Document:

EXECUTION VERSION

 

FORM OF WARRANT

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IF THE CORPORATION REQUESTS, AN OPINION SATISFACTORY TO THE CORPORATION TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.

 

Warrant Certificate No.: 2

 

Original Issue Date: September 29, 2011

 

FOR VALUE RECEIVED, XCel Brands, Inc. (f/k/a NetFabric Holdings, Inc.), a Delaware corporation (the “Company”), hereby certifies that Great American Insurance Company, an Ohio corporation, or its registered assigns (the “Holder”) is entitled to purchase from the Company 109,328 duly authorized, validly issued, fully paid and nonassessable shares of Common Stock at a purchase price per share of $0.01 (the “Exercise Price”), all subject to the terms, conditions and adjustments set forth below in this Warrant.  Certain capitalized terms used herein are defined in 1 hereof.

 

This Warrant has been issued pursuant to the terms of the Credit Agreement dated as of September 29, 2011 (the “Credit Agreement”) among IM Brands, LLC, MidMarket Capital Partners, LLC, as Administrative Agent and the Lenders from time to time party thereto.

 

1.           Definitions.  As used in this Warrant, the following terms have the respective meanings set forth below:

 

“Aggregate Exercise Price” means an amount equal to the product of (a) the number of Warrant Shares in respect of which this Warrant is then being exercised pursuant to Section 3 hereof, multiplied by (b) the Exercise Price.

 

“Board” means the board of directors of the Company.

 

“Business Day” means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in the city of New York are authorized or obligated by law or executive order to close.

  

  

 

 

“Common Stock” means the common stock of the Company, $.01 par value per share or any security into which the Common Stock is converted or issued in exchange for Common Stock whether in connection with a dividend, capital restructuring or reorganization or otherwise.

 

“Company” has the meaning set forth in the preamble.

 

“Convertible Securities” means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.

 

“Excluded Issuances” the issuance of (a) Common Stock, options to acquire Common Stock, or other equity awards granted to employees, officers or directors of, or consultants to, the Company pursuant to (x) any stock or option plan in effect at the date hereof, or (y) any amendment to such plan or any new such plan that is duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose; (b) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into Common Stock issued (or to be issued on the date hereof) and outstanding on the date of this Warrant; (c) securities pursuant to a merger, amalgamation, plan of arrangement, acquisition and any other business combination, joint venture, strategic transaction or other commercial relationship (the primary purpose of which is not raising equity capital);

“Exercise Date” means, for any given exercise of this Warrant, the date on which the conditions to such exercise as set forth in Section 3 shall have been satisfied at or prior to 5:00 p.m., New York, New York time, on a Business Day, including, without limitation, the receipt by the Company of the Exercise Agreement, the Warrant and the Aggregate Exercise Price.

 

“Exercise Agreement” has the meaning set forth in Section 3(a)(i).

 

“Exercise Period” has the meaning set forth in Section 2.

 

“Exercise Price” has the meaning set forth in the preamble.

 

“Fair Market Value” means, as of any particular date: (a) the volume weighted average of the closing sales prices of the Common Stock for such day on all domestic securities exchanges on which the Common Stock may at the time be listed; (b) if there have been no sales of the Common Stock on any such exchange on any such day, the average of the highest bid and lowest asked prices for the Common Stock on all such exchanges at the end of such day; (c) if on any such day the Common Stock is not listed on a domestic securities exchange, the closing sales price of the Common Stock as quoted on Nasdaq, the OTC Bulletin Board, the OTC Pink Sheets or similar quotation system or association for such day; or (d) if there have been no sales of the Common Stock on Nasdaq, the OTC Bulletin Board, the OTC Pink Sheets or similar quotation system or association on such day, the average of the highest bid and lowest asked prices for the Common Stock quoted on Nasdaq, the OTC Bulletin Board, the OTC Pink Sheets or similar quotation system or association at the end of such day; in each case, averaged over twenty (20) consecutive Business Days ending on the Business Day immediately prior to the day as of which “Fair Market Value” is being determined; provided, that if the Common Stock is listed on any domestic securities exchange, the term “Business Day” as used in this sentence means Business Days on which such exchange is open for trading.  If at any time the Common Stock is not listed on any domestic securities exchange or quoted on Nasdaq, the OTC Bulletin Board, the OTC Pink Sheets or similar quotation system or association, the “Fair Market Value” of the Common Stock shall be the fair market value per share as determined jointly by the Board and the Holder.

  

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“Holder” has the meaning set forth in the preamble.

 

“Options” means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.

 

“Original Issue Date” means September 29, 2011, the date on which the Warrant was issued by the Company pursuant to the Credit Agreement.

 

 “Nasdaq” means The Nasdaq Stock Market, Inc.

 

“OTC Bulletin Board” means the OTC Market Group, Inc., OTC Bulletin Board.

 

“OTC Pink Sheets” means the OTC Market Group, Inc. OTC Pink Sheets.

 

“Person” means any individual, sole proprietorship, partnership, limited liability company, corporation, joint venture, trust, incorporated organization or government or department or agency thereof.

 

“Warrant” means this Warrant and all warrants issued upon division or combination of, or in substitution for, this Warrant.

 

“Warrant Shares” means the shares of Common Stock or other capital stock of the Company then purchasable upon exercise of this Warrant in accordance with the terms of this Warrant.

 

2.           Term of Warrant.  Subject to the terms and conditions hereof, at any time or from time to time after the date hereof and prior to 5:00 p.m., New York, New York time, on the seventh (7th) anniversary of the date hereof or, if such day is not a Business Day, on the next preceding Business Day (the “Exercise Period”), the Holder of this Warrant may exercise this Warrant for all or any part of the Warrant Shares purchasable hereunder (subject to adjustment as provided herein).

 

3.           Exercise of Warrant.

 

(a)           Exercise Procedure.  This Warrant may be exercised from time to time on any Business Day during the Exercise Period, for all or any part of the unexercised Warrant Shares, upon:

 

  

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(i)           surrender of this Warrant to the Company at its then principal executive offices (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction), together with an Exercise Agreement in the form attached hereto as Exhibit A (each, an “Exercise Agreement”), duly completed (including specifying the number of Warrant Shares to be purchased) and executed; and

 

(ii)           payment to the Company of the Aggregate Exercise Price in accordance with Section 3(b).

