Document:

EXHIBIT 10.1

 

THIRD AMENDMENT
TO

CREDIT
AND SECURITY AGREEMENT

 

This
THIRD Amendment to Credit AND SECURITY Agreement (this “Amendment”)
is entered into as of July 25, 2013, by and among Frederick’s of Hollywood Group
Inc., a New York corporation (“Group”), FOH Holdings, Inc.,
a Delaware corporation (“Parent”), Frederick’s of Hollywood Inc.,
a Delaware corporation (“Frederick’s”), Frederick’s of Hollywood
Stores, Inc., a Nevada corporation (“Stores”), and Hollywood
Mail Order, LLC, a Nevada limited liability company (“Mail Order” and together with Group, Parent, Frederick’s
and Stores, each individually, a “Borrower”, and collectively, the “Borrowers”) and SALUS
CAPITAL PARTNERS, LLC (the “Lender”).

 

RECITALS

 

WHEREAS, Borrowers
and Lender are parties to that certain Credit and Security Agreement, dated as of May 31, 2012 (as amended, supplemented, modified
and in effect from time to time, the “Credit Agreement”; all capitalized terms used but not specifically defined
herein shall have the respective meanings provided for such terms in the Credit Agreement); and

 

WHEREAS, Borrowers
have requested that Lender modify certain provisions of the Credit Agreement, and Lender has agreed to do so on the terms and conditions
set forth herein.

 

NOW, THEREFORE, in
consideration of the foregoing and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

 

1.           Amendments
to the Credit Agreement. As of the effective date of this Amendment, the Credit Agreement is hereby amended as follows:

 

A.           Section 1 of the Credit
Agreement is hereby amended by adding the following defined term to be inserted in its proper alphabetical order:

 

“Third
Amendment” means that certain Third Amendment to Credit and Security Agreement dated as of July 25, 2013 by and among
the Borrowers and Lender.”

 

“Third
Amendment Effective Date” means July 25, 2013.”

 

B.           Section
2.4 of the Credit Agreement is hereby amended by deleting subsection 2.4(a) in its entirety and replacing it with the following:

 

“(a)           Interest
Rate Applicable to the Line of Credit. Except as otherwise provided in this Agreement, the unpaid principal amount of each
Advance (other than the FILO Advance) shall bear interest at a rate per annum equal to sum of (x) the Prime Rate, plus (y)
the Applicable Margin; provided, that (i) the effective interest rate payable by Borrowers with respect to such Advances
shall at no time be less than seven percent (7.0%) per annum, which minimum interest rate will apply regardless of fluctuations
in the Prime Rate that would otherwise cause the interest rate applicable to such Advances to be less than such minimum interest
rate floor, and (ii) notwithstanding the foregoing, during the period from and including the Third Amendment Effective Date through
October 31, 2013, the initial $1,500,000 of the outstanding balance of the Advances (other than the FILO Advance) shall bear interest
at twenty percent (20%) per annum.”

 

    	 

    	 

    

 

C.           Section
6 of the Credit Agreement is hereby amended by deleting subsection 6.2 in its entirety and replacing it with the following:

 

“(a)           Minimum Excess Availability.
From the Third Amendment Effective Date until October 31, 2013, there shall be no minimum excess Availability requirement. At
all times from and after October 31, 2013, Borrowers shall maintain Availability of no less than $1,500,000.”

 

D.           Section
6 of the Credit Agreement is hereby amended by adding a new Section 6.11 as follows:

 

“6.11     Budget.

 

(a)           Borrowers
have prepared and delivered to the Lender a budget (the “Budget”; which shall mean the initial budget, dated
July 23, 2013, and delivered to the Lender on July 23, 2013, together with any subsequent or amended budget(s) delivered to and
reasonably acceptable to Lender) which sets forth, among other information, (A) projected aggregate weekly cash disbursements of
Borrowers, (B) the projected aggregate amount of the total outstanding Obligations, (C) projected revenues of the Borrowers, and
(D) availability under the Borrowing Base. In addition, each week thereafter, Borrowers shall deliver to Lender, in form and substance
acceptable to Lender, a subsequent weekly Budget for the period from the delivery of such Budget forward for thirteen (13) weeks,
which subsequent Budget(s) shall roll forward by one week the immediately preceding Budget.

