Document:

Unassociated Document

    EXHIBIT
10.1

    EXECUTION
COPY

    

    EMPLOYMENT
AGREEMENT

     

    THIS EMPLOYMENT AGREEMENT dated as of
June 29, 2010 (“Commencement Date”) between THOMAS LYNCH, residing at
(“Executive”), and FREDERICK’S OF HOLLYWOOD GROUP INC., a New York corporation
having its principal office at 1115 Broadway, New York, New York 10010
(“Company”).

    

    WHEREAS, the Company and Executive
entered into an agreement dated as of January 29, 2009 governing the terms and
conditions of Executive’s employment by the Company for a term ending on January
2, 2011 (“Prior Agreement”); and

    

    WHEREAS,
the Company desires to continue the employment of Executive and Executive
desires to continue his employment with the Company, pursuant to the terms and
conditions herein set forth.

    

    IT IS AGREED:

     

    1.           Employment, Duties and
Acceptance.

     

    1.1.           Prior
Agreement.  The Prior Agreement is hereby superseded in its
entirety by the terms, conditions and agreements set forth in this
Agreement.

     

    1.2.           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 and/or officer, 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.

     

    1.3.           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.

     

    1.4.           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 will commence on the Commencement Date
and shall continue until January 2, 2014 (“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, Executive’s 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
Section 4.4 and Section 4.6(d)(i), (ii) and (vi) shall no longer be in
effect.

     

    3.           Compensation and
Benefits.

     

    3.1.         Annual Base
Salary.  The Company shall pay to Executive a salary (“Base
Salary”) at the annual rate of $540,000, with such
increases as may be approved by the Compensation Committee of the Board of
Directors (“Committee”).  Executive’s compensation shall be paid in
equal, periodic installments in accordance with the Company’s normal payroll
procedures.

     

    3.2.         Bonuses.

     

    (a)           Incentive
Bonus.  In addition to Base Salary, for each of the fiscal
years ending July
30, 2011, July 28, 2012, July 27, 2013 and July 26, 2014, Executive shall be
eligible to earn a target annual incentive bonus of up to sixty-five percent
(65%) of Executive’s Base Salary (“Incentive Bonus”), which shall be based on
the Company and Executive achieving goals and objectives established by the
Committee and approved by the Board of Directors for each fiscal
year.  The Incentive Bonus payable to Executive, if any, for the
fiscal year ending July 26, 2014 shall be prorated to compensate Executive for
the period from July 28, 2013 to January 2, 2014.  No Incentive Bonus shall
be paid for the fiscal year ending July 31, 2010.  Any amounts due
under this Section 3.2 shall be payable to the Executive in accordance with the
terms of an annual bonus plan approved by the Committee.

     

    (b)           Discretionary
Bonus.  Executive shall be eligible to receive from time to
time such discretionary bonuses as the Committee, at its discretion, deems
appropriate.

     

    3.3.         Stock
Options.

     

    (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 600,000 shares of the Company’s common stock, $.01
par value (“Common Stock”) under the Company’s 2010 Long-Term Incentive Equity
Plan (“Plan”).  The grant of the Option is subject to and conditioned
upon approval by the Company’s shareholders of the Plan (“Shareholder
Approval”).  If Shareholder Approval is not obtained, this Option
shall be deemed null and void.

     

    (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 be a non-incentive option and shall have an exercise price equal to
the Fair Market Value (as defined in the Plan) of a share of Common Stock on the
Grant Date.  Except as otherwise provided in the Stock Option
Agreement, the Option will vest in three annual installments as follows: (i)
150,000 shares commencing on January 2, 2012, (ii) 200,000 shares commencing on
January 2, 2013 and (iii) 250,000 shares commencing on January 2,
2014.  The Option shall expire on the day immediately preceding the
tenth anniversary of the Grant Date.