 

(b)           Payment of the Aggregate Exercise Price.  Payment of the Aggregate Exercise Price shall be made, at the option of the Holder as expressed in the Exercise Agreement, by the following methods:

 

(i)           by delivery to the Company of a certified or official bank check payable to the order of the Company or by wire transfer of immediately available funds to an account designated in writing by the Company, in the amount of such Aggregate Exercise Price;

 

(ii)           by instructing the Company to withhold a number of Warrant Shares then issuable upon exercise of this Warrant with an aggregate Fair Market Value as of the Exercise Date equal to such Aggregate Exercise Price; or

 

(iii)           any combination of the foregoing.

 

In the event of any withholding of Warrant Shares pursuant to clause (ii) or (iii) above where the number of shares whose value is equal to the Aggregate Exercise Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder (by delivery of a certified or official bank check or by wire transfer of immediately available funds) based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount equal to the product of (x) such incremental fraction of a share being so withheld or surrendered multiplied by (y) in the case of Common Stock, the Fair Market Value per Warrant Share as of the Exercise Date.

 

(c)           Delivery of Stock Certificates.  Upon receipt by the Company of the Exercise Agreement, surrender of this Warrant and payment of the Aggregate Exercise Price (in accordance with Section 3(a) hereof), the Company shall, as promptly as practicable, and in any event within ten (10) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share, as provided in Section 3(d) hereof.  The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Agreement and shall be registered in the name of the Holder or, subject to compliance with Section 6 below, such other Person’s name as shall be designated in the Exercise Agreement.  This Warrant shall be deemed to have been exercised and such certificate or certificates of Warrant Shares shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares for all purposes, as of the Exercise Date.

 

  

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(d)           Fractional Shares.  The Company shall not be required to issue a fractional Warrant Share upon exercise of any Warrant.  As to any fraction of a Warrant Share that the Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Holder an amount in cash (by delivery of a certified or official bank check or by wire transfer of immediately available funds) equal to the product of (i) such fraction multiplied by (ii) the Fair Market Value of one Warrant Share on the Exercise Date.

 

(e)           Delivery of New Warrant.  Unless the purchase rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, at the time of delivery of the certificate or certificates representing the Warrant Shares being issued in accordance with Section 3(c) hereof, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unexpired and unexercised Warrant Shares called for by this Warrant.  Such new Warrant shall in all other respects be identical to this Warrant.

 

(f)           Valid Issuance of Warrant and Warrant Shares; Payment of Taxes.  With respect to the exercise of this warrant, the Company hereby represents, covenants and agrees:

 

(i)           This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant shall be, upon issuance, duly authorized and validly issued.

 

(ii)           All Warrant Shares issuable upon the exercise of this Warrant pursuant to the terms hereof shall be, upon issuance, and the Company shall take all such actions as may be necessary or appropriate in order that such Warrant Shares are, validly issued, fully paid and non-assessable, issued without violation of any preemptive or similar rights of any stockholder of the Company and free and clear of all taxes, liens and charges.

 

(iii)           The Company shall take all such actions as may be necessary to ensure that all such Warrant Shares are issued without violation by the Company of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock or other securities constituting Warrant Shares may be listed at the time of such exercise (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance).

 

(iv)           The Company shall use its best efforts to cause the Warrant Shares, immediately upon such exercise, to be listed on any domestic securities exchange upon which shares of Common Stock or other securities constituting Warrant Shares are listed at the time of such exercise.

 

  

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(v)           The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Shares upon exercise of this Warrant; provided, that the Company shall not be required to pay any tax or governmental charge that may be imposed with respect to any applicable withholding or the issuance or delivery of the Warrant Shares to any assignee or transferee of the Holder in excess of the amount of such taxes or governmental charges that would have been imposed upon issuance of such Warrant Shares to the Holder, and no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

 

(g)           Conditional Exercise.  Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a public offering or a sale of the Company (pursuant to a merger, sale of stock, or otherwise), such exercise may at the election of the Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.

 

(h)           Reservation of Shares.  During the Exercise Period, the Company shall at all times reserve and keep available out of its authorized but unissued Common Stock or other securities constituting Warrant Shares, solely for the purpose of issuance upon the exercise of this Warrant, the maximum number of Warrant Shares issuable upon the exercise of this Warrant, and the par value per Warrant Share shall at all times be less than or equal to the applicable Exercise Price.  The Company shall not increase the par value of any Warrant Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect, and shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

 

(i)           Wholly-Owned Subsidiary.  IM Brands, LLC shall at all times remain a wholly-owned direct or indirect Subsidiary of the Company.

 

4.           Adjustment to Number of Warrant Shares.  In order to prevent dilution of the purchase rights granted under this Warrant, the number of Warrant Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 4 (in each case, after taking into consideration any prior adjustments pursuant to this Section 4).

 

(a)           Record Date.  For purposes of any adjustment to the number of Warrant Shares in accordance with this Section 4, in case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

  

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(b)           Treasury Shares.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof or the transfer of such shares among the Company and its wholly-owned subsidiaries) shall be considered an issue or sale of Common Stock for the purpose of this Section 4.

 

(c)           Other Dividends and Distributions.  Subject to the provisions of this Section 4(c), if the Company shall, at any time or from time to time after the Original Issue Date, make or declare, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or any other distribution payable in securities of the Company (other than a dividend or distribution of shares of Common Stock, Options or Convertible Securities in respect of outstanding shares of Common Stock as to which Section 4(d) shall be applicable), cash or other property, then, and in each such event, provision shall be made so that the Holder shall receive upon exercise of the Warrant, in addition to the number of Warrant Shares receivable thereupon, the kind and amount of securities of the Company, cash or other property which the Holder would have been entitled to receive had the Warrant been exercised in full into Warrant Shares on the date of such event and had the Holder thereafter, during the period from the date of such event to and including the Exercise Date, retained such securities, cash or other property receivable by them as aforesaid during such period, giving application to all adjustments called for during such period under this Section 4 with respect to the rights of the Holder; provided, that no such provision shall be made if the Holder receives, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities, cash or other property in an amount equal to the amount of such securities, cash or other property as the Holder would have received if the Warrant had been exercised in full into Warrant Shares on the date of such event.

 

(d)           Adjustment to Number of Warrant Shares Upon Dividend, Subdivision or Combination of Common Stock.  If the Company shall, at any time or from time to time after the Original Issue Date, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Company payable in shares of Common Stock or in Options or Convertible Securities, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to any such dividend, distribution or subdivision shall be proportionately increased.  If the Company at any time combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased.  Any adjustment under this Section 4(d) shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.

