Document:

Exhibit 4.2

 

FINAL FORM

 

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

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN ARTICLE II OF THIS WARRANT

 

	
Warrant   No. 8
    	
Number of Shares: 500,000
    
	
Date   of Issuance July 18, 2016
    	
(subject to adjustment)
    
	
Void   after July 18, 2021
    	
 
    

 

DIFFERENTIAL BRANDS GROUP INC.

 

Common Stock Purchase Warrant

 

THIS IS TO CERTIFY THAT, for value received, Tengram Capital Partners Fund II, L.P. or its permitted assigns (collectively, the “Registered Holder”) is entitled to purchase from Differential Brands Group Inc., a Delaware corporation (the “Company”), at the place where the Warrant Office designated pursuant to Section 2.1 is located, at a purchase price per share of $3.00 (as adjusted pursuant to the terms of this Warrant, the “Exercise Price”), Five Hundred Thousand (500,000) shares (the “Warrant Shares”) of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, $0.10 par value per share, of the Company (the “Common Stock”), and is entitled also to exercise the other appurtenant rights, powers and privileges hereinafter set forth.  The number of shares of the Common Stock purchasable hereunder and the Exercise Price are subject to adjustment in accordance with Article III hereof.  This Warrant shall expire at 5:00 p.m., New York time, on July 18, 2021 (the “Expiration Date”).  Receipt of this Warrant by the Registered Holder shall constitute acceptance of and agreement to the terms and conditions set forth herein.

 

This Warrant is issued in connection with that certain Convertible Promissory Note, dated as of the date hereof, by and among the Company and Tengram Capital Partners Fund II, L.P. (the “Promissory Note”).

 

 

ARTICLE I

 

Exercise of Warrant

 

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

 

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

 

	
X
    	
=
    	
Y (A – B)
    	
 
    
	
A
    	
 
    

 

Where:

 

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

 

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

 

1.4                               Termination.  Notwithstanding any other provision of this Warrant, the right to exercise this Warrant shall terminate upon the Expiration Date; provided, however, if this Warrant shall not have been exercised in full prior to a Change of Control of any kind, the right to exercise this Warrant shall be automatically converted into the right to receive from the Company (or any successor entity thereto) an amount calculated as follows: (x) the maximum number of Warrant Shares for which this Warrant shall be exercised at the time of the closing of such Change of Control, calculated pursuant to the Net Exercise provisions of Section 1.2, multiplied by (y) the amount of consideration per share of Common Stock received by a holder thereof in such Change of Control.

 

For purposes of this Warrant:

 

“Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person directly or indirectly owning or controlling 10% or more of any class of outstanding equity securities of such Person or (iii) any officer, director, general partner, managing member or trustee of any such Person described in clause (i) or (ii).  “control,” including the terms “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, as general partner or managing member, by contract or otherwise, including the ownership, directly or indirectly, of securities having the

 

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power to elect a majority of the board of directors or similar body governing the affairs of such Person.

 

“Change of Control” means the occurrence of any of the following at any time after the date hereof:  (i) any Person (within the meaning of Rule 13d-1 under the Securities Exchange Act of 1934, as amended) of Person (other than any Person that is an Affiliate of such Person) that is not, as of the date hereof, the beneficial owner of more than 50% of outstanding voting securities of the Company, shall have become the beneficial owner of more than 50% of then outstanding voting securities of the Company, or (ii) the board of directors (or similar governing body), or if applicable the stockholders, of the Company, as the case may be, shall have approved the transfer, sale, assignment, or other disposition of all or substantially all the assets of the Company in one transaction or a series of related transactions.

 

“Person” means, an individual, corporation, partnership, limited liability company, limited liability partnership, joint venture, syndicate, person, trust, association, organization or other entity, including any governmental authority, and including any successor, by merger or otherwise, of any of the foregoing.

 

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

 

ARTICLE II

 

Warrant Office; Transfer

 

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

 

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

 

2.3                               Transfer of Warrants.  The Company agrees to maintain at the Warrant Office books for the registration and transfer of this Warrant.  This Warrant may be transferred by any Registered Holder (including, for the avoidance of doubt, any subsequent transferee) in whole or

 

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in part only in compliance with applicable law and only to his, her or its Permitted Transferees.  The Company, from time to time, shall register the transfer in whole or in part of this Warrant in such books upon surrender of this Warrant at the Warrant Office, properly endorsed, together with a written assignment of this Warrant, substantially in the form of the Assignment attached as Exhibit B hereto.  Upon any such transfer, a new Warrant shall be issued to the transferee, and the Company shall cancel the surrendered Warrant.  For purposes of this Warrant, “Permitted Transferees” shall mean (a) in the case of an individual, the individual’s spouse, child, estate, personal representative, heir or successor, a trust for the benefit of any of the foregoing persons, or a partnership or limited liability company the partners or members of which consist solely of any of the foregoing persons and (b) in the case of any Registered Holder that is not an individual (other than a trust as described in clause (a) of this sentence, for whom transfers may be made to the persons described in such clause (a)), to a Person that is an affiliate, direct partner, member or stockholder of such Registered Holder.

