Exhibit 10.46
EXECUTION COPY
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.
     IT IS AGREED:
     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)

 

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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. Adjustments.
          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,
reorganization, merger or consolidation, the amount and kind of consideration
receivable by a holder of the number of shares of Common Stock of the Company
obtainable upon exercise of this Option immediately prior to such event. The
provisions of this Section 7.2 shall similarly apply to successive
reclassifications, reorganizations, mergers or consolidations, sales or other
transfers.
     8. Method of Exercise.
          8.1 Notice to the Company. The Option shall be exercised in whole or
in part by written notice in substantially the form attached hereto as Exhibit A
directed to the Company at its principal place of business accompanied by full
payment as hereinafter provided of the exercise price for the number of Option
Shares specified in the notice and of the Withholding Taxes, if any.
          8.2 Delivery of Option Shares. The Company shall deliver a certificate
for the Option Shares to the Employee as soon as practicable after payment
therefor.
          8.3 Payment of Purchase Price. The Employee shall make cash payments
by certified or bank check, in each case payable to the order of the Company;
the Company shall not be required to deliver certificates for Option Shares
until the Company has confirmed the receipt of good and available funds in
payment of the purchase price thereof and of the Withholding Taxes, if any.

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     9. Nonassignability. The Option shall not be assignable or transferable
except by will or by the laws of descent and distribution in the event of the
death of the Employee. No transfer of the Option by the Employee by will or by
the laws of descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice thereof and a
copy of the will and such other evidence as the Company may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option.
     10. Company Representations. The Company hereby represents and warrants to
the Employee that:
          (i) the Company, by appropriate and all required action, is duly
authorized to enter into this Agreement and consummate all of the transactions
contemplated hereunder; and
          (ii) the Option Shares, when issued and delivered by the Company to
the Employee in accordance with the terms and conditions hereof, will be duly
and validly issued and fully paid and non-assessable.
     11. Employee Representations. The Employee hereby represents and warrants
to the Company that:
          (i) he is acquiring the Option and shall acquire the Option Shares for
his own account and not with a view towards the distribution thereof;
          (ii) he has received a copy of all reports and documents required to
be filed by the Company with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934 as amended (“Exchange Act”) within the last
24 months and all reports issued by the Company to its shareholders;
          (iii) he understands that he must bear the economic risk of the
investment in the Option Shares, which cannot be sold by him unless they are
registered under the Securities Act of 1933, as amended (“Securities Act”), or
an exemption therefrom is available thereunder; provided that he understands
that the Company is under no obligation to register the Option Shares for sale
under the Securities Act;

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          (iv) in his position with the Company, he has had both the opportunity
to ask questions and receive answers from the officers and directors of the
Company and all persons acting on its behalf concerning the terms and conditions
of the offer made hereunder and to obtain any additional information to the
extent the Company possesses or may possess such information or can acquire it
without unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (ii) above;
          (v) he is aware that the Company shall place stop transfer orders with
its transfer agent against the transfer of the Option Shares in the absence of
registration under the Securities Act or an exemption therefrom as provided
herein; and
          (vi) in the absence of an effective registration statement under the
Securities Act, the certificates evidencing the Option Shares shall bear the
following legend:
     “The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933, as
amended, or applicable state securities laws and may not be sold or transferred
in the absence of such registration or pursuant to an exemption therefrom under
said Act and such laws, supported by an opinion of counsel, reasonably
satisfactory to the Company and its counsel, that such registration is not
required.”
     12. Restriction on Transfer of Option Shares. Anything in this Agreement to
the contrary notwithstanding, the Employee hereby agrees that she shall not
sell, transfer by any means or otherwise dispose of the Option Shares acquired
by the Employee without registration under the Securities Act, or in the event
that they are not so registered, unless (i) an exemption from the Securities Act
registration requirements is available thereunder, and (ii) the Employee has
furnished the Company with notice of such proposed transfer and the Company’s
legal counsel, in its reasonable opinion, shall deem such proposed transfer to
be so exempt.
     13. Miscellaneous.
          13.1 Notices. All notices, requests, deliveries, payments, demands and
other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or sent
by registered or certified mail, or by private courier, return receipt
requested, postage prepaid to the parties at their respective addresses set
forth herein, or

