com

 

    	 

    	 

    

  

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. (“Guarantor”);
(v) a Pledge Agreement executed by Guarantor (as amended, restated, supplemented or otherwise modified from time to time, the “Pledge
Agreement”); (vi) an opinion of the Borrower’s and Guarantor’s legal counsel, covering such issues as the
Bank may reasonably request; (vii)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; (viii) a letter of direction from Borrower to the Bank
with respect to the disbursements of the proceeds of the Term Loan; (ix) a subordination agreement in favor of the Bank with respect
to the indebtedness and obligations of Borrower and Guarantor to IM Ready-Made, LLC; and (x) 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 (except as respects
$5,000 of such expense which will be paid by the Bank), 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 Borrower and Guarantor to Midmarket Capital Partners LLC, Great American Life Insurance Company and Great
American Insurance Company will be repaid in full from the proceeds of the Term Loan, (ii) that all liens and security interests
upon any property of Borrower and Guarantor 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 Isaac Mizrahi for an amount at least equal to $15,000,000 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 (i) satisfactory evidence that Borrower and Guarantor have obtained all required
consents and approvals of all persons and entities including all requisite governmental authorities, to the execution, delivery
and performance of this Agreement and the other Loan Documents or (ii) an officer’s certificate in form and substance reasonably
satisfactory to the Bank affirming that no such consents or approvals are required; (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 $60,000.00 less up to a $35,000 credit against fees paid to HSBC, such payment
to be made from the proceeds of the Term Loan; and (l) the Liabilities shall not exceed forty percent (40%) of the current fair
market value of the Borrower’s Trademarks or sixty percent (60%) of the current orderly liquidation value of the Borrower’s
Trademarks, as such values are 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.

 

This Letter Agreement,
the Promissory Note, the Security Agreement, the 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 or entity affiliated with Borrower, which could have
a material adverse effect on the Borrower’s Trademarks or the business, assets or financial condition of Borrower or any
other person or entity 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 audited consolidated financial statement of Guarantor and its Subsidiaries for the
fiscal year ending December 31, 2012 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 Guarantor 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.

 

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3.          Financial
Reporting Requirements

 

(a)          Borrower
and Guarantor 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 Guarantor, a copy of the audited financial statement of Guarantor on a Consolidated Basis and, to the extent Guarantor has any
Subsidiary other than the Borrower, consolidating balance sheets 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.

 

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(ii)         Quarterly
Financial Statements.  As soon as available and in any event within forty five (45) days after the end of each of
the first three quarterly periods of each fiscal year of Guarantor, a copy of internally prepared financial statement of Guarantor
on a Consolidated Basis and, to the extent Guarantor has any Subsidiary other than Borrower, consolidating balance sheets 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 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 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 forty-five (45) 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.

 

(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 Guarantor 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
Guarantor shall submit to the following requirements:

 

(a)          Minimum
Net Worth. Net Worth shall not be less than $22,500,000.00 at the end of any fiscal quarter.

 

(b)          Minimum
Liquid Assets. Liquid Assets shall be at least $2,000,000 at all times.

 

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(c)          Fixed
Charge Coverage Ratio. The Fixed Charge Ratio 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.

 

(d)          Capital
Expenditures. Capital Expenditures in any fiscal year shall not exceed the greater of (i) $1,000,000 or (ii) $1,000,000 plus
an amount equal to (A) the Royalty Revenues Amount minus $15,000,000 times (B) ten percent (10%).

 

(e)          Financial
Information. Borrower and Guarantor shall (i) provide the Bank with such financial and other information concerning Guarantor,
Borrower 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.

 

(f)          Consents;
Taxes. Borrower and Guarantor 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 Guarantor; (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 Guarantor, except that Borrower
or Guarantor may defer any such payment while Borrower or Guarantor 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 Guarantor’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 Guarantor’s benefit in the event Borrower or Guarantor 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 Guarantor 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 Guarantor fails to file its annual Federal tax return with the
United States Internal Revenue Service by the March 15th deadline, Borrower and Guarantor shall furnish to the Bank
no later than three (3) Business Days after such deadline a copy of Borrower’s and Guarantor’s properly filed extension
request.

 

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(g)          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. Guarantor 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.

 

(h)          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 Guarantor 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 Guarantor; (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 Guarantor
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 Guarantor,
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. Guarantor 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.

 

(i)          Indebtedness.
Neither Borrower nor Guarantor 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 Guarantor or any of its Subsidiaries;
provided that any such indebtedness to Guarantor 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(h) 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 Guarantor 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 Guarantor and (ii) extend the
maturity of all or any portion of the indebtedness evidenced thereby; (e) guarantee obligations with respect to the obligations
of Guarantor under the Agreement of Lease with Adler Holding III, LLC; (f) unsecured indebtedness not to exceed $500,000 in the
aggregate at any time outstanding; (g) 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; and (h) guarantee
obligations of Guarantor with respect to the obligations of any Subsidiary of Guarantor.

 

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(j)          No
Merger. Neither Borrower nor Guarantor 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; (c) any Subsidiary of Guarantor (other than Borrower) may be merged or consolidated
with or into Guarantor provided Guarantor shall be the continuing or surviving entity; (d) any Subsidiary of Guarantor (other than
Borrower) may dispose of any or all of its assets (upon voluntary liquidation or otherwise) to Guarantor; (e) as otherwise expressly
permitted pursuant to the terms of the Promissory Note; and (f) Guarantor 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.

 

(k)          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(j); (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, Guarantor or any of their respective Subsidiaries if such property is Collateral (as defined in the Security
Agreement or the Pledge Agreement); and (h) non-exclusive licenses of intellectual property in the ordinary course of business.
Guarantor shall not sell, transfer or otherwise dispose of any of its ownership interest in Borrower.

 

(l)          Affiliate
Transactions. None of Borrower, Guarantor 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, that Borrower may enter into and perform
its obligations under the Management Agreement dated as of September 29, 2011 between Borrower and Guarantor.

 

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(m)          Distributions.
Borrower shall not 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 Guarantor in order
to permit Guarantor 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 Guarantor, scheduled payments of principal on funded debt of Guarantor
or capital expenditures of Guarantor and (y) to the extent Guarantor 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 Guarantor 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”); (iii) Borrower may make such payments to Guarantor in an amount equal to the estimated federal, state
and local tax liability of Guarantor 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 Guarantor; provided, however, that, upon determination
of the actual tax liability of Guarantor 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”); and (iv) subject to compliance with Section 4(n),
Borrower may make distributions on or after January 1, 2015, in an amount not to exceed eighty percent (80%) of Excess Cash Flow.

 

(n)          Cash
Flow Recapture. On and after January 1, 2015, prior to Borrower making any distribution as permitted hereunder other than Expense
Distributions and Tax Distributions, Borrower shall prepay the outstanding amount of the Term Loan from Excess Cash Flow for the
prior fiscal year in an amount equal to twenty percent (20%) of such Excess Cash Flow (the “Cash Flow Recapture Requirement”).
Such payments received by the Bank in accordance with this provision shall be applied by the Bank to the principal amount of the
Term Loan in the reverse order of maturity.