 

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

 

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

 

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

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state (collectively, the “Acts”).  Neither the shares nor any interest therein may be

 

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offered, sold, transferred, pledged, or otherwise disposed of in the absence of an effective registration statement with respect to the shares under all of the applicable Acts, or an opinion of counsel reasonably satisfactory to the Company to the effect that such registrations are not required.”

 

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

 

ARTICLE III

 

Anti-Dilution Provisions

 

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

 

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

 

b)                                     Reclassification, Reorganization, Consolidation or Merger.  In case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than as a result of a subdivision or combination pursuant to Section 3.1(a)), or in case of any reorganization, consolidation or

 

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

 

c)                                      Pro Rata Distributions.  Except to the extent that Sections 3.1(a) or 3.1(b) would otherwise apply, during such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Registered Holder shall be entitled to participate in such Distribution to the same extent that the Registered Holder would have participated therein if the Holder had held the Warrant Shares immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution.

 

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

 

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

 

3.2                               Statement Regarding Adjustments.  Whenever the Exercise Price shall be adjusted as provided in Section 3.1, and upon each change in the number of shares of the Common Stock

 

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

 

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

 

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

 

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

 

3.6                               NASDAQ.  Notwithstanding the foregoing, in the event that the Warrant Shares to be issued upon the exercise of the purchase rights under this Warrant would, when aggregated with any other issuances of the Company to the extent required pursuant to applicable NASDAQ listing rules, be greater than or equal to 1,610,620 shares of Common Stock (subject to adjustment for stock splits and combinations), the portion of the Warrant Shares in excess of such threshold shall not include voting rights and shall not be issuable upon the exercise of the

 

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purchase rights under this Warrant until such time as the Company is permitted to do so in compliance with applicable NASDAQ listing rules. To the extent any portion of the Warrant Shares do not have voting rights, the Company shall take all action necessary to promptly seek the required approval of its stockholders under Nasdaq Stock Market Rule 5635 (and its successor) so as to permit such Warrant Shares to have voting rights and to be issuable upon the exercise of the purchase rights under this Warrant. Further, notwithstanding anything to the contrary in this Warrant, the Registered Holder shall have no right to, and shall not, exercise any of the purchase rights under this Warrant unless and until any shareholder approval of the Company required under applicable NASDAQ listing rules has been obtained.

 

ARTICLE IV

 

Miscellaneous

 

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

 

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

 

4.3                               Submission to Jurisdiction.  Each of the parties hereto hereby irrevocably and unconditionally submits in any suit, action or proceeding arising out of or related to this Agreement or any of the transactions contemplated hereby to the jurisdiction of the courts of the State of Delaware, the courts of the United States of America for the District of Delaware (each, a “Delaware Court”) and any appellate courts from any thereof and irrevocably waives any immunity from the jurisdiction of such courts and any claim of improper venue, forum non conveniens or any similar objection which it might otherwise be entitled to raise in any such suit, action or proceeding.  Each of the parties hereto irrevocably agrees that service of process upon such party by first-class mail to the address of such party pursuant to Section 4.7 shall be deemed, in every respect, effective service of process upon such party.  The parties further agree that any suit, action or proceeding instituted by a party to this Warrant against another party to this Warrant shall be initially instituted exclusively in a Delaware Court, and each of the parties hereby voluntarily and irrevocably waives all its rights, whether granted by statutory, constitutional or common law, to seek a trial before a jury with respect to such claim.

 

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

 

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

 

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

 

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

 

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

 

4.9                               Exchange, Loss, Destruction, etc. of Warrant.  Upon receipt of evidence reasonably satisfactory to the Company (provided, that an affidavit of the Registered Holder shall be deemed reasonably satisfactory evidence) of the loss, theft, mutilation or destruction of this Warrant or any certificate relating to the Warrant Shares, and, in the case of any such loss, theft or destruction, upon delivery of indemnity or security in such form and amount as shall be reasonably satisfactory to the Company, or, in the event of such mutilation upon surrender and cancellation of this Warrant, the Company will make and deliver a new Warrant of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant; provided, however, that the original Registered Holder of this Warrant shall not be required to provide any bond of indemnity and may in lieu thereof provide their agreement of indemnity.  Any Warrant issued under the provisions of this Section 4.9 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.  This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement.  The Registered Holder of this Warrant shall pay all taxes (including securities transfer taxes) and all other reasonable expenses and charges payable in connection with the preparation, execution and delivery of replacement Warrant(s) pursuant to this Section 4.9.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

	
 