     

    
      
         

      

      
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    3.4.         Stock
Grant.  The Company hereby grants to Executive an aggregate of
150,000 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 Grant Date, in the form attached hereto as Exhibit B.  The
shares of Common Stock associated with the Stock Grant shall vest in equal
annual installments of 50,000 shares on each of January 2, 2012, 2013 and 2014,
provided that Executive is employed by the Company on each such
date. 

     

    3.5.         Benefit
Plans.

     

    (a)           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.

     

    (b)           The
Company will, at its own cost and expense, maintain (i) a life insurance policy
on the life of Executive which will provide a death benefit to Executive’s
beneficiary in the amount of $1,500,000 and which will be owned by Executive and
(ii) a disability insurance policy which will provide a non-taxable benefit of
at least $10,000 per month payable to Executive until Executive attains the age
of 64.  Notwithstanding the foregoing, Executive hereby acknowledges
that the cost of premiums for such life insurance and disability insurance
policies will be considered taxable income for Executive in the year paid by the
Company and will be reported by the Company to the Internal Revenue Service as
taxable income.

     

    3.6.         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.

     

    3.7.         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.

     

    4.           Termination.

     

    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).

     

    
      
         

      

      
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    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 one hundred and
eighty (180) 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 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 hereunder if a “Good Reason”
exists.  For purposes of this Agreement, “Good Reason” shall mean the
occurrence of any of the following circumstances without the Executive’s prior
express written consent:  (a) a substantial and material breach of
this Agreement by the Company; (b) a failure by the Company to make any payment
to Executive when due, unless the payment is not material and is being contested
by the Company, in good faith; or (c) a material and adverse change in
Executive’s compensation and benefits described in Section 3 of this Agreement
with which Executive disagrees.  Notwithstanding the foregoing, “Good
Reason” shall not be deemed to exist with respect to the Company’s acts
described in clauses (a), (b) or (c) above, unless the Executive shall have
given written notice to the Company specifying the Good Reason with reasonable
particularity and, within thirty (30) calendar days after such notice, the
Company shall not have cured or eliminated the problem or thing giving rise to
such Good Reason; provided, however, that a repeated breach after notice and
cure of any provision of clauses (a), (b) or (c) above involving the same or
substantially similar actions or conduct, shall be grounds for termination for
Good Reason without any additional notice from the Executive.  Upon
such termination, the Company shall pay to Executive the amount set forth in
Section 4.6(d).

     

    
      
         

      

      
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    4.5.         By Company Without
“Cause”.  The Company may terminate Executive’s employment
hereunder without “Cause”.  Upon such termination, the Company shall
pay to Executive the amount set forth in Section 4.6(d).

     

    4.6.         Compensation Upon
Termination.

     

    (a)           Payment Upon
Death.  In the event that Executive’s employment is terminated
pursuant to Section 4.1, the Company shall no longer be under any obligation to
Executive or his legal representatives pursuant to this Agreement except for (i)
the Base Salary due Executive pursuant to Section 3.1 hereof through the date of
termination, (ii) any Incentive Bonus which would have become payable under
Section 3.2 for the year in which the employment was terminated, prorated by
multiplying the full amount of the Incentive Bonus by a fraction, the numerator
of which is the number of “full calendar months” worked by Executive during the
year of termination and the denominator of which is 12 (a “full calendar month”
is a month in which the Executive worked at least two weeks), which Incentive
Bonus will be calculated and paid after the Company’s fiscal year end and in
accordance with the Company’s customary procedures (“Pro-Rated Bonus”), (iii)
all earned and previously approved but unpaid Incentive Bonuses and other
discretionary bonuses for any year prior to the year of termination, (iv) all
valid expense reimbursements and (v) all accrued but unused vacation
pay.

