Unassociated Document


    EXHIBIT
10.1

    


    DEBT
EXCHANGE AND PREFERRED STOCK CONVERSION AGREEMENT

    


    THIS DEBT EXCHANGE AND PREFERRED
STOCK CONVERSION AGREEMENT (“Agreement”), dated as
of February 1, 2010, among Frederick’s of Hollywood Group Inc., a New York
corporation (the “Company”), Fursa
Capital Partners LP (“Fursa Capital”),
Fursa Master Rediscovered Opportunities L.P. (“Fursa
Opportunities”), Blackfriars Master Vehicle LLC – Series 2 (“Blackfriars”) and
Fursa Master Global Event Driven Fund L.P. (“Fursa
Master”).  Each of Fursa Capital, Fursa Opportunities,
Blackfriars and Fursa Master is referred to herein as a “Holder” and
collectively such parties are referred to herein as the “Holders.”

    


    WHEREAS, the Company has an
aggregate of approximately $14,000,000 principal amount of long term debt
outstanding including accrued interest thereon due to the Holders (the “Tranche C
Debt”);

    


    WHEREAS, the Holders own an
aggregate of $7,500,000 of shares of the Company’s Series A Preferred Stock
(“Series A Preferred
Stock”) and have accrued dividends of approximately $1,100,000 of shares
of Series A Preferred Stock;

    


    WHEREAS, the Company has
requested that the Holders exchange the outstanding principal amount of the
Tranche C Debt, together with all accrued interest, and convert the Series A
Preferred Stock, together with all accrued dividends (collectively, the “Transaction”), for
shares of common stock, par value $.01 per share, of the Company (“Common Stock”) as set
forth herein;

    


    NOW THEREFORE, in
consideration of the premises and the mutual covenants and agreements of the
parties hereinafter set forth, the parties hereto hereby agree as
follows:

    


    1.            Debt
Exchange and Preferred Stock Conversion.

    


    (a)           The
Holders hereby agree, subject to the conditions set forth herein, to exchange
the principal amount of the Tranche C Debt, together with all accrued interest
(approximately $14,000,000) (collectively, the “Tranche C Debt
Value”), and convert approximately $8,600,000 of the Series A Preferred
Stock in accordance with its terms at a conversion price of $4.96 per share,
together with all accrued dividends (collectively, the “Preferred Stock
Value” and, together with the Tranche C Debt Value, the “Aggregate Value”),
for an aggregate number of shares of Common Stock equal to 50% of the Aggregate
Value as of the Closing (defined below) divided by the volume weighted average
price of the Common Stock for the five (5) trading days prior to and the five
(5) trading days including and after the public announcement of the execution of
this Agreement, subject to appropriate adjustment for reclassifications, stock
splits, stock dividends, spin-offs or distributions, share combinations or other
similar changes affecting the Common Stock as a whole (the “Conversion
Price”).  The shares of Common Stock issuable upon exchange of
the Tranche C Debt are referred to herein as the “Debt Exchange Shares”
and the Debt Exchange Shares together with the shares issuable upon conversion
of the Series A Preferred Stock are referred to collectively herein as the
“Exchange
Shares.”  The Company and the Holders further agree to apply
receipt of the Debt Exchange Shares first to the principal portion of the
Tranche C Debt and then to the accrued interest. To the extent possible, the
Company and the Holders shall treat the Transaction as a tax-free reorganization
pursuant to Internal Revenue Code Section 368(a)(1)(E).


    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    (b)           At
the Company’s 2010 Annual Meeting of Shareholders (“Shareholder
Meeting”), the Company will present the Transaction to shareholders for
their approval.  In connection with such Shareholder Meeting, the
Company will prepare and mail to its shareholders as promptly as practicable a
proxy statement and all other proxy materials (the “Proxy Statement”) for
such meeting.  The Company and the Holders shall cooperate with each
other in all reasonable respects with the preparation of the Proxy Statement and
any amendment or supplement thereto.  The Company shall notify the
Holders of the receipt of any comments of the Securities and Exchange Commission
(“Commission”)
with respect to the Proxy Statement and any requests by the Commission for any
amendment or supplement thereto or for additional information, and shall provide
to them promptly copies of any correspondence between the Company or its counsel
and the Commission with respect to the Proxy Statement.  The Company
shall give the Holders and their counsel the opportunity to review the Proxy
Statement and all responses to requests for additional information by and
replies to comments of the Commission before their being filed with, or sent to,
the Commission.  The Company will use its commercially reasonable
efforts, after consultation with the Holders, to respond promptly to all such
comments of and requests by the Commission and to cause the Proxy Statement to
be mailed to the Company’s shareholders entitled to vote at the Shareholder
Meeting at the earliest practicable time.

    


    (c)           The
Company will use its commercially reasonable efforts to obtain the necessary
approvals by its shareholders for the Transaction and any related matters
(“Shareholder
Approval”) at the Shareholder Meeting and shall cause its Board of
Directors to include in the Proxy Statement its recommendation that the
Company’s shareholders vote in favor of the matters presented in the Proxy
Statement.  In the event that Shareholder Approval is not obtained on
the date on which the Shareholder Meeting is initially convened, the Board of
Directors of the Company shall adjourn the meeting from time to time as
necessary for the purpose of obtaining Shareholder Approval and shall use its
commercially reasonable efforts during any such adjournments to obtain
Shareholder Approval.

    


    (d)           By
executing this Agreement, each Holder hereby appoints Thomas J. Lynch or Thomas
Rende, or either of them, with full power of substitution, as its agent,
attorney and proxy, representing an irrevocable proxy pursuant to Section 609 of
the New York Business Corporation Law, coupled with an interest, so as to vote
all the shares of Common Stock held by the Holders in accordance with the vote
of a majority of votes cast at the Shareholder Meeting excluding the shares held
by the Holders.

    


    (e)           The
Company shall comply with all legal requirements applicable to the Shareholder
Meeting and take such other actions as may be necessary to effectuate the
Transaction, including, but not limited to, providing notices to, and responding
to queries from, all applicable regulatory authorities and stock exchanges and
obtaining all necessary third party consents.