 

  

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(e)           Adjustment to Number of Warrant Shares Upon Reorganization, Reclassification, Consolidation or Merger.  In the event of any (i) capital reorganization of the Company, (ii) reclassification of the stock of the Company (other than, subject to Section 3(h), a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Company with or into another Person, (iv) sale of all or substantially all of the Company’s assets to another Person or (v) other similar transaction (other than any such transaction covered by Section 4(d)), in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, each Warrant shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Shares then exercisable under this Warrant, be exercisable for the kind and number of shares of stock or other securities or assets of the Company or of the successor Person resulting from such transaction to which the Holder would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Holder had exercised this Warrant in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Warrant Shares then issuable hereunder as a result of such exercise; and, in such case, appropriate adjustment (in form and substance satisfactory to the Holder) shall be made with respect to the Holder’s rights under this Warrant to insure that the provisions of this Section 4 hereof shall thereafter be applicable, as nearly as possible, to this Warrant in relation to any shares of stock, securities or assets thereafter acquirable upon exercise of this Warrant.  The provisions of this Section 4(e) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transactions.  The Company shall not effect any such reorganization, reclassification, consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Company) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder, the obligation to deliver to the Holder such shares of stock, securities or assets which, in accordance with the foregoing provisions, such Holder shall be entitled to receive upon exercise of this Warrant.  Notwithstanding anything to the contrary contained herein, with respect to any corporate event or other transaction contemplated by the provisions of this Section 4(e), the Holder shall have the right to elect prior to the consummation of such event or transaction, to give effect to the exercise rights contained in Section 2 instead of giving effect to the provisions contained in this Section 4(e) with respect to this Warrant.

 

(f)           Certain Events.  If any event of the type contemplated by the provisions of this Section 4 but not expressly provided for by such provisions occurs, then the Board shall make an appropriate adjustment in the number of Warrant Shares issuable upon exercise of this Warrant so as to protect the rights of the Holder in a manner consistent with the provisions of this Section 4; provided, that no such adjustment pursuant to this Section 4(f) shall decrease the number of Warrant Shares issuable as otherwise determined pursuant to this Section 4.

 

  

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(g)           Certificate as to Adjustment.

 

(i)           As promptly as reasonably practicable following any adjustment of the number of Warrant Shares pursuant to the provisions of this Section 4, but in any event not later than ten (10) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.

 

(ii)           As promptly as reasonably practicable following the receipt by the Company of a written request by the Holder, but in any event not later than ten (10) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer certifying the number of Warrant Shares or the amount, if any, of other shares of stock, securities or assets then issuable upon exercise of the Warrant.

 

(h)           Participation Right.  In the event that the Company shall determine to issue shares of Common Stock (“Issued Shares”) or securities convertible into or exchangeable for Issued Shares or any other options, rights or warrants to purchase Issued Shares (“Securities”) to any Person the Company shall notify the Holder in writing of the proposed issuance, the number of Issued Shares or amount of Securities to be issued, the date on or about which such issuance is to be consummated and the price and other terms and  conditions thereof.  For a period of ten (10) days after the Shareholders’ receipt of the notice referred to in the foregoing sentence, the Holder shall have the option to purchase, upon the same price, terms and conditions as such Issued Shares or Securities are issued or proposed to be issued to such Person, that number of such Issued Shares or Securities as may be necessary to adjust the number of shares of Common Stock of the Company owned by the Holder on a fully-diluted as-exercised basis to provide that the percentage of all of the fully-diluted as-exercised shares of Common Stock of the Company owned by such Holder immediately after the date of issuance to such Person and the Holder (the date of any such issuance hereinafter referred to as the “Issuance Date”) is not less than the percentage of all of the fully-diluted shares of Common Stock of the Company owned by such Holder immediately prior to the Issuance Date.  If such Holder exercises its purchase option under this Section 4(h) it shall purchase such Issued Shares or Securities at the time of consummation of the issuance of Issued Shares or Securities to such Person; provided, however, that the Company may consummate such issuance prior to the expiration of the applicable ten (10) day period so long as sufficient Issued Shares or Securities are reserved for issuance to the Holder upon the exercise of its rights under this Section 4(h).  Without limiting the generality of the foregoing, this Section 4(h) shall be applicable to any issuance by the Company of Issued Shares other than any Excluded Issuance.  The rights of the Holders under this Section 4(h) shall be in effect for a period of five (5) years from the Original Issue Date and shall survive the exercise of this Warrant and the issuance of the Warrant Shares.  Each of the Holder and the Company shall execute and deliver subscription and purchase documents (and any ancillary documents) executed and delivered by and to other purchasers of Securities.  Notwithstanding anything herein to the contrary, (i) if the Company issues Securities as part of a more comprehensive transaction or series of transactions and such issuance is not an Excluded Issuance (e.g. in connection with a credit facility), the Holder shall only have the right to participate in the purchase of Securities in accordance with this Section 4(h) but shall not have the right to participate in any other aspect of the transaction, and the Holder and the Company shall negotiate in good faith the price at which the Holder shall have the right to purchase Securities pursuant to this Section 4(h) and (ii) if the consideration received or receivable by the Company in connection with an issuance of Securities is in a form other than cash, the Company and the Holder shall negotiate in good faith the price at which the Holder shall have the right to purchase Securities pursuant to this Section 4(h).

 

  

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(i)           Notices.  In the event:

 

(i)           that the Company shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon exercise of the Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, to vote at a meeting (or by written consent), to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

 

(ii)           of any capital reorganization of the Company, any reclassification of the Common Stock of the Company, any consolidation or merger of the Company with or into another Person, or sale of all or substantially all of the Company’s assets to another Person; or

 

(iii)           of the voluntary or involuntary dissolution, liquidation or winding-up of the Company;

 

then, and in each such case, the Company shall send or cause to be sent to the Holder at least ten (10) days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent or other right or action, and a description of such dividend, distribution or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Company shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Warrant and the Warrant Shares.

 

5.           Purchase Rights.  In addition to any adjustments pursuant to Section 4 above, if at any time the Company grants, issues or sells any shares of Common Stock, Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock (the “Purchase Rights”), then the Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder would have acquired if the Holder had held the number of Warrant Shares acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

  

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6.           Transfer of Warrant.  Subject to the transfer conditions referred to in the legend endorsed hereon, this Warrant and all rights hereunder are transferable, in whole or in part, by the Holder without charge to the Holder, upon surrender of this Warrant to the Company at its then principal executive offices with a properly completed and duly executed Assignment in the form attached hereto as Exhibit B, together with funds sufficient to pay any transfer taxes described in Section 3(f)(v) in connection with the making of such transfer.  Upon such compliance, surrender and delivery and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant, if any, not so assigned and this Warrant shall promptly be cancelled.

