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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LILLIAN VERNON CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2529859
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
543 MAIN STREET, NEW ROCHELLE, NEW YORK 10801
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(address of Principal Executive Office)
THE LILLIAN VERNON CORPORATION
PROFIT SHARING PLAN
(Full Title of Plan)
Lillian Vernon
(Chairman and Chief Executive Officer)
Lillian Vernon Corporation
543 Main Street
New Rochelle, New York 10801
(914) 576-6400
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(Name, address including zip code and
telephone number, including area code,
of agent for service).
Copies to:
Alan M. Rashes, Esq.
Salon, Marrow & Dyckman, LLP
685 Third Avenue
New York, New York 10017
(212) 661-7100
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CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
Each Class Registered Maximum Maximum Registration
of Securities Offering Aggregate Fee(2)
to be Registered Price Per Offering
Share(2) Price(2)
Common Stock, $.01 100,000(1) $17.625 $1,762,500 $519.94
Par Value
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(1) Shares issuable as employer contribution pursuant to 401(K) feature of the
Profit Sharing Plan.
(2) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(h) based upon the closing price of the Common Stock as
reported by the American Stock Exchange (the "AMEX") on March 26, 1998.
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PART I
INFORMATION REQUIRED IN THE SECTION 10 (A) PROSPECTUS
Explanatory Note
In accordance with the Instructional Note to Part I of Form
S-8, as promulgated by the Securities and Exchange Commission, the information
specified by Part I of Form S-8 has been omitted from this Registration
Statement on Form S-8 for offers of Common Stock pursuant to the 401(k) feature
of the Lillian Vernon Corporation Profit Sharing Plan.
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Part II
Item 3. Incorporation of Documents by Reference
The following documents filed with the Commission by Lillian Vernon
Corporation, a Delaware corporation (the "Company") are incorporated as of
their respective dates in this Registration Statement by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
February 22, 1997;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended May 24, 1997, August 23, 1997 and November 22, 1997;
(c) All other reports filed by the Company pursuant to Section 13(a)
and 15(d) of the Securities Exchange Act of 1934 since the end of the Company's
fiscal year ended February 22, 1997; and
(d) The description of the Company's Common Stock contained in the
Company's Form 8-A dated July 16, 1987 and the Company's Registration Statement
on Form S-1, Registration No. 33- 15430, declared effective on August 13, 1987.
All documents filed by the Company with the Commission, pursuant to
Section 13, 14 or 15(d) of the Exchange Act hereto, but prior to the filing of
a post-effective amendment to the Registration Statement which indicates that
all securities offered hereby have been sold or which deregisters all such
securities then remaining unsold, shall be deemed to be incorporated herein by
reference and to be a part hereof from their respective dates of filing. Any
statement contained herein shall be deemed to be modified or superseded for
purposes of the Prospectus to the extent that a statement contained herein or
in any other subsequently filed document, which also is or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.
Item 4. Description of Securities.
Not applicable.
Item 5. Interest of Named Experts and Counsel
The legality of the shares offered hereby has been passed upon for the
Company by Salon, Marrow & Dyckman, LLP, 685 Third Avenue, New York, New York
10017. Leo Salon, a partner of Salon, Marrow & Dyckman, LLP, a director of the
Company, owns 2,250 shares of Common Stock. He has the right to acquire 4,500
shares of Common Stock pursuant to the Company's 1987 Performance Unit,
Restricted Stock, Non-Qualified Option and Incentive Stock Option Plan. Mr.
Salon also has the right to acquire 12,500 shares of Common Stock pursuant to
the Company's 1993 Stock Option Plan for Non-Employee Directors. Mr. Salon is a
director of the Lillian
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Menasche Vernon Foundation, Inc. a charitable foundation, which foundation owns
an aggregate of 536,098 share of Common Stock.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law ("DGCL") allows a
corporation to eliminate the personal liability of directors of a Company to
the Company or to any of its stockholders for monetary damage for a breach of
his fiduciary duty as a director, except in the case where the director
breaches his duty of loyalty, fails to act in good faith, engages in
intentional misconduct or knowingly violates a law, authorizes the payment of a
dividend or approves a stock repurchase in violation of the DGCL or obtains an
improper personal benefit. The Company's Certificate of Incorporation, a copy
of which is incorporated by reference, contains a provision which eliminates
directors' personal liability as set forth above.
Section 145 of the DGCL permits a corporation to indemnify its
directors and officers.
Article IV of the Company's By-Laws provides for indemnification of
corporate agents as follows:
"Section 1. Non-Derivative Actions. The Company shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or contemplated action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in right
of the Company) by reason of the fact that he is or was a director, officer or
employee of the Company, or is or was serving at the request of the Company as
a director, officer or employee of another corporation, partnership,
joint-venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful."
"Section 2. Derivative Actions. The Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or contemplated action or suit by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer or employee of the Company, or is or was serving at the
request of the Company as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) judgments, fines and amounts paid in
connection with the defense or settlement of such action or
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suit or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Company unless and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication or liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper."
"Section 3. Expenses. To the extent that a director, officer or
employee of the Company has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 1 and 2 of
this Article IV, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith."
"Section 4. Standard of Conduct. Any indemnification under Sections 1
and 2 of this Article IV (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the director, officer or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Sections 1 and 2. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by a
majority vote of the stockholders."
"Section 5. Undertakings. Expenses incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding may be
paid by the Company in advance of the final disposition of such action, suit or
proceeding if authorized by the Board of Directors in the specific case and
only upon receipt of an undertaking by or on behalf of the director, officer or
employee to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the Company as authorized in this Article IV."
"Section 6. Non-Exclusivity. The indemnification provided by this
Article IV shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors, statute, court decision, insurance
policy or otherwise, now or hereafter in effect, and shall continue as to a
person who has ceased to be a director, officer or employee and shall inure to
the benefit of the heirs, executors and administrators of such a person."
"Section 7. Insurance. The Company may purchase and maintain insurance
on behalf of any person who is or was a director, officer or employee of the
Company, or is or was serving at the request of the Company as a director,
officer or employee
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of another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify him against such liability under the
provisions of this Article IV or of the General Corporation Law of the State of
Delaware."
"Section 8. Definitions. For the purpose of this Article IV,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Company" shall include any service as a director, officer or employee of
the Company which imposes duties on, or involves services by, such director,
officer or employee with respect to any employee benefit plan, its participants
or beneficiaries; and a person who acting in good faith and in a manner he
reasonably believes to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Article
IV".
"Section 9. Indemnification Agreements. Without limiting the
generality of the foregoing, the Company shall have the express authority to
enter into such agreements as the Board of Directors deems appropriate for the
indemnification of present or future directors and officers of the Company in
connection with their service to or status with the Company or any other
corporation, entity or enterprise with whom such person is serving at the
express written request of the Company."