    
      
         


      

      
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    (f)           Subject
to the terms and conditions of this Agreement, the consummation of the
Transaction contemplated by this Agreement shall take place at a closing (“Closing”) to be held
at 10:00 a.m., local time, on the fourth business day after the date on which
the last of the conditions set forth in Section 4(c) below is fulfilled, at the
offices of Graubard Miller, The Chrysler Building, 405 Lexington Avenue, New
York, New York 10174, or at such other time, date or place as the parties may
agree upon in writing.  The Company shall send to the Holders at least
two business days prior to the Closing a notice indicating the amount of
interest accrued on the Tranche C Debt and the amount of dividends accrued on
the Series A Preferred Stock through the date of the Closing and the number of
Exchange Shares each Holder will be issued upon the Closing.  At the
Closing, the Holders shall deliver any and all documentation evidencing the
Tranche C Debt and certificates representing the Series A Preferred Stock,
together with stock powers medallion guaranteed, for cancellation and the
Company shall deliver to the Holders certificates representing the Exchange
Shares.  From and after the Closing, any and all documentation
evidencing the Tranche C Debt and any certificates representing the Series A
Preferred Stock shall represent solely the right to receive the Exchange
Shares.  In the event that as a result of the Transaction, fractions
of shares would be required to be issued, such fractional shares shall be
rounded up or down to the nearest whole share.  The Company shall pay
any documentary, stamp or similar issue or transfer tax due on such Transaction,
except that the Holders shall pay any such tax due because the Exchange Shares
are issued in a name other than the Holders’.

    


    (g)           On
the Closing, the Company shall issue to the Holders warrants (“Warrants”) to
purchase an aggregate of 1,500,000 shares of Common Stock (“Warrant Shares”) in
the form attached hereto as Exhibit A.  The
Warrants shall be issued as follows: (i) a three-year Warrant to purchase
500,000 Warrant Shares at an exercise price equal to 150% of the Conversion
Price, (ii) a five-year Warrant to purchase 500,000 Warrant Shares at an
exercise price equal to 175% of the Conversion Price and (iii) a seven-year
Warrant to purchase 500,000 Warrant Shares at an exercise price equal to 200% of
the Conversion Price.  Notwithstanding the foregoing, the exercise
price of the Warrants shall not be less than the closing price of the Common
Stock on the Closing.

    


    2.         
   Representations
and Warranties of Company.  The Company hereby represents and
warrants to the Holders as follows:

    


    (a)           As
of the date hereof, the Company has 200,000,000 shares of Common Stock
authorized, of which 26,418,185 shares of Common Stock are issued and
outstanding, and 10,000,000 shares of preferred stock authorized, of which
3,629,325 shares of Series A Preferred Stock are issued and outstanding and are
convertible into 1,512,219 shares of Common Stock, and 544,399 shares of Series
A Preferred Stock representing accrued dividends are convertible into 226,833
shares of Common Stock.  As of the date hereof, the Company has
reserved for issuance 2,914,315 shares of Common Stock upon exercise of all
outstanding options and warrants.  All of the issued and outstanding
shares of Common Stock are, and all shares reserved for issuance will be, upon
issuance in accordance with the terms specified in the instruments or agreements
pursuant to which they are issuable, duly authorized, validly issued, fully paid
and nonassessable.  The Exchange Shares to be issued and delivered to
the Holders upon exchange of the Tranche C Debt and conversion of the Series A
Preferred Stock have been duly authorized and when issued upon exchange of the
Tranche C Debt and conversion of the Series A Preferred Stock, will be validly
issued, fully-paid and non-assessable.  The Warrants to be issued and
delivered to the Holders upon the Closing have been duly authorized and the
Warrant Shares, when issued upon exercise of the Warrants against payment
therefore, will be validly issued, fully-paid and
non-assessable.


    
      
         


      

      
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    (b)           The
Company has full legal power to execute and deliver this Agreement and, subject
to receipt of Shareholder Approval, to perform its obligations
hereunder.  All acts required to be taken by the Company to enter into
this Agreement and, subject to receipt of Shareholder Approval, to carry out the
transactions contemplated hereby have been properly taken, and this Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization or other similar legal requirements affecting the enforcement of
creditors’ rights generally and by general principles of equity, and does not
conflict with, result in a breach or violation of or constitute (or with notice
of lapse of time or both constitute) a default under any instrument, contract or
other agreement to which the Company or its subsidiaries is a
party.

    


    (c)           The
affirmative vote of the holders of record of at least a majority of the shares
of Common Stock (together with the Series A Preferred Stock voting on an as
converted basis with the Common Stock) cast at the Shareholder Meeting with
respect to the matters referred to in Section 1 hereof is the only vote of the
holders of any class or series of the capital stock of the Company required to
approve the transactions contemplated hereby.

    


    (d)           No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the
Company.

    


    (e)           The
Company has delivered or made available to the Holders prior to the execution of
this Agreement, true and complete copies of all periodic reports, registration
statements and proxy statements filed by it with the Commission since July 27,
2008.  Each of such filings with the Commission (collectively, the
“SEC Filings”),
as of its filing date, complied in all material respects with the requirements
of the rules and regulations promulgated by the Commission with respect thereto
and did not contain any untrue statement of a material fact or omit a material
fact necessary in order to make the statements contained therein not misleading
in light of the circumstances in which such statements were made.

    


    (f)          
 Since October 24, 2009, except as disclosed in the SEC Filings filed by
the Company with the Commission before the date of this Agreement, the Company
and its subsidiaries, taken as a whole, has not suffered any material adverse
change in its assets, liabilities, financial condition, results of operations or
business, except for those occurring as a result of general economic or
financial conditions affecting the United States as a whole or the region in
which the Company conducts its business or developments that are not unique to
the Company but also affect other entities engaged or participating in the
women’s intimate apparel industry generally in a manner not materially less
severely.  For purposes of this section, revenues and operating
results materially consistent with the Company’s revenues and operating results
for the quarter ended October 24, 2009, as reflected in the Company’s Quarterly
Report on Form 10-Q for the quarter ended October 24, 2009, shall not be deemed
a material adverse change.


    
      
         


      

      
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    (g)           No
information to be contained in the Proxy Statement to be prepared pursuant to
this Agreement and no representation or warranty by the Company contained in
this Agreement contains any untrue statement of a material fact or omits a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances in which such statements
were made.

    


    (h)           Since
October 24, 2009 and except as disclosed in the SEC Filings filed by the Company
with the Commission before the date of this Agreement, the Company has conducted
its business in compliance in all material respects with all applicable laws,
rules, regulations, court or administrative orders and processes and rules,
directives and orders of regulatory and self-regulatory agencies and bodies,
except as would not reasonably be expected, singly or in the aggregate, to be
materially adverse to the business, assets or financial condition of the
Company.

    


    3.          
  Representations
and Warranties of the Holders.  Each Holder jointly and
severally represents and warrants to the Company as follows:

    


    (a)           The
Holder has full legal power to execute and deliver this Agreement and to perform
its obligations hereunder.  All acts required to be taken by the
Holder to enter into this Agreement and to carry out the transactions
contemplated hereby have been properly taken; and this Agreement constitutes a
legal, valid and binding obligation of the Holder enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization or
other similar legal requirements affecting the enforcement of creditors’ rights
generally and by general principles of equity.

