NON-QUALIFIED STOCK OPTION
AGREEMENT
THIS STOCK OPTION
AGREEMENT AGREEMENT made as of January 29, 2009, by and
between Frederick’s of Hollywood Group Inc., a New York
corporation (the “Company”), and Thomas Lynch (the
“Employee”).
WHEREAS, effective
on January 29, 2009 (the “Grant Date”), pursuant
to the terms and conditions of the Company’s 1988 Stock
Option Plan (the “Plan”), the Board of Directors of the
Company (the “Board”) authorized the grant to the
Employee of an option (the “Option”) to purchase an
aggregate of 360,000 shares of the authorized but unissued Common
Stock of the Company, $.01 par value (the “Common
Stock”), conditioned upon the Employee’s acceptance
thereof upon the terms and conditions set forth in this Agreement
and subject to the terms of the Plan; and
WHEREAS, the
Employee desires to acquire the Option on the terms and conditions
set forth in this Agreement.
1. Grant
of Stock Option . The Company hereby grants the Employee the
Option to purchase all or any part of an aggregate of 360,000
shares of Common Stock (the “Option Shares”) on the
terms and conditions set forth herein and subject to the provisions
of the Plan.
2.
Non-qualified Stock Option . The Option represented hereby
is not intended to be an Option which qualifies as an
“Incentive Stock Option” under Section 422 of the
Internal Revenue Code of 1986, as amended.
3.
Exercise Price . The exercise price of the Option shall be
$0.38 per share, subject to adjustment as hereinafter
provided.
4.
Vesting and Exercisability . Subject to the terms and
conditions of the Plan, and provided that the Employee has remained
continuously employed by the Company as of each vesting date except
as otherwise provided herein, this Option shall vest and become
exercisable in three (3) equal installments, covering
one-third of the Option Shares (120,000 shares), on and after each
of (i)
the Grant Date,
(ii) January 2, 2010 and (iii) January 2, 2011.
After a portion of the Option becomes exercisable, it shall remain
exercisable, except as otherwise provided herein, until the close
of business on the day immediately preceding the tenth anniversary
of the Grant Date (the “Exercise Period”).
5. Effect
of Termination of Employment .
5.1
Termination Due to Death . If Employee’s employment by
the Company terminates by reason of death, the portion of the
Option, if any, that was exercisable as of the date of death may
thereafter be exercised by the Employee’s designated
beneficiary (or, if no beneficiary is designated, by the legal
representative of the estate or by the legatee of the Employee
under the will of the Employee) for a period of one (1) year
from the date of such death or until the expiration of the Exercise
Period, whichever period is shorter. The portion of the Option, if
any, which was not exercisable as of the date of death shall
immediately expire upon death.
5.2
Termination Due to Disability . If Employee’s
employment by the Company terminates by reason of Disability (as
defined in the Employment Agreement, dated as of January 29,
2009, between the Company and Employee, or any successor agreement
(“Employment Agreement”)), the portion of the Option,
if any, that was exercisable as of the date of termination of
employment may thereafter be exercised by Employee for a period of
one (1) year from the date of termination of employment or
until the expiration of the Exercise Period, whichever period is
shorter. The portion of the Option, if any, which was not
exercisable as of the date of such termination of employment shall
immediately expire on the date of such termination of
employment.
5.3
Termination for Cause. If Employee’s employment by the
Company is terminated for Cause (as defined in the Employment
Agreement), (i) this Option, whether or not exercisable, shall
immediately expire and (ii) the Company may require the
Employee to pay to the Company the economic value of any Option
Shares purchased hereunder by the Employee within the six
(6) month period prior to the date of such termination of
employment. For this purpose, the term “economic value”
means the difference between the Fair Market Value of the Option
Shares on the date of such termination of employment (or the sales
price of such shares if the Option Shares were sold during such six
(6) month period) and the Exercise Price of such shares. In
such event, the Employee hereby agrees to remit to the Company, in
cash, by no later than thirty (30) days after the date of
termination or the date established under the Employment Agreement
for curing any conduct
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amounting to
Cause has expired, whichever is later, an amount equal to the
economic value as defined above.
5.4
Termination by the Company Without Cause or by Employee for Good
Reason. If Employee’s employment is terminated by the
Company without Cause (as defined in the Employment Agreement) or
by Employee for Good Reason (as defined in the Employment
Agreement), then the portion of the Option which is exercisable on
the date of termination of employment, and any additional portion
of the Option which would have otherwise vested within one year of
the date of termination, shall become immediately exercisable and
shall continue to be exercisable thereafter, absent the death of
Employee (in which case the Option shall be exercisable by the
Employee’s personal representative or heirs, as the case may
be, within one year after the date of death of the Employee), for a
period of three years from the date of termination. Any remaining
unvested portion of the Option shall expire on the date of
termination.
5.5
Other Termination . If Employee’s employment is
terminated for any reason other than (i) death,
(ii) Disability, (iii) for Cause, (iv) without Cause
by the Company or (v) by the Employee for Good Reason, then
the portion of the Option, if any, that was exercisable as of the
date of termination of employment may thereafter be exercised by
the Employee for a period of ninety (90) days from the date of
termination of employment, and any remaining unvested portion of
the Option shall expire on the date of termination.
6.
Withholding Tax . Not later than the date as of which an
amount first becomes includible in the gross income of the Employee
for Federal income tax purposes with respect to the Option, the
Employee shall pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment of, any
Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount (“Withholding
Tax”). The obligations of the Company under the Plan and
pursuant to this Agreement shall be conditional upon such payment
or arrangements with the Company and the Company shall, to the
extent permitted by law, have the right to deduct any Withholding
Taxes from any payment of any kind otherwise due to the Employee
from the Company.
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7.1
In the event of a stock split, stock dividend, combination of
shares, or any other similar change in the Common Stock of the
Company as a whole, the Board of Directors of the Company shall
make equitable, proportionate adjustments in the number and kind of
shares covered by the Option and in the option price
hereunder.
7.2
In the event of any reclassification or reorganization of the
outstanding shares of Common Stock other than a change covered by
Section 7.1 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), the Employee shall have the right thereafter (until
the expiration of the right of exercise of this Option) to receive
upon the exercise hereof after such event, for the same aggregate
Exercise Price payable hereunder immediately prior to such
reclassification
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