<PAGE>
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Lillian Vernon Corporation
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
same
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-(6)i (1) and
0-11(1).
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
<PAGE>
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
3) Filing Party:
----------------------------------------------------------------------
4) Date Filed:
----------------------------------------------------------------------
<PAGE>
LILLIAN VERNON LOGO
June 16, 1997
Dear Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders, to be
held at 10:00 a.m. on Friday, July 25, 1997 in the Board Room of the American
Stock Exchange, 86 Trinity Place in New York City. The agenda of the Annual
Meeting includes the election of a director, the approval of auditors, the
adoption of the Company's 1997 Performance Unit, Restricted Stock,
Non-Qualified Option and Incentive Stock Option Plan and the adoption of the
1997 Stock Option Plan for Non-Employee Directors. Management will also report
on the Company, its activities and plans for the future. We hope you will be
able to join us.
Since your vote is very important, please fill out, sign and date your proxy
card, and return it as soon as possible if you are unable to attend the
meeting.
I look forward to seeing you.
Faithfully yours,
/s/ Lillian Vernon
Lillian Vernon
Chairman of the Board
Chief Executive Officer
LILLIAN VERNON CORPORATION
543 Main Street, New Rochelle, New York 10801/Phone: 914-576-6400/
Fax: 914-637-5740
<PAGE>
LILLIAN VERNON CORPORATION
543 MAIN STREET
NEW ROCHELLE, NEW YORK 10801
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Lillian
Vernon Corporation will be held at the American Stock Exchange, 86 Trinity
Place, New York City on July 25, 1997 at 10:00 a.m. for the following
purposes:
1. To elect one (1) director for a three year term expiring at the annual
meeting of stockholders to be held in the year 2000 and until the due
election and qualification of his successor;
2. To consider and act upon a proposal to ratify the appointment of
Coopers & Lybrand as independent auditors for the fiscal year of the Company
ending February 28, 1998;
3. To consider and act upon a proposal to adopt the 1997 Performance Unit,
Restricted Stock, Non-Qualified Option and Incentive Stock Option Plan as
described in the accompanying Proxy Statement;
4. To consider and act upon a proposal to adopt the 1997 Stock Option Plan
for Non-Employee Directors as described in the accompanying Proxy Statement;
and
5. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Stockholders of Lillian Vernon Corporation of record at the close of
business on June 9, 1997 are entitled to vote at the annual meeting and any
adjournments thereof. All stockholders are encouraged to attend the meeting
or to vote by proxy.
If you do not expect to attend the meeting, please sign and date the
enclosed proxy and return it promptly in the enclosed envelope in order that
your stock may be voted in accordance with the terms of the Proxy Statement.
By Order of the Board of Directors
Susan N. Cortazzo
Secretary
New Rochelle, New York
June 16, 1997
<PAGE>
LILLIAN VERNON CORPORATION
543 MAIN STREET
NEW ROCHELLE, NEW YORK 10801
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is furnished to the stockholders of Lillian Vernon
Corporation (herein, called the "Company") in connection with the Board of
Directors' solicitation of proxies to be used at the Annual Meeting of
Stockholders on July 25, 1997 at the American Stock Exchange, 86 Trinity
Place, New York City, 10:00 a.m. or any adjournments thereof. The date of
first distribution of this Proxy Statement will be on or about June 16, 1997.
VOTING AT THE MEETING
Only holders of Common Stock of record on the books of the Company at the
close of business on June 9, 1997 will be entitled to notice of and to vote
at the meeting. On that date, there were 9,611,166 shares of Common Stock,
par value $.01 per share, outstanding. Each holder of record of Common Stock
of the Company as of the record date will be entitled to one vote for each
share of stock registered in his or her name. A majority of the shares having
voting power at the meeting will constitute a quorum for the transaction of
business.
Shares entitled to vote, represented by each properly executed proxy in
the accompanying form received by the Company in time to permit its use at
the meeting or any adjournments thereof, will be voted in accordance with
instructions indicated in such proxy. If no instructions are indicated, such
shares will be voted as recommended by the Board. A stockholder who has given
a proxy may revoke it by voting in person at the meeting, or by giving
written notice of revocation or a later-dated proxy to the Secretary of the
Company at any time before the voting.
Directors are elected by a plurality of the votes cast in the election.
The adoption of the 1997 Performance Unit, Restricted Stock, Non-Qualified
Option and Incentive Stock Option Plan and the adoption of the 1997 Stock
Option Plan for Non-Employee Directors both require the affirmative vote by
the holders of a majority of the outstanding shares of Common Stock of the
Company. The affirmative vote of the holders of a majority of the shares
voted with respect to any other proposals presented at the meeting is
required to approve such other proposals.
An automated system administered by the Company's transfer agent counts
the votes. The Company's Certificate of Incorporation and By-Laws do not
contain any provisions concerning the treatment of abstentions and broker
nonvotes. Delaware law treats abstentions as votes which are not cast in
favor of a proposal or nominee. Delaware law does not address the treatment
of broker nonvotes. Broker nonvotes will be included in the determination of
the presence of a quorum, but will not be counted for purposes of determining
whether a proposal or nominee has been approved.
<PAGE>
EXPENSES OF SOLICITATION
It is expected that the solicitation of proxies will be primarily by mail.
Proxies may also be solicited personally and by telephone by officers and
directors of the Company. The total expense of preparing, assembling and
mailing the proxy statement, accompanying notice and form of proxy will be
borne by the Company. Such expense may also include reimbursement for
out-of-pocket disbursements incurred by brokerage houses and custodians,
nominees or other fiduciaries, for forwarding such documents to stockholders.
1. ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors of the Company presently consists of seven members
divided into three classes. At the Annual Meeting, one Director is to be
elected to hold office for a three year term until the Annual Meeting to be
held in the year 2000. If no instructions are indicated to the contrary, the
proxy will be voted for election of the Director named in the following
table, whose election has been proposed and recommended by the Board of
Directors. If the nominee shall, prior to the meeting, become unavailable for
election as a Director, which is not expected, the persons named in the
accompanying form of proxy will vote for such nominee, if any, in their
discretion as may be recommended by the Board of Directors.
In addition to information regarding the nominee and directors, the
following table and footnotes show the amount and percent of equity
securities of the Company beneficially owned, directly or indirectly, by each
nominee or director, as of June 9, 1997, including stock options which are
presently exercisable or which will become exercisable within 60 days of the
date hereof, held by such individuals.
SHARES OF
NAME, PRINCIPAL OCCUPATION COMMON STOCK
AND SELECTED OTHER BENEFICIALLY PERCENT
INFORMATION CONCERNING OWNED AS OF OF CLASS
NOMINEE AND DIRECTORS JUNE 9, 1997 (IF OVER 1%)
- ------------------------------------------------------------------------------
NOMINEE FOR THREE-YEAR TERM EXPIRING IN 2000
David C. Hochberg(a) Vice President - 1,397,000(d) 13.7%
Age-40 Public Affairs;
Director since 1978.
Mr. Hochberg has held the above position since 1986. He joined the Company in
1978 and was subsequently promoted to Director-Public Affairs.
Lilyan H. Affinito, whose term as a director is expiring, has chosen not
to stand for reelection as a director.
2
<PAGE>
DIRECTORS CONTINUING IN OFFICE WHOSE TERM EXPIRES IN 1998
William E. Phillips(b) Management Consultant; 24,000(j) --
Age-67 Director since 1991.
After being a brand manager at Procter & Gamble, Mr. Phillips spent thirty
years with Ogilvy & Mather, serving as Chairman and Chief Executive Officer
Worldwide from 1982 to 1988. In 1989, he taught at the Johnson Graduate
School, Cornell University, where he also serves as a Trustee. Since then,
Mr. Phillips has operated Osprey Consulting, advising companies and serving
on boards. Mr. Phillips is a director of Sun Glass Hut International and
serves on the Boards of Directors of three small private companies. Mr.
Phillips also serves on the boards of several not-for-profit organizations
including serving as Chairman of Outward Bound International.
Bert W. Wasserman(b)(c) Director since 1995 10,000(f) --
Age-64
Mr. Wasserman served as Executive Vice President and Chief Financial Officer
of Time Warner, Inc. from 1990 through 1994, having served on the Board of
Directors of Time Warner, Inc. and its predecessor company from 1981 to 1993.
He joined Warner Communications in 1966 and had been an officer of that
company since 1970. Mr. Wasserman is a director of several investment
companies in the Dreyfus Family of Funds. He is a director of Malibu
Entertainment International, Inc., Winstar Communications, Inc., and IDT
Corp. Mr. Wasserman is on the Board of Directors of the Baruch College Fund.
Mr. Wasserman is a Certified Public Accountant.
DIRECTORS CONTINUING IN OFFICE WHOSE TERM EXPIRES IN 1999
Lillian Vernon(a) Chairman of the Board 2,844,692(g)(h) 27.9%
Age-69 and Chief Executive
Officer; Director since
inception.
Lillian Vernon is the founder of the Company and has served as its Chairman
of the Board and Chief Executive Officer since the Company's inception. She
served as President from inception until July 1989. Lillian Vernon is the
mother of David Hochberg and Fred Hochberg, principal stockholders.
Leo Salon(c) Partner -Salon, Marrow 560,538(e)(g) 5.5%
Age-77 & Dyckman, LLP;
Director since 1988.
Mr. Salon is a senior partner of the law firm of Salon, Marrow & Dyckman,
LLP, which firm acts as general and securities counsel to the Company.
3
<PAGE>
Howard P. Goldberg President and Chief 35,000 (i) --
Age-57 Operating Officer;
Director since 1996
Mr. Goldberg has served as President and Chief Operating Officer since March
1996. From 1994 until he joined the Company, Mr. Goldberg was Vice President,
Catalog Research and Planning and finally Senior Vice President, Macy's
Catalog at Federated Merchandising, a division of Federated Department
Stores, Inc. From 1991 until he joined Federated Merchandising, Mr. Goldberg
was Vice President, Marketing at Phillips Van Heusen Corporation, where he
had direct responsibility for all marketing efforts for a national chain of
250 women's and men's apparel factory outlet stores. Mr. Goldberg has over 30
years experience in marketing and merchandising positions with major retail
and catalog companies including Hanover Direct, Fingerhut Corporation, and
Hecht Company, a division of May Department Stores, Inc.
- ------------
(a) Member of Executive Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
(d) Includes 85,000 shares of common stock held by the David Hochberg
Foundation. David Hochberg is the trustee of the David Hochberg
Foundation. Also includes 50,000 options which are presently
exercisable or which become exercisable within 60 days hereof.
(e) Includes options to purchase 14,500 shares which are presently
exercisable or which become exercisable within 60 days hereof.
(f) Includes options to purchase 5,000 shares which are presently
exercisable or which become exercisable within 60 days hereof.
(g) Includes 543,788 shares of common stock held by the Lillian Menasche
Vernon Foundation, Inc. (the "Foundation"). Lillian Vernon and Leo
Salon are two of the directors of the Foundation.
(h) Includes options to purchase 140,000 shares which are presently
exercisable or which will become exercisable within 60 days hereof.
(i) Includes options to purchase 25,000 shares which are presently
exercisable or which become exercisable within 60 days hereof.
(j) Includes options to purchase 19,000 shares which are presently
exercisable or which will become exercisable within 60 days hereof.
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
During the last fiscal year, the Board of Directors held seven meetings.
The Company believes that attendance at meetings is one means by which
Directors can contribute to the effective management of the Company and that
the contributions of all Directors have been substantial and highly valued.
4
<PAGE>
The Compensation Committee, which administers the Company's employee
compensation plans, met four times in fiscal 1997. The Audit Committee, which
reviews and makes recommendations to the Board of Directors with respect to
the Report of the Independent Accountants and reviews the accounting systems
and controls of the Company on a continuous basis, met three times in fiscal
1997.
All of the Directors attended at least 75% of the aggregate of all Board
Meetings and meetings of the Committees of the Board.
The Company does not have a nominating committee.
EXECUTIVE OFFICERS
The following table sets forth the name, age and position of the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lillian Vernon..... 69 Chairman of the Board and Chief Executive Officer
Howard P. Goldberg. 57 President, Chief Operating Officer and Director
Larry R. Blum...... 49 Executive Vice President
Laura L. Zambano .. 45 Executive Vice President-Merchandising
Kevin A. Green..... 39 Senior Vice President-Marketing
Robert S. Mednick . 54 Vice President-Chief Financial Officer
Ralph Thomann...... 54 Vice President-Operations
David C. Hochberg . 40 Vice President-Public Affairs and Director
Paul C. Pecorin ... 57 Vice President-Chief Information Officer
Susan N. Cortazzo . 36 Vice President, Corporate Controller/Secretary
Norman Foster...... 53 Vice President-Quality Assurance
</TABLE>
Larry R. Blum was promoted to Executive Vice President in March 1995. From
January 1993 until his promotion, he served as Senior Vice
President-Administration. Mr. Blum served as Vice President-Human Resources
from August 1990, when he joined the Company until his promotion in January
1993. From September 1986 until he joined the Company, Mr. Blum was Director,
Human Resources for Crazy Eddie, Inc., an electronics retailer. Prior to
joining Crazy Eddie, Inc., Mr. Blum was President of LRB Inc., a consulting
company, and President of Betlar Realty, Inc., a real estate company.