    


    (b)           The
Holder has reviewed the SEC Filings of the Company.

    


    (c)           The
Holder has been given an opportunity to ask questions and receive answers from
the officers and directors of the Company and to obtain additional information
from the Company.

    


    (d)           The
Holder has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in the Company’s
securities and has obtained, in its judgment, sufficient information about the
Company to evaluate the merits and risks of an investment in the
Company.

    


    (e)           The
Holder is relying solely on the representations and warranties contained in
Section 2 hereof and in certificates delivered hereunder, as well as the SEC
Filings, in making its decision to enter into this Agreement and consummate the
transactions contemplated hereby and no oral representations or warranties of
any kind have been made by the Company or its officers, directors, employees or
agents to the Holder.


    
      
         


      

      
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    (f)           No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the
Holder.

    


    (g)           The
Exchange Shares and Warrant Shares are to be acquired for the Holder’s own
account and is not intended to be sold or otherwise disposed of in violation of
the securities laws of the United States.

    


    (h)           The
Holder is an “accredited investor” within the meaning of Rule 501(a) under the
Securities Act of 1933, as amended (“Securities
Act”).

    


    (i)           The
Holder understands that the Exchange Shares and Warrant Shares are not
registered under the Securities Act or in any state and that such securities may
not be sold unless they are subsequently registered or an exemption from such
registration is available.  The Holder acknowledges that the
certificates representing the Exchange Shares and Warrant Shares may contain
legends to reflect the foregoing.

    


    4.         
   Conditions.

    


    (a)           The
obligations of the Company to consummate the transactions contemplated by this
Agreement, including the Transaction, shall be subject to the fulfillment of the
following conditions:

    


    (i)           The
representations and warranties of the Holders set forth in Section 3 hereof
shall be true and correct in all material respects on and as of the Closing and
a certificate certifying such shall be delivered.

    


    (ii)           All
proceedings, corporate or otherwise, to be taken by the Holders in connection
with the consummation of the transactions contemplated by this Agreement shall
have been duly and validly taken and all necessary consents, approvals or
authorizations of any governmental or regulatory authority or other third party
required to be obtained by the Company or the Holders shall have been obtained
in form and substance reasonably satisfactory to the Company.

    


    (iii)           Shareholder
Approval shall be obtained by the necessary affirmative vote of the shareholders
of the Company as described above in Section 2(c).

    


    (iv)           The
Holders shall have delivered to the Company any and all documentation evidencing
the Tranche C Debt and certificates representing the Series A Preferred Stock,
together with stock powers medallion guaranteed, for cancellation.

    


    (v)           All
necessary documentation, including UCC-3 termination statements, shall have been
filed terminating the security interest evidenced by the Tranche C
Debt.

     

    (vi)           The
Holders shall have delivered the Lockup Agreements (defined
below).


    
      
         


      

      
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    (b)           The
obligation of the Holders to consummate the transactions contemplated by this
Agreement, including the Transaction, shall be subject to the fulfillment of the
following conditions:

    


    (i)           The
representations and warranties of the Company set forth in Section 2 hereof
shall be true and correct in all material respects on and as of the Closing and
a certificate certifying such shall be delivered.

    


    (ii)           All
proceedings, corporate or otherwise, required to be taken by the Company on or
prior to such date in connection with the consummation of the transactions
contemplated by this Agreement shall have been duly and validly taken and all
necessary consents, approvals or authorizations of any governmental or
regulatory authority or other third party required to be obtained by the Company
or the Holders shall have been obtained in form and substance reasonably
satisfactory to the Holders.

    


    (iii)         Shareholder
Approval shall be obtained by the necessary affirmative vote of the shareholders
of the Company as described above in Section 2(c).

    


    (iv)         The
Company shall have caused the Debt Exchange Shares and Warrant Shares to be
approved for listing on the NYSE Amex or any national securities exchange on
which the Common Stock is then listed.

    


    5.       
     Registration.

    


    (a)(i)        To
the extent not previously registered for resale, the Company shall file a
registration statement (the “Required Registration
Statement”) to register the Exchange Shares and the Warrant Shares to be
received by the Holder under this Agreement (collectively the “Registrable
Securities”) for resale pursuant to the Securities Act, as soon as
practicable after the date hereof.  The Company shall use commercially
reasonable efforts to cause the Required Registration Statement to be declared
effective by the Commission as promptly as practicable
thereafter.  Each Holder hereby agrees that it will not sell, assign
or transfer any shares of Common Stock owned by such Holder, including the
Registrable Securities, in the open market for a period of 12 months from the
Closing (“Restricted
Period”); provided, however, that the Restricted Period shall terminate
with respect to an aggregate of 250,000 shares of Common Stock on each one month
anniversary of the Closing.  Each Holder shall be permitted to
transfer any shares of Common Stock owned by such Holder, including the
Registrable Securities, to an affiliated entity or its members, partners,
officers, directors or shareholders, provided that such transferee shall agree
to continue to be bound by the foregoing restriction.  On the Closing,
each Holder will enter into a lockup agreement (collectively, the “Lockup Agreements”)
in a form mutually satisfactory to the Company and the Holders evidencing such
restrictions.

    



    
      
         


      

      
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    (ii)           In
connection with the foregoing, the Company will, as expeditiously as possible,
use its commercially reasonable efforts to:  (A) furnish to the
Holders copies of reasonably complete drafts of all such documents proposed to
be filed (including exhibits), and the Holders shall have the opportunity to
object to any information pertaining solely to it that is contained therein and
the Company will make the corrections reasonably requested by any of them with
respect to such information prior to filing the Required Registration Statement
or amendment; (B) prepare and file with the Commission such amendments and
supplements to such Required Registration Statement and any prospectus used in
connection therewith as may be necessary to maintain the effectiveness of such
registration statement and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by such
registration statement; (C) promptly notify the Holders:  (1) when the
Required Registration Statement or any prospectus used in connection therewith,
or any amendment or supplement thereto, has been filed and, with respect to such
registration statement or any post-effective amendment thereto, when the same
has become effective; (2) of any written comments from the Commission with
respect to any filing referred to in clause (A) and of any written request
by the Commission for amendments or supplements to the Required Registration
Statement or prospectus; and (3) of the notification to the Company by the
Commission of its initiation of any proceeding with respect to the issuance by
the Commission of, or of the issuance by the Commission of, any stop order
suspending the effectiveness of such registration statement; (D) furnish the
Holders such number of copies of the prospectus contained in the Required
Registration Statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 promulgated under the
Securities Act relating to the Registrable Securities, and such other documents,
as the Holders may reasonably request to facilitate the disposition of its
Registrable Securities; (E) notify the Holders at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which any prospectus included
in the Required Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and at the request of
the Holders promptly prepare and furnish such Holders a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and (F) make available for inspection by the Holders and
any attorney, accountant or other agent retained by the Holders (collectively,
the “Inspectors”), all
financial and other records, pertinent corporate documents and properties of the
Company as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company’s officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with the Required Registration Statement, and permit the
Inspectors to participate in the preparation of such registration statement and
any prospectus contained therein and any amendment or supplement
thereto.

