EXECUTION VERSION

 

ROLLOVER AGREEMENT

 

This Rollover Agreement (this “Agreement”) is made and entered into as of
December 18, 2013, by and among, FOHG Holdings, LLC, a Delaware limited
liability company (“Parent”) and the shareholders (the “Rollover Shareholders”)
of Frederick’s of Hollywood Group Inc. (the “Company”) listed on Annex A
attached hereto.

 

WHEREAS, concurrently with the execution and delivery of this Agreement, Parent,
FOHG Acquisition Corp., a New York corporation and a wholly-owned subsidiary of
Parent (“Merger Sub”), and the Company are entering into an Agreement and Plan
of Merger (the “Merger Agreement”), which provides, among other things, for the
merger of Merger Sub with and into the Company, with the Company surviving as a
wholly-owned subsidiary of Parent (the “Merger”);

 

WHEREAS, concurrent with the execution and delivery of this Agreement, each
Rollover Shareholder has entered into the Parent LLC Agreement (as defined in
Section 7(l) of this Agreement);

 

WHEREAS, TTG Apparel, LLC, a Delaware limited liability company (“TTG”) and HGI
Funding, LLC, a Delaware limited liability company (“HGI Funding”) are party to
that certain Purchase and Sale Agreement (the “Series A SPA”), dated December
18, 2013, pursuant to which TTG has agreed to sell, and HGI Funding has agreed
to purchase, certain shares of the Series A Convertible Preferred Stock of the
Company;

 

WHEREAS, as of the date hereof, each Rollover Shareholder is the beneficial
owner of, and has the sole or shared right to vote and dispose of, (i) that
number of shares of common stock, par value $0.01 per share, of the Company (the
“Common Shares”), (ii) that number of shares of Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company, after giving effect to the
transactions contemplated by the Series A SPA (the “Series A Preferred Shares”),
and (iii) that number of shares of Series B Convertible Preferred Stock, par
value $0.01 per share, of the Company (the “Series B Preferred Shares”, and
together with the Common Shares and the Series A Preferred Shares, the “Rollover
Shares”), set forth opposite such Rollover Shareholder’s name on Annex A hereto;
and

 

WHEREAS, subject to the conditions set forth herein, immediately prior to the
Effective Time, (i) each Rollover Shareholder desires to assign, transfer,
convey and deliver (“Contribute”) that number of Rollover Shares set forth
opposite such Rollover Shareholder’s name on Annex A hereto, and (ii) Parent
desires, in exchange for such Contribution of Rollover Shares, to increase the
Capital Value of the Series A Units of Parent (the “Series A Units”) set forth
opposite such Rollover Shareholder’s name on Annex A hereto.

 

NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties contained herein, the parties hereto agree as
follows:

 

1.            Issuance of Series A Units; Rollover; Cancellation of Securities.

 

(a)          Simultaneously with the execution of this Agreement, (i) Parent
shall issue to each Rollover Shareholder that number of Series A Units set forth
opposite such Rollover Shareholder’s name on Annex A hereto and (ii) any and all
membership interests of Parent previously issued shall automatically be
cancelled, cease to exist and no longer be issued and outstanding.

 

 

 

 

(b)          Subject to the consummation of the transactions contemplated by the
Series A SPA, immediately prior to the Effective Time: (i) each Rollover
Shareholder shall Contribute all Rollover Shares held by such Rollover
Shareholder to Parent free and clear of any and all security interests, liens,
charges, encumbrances, equities, claims, options, restrictions or any other
limitations of whatever nature, including any restriction on the right to vote,
sell or otherwise dispose of such Contribution of Rollover Shares (collectively,
“Liens”), and (ii) subject to Section 1(c) below, in exchange for such Rollover
Shares, the Capital Value (as defined in the Parent LLC Agreement) of the Series
A Units set forth opposite such Rollover Shareholder’s name on Annex A hereto
shall be increased as provided in the Parent LLC Agreement (the “Rollover”).

 

(c)          In the event that any Rollover Shareholder cannot Contribute to
Parent all or any portion of the Rollover Shares held by such Rollover
Shareholder free and clear of all Liens in accordance with Section 1(b) above
(such shares being referred to herein as “Disqualified Shares”), a proportionate
number of Series A Units previously issued by Parent to such Rollover
Shareholder in accordance with Section 1(a) above shall automatically and
without the taking of any further action on the part of the Company or any
Rollover Shareholder be cancelled, cease to exist and no longer be issued and
outstanding.  For the avoidance of doubt, no Disqualified Shares shall be
Contributed (or deemed Contributed) to Parent, but shall remain classified, for
the purposes of the Merger Agreement, as Excluded Shares.