The Company has entered into indemnification agreements with its
officers and directors providing for payment of (i) all expenses incurred by an
officer and director in connection with any potential liability, (ii) any
awards or judgments rendered against said officer and director and (iii) any
amount paid in settlement provided that the officer and director did not act in
bad faith and acted in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company. The indemnification agreements
provide for advancement of expenses in certain circumstances.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
ITEM 8. EXHIBITS
3 Articles of Incorporation as amended and By Laws(1)
5.1 Opinion of Salon, Marrow & Dyckman, LLP E-1
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(1) Filed with the Registration Statement on Form S-1 (File No. 33-15430) and
with Form 10-Q for the Quarter ended August 28, 1987 and incorporated by
reference herein.
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10.1 Lillian Vernon Corporation Profit Sharing Plan, as amended. E-2
23.1 Consent of Salon, Marrow & Dyckman, LLP to be named in the
Registration Statement. Reference is made to Exhibit 5.1 to
this Registration Statement which includes such consent.
23.2 Consent of Coopers & Lybrand, LLP E-65
24.0 Power of Attorney (set forth in the signature page).
Undertaking: The Registrant undertakes to submit the amended Lilian Vernon
Corporation Profit Sharing Plan Document to the Internal Revenue Service
("IRS") in a timely manner and will make all changes required by the IRS in
order to qualify the Plan.
ITEM 9. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviations from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement;
Provided however that paragraphs (a)(l)(i) and (a)(l)(ii) shall
not apply to information contained in periodic reports filed by the registrant
pursuant to Section 13 or Section l5(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.
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(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for the filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned; thereunto duly
authorized in New Rochelle, New York on this 30th day of March 30, 1998.
LILLIAN VERNON CORPORATION
Dated: March 30, 1998 By: /s/ Lillian Vernon
-----------------------
Lillian Vernon
Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints Lillian Vernon and Leo Salon and each
acting alone, his true and lawful attorney-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any or all amendments and supplements to
this Registration Statement and to file the same with all exhibits thereto and
other documents in connection with all exhibits thereto, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agents full
power and authority to do and perform each and every act and thing necessary or
appropriate to be done with respect to this Registration Statement on Form S-8
or any amendments or supplements hereto and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in their respective capacities with Lillian Vernon Corporation and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Lillian Vernon
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Lillian Vernon Chairman of the Board March 30, 1998
of Directors and
Chief Executive Officer
(Principal Executive
Officer)
/s/ Robert Mednick
- -----------------------------
Robert Mednick Vice President-Chief March 30, 1998
Financial Officer
(Principal Financial
and Accounting Officer)
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/s/ Howard P. Goldberg March 30, 1998
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Howard P. Goldberg President and
Director
/s/ David C. Hochberg
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David C. Hochberg Vice President- March 30, 1998
Public Affairs
and Director
/s/ Leo Salon
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Leo Salon Director March 30, 1998
/s/ William E. Phillips
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William E. Phillips Director March 30, 1998
/s/ Bert W. Wasserman
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Bert W. Wasserman Director March 30, 1998
/s/Richard Berman
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Richard Berman Director March 30, 1998
/s/ Jonah Gitlitz
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Jonah Gitlitz Director March 30, 1998
/s/ Elizabeth Mugar Eveillard
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Elizabeth Mugar Eveillard Director March 30, 1998
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INDEX TO EXHIBITS
5.1 Opinion of Salon, Marrow & Dyckman, LLP E-1
10.1 Lillian Vernon Corporation
Profit Sharing Plan E-2
23.1 Consent of Salon, Marrow & Dyckman, LLP
(included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand, LLP E-65
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Exhibit 5.1
March 30, 1998
Lillian Vernon Corporation
543 Main Street
New Rochelle, New York 10801
Re: Lillian Vernon Corporation
Profit Sharing Plan
Gentlemen and Ladies:
We have acted as counsel for Lillian Vernon Corporation (the
"Company") in connection with the preparation and filing of the Registration
Statement on Form S-8 relating to the Company's Profit Sharing Plan (the
"Plan"). We have examined the Plan, are familiar with the proceedings by which
the Plan has been authorized, and are familiar with the Company's Certificate
of Incorporation, as amended, the Company's By-Laws, and such other corporate
records and documents as we have deemed necessary to express our opinion
herein. We have assumed the genuineness of all signatures and the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such latter documents.
Based upon the foregoing and having due regard to legal
considerations we deem relevant, we are of the opinion that the shares of
Common Stock, $.01 par value of the Company that may be acquired by the Plan
(in either open market purchases or from treasury shares), and delivered to
participants pursuant to the Plan will be, when acquired and delivered in
accordance with the Plan, duly authorized, validly issued and nonassessable.
We hereby consent to the filing of this opinion as Exhibit
5.1 to the Registration Statement on Form S-8 being filed with the Securities
and Exchange Commission.
Very truly yours,
SALON, MARROW & DYCKMAN, LLP
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LILLIAN VERNON CORPORATION
PROFIT SHARING PLAN
AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1997
March, 1998
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TABLE OF CONTENTS
ARTICLE PAGE(S)
- ------- -------
ONE Definitions........................................... 4 - 13
TWO Eligibility........................................... 14
THREE Contributions by Members and the Employer............. 15 - 29
FOUR Investment of Contributions and Accounts.............. 30 - 32
FIVE Vesting............................................... 33 - 35
SIX Withdrawals and Loans................................. 36 - 41
SEVEN Distributions Other Than Withdrawals.................. 42 - 45
EIGHT Management of Funds .................................. 46
NINE Plan Administration and Fiduciaries................... 47 - 50
TEN Amendment and Termination............................. 51 - 52
ELEVEN General Provisions.................................... 53 - 55
TWELVE Provisions Relating to Top-Heavy Plan................. 56 - 62
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INTRODUCTION
The Lillian Vernon Corporation Profit Sharing Plan became effective on
March 1, 1970. The restated Plan is intended to provide the employees of
Lillian Vernon Corporation who are resident in the United States with the
opportunity to provide for their futures by electing to set aside portions of
their pay and to have the amounts so set aside supplemented by contributions
made on behalf of such employees by Lillian Vernon Corporation in accordance
with the terms of the Plan.
Effective as of October 1, 1993, the Profit Sharing Plan was amended and
restated in its entirety. The amendments were intended to add a pre-tax
savings and employer matching feature to the Lillian Vernon Corporation Profit
Sharing Plan and add the provisions required by the Tax Reform Act of 1986 and
any subsequent legislation. Effective as of October 1, 1993, the frequency of
valuations was changed from annually to quarterly. The plan year end was also
changed from the last day of February to the last day of December.
Effective as of October 1, 1997, the Profit Sharing Plan was again amended
and restated in its entirety. The amendments were intended to change the
valuation frequency and participant transaction frequency to monthly and
reflect recent legislative changes.
The Plan herein set forth is hereby designated as constituting parts of a
plan intended to qualify for exemption under Section 401(a) of the Internal
Revenue Code of 1986, and amendments thereto and for purposes of Section
401(a)(27) of such Internal Revenue Code, is designated as a profit-sharing
plan. In addition, it is intended that participants who participate in the
Plan be permitted to contribute a percentage of their compensation to the Plan
on a pre-tax basis, in accordance with the provisions of Section 401(k) of the
Internal Revenue Code of 1986, and amendments thereto. The terms and
conditions of the Plan, as in effect prior to October 1, 1993, shall apply to
transactions under the Plan prior to such date.