    	
DIFFERENTIAL   BRANDS GROUP INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By
    	
/s/   Michael Buckley 
    
	
 
    	
Name:   Michael Buckley
    
	
 
    	
Title:   CEO
    

 

[SIGNATURE PAGE TO WARRANT]

 

 

	
Accepted and Agreed,
    	
 
    
	
 
    	
 
    
	
TENGRAM CAPITAL PARTNERS FUND   II, L.P.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/ William Sweedler
    	
 
    
	
Name: William Sweedler
    	
 
    
	
Title: Managing Member
    	
 
    
	
 
    	
 
    
	
15 Riverside Avenue
    	
 
    
	
Street Address
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Westport
    	
Connecticut
    	
 
    
	
City
    	
State
    	
 
    
					

 

[SIGNATURE PAGE TO WARRANT]

 

 

EXHIBIT A

 

PURCHASE FORM

 

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

 

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

 

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

 

o                                    The net exercise provisions of the attached warrant.

 

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

 

	
 
    	
Signature   of Holder
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title:
    

 

 

EXHIBIT B

 

ASSIGNMENT

 

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

 

 

	
 
    	
 
    
	
 
    	
 
    
	
Dated:                          ,   201Exhibit 4.3

 

EXECUTION VERSION

 

CONVERTIBLE PROMISSORY NOTE

 

NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, HOLDER ACKNOWLEDGES THAT THIS CONVERTIBLE PROMISSORY NOTE, THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND THE EXERCISE OF ANY RIGHT OR REMEDY BY HOLDER ARE SUBORDINATE TO THE SENIOR DEBT (AS DEFINED BELOW) IN THE MANNER AND TO THE EXTENT SET FORTH IN SECTION 7 AND THE OTHER PROVISIONS OF THIS NOTE.

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

 

CONVERTIBLE PROMISSORY NOTE

 

	
$13,000,000.00
    	
July 18,   2016
    

 

FOR VALUE RECEIVED, Differential Brands Group Inc., a Delaware corporation (the “Company”), hereby unconditionally promises to pay to Tengram Capital Fund II, L.P., a Delaware limited partnership, or its registered assigns (the “Holder”), in dollars in lawful currency of the United States and in immediately available funds, the principal amount of (a) THIRTEEN MILLION AND 00/100 ($13,000,000.00), or, if less, (b) the unpaid principal amount of this Convertible Promissory Note (as amended, restated, supplemented or otherwise modified, this “Note”), in either case, together with all interest thereon.

 

1.                                      Maturity.  To the extent not previously converted into newly issued shares of the Company’s Class A-1 Preferred Stock (“Class A-1 Preferred Shares”) in accordance with Section 3 below, subject to the provisions of Section 7 below, the Company shall repay the entire unpaid principal outstanding balance together with all accrued and unpaid interest thereon on January 18, 2017 (the “Maturity Date”).

 

2.                                      Interest.  Interest shall begin to accrue on the unpaid principal balance of this Note commencing on the date hereof and continuing until repayment of this Note in full at the rate of 3.75% per annum payment-in-kind interest, which shall compound and be added to the principal balance of this Note on the first day of each calendar month commencing August 1, 2016 and, subject to the provisions of Section 7, be payable in full in cash on the Maturity Date, in each case, calculated on the basis of a 360 day year and actual days elapsed.  Subject to the terms of Section 7 below, all such interest, to the extent not previously paid, shall be payable (whether in cash, in kind or pursuant to a conversion into Class A-1 Preferred Shares in

 

 

accordance with Section 3 below), upon the Maturity Date, or upon any voluntary prepayment of this Note prior to the Maturity Date.

 

3.                                      Conversion.  The outstanding principal balance under this Note plus accrued interest thereon is convertible on the following basis:

 

(a)                                 Upon the earlier to occur of (i) the election of the Holder or (ii) if this Note has not been repaid in full in cash on such date, the Maturity Date, all of the outstanding principal balance of this Note, together with any accrued and unpaid interest thereon, shall be converted into Class A-1 Preferred Shares at a price per share equal to $3.00 per share (as it may be adjusted from time to time, the “Conversion Price”), as calculated by the Holder.  Upon each such conversion, the Holder shall be entitled to the rights and privileges, including, without limitation, voting rights, registration rights, liquidation preferences and other rights, with respect to such Class A-1 Preferred Shares as set forth in the Company’s certificate of incorporation.

 

(b)                                 In the event of any recapitalization, stock split, stock dividend, reverse stock split, issuance of capital stock of the Company after the date hereof, distribution by the Company upon its capital stock or similar event, the Company and the Holder shall negotiate in good faith to adjust the Conversion Price to equitably preserve the value of the Note after giving effect to such issuance or distribution.