Laura L. Zambano was promoted to Executive Vice President-Merchandising in
January, 1996. From July 1989 until her promotion she served as Senior Vice
President-General Merchandise Manager. From 1983 until her promotion in 1989,
she was Vice President of Merchandising. Ms. Zambano joined the Company in
1978 as a catalog coordinator; she became Associate Vice President in 1982.
Prior to joining the Company, Ms. Zambano was employed as an advertising
production manager by H.O. Gerngross & Co.
Kevin A. Green was promoted to Senior Vice President-Marketing in April
1996. From December 1993 until his promotion, he served as Vice
President-Marketing. Mr. Green joined the Company in
5
<PAGE>
March 1990 as Manager-Marketing and subsequently in April 1992 was promoted
to Director-Marketing. Prior to joining the Company, Mr. Green held various
marketing positions at Doubleday Book and Music Club and Better Homes and
Gardens Book Club.
Robert S. Mednick joined the Company in June, 1996 as Vice President-Chief
Financial Officer. From 1979 until he joined the Company, Mr. Mednick was
Vice President of Finance and Chief Financial Officer of US Sales
Corporation, one of the country's largest privately held direct marketing
catalog companies. Mr. Mednick has over 25 years of corporate finance
experience in the direct mail and retailing industries.
Ralph Thomann was promoted to Vice President-Operations in July 1996.
Since joining the Company in February 1984, Mr. Thomann has held a variety of
positions including Vice President-Distribution, Director-Order Processing,
Director-Distribution, and Director-Engineering. From June 1967 until joining
the Company, Mr. Thomann held various engineering positions with Avon
Products, Inc., a manufacturer and distributor of cosmetics and beauty
related products.
Paul C. Pecorin has served as Vice President-Chief Information Officer
since joining the Company in 1984. From 1982 until he joined the Company, Mr.
Pecorin was Vice President-Systems of Lands' End, Inc., a direct mail catalog
company marketing clothes and related products. Prior to his employment at
Lands' End, Inc., Mr. Pecorin was manager, systems development for Pratt &
Whitney Aircraft Co.
Susan N. Cortazzo joined the Company in April 1989 as Corporate Controller
and Secretary. She was promoted to Vice President in July 1994. From 1982 to
April 1989, Ms. Cortazzo was employed by Coopers & Lybrand, Certified Public
Accountants, in various capacities, the last position being as audit manager.
Ms. Cortazzo is a certified public accountant.
Norman Foster joined the Company in August 1983 as Director of
Distribution and served in that position until March 1988, when he assumed
the position of Director of Inventory. In May 1992, Mr. Foster was promoted
to Vice President-Quality Assurance. From 1969 until he joined the Company in
1983, Mr. Foster held various distribution, inventory, operational and
production planning positions for the Sherwin Williams Co., a paint
manufacturing and distribution company.
6
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 9, 1997, the beneficial
ownership of the Company's Shares by (i) the Chief Executive Officer and the
four other most highly compensated executive officers of the Company at the
end of the fiscal year; (ii) the directors; and (iii) all executive officers
and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
OUTSTANDING
AND OPTIONS
NAME AND ADDRESS AMOUNT OF SHARES EXERCISABLE
OF BENEFICIAL OWNER BENEFICIALLY OWNED WITHIN 60 DAYS
- ------------------- ------------------ --------------
<S> <C> <C>
Lillian Vernon (1)........................................... 2,844,692(2)(3) 27.9%
Howard P. Goldberg (1)....................................... 35,000(4) *
David C. Hochberg (1)........................................ 1,397,000(5)(6) 13.7%
Fred P. Hochberg (7)......................................... 861,544(2)(8) 8.4%
Lilyan H. Affinito (1)....................................... 21,550(9) *
Leo Salon (1)................................................ 560,538(2)(9) 5.5%
William E. Phillips (1)...................................... 24,000(10) *
Bert W. Wasserman (1)........................................ 10,000(11) *
Paul C. Pecorin (1).......................................... 80,030(6) *
Laura L. Zambano (1)......................................... 61,537(6) *
Larry R. Blum (1)............................................ 55,000(6) *
Lillian Menasche Vernon Foundation, Inc. (12)................ 543,788(2) 5.3%
All Executive Officers and Directors as a group (15 persons) 4,636,258(13) 45.4%
</TABLE>
- ------------
* Less than 1%.
(1) The address of the stockholders is 543 Main Street, New Rochelle, New
York 10801.
(2) Includes 543,788 Shares owned by the Lillian Menasche Vernon
Foundation (the "Foundation"). Lillian Vernon, Leo Salon and Fred
Hochberg are three of the directors of the Foundation.
(3) Includes options to purchase 140,000 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(4) Includes options to purchase 25,000 shares which are presently
exercisable or which become exercisable within 60 days hereof.
(5) Includes 85,000 shares of common stock held by the David Hochberg
Foundation. David Hochberg is the sole trustee of the David Hochberg
Foundation.
(6) Includes options to purchase 50,000 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
7
<PAGE>
(7) The address of Fred P. Hochberg is c/o The Heyday Company, 101 Fifth
Avenue, New York, New York 10003.
(8) Includes options to purchase 5,000 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(9) Includes options to purchase 14,500 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(10) Includes options to purchase 19,000 shares which are presently
exercisable or which will become exercisable within 60 days of the
date hereof.
(11) Includes options to purchase 5,000 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(12) The address of the Foundation is c/o Salon, Marrow & Dyckman, LLP,
685 Third Avenue, New York, New York 10017.
(13) Includes 543,788 shares owned by the Lillian Menasche Vernon
Foundation, of which Lillian Vernon, Fred Hochberg, and Leo Salon are
directors. Includes 85,000 shares owned by the David Hochberg
Foundation, of which David Hochberg is the trustee. Includes options
to purchase 494,834 shares which are presently exercisable or which
become exercisable within 60 days of date hereof.
8
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of June 9, 1997, the beneficial
ownership of the Company's shares by persons who are believed to beneficially
own more than 5% of the Shares of the Company.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
OUTSTANDING
AND OPTIONS
NAME AND ADDRESS AMOUNT OF SHARES EXERCISABLE
OF BENEFICIAL OWNER BENEFICIALLY OWNED WITHIN 60 DAYS
- ------------------- ------------------ --------------
<S> <C> <C>
Sanford C. Bernstein & Co.,
Inc.(1)............................ 870,178(2) 8.5%
Gabelli Funds, Inc.(3).............. 526,500(4) 5.2%
Connor, Clark & Company, Ltd.(5) ... 527,900(6) 5.2%
</TABLE>
- ------------
(1) The address of Sanford C. Bernstein & Co., Inc., is One State Street
Plaza, New York, New York 10004-1545.
(2) Number of shares is based upon a Schedule 13-G filed by Sanford C.
Bernstein & Co., Inc., on January 20, 1997 as of December 31, 1996.
(3) The address of Gabelli Funds, Inc., is One Corporate Center, Rye, New
York 10580-1434.
(4) Number of shares is based upon a Schedule 13-D filed by Gabelli Funds,
Inc. and affiliates, dated May 12, 1997. The shares include shares
owned by entities that may be deemed to be controlled or under the
control of Gabelli Funds, Inc.
(5) The address of Connor, Clark & Company, Ltd. is Scotia Plaza, 40 King
Street West, Toronto, Canada M5H3Y2.
(6) Number of shares is based upon representations made by management of
Connor, Clark & Company, Ltd. as of May 26, 1997.
9
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company, to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (determined as of February 22, 1997) (the
"Named Executive Officers") for the Company's last three fiscal years:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------- ------------------------- -----------
LONG TERM
FISCAL RESTRICTED INCENTIVE
NAME AND PRINCIPAL YEAR OTHER ANNUAL STOCK NUMBER OF PLAN ALL OTHER
POSITION ENDED SALARY(1) BONUS COMPENSATION(2) AWARD(S)(3) OPTIONS PAYOUTS COMPENSATION(4)
- -------------------------- --------- ---------- ------------- --------------- ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lillian Vernon 2/22/97 $520,000 $ 0 $0 $ 0 0 $0 $221,140
Chairman of the Board and 2/24/96 520,000 0 0 0 0 0 225,199
Chief Executive Officer 2/25/95 520,000 200,000 0 0 50,000 0 181,516
Howard P. Goldberg (5) 2/22/97 $310,962 $125,000 (6) $0 $136,300 (7) 75,000 $0 $ 5,057
President and 2/24/96 0 0 0 0 0 0 0
Chief Operating Officer 2/25/95 0 0 0 0 0 0 0
Laura L. Zambano 2/22/97 $275,992 $ 0 $0 $ 0 12,500 $0 $ 9,688
Executive Vice President 2/24/96 227,404 0 0 0 15,000 0 9,771
Merchandising 2/25/95 206,690 40,000 0 0 15,000 0 10,541
Larry R. Blum (8) 2/22/97 $275,921 $ 0 $0 $ 0 12,500 $0 $ 8,050
Executive Vice President 2/24/96 251,988 0 0 0 15,000 0 8,250
2/25/95 173,143 65,000 0 0 15,000 0 9,127
Paul C. Pecorin 2/22/97 $189,262 $ 0 $0 $ 0 12,500 $0 $ 14,846
Vice President 2/24/96 176,967 0 0 0 15,000 0 14,512
Chief Information Officer 2/25/95 171,889 40,000 0 0 15,000 0 14,898
</TABLE>
- ------------
(1) Consists of base salaries. No amounts were deferred at the election of
the executive officers.
(2) Perquisites to any executive officer did not exceed, for such
individual, the lesser of $50,000 or 10% of compensation.
(3) The value of each restricted stock award reflects the closing price of
the stock on the date of grant. Dividends on shares of restricted stock
are paid at the same time and at the same rate as dividends on the
Company's unrestricted common stock. The aggregate number and value of
the restricted stock holdings of the Named Executive Officer are
disclosed in Note 7 below.
10
<PAGE>
(4) All Other Compensation consists of employer contributions pursuant to
the Company's Profit Sharing / 401-K Plan (current year profit sharing
amounts estimated) compensation related to split-dollar life insurance
premiums, and above-market earnings on deferred compensation, in the
following amounts:
<TABLE>
<CAPTION>
401(K)
PROFIT MATCHING SPLIT-DOLLAR ABOVE-MARKET
SHARING CONTRIBUTION LIFE INSURANCE EARNINGS
------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C>
Lillian Vernon ..... 2/22/97 $ 0 $ 0 $19,877 $201,263
2/24/96 0 0 18,266 206,933
2/25/95 0 0 16,790 164,726
Howard P. Goldberg 2/22/97 $2,230 $2,827 $ 0 $ 0
2/24/96 0 0 0 0
2/25/95 0 0 0 0
Laura L. Zambano .. 2/22/97 $3,550 $4,500 $ 1,638 $ 0
2/24/96 3,750 4,500 1,521 0
2/25/95 4,627 4,500 1,414 0
Larry R. Blum ...... 2/22/97 $3,550 $4,500 $ 0 $ 0
2/24/96 3,750 4,500 0 0
2/25/95 4,627 4,500 0 0
Paul C. Pecorin ... 2/22/97 $3,550 $4,500 $ 6,796 $ 0
2/24/96 3,750 4,500 6,262 0
2/25/95 4,627 4,500 5,771 0
</TABLE>
(5) The Company entered into an employment contract with Mr. Goldberg on
March 13, 1996. Mr. Goldberg's employment contract, which has an
initial term of three years, provides for an initial annual base salary
of $350,000. The Board may award Mr. Goldberg an annual bonus of up to
50% of his annual base salary, and agreed to pay Mr. Goldberg a bonus
of at least $75,000 for the fiscal year ending February 22, 1997. The
Company also paid Mr. Goldberg a $50,000 bonus upon signing of the
employment contract.
(6) Bonus amount includes a $50,000 bonus paid in March 1996 upon signing
of employment contract, and an annual bonus of $75,000 accrued for the
fiscal year ended February 22, 1997 (see Note 5).