 

(o)          Bank
Accounts. Within sixty (60) days of the date hereof Borrower shall have established its primary operating bank accounts at
the Bank, and thereafter 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.

 

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

 

(q)          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.

 

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(r)          Use
of Proceeds. Borrower shall use the proceeds of the Term Loan (i) to refinance the indebtedness of Borrower to Midmarket Capital
Partners, LLC, Great American Life Insurance Company and Great American Insurance Company, (ii) to pay transaction fees and expenses
incurred in connection with the transactions contemplated by this Letter Agreement and the other Loan Documents and (iii) and for
general working capital purposes.

 

(s)          Inspections
and Appraisals. At all times during normal business hours upon reasonable advance notice to Borrower (provided that no notice
shall be required is 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 Guarantor’s Books and Records, including management letters prepared by independent accountants, and (iii) discuss with
Borrower’s and Guarantor’s principal officers and independent accountants Borrower’s and Guarantor’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 Guarantor each will deliver to the Bank
any instrument necessary for the Bank to obtain records from any service bureau maintaining records for Borrower or Guarantor.

 

(t)          Exchange
Controls. To the extent that Borrower or Guarantor trades or purchased foreign currency, Borrower and Guarantor 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. 

 

(u)          Insurance.
Borrower Guarantor 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(u) with respect to all insurance coverage existing as of the date hereof. Borrower
shall maintain at all times life insurance insuring the life of Isaac Mizrahi in an amount at least equal to $15,000,000 issued
by MetLife, John Hancock or another insurer otherwise acceptable to the Bank and the proceeds of such policy shall have been assigned
to the Bank.

 

5.          Miscellaneous

 

Capitalized terms not
defined in this Letter Agreement shall have the meaning ascribed thereto in the Promissory Note.

 

    	10

    	 

    

  

As used herein, the following terms shall
have the following meanings: “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, as respects Guarantor
on a Consolidated Basis, 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 Guarantor on a Consolidated Basis,
cash flow from operations as determined in accordance with GAAP. “EBITDA” shall mean, for any period for Guarantor
on a Consolidated Basis (without duplication), an amount equal to (a) Net Income (Loss) for such period, minus, (b) to the
extent included in calculating Net Income (Loss), 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 (m)(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, (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. To the
extent that permitted payments in Section 4 (m)(ii) for any period are made to Guarantor in respect of expenses of the type referred
to in clauses (iii), (iv), (v), (vi) or (vii) above, the portion of such permitted payments made in respect of such expenses shall
be included for purposes of the determination of EBITDA as if such expenses had been incurred by Guarantor and its Subsidiaries.
“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) 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(m). “Fixed Charge Coverage Ratio” shall mean for any
period, the ratio of (a) EBITDA of Guarantor on a Consolidated Basis for such period plus Liquid Assets in excess of $6,000,000
minus Capital Expenditures of Guarantor on a Consolidated Basis to (b) the Fixed Charges for such period. “Fixed Charges”
shall mean for any period, the sum of (a) the cash interest expense of Guarantor on a Consolidated Basis for such period, (b) the
principal amount of total debt of Guarantor on a Consolidated Basis having a scheduled due date during such period, (c) all Tax
Distributions and (d) all other cash distributions or dividends made by Guarantor on a consolidated basis. “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). “Guarantor on a Consolidated
Basis” shall mean the accounts of Guarantor and its Subsidiaries in accordance with GAAP. “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 the Borrower, Guarantor or any of its Subsidiaries. “Net Income (Loss)”
shall mean with respect to Guarantor on a Consolidated Basis 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 Guarantor or its Subsidiaries 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 Guarantor on a Consolidated Basis that, in accordance with GAAP, are properly classified as assets on such date, minus
(b) all liabilities of Guarantor on a Consolidated Basis that, in accordance with GAAP, are properly classified as liabilities
at such date. “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
up to 22 retail store locations which are a wholly-owned Subsidiary of Borrower or a wholly-owned Subsidiary of Guarantor (other
than Borrower). “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. “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 Guarantor 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 Guarantor or the Borrower, as the case may be. “Tax Distributions” shall
have the meaning given to such term in Section 4(m). “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

 

	 	 	By:	/s/ Lavea Eisenberg
	 	 	 	Name:  Lavea Eisenberg Barnett
	 	 	 	Title:  First Vice President

 

Acknowledged and Agreed to:

 

IM BRANDS, LLC

 

	 	XCEL BRANDS, INC.,	 	 
	 	Its Manager	 	 

  

	By:	/s/ James F. Haran	 	 
	 	Name: James F. Haran	 	 
	 	Title: Chief Financial Officer	 	 

 

XCEL BRANDS, INC.

 

	By:	/s/ James F. Haran	 	 
	 	Name: James F. Haran	 	 
	 	Title: Chief Financial Officer	 	 

 

SIGNATURE PAGE TO

LETTER AGREEMENT

 

    	 

    	 

    

  

Schedule I

 

to Letter Agreement between Bank Hapoalim
B.M. and IM Brands, LLC

 

LITIGATION

 

None

 

    	 

    	 

    

  

Schedule II

 

to Letter Agreement between Bank Hapoalim
B.M. and IM Brands, LLC

 

INDEBTEDNESS

 

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

 

Promissory Note in the original principal
amount of $7,377,432 dated September 29, 2011 issued by Borrower and Guarantor in favor of IM Ready-Made, LLC.

 

[Earn-Out]

 

    	 

    	 

    

  

Schedule III

 

to Letter Agreement between Bank Hapoalim
B.M. and IM Brands, LLC

 

SUBSIDIARIES

 

None

 

    	 

    	 

    

  

Schedule IV

 

to Letter Agreement between Bank Hapoalim
B.M. and IM Brands, LLC

 

ENCUMBRANCES

 

None

 

    	 

    	 

    

  

Exhibit A

 

to letter agreement between Bank Hapoalim
B.M. and IM Brands, LLC

 

FORM OF COMPLIANCE CERTIFICATE

 

This Certificate is
delivered pursuant to Section 3(a)(iii) of the Letter Agreement dated as of July 31, 2013 among Bank Hapoalim B.M., Xcel Brands,
Inc. and IM Brands, 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 IM Brands, 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 IM Brands, 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 IM Brands, LLC to perform its obligations thereunder.

 

3.      Xcel Brands, Inc. and IM Brands, 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__.

 

	 	IM BRANDS, LLC
	 	
	 	By: 	Xcel Brands, Inc.,
	 	 	Manager
	 	 	 
	 	By: 	 
	 	 	Name:
	 	 	Title:
	 	 
	 	XCEL BRANDS, INC.
	 	 	 
	 	By: 	 
	 	 	Name:
	 	 	Title:

 

    	 

    	 

    

  

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 $___________.