    


    (b)           The
Company shall bear all fees and expenses attendant to registering the
Registrable Securities, but the Holders shall pay any and all sales commissions
and the expenses of any legal counsel selected by it to represent it in
connection with the sale of the Registrable Securities.  The Company
shall use its commercially reasonable efforts to cause the Required Registration
Statement to remain effective until all the Registrable Securities registered
thereunder are sold or until the delivery to the Holders of an opinion of
counsel to the Company to the effect set forth in Section 5(i)
below.


    
      
         


      

      
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    (c)(i)        The
Company will indemnify the Holders, their directors and officers and each
underwriter, if any, and each person who controls any of them within the meaning
of the Securities Act or the Exchange Act, against all claims, losses, damages
and liabilities (or actions or proceedings, commenced or threatened, in respect
thereof), joint or several, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any registration, qualification
or compliance pursuant to this Section 5 or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company in connection with any such registration, qualification or
compliance, and will reimburse the Holders, their directors and officers, each
such underwriter and each person who controls any of them within the meaning of
the Securities Act or the Exchange Act for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action or proceeding; provided that the
Company will not be liable to the Holders in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by or on behalf of the Holders specifically stating that it is intended
for inclusion in any registration statement under which Registrable Securities
are registered. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Holders or any such director,
officer or controlling person, and shall survive the transfer of such securities
by the Holders.

    


    (ii)           The
Holders shall indemnify the Company, each of its directors and officers and each
underwriter, if any, of the Company’s securities covered by such registration
statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act and the Exchange Act and the rules and regulations
thereunder, each other securityholder participating in such distribution and
each of their officers and directors and each person controlling such other
securityholder, against all claims, losses, damages and liabilities (or actions
or proceedings, commenced or threatened, in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such other security
holders, directors, officers, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action or proceeding, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
document in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Holders specifically stating that it is
intended for inclusion in such document. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person, and shall survive
the transfer of such securities by the Holders.


    
      
         


      

      
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    (d)           In
order to provide for just and equitable contribution under the Securities Act in
any case in which (A) any person entitled to indemnification under Section (c)
makes a claim for indemnification pursuant hereto but such indemnification is
not enforced in such case notwithstanding the fact that this section provides
for indemnification in such case, or (B) contribution under the Securities Act,
the Exchange Act or otherwise is required on the part of any such person in
circumstances for which indemnification is provided under this section, then,
and in each such case, the Company and the Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by said indemnity agreement (including legal and other expenses
reasonably incurred in connection with investigation or defense) incurred by the
Company and the Holders, as incurred, in proportion to their relative fault and
the relative knowledge and access to information of the Securities Indemnifying
Party (defined below), on the one hand, and the Securities Indemnified Party
(defined below), on the other hand, concerning the matters resulting in such
losses, liabilities, claims, damages and expenses, the opportunity to correct
and prevent any untrue statement or omission, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission of a
material fact relates to information supplied by the Securities Indemnifying
Party, on the one hand, or the Securities Indemnified Party, on the other hand,
and any other equitable considerations appropriate under the circumstances;
provided that no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this section, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.

    


    (e)           Each
party desiring indemnification or contribution under Section 5(c) and 5(d)
hereof (the “Securities Indemnified
Party”) shall give notice to the party required to provide
indemnification or contribution (the “Securities Indemnifying
Party”) promptly after such Securities Indemnified Party has actual
knowledge of any claim as to which indemnity or contribution may be sought, and
shall permit the Securities Indemnifying Party to assume, at its sole cost and
expense, the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Securities Indemnifying Party, who shall conduct
the defense of such claim or any litigation resulting therefrom, shall be
approved by the Securities Indemnified Party (whose approval shall not be
unreasonably withheld).  The Securities Indemnified Party may
participate in such defense at the Securities Indemnified Party's expense unless
(A) the employment of counsel by the Securities Indemnified Party has been
authorized in writing by the Securities  Indemnifying Party, (B) the
Securities Indemnified Party has been advised by such counsel employed by it
that there are legal defenses available to it involving potential conflict with
those of the Securities Indemnifying Party (in which case the Securities
Indemnifying Party will not have the right to direct the defense of such action
on behalf of the Securities Indemnified Party), or (C) the Securities
Indemnifying Party has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees and expenses of
counsel for the Securities Indemnified Party shall be at the expense of the
Securities Indemnifying Party. The failure of any Securities Indemnified Party
to give notice as provided herein shall not relieve the Securities Indemnifying
Party of its obligations under this Section 5.  No Securities
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Securities Indemnified Party, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Securities Indemnified Party of a release from all liability in respect to such
claim or litigation. No Securities Indemnified Party shall settle any claim or
demand without the prior written consent of the Securities Indemnifying Party
(which consent will not be unreasonably withheld).  Each Securities
Indemnified Party shall furnish such information regarding itself or the claim
in question as the Securities Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with defense of such
claim and litigation resulting therefrom.  The provisions of Section
5(c) and 5(d) shall be in addition to any other rights to indemnification or
contribution which an Indemnified Party may have pursuant to law, equity,
contract or otherwise.


    
      
         


      

      
        10

        
          

        

      

      
         


      

    

    


    (f)           Each
Holder shall furnish to the Company such information regarding itself and the
distribution proposed by it as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 5.

    


    (g)           The
Company shall comply with all of the reporting requirements of the Exchange Act
and with all other public information reporting requirements of the Commission,
which are conditions to the availability of Rule 144 for the sale of the Common
Stock. The Company shall cooperate with the Holders in supplying such
information as may be necessary for the Holders to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.

    


    (h)           The
Company represents and warrants to the holders of Registrable Securities that
the granting of the registration rights to the Holders hereby does not and will
not violate any agreement between the Company and any other security holders
with respect to registration rights granted by the Company.