(7) The 10,000 shares of restricted stock were issued on March 29, 1996,
when the value of such shares, based on the stock's closing price of
$13.63, was $136,300. The stock vests over two years; 5,000 shares
vested on March 29, 1997, when the value of such shares, based on the
stock's closing price of $14.00, was $70,000; with the remaining 5,000
shares vesting on March 29, 1998.
(8) The Company entered into an employment contract with Mr. Blum on March
1, 1995. Mr. Blum's employment contract, which has an initial term of
three years, provides for an initial annual base salary of $250,000.
The Board may award Mr. Blum an annual bonus of up to 50% of his annual
base salary.
11
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth information concerning grants of stock
options to the Named Executive Officers during the Company's fiscal year
ended February 22, 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK PRICE APPRECIATION
OPTIONS GRANTED FOR OPTION TERM (1)
NUMBER OF OPTIONS TO EMPLOYEES EXERCISE PRICE ----------------------
NAME GRANTED IN FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- ---- ----------------- -------------- -------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lillian Vernon 0 -- -- -- -- --
Howard P. Goldberg 75,000(2) 28.57% $13.63 March 29, 2006 $643,190 $1,631,045
Laura L. Zambano 12,500(3) 4.76% $13.07 September 26, 2006 $102,900 $ 261,314
Larry R. Blum 12,500(3) 4.76% $13.07 September 26, 2006 $102,900 $ 261,314
Paul C. Pecorin 12,500(3) 4.76% $13.07 September 26, 2006 $102,900 $ 261,314
</TABLE>
- ------------
(1) In accordance with SEC rules, these columns show gains that might exist
for the respective options over a period of ten years. This valuation
is hypothetical; if the stock price does not increase above the
exercise price, compensation to the Named Executive Officers will be
zero. There is no guarantee that if and when the options are exercised,
they will have these values.
(2) One third of the options are exercisable on March 29, 1997, 1998, and
1999, respectively.
(3) One third of the options are exercisable on September 27, 1997, 1998,
and 1999, respectively.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise of
options by the Named Executive Officers during the Company's fiscal year
ended February 22, 1997, and the value of unexercised options held by the
Named Executive Officers as of the end of the fiscal year:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END YEAR-END(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME OF INDIVIDUAL ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------ --------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Lillian Vernon 180,000 $1,058,400
Exercisable 123,333 $ 0
Unexercisable 16,667 $ 0
Howard P. Goldberg 0 $ 0
Exercisable 0 $ 0
Unexercisable 75,000 $ 0
Laura L. Zambano 20,000 $ 120,000
Exercisable 45,000 $3,750
Unexercisable 27,500 $ 0
Larry R. Blum 10,000 $ 58,800
Exercisable 45,000 $3,750
Unexercisable 27,500 $ 0
Paul C. Pecorin 30,000 $ 176,400
Exercisable 45,000 $3,750
Unexercisable 27,500 $ 0
</TABLE>
- ------------
(1) Calculated using the fair market value of shares at the close of the
market on February 22, 1997, of $12.75.
13
<PAGE>
DIRECTOR COMPENSATION
The Company pays Messrs. Salon and Wasserman an annual retainer of
$20,000, and William Phillips and Lilyan Affinito, Chairpersons of the
Compensation and Audit Committee, respectively, an annual retainer of
$22,500. Additionally, all non-employee Directors receive $1,000 (plus
expenses) per Board meeting attended and $1,000 (plus expenses) per Committee
meeting attended.
The Company has a Stock Option Plan for Non-Employee Directors, which
provides that as of the date of each Annual Meeting that occurs while this
plan is in effect, each individual who is a non-employee director be granted
an option to purchase 2,500 shares of Common Stock of the Company at an
exercise price equal to 100% of the fair market value per share of Common
Stock on the day the option is granted. The current Option Plan for
Non-Employee Directors expires after the current annual meeting of
stockholders. The Board proposes the adoption of a new Stock Option Plan for
Non-Employee Directors. See Proposal 4 herein.
In fiscal 1997, Messrs. Phillips, Salon, Wasserman and Ms. Affinito each
received options to purchase 2,500 shares at an exercise price of $12.38.
CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
In August 1982, Fred P. and David C. Hochberg (the "Hochbergs") financed
the acquisition and renovation of the Company's former New Rochelle Customer
Communications Center with the assistance of the City of New Rochelle
Industrial Development Agency (the "Agency"), which issued a $1,200,000
Industrial Development Bond to Bankers Trust Company (the "Bond"). Fred P.
Hochberg was a director of the Company at that time, and through November 20,
1995. He continues to be a significant stockholder of the Company. The
Hochbergs subleased the New Rochelle Customer Communications Center to the
Company (the "1982 Sublease"). The 1982 Sublease (and a subsequent amendment)
provided for the payment of an annual net rent of $263,939 through July 31,
1992. Effective August 1, 1992, the annual net rent would increase to match
any increase in the Consumer Price Index between June 1, 1982 and June 1,
1992. The sublease expiration date was July 31, 1998. As a net lease, it
required the Company to also pay all real estate taxes, insurance and other
expenses associated with the operation and maintenance of the premises,
including structural repairs.
On October 16, 1992, the Hochbergs refinanced the Bond and entered into a
new lease with the Agency, in connection with the renovation of the New
Rochelle facility to serve as the Company's corporate headquarters. The
Hochbergs entered into a new sublease with the Company which is on the same
terms and conditions as the 1982 Sublease except that the net annual rental
is $429,788. This rental reflects the increase pursuant to the Consumer Price
Index as discussed above and additional space sublet to the Company. The
sublease expires on July 30, 1998.
Effective February 27, 1985, Fred P. Hochberg entered into a deferred
compensation agreement with the Company that provided for deferred
compensation for four years commencing in fiscal 1986. This agreement, as
amended, provides that his retirement benefit is $5,525,000, payable over a
10 year period
14
<PAGE>
commencing 2017, and that his death benefit calculated as of February 22,
1997 was $1,652,371. The agreement further provides that these payments are
due Mr. Hochberg or his beneficiaries whether or not he is employed by the
Company.
Effective February 27, 1985, David C. Hochberg entered into a deferred
compensation agreement with the Company that provided for deferred
compensation for four years commencing in fiscal 1986. This agreement, as
amended, provides that his retirement benefit is $3,540,000, payable over a
10 year period commencing 2022, and that his death benefit calculated as of
February 22, 1997 was $825,831. The agreement further provides that these
payments are due Mr. Hochberg or his beneficiaries whether or not he is
employed by the Company.
Leo Salon is senior partner of Salon, Marrow & Dyckman, LLP, which firm
provides legal services to the Company. In fiscal 1997, the Company paid
$371,597 in legal fees to Salon, Marrow & Dyckman, LLP.
In fiscal 1995 and 1996, the Company made loans to Larry Blum, aggregating
$156,064. The loans were made to Mr. Blum to enable him to exercise stock
options which were expiring and to enable him to pay the required taxes due
upon the vesting of certain restricted stock. As of February 22, 1997,
approximately $29,000 remained due on the loans.
On March 13, 1996, the Company entered into a three year employment
agreement with Howard Goldberg, President and Chief Operating Officer. The
agreement provides for an annual base salary of $350,000, 75,000
non-qualified stock options which are exercisable over a three year period,
commencing on March 29, 1997, and 10,000 shares of restricted stock, of which
5,000 shares vested on March 29, 1997, with the remaining 5,000 shares
vesting on March 29, 1998. Additionally, the Company paid Mr. Goldberg a
$50,000 bonus upon the signing of the agreement. The Board may award Mr.
Goldberg an annual bonus of up to 50% of his annual base salary, and has
agreed to pay Mr. Goldberg a bonus of at least $75,000 for the fiscal year
ending February 22, 1997. In the event that Mr. Goldberg is dismissed by the
Company without "cause", as that term is defined in his employment agreement,
the Company is obligated to pay him 100% of his base salary until the earlier
of (i) March 28, 1999, (ii) the date which is twenty-four months after the
date of such termination or (iii) the date he becomes employed by or becomes
a consultant to a competitor of the Company.
On May 30, 1996, the Company entered into a one year employment agreement
(which term commenced on June 27, 1996) with Robert S. Mednick, Vice
President and Chief Financial Officer. The agreement provides for a base
salary of $225,000, 25,000 non-qualified stock options, which are exercisable
over a three year period commencing June 27, 1997 and 5,000 shares of
restricted stock vesting on June 27, 1997. The Board may award Mr. Mednick an
annual bonus of up to 40% of his annual base salary.
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Report of the Compensation Committee and the Performance Graph herein
shall not be incorporated by reference into any filing, notwithstanding
anything to the contrary set forth in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934 that might incorporate future filings in whole or in part, including
this Proxy Statement.
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of independent, non-employee directors. The Committee is
responsible for setting and administering the Company's employee compensation
plans, subject to the approval of the Board of Directors. The Committee
applies a philosophy based on the premise that the achievements of the
Company result from the coordinated efforts of all individuals working toward
common objectives.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance, and to enable the Company to attract,
retain and reward competent executives who contribute to the long-term
success of the Company.
o The Company pays competitively. The Company is committed to providing
a compensation program that helps attract and retain highly competent
executive officers. To ensure that pay is competitive, the Company
regularly compares its pay practices with those of other leading companies
in the retail and direct mail catalog industries.
o The Company pays for sustained and improved performance. Executive
officers are rewarded based upon corporate performance and individual and
team goals. Each year the Committee approves an incentive compensation
plan (Performance Unit Plan) which establishes a dollar bonus pool and
guidelines for bonus payments based upon per share earnings. Performance
is evaluated by reviewing the individual's performance against both
quantitative and qualitative objectives.
o The Company encourages stock ownership by management. The Company
believes stock ownership by management fosters an interest in the
enhancement of stockholder value and thus aligns management's interest
with that of the stockholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Lillian Vernon, the Chairman of the Board and Chief Executive Officer,
founded the Company forty-six years ago. She has played and continues to play
a pivotal role in the Company and its development. She is involved in all
aspects of the Company's business. In determining Miss Vernon's total
compensation, the Committee considered her leadership and contributions to
the Company during fiscal 1997. In 1992, the Company extended Miss Vernon's
employment agreement for five years. By its provisions, at the end of five
years, the employment agreement continues at will, terminable upon ninety
16
<PAGE>
(90) days written notice. Miss Vernon currently receives a base salary of
$520,000 per annum. Her salary is reviewed annually by the Committee and may
be increased at the Board of Directors' discretion. In reviewing Miss
Vernon's base salary, the Board of Directors considers the base salaries paid
to the chief executive officers of other companies in the retail and direct
mail catalog industry. In addition, the Board of Directors, upon the
recommendation of the Committee, may award a bonus to Miss Vernon. The
employment agreement also provides for the full payment of salary to Lillian
Vernon for a two year period should she become disabled and unable to perform
her duties.
Miss Vernon's compensation is tied to the performance of the Company,
specifically earnings per share. In fiscal 1997, the Company did not meet the
specific goals previously established by the Board of Directors. Accordingly,
the Compensation Committee, with the approval of the Board of Directors, and
at the request of Miss Vernon, did not award her a bonus. In fiscal 1996, she
did not receive a bonus.
Miss Vernon is eligible to participate in the Company's stock option
program and other benefit plans, as are all other executives of the Company.
Effective February 27, 1985, Lillian Vernon entered into a deferred
compensation agreement with the Company which provided for deferred
compensation for four years commencing in fiscal 1986. Lillian Vernon's
Deferred Compensation Agreement, which was amended on April 30, 1992,
provides that her retirement benefit is $4,634,500 payable over a ten year
period commencing 1997, and that her death benefit as of February 22, 1997
was $3,625,451.
COMPENSATION VEHICLES
The Company uses a total compensation program that consists of cash and
equity based compensation.
Cash Based Compensation
Salary
Individual salary determinations of the Company's executive officers are
based on experience, sustained performance and comparison to peers inside and
outside the Company.
Bonus-Performance Unit Plan
As previously discussed, under the Company's Performance Unit Plan, the
Committee establishes a dollar bonus pool and guidelines for bonus payments
based upon per share earnings. Corporate vice presidents, department
directors and managers participate in the Performance Unit Plan. Generally,
payments are based in part upon the achievement of corporate goals and in
part upon achievement of individual and team goals. Bonus compensation may be
paid in cash or in shares of the Company's common stock, at the Company's
option. While the Company's results in fiscal 1997 reflected record revenues,
due to various factors including the high cost of paper used in the
production of catalogs, the Company experienced reduced earnings per share,
which earnings did not meet the specific goals previously established by the
Board of Directors. However, the Board wished to recognize the individual
17
<PAGE>
efforts of management, including three executive officers, and awarded
performance bonuses aggregating $300,000 to the Company's management. The
Board did not award performance bonuses to the Company's other executive
officers.