 

    	 

    	 

    

  

Exhibit B

 

to letter agreement between Bank Hapoalim
B.M. and IM Brands, LLC

 

FORM OF QUARTERLY ROYALTY COLLECTIONS
REPORT

 

	IM Brands, LLC	 	SAMPLE

REPORT
	Quarterly Royalty Payment Reporting	Report

Date:	 
	Guaranteed, Earned, and Overages Royalties	Quarter

End Date:	 

 

	 	 	Guaranteed
    Royalties	 	 	Earned
    Royalties and Overages	 	 	 	 
	 	 	Bill	 	 	Due	 	 	Amount	 	 	Paid	 	 	Amount	 	 	Paid	 	 	Subsequent	 	 	Bill	 	 	Due	 	 	Amount	 	 	Paid	 	 	Amount	 	 	Paid	 	 	Subsequent	 
	Licensee	 	Date	 	 	Date	 	 	Billed	 	 	Date	 	 	Paid	 	 	Aging	 	 	Payment	 	 	Date	 	 	Date	 	 	Billed	 	 	Date	 	 	Paid	 	 	Aging	 	 	Payment	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Licensee A	 	 		 	 	 		 	 	$		 	 	 		 	 	$		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Licensee B	 	 	 	 	 	 	 	 	 	$		 	 	 	 	 	 	$		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$		 	 	 	 	 	 	$		 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Licensee C	 	 	 	 	 	 	 	 	 	$		 	 	 	 	 	 	$		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Licensee D	 	 	 	 	 	 	 	 	 	$		 	 	 	 	 	 	$		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$		 	 	 	 	 	 	$		 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Licensee X	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total	 	 	 	 	 	 	 	 	 	$		 	 	 	 	 	 	$		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$		 	 	 	 	 	 	$PROMISSORY NOTE

 

U.S.$13,000,000

Dated:   July 31, 2013,

New York, New York

 

1.     Obligation
and Repayment: For value received, Borrower absolutely and unconditionally promises to pay to the order of the Bank, at the
Office, without defense, setoff or counterclaim, the principal amount of THIRTEEN MILLION United States Dollars ($13,000,000.00),
together with interest and any other sum(s) due and payable as specified below. The principal amount of this Note shall be due
and payable in installments on the dates and in the respective amount shown below:

 

	Date of Payment	 	Amount of

Principal Payment	 
	October 1, 2013, January 1, 2014, April 1, 2014 and July 1, 2014	 	$	0	 
	October 1, 2014, January 1, 2015, April 1, 2015 and July 1, 2015	 	$	250,000	 
	October 1, 2015, January 1, 2016, April 1, 2016 and July, 2016	 	$	625,000	 
	October 1, 2016, January 1, 2017, April 1, 2017 and July, 2017	 	$	750,000	 
	October 1, 2017, January 1, 2018 and April 1, 2018	 	$	875,000	 
	July 1, 2018	 	$	3,875,000	 

 

2.     Interest:
Subject to paragraph A(2) of the Terms and Conditions, interest shall accrue on the principal amount of this Note outstanding from
time to time at the following rate described in the Rider referred to in Paragraph 3 below (the "Loan Rate"). Interest
shall be payable in accordance with the attached Rider.

 

3.     Riders:
In the event of any inconsistency between this Note and any Rider(s) to which this Note is subject, the provisions of such Rider(s)
shall prevail. This Note is subject to the following Rider, which is part of this Note: Rider to Promissory Note, dated as of the
date hereof.

 

4.     Address and Identification of Borrower:

 

Address: 3500 South DuPont Highway, Dover
Delaware 19901

Telephone: 347-532-5894

Fax: 347-436-9178

 

(1)     Social Security or Taxpayer ID number:
45-1478879

 

5.     Agreement
to All Terms and Conditions; Authorization to Complete Blanks: This Note is subject to all of the Terms and Conditions set
forth below. Each of the undersigned agrees to all of the provisions of this Note, including the Terms and Conditions and any Rider(s).

 

6.     No
Representations or Agreements by the Bank: Each of the undersigned acknowledges that the Bank has made no representation, covenant,
commitment or agreement to Borrower except pursuant to any written document executed by the Bank.

 

7.     No
Representation of Nonenforcement: Each of the undersigned acknowledges that no representative or agent of the Bank has represented
or indicated that the Bank will not enforce any provision of this Note, including the Terms and Conditions and any Rider(s), in
the event of litigation or otherwise.

 

[Remainder of this page
intentionally left blank; signature appears on the next page;

Terms and Conditions appear
following the signature page]

 

    	 

    	 

    

 

8.     Waiver
of Jury Trial: Borrower waives, and understands that the Bank waives, the right to a jury trial with respect to any dispute
arising hereunder or relating to any of the Liabilities; any judicial proceeding with respect to any such dispute shall take place
without a jury.

 

9.     Execution
of Promissory Note: Borrower understands that by signing this Note it is agreeing to all of the terms as      contained in this
Note and all other Terms and Conditions and Rider(s) attached hereto and made a part hereof.

 

Print name of Borrower:

 

	IM BRANDS, LLC	 
	 	 
	By:  XCEL BRANDS, INC.	 
	       Its: Manager	 
	 	 
	By:	/s/ James F. Haran	 
	 	Name: James F. Haran	 
	 	Title: Chief Financial Officer By: 	 

 

[Terms and Conditions appear commencing on the

next page]

 

    	SIGNATURE PAGE TO 
PROMISSORY NOTE

    	 

    

 

	 

 

TERMS AND CONDITIONS

 

Definitions are set forth in paragraph
N.

 

A.     Calculation and Accrual of Interest:
(1) Generally. Interest shall be calculated on a daily basis on outstanding balances at the Applicable Rate, divided by
360, on a month consisting of 30 days. During any time that the Applicable Rate would exceed the applicable maximum lawful rate
of interest, the Applicable Rate shall automatically be reduced to such maximum rate. Any interest payment made in excess of such
maximum rate shall be applied as, and deemed to be, in the Bank's sole discretion, (a) a payment of any of the Liabilities, in
such manner as determined by the Bank, or (b) held as cash collateral to be retained by the Bank to secure payment of the Liabilities
if application of such excess to the outstanding principal amount of this Note would result in Fixed Rate Liquidation Costs being
due from the Borrower, such cash collateral to be applied to any Liabilities arising as soon as practicable. (2) Increased Rate.
Interest shall accrue at the Increased Rate upon and after (a) the occurrence of any Debtor Relief Action, (b) any demand of payment
of this Note (if payable on demand) or (c) the occurrence of any Event of Default (if this Note is payable other than on demand).
(3) Accrual. To the extent permitted by Law, interest shall accrue at the Applicable Rate on all unpaid Liabilities under
this Note, including but not limited to any unpaid interest and any unpaid obligation owed pursuant to paragraph B (Indemnification).