 

(c)                                  The Company shall reserve, until this Note has been fully repaid or converted into securities in accordance herewith, such Class A-1 Preferred Shares as the Holder is entitled to receive upon conversion of this Note in accordance with this Section 3.  Prior to the issuance of any Class A-1 Preferred Shares (or any instrument exercisable for or converted into equity securities) and whenever otherwise required, the Company will amend its certificate of incorporation to ensure that there is a sufficient quantity of such securities into which this Note can be converted.

 

(d)                                 The Class A-1 Preferred Shares shall have substantially all of the same rights, properties and privileges of the Class A Preferred Stock, except that such Class A-1 Preferred Shares shall (i) contain only standard anti-dilution adjustments, (ii) contain no conversion price adjustment set forth in Section 6(e) of the Class A Preferred Stock, (iii) not in the aggregate be convertible (when aggregated with any other issuances of the Company’s to the extent required pursuant to applicable NASDAQ listing rules) into more than 1,610,620 shares of the common stock of the Company (subject to adjustment for stock splits and combinations), and (iv) have as-converted voting rights only to the extent such shares are convertible into common stock, unless permitted to do so in compliance with applicable NASDAQ listing rules.  Such Class A-1 Preferred Shares will contain covenants obligating the company to obtain shareholder approval to the extent required to allow full conversion and voting rights of all Class A-1 Preferred Shares.

 

4.                                      Representations and Warranties of the Company.  The Company hereby represents and warrants to the Holder as follows:

 

(a)                                 The Company is a corporation duly incorporated, validly existing and in good standing under, and by virtue of, the laws of the State of Delaware and has all requisite

 

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corporate power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted.

 

(b)                                 The Company has reserved 4,500,000 Class A-1 Preferred Shares for possible issuance upon the conversion of this Note (the “Conversion Shares”).  There are no options, warrants, conversion privileges or other rights, or agreements with respect to the issuance thereof, presently outstanding to purchase any of the Conversion Shares.

 

(c)                                  All corporate action on the part of the Company and its officers, directors and stockholders necessary for (a) the authorization, execution and delivery of, and the performance of all obligations of the Company under this Note, (b) the authorization, issuance, execution and delivery of this Note by the Company and (c) the authorization, issuance, reservation for issuance and delivery by the Company of all of the Conversion Shares has been taken.  This Note constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.  All consents, approvals and authorizations of, and registrations, qualifications and filings with, any federal or state governmental agency, authority or body, or any third party, required in connection with the execution, delivery and performance of this Note and the consummation of the transactions contemplated hereby have been obtained.

 

(d)                                 The outstanding shares of the capital stock of the Company are duly and validly issued, fully paid and non-assessable, and such shares of such capital stock, and all outstanding options and other securities of the Company have been issued in full compliance with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Act”), and the registration and qualification requirements of all applicable state securities laws, or in compliance with applicable exemptions therefrom, and all other provisions of applicable federal and state securities laws, including, without limitation, anti-fraud provisions.

 

(e)                                  As of the date hereof, the Company has duly authorized, executed and issued to the Holder valid and legally binding warrants convertible, at the option of the Holder, into 500,000 shares of the common stock of the Company, at a price of $3.00 per share.  Such warrants have been issued in full compliance with the registration and prospectus delivery requirements of the Act and the registration and qualification requirements of all applicable state securities laws, or in compliance with applicable exemptions therefrom, and all other provisions of applicable federal and state securities laws, including, without limitation, anti-fraud provisions.

 

5.                                      Representations and Warranties of the Holder.  The Holder represents and warrants to the Company as follows:

 

(a)                                 The Holder acknowledges that it has had an opportunity to discuss the business, affairs and current prospects of the Company with its officers.  The Holder further acknowledges having had access to information about the Company that it has requested.  The Holder acknowledges that it is able to fend for itself in the transactions contemplated by this Note and has the ability to bear the economic risks of its investment pursuant to this Note.

 

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(b)                                 This Note and the securities issuable upon exercise or conversion thereof will be acquired by the Holder for its own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof.

 

(c)                                  The Holder understands that the issuance of this Note will not be registered under the Act on the grounds that the issuance provided for in this Note is exempt from registration under of the Act, and that the reliance of the Company on such exemption is predicated in part on the Holder’s representations set forth in this Note.  The Holder understands that this Note and the securities issuable upon exercise or conversion thereof are restricted securities within the meaning of Rule 144 under the Act, and must be held indefinitely unless they are subsequently registered or an exemption from such registration is available.

 

6.                                      Default.  For purposes of this Note, the term “Event of Default” shall include any of the following:

 

(a)                                 the Company shall fail to pay any principal of any Note, any interest or any other amounts payable hereunder when the same shall become due and payable;

 

(b)                                 any representation or warranty made by the Company under or in connection with this Note shall prove to have been incorrect when made; or

 

(c)                                  the filing of a petition in bankruptcy or under any similar insolvency law by the Company, the making of an assignment for the benefit of creditors, or if any involuntary petition in bankruptcy or under any similar insolvency law is filed against the Company and such petition is not dismissed within sixty (60) days after the filing thereof.