     

    (b)           Payment Upon
Disability.  In the event that Executive’s employment is
terminated pursuant to Section 4.2, the Company shall no longer be under any
obligation to Executive or his legal representatives pursuant to this Agreement
except for (i) the Base Salary due Executive pursuant to Section 3.1 hereof
through the date of termination, (ii) any Pro-Rated Bonus which would have
become payable under Section 3.2 for the year in which the employment was
terminated, which Pro-Rated Bonus will be calculated and paid after the
Company’s fiscal year end and in accordance with the Company’s customary
procedures, (iii) all earned and previously approved but unpaid Incentive
Bonuses and other discretionary bonuses for any year prior to the year of
termination, (iv) all valid expense reimbursements; and (v) all accrued but
unused vacation pay.

     

    (c)           Payment Upon Termination by
the Company For “Cause”.  If the Company terminates Executive’s
employment hereunder pursuant to Section 4.3, the Company shall have no further
obligations to the Executive hereunder, except the Company shall pay to
Executive the Base Salary, all valid expense reimbursements and all unused
vacation pay required by law through the date of termination.

     

    
      
         

      

      
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    (d)           Payment Upon Termination by
Company Without Cause or by Executive for “Good Reason” or Following Expiration
of Term.  In the event that Executive’s employment is
terminated pursuant to Section 4.4 or 4.5, or if the Company does not continue
Executive’s employment at the end of the Term and thereafter upon terms
substantially similar to the terms of this Agreement (excluding the Stock Option
and Stock Grant provided for in Sections 3.3 and 3.4 and the commitment to offer
employment for a specified term), the Company shall have no further obligations
to Executive hereunder except for: (i) the Base Salary due Executive pursuant to
Section 3.1 hereof through the end of the Term; (ii) any Pro-Rated Bonus which
would have become payable under Section 3.2 for the year in which the employment
was terminated, which Pro-Rated Bonus will be calculated and paid after the
Company’s fiscal year end and in accordance with the Company’s customary
procedures; (iii) all earned and previously approved but unpaid Incentive
Bonuses and other discretionary bonuses; (iv) all valid expense reimbursements;
(v) all accrued but unused vacation pay; (vi) the benefits set forth in Section
3.5 through the end of the Term; (vii) the sum of $450,000.00; and (viii)
medical coverage at the Company’s expense for one year commencing on either (a)
the last day of the Term if Executive’s employment is terminated during the Term
or (b) the date of termination if Executive’s employment is terminated at any
time after the end of the Term; provided, however, that Executive’s medical
coverage shall terminate upon the Executive becoming covered under a similar
program by reason of employment elsewhere.  The provisions of Section
4.6(d)(iii), (iv), (v), (vii) and (viii) shall survive termination of this
Agreement, as applicable.  In order and to the extent necessary to
comply with Internal Revenue Code Section 409A (“Section 409A”), all cash
amounts due under this paragraph 4.6(d) shall be payable to Executive in a
lump-sum cash payment on the six-month anniversary of the date of Executive’s
termination of employment.

     

    4.7.         Resignation as Director Upon
Termination of Employment.  If Executive’s employment hereunder
is terminated for any reason, then Executive shall, at the Company’s request,
resign as a director of the Company and all of its subsidiaries, effective upon
the occurrence of such termination.

     

    5.           Executive
Indemnity.  The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys’ fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, “Losses”) reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive’s
employment with the Company or Executive’s service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive’s intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company’s best
interests).  Executive shall promptly notify the Company of any claim,
action, proceeding or investigation under this paragraph and the Company shall
be entitled to participate in the defense of any such claim, action, proceeding
or investigation and, if it so chooses, to assume the defense with counsel
selected by the Company; provided that Executive shall have the right to employ
counsel to represent him (at the Company’s expense) if Company counsel would
have a “conflict of interest” in representing both the Company and
Executive.  The Company shall not settle or compromise any claim,
action, proceeding or investigation without Executive’s consent, which consent
shall not be unreasonably withheld; provided, however, that such consent shall
not be required if the settlement entails only the payment of money and the
Company fully indemnifies Executive in connection therewith.  The
Company further agrees to advance any and all expenses (including, without
limitation, the fees and expenses of counsel) reasonably incurred by the
Executive in connection with any such claim, action, proceeding or
investigation, provided Executive first enters into an appropriate agreement for
repayment of such advances if indemnification is found not to have been
available.