 

7.           Holder Not Deemed a Stockholder; Limitations on Liability.  Except as otherwise specifically provided herein (including Section 4(c)), prior to the issuance to the Holder of the Warrant Shares to which the Holder is then entitled to receive upon the due exercise of this Warrant, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 7, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

 

8.           Replacement on Loss; Division and Combination.

 

(a)           Replacement of Warrant on Loss.  Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and upon delivery of an indemnity reasonably satisfactory to it (it being understood that a written indemnification agreement or affidavit of loss of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon surrender of such Warrant for cancellation to the Company, the Company at its own expense shall execute and deliver to the Holder, in lieu hereof, a new Warrant of like tenor and exercisable for an equivalent number of Warrant Shares as the Warrant so lost, stolen, mutilated or destroyed; provided, that, in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

 

  

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(b)           Division and Combination of Warrant.  Subject to compliance with the applicable provisions of this Warrant as to any transfer or other assignment which may be involved in such division or combination, this Warrant may be divided or, following any such division of this Warrant, subsequently combined with other Warrants, upon the surrender of this Warrant or Warrants to the Company at its then principal executive offices, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the respective Holders or their agents or attorneys.  Subject to compliance with the applicable provisions of this Warrant as to any transfer or assignment which may be involved in such division or combination, the Company shall at its own expense execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants so surrendered in accordance with such notice.  Such new Warrant or Warrants shall be of like tenor to the surrendered Warrant or Warrants and shall be exercisable in the aggregate for an equivalent number of Warrant Shares as the Warrant or Warrants so surrendered in accordance with such notice.

 

9.             No Impairment.  The Company shall not, by amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the Holder in order to protect the exercise rights of the Holder against dilution or other impairment, consistent with the tenor and purpose of this Warrant.

 

10.           Agreement to Comply with the Securities Act; Legend.  Each Warrant certificate, and each certificate representing shares of Common Stock issued upon exercise of the Warrants, shall be stamped with a legend in substantially the form of the legend on the face hereof.

 

11.           Warrant Register.  The Company shall keep and properly maintain at its principal executive offices books for the registration of the Warrant and any transfers thereof.  The Company may deem and treat the Person in whose name the Warrant is registered on such register as the Holder thereof for all purposes, and the Company shall not be affected by any notice to the contrary, except any assignment, division, combination or other transfer of the Warrant effected in accordance with the provisions of this Warrant.

 

12.           Notices.  Any notices required or permitted to be sent hereunder shall be given to the following addresses, or such other addresses as shall be given by notice delivered hereunder:

 

  

- 12 -

 

 

	
 If to the Company:

	  	
Xcel Brands, Inc.

475 Tenth Avenue, 4th Floor

New York, New York 10018

Attention: Chief Executive Officer and

Chief Financial Officer

Telecopy: (347) 727-2479

 

	
with a copy to:

	  	
Blank Rome LLP

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Attention: Robert J. Mittman

Telecopy: (212) 885-5000

 

	
If to the Holder:

	  	
Great American Insurance Company

c/o MidMarket Capital Partners, LLC

430 Park Avenue

New York, New York 10022

Attention: Gabriel Gengler

Telecopy: (866) 376-4175

 

	
with a copy to:

	  	
Keating Muething & Klekamp PLL

One East Fourth Street, Suite 1400

Cincinnati, Ohio 45202

Attention: John S. Fronduti

Telecopy: (513) 579-6457

 

Any notice hereunder shall be deemed to have been given and received on the day on which it is delivered (by means including personal delivery, overnight air courier, United States mail) or telecopied (or, if such day is not a Business Day or if the notice is not telecopied during business hours of the intended recipient, at the place of receipt, on the next following Business Day).

 

13.           Cumulative Remedies.  Except to the extent expressly provided in Section 7 to the contrary, the rights and remedies provided in this Warrant are cumulative and are not exclusive of, and are in addition to and not in substitution for, any other rights or remedies available at law, in equity or otherwise.

 

14.           Entire Agreement.  This Warrant, together with the Credit Agreement and the other Loan Documents, constitutes the sole and entire agreement of the parties to this Warrant with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter.  In the event of any inconsistency between the statements in the body of this Warrant, the Credit Agreement and the other Loan Documents, the statements in the body of this Warrant shall control.

 

  

- 13 -

 

 

15.           Successor and Assigns.  Except as otherwise expressly provided herein, the provisions of this Warrant shall be binding upon and inure to the benefit of the respective heirs, executors and administrators and the permitted successors and assigns of the parties hereto, whether so expressed or not.  In addition and whether or not any express assignment has been made, the provisions of this Warrant which are for the benefit of the Holder are also for the benefit of, and enforceable by, any permitted subsequent Holder who consents in writing to be bound by this Warrant.

 

16.           No Third-Party Beneficiaries.  This Warrant is for the sole benefit of the Company and the Holder and their respective successors and, in the case of the Holder, permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Warrant.

 

17.           Headings.  The headings in this Warrant are for reference only and shall not affect the interpretation of this Warrant.

 

18.           Amendment and Modification; Waiver.  Except as otherwise provided herein, this Warrant may only be amended, modified or supplemented by an agreement in writing signed by each party hereto.  No waiver by the Company or the Holder of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving.  No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver.  No failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Warrant shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

19.           Severability.  Whenever possible, each provision of this Warrant will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Warrant.

 

20.           Governing Law.  The rights, duties and obligations of each party hereto shall be construed in accordance with and governed by the laws of the State of New York (without giving effect to any choice of law principles which would result in the application of the law of any other state). Any judicial proceeding brought with respect to any claim arising out of or relating to this Warrant or any other Loan Document (a “Claim”) shall be brought in any court of competent jurisdiction in New York County, New York and, by execution and delivery of this Warrant, the Company and the Holder each (a) accepts, generally and unconditionally, the nonexclusive jurisdiction of such courts and any related appellate court and irrevocably agrees to be bound by any judgment rendered thereby in connection with any Claim and (b) irrevocably waives any objection it may now or hereafter have as to the venue of any such proceeding brought in such a court or that such a court is an inconvenient forum.  The Company and the Holder each hereby waive personal service of process and consent that service of process upon it may be made by certified or registered mail, return receipt requested, at its address specified or determined in accordance with the provisions of Section 12, and service so made shall be deemed completed on the fifth Business Day after such service is deposited in the mail.  THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY CLAIM.

 

  

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21.           Counterparts.  This Warrant may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all of which counterparts together shall constitute one instrument.

