THIS EMPLOYMENT
AGREEMENT dated as of January 29, 2009 by and between
FREDERICK’S OF HOLLYWOOD GROUP INC., a New York corporation
having its principal office at 1115 Broadway, New York, New York
10010 (“Company”), and THOMAS LYNCH, residing at
(“Executive”).
WHEREAS, the
Company desires to employ Executive as its Chief Executive Officer
pursuant to the terms and conditions herein set forth, superseding
all prior agreements between the Company, its subsidiaries and/or
predecessors and Executive.
1.
Employment, Duties and Acceptance .
1.1.
General . During the Term (as defined herein), the Company
shall employ Executive as its Chief Executive Officer
(“CEO”). All of Executive’s powers and authority
in any capacity shall at all times be subject to the direction and
control of the Company’s Board of Directors. Executive shall
report directly to the Board of Directors of the Company. The Board
may assign to Executive such general management and supervisory
responsibilities and executive duties for the Company or any
subsidiary of the Company, including serving as a director, as are
consistent with Executive’s status as CEO. The Company and
Executive acknowledge that Executive’s primary functions and
duties as CEO shall be to manage and supervise the overall
operations of the Company’s business.
1.2. Full-Time
Position . Executive accepts such employment and agrees to
devote substantially all of his business time, energies and
attention to the performance of his duties hereunder. Nothing
herein shall be construed as preventing Executive from making and
supervising personal investments, provided they will not interfere
with the performance of Executive’s duties hereunder or
violate the provisions of Section 6.4 hereof.
1.3.
Location . Executive shall be based in New England.
Executive shall undertake such travel, within or outside the United
States, as is reasonably necessary in the interests of the Company
to fully perform his duties hereunder.
2. Term
. The term of Executive’s employment hereunder commenced as
of January 2, 2009 and shall continue for a period of two
(2) years until January 2, 2011 (“Term”),
unless terminated earlier as hereinafter provided in this
Agreement, or unless extended by mutual written agreement of the
Company and Executive. Unless the Company and Executive have
otherwise agreed in writing, if Executive continues to work for the
Company after the expiration of the Term, his employment thereafter
shall be under the same terms and conditions provided for in this
Agreement, except that his employment will be on an “at
will” basis and the provisions of Sections 4.4 and
4.6(d) shall no longer be in effect.
3.
Compensation and Benefits .
3.1. Annual
Base Salary . During the Term, the Company shall pay to
Executive a salary (“Base Salary”) at the annual rate
of $600,000. Executive’s compensation shall be paid in equal,
periodic installments in accordance with the Company’s normal
payroll procedures.
3.2. Annual
Performance Bonus . In addition to Base Salary, for each of the
fiscal years ending July 31, 2010 and July 30, 2011,
Executive shall be eligible to earn a target annual incentive bonus
equal to sixty-five percent (65%) of his Base Salary
(“Bonus”), which bonus shall be based on achieving
targeted performance goals as determined by the Company’s
Compensation Committee after consultation with the Executive. The
Bonus payable to Executive, if any, for the fiscal year ending
July 30, 2011 shall be prorated to compensate Executive for
the period from August 1, 2010 to the end of the Term. No
Bonus shall be paid for the fiscal year ending July 25, 2009.
Any amounts due under this Section 3.2 shall be payable to the
Executive within 90 days of the end of the applicable fiscal
year in a cash lump-sum payment.
3.3.
Benefits . Executive shall be eligible to participate in the
welfare benefit plans, practices, policies and programs (including,
but not limited to, medical, dental, short and long-term
disability, employee life, group life and accidental death
insurance plans and programs) and all savings and retirement plans
in accordance with the terms and conditions of such plans, policies
and programs maintained by the Company for its senior
executives.
3.4.
Insurance . The Company shall, at its own cost and expense,
maintain (i) a life insurance policy on the life of Executive
that shall provide a death benefit to Executive’s beneficiary
in the amount of $1,500,000 and that shall be owned by Executive
and (ii) a disability insurance policy that shall provide a
non-taxable benefit of at least $10,000 per month payable to
Executive until Executive attains the age of 64 and that shall be
owned by Executive. Notwithstanding the foregoing, Executive hereby
acknowledges that the cost of premiums for such life insurance and
disability insurance policies shall be considered taxable income
for Executive in the year paid by the Company and shall be reported
by the Company to the Internal Revenue Service as taxable
income.
3.5.
Vacation . Executive shall be entitled to five weeks of paid
vacation during each calendar year and to a reasonable number of
other days off for religious and personal reasons in accordance
with the Company’s policies and procedures applicable to
senior executives of the Company. Notwithstanding anything to the
contrary provided herein, the amount accrued for vacation time not
taken in any calendar year shall be limited to a maximum of two
weeks.