 

(b)           Not
later than 5:00 p.m. (Eastern time) on the Wednesday of each week following the end of each week set forth in the Budget, Borrowers
shall deliver or cause to be delivered to Lender, in form and substance satisfactory to Lender, a report that sets forth for the
immediately preceding week a comparison of Borrowers’ actual cash disbursements for, outstanding Obligations as of the end
of, and actual revenues for such week to Borrowers’ projected cash disbursements for, outstanding Obligations as of the end
of, and projected revenues for such week as set forth in the Budget.”

 

E.           Section
6 of the Credit Agreement is hereby amended by adding a new Section 6.12 as follows:

 

“6.12     Consultant.
No later than August 2, 2013, Borrowers shall have engaged HRC Retail Consulting LLC (or another consultant reasonably acceptable
to Lender with experience in turnaround situations in the retail industry) (the “Consultant”) at their sole
cost and expense. The terms, conditions, scope and duration of the Borrowers’ engagement of the Consultant shall be reasonably
acceptable to the Lender.”

 

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F.           Section
8.1 of the Credit Agreement is hereby amended by deleting subsection (c) in its entirety and replacing such subsection with the
following:

 

“(c)           Borrowers
fail to observe or perform any covenant or agreement of Borrowers set forth in (i) any of clauses (e) through (q) or clause (s)
of Section 6.1, Section 6.2, Section 6.3, Section 6.9, Section 6.11 or Section 6.12
of this Agreement, or (ii) clauses (a), (b), (c), (d) or (r) of Section 6.1 of this Agreement, and such failure, if capable
of being remedied, shall remain unremedied for two (2) Business Days after the earlier of (A) the date upon which a Designated
Officer obtains knowledge of such failure, or (B) the date upon which Borrowers have received notice of such failure from
Lender, or (iii) any other covenant or agreement contained in Section 6 or elsewhere in this Agreement or in any other Loan
Document, and such failure, if capable of being remedied, shall remain unremedied for fifteen (15) days after the earlier of (A) the
date upon which a Designated Officer obtains knowledge of such failure, or (B) the date upon which Borrowers have received
notice of such failure from Lender;”

 

2.           Conditions
Precedent. The effectiveness of this Amendment is subject to the following conditions precedent (all documents to be in form
and substance satisfactory to Lender):

 

(a)           Lender shall have
received this Amendment executed by the Borrowers;

 

(b)           Lender
shall have received the resolutions of the board of directors or governing body of each of the Borrowers approving the execution
and delivery of this Amendment and the transactions contemplated hereby;

 

(c)           After
giving effect to this Amendment (i) all representations and warranties of the Borrowers set forth herein and in the Loan Documents
shall be true and correct in all material respects, (ii) no Event of Default or any other event which, upon the lapse of time,
service of notice, or both, which would constitute an Event of Default under any of the Loan Documents, shall have occurred and
be continuing, and (iii) Borrowers shall be in compliance with the Credit Agreement and the other Loan Documents; and Borrowers
shall have certified the foregoing matters to Lender; and

 

(d)           The
Borrowers shall pay to the Lender an amendment fee of $50,000.00, which fee shall be fully earned on the Third Amendment Effective
Date.

 

3.           Representations,
Warranties. Borrowers represent that, after giving effect to this Amendment:

 

(a)           No
consent or approval of, or exemption by any Person is required to authorize, or is otherwise required in connection with the execution
and delivery of this Amendment which has not been obtained and which remains in full force and effect; and

 

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(b)           As
of the date hereof, each of the representations and warranties of the Borrowers set forth in the Credit Agreement and the other
Loan Documents are true, correct and complete in all material respects, except to the extent such representations and warranties
speak as to an earlier date, in which case the same are true, correct and complete as to such earlier date; and no Default or Event
of Default exists under the Credit Agreement.

 

4.           Confirmation
of Security Interests. Borrowers hereby confirm the security interests and liens granted by Borrowers to Lender, in and to
the Collateral in accordance with the Credit Agreement and other Loan Documents as security for the Obligations.

 

5.           Payment of
Lender Fees and Expenses. Borrowers agree to pay any and all fees and expenses, including reasonable counsel fees and disbursements,
incurred by Lender in connection with the preparation and execution of this Amendment and all documents, instruments and agreements
contemplated hereby.

 

6.           No Other Modifications,
Conflicts with Loan Documents, etc. This Amendment is intended to supplement and modify the Credit Agreement and the rights
and obligations of the parties under the Credit Agreement shall not in any way be vacated, modified or terminated except as herein
provided. All terms and conditions contained in each and every agreement or promissory note or other evidence of indebtedness of
Borrowers to the Lenders are incorporated herein by reference. If there is a conflict between any of the provisions of the Credit
Agreement and the provisions of this Amendment, then the provisions of this Amendment shall govern.