 

After the occurrence of an Event of Default, the Holder may, at its option, (or in the case of an Event of Default under clause (c) above, will automatically) accelerate repayment of the outstanding principal balance, together with interest thereon in which case, subject to the provisions of Section 7 below, all such amounts due hereunder shall be due and payable immediately (whether in cash, in kind or pursuant to a conversion into Class A Preferred Shares in accordance with Section 3 below).

 

7.                                      Subordination.

 

(a)                                 Definitions.  For purposes of this Section 7, the following terms shall have the meanings set forth below:

 

“Enforcement Action” shall mean (a) to take from or for the account of the Company or any other person or entity, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing with respect to all or any portion of the Subordinated Obligations, (b) to initiate or participate with others in any suit, action or proceeding against the Company or any other person or entity to (i) to sue for or enforce payment of the whole or any portion of the Subordinated Obligations, (ii) commence or join with other persons or entities to commence a Proceeding, or (iii) commence judicial enforcement of any of the rights and remedies under this Agreement, any other applicable document or agreement, or applicable law with respect to all or any portion of the Subordinated Obligations, (c) to accelerate all or any portion of the Subordinated Obligations, (d) to take any action to

 

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enforce any rights or remedies with respect to all or any portion of the Subordinated Obligations, (e) to exercise any put option or to cause the Company or any other person or entity to honor any redemption or mandatory prepayment of all or any portion of the Subordinated Obligations, or (f) to take any action with respect to all or any portion of the Subordinated Obligations under the provisions of any state, federal or other law, including, without limitation, the Uniform Commercial Code, or under any contract or agreement, to enforce, foreclose upon, take possession of or sell any property or assets of the Company or any other person or entity.  For the avoidance of doubt, the conversion of the Subordinated Obligations, in whole or in part, into Class A-1 Preferred Shares in accordance with Section 3 and the receipt of payments permitted under clause (c) of this Section 7 shall not constitute an Enforcement Action.

 

“Payment in Full” or “Paid in Full” means all of the Senior Debt (other than unasserted contingent indemnification obligations) has been indefeasibly paid in full in cash and all of the commitments to lend under each of the Senior Debt Agreements have been terminated

 

“Proceeding” shall mean any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up thereof.

 

“Refinancing Senior Debt Agreements” shall mean any agreements, instruments and documents which evidence the refinancing or replacement, in whole or in part, of any of the Senior Debt.

 

“Senior Creditors” shall mean the Senior Term Agent, the Senior Lenders and any other holder of all or any portion of the Senior Debt.

 

“Senior Debt” shall mean all Senior Term Debt and all Senior Revolving Debt.

 

“Senior Debt Agreements” shall mean (i) the Senior Term Debt Agreements and (ii) the Senior Revolving Debt Agreements.

 

“Senior Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated as of January 28, 2016, by and between Senior Term Agent and Senior Revolving Lender, as amended, restated, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms thereof.

 

“Senior Lenders” shall mean the Senior Term Lenders and the Senior Revolving Lender

 

“Senior Revolving Credit Agreement” shall mean that certain Credit and Security Agreement, dated as of January 28, 2016, as amended, restated, supplemented, replaced, refinanced or otherwise modified from time to time, among the Company, as a “Borrower”, the other parties thereto as “Borrowers” and “Guarantors”, and Wells Fargo Bank, National Association, as “Lender”.

 

“Senior Revolving Debt” shall mean all “Obligations” (as defined in the Senior Revolving Credit Agreement), together with all other obligations, liabilities and indebtedness of every nature of the Company or any other Loan Party (as defined in the Senior Revolving Credit

 

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Agreement) from time to time owing under any and all of the Senior Revolving Debt Agreements, in each case, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder, in each case together with any interest, fees, expenses or other amounts accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest, fees, expenses or other amounts are an allowed claim.

 

“Senior Revolving Debt Agreements” shall mean (i) the Senior Revolving Credit Agreement, together with any agreements, instruments and documents related thereto and executed in connection therewith, and (ii) any applicable Refinancing Senior Debt Agreements, in each case as such agreements, instruments and documents may be amended, restated, supplemented, replaced, refinanced or otherwise modified from time to time.

 

“Senior Revolving Lender” shall mean Wells Fargo Bank, National Association, as the lender under the Senior Revolving Credit Agreement, together with its successors and assigns in such capacity.

 

“Senior Term Agent” shall mean TCW Asset Management Company, as administrative agent for the Term Lenders under the Senior Term Credit Agreement (or any other applicable Senior Debt Agreement), together with its successors and assigns in such capacity.