Profit-Sharing Plan
The Company maintains a profit-sharing plan for the benefit of all
employees, including its executive officers, who have met certain minimum
service requirements. The Company's annual contribution is discretionary, as
determined by the Board of Directors.
The Company's profit-sharing plan also includes an employee contribution
and employer matching contribution (401(k)) feature. Under the 401(k) feature
of the plan, eligible employees may make pre-tax contributions up to 10% of
their annual compensation. Employee contributions of up to 6% of compensation
are currently matched by the Company at a rate of 50%.
Equity Based Compensation
Restricted Stock and Stock Options
The purpose of these programs is to provide additional incentives to
employees to work to maximize stockholder value. The restricted stock and
stock option plans are administered by the Committee, which has the authority
to determine the individuals to whom, the times at which options and/or
restricted stock may be granted or awarded and the number of shares to be
covered by each such grant or award. The Company may grant stock options and
restricted stock awards to the Company's management -the officers and
departmental directors. Stock options are granted to executive officers in
amounts based upon levels of organization within the Company. The programs
also utilize vesting periods, which are determined by the Committee, to
encourage key employees to continue in the employ of the Company.
The Compensation Committee: William E. Phillips
Lilyan H. Affinito
Bert W. Wasserman
18
<PAGE>
PERFORMANCE GRAPH
Set forth below is a performance graph that shows the cumulative total return
(assuming dividend reinvestment) on the Company's Common Stock compared with
the cumulative total return of the Standard & Poor's 500 Stock Index and the
Standard & Poor's Specialty Retail Index for the period of the Company's last
five fiscal years (February 1992 = 100):
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG LILLIAN VERNON, S&P 500, AND S&P SPECIAL RETAIL
S&P Specialty
LV S&P 500 Retail
-------------------------------------
1992 100.00 100.00 100.00
1993 78.27 110.65 121.53
1994 109.15 119.88 123.44
1995 117.08 128.70 117.14
1996 89.18 173.36 114.57
1997 82.90 218.71 131.05
The Board of Directors recognize that the market price of stock is influenced
by many factors, only one of which is company performance. The stock price
performance shown on the graph is not necessarily indicative of future price
performance.
2. RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to stockholder ratification, the Board of Directors has appointed
the firm of Coopers & Lybrand, LLP as independent auditors for the fiscal
year ending February 28, 1998. Coopers & Lybrand, LLP has audited the
accounts of the Company since fiscal year 1985. If the stockholders do not
ratify this appointment, other certified public accountants will be
considered by the Board.
A representative of Coopers & Lybrand, LLP is expected to be present at
the Annual Meeting and will be available to respond to questions.
19
<PAGE>
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the 1997 Annual Meeting and entitled
to vote is required to ratify the appointment of Coopers & Lybrand, LLP as
independent auditors for the fiscal year ended February 28, 1998.
The Board of Directors recommends a vote "FOR" ratifying the appointment
of Coopers & Lybrand.
3. PROPOSAL TO ADOPT THE 1997 PERFORMANCE UNIT, RESTRICTED STOCK,
NON-QUALIFIED OPTION AND INCENTIVE STOCK OPTION PLAN
("INCENTIVE COMPENSATION PLAN")
On February 22, 1997, the Company's 1987 Performance Unit, Restricted
Stock, Non-Qualified Option and Incentive Stock Option Plan expired. At the
time of the Plan's expiration, 549,000 shares were unencumbered.
On recommendation of the Compensation Committee of the Board of Directors,
subject to the approval of the stockholders, the Board adopted the 1997
Performance Unit, Restricted Stock, Non-Qualified Option and Incentive Stock
Option Plan (the "Incentive Compensation Plan"). The Board reserved 525,000
shares of common stock for the issuance of awards and grants under the
Incentive Compensation Plan. In April 1997, the Compensation Committee of the
Board of Directors granted an aggregate of 27,500 options to six of the
Company's executive officers. Said options vest over a three year period and
are exercisable at $13.63 per share, which was the price of the shares on the
American Stock Exchange on the date of grant. Said option grants are subject
to the approval of the Incentive Compensation Plan by the stockholders at the
Annual Meeting.
The Board of Directors is of the opinion that the Company's Incentive
Compensation Plan provides a competitive and balanced incentive compensation
plan for employees, employee-directors, consultants and others who render
services to the Company.
The Incentive Compensation Plan is administered by the Compensation
Committee of the Board of Directors, which has full authority, in its
discretion to determine the individuals to whom and the times at which
performance units or restricted stock will be awarded and options shall be
granted and the number of units and/or shares to be issued pursuant to each
such award or grant. Non-employee directors are not eligible to participate
in the Incentive Compensation Plan. Non-employee directors receive option
grants pursuant to the 1993 Stock Option Plan for Non-Employee Directors.
The adoption of the Incentive Compensation Plan will permit the
Compensation Committee to continue to grant options and award restricted
stock and performance unit awards to employees, officers, consultants and
others (where applicable) who render services to the Company, to continue to
provide an incentive to successfully manage the business of the Company in
the future.
20
<PAGE>
SUMMARY OF INCENTIVE COMPENSATION PLAN
The following summary of the Incentive Compensation Plan is qualified in
its entirety by the complete text of the Incentive Compensation Plan, which
is annexed hereto as Exhibit A.
PERFORMANCE UNIT AWARDS
Performance units can only be awarded to employees. Performance unit
awards may be paid in cash or shares of Common Stock of the Company, or a
combination thereof. Performance units which are awarded to an employee shall
have a payment value at the end of the award cycle (the period of not less
than one fiscal year over which the performance units granted during a
particular year are to be earned out), contingent upon the Company's
performance. The Compensation Committee has discretion to apply performance
measures on an absolute basis or relative to industry indices and
conclusively determine whether the measures have been achieved. The
Compensation Committee also has authority to revise the payment schedules and
performance measures formerly determined by it if, in its judgment,
significant economic or other changes have occurred which were not
foreseeable by it at the time of its initial determination.
RESTRICTED STOCK AWARDS
The Compensation Committee is authorized to make restricted stock awards
to employees. Restricted stock may be issued to employees in consideration of
(i) cash in an amount not less than the par value thereof or such greater
amount as may be determined by the Compensation Committee and (ii) the
continued employment of the employee during the restricted period. The
Compensation Committee sets the term of the restricted period, which will in
no event be less than one year. During the restricted period, the restricted
stock may not be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered except in the event of death, whereupon the restriction
upon the stock will lapse and the employee's estate will be free to transfer
or otherwise dispose of the stock.
NON-QUALIFIED OPTIONS
Under the Incentive Compensation Plan, non-qualified options may be
granted to employees, employee-directors, consultants and other individuals
who render services to the Company. The option price for each option granted
is determined by the Compensation Committee. Each option may have a term of
not more than 10 years from the date of grant and may be exercisable in
installments as prescribed by the Compensation Committee.
Payment for shares issuable pursuant to the exercise of an option may be
in (i) cash, (ii) delivery of a full recourse promissory note, (iii) Common
Stock of the Company or (iv) a combination of cash, notes and Common Stock or
such other alternative payment arrangements as the Compensation Committee may
fix in its sole discretion. In lieu of payment by the optionee, the
Compensation Committee may require the optionee to surrender the option or a
portion thereof for cancellation and receive cash or shares of Common Stock
or a combination thereof equivalent to the appreciated value of the shares
covered by the option surrendered for cancellation.
21
<PAGE>
The Incentive Compensation Plan provides for the termination of
outstanding options in the event an employee does not remain in the employ of
the Company for such period as the Compensation Committee may fix for reasons
other than retirement or death. Upon retirement or death, the employee or his
estate's legal representative may exercise his options at any time after such
termination (but no longer than the original term).
INCENTIVE STOCK OPTIONS
The Company's Incentive Compensation Plan provides for the grant to
employees of incentive stock options ("ISO's") to purchase shares of Common
Stock of the Company at option prices which are not less than the fair market
value of the Company's Common Stock at the date of grant ("fair market
value"), except that any ISO's granted to an employee holding 10% or more of
the outstanding voting securities of the Company ("10% Stockholder") must be
for an option price not less than 110% of fair market value.
ISO's granted under the Incentive Compensation Plan will expire not more
than 10 years from the date of grant (five years from the date of grant in
the case of a 10% Stockholder), and the ISO agreements entered into with the
holders will specify the extent to which ISO's may be exercised during their
respective terms. The aggregate fair market value of the shares of common
stock subject to ISO's that become first exercisable by an optionee in a
particular calendar year may not exceed $100,000. The Incentive Stock Option
Plan provides for termination of outstanding ISO's upon termination of
employment, other than by reason of retirement, death or disability. Payment
for shares issued upon the exercise of ISO's may be made in the same manner
as provided for the non-qualified options. No ISO's have been granted to
date.
FEDERAL INCOME TAX CONSEQUENCES
STOCK OPTIONS
The Company is of the opinion that an employee receiving a stock option
exercisable at the current market price at the date of grant (whether an ISO
or non-qualified stock option) will not realize any compensation income under
the Internal Revenue Code of 1986 as amended ("IRC" or "the Code") upon the
grant of the option.
The exercise of an ISO, which is qualified under Section 422A of the Code,
results in no tax consequences to the employee or the Company. However, the
difference between the option price and the fair market value of the
underlying stock at the date of exercise is a tax preference item which,
under certain circumstances, may give rise to alternative minimum tax
liability to the employee in the year of exercise.
If the stock acquired by the exercise of the ISO is sold within two years
from the date of the grant of the option or one year from the date of
exercise of such option ("disqualifying disposition"), it will result in
taxable compensation income to the employee (and a corresponding deduction to
the Company)
22
<PAGE>
to the extent of the difference between the exercise price and the lesser of
the fair market value of stock on the exercise date or the amount realized on
such disposition.
The exercise of a non-qualified stock option results in immediate taxable
income to the individual in an amount equal to the difference between the
option price paid (whether in cash or otherwise) and the fair market value of
the Company's stock at the date of exercise. The Company will receive a
deduction, as compensation paid, equal to the amount included in income by
the employee as set forth above.
The basis of any stock acquired by the employee through a non-qualified
option is the amount paid for the stock by an employee plus the amount of
taxable income recognized. The basis of stock acquired by the exercise of an
ISO, not disposed of in a disqualifying disposition, is the amount paid by
the employee.
RESTRICTED STOCK AWARDS
The employee will recognize taxable income on restricted stock granted to
him at such time as the restriction period lapses. The amount of income will
be equal to the difference between the fair market value of such stock and
the amount paid by the employee for such restricted shares as of the date the
restriction period lapses. Due to liabilities imposed by Rule 16(b) of the
Securities Exchange Act of 1934 on certain officers, directors and 10%
Stockholders who dispose of stock in the Company held by them during the
prohibited period defined by Rule 16(b) (the "16(b) Restriction Period"),
such persons may not immediately recognize income as of the date the
restriction period lapses. If at such time the employee is subject to the
provisions of Rule 16(b), income will not be recognized until the 16(b)
Restriction Period lapses. The Company will receive a deduction at such time
and in the same amount as the employee includes in his income.
PERFORMANCE UNITS
An employee will recognize income at such time as an actual payment is
made by the Company regardless of whether the employee receives cash or
shares of stock in the Company. If, however, the employee receives Company
stock and the employee is subject to the provisions of Rule 16(b), then the
employee will not recognize income and the Company will not be entitled to a
deduction until the 16(b) Restriction Period lapses. Otherwise, the Company
will be entitled to a deduction, as an accrual basis taxpayer, at such time
when all events which determine the liability to pay the performance award
have occurred, and the amount thereof can be determined with reasonable
accuracy.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of the Company is required to approve the adoption of
the 1997 Performance Unit, Restricted Stock, Non-Qualified Option and
Incentive Stock Option Plan.
The Board of Directors recommends a vote "FOR" approval of the adoption of
the 1997 Performance Unit, Restricted Stock, Non-Qualified Option and
Incentive Stock Option Plan.
23
<PAGE>
4. PROPOSAL TO ADOPT THE 1997 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
The Company's 1993 Stock Option Plan for Non-Employee Directors expires on
July 26, 1997 (the day following the Annual Meeting). On the Plan's
expiration, there will be 57,500 unencumbered shares.
On recommendation of the Compensation Committee of the Board of Directors,
subject to the approval of the stockholders, the Board adopted the 1997
Non-Employee Directors Option Plan (the "Non-Employee Directors Option
Plan"). The Board reserved 50,000 shares of common stock for grants under the
Non-Employee Directors Option Plan.