     

    6.           Protection of Confidential
Information; Non-Solicitation.

     

    6.1.         Acknowledgement.  Executive
acknowledges that:

     

    
      
         

      

      
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    (a)           As
a result of his employment with the Company, Executive has obtained and will
obtain secret and confidential information concerning the business of the
Company and its subsidiaries and affiliates (referred to collectively in this
Section 6 as the “Company”), including, without limitation, financial
information, designs and other proprietary rights, trade secrets and “know-how,”
customers and sources (“Confidential Information”).

     

    (b)           The
Company will suffer substantial damage which will be difficult to compute if,
during the period of his employment with the Company or thereafter, Executive
should divulge Confidential Information.

     

    (c)           The
provisions of this Agreement are reasonable and necessary for the protection of
the business of the Company.

     

    6.2.         Confidentiality.  Executive
agrees that he will not at any time, either during the Term or thereafter,
divulge to any person or entity any Confidential Information obtained or learned
by him as a result of his employment with, or prior retention by, the Company,
except: (i) in the course of performing his duties hereunder; (ii) with the
Company’s express written consent; (iii) to the extent that any such information
is in the public domain other than as a result of Executive’s breach of any of
his obligations hereunder; or (iv) where required to be disclosed by court
order, subpoena or other government process.  If Executive shall be
required to make disclosure pursuant to the provisions of clause (iv) of the
preceding sentence, Executive promptly, but in no event more than two (2)
business days after learning of such subpoena, court order, or other government
process, shall notify, by personal delivery or by electronic means, confirmed by
mail, the Company and, at the Company’s expense, Executive shall:  (a)
take all reasonably necessary and lawful steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process and (b) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.

     

    6.3.         Documents.  Upon
termination of employment with the Company, Executive will promptly deliver to
the Company all memoranda, notes, records, reports, manuals, drawings,
blueprints and other documents (and all copies thereof) relating to the business
of the Company and all property associated therewith, which Executive may then
possess or have under Executive’s control; provided, however, that Executive
shall be entitled to retain copies of such documents reasonably necessary to
document Executive’s financial relationship (both past and future) with the
Company.

     

    6.4.         Non-Solicitation.  During
the period commencing on the date hereof and ending on the date which is one
year after the date upon which Executive’s employment hereunder is terminated,
Executive, without the prior written permission of the Company, shall not,
anywhere in the world, (i) employ or retain, or have or cause any other person
or entity to employ or retain, any person who was employed or retained by the
Company at any time within 180 days prior to the termination of Executive’s
employment; or (ii) solicit, interfere with, or endeavor to entice away from the
Company, for the benefit of any person, firm or corporation engaged in any
business which is directly or indirectly in competition with the Company, any of
its customers or other persons with whom the Company has a contractual
relationship.

     

    
      
         

      

      
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    6.5.         Injunctive
Relief.  If Executive commits a breach, or threatens to commit
a breach, of any of the provisions of Sections 6.2, 6.3 or 6.4, the Company
shall have the right and remedy to seek to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the
Company.  The rights and remedies enumerated in this Section 6.5 shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Company under law or equity.  In connection with any legal
action or proceeding arising out of or relating to this Agreement, the
prevailing party in such action or proceeding shall be entitled to be reimbursed
by the other party for the reasonable attorneys’ fees and costs incurred by the
prevailing party.

     

    6.6.         Modification.  If
any provision of this Section 6 is held to be unenforceable because of the
scope, duration or area of its applicability, the tribunal making such
determination shall have the power to modify such scope, duration, or area, or
all of them, and such provision or provisions shall then be applicable in such
modified form.

     

    6.7.         Survival.  The
provisions of this Section 6 shall survive the termination of this Agreement for
any reason, except in the event Executive is terminated by the Company without
“Cause”, or if Executive terminates this Agreement with “Good Reason,” in either
of which events, Section 6.4 shall be null and void and of no further force or
effect.