 

7.           Governing
Law. This Amendment shall be construed in accordance with the substantive laws (other than conflict laws) of the State of New
York.

 

8.           Full Force
and Effect. Except as expressly amended hereby, all terms and conditions of the Credit Agreement, and any and all Exhibits
annexed thereto and all other writings submitted by the Borrowers to the Lender pursuant thereto, shall remain unchanged and in
full force and effect.

 

9.           Counterparts.
This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which
shall be considered one and the same document. Delivery of an executed counterpart of a signature page of this document by facsimile
or by electronic mail or e-mail file attachment shall be effective as delivery of a manually executed counterpart of this document.

 

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10.           RELEASE.
EACH BORROWER, TOGETHER WITH ITS SUCCESSORS AND ASSIGNS, HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT,
CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO
REPAY THE INDEBTEDNESS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. EACH BORROWER HEREBY VOLUNTARILY
AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, AFFILIATES SUCCESSORS AND ASSIGNS, FROM
ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, ASSERTED OR UNASSERTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWERS MAY NOW OR HEREAFTER
(WHETHER OR NOT PRESENTLY SUSPECTED, CONTEMPLATED OR ANTICIPATED) HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS
AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS,
OR OTHERWISE, AND ARISING FROM ANY LOAN OR ADVANCE, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER
THE CREDIT AGREEMENT OR LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.

 

[Signature Page Follows.]

 

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IN WITNESS WHEREOF,
the parties hereto have caused this Third Amendment to the Credit and Security Agreement to be executed and delivered as of the
day and year first above written.

 

	 	BORROWERS:	 
	 	 	 
	 	FREDERICK’S OF HOLLYWOOD GROUP INC.	 
	 	 	 
	 	By:	/s/ Thomas Lynch	 
	 	 	Name:  Thomas Lynch	 
	 	 	Title:  Chief Executive Officer	 
	 	 	 
	 	FOH HOLDINGS, INC.	 
	 	 	 
	 	By:	/s/ Thomas Lynch	 
	 	 	Name:  Thomas Lynch	 
	 	 	Title:  Chief Executive Officer	 
	 	 	 
	 	FREDERICK’S OF HOLLYWOOD, INC.	 
	 	 	 
	 	By:	/s/ Thomas Lynch	 
	 	 	Name:  Thomas Lynch	 
	 	 	Title:  Chief Executive Officer	 
	 	 	 
	 	FREDERICK’S OF HOLLYWOOD STORES, INC.	 
	 	 	 
	 	By:	/s/ Thomas Lynch	 
	 	 	Name:  Thomas Lynch	 
	 	 	Title:  Chief Executive Officer	 
	 	 	 
	 	HOLLYWOOD MAIL ORDER, LLC	 
	 	 	 
	 	By:	/s/ Thomas Lynch	 
	 	 	Name:  Thomas Lynch	 
	 	 	Title:  Chief Executive Officer	 
	 	 	 
	 	LENDER:	 
	 	 	 
	 	SALUS CAPITAL PARTNERS, LLC	 
	 	 	 
	 	By:	/s/ Kyle Shonak	 
	 	 	Name:  Kyle Shonak	 
	 	 	Title:  Senior Vice President	 

 

[Third Amendment to Credit and Security
Agreement]AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This Amended and Restated Agreement (the
“Agreement”), dated as of July 30, 2013 (the “Agreement Date”), is by and between WORLD SURVEILLANCE GROUP
INC. (the “Company”) and GLENN D. ESTRELLA (the “Executive”).

 

Introduction

 

WHEREAS, the Company and the Executive entered
into a Confidential Employment Agreement dated June 23, 2010 (the “Effective Date”) and an Amended and Restated Employment
Agreement on December 27, 2010 (the “Prior Agreement”);

 

WHEREAS, the Company and the Executive want
to hereby amend and restate in full the Prior Agreement and the Company desires to retain the services of the Executive pursuant
to the terms and conditions set forth herein and the Executive wishes to be employed by the Company on such terms and conditions.

 

NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.          Employment.
Pursuant to the terms and conditions herein, the Company shall employ the Executive from the Effective Date and during the Term
(as defined below) hereof. The term of this Agreement shall extend from the Effective Date until June 22, 2013 (the “Initial
Term”), provided, however, that the Agreement shall be extended for successive one year terms thereafter unless a party notifies
the other in writing within thirty (30) days prior to the end of either the Initial Term or any successive one year renewal term
that the Agreement is not being renewed or unless terminated earlier pursuant to the terms hereof (the Initial Term and each successive
one year renewal term being collectively known as the “Term”).