The Non-Employee Directors Option Plan is based upon the Company's belief
that stock ownership by non-employee Directors benefits the stockholders by
giving such Directors a proprietary interest in the Company and thus aligning
the interest of such Directors with those of the stockholders. Additionally,
the Non-Employee Directors Option Plan will enhance the Company's ability to
attract, retain and suitably reward Directors of exceptional ability.
SUMMARY OF NON-EMPLOYEE DIRECTORS OPTION PLAN
The following summary of the Non-Employee Directors Option Plan is
qualified in its entirety by the complete text of the Non-Employee Directors
Option Plan, which is annexed hereto as Exhibit B.
Administration
The Board of Directors is authorized to administer the Non-Employee
Directors Option Plan in accordance with its terms. However, the Board shall
have no discretion with respect to the selection of Directors to receive
options, the number of shares of Common Stock subject to any such options or
the exercise price thereunder.
Eligibility
Only Eligible Directors, as defined in the Non-Employee Directors Option
Plan, are eligible for grant of options under the Non-Employee Directors
Option Plan. An Eligible Director is defined as a Director of the Company who
is not an employee of the Company or its subsidiaries and has not within one
year immediately preceding the time such determination is made, received any
award under any plan of the Company providing for the discretionary issuance
of stock, stock options or stock appreciation rights. There are currently
four Eligible Directors.
Shares Subject to the Non-Employee Directors Option Plan
An aggregate of 50,000 shares of Common Stock shall be available for
issuance upon the exercise of options granted under the Non-Employee
Directors Option Plan. This number is subject to adjustment in the event of a
stock split, stock dividend, subdivision or combination of the Common Stock
or other changes in corporate structure affecting the Common Stock.
24
<PAGE>
Grant, Term and Conditions of Options
As of the date of the 1998 Annual Stockholders' Meeting, and as of the
date of each of the subsequent four Annual Stockholders' Meetings, each
individual who is then an Eligible Director will be granted an option to
purchase 2,500 shares of Common Stock. The options will be nonstatutory stock
options not intended to qualify under Section 422 of the Code as ISO's. The
purchase price per share of the Common Stock deliverable upon exercise of the
option shall be 100% of the fair market value per share of Common Stock,
determined as provided in the Non-Employee Directors Option Plan, on the day
the option is granted. Eligible Directors shall pay the exercise price of the
options in either cash or in Common Stock. The Options granted shall be for a
term of not more than 10 years from date of grant. Except as set forth below,
options shall be exercisable in whole or in part one year after the date of
grant.
All outstanding options held by an optionee shall automatically be
cancelled upon such optionee's termination of service as an Eligible Director
except in the following circumstances -if such termination of service as an
Eligible Director occurs by reason of (i) declining to stand for re-election
or (ii) becoming an employee of the Corporation or a subsidiary or (iii)
becoming disabled (as defined in the Company's Profit Sharing Plan). All
outstanding options held by such optionee on the date of such termination
shall continue to be fully exercisable for up to five years following the
date of such termination but in no event after the expiration date of the
options. In the event of the death of an optionee (whether before or after
termination of service as an Eligible Director), all outstanding options held
by such optionee and not previously cancelled or expired on the date of death
shall be fully exercisable by such optionee's legal representative within
one-year after the date of death (without regard to the expiration date of
the option specified in accordance with the preceding sentence).
Mergers, Sales and Change of Control
In the case of certain mergers, consolidations or combinations of the
Company with or into other corporations, or in the event of a Change of
Control of the Company as defined in the Non-Employee Directors Option Plan,
the holder of each option then outstanding shall (unless the Board determines
otherwise) have the right to receive, on the date or effective date of such
event, a cash or stock payment in an amount calculated as set forth in the
Non-Employee Directors Option Plan, which is equivalent to the economic value
of the option on such date.
Plan Amendments
The Non-Employee Directors Option Plan may be amended by the Board as it
shall deem advisable. Without the authorization and approval of the
Stockholders, however the Board may not increase the number of shares which
may be purchased pursuant to options granted under the Non-Employee Directors
Option Plan, change the requirement that option grants be priced at 100% of
fair market value on the date of grant, modify in any respect the class of
individuals who constitute Eligible Directors or materially increase the
benefits accruing to optionees under the Non-Employee Directors Option Plan.
Plan provisions relating to the class of Directors eligible to receive
options under the Non-Employee Directors Option Plan and to the price, amount
and timing of option grants under the Non-Employee Directors Option Plan may
not be amended more than once every six months, other than to comply with
changes in applicable law.
25
<PAGE>
Term of Plan
The adoption of the Non-Employee Directors Option Plan has been approved
by the Board and shall become effective upon its approval by the
stockholders. The Non-Employee Directors Plan shall terminate on the day
following the Annual Stockholders' Meeting held in the year 2002 unless the
Non-Employee Directors Option Plan is extended or terminated at an earlier
date by the stockholders.
Federal Income Tax Consequences
Under present Federal income tax laws, options granted under the
Non-Employee Directors Option Plan would have the following tax consequences.
When an optionee exercises an option, the difference between the option
price and any higher market value of the stock on the date of exercise will
be ordinary income to the optionee and will be allowed as a deduction for
Federal income tax purposes to the Company. When an optionee disposes of
shares acquired by the exercise of the option, any amount received in excess
of the market value of the shares on the date of exercise will be treated as
long or short term capital gain, depending upon the holding period of the
shares. If the amount received is less than the market value of the shares on
the date of the exercise, the loss will be treated as long or short term
capital loss, depending upon the holding period of the shares.
The Non-Employee Directors Option Plan is not subject to any provision of
ERISA and is not qualified under Section 401(a) of the Code.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of the Company is required to approve the adoption of
the Non-Employee Directors Option Plan.
The Board of Directors recommends a vote "FOR" the adoption of the 1997
Lillian Vernon Corporation Stock Option Plan for Non-Employee Directors.
5. STOCKHOLDER PROPOSALS FOR THE ANNUAL MEETING
TO BE HELD IN 1998
Stockholders are entitled to present proposals for action and to nominate
directors at a forthcoming stockholders' meeting if they comply with the
requirements of the proxy rules. Proposals of stockholders and nominations of
directors intended to be presented at the Annual Meeting to be held in 1998,
must be received by the Company by February 17, 1998 in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to such meeting. Such proposals should be sent to the Secretary of
the Company at 543 Main Street, New Rochelle, New York 10801.
26
<PAGE>
6. OTHER BUSINESS
So far as the Board of Directors is aware, no matters will be presented at
the Meeting for action on the part of the stockholders other than those
stated in the notice of this meeting.
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K for the year ended February 22, 1997, may be obtained
without charge, by calling or writing David C. Hochberg, Lillian Vernon
Corporation, 543 Main Street, New Rochelle, New York 10801, (914) 637-5624.
By Order of the Board of Directors
Susan N. Cortazzo
Secretary
June 16, 1997
27
<PAGE>
LILLIAN VERNON CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING ON JULY 25, 1997 AT
THE AMERICAN STOCK EXCHANGE, 86 TRINITY PLACE,
NEW YORK CITY, 10:00 A.M.
The undersigned hereby appoints Lillian Vernon and Susan N. Cortazzo and
each of them, the attorneys and proxies of the undersigned, with full powers
of substitution, to vote all shares of stock of Lillian Vernon Corporation
which the undersigned is entitled to vote at the Annual Meeting of
Stockholders thereof, to be held on July 25, 1997 and any adjournments
thereof, with all powers the undersigned would have if present, upon the
proposals set forth herein and in their discretion on all other matters
properly coming before the meeting, including those described in the Notice
of Meeting of Stockholders and Proxy Statement therefor, receipt of which is
acknowledged.
This Proxy will be voted as directed, or where no direction is given, will
be voted "FOR" Proposals Nos. 1, 2, 3 and 4. If any nominee for the Board of
Directors named in the Proxy Statement is unavailable to serve, this Proxy
will be voted for such substitute nominee as may be recommended by the Board
of Directors. The Board of Directors is not aware of other matters to come
before the meeting.
The Board of Directors recommends a vote "FOR" Proposals 1, 2, 3 and 4.
1. Election of David C. Hochberg to serve as director for a term expiring
in 2000.
WITHHOLD AUTHORITY
FOR NOMINEE LISTED FOR NOMINEE
ABOVE LISTED ABOVE
---------------------- ----------------------
[ ] [ ]
(CONTINUED, AND TO BE VOTED, SIGNED AND DATED ON THE REVERSE SIDE.)
<PAGE>
LILLIAN VERNON CORPORATION
2. Proposal to approve the appointment of Coopers & Lybrand, L.L.P. as
the independent auditors of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
P
R 3. Proposal to adopt the 1997 Performance Unit, Restricted Stock,
O Non-Qualified Option and Incentive Stock Option Plan.
X
Y [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to adopt the 1997 Non-Employee Directors Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
Dated: , 1997
-----------------------------------
-----------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
(PLEASE SIGN EXACTLY AS NAME
APPEARS HEREIN. WHEN SIGNING AS
EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN OR ATTORNEY, PLEASE GIVE
FULL TITLE AS SUCH. FOR JOINT
ACCOUNTS OR CO-FIDUCIARIES, ALL
JOINT OR CO-FIDUCIARIES SHOULD
SIGN.)
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS.
<PAGE>
EXHIBIT A
LILLIAN VERNON CORPORATION
-----------------------
1997
PERFORMANCE UNIT, RESTRICTED STOCK,
NONQUALIFIED OPTION AND INCENTIVE STOCK OPTION PLAN
(THE "PLAN")
1. Definitions.
The following terms shall have the following meanings for purposes of the
Plan:
"Code" means the Internal Revenue Code of 1986 as the same may be amended
from time to time.
"Committee" means the committee described in Paragraph 4 which shall
administer the Plan.
"Common Stock" means Common Stock, par value One ($.01) Cent per share, of
the Corporation.
"Corporation" means Lillian Vernon Corporation.
"Fair-Market Value" means with respect to Common Stock (or other stock of
the Corporation), its Mean Price on the day of determination as specified in
the Plan if such Common Stock (or other stock) is publicly traded and, if
not, then the Fair-Market Value shall be determined by the Committee in
accordance with applicable Treasury Regulations under the Code.
"Incentive Option(s)" means the qualified incentive stock options referred
to in Paragraph 9.
"Mean Price" means with respect to Common Stock (or other stock of the
Corporation), the Fair-Market Value thereof as shall be determined by the
Committee and, if the Common Stock (or such other stock) of the Corporation
is listed on a national securities exchange or traded on the Over-the-Counter
market, the Fair-Market Value shall be the mean of the high and low trading
prices or of the high bid and low asked prices of the Common Stock (or such
other stock) of the Corporation on such exchange, or on the Over-the-Counter
market as reported by the National Quotation Bureau, Inc., as the case may be
(rounded to the next highest cent in the case of fractions of a cent), on the
day of determination as specified in the Plan or, if there is no trading or
bid or asked price on that day, the mean of the high and low trading or high
bid and low asked prices (rounded to the next highest cent in the case of
fractions of a cent) on the most recent day preceding the day of
determination as specified in the Plan for which such prices are available.
"Nonqualified Option(s)" means the nonqualified options referred to in
Paragraph 7.
"Option(s)" means the Nonqualified Options and Incentive Options.
"Performance Unit(s)" means the Performance Units referred to in Paragraph
6.
A-1
<PAGE>
"Restricted Stock" means the shares of Common Stock referred to in
Paragraph 8.
2. Stock Subject to the Plan.
There are reserved for issuance upon the payment of Performance Units
awarded, for issuance as Restricted Stock awards and the exercise of Options
granted under the Plan an aggregate of five hundred twenty-five thousand
(525,000) authorized and unissued shares of Common Stock. If any Option
granted under the Plan shall expire or terminate for any reason (including,
without limitation, by reason of its surrender, pursuant to the provisions of
the third paragraph of Paragraph 7(b) or otherwise, or cancellation, in whole
or in part, pursuant to the provisions of Paragraph 7(f) or otherwise, or the
substitution in place thereof of a new Option) without having been exercised
in full, the shares subject thereto shall again be available for the purposes
of issuance pursuant to this Plan. Likewise, if Restricted Stock shall become
subject to forfeiture and be returned to the Corporation pursuant to the
provisions of Paragraph 8 hereof, such shares shall again be available for
the purposes of issuance pursuant to this Plan. In no event shall authorized
and unissued shares of Common Stock which, under the Plan, are authorized to
be used in payment of Performance Unit awards be deemed to be unavailable for
purposes of the Plan until such shares shall have been issued in payment
thereof in accordance with the provisions of Paragraph 6(g).