     

    7.       
    Miscellaneous
Provisions.

     

    7.1.         Notices.  All
notices provided for in this Agreement shall be in writing, and shall be deemed
to have been duly given when (i) delivered personally to the party to receive
the same, or (ii) when mailed first class postage prepaid, by certified mail,
return receipt requested, addressed to the party to receive the same at his or
its address set forth below, or such other address as the party to receive the
same shall have specified by written notice given in the manner provided for in
this Section 7.1.  All notices shall be deemed to have been given as
of the date of personal delivery or mailing thereof.

     

    If to Executive:

    

    Mr. Thomas Lynch

    ______________

    ______________

    

    If to the Company:

    

    
      Frederick’s
of Hollywood Group Inc.

    

    
      1115
Broadway

    

    New York, New York 10010

    Attn:  General
Counsel

    
      
         

      

      
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    With a copy in either case
to:

    

    Graubard Miller

    The Chrysler Building

    405 Lexington Avenue

    New York, New York 10174

    Attn: David Alan Miller,
Esq.

    Fax No.: (212) 818-8881

     

    7.2.         Entire Agreement;
Waiver.  This Agreement, the Stock Option Agreement and the
Restricted Stock Agreement set forth the entire agreement of the parties
relating to the employment of Executive and are intended to supersede all prior
negotiations, understandings and agreements.  No provisions of this
Agreement, the Stock Option Agreement or the Restricted Stock Agreement may be
waived or changed except by a writing by the party against whom such waiver or
change is sought to be enforced.  The failure of any party to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce such provision.

     

    7.3.         Governing
Law.  All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.

     

    7.4.         Binding Effect;
Nonassignability.  This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the Company.  This
Agreement shall not be assignable by Executive, but shall inure to the benefit
of and be binding upon Executive’s heirs and legal representatives.

     

    7.5.         Severability.  Should
any provision of this Agreement become legally unenforceable, no other provision
of this Agreement shall be affected, and this Agreement shall continue as if the
Agreement had been executed absent the unenforceable provision.

     

    7.6.         Section
409A.  This Agreement is intended to comply with the provisions
of Section 409A.  To the extent that any payments and/or benefits
provided hereunder are not considered compliant with Section 409A, the parties
agree that the Company shall take all actions necessary to make such payments
and/or benefits become compliant.

     

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    IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above written.

     

    
      
        
          	 
      	
                  /s/ Thomas Lynch

                
	 
      	
                  THOMAS
      LYNCH

                
	 
      	 
      
	 
      	
                  FREDERICK’S
      OF HOLLYWOOD GROUP INC.

                
	 
      	 
      	 
      
	 
      	
                  By:

                	
                  /s/ Linda LoRe

                
	 
      	 
      	
                  Linda
      LoRe, President

                

        

      

    

     

    
      
         

      

      
        10EXHIBIT
10.2

      EXECUTION
COPY

      EXHIBIT
A

      

      NON-QUALIFIED
STOCK OPTION AGREEMENT

        

      AGREEMENT
made as of June 29, 2010, by and between Frederick’s of Hollywood Group Inc., a
New York corporation (the “Company”), and Thomas J. Lynch (the
“Employee”).

       

      WHEREAS,
effective on June 29, 2010 (the “Grant Date”), pursuant to the terms and
conditions of the Company’s 2010 Long Term Incentive Equity Plan (the “Plan”),
the Board of Directors and the Compensation Committee of the Board of Directors
of the Company (the “Committee”) authorized the grant to the Employee of an
option (the “Option”) to purchase an aggregate of 600,000 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 600,000 shares of Common Stock (the
“Option Shares”) on the terms and conditions set forth herein and subject to the
provisions of the Plan.  The grant of the Option is subject to and
conditioned upon approval by the Company’s shareholders of the Plan
(“Shareholder Approval”).  If Shareholder Approval is not obtained, this
Option shall be deemed null and void.