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to such other address as either shall have specified by notice in writing to the
other. Notice shall be deemed duly given hereunder when delivered or mailed as
provided herein.
          13.2 Plan Paramount; Conflicts with Plan. This Agreement and the
Option shall, in all respects, be subject to the terms and conditions of the
Plan, whether or not stated herein. In the event of a conflict between the
provisions of the Plan and the provisions of this Agreement, the provisions of
the Plan shall in all respects be controlling.
          13.3 Shareholder Rights. The Employee shall not have any of the rights
of a shareholder with respect to the Option Shares until such shares have been
issued after the due exercise of the Option.
          13.4 Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
other or subsequent breach.
          13.5 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
may not be amended except by writing executed by the Employee and the Company.
          13.6 Binding Effect; Successors. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and, to the extent not
prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives any rights, remedies,
obligations or liabilities.
          13.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to choice
of law provisions.
          13.8 Headings. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
          13.9 Section 409A. The Option granted hereunder is intended to be
exempt from the provisions of Section 409A of the Internal Revenue Code of 1986,
as amended (“Section 409A “). To the extent that the Options or any payments or
benefits provided hereunder are considered deferred

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compensation subject to Section 409A, the Company intends for this Agreement and
the Option to comply with the standards for nonqualified deferred compensation
established by Section 409A (the “409A Standards”). Notwithstanding anything
herein to the contrary, to the extent that any terms of this Agreement or the
Option would subject the Employee to gross income inclusion, interest or an
additional tax pursuant to Section 409A, those terms are to that extent
superseded by the 409A Standards. The Company reserves the right to amend the
Option granted hereunder to cause such Option to comply with or be exempt from
Section 409A.

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     IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
day and year first above written.

                  EMPLOYEE:       FREDERICK’S OF HOLLYWOOD GROUP INC.    
 
               
/s/ Thomas Lynch
      By:   /s/ Peter Cole    
 
               
THOMAS LYNCH
          Peter Cole    
 
          Executive Chairman    
 
                Address of Employee:       Address of Company:             1115
Broadway             New York, New York 10010    

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EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION

     
 
DATE
   

Frederick’s of Hollywood Group Inc.
1115 Broadway
11th Floor
New York, New York 10010
Attention: The Board of Directors

          Re:   Purchase of Option Shares

Gentlemen:
     In accordance with my Stock Option Agreement dated as of January 29, 2009
(“Agreement”) with Frederick’s of Hollywood Group Inc. (the “Company”), I hereby
irrevocably elect to exercise the right to purchase                      shares
of the Company’s common stock, par value $.01 per share (“Common Stock”), which
are being purchased for investment and not for resale.
     As payment for my shares, enclosed is a certified or bank check payable to
Frederick’s of Hollywood Group Inc. in the sum of $                .
     I hereby represent, warrant to, and agree with, the Company that
          (i) I acquired the Option and shall acquire the Option Shares for my
own account and not with a view towards the distribution thereof;
          (ii) I have received a copy of all reports and documents required to
be filed by the Company with the Commission pursuant to the Exchange Act within
the last 24 months and all reports issued by the Company to its shareholders;
          (iii) I understand that I must bear the economic risk of the
investment in the Option Shares, which cannot be sold by me 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 Option Shares for sale under the Securities Act;
          (iv) I have had both the opportunity to ask questions and receive
answers from the officers and directors of the Company and all persons acting on
its behalf concerning the terms and conditions of the offer made hereunder and
to obtain any additional information to the extent the Company possesses or may
possess such information or can acquire it without unreasonable effort or
expense necessary to verify the accuracy of the information obtained pursuant to
clause (ii) above;
          (v) I am aware that the Company shall place stop transfer orders with
its transfer agent against the transfer of the Option Shares in the absence of
registration under the Securities Act or an exemption therefrom as provided
herein;

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     (vi) my rights with respect to the Option Shares shall, in all respects, be
subject to the terms and conditions of the Company’s 1988 Stock Option Plan and
this Agreement; and
     (vii) in the absence of an effective registration statement under the
Securities Act, the certificates evidencing the Option Shares shall bear the
following legend:
“The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933, as
amended, or applicable state securities laws and may not be sold or transferred
in the absence of such registration or pursuant to an exemption therefrom under
said Act and such laws, supported by an opinion of counsel, reasonably
satisfactory to the Company and its counsel, that such registration is not
required.”
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,

             
 
           
(Signature)
      (Address)    
 
           
 
           
(Print Name)
      (Address)    
 
           
 
     
 
(Social Security Number)    

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