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ARTICLE ONE
DEFINITIONS
The following words and phrases as used herein shall have the meanings set
forth below, unless a different meaning plainly is required by the context or
specifically provided for:
1.1 Accounts. The sum of a Participant's Pre-tax Contribution Account and
Employer Contribution Account.
1.2 Adjustment Factor. The cost of living factor prescribed by the
Secretary of the Treasury under Section 415(d) of the Code for years beginning
after December 31, 1987, applied to such items and in such manner as the
Secretary shall prescribe.
1.3 Affiliate. Any corporation which is a member of a controlled group, as
defined in Section 414 of the Code, of which an Employer is a member.
1.4 Beneficiary. Such beneficiary as may be designated from time to time
by the Participant in accordance with the provisions hereof, on a form made
available by the Committee for such purpose, to receive any benefits payable
in the event of the Participant's death.
1.5 Board. The Board of Directors of Lillian Vernon Corporation.
1.6 Break in Service. A Plan Year during which a Participant has not
completed more than 500 Hours of Service.
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Solely for purposes of determining whether a Break in Service for
participation and vesting purposes has occurred, an individual who is absent
from work for maternity or paternity reasons, or other specified periods of
absence which have been approved by the Employer pursuant to a uniform and
nondiscriminatory policy, whether paid or unpaid, shall receive credit for the
Hours of Service which would otherwise have been credited to such individual
but for such absence, or in any case in which such hours cannot be determined,
eight (8) Hours of Service per day of such absence. For purposes of this
paragraph, an absence from work for maternity or paternity reasons means an
absence: (1) by reason of the pregnancy of the individual, (2) by reason of
the birth of a child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such child by
such individual, or (4) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The Hours of Service
credited under this paragraph shall be credited (1) in the Plan Year in which
the absence begins if the crediting is necessary to prevent a Service Break in
that period, or (2) in all other cases, in the following Plan Year.
1.7 Code. The Internal Revenue Code of 1986, and amendments thereto.
1.8 Committee. The committee appointed and serving in accordance with
Article Nine.
1.9 Company. Lillian Vernon Corporation or any successor corporation by
merger, purchase or otherwise.
1.10 Compensation. The salary or wages paid by the Employer to an Employee
in respect of each Plan Year, including Pre-tax Contributions made by a
Participant hereunder, pre-tax contributions made to health and welfare plans
under Section 125 of the Code, bonuses, commissions, severance, holiday,
vacation and overtime and any other current cash compensation but excluding
tuition allowances, reimbursement of moving expenses, compensation
attributable
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to stock options and other stock-related programs, car allowances and the use
of Employer automobiles, deferred compensation (other than Pre-tax
Contributions), third party sick pay or disability payments, and Employer
contributions to other benefit plans. For Plan Years beginning after December
31, 1988, Compensation in excess of $200,000 multiplied by the Adjustment
Factor, shall not be considered. For purposes of this $200,000 limitation, the
family aggregation rules of Section 414(q)(6) of the Code shall apply, except
that in applying such rules, the term "family" shall include only the spouse
of the Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the Plan Year.
In addition to other applicable limitations set forth in the plan,
and notwithstanding any other provision of the plan to the contrary, for plan
years beginning on or after January 1, 1994, the annual compensation of each
employee taken into account under the plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual compensation limit is $150,000
as adjusted by the Commissioner for increases in the cost of living in
accordance with section 401(a)(17)(B) of the Internal Revenue Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be
multiplied by a fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference
in this plan to the limitation under section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
1.11 Effective Date. October 1, 1997
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1.12 Eligible Employee. An Employee who has satisfied the eligibility
requirements of Section 2.1 or Section 2.2.
1.13 Employee. A person employed by the Employer except those who are
members of a collective bargaining unit. Members of a collective bargaining
unit are not eligible to participate in the Plan.
1.14 Employer. The Company and any Affiliate which has been designated by
the Board as an Employer and which has adopted this Plan.
1.15 Employer Contribution. Amounts that are contributed to the Plan by
the Employer on behalf of a Participant pursuant to Section 3.2 hereof.
1.16 Employer Contribution Account. The Value of the portion of the Trust
Fund which, with respect to any Participant, is attributable to Employer
Matching Contributions and Employer Profit Sharing Contributions.
1.17 Employer Matching Contributions. Amounts that are contributed to the
Plan by the Employer on behalf of a Participant pursuant to Section 3.2(a)
hereof.
1.18 Employer Profit Sharing Contributions. Amounts that are contributed
to the Plan by the Employer on behalf of a Participant pursuant to Section
3.2(b) hereof.
1.19 Employment Commencement Date. The day on which an Employee completes
the first hour for which he is entitled to payment for the performance of
duties.
1.20 ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
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1.21 Five-Percent Owner. A person who owns (or is considered to own within
the meaning of Section 318 of the Code) more than five percent of the total
combined voting power of all stock of the Company.
1.22 Highly Compensated Employee. Any employee who (a) during the current
or the immediately preceding Plan Year was at any time a Five Percent Owner;
or (b) during the immediately preceding Plan Year received compensation of
$80,000 or more, as adjusted pursuant to Section 415(d) of the Code. For the
purposes of this definitional Section, "Compensation" means compensation as
defined in Section 414(s) of the Code but including salary reduction amounts
excluded from income under Sections 125, 402(a) (8) and 402(h) (1) (B) of the
Code.
1.23 Hour of Service.
(a) An hour for which an Employee is paid, or entitled to payment by
the Employer for the performance of duties (such hours to be credited for the
computation period in which the duties were performed), and
(b) An hour for which an Employee is paid, or entitled to payment by
the Employer for periods of non-working time for which the Employee receives
or will receive direct compensation from the Employer, such as jury duty,
vacation, severance, holidays, illness, and periods of approved absence. With
respect to any period for which an Employee is compensated but has not worked,
hours counted shall be included on the basis of the Employee's normal workday
or work-week. This definition of Hours of Service shall be applied in
compliance with Title 29 of the Code of Federal Regulations Sections
2530.200b-2(b) and (c) as promulgated by the United States Department of Labor
in a consistent and nondiscriminatory manner. During any one Year of Service a
maximum of 501 hours can be credited to an Employee for non-working time.
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Service credited to an Employee shall be credited to the computation period(s)
to which such hours pertain, and
(c) An hour for which an Employee is paid, or entitled to payment by
the Employer for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer (such hours to be credited for the
computation period to which the award or agreement pertains), and
(d) An hour which is part of a specified period of absence which has
been approved by the Employer pursuant to a uniform and nondiscriminatory
policy (whether paid or unpaid).
(e) If a payment made or due is calculated on the basis of units of
time (i.e., hours, days, weeks or months), the number of hours to be credited
shall be the number of regularly scheduled working hours included in the units
of time on the basis of which the payment is calculated and each hour shall be
computed as only one hour, even though the Employee may be compensated at more
than the straight time rate. If such payment is not calculated on the basis of
units of time, the number of hours to be credited shall be equal to the amount
of the payment divided by the Employee's most recent hourly rate of pay
before their absence.