 

(d)          Subject to the terms and conditions set forth herein, each
Affiliate Stock Option, Affiliate Company Award or Affiliate Warrant held by any
Rollover Shareholder shall, immediately following the Effective Time,
automatically and without the taking of any further action on the part of the
Company or any Rollover Shareholder, be cancelled (and to the extent formerly
exercisable shall no longer be exercisable) and shall no longer represent the
right to (i) receive or acquire Common Shares or (ii) any other consideration
therefor.

 

(e)          In the event that the Rollover is consummated but the Merger
Agreement is terminated in accordance with its terms, then the Rollover will be
void ab initio and deemed not to have occurred, the Capital Value of the Series
A Units shall not be increased pursuant to Section 1(b) and Parent will return
to each Rollover Shareholder the Rollover Shares previously delivered by such
Rollover Shareholder to Parent. For the avoidance of doubt, unless and until the
Merger has been consummated and the Effective Time has occurred, the
cancellation of Affiliate Stock Options, Affiliate Company Awards and Affiliate
Warrants contemplated by Section 1(d) shall not occur (and shall not be deemed
to have occurred).

 

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2.            Closing.

 

(a)          The closing of the transactions contemplated by this Agreement (the
“Rollover Closing”) will take place at the offices of Milbank, Tweed, Hadley, &
McCloy LLP, One Chase Manhattan Plaza, New York, New York, immediately prior to
the Effective Time.

 

(b)          At the Rollover Closing, each Rollover Shareholder will deliver to
Parent stock certificates duly endorsed for transfer to Parent, or accompanied
by stock powers duly endorsed in blank, representing each such Rollover
Shareholder’s Rollover Shares, free and clear of any and all Liens, and upon
receipt of such Rollover Shares in the form and manner described in this
Section 2(b) (but subject to Section 1(c)), the Capital Value of the then issued
and outstanding Series A Units shall be increased as provided in this Agreement
and the Parent LLC Agreement.

 

3.           Representations and Warranties of the Rollover Shareholders. Each
Rollover Shareholder represents and warrants, severally but not jointly, as
follows:

 

(a)          Binding Agreement. Such Rollover Shareholder has the capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and (i) in the case of each Rollover Shareholder that is an
individual, the execution and delivery of this Agreement does not require any
consent from such Rollover Shareholder’s spouse or any other person and (ii) if
such Rollover Shareholder is a corporation or an unincorporated business entity,
such Rollover Shareholder has the requisite corporate or organizational power
and authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. Such Rollover Shareholder has duly and
validly executed and delivered this Agreement and this Agreement constitutes a
legal, valid and binding obligation of such Rollover Shareholder, enforceable
against such Rollover Shareholder in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors’ rights generally and
by general equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).

 

(b)          Ownership of Shares. Such Rollover Shareholder is the “beneficial
owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, which meaning will apply for all purposes of this Agreement) of, and
has the sole (or shared with one or more Rollover Shareholders) power to vote
and dispose of the number of Rollover Shares set forth opposite such Rollover
Shareholder’s name in Annex A hereto free and clear of any and all Liens, except
as may exist by reason of this Agreement, the Voting Agreement, the Series A SPA
or pursuant to applicable law. Except as provided for in this Agreement and the
Series A SPA, there are no outstanding options or other rights to acquire from
such Rollover Shareholder, or obligations of such Rollover Shareholder to sell
or to dispose of, any of such Rollover Shares.

 

(c)          No Conflict. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor the
performance of such Rollover Shareholder’s obligations hereunder will (a) result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation, or acceleration) under any contract, agreement, instrument,
commitment, arrangement or understanding to which such Rollover Shareholder is a
party, or result in the creation of a security interest, lien, charge,
encumbrance, equity or claim with respect to such Rollover Shareholder’s
Rollover Shares, (b) require any material consent, authorization or approval of
any Person, entity or Governmental Entity, or (c) violate or conflict with any
writ, injunction or decree applicable to such Rollover Shareholder or such
Rollover Shareholder’s Rollover Shares.

 

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(d)          Accredited Investor. Such Rollover Shareholder is an “accredited
investor” as such term is defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended (the “Securities Act”).

 

(e)          Investor’s Experience. Such Rollover Shareholder’s financial
situation is such that the Rollover Shareholder can afford to bear the economic
risk of holding the Series A Units to be received by such Rollover Shareholder,
and such Rollover Shareholder can afford to suffer complete loss of its
investment in such Series A Units. Such Rollover Shareholder’s knowledge and
experience in financial and business matters are such that the Rollover
Shareholder is capable of evaluating the merits and risks of the Rollover
Shareholder’s investment in such Series A Units.