 

B.     Indemnification:
To the extent permitted by Law: (1) Taxes. All payments under this Note shall be made free and clear of, and without deduction
for, any Taxes. If Borrower shall be required to deduct any Taxes in respect of any sum payable under this Note, then (a) the sum
payable shall be increased so that the Bank shall receive an amount equal to the sum the Bank would have received had no deductions
been made, and (b) Borrower shall make such deductions and shall pay the amount deducted to the relevant Governmental Authority.
Borrower shall pay to the Bank on demand, and shall indemnify and hold the Bank harmless from, any and all Taxes paid by the Bank
and any and all liability (including penalties, interest and expenses) with respect thereto arising out of the Borrower’s
failure to comply with the provisions of this clause (1), whether or not such Taxes were correctly or legally asserted. Within
30 days after any Taxes are paid by Borrower, Borrower shall furnish evidence thereof to the Bank. The Bank shall provide Borrower
two copies of appropriate tax forms properly completed and duly executed by the Bank claiming complete exemption from, or a reduced
rate of, U.S. federal withholding tax on all payments by Borrower under this Agreement and the other Loan Documents. Such forms
shall be delivered by the Bank on or before the first date it is entitled to receive any payment under this Note or any other Loan
Document. In addition, the Bank shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered
by the Bank. The Bank shall promptly notify the Borrower at any time it determined that it is no longer in a position to provide
any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities
for such purpose). (2) Regulatory Costs. In the event that in connection with the transaction(s) contemplated by this Note
and/or the Bank's funding of such transaction(s), the Bank is required to incur any Regulatory Costs in order to comply with any
Law issued after the date of this Note, then Borrower shall pay to the Bank on demand, and shall indemnify and hold the Bank harmless
from, any and all such Regulatory Costs. (3) Costs and Expenses. Borrower shall pay the Bank, and shall indemnify and hold
the Bank harmless from, any and all Costs and Expenses within ten (10) days after the Bank’s invoice to Borrower with respect
thereto. (4) Prepayment Costs. If Borrower makes any payment of Prepaid Principal (voluntarily or not), then Borrower shall
pay to the Bank an amount equal to the Applicable Percentage multiplied by the amount of Prepaid Principal and in addition an amount
sufficient to compensate the Bank for its Fixed Rate Liquidated Costs. Borrower agrees that determining the actual amount of the
Fixed Rate Liquidated Cost may be difficult or impossible in any specific instance and accordingly agrees with Bank that the Fixed
Rate Liquidated Cost shall equal the excess, if any, of the present value (determined using the Applicable Discount Rate) of (a)
the product of (i) the amount of principal prepaid, multiplied by (ii) the Fixed Rate applicable to such prepaid amount divided
by 360, multiplied by (iii) the remaining number of days from the date of the prepayment to the maturity date of the Loan, over
(b) the product of (i) the amount of principal prepaid, multiplied by (ii) the rate determined
by Bank to be the fixed rate that would be applicable to the prepaid amount if the Fixed Rate was being set by Bank on the date
of prepayment divided by 360, multiplied by (iii) the remaining number of days from the date of the prepayment to the maturity
date of the Loan. (5) Bank Certificate. The Bank's certificate as to any amounts owing
under this paragraph shall be prima facie evidence of Borrower's obligation.

 

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C.     Set Off: Every Account of
Borrower with the Bank shall be subject to a lien and during the existence of any Event of Default to being set off against the
Liabilities. The Bank may at any time during the existence of any Event of Default at its option and without notice, except as
may be required by law, charge and/or appropriate and apply all or any part of any such Account toward the payment of any of the
Liabilities. The Bank agrees promptly to notify the Borrower after any such set off and application made by the Bank, provided
that the failure to give such notice shall not affect the validity of such set off and application.

 

D.     Events of Default: Each of
the following shall be an Event of Default hereunder: (1) Nonpayment. The nonpayment when due of any principal amount of
the Liabilities; (a) the non-payment within three (3) Business Days after the same shall become due of any interest or any other
part of the Liabilities; (b) the prohibition by any Law of payment of any part of any of the Liabilities. (2) Bankruptcy; Adverse
Proceedings. (a) The occurrence of any Debtor Relief Action; (b) the appointment of a receiver, trustee, committee, custodian,
personal representative or similar official for any Party or for any Material part of any Party’s property; (c) any action
taken by any Party to authorize or consent to any action set forth in subparagraph D(2)(a) or (b); (d) the rendering against any
Party of one or more judgments, orders, decrees and/or arbitration awards (whether for the payment of money or injunctive or other
relief) which in the aggregate are Material to such Party, if they continue in effect for 30 days without being vacated, discharged,
stayed, satisfied or performed and involve an aggregate liability of $750,000 or more (excluding amounts covered by insurance to
the extent the relevant third parties insurer has agreed in writing to cover such amount); (e) the issuance or filing of any warrant,
process, order of attachment, garnishment or other lien or levy against any Material part of any Party’s property which shall
not have been vacated, discharged, stayed or bonded pending appeal within thirty (30) days; (f) the commencement of any proceeding
under, or the use of any of the provisions of, any Law against any Material part of any Party’s property which shall not
have been vacated, discharged, stayed or bonded pending appeal within thirty (30) days, including but not limited to any Law (i)
relating to the enforcement of judgments or (ii) providing for forfeiture to, or condemnation, appropriation, seizure or taking
possession by, or on order of, any Governmental Authority; (g) the forfeiture to, or the condemnation, appropriation, seizure,
or taking possession by, or on order of, any Governmental Authority, of any Material part of any Party’s property; (h) any
Party being charged with a crime by indictment, information or the like. (3) Noncompliance. (a) any Party fails to perform
under Sections 4(e), (f), (t) and (u) of the Letter Agreement, Sections 5.4, 5.6 and 5.7 of the IP Security Agreement and Section
10.1 of the Security Agreement and such failure is not cured within thirty (30) days of the earlier to occur of (i) the date upon
which Borrower or Guarantor becomes aware of such failure and (ii) the date upon which written notice thereof is given to Borrower
by Bank; (b) other than those items separately covered by a clause contained in this Section (D), any “Event of Default”
(as such term is defined in each Loan Document) by any Party with respect to any Loan Document; (c) the giving to the Bank by or
on behalf of any Party at any time of any materially incorrect or incomplete representation, warranty, statement or information;
(c) the failure of any Party to furnish to the Bank copies of its financial statements and such other information respecting such
Party’s business, properties, condition or operations, financial or otherwise, promptly when and in such form as reasonably
required or requested by the Bank; (d) any Party’s failure or refusal, upon reasonable notice from the Bank (unless an Event
of Default has occurred and is continuing, in which case no notice is necessary), to permit the Bank's representative(s) to visit
such Party’s premises during normal business hours and to examine and make photographs, copies and extracts of such Party’s
property and of its books and records subject to the limitations set forth in the Letter Agreement; (e) any Party’s concealing,
removing or permitting to be concealed or removed, any part of its property with the intent to hinder or defraud any of its creditors;
(f) any Party’s making or suffering any Transfer of any of its property, which Transfer is deemed fraudulent under the law
of any applicable jurisdiction; (g) any material provision of any Loan Document shall for any reason cease to be valid and binding
on or enforceable against any Party thereto or any such Party shall so state in writing or bring an action to limit its obligations
or liabilities thereunder; or any Loan Document that creates a security interest in the collateral purported to be be covered thereby
shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the collateral purported
to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority security interest
subject only to Permitted Liens. (4) Adverse Changes. (a)
Intentionally Deleted; (b) the dissolution or liquidation of any Party; (c) any Party’s failure to be and remain in
good standing and qualified to do business in each jurisdiction Material to such Party; (d) any Party shall (i) default in
making any payment of any principal of any indebtedness (excluding the Liabilities) on the scheduled or original due date with
respect thereto; or (ii) default in making any payment of any interest on any such indebtedness beyond the period of grace,
if any, provided in the instrument or agreement under which such indebtedness was created; or (iii) default in the observance
or performance of any other agreement or condition relating to any such indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or beneficiary of such indebtedness (or a trustee or agent on behalf of
such holder or beneficiary) to cause, with the giving of notice if required, such indebtedness to become due prior to its stated
maturity; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this clause (d)
shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type
described in clauses (i), (ii) and (iii) of this paragraph (d) shall have occurred and be continuing with respect to
indebtedness the outstanding principal amount of which exceeds in the aggregate $500,000; (e) Borrower becoming insolvent, as defined
in the Uniform Commercial Code; (f) any Party’s Material failure to pay any tax when due; (g) any loss, suspension, nonrenewal
or invalidity of any Material permit, franchise or Trademark (as such term is defined in the Letter Agreement) or the like of Borrower;
(h) the occurrence of any event which gives any Person (other than Bank) the right to assert a lien, levy or right of forfeiture
against any Material part of any Party’s property; (i) Borrower's failure to give the Bank notice, within 10 Business Days
after Borrower had notice or knowledge, of the occurrence of any event which, with the giving of notice and/or lapse of time, would
constitute an Event of Default. (5) Business Changes. (a) any change in Control of Borrower; (b) any merger or consolidation
involving any Party not permitted under the terms of a Loan Document; (c) any Party’s sale or other Transfer of substantially
all of its property; (d) any Material change in the nature or structure of any Party’s business; (e) Robert W. D’Loren
shall no longer be the Chairman of the Board of Directors of Borrower or Guarantor or have the duties of the Chairman of the Board
of Directors of Borrower or Guarantor. (6) Material License Termination or Default. The termination of, any amendment or
other modification to, or any default under the QVC Agreement but only to the extent such event could reasonably be expected to
have a Material adverse effect on Borrower’s business or financial condition and Borrower has not replaced such license within
sixty (60) days of such termination with a license which generates revenue at least equivalent to the QVC Agreement which was terminated.