3. Administration.
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have plenary authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, Performance Units or Restricted Stock shall be awarded and Options
shall be granted and the number of units and/or shares to be covered by each
such award or grant. In making such determinations, the Committee may take
into account the nature of the services rendered by the respective
individuals, their present and potential contributions to the Corporation's
success and such other factors as the Committee in its discretion may deem
relevant. Subject to the express provisions of the Plan, the Committee shall
also have plenary authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, to determine the terms and
provisions of the respective Restricted Stock, Performance Unit and Option
agreements (which need not be identical) and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee's
determinations of the matters referred to in this Paragraph 3 shall be
conclusive.
4. The Committee.
The Committee shall consist of three or more members of the Board of
Directors of the Corporation who are not employees of the Corporation or any
subsidiary thereof. The Committee shall be appointed by the Board of
Directors, which may from time to time appoint members of the Committee in
substitution for members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee shall select one of its members as
its Chairman and shall hold its meetings at such times
A-2
<PAGE>
and places as it may determine. A majority of its members shall constitute a
quorum. All determinations of the Committee shall be made by not less than a
majority of its members. Any decision or determination reduced to writing and
signed by all the members shall be fully as effective as if it had been made by
a majority vote at a meeting duly called and held. The Committee may appoint a
secretary, shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable. Members
of the Committee shall not be eligible to receive any option grants pursuant to
the Plan.
5. Eligibility.
Performance Units and Restricted Stock may be awarded only to employees
(including officers) of the Corporation and of its present and future
subsidiary corporations (herein called subsidiaries). Incentive Options may
be awarded only to full-time employees (including officers) of the
Corporation or its subsidiaries. Nonqualified Options may be granted to
employees (including officers), consultants and other individuals who render
services to the Corporation and its subsidiaries. Any such eligible
individual may receive one or more Performance Unit awards or one or more
Options or one or more Restricted Stock awards, or a combination thereof, as
the Committee shall from time to time determine, and such determinations may
be different as to different individuals and may vary as to different awards
and grants. A Director of the Corporation or of a subsidiary who is not also
an employee of the Corporation or of a subsidiary will not be eligible to
receive Performance Units, Restricted Stock, Non-Qualified Options or
Incentive Options under the Plan.
6. Performance Unit Awards.
(a) Performance Units which are awarded to an employee shall have a
payment value at the end of the applicable award cycle contingent upon
performance of the Corporation and/or of such employee's subsidiary, division
or department over the award cycle. The length of the award cycle over which
Performance Units are to be earned out shall be determined by the Committee
at the time such Performance Units are awarded, but in no event shall the
award cycle be less than one (1) fiscal year. The performance measures may
include, but shall not be limited to, cumulative growth in pre-tax profits,
earnings per share, return on shareholders' equity, return on capital
employed or increase in the market value of the Common Stock of the
Corporation. Such measures may be applied on an absolute basis or relative to
industry indices and shall be defined in a manner which the Committee shall
deem appropriate. For each award cycle, the Committee shall establish a
payment schedule based upon the performance measures determined for such
award cycle. If during the course of an award cycle there should occur, in
the opinion of the Committee, significant changes in economic conditions or
in the nature of the operations of the Corporation or subsidiary, division or
department which the Committee did not foresee in establishing the
performance measures for such award cycle and which, in the Committee's sole
judgment, have, or are expected to have, a substantial effect on the
performance of the Corporation or an employee's subsidiary, division or
department during such award cycle, the Committee may revise the payment
schedule and performance measures formerly determined by it in such manner as
the Committee, in its sole judgment, may deem appropriate.
A-3
<PAGE>
(b) In determining the number of Performance Units to be awarded, the
Committee shall take into account an employee's responsibility level,
performance, potential, cash compensation level and such other considerations
as it deems appropriate.
(c) An award of Performance Units to an employee shall terminate for all
purposes if the employee does not remain, during the award cycle,
continuously in the employ of the Corporation or one of its subsidiaries,
except in the case of death, disability or retirement at age sixty-five (65)
or early retirement with the consent of the Corporation (hereinafter
"Retirement") in which case (and provided that the employee at the time of
death, disability or Retirement as aforesaid, shall have been continuously in
the employ of the Corporation or one of its subsidiaries during the period
commencing on the date the award is granted and ending on the first
anniversary thereof) the employee will be entitled to payment (such payment
to be made in accordance with the provisions of Paragraph 6(d)) of the same
portion of the payment value of the award the employee would otherwise have
been paid (such payment value, if any, to be determined at the conclusion of
the applicable award cycle in accordance with the provisions of Paragraphs
6(a) and 6(e)) as the portion of the award cycle during which the employee
was employed bears to the full award cycle. Under particular circumstances,
the Committee may make other determinations with respect to employees whose
services do not meet the foregoing requirements, including the waiver of any
of the requirements of this subparagraph (c) relating to periods of
employment.
(d) Unless the Committee otherwise determines, no payment with respect to
Performance Units will be made to an employee prior to the end of such
employee's award cycle applicable to the Performance Units awarded to such
employee.
(e) An employee's interest in any Performance Units awarded to him shall
mature on the last day of the award cycle for such award. The payment value
of a performance unit shall be the dollar amount calculated on the basis of
the payment schedule applicable to such award cycle.
(f) The total amount of payment value due an employee at the conclusion of
an award cycle shall be paid on such date following the conclusion of such
award cycle as the Committee shall designate, except as specifically
otherwise provided in the Plan.
(g) Payment of the payment value due an employee shall be made, at the
election of the Committee as to each employee, (i) in cash, (ii) in shares of
Common Stock of the Corporation (to be determined by dividing the payment
value of all matured Performance Units by the average of the Mean Price of
such stock during the five business days immediately preceding the date of
payment) or (iii) in a combination of cash and shares of Common Stock so
valued.
(h) A person to whom any award has been made shall not have any interest
in the cash or stock awarded to him until the cash has been paid to him or
the certificates for the stock have been delivered to him, as the case may
be, in accordance with the provisions of this Plan.
(i) In the event of any changes in the outstanding stock of the
Corporation by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of shares,
A-4
<PAGE>
split-ups, split-offs, spin-offs, liquidations or other similar changes in
capitalization, or any distribution to shareholders other than cash dividends,
the Committee shall make such adjustments, if any, in the light of the change
or distribution as the Committee in its sole discretion shall determine to be
appropriate, in the number of shares of stock covered by any award for which
certificates have not been delivered.
(j) In any case in which payment of an award is to be made in stock, the
Corporation shall have the right to retain or sell without notice sufficient
shares of stock (taken at the Mean Price of such stock on such date or dates
as may be determined by the Committee, but not more than five (5) business
days prior to the date on which such shares would otherwise have been
delivered) to cover the amount of any tax required by any government to be
withheld or otherwise deducted and paid with respect to such payment,
remitting any balance to the employee; provided, however, that the employee
shall have the option to provide the Corporation with the funds to enable it
to pay such tax. The Corporation shall also have the right, in lieu of
delivering the certificate or certificates for any of or all the stock which
would otherwise be deliverable to the employee pursuant to this Plan, to pay
to such employee on the date on which such certificate or certificates would
otherwise be deliverable an amount in cash equal to the Mean Price of such
stock on such date or dates as may be determined by the Committee, but not
more than five (5) business days prior to such date, but after withholding or
deducting any required amount of tax, all as the Committee may determine in
individual cases.
7. Nonqualified Option Grants.
(a) Each Nonqualified Option granted under the Plan shall be authorized by
the Committee and shall be evidenced by a Nonqualified Stock Option Agreement
which shall be executed by the Company and by the person to whom such
Nonqualified Option is granted. The Nonqualified Stock Option Agreement
shall, among other things, specify the number of shares of Common Stock as to
which Nonqualified Option is granted, the periods during which the
Nonqualified Option is exercisable and the purchase price per share thereof.
(b) The Committee shall be authorized in its discretion to prescribe in
the Nonqualified Option grant the installments, if any, in which Nonqualified
Option granted under the Plan shall become exercisable. The Committee shall
also be authorized to establish the manner and the effective date of the
exercise of a Nonqualified Option. The term of such Nonqualified Option shall
be not more than ten years from the date of grant thereof, or such shorter
period as is prescribed in Paragraphs 7(d) and (e).
A Nonqualified Option granted under the Plan shall be exercised by the
delivery by the holder thereof to the Corporation at its principal office
(attention of the Secretary) of written notice of the number of shares with
respect to which the Nonqualified Option is being exercised. Such notice
shall be accompanied by payment of the full purchase price of such shares,
and payment of such purchase price shall be made, at the discretion of the
Committee, by delivery of (i) cash, or (ii) his full recourse note payable to
the order of the Company (but only if and to the extent permitted by
applicable Delaware corporate law) having such due date, payment terms and
such annual interest rate (which is not less than the minimum rate then
required under the Code), as the Committee may fix in its sole discretion, or
(iii)
A-5
<PAGE>
in the Corporation's Common Stock owned by the optionee having a Fair-Market
Value on the date of exercise equal to the aggregate Nonqualified Option
price (provided, however, that no such payment in stock shall be made unless
said stock shall have been owned by the optionee for a period of more than
six (6) months), or (iv) such combination of Items (i), (ii) and (iii) as the
Committee may fix in its sole discretion, or (v) such other financial
arrangement may be made for the payment for such shares as the Committee may
fix in its sole discretion.
In lieu of requiring an optionee to deliver cash and/or notes and/or stock
and receive certificates for shares of Common Stock of the Corporation upon
the exercise of a Nonqualified Option, if the Nonqualified Option so
provides, the Committee may elect to require the optionee to surrender the
Nonqualified Option to the Corporation for cancellation as to all or any
portion of the number of shares covered by the intended exercise and receive
in exchange for such surrender a payment, at the election of the Committee,
in cash, in shares of Common Stock of the Corporation, or a combination of
cash and shares of Common Stock of the Corporation, equivalent to the
appreciated value of the shares covered by the Option surrendered for
cancellation. Such appreciated value shall be the difference between the
Nonqualified Option prices of such shares (as adjusted pursuant to Paragraph
12) and the Fair-Market Value of such shares. Upon delivery to the
Corporation of a notice to exercise a Nonqualified Option, the Committee may
avail itself of its right to require the optionee to surrender the
Nonqualified Option to the Corporation for cancellation as to shares covered
by such intended exercise. The Committee's right of election shall expire, if
not exercised, at the close of business on the tenth business day following
the delivery to the Corporation of such notice. Should the Committee not
exercise such right of election, the delivery of the aforesaid notice of
exercise shall constitute an exercise by the optionee of the Nonqualified
Option to the extent therein set forth, and payment for the shares covered by
such exercise shall become due immediately.
(c) In the event that an employee receiving a Nonqualified Option does not
remain in the employ of the Corporation or of one of its subsidiaries for the
period determined by the Committee and set forth in the Nonqualified Option
grant and the termination of such individual's service during such period is
either (i) for cause or (ii) voluntary on the part of such individual and
without the written consent of the Corporation or such subsidiary, the
Nonqualified Option shall forthwith terminate on the date of such termination
of employment. Retirement at age sixty-five (65) shall be deemed to be a
termination of employment with the Corporation's written consent.
(d) In the event of the termination of the employment of an employee
holder of any Nonqualified Option, other than by reason of Retirement or
death, he may (unless his Nonqualified Option shall have been terminated by
reason of the provisions of Paragraph 7(c) or unless otherwise provided in
his Nonqualified Option grant) exercise his Option at any time within three
(3) months after such termination, but not after the expiration of the
Nonqualified Option, to the extent of the number of shares covered by his
Nonqualified Option which were purchasable by him at the date of the
termination of his employment. In the event of the termination of the
employment of the holder of any Nonqualified Option because of Retirement, he
may (unless his Nonqualified Options shall have been previously terminated
A-6
<PAGE>
pursuant to the provisions of Paragraph 7(c) or unless otherwise provided in
his Nonqualified Option grant) exercise his Nonqualified Option at any time
after such termination, but not after the expiration of the Nonqualified
Option, to the extent of the number of shares covered by his Nonqualified
Option which were purchasable by him at the date of his termination of
employment. Notwithstanding the foregoing provisions hereof but subject to
the provisions of Paragraph 7(c), the Committee may determine, in its sole
discretion, in the case of any termination of employment that the holder of a
Nonqualified Option may exercise such Nonqualified Option to the extent of
the remaining shares covered thereby whether or not such shares had become
purchasable by such employee at the date of the termination of his
employment. Nonqualified Options granted under the Plan to employees shall
not be affected by any change of employment so long as the holder continues
to be an employee of the Corporation or of a subsidiary. The Nonqualified
Option grant may contain such provisions as the Committee may approve with
reference to the effect of approved leaves of absence.