 

2.          Duties.
The Executive will serve as the President and Chief Executive Officer of the Company and shall have such duties of an executive
nature as the Board of Directors of the Company (the “Board”) shall determine from time
to time. The Executive will also serve as a member of the Company’s Board of Directors and in such positions with
the Company’s subsidiaries as the Board shall determine from time to time. The Executive will be based in the Company’s
offices in Kennedy Space Center, Florida.

 

3.          Full
Time; Best Efforts. The Executive shall use the Executive’s best efforts to promote the interests of the Company and
its affiliated companies and shall devote the Executive’s full business time and efforts to their business and affairs. Notwithstanding
the foregoing, Executive may serve on other boards of directors, with the approval of the Board, or engage in religious, charitable
or other community activities as long as such services and activities do not materially interfere with the Executive’s performance
of the Executive’s duties to the Company as provided in this Agreement.

 

    	 

    	 

    

 

4.           Compensation
and Benefits. During the Term of Executive’s employment with the Company under this Agreement, the Executive shall be
entitled to compensation and benefits as follows:

 

(a)          Base
Salary. The Executive will receive a salary at the rate of $250,000 annually (the “Base Salary”), payable in accordance
with the Company’s normal payroll practices and subject to applicable taxes and withholding. The Executive’s Base Salary
may from time to time be increased, but not decreased, by the Board. The Executive may at any time elect to take a portion of the
amounts owed as Base Salary as common stock, par value $0.00001 per share, of the Company (the “Common Stock”)..

 

(b)          Bonus.
The Executive will be eligible for an annual bonus for each fiscal year at the discretion of the Board (the “Bonus”).
The Bonus for a particular fiscal year will be payable within 75 days of the end of such fiscal year. The payment of any Bonus
shall be prorated for any partial fiscal year during the Term of this Agreement. The Board shall determine in good faith the amount
of the Bonus, and such determination shall be binding and conclusive on the Executive.

 

(c)          Intentionally
Omitted.

 

(d)          Stock
Options.  It is anticipated that, based on performance and at the discretion of the Board, option grants to purchase shares
of Common Stock may be made approximately annually.

 

(e)          Benefits.
In addition to the Base Salary and any Bonus, the Executive shall be entitled to receive fringe benefits that are generally available
to the Company’s executive employees in accordance with the then existing terms and conditions of the Company’s policies,
including medical insurance at the Company’s expense for Executive and his family.

 

(f)          Vacation.
The Executive shall be entitled to twenty (20) business days of paid vacation per fiscal year in accordance with the Company’s
vacation policies.

 

(g)          Business
Expenses. The Company shall reimburse the Executive for all reasonable expenses incurred by the Executive in the ordinary course
of business on behalf of the Company, subject to the presentation of appropriate documentation.

 

(h)          Cell
Phone. The Company shall reimburse the Executive for all reasonable expenses for the use of a cell phone in connection with
the Executive’s employment with the Company.

 

(i)          Withholding.
The Company will withhold from compensation payable to the Executive all applicable federal, state and local withholding taxes.

 

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(j)          Directors
and Officers Insurance; Indemnity. The Company does not currently have Directors and Officers Liability Insurance, but
the Company hereby agrees to purchase such insurance to cover all officers and directors when commercially practicable. To the
fullest extent permitted by law, the Company will indemnify the Executive against, and will hold the Executive harmless from, and
pay any expenses (including without limitation, all legal fees and court costs), judgments, fines, penalties, settlements, damages
and other amounts arising out of or in connection with any act or omission of the Executive performed or made in good faith on
behalf of the Company, regardless of negligence. The foregoing provisions will survive the Term of this Agreement and the termination
of Executive’s employment with the Company for any reason whatsoever and regardless of fault.

 

5.           Confidentiality;
Intellectual Property. The Executive agrees that during the Executive’s employment with the Company, whether or not under
this Agreement, and thereafter:

 

(a)          The
Executive will not at any time, directly or indirectly, disclose or divulge any Confidential Information (as hereinafter defined),
except as required in connection with the performance of the Executive’s duties for the Company, and except to the extent
required by law (but only after the Executive has provided the Company with reasonable notice and opportunity to take action against
any legally required disclosure). As used herein, “Confidential Information” means all trade secrets and all other
information of a business, financial, marketing, technical or other nature relating to the business of the Company including, without
limitation, any customer or vendor lists, prospective customer names, financial statements and projections, know-how, pricing policies,
operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, computer
hardware, software programs, business plans and projects pertaining to the Company and including any information of others that
the Company has agreed to keep confidential; provided, that Confidential Information shall not include any information that
has entered or enters the public domain through no fault of the Executive or any information known to the Executive before the
Effective Date.