(f) An Hour of Service respecting any member of a controlled group of
corporations or any member of an affiliated service group (as defined in
Section 414 (b) or 414 (m) of the Code) of which the Company is a member, or
respecting an unincorporated trade or business which is under common control
with the Company (as defined in Section 414 (c) of the Code) shall be credited
as an Hour of Service with the Company.
(g) An Hour of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Section 414(n) or
Section 414(o) of the Code and the regulations thereunder.
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1.24 Limitation Compensation. Limitation Compensation with respect to any
Participant means such Participant's wages, salaries, fees for professional
services and other amounts received (without regard to whether or not an amount
is paid in cash) for personal services actually rendered in the course of
employment with the Employer maintaining the Plan to the extent that the
amounts are includible in gross income (including, but not limited to,
commissions paid to salesman, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, and reimbursements or other expense allowances under a nonaccountable
plan (as described in Regulation 1.62-2(c)) for a Plan Year).
Effective for Plan Years on or after January 1, 1998, Limitation
Compensation shall include Pre-tax Contributions made on behalf of the Employee
and amounts contributed to any welfare benefit plans maintained by the Company
through a reduction in the Employee's compensation and qualifying under Code
Section 125.
1.25 Limitation year. The calendar year.
1.26 Net Revenues. Net revenues from the production and sale of goods, sale
of services, and leasing revenues as reported in accordance with generally
accepted accounting principles.
1.27 Non-Highly Compensated Employee. An Employee who is not a Highly
Compensated Employee.
1.28 Normal Retirement Age. The date on which a Participant attains the age
of sixty-five (65).
1.29 Normal Retirement Date. The first day of the month following the later
of a Participant's Termination of Employment or the Participant reaching
Normal Retirement Age.
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1.30 Participant. An Eligible Employee who has received an Employer Profit
Sharing Contribution or who has elected to participate in the Plan pursuant to
Section 3.1(b).
1.31 Plan. Lillian Vernon Corporation Profit Sharing Plan as set forth
herein and as amended from time to time.
1.32 Plan Administrator. Those persons designated as the Committee under
Article Nine of the Plan.
1.33 Plan Year. The accounting period of the Plan and Trust, on which
records of the Plan and Trust Fund are maintained. The Plan Year shall be the
twelve (12) month period ending December 31st. Except that for Plan Years
ending before December 31, 1993, the Plan Year was the twelve (12) month period
ending on the last day of February. The period between March 1, 1993 and
December 31, 1993 shall be a short Plan Year.
1.34 Pre-tax Contribution Account. The Value of that portion of the Trust
Fund which, with respect to any Participant, is attributable to Pre-tax
Contributions made by the Participant.
1.35 pre-tax Contribution. Those amounts that are contributed to the Plan
by the Employer on behalf of a Participant per the Participant's election that
reduce the Participant's taxable income.
1.36 Qualified Non-Elective Contribution. The Employer contribution made to
the Plan pursuant to Section 3.3. Such contributions shall be considered an
Elective Contribution for the purposes of the Plan and used to satisfy the
"Actual Deferral Percentage" tests. In addition, the Employer contributions
made to the Plan pursuant to Section 3.4 that are made to satisfy the "Actual
Contribution Percentage" tests shall be considered Qualified Non-Elective
Contributions
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and be subject to the provisions of Section 5.1 and 6.2.
1.37 Retirement. Any termination of employment on or after the
Participant's normal retirement age, except due to death.
1.38 Spouse. A Participant's legal spouse.
1.39 Termination of Employment. Separation from the employment of the
Employer for any reason, including, but not limited to, Retirement, death,
Total and Permanent Disability, resignation or dismissal with or without cause
and failure to return to work (i) on the expiration of an approved leave of
absence, or (ii) on or before the expiration of re-employment rights provided
by law.
1.40 Total and Permanent Disability. Total and Permanent Disability refers
to a Participant who is incapacitated due to mental or physical injury, illness
or disease which is anticipated to be permanent and who either is eligible for
and actually in receipt of disability benefits under the Social Security Act
(after any required waiting period) or has had his employment terminated
because of such incapacity.
1.41 Trust. The Trust adopted by the Company under the Trust Agreement.
1.42 Trustee. Such person or persons or corporation appointed and acting as
Trustee or successor Trustee under the Trust.
1.43 Trust Fund. All assets of whatsoever kind or nature, including all
property and income, held from time to time by the Trustee under the Trust.
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1.44 Valuation Date. Commencing October 1, 1997, the last business day of
each calendar month or such other dates as the Committee may designate. Prior
to October 1, 1997, the Valuation Date was the last day of each calendar
quarter.
1.45 Value. When used to refer to the interest of a participant in the
Trust Fund on any given date, the value of their Accounts as determined in
accordance with the provisions of the Plan.
1.46 Year of Service. A Participant shall receive credit for a Year of
Service for each Plan Year during which they complete 1,000 Hours of Service.
Employees who complete 1,000 Hours of Services between January 1, 1993 and
December 31, 1993 will receive credit for a Year of Service. Employees who
complete 1,000 Hours of Service between March 1, 1993 and February 28, 1994
will also receive credit for a Year of Service. An employee may receive credit
for two Years of Service during the period from January 1, 1993 to February 28,
1994.
<PAGE>
ARTICLE TWO
ELIGIBILITY
2.1 Eligibility. Effective 1/1/98, each Employee shall become an Eligible
Employee in this Plan on the first day of the calendar quarter following the
completion of 12 months of employment in which such Employee completes at
least 1,000 Hours of Service.
After the first 12 months of employment, the Employee shall become an
Eligible Employee on the January 1 following the first calendar year in which
the employee completes 1,000 hours of service, beginning with the calendar
year that includes the Employee's one-year anniversary.
Employees who are Participants in the Plan as of January 1, 1998 are
automatically eligible to participate.
2.2 Reinstatement of Eligibility Upon Rehire. An Eligible Employee who is
reemployed after a Break in Service and the number of consecutive 1-year
Breaks in Service equals or exceeds 5, shall have to satisfy the requirements
of Section 2.1. Otherwise an employee becomes an Eligible Employee on the first
day of the calendar quarter following their reemployment date.
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ARTICLE THREE
CONTRIBUTIONS BY PARTICIPANTS AND THE EMPLOYER
3.1 Pre-tax Contributions.
(a) Subject to the limitations of Sections 3.3 and 3.6 hereof, each
Eligible Employee may elect to contribute to the Plan, by completing an
enrollment form in accordance with subsection (b), an amount equal to any
selected whole percentage up to ten percent (10%) of their Compensation as a
Pre-tax Contribution, effective as of the first paydate coinciding with or
following the date on which they become an Eligible Employee, or the first
paydate following any later Valuation Date. Such Participant's Pre-tax
Contribution may not exceed $9,500 (increased as permitted under Section 402
(g) (5) of the Code) during any calendar year. Notwithstanding any other
provision of the Plan, Pre-tax Contributions in excess of this limit and
income allocable thereto shall be distributed no later than the following
April 15 to Participants who claim such excess amount for the preceding
calendar year. The Participant's claim shall be in writing and submitted to
the Committee no later than March 1, following the close of the calendar year
in which the excess deferral occurred. Excess deferrals can only occur if a
Participant made Pre-tax Contributions to more than one plan in a calendar
year. The claim shall specify the amount of the excess Pre-tax Contributions
for the preceding calendar year and shall be accompanied by the Participant's
written statement that if such amounts are not distributed, such excess
Pre-tax Contributions when added to amounts deferred under other plans or
arrangements described in Sections 401(k), 408(k) or 403(b) of the Code, will
exceed the limit imposed on the Participant by Section 402(g) of the Code for
the year in which the deferral occurred.