    


    (i)           The
rights granted under this Section 5 shall terminate upon delivery to the Holders
of an opinion of counsel to the Company reasonably satisfactory to the Holders
to the effect that such rights are no longer necessary for the public sale of
the Registrable Securities without restriction as to the number of securities
that may be sold at any one time or the manner of sale.

    


    (j)     
      The rights granted under this Section 5
shall not be transferable.

    


    6.        
    Press
Release; Filings.  Promptly after
execution of this Agreement, the Company shall issue a press release announcing
the Transaction.  The Company shall also file with the Commission a
Current Report on Form 8-K with respect to the transactions contemplated
hereby.  The Company shall provide the Holders with drafts of both the
press release and Form 8-K and a reasonable opportunity to comment
thereon.  No party hereto shall make any public announcements in
respect of this Agreement or the transactions contemplated herein inconsistent
with the press release and Form 8-K without the prior approval of the other
parties as to the form and content thereof, which approval will not be
unreasonably withheld.  Notwithstanding the foregoing, any disclosure
may be made by a party which its counsel advises is required by applicable law
or regulation, in which case the other party shall be given such reasonable
advance notice as is practicable in the circumstances and the parties shall use
their best efforts to cause a mutually agreeable release or announcement to be
issued.  The parties may also make appropriate disclosure of the
transactions contemplated by this Agreement to their officers, directors, agents
and employees.


    
      
         


      

      
        11

        
          

        

      

      
         


      

    

    


    7.     
       Termination.  This Agreement
may be terminated no later than the Closing:

    


    (a)           At
the option of any party in the event that the transactions contemplated by this
Agreement have not occurred by July 31, 2010 and such delay was not as a result
of any breach of this Agreement by the terminating party;

    


    (b)           By
the Holders if the Company’s Board of Directors failed to recommend or withdrew
or modified in a manner adverse to the Holders its approval or recommendation of
the Transaction;

    


    (c)           At
the option of any party in the event that Shareholder Approval was not obtained
at the Shareholder Meeting and any adjournment thereof;

    


    (d)           At
the option of any party if any other party has materially breached a term of
this Agreement and has not cured such breach within 30 days; or

    


    (e)           At
the option of any party if any competent regulatory authority shall have issued
an order making illegal or otherwise restricting, preventing, prohibiting or
refusing to approve the transactions contemplated hereby, and such order shall
have become final and non-appealable.

    


    8.       
    Miscellaneous.

    


    (a)           Section
headings used in this Agreement are for convenience of reference only and shall
not affect the construction of this Agreement.

    


    (b)          This
Agreement may be executed in any number of counterparts and by the different
parties on separate counterparts and each such counterpart shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same agreement.

    


    (c)           This
Agreement shall be a contract made under and governed by the laws of the State
of New York.

    


    (d)           All
obligations of the Company and rights of the Holders expressed herein shall be
in addition to and not in limitation of those provided by applicable
law.

    


    (e)           The
rights and obligations under this Agreement are not assignable.  This
Agreement shall be binding upon the Company, the Holders and their respective
successors and permitted assigns, and shall inure to the benefit of the Company,
the Holders and their respective successors and permitted
assigns.


    
      
         


      

      
        12

        
          

        

      

      
         


      

    


    (f)           The
terms and provisions of this Agreement are intended solely for the benefit of
each party hereto and their respective successors or permitted assigns, and it
is not the intention of the parties to confer third-party beneficiary rights
upon any other person or entity.

    


    (g)           All
amendments or modifications of this Agreement and all consents, waivers and
notices delivered hereunder or in connection herewith shall be in
writing.

    


    (h)           This
Agreement constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and undertakings, both
written and oral, among the parties with respect thereto.

    


    9. 
          WAIVER OF
JURY TRIAL.  EACH OF THE COMPANY AND
THE HOLDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.

    


    10.          Specific
Performance.  The parties hereto acknowledge and agree that any
remedy at law for any breach of the provisions of this Agreement would be
inadequate, and each party hereto hereby consents to the granting by any court
of an injunction or other equitable relief, without the necessity of actual
monetary loss being proved, in order that the breach or threatened breach of
such provisions may be effectively restrained.


    
      
         


      

      
        13

        
          

        

      

      
         


      

    


    IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the date first above written.

    


    
      
        
          
            	 
      	
                    FREDERICK’S
      OF HOLLYWOOD GROUP INC.

                  
	 
      	 
      	 
      
	 
      	
                    By:  

                  	
                    /s/ Thomas Rende

                  
	 
      	 
      	
                    Name:  Thomas
      Rende

                  
	 
      	 
      	
                    Title:  Chief
      Financial Officer

                  
	 
      	 
      	 
      
	 
      	
                    FURSA
      CAPITAL PARTNERS LP

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ William F. Harley

                  
	 
      	 
      	
                    Name:
      William F. Harley

                  
	 
      	 
      	
                    Title:  Chief
      Investment Officer

                  
	 
      	 
      	 
      
	 
      	
                    FURSA
      MASTER REDISCOVERED OPPORTUNITIES

                    L.P.

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ William F. Harley

                  
	 
      	 
      	
                    Name:
      William F. Harley

                  
	 
      	 
      	
                    Title:  Chief
      Investment Officer

                  
	 
      	 
      	 
      
	 
      	
                    BLACKFRIARS
      MASTER VEHICLE LLC –

                    SERIES
      2

                  
	 
      	 
      	 
      
	
                               

                  	
                    By:

                  	
                    /s/ William F. Harley

                  
	 
      	 
      	
                    Name:  William
      F. Harley

                  
	 
      	 
      	
                    Title:  Chief
      Investment Officer

                  
	 
      	 
      	 
      
	 
      	
                    FURSA
      MASTER GLOBAL EVENT DRIVEN

                    FUND
      L.P.

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ William F. Harley

                  
	 
      	 
      	
                    Name:
      William F. Harley

                  
	 
      	 
      	
                    Title:  Chief
      Investment
Officer

                  


          

        

      

    


    
      
         


      

      
        14

        
          

        

      

      
         


      

    


    Exhibit
A

    Form
of Warrant

    


    THE
SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”). THIS
WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT (THE “WARRANT SHARES”) MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OR UNDER STATE SECURITIES
LAWS.  THIS WARRANT AND THE WARRANT SHARES MAY NOT BE PLEDGED, SOLD,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE EXPRESS
PROVISIONS OF THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER
DISPOSITION OF THIS WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH
PROVISIONS SHALL HAVE BEEN COMPLIED WITH.

    


    Date of
Issuance: ______ __, 2010

     

    FREDERICK’S
OF HOLLYWOOD GROUP INC.