 

“Senior Term Credit Agreement” shall mean that certain Credit and Security Agreement, dated as of January 28, 2016 and as amended, restated, supplemented, replaced, refinanced or otherwise modified from time to time, among the Company, as a “Borrower”, the other parties thereto as “Borrowers” and “Guarantors”, the Senior Term Lenders and the Senior Term Agent.

 

“Senior Term Debt” shall mean all “Obligations” (as defined in the Senior Term Credit Agreement), together with all other obligations, liabilities and indebtedness of every nature of the Company or any other Loan Party (as defined in the Senior Term Credit Agreement) from time to time owing under any and all of the Senior Term Debt Agreements, in each case, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder, in each case together with any interest, fees, expenses or other amounts accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest, fees, expenses or other amounts are an allowed claim.

 

“Senior Term Debt Agreements” shall mean (i) the Senior Term Credit Agreement, together with any agreements, instruments and documents related thereto and executed in connection therewith, and (ii) any applicable Refinancing Senior Debt Agreements, in each case as such agreements, instruments and documents may be amended, restated, supplemented, replaced, refinanced or otherwise modified from time to time.

 

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“Senior Term Lenders” means the lenders from time to time party to the Senior Term Credit Agreement.

 

“Subordinated Creditors” shall mean the Holder and any other holder of all or any portion of the Subordinated Obligations.

 

“Subordinated Obligations” shall mean all amounts (including, without limitation, all principal, interest, premiums, indemnities, reimbursements and other payments) payable by the Company or any other person or entity with respect to this Note, together with all other obligations, liabilities and indebtedness of every nature of the Company or any other person or entity from time to time owing in connection with this Note, in each case, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder, in each case together with any interest, fees, expenses or other amounts accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest, fees, expenses or other amounts are an allowed claim.

 

“Subordination Provisions” shall mean each of the terns, conditions and other provisions set forth in this Section 7.

 

(b)                                 Company covenants and agrees, and each Subordinated Creditor likewise covenants and agrees, notwithstanding anything to the contrary contained in this Note, that the payment of all of the Subordinated Obligations shall be subordinate and subject in right and time of payment, to the extent and in the manner set forth in the Subordination Provisions, to the prior Payment in Full of all of the Senior Debt.  Each holder of Senior Debt, whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Debt in reliance upon the Subordination Provisions.

 

(c)                                  No payments of any or all of the Subordinated Obligations, including, without limitation, principal, interest, fees or other amounts, whether mandatory or voluntary, whether by setoff or otherwise, shall be made by the Company or any other person or entity, or accepted by any Subordinated Creditor, unless and until all of the Senior Debt has been Paid in Full; provided, that the foregoing restrictions shall not prohibit (i) the payment of accrued interest in kind (but not in cash) in accordance with Section 2, (ii) the repayment of the Subordinated Obligations, in whole or in part, in cash, solely from the proceeds of a substantially concurrent Excluded Equity Issuance (as defined in the Senior Term Credit Agreement) prior to the Maturity Date or (iii) conversion of the Subordinated Obligations, in whole or in part, into Class A-1 Preferred Shares in accordance with Section 3.

 

(d)                                 If any payment or distribution of assets on account of all or any portion of the Subordinated Obligations not permitted to be made or accepted pursuant to the Subordination Provisions is made and received by or on behalf of any Subordinated Creditor, such payment or distribution of assets shall not be commingled with any of the assets of any Subordinated Creditor, shall be held in trust by the applicable Subordinated Creditor for the benefit of the

 

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Senior Creditors and shall be promptly paid over to the Senior Term Agent (or if the Senior Term Debt has been Paid in Full, to the Senior Revolving Lender) for application (in accordance with the Senior Debt Agreements and the Senior Intercreditor Agreement) to the payment of the Senior Debt then remaining unpaid, until all of the Senior Debt has been Paid in Full.

 

(e)                                  Until all of the Senior Debt has been Paid in Full, no Subordinated Creditor shall, without the prior written consent of Senior Term Agent and Senior Revolving Lender, take any Enforcement Action.  Any payments or distributions of assets or other proceeds of any Enforcement Action obtained by any Subordinated Creditor in violation of the foregoing prohibition shall in any event be held in trust by the applicable Subordinated Creditor for the benefit of the Senior Creditors and shall be promptly paid over to the Senior Term Agent (or if the Senior Term Debt has been Paid in Full, to the Senior Revolving Lender) for application (in accordance with the Senior Debt Agreements and the Senior Intercreditor Agreement) to the payment of the Senior Debt then remaining unpaid, until all of the until all of the Senior Debt has been Paid in Full.  Without limiting the foregoing, no Subordinated Creditor shall offset against, or otherwise deduct from, any amount owing by any Subordinated Creditor to Company or any other person or entity, any amount owing with respect to the Subordinated Obligations.