 

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E.     Remedies: (1) Acceleration
at Bank's Option. Upon any failure to pay this Note in full on demand (if payable on demand) or (if this Note is payable other
than on demand) upon the occurrence of any Event of Default other than any Debtor Relief Action, then any and all Liabilities,
not then due, shall, at the Bank's option, become immediately due and payable, without notice, which Borrower waives. (2) Automatic
Acceleration. Upon the occurrence of any Debtor Relief Action, then, whether or not any of the Liabilities are payable upon
demand and notwithstanding paragraph F, any and all Liabilities not then due, shall automatically become immediately due and payable,
without notice or demand, which Borrower waives. (3) Additional Remedies. Bank shall have all rights and remedies available
to it under any applicable Loan Document or Law after any applicable notice or cure period.

 

F.      Waiver of Protest, etc.: Notice,
presentment, protest, notice of dishonor and (except for such of the Liabilities as are payable on demand, but subject to subparagraph
E(2)) demand for payment are hereby waived as to all of the Liabilities.

 

G.     Payment: (1) Manner. Any payment
by other than immediately available funds shall be subject to collection. Interest shall continue to accrue until the funds by
which payment is made are available to the Bank. If and to the extent any payment of any of the Liabilities is not made when due,
the Bank is authorized in its discretion to effect payment by charging any amount so due against any Account of Borrower with the
Bank without prior notice, except as may be required by law, whether or not such charge creates an overdraft and of which event
the Bank will provide notice following such charging of an Account. (2) Application. Any payment received by the Bank (including
a deemed payment under paragraph A, a set-off under paragraph C or a charge against an Account under this paragraph G) shall be
applied to pay any obligation of indemnification (including but not limited to under paragraph B) and to pay any other Liabilities
(including interest thereon and the principal thereof) in such order as the Bank shall elect in its discretion. Borrower will continue
to be liable for any deficiency. (3) Prepayment. Borrower shall be entitled to pay any outstanding principal amount or installment
under this Note on any Business Day prior to the applicable Due Date without the prior consent of the Bank, provided that (a) any
such payment shall be together with payment of all Liabilities then due and all interest accrued on the Prepaid Principal to the
date of such payment, and (b) any such payment shall be on not less than 5 Business Days' notice to the Bank and shall be accompanied
by any amount required pursuant to subparagraph B(4). Any such payment shall, unless otherwise consented to by the Bank, be applied
pro rata to the last outstanding principal amount(s) to become due under this Note in inverse order of maturity. (4) Non-Business
Days. If any payment of any of the Liabilities is due on any day that is not a Business Day, it shall be payable on the next
Business Day. The additional day(s) shall be included in the computation of interest. (5) Extension at Bank's Option. The
Bank shall have the option, which may be exercised one or more times by notice(s) to Borrower, to extend the date on which any
amount is payable hereunder to one or more subsequent date(s) set forth in such notice(s). (6) Late Payment. Without limiting
or waiving any rights or remedies of the Bank contained in the Note or under applicable law, and without implying that the Bank
has any obligation to declare or to notify the Borrower of the occurrence of any Event of Default, if the Bank has neither declared
nor notified the Borrower of the occurrence of an Event of Default, and if any amount of any required payment of principal, interest
fees and/or Late Charge (as defined below) under the Note is not paid in full within (7) seven days after the same is due, then
in addition to all interest, penalty interest or other fees due to the Bank pursuant to the Note, any rider to the Note or any
agreement or document related to this credit facility, the Borrower shall pay the Bank a late fee equal to $14.30 for each day
thereafter. Any amount due under this paragraph shall be referred to herein as a "Late Charge". The Borrower shall pay
any and all such Late Charges in addition to all payments of principal, interest and fees (if any) under the Note, provided, however,
that during any time that any of the above Late Charges would cause the total interest payable under the Note to exceed the applicable
maximum lawful rate of interest, then the sum of (a) all such Late Charges and (b) the amount of interest payable at the Applicable
Rate shall automatically be reduced to an amount that shall not exceed the amount of interest payable at such maximum rate.

 

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H.      Parties; Counterparts; No Transfer
by Borrower: If Borrower is more than one Person, all of them shall be jointly and severally liable under this Note. This Note
and any Rider hereto may be executed in counterparts, each of which shall constitute an original, but all of which when taken together
shall constitute a single instrument. Any signature delivered by a party by facsimile or electronic transmission (including email
transmission of a PDF image) shall be deemed an original signature hereto. Without the Bank's written consent, Borrower shall have
no right to make any Transfer of any of the Liabilities; any such purported Transfer shall be void. Subject to the foregoing, the
provisions of this Note shall be binding on Borrower's successors and assigns.