     

    Common
Stock Purchase Warrant

     

    (Void
after ______________)

     

    Frederick’s
of Hollywood Group Inc., a Delaware corporation (the “Company”), for value
received, hereby certifies and agrees that ___________ or its registered assigns
(the “Registered Holder”), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after the date
hereof (the “Date of Issuance”) and on or before _______________ [three, five or seven years from
closing] at not later than 5:00 p.m. New York time (such date and time,
the “Expiration Time”), _________ (________) duly authorized, validly issued,
fully paid and nonassessable shares of the Company’s common stock, $0.01 par
value per share (the “Common Stock”) at an initial exercise price equal to $____
[150%, 175% or 200% of the
conversion price, but not less than the closing price of the Company’s common
stock on the date of issuance] per share, subject to adjustment in
certain cases as described herein. The shares purchasable upon exercise of this
Warrant, and the purchase price per share, are hereinafter referred to as the
“Warrant Shares” and the “Exercise Price,” respectively.  The term
“Warrant” as used herein shall include this Warrant and any other warrants
delivered in substitution or exchange therefor, as provided herein.

     

    This
Warrant is issued pursuant to that certain Debt Exchange and Preferred Stock
Conversion Agreement of even date herewith between the Company and the
Registered Holder (the “Exchange and Conversion Agreement”).  The
Warrant Shares are entitled to the benefits of the registration rights set forth
in the Exchange and Conversion Agreement.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    1.           Exercise.

     

    1.1.         Method of
Exercise

     

    (a)  This
Warrant may be exercised by the Registered Holder, in whole or in part, by
surrendering this Warrant, with a Notice of Exercise in the form of Annex A hereto (the
“Notice of Exercise”) duly executed by such Registered Holder or by such
Registered Holder’s duly authorized attorney, at the principal office of the
Company set forth in Section 11 hereof, or at such other office or agency as the
Company may designate in writing pursuant to Section 11 hereof (the “Company’s
Office”), accompanied by payment in full with good, cleared funds, in lawful
money of the United States, of the Exercise Price payable in respect of the
number of shares of Warrant Shares purchased upon such exercise or by
surrendering the Warrant pursuant to Section 1.2 below.

     

    (b)  Each
exercise of this Warrant shall be deemed to have been effected immediately prior
to the close of business on the day on which the appropriate Annex form shall be
received by the Company as provided in Section 1.1(a) hereof. At such time, the
person or persons in whose name or names any certificates for Warrant Shares
shall be issuable upon such exercise as provided in Section 1.1(c) hereof shall
be deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.

     

    (c)  As
soon as practicable after the exercise of this Warrant, in full or in part, and
in any event within ten (10) days thereafter, the Company, at its expense, will
cause to be issued in the name of, and delivered to, the Registered Holder, or
as such Registered Holder (upon payment by such Registered Holder of any
applicable transfer taxes) may direct:

     

    (i)           a
certificate or certificates for the number of full Warrant Shares to which such
Registered Holder shall be entitled upon such exercise (or evidence that such
Warrant Shares have been issued in the name of the Registered Holder in book
entry form) plus, in lieu of any fractional share to which such Registered
Holder would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof; and

     

    (ii)          in
case such exercise is in part only, a new warrant or warrants (dated the date
hereof) of like tenor, representing in the aggregate on the face or faces
thereof the number of Warrant Shares equal (without giving effect to any
adjustment therein) to the number of such shares called for on the face of this
Warrant minus the number of such shares purchased by the Registered Holder upon
such exercise or surrender as provided herein.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

     

    1.2          Exercise by Surrender of
Warrant.  In addition to the method of payment set forth in
Section 1.1 and in lieu of any cash payment required thereunder, the Warrant may
be exercised by surrendering the Warrant in the manner specified in this Section
1, together with irrevocable instructions to the Company to issue in exchange
for the Warrant the number of shares of Common Stock equal to the product of (x)
the number of Warrant Shares multiplied by (y) a fraction, the numerator of
which is the Market Value (as defined below) of the Common Stock less the
Exercise Price and the denominator of which is such Market Value. As used
herein, the phrase “Market Value” at any date shall be deemed to be the volume
weighted average of the last reported sale prices of the Common Stock for the
last ten (10) Trading Days prior to the date of exercise, as officially reported
by the principal securities exchange on which the Common Stock is listed or
admitted to trading, or, if the Common Stock is traded “over the counter”, by a
quotation system (including the pink sheets or Nasdaq OTC Electronic Bulletin
Board) covering such trades or if the Common Stock is not listed or admitted to
trading on any national securities exchange or sold “over the counter,” the
average closing bid price as furnished by the Financial Industry Regulatory
Authority through Nasdaq or similar organization if Nasdaq is no longer
reporting such information, or if the Common Stock is not quoted on Nasdaq or
traded “over the counter,” as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to
it.  “Trading Day” shall mean a day during which trading in securities
generally occurs in the applicable securities market or on the principal
securities exchange or bulletin board on which the Common Stock is then traded,
listed or quoted.

     

    2.     
      Shares to be Fully Paid;
Reservation of Shares. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance by the Company, be duly and validly issued, fully
paid and nonassessable, and free from preemptive rights and free from all taxes,
liens, duties and charges with respect thereto and, in addition, the Company
covenants that it will from time to time take all such action as may be
requisite to assure that the par value per share of the Common Stock is at all
times equal to or less than the effective Exercise Price.  The Company
further covenants that, from and after the Date of Issuance and during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, free from preemptive
rights, out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the exercise of this Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant.  If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the exercise of this
Warrant, the Company shall take any and all corporate action as is necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.  The Company will take
all such action within its control as may be necessary on its part to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any national securities
exchange upon which the Common Stock of the Company may be listed.

     

    3.           Fractional Shares.
The Company shall not be required upon the exercise of this Warrant to issue any
fractional shares, but shall make an adjustment therefor in cash on the basis of
the Market Value for each fractional share of the Company’s Common Stock which
would be issuable upon exercise of this Warrant.

     

    4.           Requirements for
Transfer.

     

    (a)  Warrant Register. The
Company will maintain a register (the “Warrant Register”) containing the names
and addresses of the Registered Holder or Registered Holders. Any Registered
Holder of this Warrant or any portion thereof may change its address as shown on
the Warrant Register by written notice to the Company requesting such change,
and the Company shall promptly make such change. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may treat the
Registered Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary, provided,
however, that if and when this Warrant is properly assigned in blank, the
Company may, but shall not be obligated to, treat the bearer hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.