 

(b)          The
Executive shall make no use whatsoever, directly or indirectly, of any Confidential Information at any time, except as required
in connection with the performance of the Executive’s duties for the Company.

 

(c)          Upon
the Company’s request at any time and for any reason, the Executive shall immediately deliver to the Company, or destroy
if directed by the Company, all materials (including all soft and hard copies) in the Executive’s possession which contain
or relate to Confidential Information.

 

(d)          All
inventions, modifications, discoveries, designs, developments, improvements, processes, software programs, works of authorship,
documentation, formulae, data, techniques, know-how, secrets or intellectual property rights or any interest therein (collectively,
the “Developments”) made by the Executive, either alone or in conjunction with others, at any time or at any place
during the Executive’s employment with the Company, whether or not reduced to writing or practice during such period of employment,
which relate to the business in which the Company is engaged shall be and hereby are the exclusive property of the Company without
any further compensation to the Executive. In addition, without limiting the generality of the prior sentence, all Developments
which are copyrightable work by the Executive are intended to be “work made for hire” as defined in Section 101 of
the Copyright Act of 1976, as amended, and shall be and hereby are the property of the Company.

 

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(e)          The
Executive shall promptly disclose all Developments to the Company. If any Development is not the property of the Company by operation
of law, this Agreement or otherwise, the Executive will, and hereby does, assign to the Company all right, title and interest in
such Development, without further consideration, and will assist the Company and its nominees in every way, at the Company’s
expense, to secure, maintain and defend the Company’s rights in such Development. The Executive shall sign all instruments
necessary for the filing and prosecution of any applications for, or extension or renewals of, letters patent (or other intellectual
property registrations or filings) of the USA or any foreign country which the Company desires to file and relates to any Development.
The Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as such Executive’s
agent and attorney-in-fact (which designation and appointment shall be deemed coupled with an interest and shall survive the Executive’s
death or incapacity), to act for and in the Executive’s behalf to execute and file any such applications, extensions or renewals
and to do all other lawfully permitted acts to further the prosecution and issuance of such letters patent, other intellectual
property registrations or filings, or such other similar documents with the same legal force and effect as if executed by the Executive.

 

(f)          Attached
hereto as Exhibit A is a list of all inventions, modifications, discoveries, designs, developments, improvements,
processes, software programs, works of authorship, documentation, formulae, data, techniques, know-how, secrets or intellectual
property rights or any interest therein made by the Executive prior to the Executive performing services for the Company (collectively,
the “Prior Inventions”) which (i) the Executive owns or has interest therein, (ii) relate to the business of the Company
and (iii) are not assigned to the Company hereunder; or, if no such list is attached, Executive represents that there are no such
Prior Inventions. If in the course of the Executive performing services for the Company, the Executive incorporates into a Company
product, process or machine a Prior Invention owned by the Executive or in which the Executive has an interest, the Company is
hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, transferable, worldwide license to make, have
made, modify, use, sell and otherwise exploit such Prior Invention as part of or in connection with such product, process or machine
and any and all enhancements and extensions thereof.

 

6.           Noncompetition;
Nonsolicitation. The Executive agrees that:

 

(a)          during
the Executive’s employment with the Company, whether or not under this Agreement, and thereafter during the Noncompetition
Period (as hereinafter defined), the Executive will not, directly or indirectly, individually or as a consultant to, or an employee,
officer, director, manager, stockholder (except as the owner of less than 1% of the stock of a publicly traded company), partner,
member or other owner or participant in any business entity other than the Company, engage in or assist any other person or entity
to engage in any business which competes with any business in which the Company is then engaging anywhere in the USA or the world
where the Company does business.

 

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(b)          during
the Executive’s employment with the Company, whether or not under this Agreement, and thereafter during the Noncompetition
Period, the Executive will not, directly or indirectly, individually or as a consultant to, or an employee, officer, director,
manager, stockholder (except as the owner of less than 1% of the stock of a publicly traded company), partner, member or other
owner or participant in any business entity, offer employment or any consulting arrangement to, hire, or otherwise interfere with
the business relationship of the Company with, any person or entity who is, or was within the six month period immediately prior
thereto, employed by, associated with or a consultant to the Company.