Excess Pre-tax Contributions shall be adjusted for any income or loss
up to the end of the calendar year in which the excess arose. The income or
loss allocable to excess Pre-tax
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Contributions is the income or loss allocable to the Participant's Pre-tax
Contribution Account for the preceding calendar year multiplied by a fraction,
the numerator of which is such Participant's excess Pre-tax Contribution for
the year and the denominator is the Participant's account balance attributable
to Pre-tax Contributions without regard to any income or loss occurring during
such calendar year.
A Participant may elect to change their contribution rate as of the
first paydate following any Valuation Date (in a manner established by the
Committee). A Participant may elect to change their contribution rate as often
as each Valuation Date. The Committee may designate dates as of which
enrollments and changes must be received prior to a paydate or Valuation Date.
Each Participant's contributions shall be paid into the Plan as soon
as practicable and shall be credited to their Pre-tax Contribution Account.
(b) Enrollment Form. Each Eligible Employee may become a Participant
by executing an enrollment form specifying the percentage of their
Compensation to be contributed to the Plan as Pre-tax Contributions. Each
Eligible Employee shall designate a Beneficiary or Beneficiaries to receive
their account in the event of their death. The Committee may designate dates
as of which enrollments and changes must be received prior to a paydate or
Valuation Date.
3.2 Employer Contributions.
(a) The Employer may, with respect to each eligible Participant, make
Employer Matching Contributions to the Plan, equal to a percentage of such
Participant's Pre-tax Contributions for the calendar quarter. With respect to
a Participant who has a Termination of Employment (excluding an authorized
leave of absence or illness, death, Retirement and Total and Permanent
Disability) during the calendar quarter, such Participant shall not receive an
Employer
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Matching Contribution for the calendar quarter in which they terminate, unless
such Participant terminates on the last day of the calendar quarter. Employer
Matching Contributions are voluntary and can be increased, decreased, or
suspended at the Employer's discretion.
(b) The Employer may, with respect to Eligible Employees, make an
Employer Profit Sharing Contribution to the Plan each Plan Year. The Employer
Profit Sharing Contribution shall be allocated to Eligible Employee's accounts
in the proportion that the Eligible Employee's Compensation during the Plan
Year bears to the aggregate Compensation during the Plan Year of all those
Eligible Employees entitled to an allocation of the Employer's Profit Sharing
Contribution in such Plan Year. With respect to an Eligible Employee who has
less that 1,000 Hours of service during the Plan Year, such Eligible Employee
shall not receive an Employer Profit Sharing Contribution for the Plan Year.
For the short plan year from March 1, 1993 to December 31, 1993 an employee
must have 833 hours of service to receive an Employer Profit Sharing
Contribution.
The Employer Profit Sharing Contributions with respect to an Eligible
Employee shall be paid into the Plan annually and credited to such Eligible
Employee's Employer Contribution Account.
Employer Contributions shall be made in cash or in kind, as
determined by the Board.
3.3 Non-Discrimination for Pre-tax Contributions.
(a) If the Pre-tax Contributions made on behalf of Highly Compensated
Employees for any Plan Year after 1996 do not satisfy either of the following
tests:
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(i) the average deferral percentage of Highly Compensated
Employees is not more that the average deferral percentage
of all other Employees multiplied by 1.25 or
(ii) the excess of the average deferral percentage of Highly
Compensated Employees is not more than two percentage
points, and the average deferral percentage of Highly
Compensated Employees is not more than the average deferral
percentage of all other Employees multiplied by 2.0,
such excess contribution (and any income allocable thereto) shall be returned
to the Participants on whose behalf such contributions were made by the end of
the following Plan Year.
(b) With respect to any Plan Year in which Pre-tax Contributions made
on behalf of Participants who are Highly Compensated Employees exceed the
applicable limit set forth in this Section 3.3, the Committee may reduce the
amount of excess Pre-tax Contributions made on behalf of such Highly
Compensated Employees as described in the following sentence. Any distribution
of the excess Pre-tax Contributions for any Plan Year (and any income
allocable to such contributions) shall be made to Highly Compensated Employees
on the basis of the amount of Pre-tax Contributions made by each of the Highly
Compensated Employees to the extent necessary to satisfy Section 3.3(a). This
process shall be repeated until Section 3.3(a) is satisfied, in accordance
with Treasury Regulation Section 1.401(k)-1(f)(2). Such excess Pre-tax
Contributions shall be distributed (along with earnings attributable to such
excess Pre-tax Contributions) to the affected Highly Compensated Employees as
soon as practicable after the end of such Plan Year, and in all events prior
to the end of the next following Plan Year.
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<PAGE>
Income on excess Pre-tax contributions shall be determined by multiplying the
income allocated for the Plan Year in which such excess Pre-tax Contributions
were made by a fraction, the numerator of which is the excess Pre-tax
Contributions for such Participant for the Plan Year, and the denominator of
which is the Pre-tax Contribution Account balance for such Participant as of
the first day of the Plan Year, plus the Pre-tax Contributions made by or on
behalf of the Participant during the Plan Year.
(c) For purposes of this Section 3.3, the term "average deferral
percentage" shall mean with respect to any specified group
of Employees for any Plan Year, the average of the ratios
(calculated separately for each Employee in the group) of:
(i) the Pre-tax Contributions contributed on behalf of
such Employees for such Plan Year to
(ii) Such Employee's Compensation for such Plan Year.
Such average deferral percentage shall be computed to the nearest
one-hundredth of one percent of the Employee's Compensation.
(d) In the event that any portion of a Participant's Pre-tax
Contributions is returned pursuant to Section 3.1 as a
result of the $9,500 (as adjusted by the Secretary of the
Treasury) limit applicable to Pre-tax Contributions, such
Participant's average deferral percentage shall be
determined before such excess deferral is returned, provided
such Participant is a Highly Compensated Employee.
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<PAGE>
(e) The average deferral percentage for any Highly Compensated
Employee who is eligible to have pre-tax contributions
allocated to his account under one or more plans described
in Code Section 401(k) maintained by an Affiliate in
addition to this Plan shall be determined as if all such
contributions were made to this Plan.
In the event any of the Plans described herein must be combined with
one or more other plans in order to satisfy the requirements of Section 410(b)
of the Code, then all cash or deferred arrangements that are included in such
plans shall be treated as a single arrangement for purposes of determining the
average deferral percentage.