 

(f)                                   In the event of any Proceeding involving the Company or any other obligor of all or any portion of the Subordinated Obligations: (i) all Senior Debt shall first be Paid in Full before any payment or distribution of assets, whether in cash, securities or other property, shall be made to any Subordinated Creditor with respect to all or any portion of the Subordinated Obligations; and (ii) any payment or distribution of assets of the Company or any other obligor of all or any portion of the Subordinated Obligations, whether in cash, securities or other property which would otherwise, but for the terms of the Subordination Provisions, be payable or deliverable in respect of Subordinated Obligations shall be paid or delivered directly to the Senior Term Agent (or if the Senior Term Debt has been Paid in Full, to the Senior Revolving Lender) for application (in accordance with the Senior Debt Agreements and the Senior Intercreditor Agreement) to the Senior Debt until all of the Senior Debt has been Paid in Full; each Subordinated Creditor hereby irrevocably authorizes, empowers and directs any debtor, debtor in possession, receiver, trustee, liquidator, custodian, conservator or other person or entity having authority, to pay or otherwise deliver all such payments and distributions to the Senior Term Agent (or if the Senior Term Debt has been Paid in Full, to the Senior Revolving Lender).

 

(g)                                  All rights and interest of the Senior Creditors, and all agreements and obligations of the Company and the Subordinated Creditors under each of the Subordination Provisions, shall remain in full force and effect irrespective of: (i) any lack of validity or enforceability of any Senior Debt Agreements; (ii) any change in the time, manner or place of payment of, or any other term of, all or any of the Senior Debt, or any other amendment or waiver of or any release or consent to departure from any of the Senior Debt Agreements; (iii) any exchange, release or non-perfection of any collateral for all or any of the Senior Debt; (iv) any failure of any Senior Creditor to assert any claim or to enforce any right or remedy against any other party hereto under the provisions of any Senior Debt Agreement; (v) any reduction, limitation, impairment or termination of any Senior Debt for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Company and each Subordinated Creditor hereby waive any right to or claim of) any defense or

 

8

 

setoff, counterclaim, recoupment or termination whatsoever by reason of invalidity, illegality, nongenuiness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Senior Debt; and (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Company or any other person or entity in respect of any Senior Debt or any Subordinated Creditor of any of the Subordination Provisions.

 

(h)                                 Each Subordinated Creditor acknowledges and agrees that the Senior Creditors may in accordance with the terms of the Senior Debt Agreements, without notice or demand and without negatively affecting or impairing any rights or remedies of any Senior Creditor under the Subordination Provisions and without limiting any obligations of any Subordinated Creditor under the Subordination Provisions: (i) amend, restate, supplement, replace, refinance or otherwise modify any or all of the Senior Debt Agreements; (ii) take or hold security for the payment of any or all of the Senior Debt and exchange, enforce, foreclose upon, waive and release any such security; (iii) apply such security and direct the order or manner of sale thereof as Senior Creditors, in their sole discretion, may determine; (iv) release and substitute one or more endorsers, warrantors, borrowers or other obligors with respect to all or any portion of the Senior Debt; and (v) exercise or refrain from exercising any rights against the Company or any other person or entity with respect to all or any portion of the Senior Debt.  All of the Senior Debt shall continue to be treated as Senior Debt and all of the Subordination Provisions shall continue to govern the relative rights and priorities of the Senior Creditors, on the one hand, and the Subordinated Creditors, on the other, even if all or part of the Senior Debt or the security interests securing the Senior Debt are subordinated, set aside, avoided, invalidated or disallowed for any reason whatsoever.

 

(i)                                     Each Subordinated Creditor agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of all or any portion of the Senior Debt or any liens and security interests securing all or any portion of the Senior Debt.  Each Subordinated Creditor agrees not to initiate or commence any Proceeding involving the Company or any other obligor of all or any portion of the Subordinated Obligations.

 

(j)                                    Each Subordinated Creditor agrees that, until all of the Senior Debt has been Paid in Full, all of the Subordinated Obligations shall be unsecured obligations and no person or entity, other than the Company, shall guaranty or otherwise be obligated with respect to all or any portion of the Subordinated Obligations.  Any liens and security interests of any Subordinated Creditor securing all or any portion of the Subordinated Obligations, and/or any such guaranties of all or any portion of the Subordinated Obligations, which may exist in breach of the immediately preceding sentence shall be and hereby are subordinated for all purposes and in all respects to all of the liens and security interests of the Senior Creditors and to all of the Senior Debt, regardless of the time, manner or order of perfection of any such liens and security interests, guaranties and/or the Senior Debt.  In the event that any Subordinated Creditor shall at any time have any liens or security interests in respect of all or any portion of the Subordinated Obligations, Senior Term Agent and Senior Revolving Lender shall each be deemed irrevocably authorized by each Subordinated Creditor to file UCC termination statements sufficient to terminate any and all such liens and security interests in favor of any and all Subordinated Creditors, and each Subordinated Creditor shall promptly execute and deliver to each of Senior Term Agent and Senior Revolving Lender, upon its request therefore, such releases and