 

(c)          during
the Executive’s employment with the Company, whether or not under this Agreement, and thereafter during the Noncompetition
Period, the Executive will not, directly or indirectly, individually or as a consultant to, or an employee, officer, director,
manager, stockholder (except as the owner of less than 1% of the stock of a publicly traded company), partner, member or other
owner or participant in any business entity, solicit away from the Company or endeavor to entice away from the Company, or otherwise
interfere with the business relationship of the Company with, any person or entity who is, or was within the six month period immediately
prior thereto, a customer, dealer, distributor or client of, supplier, vendor or service provider to the Company.

 

(d)          As
used herein, “Noncompetition Period” means 12 months from the date of the termination of Executive’s employment
with the Company, provided, however, that such period shall only be 6 months if the Company terminates the Executive’s
employment without Cause or the Executive terminates his employment for Good Reason.

 

7.           Remedies;
Applicability to Affiliated Companies. Without limiting the remedies available to the Company, the Executive acknowledges that
a breach of this Agreement, including any of the covenants contained in Sections 5 or 6 herein, could result in irreparable injury
to the Company for which there might be no adequate remedy at law, and that, in the event of such a breach or threat thereof, the
Company shall be entitled to obtain a temporary restraining order and/or a preliminary injunction and a permanent injunction restraining
the Executive from engaging in any activities prohibited herein or such other equitable relief as may be required to enforce specifically
any of the provisions herein. The foregoing provisions and the provisions of Sections 5 and 6 herein shall survive the term of
this Agreement and the termination of the Executive’s employment with the Company, and shall continue thereafter in full
force and effect in accordance with their terms. For purposes of Sections 5, 6 and 7 of this Agreement, the term “Company”
shall include the Company, each of its affiliated companies, subsidiaries and parent company, as applicable, and their respective
successors and assigns.

 

8.           Termination.

 

(a)          General.
The Executive’s employment with the Company may be terminated at any time by the Company during the Term hereof with
Cause or without Cause (which in the case of a termination without Cause shall be effective after at least thirty (30) days prior
written notice thereof from the Company to the Executive), or in the event of the death or Disability of the Executive. The Executive’s
employment with the Company may also be terminated by the Executive in accordance with the Good Reason Process (hereinafter defined)
or after at least thirty (30) days prior written notice thereof from the Executive to the Company. Upon receipt of such notice,
the Company may elect, in its discretion, to terminate the employment of Executive at any time following such notice; provided
however that in the event the Company elects to terminate the Executive following notice, Executive’s Base Salary and benefits
including any vesting of equity shall continue to be paid and accrued during the notice period.

 

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(b)          Definitions.
As used herein, the following terms shall have the following meanings:

 

“Cause” means that
the Executive has (i) willfully breached in any material respect any fiduciary duty or legal or contractual obligation to the Company
or any of its affiliated companies, which breach in the case of a contractual obligation to the Company, if curable, is not cured
within thirty (30) days after written notice to the Executive thereof, (ii) willfully failed to perform satisfactorily the Executive’s
material job duties, which failure, if curable, is not cured within thirty (30) days after written notice to the Executive thereof,
(iii) engaged in gross negligence, willful misconduct, fraud, embezzlement, or acts of dishonesty that has resulted in material
injury to the Company or any of its affiliated companies, or (iv) been convicted of or pleaded nolo contendere to (A) any misdemeanor
relating to the affairs of the Company or any of its affiliated companies or (B) any felony.

 

“Disability” means
illness (mental or physical), which results in the Executive being unable to perform the Executive’s duties as an employee
of the Company for a period of three (3) consecutive months, or an aggregate of six (6) months in any twelve (12) month period,
as determined in the reasonable judgment of an independent physician mutually agreed upon by the Executive, or her personal representative
(as the case may be), and the Company. Nothing in this Section 8(b) shall be construed to waive the Executive’s rights, if
any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. s.2601 et seq.
and the Americans with Disabilities Act, 42 U.S.C. s.12101 et seq.