 

22.           No Strict Construction.  This Warrant shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

[SIGNATURE PAGE FOLLOWS]

  

- 15 -

 

IN WITNESS WHEREOF, the Company has duly executed this Warrant on the Original Issue Date.

 

	  	
XCEL BRANDS, INC.  

	  	  
	  	
By:

	
   /s/ Robert W. D’Loren

	  	
Name: Robert W. D’Loren

	  	
Title: Chairman of the Board and

	  	
          Chief Executive Officer

	
Accepted and agreed,

	  	  
	
GREAT AMERICAN INSURANCE

COMPANY

	  
	  	  
	
By:

	
/s/ Stephen C. Beraha

	  
	
Name: Stephen C. Beraha

	  
	
Title: Assistant Vice President, Assistant

	  
	
General Counsel & Assistant Secretary

	  

 

  

- 16 -

 

EXHIBIT A

Form of Exercise Agreement

(To be executed only upon exercise of Warrant)

 

The undersigned registered owner of this Warrant irrevocably exercises this Warrant and purchases ________ shares of Common Stock of XCel Brands, Inc.. (f/k/a NetFabric Holdings, Inc.), a Delaware corporation, purchasable with this Warrant, and herewith makes payment therefor in the amount of $_________, all at the price and on the terms and conditions specified in this Warrant.  The undersigned requests that the shares be registered in the name of [________].  If such number of shares does not include all shares of Common Stock issuable as provided in this Warrant, the undersigned does hereby direct that a new Warrant of like tenor for the number of shares of Common Stock not being purchased hereunder be issued in the name of the undersigned.

 

DATED :

 

	
      

	
(Signature of Registered Owner)

	
      

	
(Street Address)

	
      

	
(City)

	
(State)

	
(Zip)

 

  

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EXHIBIT B

Form of Assignment

 

FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

	
Name of Assignee

	  	
Address

	  	
No.  of Shares

	  	  	  	  	  

 

and does hereby irrevocably constitute and appoint ______________________ attorney to make such transfer on the books of XCel Brands, Inc. (f/k/a NetFabric Holdings, Inc.), a Delaware corporation, maintained for the purpose, with full power of substitution in the premises.

 

DATED :

 

	  	
    

	  	
(Signature)

	  	  
	  	
     

	  	
(Witness)EXECUTION VERSION

 

RIGHTS AGREEMENT

 

THIS RIGHTS AGREEMENT (this "Agreement"), dated as of September 29, 2011 is among XCEL BRANDS, INC. (f/k/a NetFabric Holdings, Inc., a Delaware corporation (the "Company"), GREAT AMERICAN LIFE INSURANCE COMPANY, an Ohio corporation ("GALIC"), and GREAT AMERICAN INSURANCE COMPANY, an Ohio corporation (collectively with GALIC, the "Investors").

 

RECITALS

 

WHEREAS, in connection with the Credit Agreement dated as of September 29, 2011 (the “Credit Agreement”) among IM Brands, LLC, MidMarket Capital Partners, LLC, as Administrative Agent and the Lenders from time to time party thereto, the Company is issuing to the Investors, collectively, 364,428 Warrants to purchase Common Stock (the “Warrants”); and

 

WHEREAS, the Company and the Shareholders deems it desirable to grant certain rights to the Investors in order to induce the Investors to make the loans contemplated by the Credit Agreement.

 

AGREEMENTS

 

NOW, THEREFORE, in consideration of the recitals and the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:

 

1.           Definitions.  As used in this Agreement the following terms shall have the meanings specified below and capitalized terms used, and not otherwise defined, herein shall have the meanings ascribed thereto in the Credit Agreement:

 

"Commission" means the Securities and Exchange Commission.

 

"Common Stock" means the common stock of the Company, [$0.001] par value per share or any security into which the Common Stock is converted or issued in exchange for Common Stock whether in connection with a dividend, capital restructuring or reorganization or otherwise.

 

"Holder" means any holder of Investor Securities who or that is a party to this Agreement or is a successor or assign or subsequent holder as contemplated by Section 8  hereof.  For purposes of this Agreement, the Company may deem the registered holder of a Registrable Security as the Holder thereof except for Registrable Securities held in "street name" for which beneficial owners of record shall be deemed the Holder thereof.

  

  

  

 

"Investor Securities" means at any time the following securities held by an Investor:  (i) the Warrants; (ii) any share or shares of Common Stock held by an Investor or issued or issuable upon the exercise of the Warrants or upon any conversion or exchange of any securities; and (iii) any securities issued or issuable as a result of, or in connection with, any stock dividend, stock split, reverse stock split, combination, recapitalization, reclassification, merger or consolidation, exchange or distribution in respect of such Common Stock.  For purposes of this Agreement, a Person will be deemed to be a holder of Investor Securities whenever such Person holds a security exercisable for or convertible into such Investor Securities, whether or not such exercise or conversion has actually been effected.

 

"Registrable Securities" means the Investor Securities other than the Warrants.  Notwithstanding the foregoing, the securities held by a Holder shall not be Registrable Securities if, at the time of determination, such securities are effectively registered under the Securities Act or may be distributed by a Holder without volume restrictions pursuant to Rule 144.

 

"Registration Expenses" has the meaning ascribed to it in Section 6 of this Agreement.

 

“Rule 144” means Rule 144 adopted by the Commission under the Securities Act (as such rule may be amended from time to time), or any similar rule or regulation hereafter adopted by the Commission.

 

"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

"Shareholder" means each owner of Common Stock (other than any Investor or Holder) identified on the signature page hereof and each such Person's successors or assigns.

 

2.           Piggyback Registration Rights.  At any time, whenever the Company proposes to register any Common Stock under the Securities Act (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable, or a Registration Statement on Form S-4, S-8 or any successor form thereto) including, either in a primary distribution by the Company or a secondary distribution by any of its security holders, the Company will give prompt written notice to all Holders of its intention to effect such a registration and, subject to Section 3, will include in the registration all Registrable Securities with respect to which the Company has received written requests for inclusion in the registration within ten (10) business days after receipt of the Company's notice (a "Piggyback Registration").  Except as otherwise provided herein, Registrable Securities with respect to which such request for registration has been received will be registered by the Company on the same terms and conditions as all other securities of the Company included in the proposed registration.