(e) In the event of the death of an individual other than an employee to
whom a Nonqualified Option has been granted under the Plan, the Nonqualified
Option theretofore granted to him may be exercised by a legatee or legatees
of the Nonqualified Option holder under his last will, or by his personal
representative or distributees, at any time after his death, but not after
the expiration of the Nonqualified Option, to the extent of the remaining
shares covered by his Nonqualified Option whether or not such shares had
become purchasable by such an individual at the date of his death. In the
event of the death of an employee while he is employed by the Corporation or
a subsidiary or following Retirement or during the three (3) month period
following the termination of his employment, the Nonqualified Option (if not
previously terminated pursuant to the provisions of Paragraph 7(c)) may be
exercised by a legatee or legatees of the Nonqualified Option under the
employee's last will, or by the personal representatives or distributees of
the employee at any time after his death, but not after expiration of the
Nonqualified Option, but only to the extent of the number of shares
purchasable by such employee pursuant to the provisions of Paragraph 7(d) at
the date of termination of his employment.
(f) The Committee shall be authorized, in its absolute discretion, to
permit optionees to surrender outstanding Nonqualified Options in exchange
for the grant of new Nonqualified Options or require optionees to surrender
outstanding Nonqualified Options as a condition precedent to the grant of new
Nonqualified Options. The number of shares covered by the new Nonqualified
Options, the Nonqualified Option price, the Nonqualified Option period shall
all be determined in accordance with the Plan and may be different from the
provisions of the surrendered Nonqualified Options.
8. Restricted Stock Awards.
(a) The consideration to be received for shares of Restricted Stock issued
hereunder shall be (i) in such amount, to be paid in cash, as is determined
by the Committee, in its sole discretion, at the time of such award, but in
no event shall it be less than the par value thereof and (ii) the continued
employment by the employee during the "Restricted Period" (as hereinafter
defined). The recipient of Restricted Stock shall be recorded as a
stockholder of the Corporation and shall have, subject to the provisions
hereof, all the rights of a stockholder with respect to such shares and
receive all dividends or other
A-7
<PAGE>
distributions made or paid with respect to such shares; provided that the
shares themselves and any new, additional or different shares or securities
which the recipient may be entitled to receive with respect to such shares by
virtue of a stock split or stock dividend or any other change in the
corporate or capital structure of the Corporation, shall be subject to the
restrictions hereinafter described.
(b) During a period following the date of grant, as determined by the
Committee and set forth in the grant (hereinafter referred to as the
"Restricted Period"), the Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of by
the recipient, except in the event of (i) death as hereinafter provided or
(ii) the transfer thereof to the Corporation under the provisions of the next
succeeding paragraph. In the event of the death of the recipient during the
Restricted Period, the aforesaid restrictions on the Restricted Stock shall
immediately lapse and the legal representative of the estate of the recipient
shall be free to transfer, encumber or otherwise dispose of the Restricted
Stock.
In the event that, during the Restricted Period, the employment of the
recipient by the Corporation or one of its subsidiaries is terminated for any
reason (including termination with or without cause by the Corporation or
such subsidiary, resignation by the recipient, or retirement, except
retirement with the consent of the Corporation, which consent may be
conditioned upon the performance of consulting services, agreement as to
noncompetition or such other conditions as may be imposed by the Corporation)
other than termination of employment due to the death of the recipient, then
the shares of Restricted Stock held by him shall be forfeited to the
Corporation and the recipient shall immediately transfer and return to the
Corporation the certificates representing all the Restricted Stock and the
recipient's rights as a stockholder with respect to the Restricted Stock
shall cease, effective with such termination of employment; provided,
however, if the employee is required to pay more than the par value of such
shares, then the Corporation shall either pay to the employee within thirty
(30) days of receipt of such Restricted Stock the amount originally paid for
such Restricted Stock by such employee or return equivalent but unlegended
(except for required Securities Act legends) certificates to the employee
which the employee will then own absolutely. All certificates representing
Restricted Stock issued pursuant to this Plan shall bear a legend indicating
that the shares are subject to the restrictions set forth herein.
During the Restricted Period, the recipient's rights to the Restricted
Stock may not be assigned or transferred except by will or by the laws of
descent or distribution. In the event of any attempt to sell, exchange,
transfer, pledge or otherwise dispose of said shares by the recipient in
violation of the provisions hereof, such shares shall be forfeited to the
Corporation.
9. Incentive Options.
(a) Each Incentive Option granted under the plan shall be authorized by
the Committee and shall be evidenced by an Incentive Stock Option Agreement
which shall be executed by the Company and by the person to whom such
Incentive Option is granted. The Incentive Stock Option Agreement shall
specify, among other things, the number of shares of Common Stock as to which
any Incentive Option is granted, the periods during which the Incentive
Option is exercisable and the purchase price per share thereof.
A-8
<PAGE>
(b) The Committee shall grant Incentive Options under the Plan which are
intended to meet the requirements of Section 422A of the Code and which are
subject to the following terms and conditions and any other terms and
conditions as may at any time be required by Section 422A of the Code:
(i) No Incentive Option shall be granted to individuals other than
employees of the Corporation or of a subsidiary.
(ii) Each Incentive Option under the Plan must be granted within ten (10)
years from the date the Plan was adopted by the Board of Directors.
(iii) The purchase price of the shares subject to any Incentive Option
shall not be less than the Fair-Market Value of the Common Stock at the
time such Incentive Option is granted; provided, however, if an Incentive
Option is granted to an individual who owns, at the time the Incentive
Option is granted, more than ten (10%) per cent of the total combined
voting power of all classes of stock of the Corporation or of a
subsidiary, the purchase price of the shares subject to the Incentive
Option shall be at least one hundred ten (110%) per cent of the
Fair-Market Value of the Common Stock at the time the Incentive Option is
granted.
(iv) No Incentive Option granted under the Plan shall be exercisable
after the expiration of ten (10) years from the date of its grant.
However, if an Incentive Option is granted to an individual who owns, at
the time the Incentive Option is granted, more than ten (10%) percent of
the total combined voting power of all classes of stock of the Corporation
or of subsidiary, such Incentive Option shall not be exercisable after the
expiration of five (5) years from the date of its grant. Every Incentive
Option granted under the Plan shall be subject to earlier termination as
expressly provided in Paragraph 9(c) hereof.
(v) The aggregate Fair-Market Value, determined at the time the Incentive
Option is granted, of the shares with respect to which incentive stock
options are exercisable for the first time by any such person during any
calendar year, under the Plan, or incentive stock options (as defined in
Section 422A(b) of the Code) under any other stock option plan maintained
by the Corporation or a parent or subsidiary corporation of the
Corporation or a predecessor corporation of any such corporation, shall
not exceed One Hundred Thousand ($100,000) Dollars.
(vi) For purposes of the Plan, Fair-Market Value shall be as determined
by the Committee on the day preceding the day on which the Incentive
Option is granted.
(c) If the employment of an employee by the Corporation or a subsidiary
shall be terminated voluntarily by the employee or for cause, his Incentive
Option shall expire forthwith. For purposes of this subparagraph, an employee
who leaves the employ of the Corporation to become an employee of a
subsidiary or a corporation (or subsidiary or parent corporation of a
corporation) which has assumed the Incentive Option of the Corporation as a
result of a corporate reorganization, etc., shall not be considered to have
terminated his employment.
(d) If the holder of an Incentive Option under the Plan dies (i) while
employed by the Corporation or a subsidiary, or (ii) after the termination of
his employment by reason of retirement at age sixty-five
A-9
<PAGE>
(65) or early retirement with the consent of the Corporation, then such
Incentive Option may, subject to the provisions of subparagraph (f) of this
Paragraph 9, be exercised by the estate of the employee, or by a person who
acquired the right to exercise such Incentive Option by bequest or
inheritance or by reason of the death of such employee at any time.
(e) If the holder of an Incentive Option under the Plan ceases employment
because of permanent and total disability (within the meaning of Section
37(e)(3) or Section 105(d)(4) of the Code) while employed by the Corporation
or a subsidiary, then such Incentive Option may, subject to the provisions of
subparagraph (f) of this Paragraph 9, be exercised at any time.
(f) An Incentive Option may not be exercised pursuant to this Paragraph 9
except to the extent that the holder was entitled to exercise the Incentive
Option at the time of termination of employment or death, and in any event
may not be exercised after the expiration of the Incentive Option.
(g) For purposes of this Paragraph 9, the employment relationship of an
employee of the Corporation or of a subsidiary will be treated as remaining
intact while he is on military, sick leave or other bona fide leave of
absence (such as temporary employment by the Government) if such leave does
not exceed ninety (90) days, or if longer, so long as his right to
reemployment is guaranteed either by statute or by contract.
(h) Unless otherwise provided in the Incentive Stock Option Agreement, any
Incentive Option granted under the Plan shall be exercisable in whole at any
time, or in part from time to time, prior to expiration.
(i) An Incentive Option granted under the Plan shall be exercised by the
delivery by the holder thereof to the Corporation at its principal office
(attention of the Secretary) of written notice of the number of shares with
respect to which the Incentive Option is being exercised. Such notice shall
be accompanied by payment of the full purchase price of such shares, and
payment of such purchase price shall be made, in the sole discretion of the
Committee, by the holder's delivery of (i) his check certified payable to the
order of the Corporation, or (ii) his full recourse note payable to the order
of the Corporation (but only if and to the extent permitted by applicable
Delaware corporate law) having such due date, such payment terms and such
annual interest rate (which is not less than the minimum rate then required
under the Code), as the Committee may fix in its sole discretion, or (iii) in
the Common Stock owned by the holder having a Fair-Market Value on the date
of exercise of equal to the aggregate option price (provided, however, that
no such payment in stock shall be made unless said stock shall have been
owned by the holder of the Incentive Option for more than six (6) months), or
(iv) such combination of items (i), (ii) and (iii) as the Committee may
determine in its sole discretion, or (v) such other financial arrangement may
be made for the payment for such shares as the Committee may fix in its sole
discretion.
10. No Right to Employment.
Nothing in the Plan or in any Performance Unit, Restricted Stock or Option
award or grant pursuant to the Plan shall confer on any employee any right to
continue in the employ of the Corporation or any of its subsidiaries or
interfere in any way with the right of the Corporation or any of its
subsidiaries to terminate his employment at any time.
A-10
<PAGE>
11. Transferability and Shareholder Rights of Holders of Performance Units,
Nonqualified Options and Incentive Options.
No Performance Unit awarded and no Option granted under the Plan shall be
transferable otherwise than pursuant to Paragraphs 6(c), 7(e) or 9(d), by
will or by the laws of descent and distribution, and an Option may be
exercised, during the lifetime of the holder thereof, only by him. The holder
of a Performance Unit award or of an Option shall have none of the rights of
a shareholder until, in the case of Options, the shares subject thereto shall
have been registered in the name of the person or persons exercising such
Option on the transfer books of the Corporation upon such exercise.
12. Adjustments upon Changes in Capitalization.
(a) Notwithstanding any other provisions of the Plan, the Option grants
may contain such provisions as the Committee may determine as appropriate for
the adjustment of the number and class of shares subject to such options and
the option prices of the shares covered thereby, in the event of changes in
the outstanding Common Stock of the Corporation by reason of stock dividends,
stock splits, recapitalizations, mergers, consolidations, combinations, or
exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other
similar changes in capitalization, or any distribution to common shareholders
other than cash dividends, and, in the event of any such change in the
outstanding Common Stock of the Corporation, the aggregate number and class
of shares available under the Plan which may be awarded or granted shall be
appropriately adjusted by the Committee; provided, however, that in any such
event the Committee shall have the discretionary power to take any action
necessary or appropriate to prevent any Incentive Option granted herein from
being disqualified as an "incentive stock option" under the then existing
provisions of the Code, or any law amendatory thereof or supplemental
thereto; and
(b) If fractions of a share would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of shares.
13. Compliance with Securities Act.
(a) The Committee may in its discretion authorize the awarding of
Performance Units and Restricted Stock and the granting of Options, the
payment, issuance or exercise of which, respectively, shall be expressly
subject to the conditions that (i) the shares of Common Stock reserved for
issue under the Plan shall have been duly listed, upon official notice of
issuance, upon each stock exchange in the United States upon which the Common
Stock is traded and (ii) a registration statement under the Securities Act of
1933 with respect to such shares shall have become effective.