 

I.     Bank Transfers: (1) Transferability.
Without limiting the Bank's rights hereunder, and subject to the prior written consent of Borrower not to be unreasonably withheld
(which consent shall not be required after the occurrence and during the continuance of an Event of Default) the Bank may make
a Transfer of all or any part of (a) the Liabilities), (b) any obligation of any other Party in connection with any of the Liabilities,
(c) any Loan Document of any Party in connection with any of the Liabilities or any agreement related thereto, (d) any collateral,
mortgage, lien or security interest, however denominated, securing any of the Liabilities, and/or (e) the Bank's rights and, if
any, obligations with respect to any of the foregoing. (2) Extent of Transfer. In the event the Bank shall make any Transfer
(and has obtained the consent of Borrower to the extent required hereunder) of any of the foregoing items ("Transferred Items"),
then - to the extent provided by the Bank with respect to such Transfer - the Transferee shall have the rights, powers, privileges
and remedies of the Bank. The Bank shall thereafter, to the extent of such Transfer, be forever relieved and fully discharged from
all liability or responsibility, if any, that it may have to any Person with respect thereto, except for claims, if any, arising
prior to or upon such Transfer. The Bank shall retain all its rights and powers with respect to any Transferred Items to the extent
that it has not made a Transfer thereof. Without limiting the foregoing, to the extent of any such Transfer with respect to which
Borrower has provided its consent or such consent is not required, paragraph B (Indemnification) shall apply to any Taxes, Regulatory
Costs, Costs and Expenses, and Fixed Rate Liquidation Costs of, or incurred by, any Transferee, and paragraphs C (Set-Off) and
G(1) (Payment-Manner) shall apply to any Account of Borrower with any Transferee and if the required Borrower consent is not so
obtained, then such Transferee shall be entitled to reimbursement or compensation under the foregoing paragraphs only to the extent
such amounts would have been payable to Bank if the Transfer had not occurred. (3) Disclosures. The Bank is authorized to
disclose to any prospective or actual Transferee any information that the Bank may have or acquire about Borrower and any information
about any other Person submitted to the Bank by or on behalf of Borrower provided that such prospective or actual Transferee agrees
to maintain the confidentiality of such information consistent with the terms of the Loan Document. (4) Negotiability Defenses
Waived. If this Note is not a negotiable instrument, Borrower waives all defenses (except such defenses as may be asserted against
a holder in due course of a negotiable instrument) which Borrower may have or acquire against any Transferee who takes this Note,
or any complete or partial interest in it, for value, in good faith and without notice that it is overdue or has been dishonored
or of any defense against or claim to it on the part of any Person.

 

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J.     No Oral Changes; No Waiver by
the Bank; Partial Unenforceability: This Note may not be changed orally. Neither a waiver by the Bank of any of its options,
powers or rights in one or more instances, nor any delay on the part of the Bank in exercising any of them, nor any partial or
single exercise thereof, shall constitute a waiver thereof in any other instance. Any provision of this Note which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization, without invalidating the remaining provisions of this Note in that or any other jurisdiction
and without affecting the validity, enforceability or legality of such provision in any other jurisdiction.

 

K.     Disputes and Litigation: (1) Governing
Law. This Note and the rights and obligations of the Bank and Borrower hereunder shall be governed by the internal laws of
the State of New York without giving effect to conflict of laws principles. (2) Jurisdiction, Venue, and Service of Process.
Borrower and the Bank each submit to the nonexclusive jurisdiction of the federal and state courts in the State of New York in
New York County with respect to any dispute arising hereunder or relating to any of the Liabilities. Service of process may be
made on Borrower or the Bank by personal delivery at, or by mail addressed to, any address to which the Bank is authorized to address
notices to Borrower. (3) Waiver of Defenses, Setoffs, Counterclaims and Certain Damages. Borrower waives the right to assert
to the extent permitted by applicable law any defense (other than the defense of payment), setoff or counterclaim in any proceeding
relating in any way to this Note or any transaction contemplated hereby. The Bank shall not have any liability for negligence,
except solely to the extent required by law and not disclaimable, and except for its own gross negligence or willful misconduct.
In any event, the Bank shall not have any liability for any special, consequential or punitive damages. (4) Sovereign Immunity.
Borrower irrevocably waives, with respect to itself and its property, any sovereign immunity that it may have or hereafter acquire,
including but not limited to immunity from the jurisdiction of any court, from any legal process, from attachment prior to judgment,
from attachment in aid of execution, from execution or otherwise.

 

L.     OFAC and Patriot Act: Borrower
shall: Comply with all Anti-Terrorism Laws; immediately to notify the Bank if it obtains knowledge that it or any of its Affiliates
has become or been listed as a Restricted Party or has been charged with or has engaged in any violation of any Anti-Terrorism
Law; not to receive any funds from a Restricted Party and, in any case, to exclude any funds derived from any Restricted Party
or from any person or entity involved in the violation of any Anti-Terrorism Law from being used to pay debt service or any other
amounts owing under the Note; not to transfer or permit the transfer of any legal or beneficial ownership interest of any kind
in Borrower to a Restricted Party or any person or entity involved in the violation of any Anti-Terrorism Law; not to acquire,
directly or indirectly, ownership interest of any kind in any Restricted Party or any person or entity involved in the violation
of any Anti-Terrorism Law, not to form any partnership or joint venture or conduct any business with any Restricted Party or any
person or entity involved in the violation of any Anti-Terrorism Law, and not to act, directly or indirectly, as the agent or representative
of any Restricted Party or any person or entity involved in the violation of any Anti-Terrorism Law; and to indemnify the Bank
for any costs incurred by any of them as a result of any violation of an Anti-Terrorism Law by Borrower.

 

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M.      Notice: Any notice in connection
with any of the Liabilities shall be in writing and may be delivered personally or by cable, telex, telecopy or other electronic
means of communication, or by certified mail, return receipt requested, addressed (a) to Borrower at IM Brands, LLC, 475 Tenth
Avenue, 4th Floor, New York, New York 10018 or to such other address that the Bank has received written notice from
Borrower as being Borrower’s address, and (b) to the Bank at Bank Hapoalim B.M., 1177 Avenue of the Americas, New York, New
York 10036, Attention: Legal Department. Any such notice shall be addressed to such other address (es) as may be designated in
writing hereafter. All such notices shall be deemed given when delivered personally or electronically or when mailed, except notice
of change of address, which shall be deemed to have been given when received.

 