 

(f)          Investment Intent. Such Rollover Shareholder is acquiring Series A
Units solely for the Rollover Shareholder’s own account for investment and not
with a view to or for sale in connection with any distribution thereof. Such
Rollover Shareholder agrees that the Rollover Shareholder will not, directly or
indirectly, offer, transfer, sell, pledge, hypothecate or otherwise dispose of
any Series A Units (or solicit any offers to buy, purchase or otherwise acquire
or take a pledge of any of the Series A Units), except in compliance with
(i) the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder, (ii) applicable state and non-U.S. securities or
“blue sky” laws and (iii) the provisions of this Agreement and any other
agreement among Parent and the Rollover Shareholders.

 

4.            Conditions Precedent. The obligations of each Rollover Shareholder
to consummate the transactions contemplated hereby are subject to the conditions
set forth in Sections 6.01 and 6.02 of the Merger Agreement being satisfied or
waived by Parent (other than any conditions that by their nature are to be
satisfied at the Closing, but subject to the prior or substantially concurrent
satisfaction of such conditions).

 

5.            Tax Matters.

 

The parties hereto (i) shall treat the Rollover as a tax-free partnership
contribution under Section 721 of the Internal Revenue Code of 1986, as amended,
for all federal, state and local income tax purposes, and (ii) will not take any
position on any return that is inconsistent with such treatment.

 

6.            Transfer and Other Restrictions

 

Until the termination of this Agreement pursuant to Section 7(i), and except as
provided in the Series A SPA, each Rollover Shareholder agrees not to sell, sell
short, transfer (including by gift), pledge, encumber, assign, deposit or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of its Rollover Shares or any interest
therein (a “Transfer”), other than in the case of a Rollover Shareholder who is
a natural person, a Transfer of the Rollover Shares held by such Rollover
Shareholder to any member of such Rollover Shareholder’s immediate family, or
upon the death of such Rollover Shareholder, to such Rollover Shareholder’s
estate, provided that, as a condition to such Transfer, the transferee agrees to
be bound as a Rollover Shareholder by the terms and conditions of this
Agreement.

 

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7.            Miscellaneous.

 

(a)          Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by electronic mail, overnight courier service or by registered or certified
mail (postage prepaid, return receipt requested), to any Rollover Shareholder at
the address of such Rollover Shareholder set forth on Annex A (or at such other
address as shall be specified by such Rollover Shareholder by like notice) and
to Parent, at the following address or at such other address as shall be
specified by Parent by like notice:

 

to:

 

FOHG Holdings, LLC

c/o Harbinger Group Inc.

450 Park Avenue, 30th Floor

New York, NY 10019

Email: GCheliotis@Harbingergroupinc.com 

Attention: Gus Cheliotis

 

with a copy to (which shall not constitute notice):

 

Milbank, Tweed, Hadley, & McCloy LLP

One Chase Manhattan Plaza

New York, New York 10005

Email: AKaye@milbank.com and RHlawaty@milbank.com

Telecopier: (212) 822-5171

Attention: Alexander M. Kaye

   Roland Hlawaty

 

(b)          Binding Effect; Benefits. This Agreement will be binding upon the
successors, heirs, executors and administrators of the parties hereto. Nothing
in this Agreement, express or implied, is intended or will be construed to give
any person other than the parties to this Agreement and their respective
successors or permitted assigns any legal or equitable right, remedy or claim
under or in respect of any agreement or any provision contained herein.

 

(c)          Amendments. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by all of the parties hereto.

 

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(d)          Assignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof will be assignable
by any Rollover Shareholder without the prior written consent of Parent.

 

(e)          Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof,
except to the extent that mandatory provisions of federal law apply. Each of the
parties hereto hereby irrevocably and unconditionally submits, for itself and
its property, to the exclusive jurisdiction of the courts of the State of New
York and any appellate court thereof and the United States District Court for
the Southern District of New York and any appellate court thereof, in any action
or proceeding arising out of or relating to this Agreement or the agreements
delivered in connection herewith or the transactions contemplated hereby or
thereby or for recognition or enforcement of any judgment relating thereto, and
each of the parties hereby irrevocably and unconditionally (i) agrees not to
commence any such action except in such courts, (ii) agrees that any claim in
respect of any such action or proceeding may be heard and determined in such
courts, (iii) waives, to the fullest extent it may legally and effectively do so
any objection which it may now or hereafter have to venue of any such action or
proceeding in any such courts, and (iv) waives, to the fullest extent permitted
by law, the defense of any inconvenient forum to the maintenance of such action
or proceeding in any such courts. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Each of the parties to this Agreement irrevocably consents to
service of process in any such action or proceeding in the manner provided for
notices in Section 7(a) of this Agreement; provided, however, that nothing in
this Agreement shall affect the right of any party to this Agreement to serve
process in any other manner permitted by law.