    
      
         


      

      
        3

        
          

        

      

      
         


      

    


    (b)  Warrant Agent. The
Company may, by written notice to the Registered Holder, appoint an agent for
the purpose of maintaining the Warrant Register referred to in Section 4(a)
hereof, issuing the Common Stock issuable upon the exercise of this Warrant,
exchanging this Warrant, replacing this Warrant or any or all of the foregoing.
Thereafter, any such registration, issuance, exchange, or replacement, as the
case may be, may be made at the office of such agent.

     

    (c)  Transfer. Subject to
the provisions of applicable securities laws and this Section 4, this Warrant
and all rights hereunder are transferable, in whole or in part, upon the
surrender of this Warrant with a properly executed Assignment Form in
substantially the form attached hereto as Annex B (the
“Assignment”) at the principal office of the Company.

     

    (d)
 Exchange of
Warrant Upon a Transfer. On surrender of this Warrant for exchange,
properly endorsed on the Assignment and subject to the provisions of this
Warrant and limitations on assignments and transfers as contained in this
Section 4, the Company at its expense shall issue to or on the order of the
Registered Holder a new warrant or warrants of like tenor, in the name of the
Registered Holder or as the Registered Holder (on payment by the Registered
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.

     

    5.           Adjustment.

     

    5.1           Stock Dividends –
Split-Ups.  If after the date hereof, and subject to the
provisions of Section 5.6 below, the number of outstanding shares of Common
Stock is increased by a stock dividend payable in shares of Common Stock, or by
a split-up of shares of Common Stock, or other similar event, then, on the
effective date of such stock dividend, split-up or similar event, the number of
shares of Common Stock issuable on exercise of each Warrant shall be increased
in proportion to such increase in outstanding shares of Common
Stock.

     

    5.2           Aggregation of
Shares.  If after the date hereof, and subject to the
provisions of Section 5.6, the number of outstanding shares of Common Stock
is decreased by a consolidation, combination, reverse stock split or
reclassification of shares of Common Stock or other similar event, then, on the
effective date of such consolidation, combination, reverse stock split,
reclassification or similar event, the number of shares of Common Stock issuable
on exercise of each Warrant shall be decreased in proportion to such decrease in
outstanding shares of Common Stock.

     

    5.3           Adjustments in Exercise
Price.  Whenever the number of shares of Common Stock
purchasable upon the exercise of the Warrants is adjusted, as provided in
Section 5.1 and 5.2 above, the Exercise Price shall be adjusted (to the nearest
cent) by multiplying such Exercise Price immediately prior to such adjustment by
a fraction (x) the numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise of the Warrants immediately prior to such
adjustment, and (y) the denominator of which shall be the number of shares of
Common Stock so purchasable immediately thereafter.


    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    5.4           Replacement of Securities
upon Reorganization, etc.  In case of any reclassification or
reorganization of the outstanding shares of Common Stock (other than a change
covered by Section 5.1 or 5.2 hereof or that solely affects the par value
of such shares of Common Stock), or in the case of any merger or consolidation
of the Company with or into another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and that does not
result in any reclassification or reorganization of the outstanding shares of
Common Stock), or in the case of any sale or conveyance to another corporation
or entity of all or substantially all of the assets or all or substantially all
other property of the Company, as an entirety or substantially as an entirety,
in connection with which the Company is dissolved, the Warrant holders shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in the Warrants and in lieu of the shares of
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented thereby, the kind and amount of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, reorganization, merger or consolidation, or upon a
dissolution following any such sale or transfer, that the Warrant holder would
have received if such Warrant holder had exercised his, her or its Warrant(s)
immediately prior to such event; and if any reclassification also results in a
change in the number of shares of Common Stock covered by Section 5.1 or
5.2, then such adjustment shall be made pursuant to Sections 5.1, 5.2, 5.3
and this Section 5.4.  The provisions of this Section 5.4
shall similarly apply to successive reclassifications, reorganizations, mergers
or consolidations, sales or other transfers.

     

    5.5           Notices of Changes in
Warrant.  Upon every adjustment of the Warrant Price or the
number of shares issuable upon exercise of a Warrant, the Company shall give
written notice thereof to the Warrant Agent, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of a
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.  Upon the occurrence of
any event specified in Sections 5.1, 5.2, 5.3 or 5.4, then, in any such event,
the Company shall give written notice to each Warrant holder, at the last
address set forth for such holder in the warrant register, of the record date or
the effective date of the event, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of a Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.  Failure to give such notice, or any
defect therein, shall not affect the legality or validity of such
event.

     

    5.6           Form of
Warrant.  The form of Warrant need not be changed because of
any adjustment pursuant to this Section 5, and Warrants issued after such
adjustment may state the same Exercise Price and the same number of shares as is
stated in the Warrants initially issued pursuant to this
Agreement.  However, the Company may at any time in its sole
discretion make any change in the form of Warrant that the Company may deem
appropriate and that does not affect the substance thereof, and any Warrant
thereafter issued or countersigned, whether in exchange or substitution for an
outstanding Warrant or otherwise, shall be in the form as so
changed

     

    
      
         


      

      
        5

        
          

        

      

      
         


      

    

     

    6.           No Impairment. The
Company will not, by amendment of its Articles of Incorporation, as amended, or
through any reorganization, recapitalization, sale or 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 carry out all such
terms and take all such actions as may be reasonably necessary or appropriate in
order to protect the rights herein of the holder of this Warrant against
dilution or other impairment.

     

    7.           Redemption.  At
any time after _______, 2011, [first anniversary of the issuance
date] this Warrant may be redeemed by the Company, in whole but not in
part, at its sole option, upon not less than twenty (20) business days’ prior
written notice as provided in Section 11 hereof (“Redemption Notice”) to the
Registered Holder, at the redemption price of $0.01 per share for every share of
Common Stock purchasable upon exercise hereof at the time of such redemption, if
the last sale price of a share of Common Stock is at least 200% of the Exercise
Price for the 10 consecutive trading days ending on the day prior to the day on
which notice of redemption is given to the Registered Holder.  The
sending of the Redemption Notice shall not affect the Registered Holder’s
ability to exercise the Warrant at any time prior to the date of
redemption.  On and after the date of redemption, the holder shall
only have the right to receive $0.01 per share of Common Stock purchasable upon
exercise hereof at the time of such redemption.