 

9

 

terminations as Senior Term Agent or Senior Revolving Lender shall request to effect the release of such liens and security interests and/or of such guaranties of such Subordinated Creditor.  In furtherance of the foregoing and the other Subordination Provisions, each Subordinated Creditor hereby irrevocably appoints each of Senior Term Agent and Senior Revolving Lender its attorney-in-fact, with full authority in the place and stead of such Subordinated Creditor and in the name of such Subordinated Creditor or otherwise, to execute and deliver any document or instrument which such Subordinated Creditor may be required to deliver pursuant to this paragraph or any of the other Subordination Provisions.

 

(k)                                 If, at any time, all or part of any payment with respect to Senior Debt theretofore made by the Company or any other person or entity is rescinded or must otherwise be returned by any Senior Creditor for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Company or any other person or entity), the Subordination Provisions shall continue to be effective or be reinstated, as the case may be, all as though such payment had not been made and such rescinded or returned payment shall continue to be treated as Senior Debt for all purposes of the Subordination Provisions.

 

(l)                                     Until all of the Senior Debt has been Paid in Full, without the prior written consent of each of Senior Term Agent and Senior Revolving Lender, none of the Subordination Provisions may be amended, modified, supplemented or waived.  Each Senior Creditor is an intended third party beneficiary of all of the terms of the Subordination Provisions and each Senior Creditor may directly enforce each of the Subordination Provisions against each Subordinated Creditor and each other applicable person or entity. Each Subordinated Creditor (including, without limitation, any assignee of any or all or the Subordinated Obligations) shall at all times be bound by all of the Subordination Provisions as a Subordinated Creditor.

 

8.                                      Miscellaneous.

 

(a)                                 The Company hereby waives presentment, demand, protest, notice of dishonor, diligence and all other notices, any release or discharge arising from any extension of time, discharge of a prior party, release of any or all of any security given from time to time for this Note, or other cause of release or discharge other than actual payment in full hereof.

 

(b)                                 The Holder shall not be deemed, by any act or omission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by the Holder and then only to the extent specifically set forth in such writing.  A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event.  No delay or omission of the Holder to exercise any right, whether before or after a default hereunder, shall impair any such right or shall be construed to be a waiver of any right or default, and the acceptance at any time by the Holder of any past-due amount shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter due and payable.

 

(c)                                  Time is of the essence hereof.  Upon any Event of Default, subject to the provisions of Section 7, the Holder may exercise all rights and remedies provided for herein and by law or equity, including, but not limited to, the right to immediate payment in full of this Note.

 

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(d)                                 The remedies of the Holder as provided herein, or any one or more of them, or in law or in equity, shall be cumulative and concurrent, and may be pursued singularly, successively or together at the Holder’s sole and absolute discretion, and may be exercised as often as occasion therefor shall occur.

 

(e)                                  The Company shall, subject to the provisions of Section 7, pay all costs, including attorneys’ fees, incurred by the Holder in the preparation and administration of this Note and in connection with the transactions contemplated hereby, including any amendments or other modifications of this Note and including any such costs incurred in collecting any amounts, interpreting, enforcing or protecting the Holder’s rights under this Note.

 

(f)                                   If any provisions of this Note would require the Company to pay interest hereon at a rate exceeding the highest rate allowed by applicable law, the Company shall instead pay interest under this Note at the highest rate permitted by applicable law.

 

(g)                                  This Note shall be governed by and construed in accordance with and the laws of the State of New York applicable to contracts wholly made and performed in the State of New York.

 

[Signature page follows].

 

11

 

IN WITNESS WHEREOF, each of the undersigned has caused this Note to be executed by its duly authorized officer as of the day and year first above written.

 

 

	
 
    	
DIFFERENTIAL   BRANDS GROUP INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Michael Buckley
    
	
 
    	
 
    	
Name:   Michael Buckley
    
	
 
    	
 
    	
Title:   CEO
    

 

[Signature Page to Convertible Promissory Note]

 

 

	
Accepted   and Agreed:
    	
 
    
	
 
    	
 
    
	
TENGRAM   CAPITAL FUND II, L.P.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   William Sweedler
    	
 
    
	
 
    	
Name:   William Sweedler
    	
 
    
	
 
    	
Title:   Managing Member
    	
 
    

 

[Signature Page to Convertible Promissory Note]

 

 

PAYMENTS OF PRINCIPAL

 

	
Date
    	
 
    	
Amount of
   Note
    	
 
    	
Amount of
   Principal Paid
   or Prepaid
    	
 
    	
Unpaid
   Principal
   Balance
    	
 
    	
Notation
   Made By

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