 

“Good Reason” means
that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any
of the following events: (i) a material diminution in the Executive’s responsibilities, authority or duties, (ii) any
diminution in the Executive’s Base Salary, (iii) a material change in the geographic location at which the Executive
is required to provide services to the Company (aside from work-related travel), or (iv) the material breach of this Agreement
by the Company (each a “Good Reason Condition”). Good Reason Process shall mean that (i)  the Executive notifies
the Company in writing of her belief in the occurrence of the Good Reason Condition within 60 days of the first occurrence
of such condition, (ii)  the Company fails to fully cure the Good Reason Condition within 30 days following such notice
(the “Cure Period”), and (iii) the Executive terminates employment within 60 days after the end of the Cure
Period.

 

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(c)         Effects of Termination. If
the Executive’s employment is terminated during the Term of this Agreement, the Company shall have no further obligation
to make any payments or provide any benefits to the Executive hereunder after the date of termination except for (i) payments of
Base Salary, Bonus and expense reimbursement that had accrued, but had not yet been paid, and any vested
benefits the Executive may have under any employee benefit plans, through the date of termination, (ii) payments for any
accrued but unused vacation time in accordance with Company policy and (iii) if the Executive’s employment with the Company
is terminated by the Company without Cause (other than as a result of the death or Disability of the Executive, or as contemplated
by Section 8(d) below), or by the Executive for Good Reason (A) continuation for a period of six (6) months (the “Severance
Period”) of payments of Base Salary at the rate in effect at the date of termination, (B) a prorated portion of his annual
Bonus for the year in which the termination occurs for performance through the date of the termination as determined in good faith
by the Board, and (C) all health and dental benefits, including the cost of COBRA continuation coverage for Executive and his eligible
dependents during the Severance Period, payable beginning on the first payroll day following the termination date.

 

(d)          Conditions
and Limitations to Severance. Notwithstanding the foregoing, the Company’s obligations to make payments to the Executive
under Section 8(c)(iii) of this Agreement shall be subject to the following provisions and conditions:

(i)          General
Release of Claims. The Company’s obligation to make payments under Section 8(c)(iii) of this Agreement shall be contingent
upon the Executive executing a general release of claims in a customary and reasonable form.

 

(ii)         Consequences
of Breach. If the Executive breaches the Executive’s obligations under Sections 5 or 6 of this Agreement, the Company
may immediately cease all payments payable to the Executive under Section 8(c)(iii) of this Agreement. The cessation of these payments
shall be in addition to, and not as an alternative to, any other remedies at law or in equity available to the Company, including
without limitation the right to seek specific performance or an injunction.

 

(e)          Survival.
The provisions of Sections 5 through 20 of this Agreement shall survive the Term of this Agreement and the termination of the
Executive’s employment with the Company, and shall continue thereafter in full force and effect in accordance with their
terms.

 

9.           Enforceability.
This Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision hereof
shall be prohibited or invalid under any such law, such provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating or nullifying the remainder of such provision or any other provisions of this Agreement. If any one or more
of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provisions shall be construed by limiting and reducing it so as to be enforceable to the maximum
extent permitted by applicable law.

 

10.          Notices.
Any notice, demand or other communication given pursuant to this Agreement shall be in writing and shall be personally delivered,
sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage
prepaid, return receipt requested, or otherwise actually delivered as follows: (a) if to the Executive: Glenn D. Estrella, 1608
Sheridan Drive, Wall Township, NJ 07753, (b) if to the Company: World Surveillance Group Inc., State Road 405, Building
M6-306A, Room 1400, Kennedy Space Center, FL 32815 or mailing address: Mail Code: SWC, Kennedy Space Center, FL 32899, or (c) at
such other address as may have been furnished by such person in writing to the other parties.

 

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11.         Governing
Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida, without
regard to its conflict of law provisions. The Company and Executive hereby submit to the jurisdiction of the courts of the State
of Florida and of the United States located in Brevard County of Florida and each agrees not to raise and waive any objection to
or defense based on the venue of any such court or forum non conveniens.

 

12.         Section
409A. This Agreement is intended to comply with the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder. To the extent that any provision in this
Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be interpreted in a manner so that
no payment due to Executive shall be subject to an “additional tax” within the meaning of Section 409A(a)(1)(B) of
the Code. To the extent that any provision in the Agreement is ambiguous as to its compliance with Section 409A of the Code, or
to the extent any provision in the Agreement must be modified to comply with Section 409A of the Code, such provision shall be
read, or shall be modified (with the mutual consent of the parties), as the case may be, in such a manner so that no payment due
to Executive shall be subject to an “additional tax” within the meaning of Section 409A(a)(1)(B) of the Code.