3.6.
Automobile . During the Term, Executive shall be entitled to
an automobile allowance of $1,250 per month.
3.7.
Expenses . The Company will pay or reimburse Executive for
all transportation, hotel and other expenses reasonably incurred by
Executive on business trips and for all other ordinary and
reasonable out-of-pocket expenses actually incurred by him in the
conduct of the business of the Company against itemized vouchers
submitted with respect to any such expenses and approved in
accordance with customary procedures.
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(a) As
additional compensation for Executive entering into this Agreement
and agreeing to be bound by its terms and for the services to be
rendered by Executive hereunder, the Company hereby grants to
Executive a ten-year non-qualified option (“Option”) to
purchase 360,000 shares of the Company’s common stock, $.01
par value (“Common Stock”) under the Company’s
1988 Stock Option Plan (“Plan”).
(b) The
Option shall be evidenced by a Stock Option Agreement, dated the
date of this Agreement (“Grant Date”), in the form
attached hereto as Exhibit A . The Option shall have an
exercise price equal to the Fair Market Value (as defined in the
Plan) of a share of the Common Stock on the Grant Date. Except as
otherwise provided in the Stock Option Agreement, 120,000 shares
will vest on each of (i) the Grant Date,
(ii) January 2, 2010 and (iii) January 2, 2011.
The Option shall expire on January 28, 2019.
3.9. Stock
Grant . The Company hereby grants to Executive an aggregate of
100,000 shares of restricted stock under the Company’s 2000
Performance Equity Plan (“Stock Grant”), which shall be
evidenced by a Restricted Stock Agreement, dated the date of this
Agreement, in the form attached hereto as Exhibit B .
50,000 of such shares of Common Stock associated with the Stock
Grant shall vest on each of January 2, 2010 and 2011, provided
that (a) Executive is employed by the Company on each such
date and (b) Executive has completed the Stock Purchase
(defined in Section 3.10 below) in accordance with the terms
of the Restricted Stock Agreement.
3.10. Stock
Purchase. Executive agrees to purchase a minimum of 250,000
shares of the Company’s Common Stock in the open market for
his own account under a Rule 10b5-1 trading plan to be entered
into during the first open window period during which Executive is
able to enter into a 10b5-1 trading plan in accordance with the
terms of the Company’s Insider Trading Policy (the
“Stock Purchase”). Executive agrees to continue to own
and hold any shares purchased subject to this Section 3.10
throughout the term of Executive’s employment with the
Company.
4.1. Death
. If Executive dies during the term of this Agreement,
Executive’s employment hereunder shall terminate and the
Company shall pay to Executive’s estate the amount set forth
in Section 4.6(a).
4.2.
Disability . The Company, by written notice to Executive,
may terminate Executive’s employment hereunder if Executive
shall fail because of illness or incapacity to render services of
the character contemplated by this Agreement for ninety
(90) consecutive calendar days in any consecutive twelve
calendar month period. Upon such termination, the Company shall pay
to Executive the amount set forth in
Section 4.6(b).
4.3. By Company
for “Cause” . The Company, by written notice to
Executive, may terminate Executive’s employment hereunder for
“Cause.” As used herein, “Cause” shall
mean: (a) the refusal, or failure resulting from the lack of good
faith efforts, by Executive to carry out specific directions of the
Board which are of a material nature, or the refusal, or failure
resulting
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from the lack
of good faith efforts, by Executive to perform a material part of
Executive’s duties hereunder; (b) the commission by
Executive of a material breach of any of the provisions of this
Agreement; (c) fraud or dishonest action by Executive in his
relations with the Company or any of its subsidiaries or
affiliates, or with any customer or business contact of the Company
or any of its subsidiaries or affiliates (“dishonest”
for these purposes shall mean Executive knowingly making a material
misstatement or omission, or knowingly committing a material
improper act, for his personal benefit); or (d) the conviction
of Executive of any crime involving an act of moral turpitude.
Notwithstanding the foregoing, no “Cause” for
termination shall be deemed to exist with respect to
Executive’s acts described in clauses (a) or
(b) above, unless the Company shall have given written notice
to Executive specifying the “Cause” with reasonable
particularity and, within thirty (30) calendar days after such
notice, Executive shall not have cured or eliminated the problem or
thing giving rise to such “Cause;” provided, however,
that a repeated breach after notice and cure of any provision of
clauses (a) or (b) above involving the same or
substantially similar actions or conduct, shall be grounds for
termination for “Cause” without any additional notice
from the Company. Upon such termination, the Company shall pay to
executive the amount set forth in Section 4.6(c).
4.4. By
Employee for “Good Reason”. The Executive, by
written notice to the Company, may terminate Executive’s
employment
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