(a)     N.     Definitions:
The following definitions apply in this Note: (1) Acceleration: any acceleration of payment or requirement of prepayment
of any Debt, or any Debts becoming due and payable prior to stated maturity. (2) Account: (a) the balance of any account
of Borrower with any Person, and/or (b) any property in the possession or custody of, or in transit to, any Person, whether for
safekeeping, collection, pledge or otherwise, as to which Borrower has any right, power or interest - in each case whether existing
now or hereafter, in any jurisdiction worldwide, and whether or not denominated in the same currency as any of the Liabilities.
(2A) Applicable Discount Rate: a discount
rate selected by Bank based on the Applicable LIBOR Based Rate (for remaining terms of one year or less) or the Treasury Note Rate
(for remaining terms of greater than one year). (2B) Applicable LIBOR Based Rate: at the time of the prepayment,
the rate of interest per annum equal to the LIBOR Based Rate (converted by Bank to the applicable equivalent monthly yield using
Bank’s then system of conversion) for an Interest Period selected by Bank in accordance with good faith commercial practices
as having a maturity date closest to the maturity date of the Loan. (3) Applicable Percentage: (a) two percent (2.00%) in
the case of a prepayment on or prior to June 30, 2014, (b) one percent (1.00%) in the case of a prepayment on or after July 1,
2014 but on or before June 30, 2015 and (c) zero percent (0.00%) on or after July 1, 2015. (4) Applicable Rate: whichever
of the Loan Rate or Increased Rate is the applicable interest rate at any time. (5) Anti-Terrorism Law: any U.S. State or
Federal law relating to terrorism, money laundering or any related seizure, forfeiture or confiscation of assets, including: (a)
the Executive Order No. 13224 of September 23, 2001 - Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten
to Commit, or Support Terrorism; (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act), Public Law 107-56; and (c) the Money Laundering Control Act of 1986,
Public Law 99-570 (6) Bank: Bank Hapoalim B.M. (6) Borrower: the Person(s) executing this Note at paragraph 10 or
any one or more of them. "Borrower" may refer to one or more Persons. (7) Business Day: any day on which both
(a) banks are regularly open for business in New York City and (b) the Office is open for ordinary business. In the Bank's discretion,
the Office may be closed on any Saturday, Sunday, legal holiday or other day on which it is lawfully permitted to close. (8)
Control: the power, alone or in conjunction with others, directly or indirectly, through voting securities, by contract or
otherwise, to direct or cause the direction of a Person's management and policies. (9) Costs and Expenses: any and all reasonable
costs and expenses (including but not limited to reasonable attorneys' fees and disbursements) incurred in connection with the
Loan Documents and/or the Liabilities, including but not limited to those for (a) any action taken, whether or not by litigation,
to collect, or to protect rights or interests with respect to, or to preserve any collateral securing, any of the Liabilities,
(b) compliance with any legal process or any order or directive of any Governmental Authority with respect to any Party, (c) any
litigation or administrative proceeding relating to any Party, and/or (d) any amendment, modification, extension or waiver with
respect to any of the Liabilities. (10) Debt: any Party's obligation of any sort (in whole or in part) for the payment of
money to any Person, whether (a) absolute or contingent, (b) secured or unsecured, (c) joint, several or independent, (d) now or
hereafter existing, or (e) due or to become due. (11) Debtor Relief Action: the commencement by any Party or (unless dismissed
or terminated within 60 days) against any Party of any proceeding under any law of any jurisdiction (domestic or foreign) relating
to bankruptcy, reorganization, insolvency, arrangement, composition, receivership, liquidation, dissolution, moratorium or other
relief of financially distressed debtors, or the appointment of a receiver, trustee, committee, custodian, personal representative
or similar official for Borrower or for any Material part of Borrower's property, or the making by any Party of an assignment for
the benefit of creditors. (12) Default: any breach, default or event of default under, or any failure to comply with, any
provision of any Loan Document after giving effect to any applicable notice, grace or cure period. (13) Event of Default:
any event set forth in paragraph D. (14) Executive Order: Executive Order No. 13224 of September 23, 2001 - Blocking
Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism; (14A) Fixed
Rate Liquidated Cost: an amount, if any, necessary to compensate Bank for the cost of reinvesting (whether or not Bank actually
invests the prepaid principal amount), for the period through the maturity date of the Loan, the prepaid principal amount received
by Bank at a rate or rates which may be less than the Fixed Rate applicable to such prepaid portion of the Loan. (15) Governmental
Authority: any domestic or foreign, national or local, (a) government, (b) governmental, quasi-governmental or regulatory agency
or authority, (c) court or (d) central bank or other monetary authority. (16) Guarantor: Xcel Brands, Inc., a Delaware
corporation. (17) Increased Rate: the Loan Rate plus 2% per year. (18) IP Security Agreement: the Intellectual Property
Security Agreement, dated as of the date hereof and as may be amended, restated, supplemented or otherwise modified from time to
time, between the Borrower and the Bank. (19) Law: any treaty, law, regulation, rule, judgment, order, decree, guideline,
interpretation or request (whether or not having the force of law) issued by any Governmental Authority. (20) Letter Agreement:
the letter agreement, dated as of the date hereof and as may be amended, restated, supplemented or otherwise modified from time
to time, between the Borrower and the Bank. (21) Liabilities: (a) any and all of the Debt evidenced by this Note, and any
and all other Debt of Borrower to, or held or to be held by, the Bank under the Loan Documents, and (b) any and all obligations
of any other Party with respect to any of such Debt. (21A) LIBOR: the rate per annum (carried out to the fifth decimal)
equal to the rate determined by the Bank to be the offered rate on a page or service (whether provided by Bridge Telerate, Reuters,
Bloomberg or any other service) that displays an average British Bankers Association Interest Settlement Rate for deposits in U.S.
dollars with a term equivalent to the remaining term of the Loan. (21B) LIBOR-Based Rate: an annual rate equal to
LIBOR plus 3.00%, as determined by the Bank. (22) License: shall have the meaning assigned to such term in the IP
Security Agreement. (23) Loan Documents: means, collectively, the Letter Agreement, this Note, the Security Agreement and
all documents executed and delivered in connection with the foregoing. (24) Loan Rate: the interest rate determined under
paragraph 2. (25) Material: material to the business or financial condition of any Party on a consolidated or consolidating
basis. (26) Material Royalty Default: An Event of Default pursuant to paragraph D(7) hereof. (27)  Office:
the Bank's office at 1177 Avenue of the Americas, New York, New York 10036, or such other place within the United States as the
Bank may specify by notice. (28) Party: (a) Borrower; (b) any maker, co-maker or endorser of any Loan Document evidencing-,
or any guarantor, surety, accommodation party or indemnitor with respect to-, or any Person that provides any collateral as security
for, or any Person that issues a subordination, comfort letter, standby letter of credit, repurchase agreement, put agreement,
option, other agreement or other credit support with respect to, any of the Liabilities; and (c) if any Party is a partnership
or joint venture, any general partner or joint venturer in such Party. (29) Payment Date: any Business Day on which any
part of the principal or any installment of this Note becomes due and payable under paragraph 1 (and not on account of an Acceleration).
(30) Person: any person, partnership, joint venture, company, corporation, unincorporated organization or association, trust,
estate, Governmental Authority, or any other entity. (31) Prepaid Principal: any amount of principal or any installment
of this Note which Borrower pays prior to the applicable Payment Date for such amount. (32) Intentionally Omitted. (33)
Prime Rate: the Bank's New York Branches' stated Prime Rate as reflected in its books and records as such Prime Rate may change
from time to time. The Bank's determination of its Prime Rate shall be conclusive and final. The Prime Rate is a reference rate
and not necessarily the lowest interest rate charged by the Bank. (34) QVC Agreement: that certain Second Amended and Restated
Agreement dated as of August 12, 2011 by and between QVC, Inc., a Delaware corporation, the Borrower, Isaac Mizrahi and IM Ready-Made,
LLC, as amended, supplemented or otherwise modified from time to time. (35) Regulatory Costs: any and all costs and expenses
of complying with any Law adopted or taking effect after the date hereof, including but not limited to with respect to (a) any
reserves or special deposits maintained for or with, or pledges to, or assessments, insurance premiums or special charges paid
to, any Governmental Authority, or (b) any capital, capital equivalency ledger account, ratio of assets to liabilities, risk-based
capital assessment or any other capital substitute, risk-based or otherwise. (36) Restricted Party: (a) any individual or
entity: listed in the Annex to the Executive Order or is otherwise subject to the provisions of the Executive Order; (b) listed
on the "Specially Designated Nationals and Blocked Persons" list maintained by the Office of Foreign Assets Control (OFAC)
of the United States Department of the Treasury, as updated or amended from time to time, or any similar list issued by OFAC; or
(c) whose property has been blocked, or is subject to seizure, forfeiture or confiscation, by any order relating to terrorism or
money laundering issued by the President, Attorney General, Secretary of State, Secretary of Defense, Secretary of the Treasury
or any other U.S. State or Federal governmental official or entity. (37) Taxes: any and all present and future taxes, levies,
imposts, deductions, charges and withholdings in any jurisdiction worldwide, and all liabilities with respect thereto, which are
imposed by a Governmental Authority with respect to this Note or to any amount payable under this Note, excluding taxes determined
on the basis of the net income of a Person or of any of its offices. (38) Transfer: any negotiation, assignment, participation,
conveyance, grant of a security interest, lease, delegation, or any other direct or indirect transfer of a complete or partial,
legal, beneficial, economic or other interest or obligation. (39) Transferee: any Person to whom a Transfer is made. (40)
Transferred Items: items defined in paragraph I. (40a) Treasury Note Rate: at the time of the prepayment, the rate of
interest per annum equal to the yield to maturity (converted by Bank to the applicable equivalent monthly yield using Bank’s
then system of conversion) of the Treasury Obligation selected by Bank in accordance with good faith commercial practices as having
a maturity date closest to the maturity date of the Loan. (41) Treasury Obligation: a note, bill or bond issued by the United
States Treasury Department as a full faith and credit general obligation of the United States. 