 

(f)          Counterparts. This Agreement may be executed by facsimile and in
two or more counterparts, each of which will be deemed to be an original, but
all of which together will constitute one and the same instrument.

 

(g)          Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated herein are not affected in any manner materially
adverse to any party hereto. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner.

 

(h)          Waiver. Any party to this Agreement may waive any condition to
their obligations contained herein.

 

(i)          Termination. This Agreement will terminate on the termination of
the Merger Agreement in accordance with its terms. Termination will not relieve
any party from liability for any breach of its obligations hereunder committed
prior to such termination.

 

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(j)          Further Assurances. Each party to this Agreement shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby.

 

(k)          Effectiveness. The obligations of the Rollover Shareholders under
this Agreement shall not be effective or binding upon the Rollover Shareholders
until such time as the Merger Agreement is executed and delivered by the parties
thereto.

 

(l)          Interpretation. The subject headings of the Sections and
subsections of this Agreement are included for the purposes of convenience only,
and shall not affect the construction or interpretation of any of the provisions
of this Agreement. References in this Agreement to Sections and Annexes are to
the Sections and Annexes to this Agreement, unless the context requires
otherwise. Unless the context of this Agreement otherwise requires, (i) words of
any gender include each other gender; (ii) words using the singular or plural
number also include the plural or singular number, respectively and (iii) the
terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this
entire Agreement. The term “Parent LLC Agreement” shall mean the Amended and
Restated Limited Liability Company Agreement of Parent, dated as of December 18,
2013. Capitalized terms not otherwise defined herein have the meanings ascribed
to such terms in the Merger Agreement.

 

[Signatures on the Following Page]

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, or caused
this Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first written above.

 

  FOHG HOLDINGS, LLC         By: /s/ Thomas A. Williams     Name: Thomas A.
Williams     Title: Manager         HGI FUNDING, LLC         By: /s/ Thomas A.
Williams     Name: Thomas A. Williams     Title: Executive Vice President and
Chief Financial Officer         TTG APPAREL, LLC         By: /s/ Michael T.
Tokarz     Name: Michael T. Tokarz     Title: Manager         TOKARZ
INVESTMENTS, LLC         By: /s/ Michael T. Tokarz     Name: Michael T. Tokarz  
  Title: Manager         FURSA ALTERNATIVE STRATEGIES LLC, on behalf of itself
and certain funds and accounts affiliated with, or managed by, it or its
Affiliates         By: /s/ William F. Harley     Name: William F. Harley    
Title: Chief Investment Officer         ARSENAL GROUP, LLC         By: /s/
William F. Harley     Name: William F. Harley     Title: Chief Investment
Officer         WILLIAM F. HARLEY         By: /s/ William F. Harley     Name:
William F. Harley

 

[Signature Page to Rollover Agreement]

 

 

 

 

Annex A

 

Name of Rollover
Shareholder   Address   Series A
Units1   Rollover Shares2               HGI Funding, LLC  

HGI Funding, LLC

450 Park Avenue, 30th Floor

New York, NY 10019

 

  620.00   14,900 shares of
Series A Convertible Preferred Stock
and
107,576 shares of
Series B Convertible Preferred Stock               Tokarz Investments, LLC  

Tokarz Investments, LLC

287 Bowman Avenue

Purchase, New York 10577

  121.39   8,386,977 shares of Common Stock               TTG Apparel, LLC  

TTG Apparel, LLC

287 Bowman Avenue

Purchase, New York 10577

  108.61   1,766,322 shares of Common Stock
and
41,878 shares of
Series A Convertible Preferred Stock               Arsenal Group, LLC  

Arsenal Group, LLC

21 Greene Avenue

Amityville, New York 11701

  97.44   11,359,292 shares of Common Stock               Fursa Alternative
Strategies LLC  

Fursa Alternative Strategies LLC, on behalf of certain funds and accounts
affiliated with or managed by it or its affiliates

21 Greene Avenue

Amityville, New York 11701

  48.83   5,692,041 shares of Common Stock               William F. Harley  

William F. Harley

Fursa Alternative Strategies LLC

21 Greene Avenue

Amityville, New York 11701

  3.73   474,047 shares of
Common Stock

 

 

1 To be issued as of the date of this Agreement pursuant to Section 1(a).
Subject to adjustment pursuant to Section 1(c).

2 To be Contributed to Parent at the Rollover Closing in accordance with
Sections 1(b) and 2(b).