  

- 2 -

  

 

3.           Restrictions on Piggyback Rights.

 

(a)           If the managing underwriter or underwriters advise the Company that in its or their opinion that the number of securities proposed to be sold in such Piggyback Registration by the Holders, the Company and any other Person entitled to have their securities included in such registration (the "Other Persons"), exceeds the number which can be effectively sold in, or would have a material adverse effect on, such offering, the Company will include in such registration the number of securities which, in the opinion of such underwriter or underwriters or the Company, based on such consultation, as the case may be, can be sold in the following order:  in the case of primary offering on behalf of the Company (i) first, securities offered for the account of the Company, (ii) second, the Registrable Securities and securities offered for the account of any other Persons not covered by clause (i)  above, pro rata based on the number of shares of Common Stock (on an as-exercised and as-converted basis) sought to be included in such offering, and (iii) third,  such other securities as the Company determines to include in such registration and, in the case of an offering on behalf of holders of Common Stock other than Registrable Securities, (i) first, the number of shares of Common Stock requested to be included therein by the holder(s) requesting such registration and the Registrable Securities pro-rata based on the number of shares of Common Stock (on a fully diluted, as converted basis) sought to be included in such offering.

 

(b)           Anything to the contrary in this Agreement notwithstanding, the Company may withdraw or postpone a registration statement at any time before it becomes effective. In addition, with respect to any registration statement filed pursuant hereto, if the Company determines in good faith that it would (because of the existence of, or in anticipation of, any acquisition or corporate reorganization or other transaction, financing activity, or other development involving the Company or any subsidiary, or any other event or condition of similar significance to the Company or any subsidiary) be materially detrimental (a "Material Development Condition") to the Company or its shareholders for such a registration statement to be maintained effective or for sales of securities to continue pursuant to the registration statement, the Company shall be entitled, upon the giving of a written notice that a Material Development Condition has occurred (a "Delay Notice") from an officer of the Company to the Holders whose Registrable Securities are included in such registration statement, (i) to cause sales of securities to cease, or (ii) to cause such registration statement to be withdrawn and the effectiveness of such registration statement terminated.  In the event the Company elects not to withdraw or terminate the effectiveness of any registration statement but to cause the holders included in such registration statement to refrain from selling securities for any period during the effective period of such registration statement pursuant to Section 4(b), the effective period shall be extended by the number of days during such effective period that the Holders are required to refrain from selling their Registrable Securities.

 

4.           Registration Procedures.  Subject to Section 3 hereof, with respect to any registration of Registrable Securities, the Company will use its best efforts to effect the registration in accordance with the intended method of disposition thereof as promptly as practicable (time being of the essence under this Agreement) and, in connection with any such request, as promptly as practicable will:

  

- 3 -

  

 

(a)           prepare and file with the Commission a registration statement that includes, subject to Section 3(a), the Registrable Securities and use its best efforts to cause such registration statement to become and remain effective as provided herein and use its best efforts to comply with the Securities Act and the rules and regulations of the Commission in preparing and filing such registration statement; provided, however, before filing a registration statement or any prospectus or amendments or supplements thereto, the Company will furnish to legal counsel selected by Holders of a majority of the Registrable Securities subject to the registration statement copies of all such documents proposed to be filed, which documents will be subject to review, comment and approval by such counsel with respect to any information in such prospectus relating to any such Holder;

 

(b)           use its best efforts to prepare and file with the Commission such amendments and post-effective amendments to such registration statement as may be necessary to keep such registration statement effective for a period of ninety (90) days from the original effective date of the registration statement;

 

(c)           furnish to any Holder of Registrable Securities subject to a registration statement and the underwriter or underwriters, if any, without charge, such number of copies of the prospectus (including each preliminary prospectus) and any amendments or supplements thereto, and any documents incorporated by reference therein, as the Holder and the underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities being registered (it being understood that the Company consents to the use of the prospectus and any amendment or supplement thereto by each Holder and the underwriter or underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the prospectus or any amendment or supplement thereto);

 

(d)           provide notice (a "Supplemental Notice") to each Holder at any time when a prospectus relating to Registrable Securities included in a registration statement is required to be delivered under the Securities Act in the event (i) the Company becomes aware of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading; (ii) of any request by the Commission for amendments or supplements to any registration statement or prospectus or for additional information, other than routine requests, (iii) of any stop order suspending the effectiveness of any such registration statement or the initiation of any proceedings for that purpose, or (iv) of any suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose;

 

(e)           take such actions as are reasonably required in order to facilitate the disposition of such Registrable Securities;

  

- 4 -

  

 

(f)           subject to the execution of a confidentiality agreement in form satisfactory to the Company, make reasonably available for inspection by: (i) any Holder with Registrable Securities subject to the registration statement and (ii) any attorney, accountant or other agent retained by any Holder (collectively, the "Inspectors"), all pertinent financial and other records, and pertinent corporate documents of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibilities in connection with the registration statement and the registration, and cause the Company's officers, directors and key employees to supply all information reasonably requested by any such Inspector in connection with such registration statement;

 

(g)           make generally available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder as soon as practicable and in any event no later than thirty (30) days after the end of the twelve-month period beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the registration statement, which statement shall cover such twelve-month period, provided that the foregoing requirement will be deemed satisfied if the Company timely files complete and accurate information of Forms 10-Q, 10-K and 8-K under the Securities Exchange Act and otherwise complies with Rule 158 under the Securities Act;

 

(h)           use its commercially reasonable efforts to prevent the entry of any threatened, or obtain the withdrawal of any issued, order suspending the effectiveness of any registration statement at the earliest practicable time;

 

(i)           on or prior to the date on which any registration statement is declared effective, use its commercially reasonable efforts to register or qualify, and cooperate with the Holders of the Registrable Securities subject to the registration statement and their counsel in connection with the registration or qualification of the Registrable Securities subject to the registration statement, under the securities or blue sky laws of each state and any other jurisdiction as any Holder or underwriter reasonably requests in writing, and to do any and all other acts or things necessary or advisable to facilitate the disposition in all such jurisdictions of the Registrable Securities subject to the registration statement; provided, however, that the Company will not be required to: (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify; (ii) consent to general service of process in any such jurisdiction; or (iii) subject itself to general taxation in any such jurisdiction;

 

(j)           cooperate with the Holders of the Registrable Securities subject to the registration statement to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing the Registrable Securities being sold and to enable the certificates to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or the Holders, may reasonably request;

 

(k)           use its commercially reasonable efforts to cause all Registrable Securities to be sold under the registration statement to be listed on a national securities exchange, other securities exchange and/or trading market on which similar securities issued by the Company are listed; and

  

- 5 -

  

 

(l)           permit any Holder which Holder, in its sole judgment, is or may be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of the Registration Statement and to require the insertion of provisions furnished to the Company by or on behalf of such Holder in writing which in the reasonable judgment of such Holder should be included in the applicable Registration Statement.