     

    8.           Notices of Record Date,
Etc.  In case the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or of the
voluntary or involuntary dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up.  The Company will use commercially reasonable efforts to
cause such notice to be mailed promptly, and in any event, at least ten (10)
business days prior to the record date or effective date for the event specified
in such notice unless such prior notice is waived by the Registered Holder in
writing.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    

     

    9.           No Rights of
Shareholders.  Subject to other Sections of this Warrant and
the provisions of the Exchange and Conversion Agreement, the Registered Holder
shall not be entitled to vote, to receive dividends or subscription rights, nor
shall anything contained herein be construed to confer upon the Registered
Holder, as such, any of the rights of a shareholder of the Company, including
without limitation any right to vote for the election of directors or upon any
matter submitted to shareholders, to give or withhold consent to any corporate
action (whether upon any recapitalization, issuance of stock, reclassification
of stock, change of par value or change of stock to no par value, consolidation,
merger, conveyance, or otherwise), to receive notices, or otherwise, until the
Warrant shall have been exercised as provided herein.

     

    10.           Replacement of
Warrant. Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and (in the case
of loss, theft or destruction) upon delivery of an indemnity agreement
reasonably satisfactory to the Company, or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.

     

    11.           Mailing of Notices,
Etc.

     

    (i)
           All notices,
requests, consents, and other communications in connection with this Warrant
shall be in writing and shall be deemed delivered (i) three (3) business days
after being sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) one (1) business day after being sent via a reputable
overnight courier service guaranteeing next business day delivery in the
Holder’s country or region, or (iii) on actual receipt if delivered by facsimile
or by hand, in each case delivery shall be made to the intended recipient as set
forth below:

     

    If to the
Company:

     

    Frederick’s
of Hollywood Group Inc.

    1115
Broadway

    New York,
New York 10010

    Facsimile
No.: (212) 213-4925

    Attention:
Thomas J. Lynch, Chief Executive Officer

    


    With a
copy to:

    


    Graubard
Miller

    405
Lexington Avenue

    New York,
New York 10174

    Facsimile
No.: (212) 818-8881

    Attention:
David Alan Miller, Esq.

    


    If to the
Registered Holder:

    


    To the
address set forth in the Warrant Register as described in Section 4
hereof

     

    12.         Change or Waiver. Any
term of this Warrant may be changed or waived only by an instrument in writing
signed by the party against which enforcement of the change or waiver is
sought.


    
      
         


      

      
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    13.         Headings. The
headings in this Warrant are for purposes of reference only and shall not limit
or otherwise affect the meaning of any provision of this Warrant.

     

    14.         Severability.  If
any provision of this Warrant shall be held to be invalid and unenforceable,
such invalidity or unenforceability shall not affect any other provision of this
Warrant.

     

    15.         Governing Law and Submission
to Jurisdiction. This Warrant will be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflict or choice of laws of any jurisdiction.  The parties hereby
agree that any action, proceeding or claim against it arising out of, or
relating in any way to this Warrant shall be brought and enforced in the courts
of the State of New York, and irrevocably submit to such jurisdiction, which
jurisdiction shall be exclusive.

     

    16.         Supplements and
Amendments.  The Company and the Registered Holder may from
time to time supplement or amend this Warrant in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Holder may deem necessary or desirable.

     

    17.         Successors.  All
the covenants and provisions of this Warrant shall be binding upon and inure to
the benefit of the Company and the Registered Holder and their respective
successors and assigns hereunder.

     

    18.         Benefits of this
Warrant.  Nothing in this Warrant shall be construed to give to
any person, entity or corporation other than the Company and the Registered
Holder of the Warrant Certificate any legal or equitable right, remedy or claim
under this Warrant; and this Warrant shall be for the sole and exclusive benefit
of the Company and the Registered Holder of the Warrant
Certificate.


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, FREDERICK’S OF HOLLYWOOD GROUP INC. has caused this Warrant to
be signed by its duly authorized officers under its corporate seal and to be
dated on the day and year first written above.

    


    
      
        
          
            
              	
                      FREDERICK’S
      OF HOLLYWOOD GROUP INC.

                    
	 
      
	
                      By: 

                    	
                       

                    	 
      
	
                      Name:

                    	 
      
	
                      Title:

                    	 
      


            

          

        

      

    


    
      
         


      

      
        9

        
          

        

      

      
         


      

    


    ANNEX A

    


    NOTICE OF EXERCISE
FORM

    


    
      
        
          	
                  To:

                	
                  Dated:

                


        

      

    

    


    In
accordance with the Warrant enclosed with this Form of Election to Purchase, the
undersigned hereby irrevocably elects to purchase  _____________
shares of common stock (“Common Stock”), $.01 par value per share, of
Frederick’s of Hollywood Group Inc. (“Company”) and encloses herewith $________
in cash, certified or official bank check or checks or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined
in the Warrant) for the number of shares of Common Stock to which this Form of
Election to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant.

     

    or

     

    In
accordance with the Warrant enclosed with this Form of Election to Purchase, the
undersigned hereby irrevocably elects to purchase ____________ shares of common
stock (“Common Stock”), $.01 par value per share, of Frederick’s of Hollywood
Group Inc. (“Company”) by surrender of the unexercised portion of the attached
Warrant (with a “Market Value” of $____).

    


    The
undersigned hereby represents, warrants to, and agrees with, the Company
that:

    


    (i)       
    He/She/It is acquiring the Warrant Shares for
his/her/its own account and not with a view towards the distribution
thereof;

    


    (ii)           He/She/It
has received a copy of all reports and documents required to be filed by the
Company with the Commission pursuant to the Securities Exchange Act of 1934, as
amended, within the last 12 months and all reports issued by the Company to its
shareholders;

    


    (iii)          He/She/It
understands that he/she/it must bear the economic risk of the investment in the
Warrant Shares, which cannot be sold unless they are registered under the
Securities Act of 1933 (the “Securities Act”) or an exemption therefrom is
available thereunder and that the Company is under no obligation to register the
Warrant Shares for sale under the Securities Act;

    


    (iv)          He/She/It
is aware that the Company shall place stop transfer orders with its transfer
agent against the transfer of the Warrant Shares in the absence of registration
under the Securities Act or an exemption therefrom as provided
herein;

    


    
      
        
          
            	 	
                    Signature:

                  
	 	 
      
	 	
                    Address:

                  


          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    ANNEX
B

    


    ASSIGNMENT
FORM

    


    FOR VALUE
RECEIVED, _________________________________ hereby sells, assigns and transfers
all of the rights of the undersigned under the attached Warrant with respect to
the number of shares of Common Stock covered thereby set forth below,
unto:

    


    
      
        
          
            
              	
                      Name of Assignee

                    	 	
                      Address

                    	 	
                      No. of
Shares

                    


            

             

             

          

        

      

    

    


    
      
        	
                Dated:

              
	 
      
	
                Signature:

              
	 
      
	
                Dated:

              
	 
      
	
                Witness:

              


      

    


    
      
         


      

      
        2