       

      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 $0.78 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) annual
installments as follows: (i) 150,000 Option Shares on January 2,
2012, (ii) 200,000 Option Shares on January
2, 2013 and (iii) 250,000 Option Shares on January 2,
2014.  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 such term is defined in the Employment Agreement,
dated as of June 29, 2010, 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.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

         

      

      5.3   
       Termination for
Cause.  If Employee’s employment by the Company is terminated for
“Cause” (as such term is 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 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 such term is defined
in the Employment Agreement) or by Employee for “Good Reason” (as such term is
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 on or prior to January 2, 2014
if employment had continued through that date shall continue to vest as
scheduled 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), until the expiration of the Exercise
Period.

       

      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 (a) prior to January 2,
2014, 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 or (b) on or after January 2, 2014,
then the portion of the Option that was exercisable as of the date of
termination of employment may thereafter be exercised by the Employee until the
expiration of the Exercise Period, and any remaining unvested portion of the
Option shall expire on the date of termination.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

         

      

      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.

       

      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.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

         

      

      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.

       

      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 Commission pursuant to the Exchange
Act within the last 24 months and all reports issued by the Company to its
stockholders;

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

         

      

      (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 (the “1933 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 1933 Act;

       

      (iv)   
       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 1933 Act or an exemption
therefrom as provided herein; and

       

      (vi)   
       in the absence of an effective registration statement
under the 1933 Act, the certificates evidencing the Option Shares shall bear the
following legend:

       

      “The
shares represented by this certificate have been acquired for investment and
have not been registered under the Securities Act of 1933.  The shares may
not be sold or transferred in the absence of such registration or an exemption
therefrom under said Act.”

       

      12.   
       Restriction on Transfer of
Option Shares.  Anything in this Agreement to the contrary
notwithstanding, the Employee hereby agrees that he shall not sell, transfer by
any means or otherwise dispose of the Option Shares acquired by the Employee
without registration under the 1933 Act, or in the event that they are not so
registered, unless (i) an exemption from the 1933 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.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

         

      

      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 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.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

         

      

      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 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.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      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 J. Lynch

                      	 
      	
                        By:

                      	
                        /s/ Linda LoRe

                      
	
                        Name: 
      Thomas J. Lynch

                      	 
      	
                        Name:

                      	
                        Linda
      LoRe

                      
	 
      	 
      	
                        Title

                      	
                        President

                      
	
                        Address:

                      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
       	 
      	 
      	 
      
	 
       	 
      	 
      	 
      

              

            

          

        

      

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       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 June 29, 2010
(“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 stockholders;

      

      (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 “1933 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 1933
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 1933 Act or an exemption
therefrom as provided herein;

      

      
        
           

        

        
          10

          
            

          

        

        
           

        

         

      

      (vi) 
         my rights with respect to the Option Shares
shall, in all respects, be subject to the terms and conditions of this Company’s
2010 Long Term Incentive Equity Plan and this Agreement; and

      

      (vii) 
        in the absence of an effective registration
statement under the 1933 Act, the certificates evidencing the Option Shares
shall bear the following legend:

      

      “The
shares represented by this certificate have been acquired for investment and
have not been registered under the Securities Act of 1933.  The shares may
not be sold or transferred in the absence of such registration or an exemption
therefrom under said Act.”

      

      Kindly
forward to me my certificate at your earliest convenience.

      

      Very
truly yours,

       

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	
                                       

                                    	 
      	
                                       

                                    	 
	
                                      (Signature)

                                    	 
      	
                                      (Address)

                                    	 
	
                                       

                                    	 
      	
                                       

                                    	 
	
                                      (Print
      Name)

                                    	 
      	
                                      (Address)

                                    	 
	 
       	 
      	 
      	 
	 	  
      	
                                       

                                    	 
	 
      	 
      	
                                      (Social
      Security Number)

                                    	 

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
           

        

        
          11

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