 

5.           Cooperation by Holders.

 

(a)           Each Holder of Registrable Securities will furnish to the Company in writing such information and affidavits as the Company may reasonably request and as may be required by applicable law or regulation in connection with any registration, qualification or compliance with respect to the Registrable Securities.  In addition, in the event of an underwritten offering, each Holder participating in such underwriting will enter into and perform its obligations under customary agreements (including an underwriting agreement in customary form); provided, however, that no Holder shall be required to make any representations or warranties to the Company or the underwriter(s) (other than regarding such Holders existence and authority, ownership of its Common Stock and method of distribution) or undertake any indemnification obligations other than as set forth in Section 7.

 

(b)           The failure of any Holder to furnish any information or documents in accordance with any provision contained in this Section 5 will not affect the obligations of the Company under this Agreement to any other Holder who furnishes such information and documents unless, in the reasonable opinion of counsel to the Company or the underwriters, such failure impairs or may impair the viability of the offering or the legality of the registration statement or the underlying offering.

 

(c)           Each Holder upon receipt of any Supplemental Notice will forthwith discontinue disposition of the Registrable Securities pursuant to the then current registration statement until such party has received copies of any required supplemented or amended prospectus or until it is advised in writing by the Company that a new registration statement covering the offer of the Registrable Securities has become effective under the Securities Act or that the use of the prospectus may be resumed.  If so directed by the Company, the Holder will deliver to the Company all copies, other than permanent file copies then in such party's possession, of the prospectus covering such Registrable Securities current at the time of receipt of the relevant Supplemental Notice.

 

(d)           In connection with any registered offering, each Holder agrees to execute agreements pursuant to which the Holder agrees not to, directly or indirectly, offer, sell or contract to sell or otherwise dispose of, or announce the offering of, any securities of the Company beneficially owned by such party, other than Registrable Securities subject to the registration statement, for a reasonable period of time before and after the offering (not to exceed ninety (90) days (one hundred and eighty (180) in the case of the first underwritten offering by the Company) after the offering), upon the reasonable request of the managing underwriter(s), but only to the same extent and for the same period as all other Company "insiders" holding at least five percent (5%) of the Common Stock (on an as-exercised, and as-converted basis) are restricted and any release from such restrictions of other Company "insiders" shall be extended, on a pro rata basis, to each Holder of Registrable Securities.

  

- 6 -

  

 

6.           Registration Expenses.

 

(a)           Subject to subsections (b) and (c) below, all costs and expenses of each registration hereunder will be borne by the Company, including: (i) the fees and expenses of legal counsel, accountants or other representatives of the Company; (ii) all other costs and expenses of the Company incident to the preparation, printing and filing under the Securities Act of any registration statement (and all amendments and supplements thereto) and furnishing copies thereof and of the prospectus included therein; and (iii) costs and expenses incurred by the Company in connection with the qualification of the Registrable Securities under the state securities or blue sky laws of applicable jurisdictions (collectively the "Registration Expenses"); provided, however, that Registration Expenses shall not include out-of-pocket expenses incurred by the Holders (including legal fees and expenses of the holder) or underwriting discounts, commissions or fees attributable to the sale of Registrable Securities.  Without limitation, the Company will pay or cause to be paid all Registration Expenses in connection with any Piggyback Registration whether or not the registration statement becomes effective.

 

(b)           Notwithstanding the Holders' ongoing rights to reimbursement or payment under this Section 6 to the contrary, to the extent actually required by applicable law or regulation, the Holders participating in a Piggyback Registration will pay their proportionate share of the expenses of the offering determined on a pro rata basis in accordance with the number of shares of Registrable Securities offered by each party participating in the registration.

 

7.           Indemnification.

 

(a)           The Company agrees to indemnify, to the fullest extent not prohibited by applicable law, each seller of Registrable Securities, its officers, directors, managers and shareholders and each Person who controls such seller (within the meaning of the Securities Act or the Securities Exchange Act) and of their respective Affiliates against all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable attorneys' fees except as limited by Section 7(c)) caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, any final prospectus contained therein or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except statements or omissions or alleged statements or omissions that are consistent with any information furnished in writing to the Company by said seller expressly for use therein, resulting from said seller's failure to deliver a copy of the registration statement or final prospectus or any amendments or supplements thereto or the use by said seller of an outdated or defective prospectus after the company has notified such Seller in writing that the prospectus is outdated or defective.  The reimbursements required by this Section 7(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred.

  

- 7 -

  

 

(b)           In connection with any registration statement in which a seller of Registrable Securities is participating, each such seller will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent not prohibited by applicable law, will indemnify the Company, its directors and officers and each underwriter (if any) and each Person who controls the Company or such underwriter (within the meaning of the Securities Act or the Securities Exchange Act) against any losses, claims, damages, liabilities and expenses (including, without limitation, reasonable attorneys' fees except as limited by Section 7(c)) resulting from (i) any untrue or alleged untrue statement of a material fact contained in the registration statement, final prospectus contained therein, or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is consistent with any information or affidavit so furnished in writing by such seller expressly for use therein, (ii) said seller's failure to deliver a copy of the registration statement or final prospectus or any amendments or supplements thereto  or (iii) the use by said seller of an outdated or defective prospectus after the company has notified such Seller in writing that the prospectus is outdated or defective; provided, however, that the obligation to indemnify will be several, not joint and several, among such sellers of Registrable Securities, and the liability of each such seller of Registrable Securities will be in proportion to, and be limited to, the net amount received by such seller from the sale of Registrable Securities pursuant to such registration statement.

 

(c)           Any Person entitled to indemnification hereunder will: (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification; provided, however, that the failure of an indemnified party to notify an indemnifying party of any such claim shall not relieve the indemnifying party from any liability in respect of such claim (except to the extent of any actual prejudice caused by such failure). and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that if (A) any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to the indemnified party which are in addition to or conflict with those available to the indemnifying party or that such claim could have an effect upon matters beyond the scope of the indemnity provided hereunder or (B) such claim seeks an injunction or equitable relief against any indemnified party or involves actual or alleged criminal activity, the indemnifying party shall not have the right to assume the dense of such action and such indemnifying party shall reimburse such indemnified party for the fees and expenses of counsel retained by the indemnified party.  If such defense is assumed, the indemnified party will not be subject to any liability for any settlement made by the indemnifying party which does not include a provision releasing the indemnified party from all liability, without the indemnified party's consent (which consent will not be unreasonably withheld).  The indemnified party will not settle any claim or liability without first providing the indemnifying party a reasonable opportunity to assume its defense.  An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim unless a conflict of interest exists which prevents such counsel from representing each such indemnified party; provided that if the indemnifying party is not entitled to assume such defense, any such counsel shall be reasonably acceptable to the indemnifying party.  The indemnified party shall not settle or compromise any such claim without the written consent of the indemnifying party, which shall not be unreasonably withheld.