 

For purposes of Section
409A of the Code, each payment made under this Agreement shall be treated as a separate payment. In no event may Executive, directly
or indirectly, designate the calendar year of any payment. All reimbursements provided under this Agreement shall be made or provided
in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement
be for expenses incurred during Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii)
the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement
in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar
year following the year in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or
exchange for another benefit.

 

Notwithstanding anything
to the contrary herein, if a payment or benefit under this Agreement is due to a “separation from service” for purposes
of the rules under Treas. Reg. § 1.409A-3(i)(2) (payments to specified employees upon a separation from service) and Executive
is determined to be a “specified employee” (as determined under Treas. Reg. § 1.409A-1(i)), such payment or benefit
shall, to the extent necessary to comply with the requirements of Section 409A of the Code, be made or provided on the later of
the date specified by the foregoing provisions of this Agreement or the date that is six months after the date of Executive’s
separation from service (or, if earlier, the date of Executive’s death). Any installment payments that are delayed pursuant
to this Section 12 shall be accumulated and paid in a lump sum on the first day of the seventh month following Executive’s
separation from service, and the remaining installment payments shall begin on such date in accordance with the schedule provided
in this Agreement.

 

    	8

    	 

    

 

13.         Amendments
and Waivers. This Agreement may be amended or modified only by a written instrument signed by the Company and the Executive.
No waiver of this Agreement or any provision hereof shall be binding upon the party against whom enforcement of such waiver is
sought unless it is made in writing and signed by or on behalf of such party. The waiver of a breach of any provision of this Agreement
shall not be construed as a waiver or a continuing waiver of the same or any subsequent breach of any provision of this Agreement.
No delay or omission in exercising any right under this Agreement shall operate as a waiver of that or any other right.

 

14.         Binding
Effect. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective heirs, executors
and administrators, successors and permitted assigns, except that the rights and obligations of the Executive hereunder are personal
and may not be assigned without the Company’s prior written consent. Without limiting the generality of the prior sentence,
it is understood that the Company’s successors and assigns shall have the right to enforce Sections 5, 6 and 7 of this Agreement.
The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same
extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain an assumption
of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement. Any assignment
of this Agreement by the Company shall not constitute a termination of the Executive’s employment. Each affiliated company,
subsidiary and parent company of the Company shall be an intended third party beneficiary of Sections 5, 6 and 7 of this Agreement.

 

15.         Entire
Agreement. This Agreement constitutes the final and entire agreement of the parties with respect to the matters covered hereby
and replaces and supersedes all other agreements and understandings, including the Prior Agreement, relating hereto and to the
Executive’s employment.

 

16.         Counterparts.
This Agreement may be executed in any number of counterparts, including counterpart signature pages or counterpart facsimile signature
pages, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

17.         No
Conflicting Agreements. The Executive represents and warrants to the Company that the Executive is not a party to or bound
by any confidentiality, noncompetition, nonsolicitation, employment, consulting or other agreement or restriction which could conflict
with, or be violated by, the performance of the Executive’s duties to the Company or obligations under this Agreement.

 

18.         Review
of Agreement. The Executive acknowledges that the Executive (a) has carefully read and understands all of the provisions of
this Agreement and has had the opportunity for this Agreement to be reviewed by counsel, (b) is voluntarily entering into this
Agreement and (c) has not relied upon any representation or statement made by the Company (or its affiliates, equity holders, agents,
representatives, employees or attorneys) with regard to the subject matter or effect of this Agreement. The Executive further acknowledges
that the provisions in Sections 5, 6 and 7 of this Agreement are reasonable and necessary to protect the goodwill, customer relationships,
legitimate business interests and Confidential Information of the Company and its affiliated companies, and the Company would not
have entered into this Agreement without the benefit of such provisions.

 

    	9

    	 

    

 

19.         Captions.
The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.

 

20.         No
Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises under any provision of this Agreement, this Agreement shall be
construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of authoring any of the provisions of this Agreement.

 

[Remainder of Page
Intentionally Left Blank.]

 

    	10

    	 

    

 

This Agreement has been executed and delivered
as a sealed instrument as of the date first above written.

 

	 	WORLD SURVEILLANCE GROUP INC.
	 	 	 
	 	By:	/s/ Wayne Jackson
	 	 	Name:  Wayne Jackson
	 	 	Title:  Chairman of the Compensation
	 	Committee of the Board of Directors
	 	 
	 	EXECUTIVE
	 	 
	 	/s/ Glenn D. Estrella	 
	 	Glenn D. Estrella
	 	 	 	 

 

    	 

    	 

    

 

EXHIBIT A

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