Notwithstanding the above, within twelve (12) months after the Plan
Year, the Employer may in lieu of or in conjunction with the reductions
described in Section 3.3 make a special Qualified Non-Elective Contribution on
behalf of Non-Highly Compensated Participants in an amount sufficient to
satisfy one of the tests set forth in Section 3.3. Such contribution shall be
allocated to the Participant's elective account of each Non-Highly Compensated
Participant in the following manner:
(i) Allocate an amount equal to twenty-five (25) percent of
Compensation as defined in Section 1.12 to the lowest paid
eligible Participant. If this allocation results in the
participant exceeding the limitations set forth in Section
3.6, the allocation will be reduced until such limitation as
prescribed by Section 3.6 is met.
(ii) The process outlined in Step (i) shall be repeated to the
next lowest paid eligible Participant until the limitations
in Section 3.3 are satisfied.
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Contributions made pursuant to this Section shall be 100% vested at
all times and shall be subject to the same limitations as to withdrawals
(except Hardship pursuant to Section 6.2) and distributions as Pre-tax
Contributions.
3.4. Non-Discrimination for Employer Matching Contributions
(a) If the Matching Contributions made on behalf of Highly
Compensated Employees for any Plan Year after 1996 do not satisfy either of
the following tests:
(i) the average contribution percentage for Highly
Compensated Employees may not be more than the
average contribution percentage of all
Employees multiplied by 1.25, or
(ii) the excess of the average contribution
percentage for Highly Compensated Employees
may not be more than two percentage points,
and the average contribution percentage for
Highly Compensated Employees is not more than
the average contribution percentage of all
other Employees multiplied by 2.0;
such excess contribution made on behalf of Highly Compensated Employees (and
any income allocable thereto) shall be distributed to the affected Highly
Compensated Employees by the end of the following Plan Year.
Income on excess Matching Contributions shall be determined by
multiplying the income allocated for the Plan Year in which such excess
Matching Contributions were made by a fraction, the numerator of which is the
excess Matching Contributions for such Participant for the Plan Year, and the
denominator of which is the Matching Contribution Account balance for
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such Participant as of the first day of the Plan Year, plus the Matching
Contributions made on behalf of the Participant during the Plan Year.
(b) For purposes of this Section 3.4, the term "average
contribution percentage" shall mean, with respect to any
specified group of Employees for any Plan Year, the average
of the ratios (calculated separately for each Employee in
the group) of:
(i) the Matching Contributions made on behalf of such
Employees for such Plan Year to
(ii) such Employee's Compensation for such Plan Year.
Such average contribution percentage shall be computed to the nearest
one-hundredth of one percent of the Employee's Compensation.
If required, the distribution of contributions necessary to satisfy
the requirements of this Section 3.4 (and any income allocable to such
contributions) shall be accomplished as provided in the following sentence.
Any distribution of the excess contributions for any Plan Year shall be made
to Highly Compensated Employees on the basis of the amount of such
contributions made on behalf of each Highly Compensated Employee to the extent
necessary to satisfy Section 3.4(a). This process shall be repeated until
Section 3.4(a) is satisfied, in accordance with Treasury Regulation Section
1.401(m)-1(e)(2). The vested portion of excess Matching Contributions (along
with income attributable to such excess contributions) shall be distributed to
the affected Participants who are Highly Compensated Employees as soon as
practicable after the end of such Plan Year, and in all events prior to the
end of the next following Plan Year. The amount of excess Matching
Contributions that are not vested shall be forfeited, and shall be used to
reduce future Employer Matching Contributions.
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(c) The average contribution percentage for any Highly
Compensated Employee for any Plan Year who is eligible to
have matching employer contributions made on his behalf
under one or more plans described in Section 401(a) of the
Code maintained by an Affiliated Company in addition to this
Plan shall be determined as if all such contributions were
made to this Plan.
In the event that this Plan must be combined with one or
more other plans in order to satisfy the requirements of
Code Section 410(b), then the average contribution
percentage shall be determined as if all such plans were a
single plan.
(d) Any other provision to the contrary notwithstanding, the
provisions of this Section 3.4(d) shall apply with respect
to a Plan Year if the conditions of both (i) and (ii) are
satisfied:
(i) the sum of (1) the "Average Deferral Percentage"
(as defined in Section 3.3(c) for the group of
Eligible Employees who are Highly Compensated
Employees and (2) the "Average Contribution
Percentage" (as defined in Section 3.4(b) for such
group of Highly Compensated Employees exceeds the
"Aggregate Limit" (as hereinafter defined), and
(ii) both (1) the average Deferral Percentage for the
group of Employees who are Highly Compensated
Employees exceeds 125% of the Average Deferral
Percentage of all other Employees and (2) the
Average Contribution Percentage of such group of
Highly Compensated Employees exceeds 125% of the
Average Contribution Percentage of all such other
Employees.
23
<PAGE>
The term "Aggregate Limit" means the greater of the sum of (i) and
(ii) below or the sum of (iii) and (iv) below:
(i) 125% of the greater of (1) the Average Deferral Percentage
of the group of Employees who are not Highly compensated
Employees, or (2) the Average Contribution Percentage of the
group of Employees who are not Highly Compensated Employees,
and
(ii) two plus the lesser of (iii)(1) or (iii)(2) (but in no event
more than 200% of the lesser of (iii)(1) or (iii)(2) above).
(iii) 125% of the lesser of (1) the Average Deferral Percentage of
the Group of Employees who are not Highly Compensated
Employees, or (2) the Average Contribution Percentage of the
group of Employees who are not Highly Compensated Employees,
and
(iv) two plus the greater of (iii)(1) or (iii)(2) above (but in
no event more than 200% of the greater of (iii)(1) or
(iii)(2) above).
If the Average Deferral Percentage and/or Average Contribution
Percentage for the group of Employees who are Highly Compensated Employees,
determined after any corrective distribution of excess amount in accordance
with the provisions of Sections 3.3 and 3.4 have been effectuated, exceed an
amount which would cause the limits set forth in the foregoing provisions of
this Section 3.4(d) to be exceeded, the amount of Pre-tax Contributions and
Matching Contributions shall be reduced, in the same manner and at the same
time as such contributions are reduced in accordance with Sections 3.3 and
3.4, but only to the extent necessary to bring the Plan into compliance with
the applicable limits set forth in this Section 3.4(d).
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Notwithstanding the above, within twelve (12) months after the Plan
Year, the Employer may in lieu of or in conjunction with the reductions
described in Section 3.4 make a special Qualified Non-Elective Contribution on
behalf of Non-Highly Compensated Participants in an amount sufficient to
satisfy one of the tests set forth in Section 3.4. Such contribution shall be
allocated to the Participant's elective account of each Non-Highly Compensated
Participant in the following manner:
(i) Allocate an amount equal to twenty-five (25)
percent of Compensation as defined in Section 1.12
to the lowest paid eligible Participant. If this
allocation results in the participant exceeding the
limitations set forth in Section 3.6, the
allocation will be reduced until such limitation as
prescribed by Section 3.6 is met.
(ii) The process outlined in Step (i) shall be repeated
to the next lowest paid eligible Participant until
the limitations in Section 3.4 are satisfied.
Contributions made pursuant to this Section shall be 100% vested at
all times and shall be subject to the same limitations as to withdrawals
(except Hardship pursuant to Section 6.2) and distributions as Pre-tax
Contributions.