 

    	6

    	 

    

 

 

 

RIDER TO PROMISSORY NOTE

 

This Rider is referred to in paragraph 3 of, and constitutes
a part of, the Promissory Note of Borrower to the Bank dated as of July 31, 2013 in the amount of up to $13,000,000.00.

 

 

 

Specific Terms

 

Fixed Rate: 4.44% per annum

 

 

 

[Remainder of this page intentionally left
blank;

signature page appears on the next page;

Riders continue after the signature page]

 

    	 

    	 

    

 

Borrower agrees to the above Specific Terms and to all of the
Terms and Conditions set forth below.

 

Print Borrower’s Name:

 

IM BRANDS, LLC

 

	By:	XCEL BRANDS, INC.	 
	 	Its: Manager	 
	 	 	 
	By:	/s/ James F. Haran	 
	 	Name: James F. Haran	 
	 	Title: Chief Financial Officer	 

 

[Riders
continue on the following page]

 

    	 

    	 

    

 

Terms and Conditions

 

Certain capitalized terms are defined in paragraph 4.

 

1.            Advances.
Borrower shall receive on the date hereof a Loan in the principal amount of $13,000,000 from the Bank, subject to the terms and
conditions set forth in the Loan Documents.

 

2.            Payment
of Principal and Interest. Subject to the other provisions of the Note:

 

(a)          Obligation,
Time and Manner of Payment. Subject to the other provisions of the Note and this Rider, the Outstanding Principal Amount shall
be due and payable at the applicable Due Date. Unless specified otherwise in the Note or in a Rider thereto, every payment to be
made by or on behalf of the Borrower under the Note shall be made in U.S. Dollars, and the designation of U.S. Dollars as the currency
of payment is of the essence. Every payment or delivery under the Note by or on behalf of Borrower of any money denominated in
any Currency shall be made at the Office and/or to such account or accounts as the Bank may designate from time to time by notice
to Borrower, in immediately available and freely transferable funds in the Currency in which the applicable obligation is denominated
and in Currency that is unrestricted, unblocked and free of exchange controls, without set off, counterclaim, withholding or deduction
of any kind whatsoever. Except as otherwise provided herein, any payment due under the Note on a day that is not a Business Day
shall be payable on the next succeeding Business Day.

 

(b)          Loan
Rate. Interest on any Outstanding Principal Amount shall accrue, at the Fixed Rate.

 

(c)          Payment
and Calculation of Interest. Interest accruing on the Outstanding Principal Amount shall be payable (i) each Payment Date,
(ii) at the Due Date and (iii) at any time that any Prepaid Principal is paid. Interest shall be calculated as set forth in the
Note.

 

(d)          Currency
of Payment. All loans and repayments of principal, interest or any other costs and charges shall be made in U.S. dollars.

 

3.            Bank’s
Conclusive Determinations and Schedule. The Bank’s determination with respect to any matter hereunder shall be conclusive,
final and binding on Borrower, absent manifest error. The Bank shall from time to time record the Applicable Rate, each date on
which any part of principal, interest or any other amount shall be due and payable, and the amount and date of each payment of
principal, interest or any other amount, on a schedule, which in the Bank’s discretion may be computer-generated and/or may
be taken from the Bank’s general books and records, and which schedule is incorporated in, and is a part of, the Note and
this Rider (the “Schedule”). The Schedule shall be conclusive, final and binding upon Borrower, absent manifest error,
provided, however, that the failure of the Bank to record any of the foregoing shall not limit or otherwise affect the obligation
of Borrower to pay all amounts owed to the Bank under the Note. Without limiting the foregoing, Borrower acknowledges that the
Interest Period and the Applicable Rate with respect to any Outstanding Principal Amount are subject to the Bank’s consent
ordinarily negotiated between Borrower and the Bank by telephone, and Borrower agrees that in the event of any dispute as to any
of the terms of any Loan, the determination of the Bank and its respective entry with respect thereto on its books and records
and/or on the Schedule shall be conclusive, final and binding on Borrower, absent manifest error.

 

    	1

    	 

    

 

4.            Definitions.
Each capitalized term not defined herein shall have the meaning ascribed thereto in the Note. The following definitions apply in
this Rider and in the Note, and shall prevail over any different definitions in the Note.

 

(a)           Applicable
Rate: whichever of the Loan Rate or Increased Rate is the applicable interest rate at any time with respect to any Outstanding
Principal Amount.

 

(b)           Currency:
money denominated in the lawful currency of any country (including but not limited to the lawful currency of the United States)
or any unit of account or single or unified currency of the European Community.

 

(c)           Determination
Time: 12:00 noon (or any later time determined by the Bank in its sole discretion), New York City time, of a Working Day that
is two Working Days prior to the date of the Loan.

 

(d)           Due
Date: each date set forth in paragraph 1 of the Note or, if the Bank has extended such dates pursuant to paragraph G(5) of
the Note or by an agreement with Borrower, such extended dates.

 

(e)           Fixed
Rate: as set forth under Specific Terms.

 

(f)            Loan:
any loan advanced by the Bank to Borrower under the Note.

 

(g)           Loan
Rate: the interest rate determined under subparagraph 2(b).

 

(h)           Note:
the note of which this Rider is a part (including any and all riders and amendments to the Note).

 

(i)            Outstanding
Principal Amount: the outstanding principal amount of the Loan.

 

(j)            Payment
Date: the first Business Day of each calendar quarter with respect to interest accrued up to such date.

 

(k)           Working
Day: a Business Day on which banks are regularly open for business in London.

 

    	2

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