(b) The recipient of any shares under this Plan (whether by virtue of
exercise of an Option, receipt of Restricted Stock or otherwise) shall
represent and warrant to and agree with the Corporation that he takes such
shares for investment only and not for purposes of sale and that he will also
take for investment only and not for purposes of sale any rights, warrants,
shares, or securities which may be issued to him on account of his ownership
of such shares and that he will not sell or transfer any shares received by
him
A-11
<PAGE>
under the Plan or any rights, shares or securities issued to him on account
of the shares received by him under the Plan or any shares received by him
upon exercise of any such rights or warrants without first having obtained an
opinion of counsel for the Corporation that such shares, rights, warrants, or
other securities may be disposed of without registration or other action
under the Securities Act of 1933.
14. Withholding of Additional Federal, State and Local Income Tax.
The Company, in accordance with Section 3402(a) of the Internal Revenue
Code and the Regulations and Rulings promulgated thereunder and any
corresponding state or local laws, will (unless provision is otherwise made
to pay such withholding taxes which is satisfactory to the Committee)
withhold from the wages of employees who are awarded or granted Performance
Units, Restricted Stock or Options, in all payroll periods following and in
the same calendar year as the date on which compensation is deemed received
by the employee, additional income taxes in respect of the amount that is
considered compensation includible in the employee's gross income.
15. Amendment and Termination.
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on, and no awards of Performance Units or
Restricted Stock or Options shall be made after February 28, 2007 and
provided further that the said Plan termination shall have no effect on
awards of Performance Units or Restricted Stock or Options made prior
thereto. The Plan may be terminated, modified or amended by the shareholders
of the Corporation. The Board of Directors of the Corporation may also
terminate, modify or amend the Plan in such respects as it shall deem
advisable in order to conform to any change in any law or regulation
applicable thereto, or in other respects which shall not change (i) the total
number of shares as to which Options may be granted or which may be used in
payment of Performance Unit awards under the Plan or which may be issued as
Restricted Stock, (ii) the class of individuals eligible to receive awards of
Performance Units, Restricted Stock and Options, (iii) the period during
which awards of Performance Units or Restricted Stock may be made or Options
may be granted or exercised, or (iv) make any change which would prevent an
Incentive Option from qualifying as an "incentive stock option" as such term
is defined in the then existing Code or any law amendatory or supplemental
thereto.
No termination, modification or amendment of the Plan may, without the
consent of the individual to whom an Option shall have been previously
granted, affect the right conferred by such Option.
16. Use of Proceeds.
The proceeds from the sale of Restricted Stock or shares pursuant to
Options granted under the Plan shall constitute general funds of the
Corporation.
17. Definitions.
For purposes of the Plan, the terms "parent" and "subsidiary" shall have
the same meaning as "parent corporation" and "subsidiary corporation" as such
terms are defined in Sections 425(e) and 425(f) of the Code, respectively,
and the masculine shall include the feminine.
A-12
<PAGE>
18. Governing Law.
The Plan shall be governed by, and all questions arising hereunder shall
be determined in accordance with, the laws of the State of Delaware.
19. Effective Date of the Plan.
The Plan shall become effective on the date of its adoption by the Board
of Directors of the Corporation and Performance Unit and Restricted Stock
awards may be made and Options granted immediately thereafter, but no
Performance Unit award may be paid or Restricted Stock issued or Option
exercised under the Plan unless and until the Plan shall have been approved
by the holders of a majority of the outstanding shares of Common Stock of the
Corporation within twelve (12) months after the date of adoption of the Plan
by the Board of Directors and if such approval is not obtained within said
period, the Plan and any awards made or Options granted under the Plan shall
be null and void.
20. Indemnification of Committee.
In addition to such other rights of indemnification as they may have, the
members of the Committee shall be indemnified by the Corporation to the
extent permitted under applicable law against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding
to which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any rights granted
thereunder and against all amounts paid by them in settlement thereof or paid
by them in satisfaction of a judgment of any such action, suit or proceeding,
except a judgment based upon a finding of bad faith. Upon the institution of
any such action, suit or proceeding, the Committee member or members shall
notify the Corporation in writing, giving the Corporation an opportunity at
its own cost to defend the same before such Committee member or members
undertake to defend the same on their own behalf.
A-13
<PAGE>
EXHIBIT B
LILLIAN VERNON CORPORATION
1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of the Lillian Vernon Corporation Stock Option Plan for
Non-Employee Directors (the "Plan") is to increase the proprietary and vested
interest of the non-employee directors of the Lillian Vernon Corporation (the
"Company") in the growth and performance of the Company by granting such
directors options to purchase shares of Common Stock, $.01 par value per
share (the "Stock"), of the Company.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"Board"). Subject to the provisions of the Plan, the Board shall be
authorized to interpret the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Board shall have no discretion with respect to the selection of
directors to receive options under the Plan, the number of shares of Stock
subject to any such options, the purchase price thereunder or the timing of
grants of options under the Plan. The determination of the Board in the
administration of the Plan, as described herein, shall be final and
conclusive. The Secretary of the Company shall be authorized to implement the
Plan in accordance with its terms and to take such actions of a ministerial
nature as shall be necessary to effectuate the intent and purposes thereof.
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware.
3. ELIGIBILITY
The class of individuals eligible for grant of options under the Plan
shall be Eligible Directors, as defined below. An Eligible Director shall
mean a director of the Company who is not an employee of the Company or its
subsidiaries and has not, within one year immediately preceding the
determination of such director's eligibility, received any award under any
plan of the Company or its subsidiaries that entitles the participants
therein to acquire stock, stock options or stock appreciation rights of the
Company or its subsidiaries (other than any other plan under which
participants' entitlements are governed by provisions meeting the
requirements of Rule 16b-3(c)(2)(ii) promulgated under the Securities
Exchange Act of 1934). Any holder of an option granted hereunder shall
hereinafter be referred to as a "Participant".
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 6, an aggregate of 50,000
shares of Stock shall be available for issuance upon the exercise of options
granted under the Plan. The shares of Stock deliverable upon the exercise of
options may be made available from authorized but unissued shares or shares
B-1
<PAGE>
reacquired by the Company, including shares purchased in the open market or
in private transactions. If any option granted under the Plan shall terminate
for any reason without having been exercised, the shares subject to, but not
delivered under, such option shall be available for other options.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS
Each individual who is an Eligible Director will be granted an option to
purchase 2,500 shares of Stock as of the date of each Annual Stockholders
Meeting, commencing with the Annual Stockholders Meeting following the
meeting approving the Plan. The options granted will be nonstatutory stock
options, not intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and shall have the following terms and
conditions:
(a) Price. The Purchase price per share of Stock deliverable upon the
exercise of each option shall be 100% of the Fair Market Value per share
of the Stock on the date the option is granted. For purposes of this Plan,
Fair Market Value shall be the closing price per share as reported for
consolidated trading of issues listed on the principal securities exchange
where the Stock is traded on the date in question, or, if the Stock shall
not have traded on such date, the closing price per share on the first
date prior thereto on which the Stock was so traded or if the Stock is not
traded on a securities exchange, Fair Market Value shall be deemed to be
the average of the closing bid and asked prices of the Stock in the
over-the-counter-market on the date the option is granted or on the next
preceding date on which such closing bid and asked prices were recorded.
(b) Payment. Options may be exercised only upon payment of the purchase
price thereof in full. Such payment shall be made in cash or in Stock,
which shall have a Fair Market Value (determined in accordance with the
rules of Paragraph (a) above) at least equal to the aggregate exercise
price of the shares being purchased, or a combination of cash and stock.
(c) Exercisability and Term of Options. Options shall be exercisable in
whole or in part at all times during the period beginning one year from
the date of grant. The options granted shall be for a term of not more
than 10 years or until terminated, as provided in Paragraph (d) below.
(d) Termination of Service as Eligible Director.
(i) Except as provided in subparagraph (ii) of this Paragraph (d),
all outstanding options held by a Participant shall be automatically
cancelled upon such Participant's termination of service as an
Eligible Director.
(ii) Upon termination of a Participant's service as an Eligible
Director by reason of such Participant's declining to stand for
reelection, becoming an employee of the Company or a subsidiary
thereof or becoming disabled (as defined in the Company's Profit
Sharing Plan) all outstanding options held by such Participant on the
date of such termination shall expire up to five years from the date
upon which the Participant ceases to be an Eligible Director but in no
event after the specified expiration date of such option. In the event
of the death of a Participant (whether before or after termination of
service as an Eligible Director), all outstanding options held by such
Participant (and not previously cancelled or expired) on the date of
such death,
B-2
<PAGE>
shall be fully exercisable by the Participant's legal representative
within one year after the date of death (without regard to the
expiration date of the option specified in accordance with the
preceding sentence).
(e) Nontransferability of Options. No option shall be transferable by a
Participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Participant to whom an option
is granted it may be exercised only by the Participant or by the
Participant's guardian or legal representative. Notwithstanding the above,
options may be transferred pursuant to a qualified domestic relations
order.
(f) Listing and Registration. Each option shall be subject to the
requirement that if at any time the Board shall determine, in its
discretion, that the listing, registration or qualification of the Stock
subject to such option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with,
the granting of such option or the issue or purchase of shares thereunder,
no such option may be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any condition not acceptable to the Board.
(g) Option Agreement. Each option granted hereunder shall be evidenced by
an agreement with the Company which shall contain the terms and provisions
set forth herein and shall otherwise be consistent with the provisions of
the Plan.
6. ADJUSTMENT OF AND CHANGES IN STOCK
In the event of a stock split, stock dividend, subdivision or combination
of the Stock or other change in corporate structure affecting the Stock, the
number of shares of Stock authorized by the Plan shall be increased or
decreased proportionately, as the case may be, and the number of shares of
Stock subject to any outstanding option shall be increased or decreased
proportionately, as the case may be, with appropriate corresponding
adjustment in the purchase price per share of Stock thereunder.
7. MERGERS, SALES AND CHANGE OF CONTROL
In the case of (i) any merger, consolidation or combination of the Company
with or into another corporation (other than a merger, consolidation or
combination in which the Company is the continuing corporation and which does
not result in its outstanding Stock being converted into or exchanged for
different securities, cash or other property, or any combination thereof) or
a sale of all or substantially all of the assets of the Company or (ii) a
Change in Control (as defined below) of the Company, the holder of each
option then outstanding immediately prior to such Change in Control shall
(unless the Board determines otherwise) have the right to receive on the date
or effective date of such event an amount equal to the excess of the Fair
Market Value on such date of (a) the securities, cash or other property, or
combination thereof, receivable upon such merger, consolidation or
combination in respect of a share of Stock, in the cases covered by clause
(i) above, or in the case of a sale of assets referred to in such clause (i),
a share of Stock, or (b) the final tender offer price in the case of a tender
offer resulting in a Change
B-3
<PAGE>
in Control or (c) the value of the Stock covered by the option as determined
by the Board, in the case of Change in Control by reason of any other event,
over the exercise price of such option, multiplied by the number of shares of
Stock subject to such option. Such amount will be payable fully in cash or
stock.
Any determination by the Board made pursuant to this Section 7 will be
made as to all outstanding options and shall be made (a) in cases covered by
clause (i) above, prior to the occurrence of such event, (b) in the event of
a tender or exchange offer, prior to the purchase of any Stock pursuant
thereto by the offeror and (c) in the case of a Change in Control by reason
of any other event, just prior to or as soon as practicable after such Change
in Control.
A "Change in Control" shall be deemed to have occurred if following (i) a
tender or exchange offer for voting securities of the Company (other than any
such offer made by the Company), or (ii) a proxy contest for the election of
directors of the Company, the persons who were directors of the Company
immediately before the initiation of such event (or directors who were
appointed by such directors) cease to constitute a majority of the Board of
Directors of the Company upon the completion of such tender or exchange offer
or proxy contest or within one year after such completion.
8. NO RIGHTS OF SHAREHOLDERS
Neither a Participant nor a Participant's legal representative shall be,
or have any of the rights and privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of any option in whole or
in part, unless and until certificates for such shares shall have been
issued.
9. PLAN AMENDMENTS
The Plan may be amended by the Board, as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of
shareholders; (i) increase the number of shares which may be purchased
pursuant to options hereunder, either individually or in the aggregate, (ii)
change the requirements of Section 5(a) that option grants be priced at Fair
Market Value, (iii) modify in any respect the class of individuals who
constitute Eligible Directors; or (iv) materially increase the benefits
accruing to Participants hereunder. The provisions of Sections 3 and 5 may
not be amended more often than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act, or the
rules under either such statute.
10. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the day following the Company's Annual
Stockholders Meeting at which the Plan is approved by the holders of a
majority of the outstanding shares of Common Stock of the Company. The Plan
shall terminate on the day following the fifth Annual Stockholders Meeting at
which Directors are elected following the Annual Stockholders Meeting at
which the Plan was approved by Shareholders, unless the Plan is extended or
terminated at an earlier date by Stockholders.
B-4