3.5 Voluntary Suspension. A Participant may suspend their
contributions at any time to be effective as soon as administratively
feasible. Such suspension may last indefinitely. The Participant may resume
their contributions as of the first paydate following any Valuation date by
giving at least fifteen (15) days' prior notice (in a manner established by
the Committee) to the Company. A Participant will not be permitted to make up
suspended contributions.
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3.6 Limitations on Contributions.
(a) Basic Limitation. Notwithstanding any other provision of this
Plan, other than Section 3.6 (c) below, the Annual Addition (as defined in
subsection (b) of this section) to a Participant's Accounts shall not exceed
the lesser of:
(i) Thirty Thousand Dollars ($30,000) (or such other amount
as the Secretary of the Treasury may hereafter
prescribe); or
(ii) Twenty-five percent (25%) of the Participant's Limitation
Compensation for the Plan Year.
(b) Annual Additions. "Annual Additions" means the sum of:
(i) Employer Contributions;
(ii) A Participant's Pre-tax Contributions; and
(iii) Forfeitures.
(c) Disposition of Excess Annual Additions. If, as a result of a
reasonable error in estimating a Participant's Compensation, or under other
circumstances permitted by the Commissioner of Internal Revenue, the Committee
determines that the Annual Additions allocated to a Participant's Accounts for
a Plan Year would exceed the limitations set forth in this Section, the excess
Annual Additions shall be disposed of as follows:
(i) first, by reducing the Employer Profit Sharing
Contributions for such Plan Year; and
(ii) second, by refunding the Pre-tax Contributions in excess
of six percent (6%) of their Compensation for such Plan
Year to the extent that the
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reduction of such contribution would reduce the excess
annual addition; and
(iii) third, by reducing the Pre-tax Contributions and
corresponding Employer Matching Contributions up to six
percent (6%) of their Compensation for such Plan Year to the
extent that the reduction of such contributions would reduce
the excess annual addition. Such amounts shall be held in
suspense in accordance with Reg. Section 1.415-6(b)(6)(ii)
or any successor provision; and
(iv) fourth, if the Participant is not covered by the Plan as of
the end of the Plan Year, such excess Annual Additions shall
be held unallocated in a suspense account for the Plan Year
and shall be used in the next Plan Year (and succeeding Plan
Years as necessary) to reduce future Employer Contributions
for all remaining Participants.
(d) Limitation of Coverage in More Than One Plan. For Plan Years
beginning prior to January 1, 2000, if any Employee is a participant in one or
more qualified defined benefit plans maintained by the Employer, the sum of
their Defined Benefit Plan Fraction and their Defined Contribution Plan
Fraction shall not exceed 1.0 for any year. If the sum of the Defined Benefit
Plan Fraction and the Defined Contribution Plan Fraction exceed 1.0 for any
Employee in any year, the Employer shall adjust or freeze the rate of benefit
accrual so that the sum of both Fractions shall not exceed 1.0 for such
Employee. The term "Defined Benefit Plan Fraction" for any year shall mean a
fraction, the numerator of which is the projected normal retirement benefit of
a Employee and the denominator of which is the lesser of (i) the dollar
limitation of Code Section 415(b)(1)(A) multiplied by 1.25 (or if the Plan is
a Top-Heavy Plan, as defined in Section 12.2 hereof, 1.0 unless the provisions
of Section 12.4 hereof are satisfied) or (ii) the percentage
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limitation of Code Section 415(b)(1)(B) multiplied by 1.4. For purposes of
determining such Fraction, all qualified defined benefit plans of Employers
shall be treated as one plan and the average compensation under Code Section
415(b)(1)(A), if applicable, shall be based on the Employee's employment with
all Employers. The "Defined Contribution Plan Fraction" for any year shall
mean a fraction, the numerator of which is the aggregate amount of Annual
Additions made to a participant's account as of the close of the current year,
and the denominator of which is the aggregate amount of the lesser of (i) the
dollar limitation of Section 4.6(a)(i) of the Plan, multiplied by 1.25 (or if
the Plan is a Top-Heavy plan, as defined in Section 12.2 hereof, 1.0, unless
the provisions of Section 12.4 are satisfied) or (ii) the percentage
limitation of Section 4.6(a)(ii) of the Plan, multiplied by 1.4, for the
current year and for each prior Year of Service with an Employer.
3.7 Refund of Employer Contributions. An Employer Contribution shall
be refundable to the Employer if such contribution was made conditioned upon
an initial favorable IRS determination and such an initial determination is
not received. The permissible refund must be made within one year from the
date of denial of tax qualification. Such amounts are also refundable which
relate to Employee Pre-tax Contributions refunded because of an unfavorable
determination by the IRS with respect to the Plan's qualification.
In no other event shall any funds in the Trust Fund ever revert to
the Employer, except:
(a) in the event an Employer Contribution is made as a result
of an actual error or mistake of fact, the Employer Contribution may be
returned to the extent of such error, or mistake of fact, within one year of
the mistaken payment of the contribution; and
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(b) in the event an Employer Contribution is conditioned upon
it being deductible for federal income tax purposes, and all or part of such
deduction is disallowed, the Employer Contribution may be returned, to the
extent of such disallowance within one year from the date of such
disallowance.
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ARTICLE FOUR
INVESTMENT OF CONTRIBUTIONS AND ACCOUNTS
4.1 Investment of Contributions and Accounts.
(a) A Participant may elect to have their Pre-tax Contributions
invested in one or more of the funds, which shall be funds maintained by the
Trustee, designated by the Committee as Designated Investment Funds under this
Section 4.1. From time to time, the Committee may designate additional
Designated Investment Funds, withdraw the designation of Designated Investment
Funds or change Designated Investment Funds.
(b) Upon enrollment each Participant shall elect the manner in
which their Pre-tax Contributions are to be invested. Such election shall be
in 5% increments. If no election is made, their Pre-tax Contributions will be
invested in the money market fund.
A Participant may change the election of Designated Investment
Funds with regard to future Pre-tax Contributions as of the first paydate
following any Valuation Date (in a manner established by the Committee). Such
election shall be in 5% increments.
A Participant may change the election of Designated Investment
Funds with regard to the current Value of their Pre-tax Contribution Account
monthly (in a manner established by the Committee), to be effective on the
Valuation Date following their election. Such election shall be in 5%
increments.
The Committee may designate dates as of which enrollments and
changes must be received prior to a paydate or Valuation Date.
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All elections shall be subject to rules established by the
Committee.
(c) All beneficiaries of deceased Participants who have
Accounts in the Plan may direct the investment of their Accounts into any one
or more the Designated Investment Funds, to the same extent that the
Participant could have directed the investment of the Accounts. After an
alternate payee's interest in a Participant's Accounts has been finally
determined, the alternate payee may direct the investment of the alternate
payee's Accounts into one or more of the Designated Investment Funds, to the
same extent that the Participant could have directed the investment of the
Accounts.
4.2 Valuation of Trust Fund and Accounts. The assets of the Trust will be
valued as of each Valuation Date at fair market value.
4.3 Investment of Employer Matching Contributions. All Employer Matching
Contributions will be invested in accordance with instructions of the
Committee, including but not limited to Lillian Vernon Common Stock. Upon
reaching age 55, employees can make an election once a year to transfer their
accumulated Employer Matching Contribution Account to a money market fund.