  

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(d)           The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and will survive the permitted transfer of securities.

 

(e)           If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, in connection with the statement or omission which resulted in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations, including the failure to give the notice required hereunder.  The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Company and the Holders agree that it would not be just and equitable if contributions pursuant to this Section 7(e) were determined by pro rata allocation or by any other method of allocation which did not take into account the equitable considerations referred to herein.  The amount paid or payable to an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to above shall be deemed to include any legal or other expenses reasonably incurred in connection with investigating or defending the same.  Notwithstanding the foregoing, in no event shall the amount contributed by any Holder exceed the aggregate net offering proceeds received by any such Holder from the sale of its Registrable Securities.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation.

  

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8.           Transfer of Registration Rights.  Without limiting the generality of Section 11 hereof, the right to cause the Company to register Registrable Securities under this Agreement may be assigned by a Holder to a transferee or assignee of any of its Registrable Securities; provided, however, that the Company is given written notice by the Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the Registrable Securities with respect to which such registration rights are being transferred or assigned and that such transfer is made in accordance with the federal securities laws and applicable state securities laws.

 

9.           Current Public Information.  The Company will file in a timely manner all reports and other documents required to be filed by it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the Commission thereunder and will make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act.  Upon request, the Company shall deliver to any Holder of Registrable Securities a written statement as to whether it has complied with such requirements.

 

10.           Amendments and Waivers.  Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the Company and the Holders of a majority in interest of the then-outstanding Investor Securities.  Any waiver, permit, consent or approval of any kind or character on the part of any such Holders of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing.

 

11.           Successors and Assigns.  Except as otherwise expressly provided herein, the provisions of this Agreement shall be binding upon and inure to the benefit of the respective heirs, executors and administrators and the permitted successors and assigns of the parties hereto, whether so expressed or not.  In addition and whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of Holders of Registrable Securities are also for the benefit of, and enforceable by, any permitted subsequent Holders of Registrable Securities who consent in writing to be bound by this Agreement.

 

12.           Final Agreement.  This Agreement, together with the other Loan Documents, constitute the final and entire agreement of the parties concerning the matters referred to herein, and supersedes all prior or contemporaneous agreements and understandings, written or oral, including, without limitation, the letter agreement between the Company and the Agent dated June 17, 2011.

 

13.           Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

  

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14.           Descriptive Headings.  The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement.

 

15.           Notices.  Any notices required or permitted to be sent hereunder shall be given to the following addresses, or such other addresses as shall be given by notice delivered hereunder:

 

(a)           If to an Investor:

 

Great American Life Insurance Company

Great American Tower

301 East Fourth St.

Cincinnati, Ohio 45202

Attention: Mark F. Muething

Fax: 513.369.3655

Great American Insurance Company

Great American Tower – 15S

301 East Fourth St.

Cincinnati, Ohio 45202

Attention: Stephen C. Beraha

Fax: 513.412.4925

in each case, with a copy to:

American Money Management Corporation

One East Fourth Street – 3rd Floor

Cincinnati, Ohio 45202

Attention: David P. Meyer

Fax: 513.579.2910

and

MidMarket Capital Partners, LLC

430 Park Avenue – Suite 701

New York, New York

Attention: Gabriel Gengler

Fax: 866.376.4157

(b)           If to any Shareholder, to the respective addresses set forth in the stock transfer records of the Company.

  

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(c)           If to any other Holders of Investor Securities, to the respective addresses set forth in the stock transfer records of the Company.

 

(d)           If to the Company:

 

XCel Brands, Inc.

475 Tenth Avenue – 4th Floor

New York, New York 10018

Attention: Chief Executive Officer and Chief Financial Officer

Fax: (347) 727-2479

 

Any notice hereunder shall be deemed to have been given and received on the day on which it is delivered (by means including personal delivery, overnight air courier, United States mail) or telecopied (or, if such day is not a business day or if the notice is not telecopied during business hours of the intended recipient, at the place of receipt, on the next following business day).

 

16.           Governing Law.  The rights, duties and obligations of each party hereto shall be construed in accordance with and governed by the laws of the State of New York (without giving effect to any choice of law principles which would result in the application of the law of any other state). Any judicial proceeding brought with respect to any claim arising out of or relating to this Agreement or any other Loan Document (a “Claim”) shall be brought in any court of competent jurisdiction in New York County, New York and, by execution and delivery of this Agreement, the Company, each Investor and each Shareholder (a) accepts, generally and unconditionally, the nonexclusive jurisdiction of such courts and any related appellate court and irrevocably agrees to be bound by any judgment rendered thereby in connection with any Claim and (b) irrevocably waives any objection it may now or hereafter have as to the venue of any such proceeding brought in such a court or that such a court is an inconvenient forum.  The Company, each Investor and each Shareholder hereby waive personal service of process and consent that service of process upon it may be made by certified or registered mail, return receipt requested, at its address specified or determined in accordance with the provisions of Section 19, and service so made shall be deemed completed on the fifth business day after such service is deposited in the mail.  THE COMPANY, EACH SHAREHOLDER AND EACH INVESTOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY CLAIM.

 

17.           Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all of which counterparts together shall constitute one instrument.

 

[Signature page follows]

  

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The parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf as of the date first set forth above.

 

	  	
XCEL BRANDS, INC.

	 
	  	
By:

	
/s/ Robert W. D’Loren

	 
	  	
Name: Robert W. D’Loren

	 
	  	
Title: Chief Executive Officer

	 
	  	  	 
	  	
GREAT AMERICAN LIFE INSURANCE COMPANY

	 
	  	
By:

	
/s/ Mark F. Muething

	 
	  	
Name: Mark F. Muething

	 
	  	
Title: Executive Vice President & Secretary

	 
	  	  	 
	  	
GREAT AMERICAN INSURANCE COMPANY

	 
	  	  	 
	  	
By:

	
/s/ Stephen C. Beraha

	 
	  	
Name: Stephen C. Beraha

	 
	  	
Title: Assistant Vice President, Assistant General Counsel & Assistant Secretary

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