4.4 Investment of Employer Profit Sharing Contributions. All Employer
Profit Sharing Contributions will be invested by a designated investment
manager or managers in accordance with investment guidelines set by the
Committee.
4.5 Allocation of Appreciation and Loss. As of each Valuation Date, the
Trustee shall determine the fair market value of each fund within the Trust
and deliver a statement of such valuation to the Employer.
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As of each Valuation Date, any earnings or losses of the Trust shall be
allocated to each Participant's account within each fund in accordance with
the following formula:
(a) Within each fund an allocation base will be calculated. The
allocation base will be equal to the value of the Participant balances as of
the last Valuation Date plus one-half of the current Valuation Date
contributions.
(b) Each Participant will receive a proportionate share of the
earnings or losses for each fund based on the ratio of their allocation base
compared to the allocation base for all Participants.
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ARTICLE FIVE
VESTING
5.1 Vesting of a Participant's Pre-tax Contribution Account. A Participant
shall at all times be fully vested in the Value of their Pre-tax Contribution
Account.
5.2 Vesting of a Participant's Employer Matching Contribution Account. A
Participant shall become vested in the Value of their Employer Matching
Contribution Account in accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 Years 0%
2 or more Years 100%
5.3 Vesting of a Participant's Employer Profit Sharing Contribution
Account. A Participant shall become vested in the value of their Employer
Profit Sharing Contribution Account determined in accordance with the
following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 Years but less than 4 20%
4 Years but less than 5 40%
5 Years but less than 6 60%
6 Years but less than 7 80%
7 Years or more 100%
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Notwithstanding the above vesting schedules, Participants shall
become one hundred percent (100%) vested in both their Employer Matching
Contribution Account and their Employer Profit Sharing Contribution Account
upon death, attainment of Normal Retirement Age or upon becoming Totally and
Permanently Disabled.
(b) In the case of a partially or fully vested Participant who
has terminated employment and has thereafter resumed employment with the
Employer, their Years of Service prior to the date of termination will be
restored immediately upon such re-employment.
(c) In the case of a non-vested Participant who has terminated
employment and has thereafter resumed employment with the Employer prior to
incurring five (5) consecutive one-year Breaks in Service, their Years of
Service prior to the date of termination will be restored to them immediately
upon such re-employment.
(d) Any amount of a Participant's Employer Contribution Account
attributable to Employer Matching Contributions not vested upon Termination of
Employment shall constitute a forfeiture and shall be used to reduce future
Employer Matching Contributions.
(e) Any amount of an Eligible Employee's Employer Contribution
Account attributable to Employer Profit Sharing Contributions not vested upon
Termination of Employment shall constitute a forfeiture and shall be
reallocated to all Eligible Employees employed on the last day of the Plan
Year on the same basis as the Employer Profit Sharing Contribution pursuant to
Section 3.2(b).
5.4 Reinstatement of Account After Rehire
If such Participant resumes employment with the Employer and has
their prior Years
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of Service restored, any forfeited amount shall be restored to the
Participant's Employer Contribution Account immediately upon such
reinstatement. Notwithstanding the foregoing, if such Participant had received
a distribution from their Employer Contribution Account upon their prior
Termination of Employment, such Participant's forfeited amount will be
restored only if the Participant repays the amount of such distribution within
two (2) years after their re-employment date. If such Participant subsequently
terminates employment and is not entitled to the full balance in their
Employer Contribution Account, the amount distributed from their Employer
Contribution Account will be determined in accordance with the following:
(a) First, the amount of the distribution received by the
Participant from their Employer Contribution Account as of their prior
Termination of Employment shall be added to the balance in their Employer
Contribution Account as of the Valuation Date coincident with or next
following their Termination of Employment.
(b) Next, the amount determined under (a) above shall be
multiplied by the vesting percentage applicable at their subsequent
Termination of Employment under Section 5.2 and 5.3.
(c) Finally, the amount determined under (b) above shall be
reduced by the amount of the distribution received by the Participant from
their Employer Contribution Account as of their prior Termination of
Employment.
The remaining portion of the Participant's Employer
Contribution Account will be treated as a forfeiture and will be applied
according to the provision of this Section 5.3(d) and 5.3(e).
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ARTICLE SIX
WITHDRAWALS AND LOANS
6.1 Withdrawals from a Participant's Account. Upon prior notice (in a
manner established by the Committee) to the Company, a Participant who has not
terminated their employment with the Employer may make a withdrawal from their
Pre-tax Contribution Account, subject to the following:
(a) All amounts withdrawn shall be paid in cash;
(b) The amounts available for withdrawals shall be based on the
Values as of the Valuation Date next following the receipt of the withdrawal
request;
(c) Payments will be made as soon as practicable after the
applicable Valuation Date;
(d) Withdrawals from a Participant's Pre-tax Contribution
Account shall be available only to the extent provided in Section 6.2 hereof;
(e) For purposes of this Article Six, "Earnings" shall mean the
difference (positive or negative) as of any Valuation Date between the Value
of an Account and the contributions made to such Account; and
(f) Withdrawals will be prorated from each of the investment
funds.
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6.2 Withdrawal of Pre-tax Contributions. A Participant shall not be
entitled to make any withdrawal from their Pre-tax Contribution Account unless
such Participant is determined, upon application to the Committee, to be
subject to "Hardship" (as hereinafter defined) or (ii) such Participant has
attained the age of fifty nine and one-half (59 1/2).
For purposes of this Section 6.2, the term "Hardship" with
respect to a Participant shall mean the following situations involving
circumstances of immediate and heavy financial needs:
(a) medical expenses (within the meaning of Section 213(d) of
the Code) previously incurred by the Employee, the Employee's spouse,
children, or dependents or necessary for those persons to obtain medical care;
(b) costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Employee;
(c) payment of tuition and related educational fees for the
next twelve (12) months of post-secondary education for the Employee, the
Employee's spouse, children or dependents; or
(d) payments necessary to prevent the eviction of the Employee
from or a foreclosure on the mortgage of, the Employee's principal residence.
6.3 Immediate and Heavy Financial Need
A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
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(a) The Employee has obtained the maximum available loans under
the Plan;
(b) The Employee will be prohibited from making contributions
to this Plan and all other plans of the Employer for twelve months after the
receipt of the Hardship withdrawal;
(c) The distribution is not in excess of the amount of an
immediate and heavy financial need. The amount of an immediate and heavy
financial need may include any amounts necessary to pay any federal, state or
local income taxes or penalties reasonably anticipated to result from the
distribution; and
(d) The Employee may not make Pre-tax Contributions for the
Employee's taxable year immediately following the taxable year of the Hardship
withdrawal in excess of the applicable limit under Section 402(g) of the Code
for such taxable year less the amount of such Employee's Pre-tax Contributions
for the taxable year of the Hardship withdrawal.
Notwithstanding the foregoing, effective for Plan Years
beginning after December 31, 1988, a Participant will not be allowed to
withdraw the Earnings credited after December 31, 1988, on their Pre-tax
Contributions for Hardship.
With respect to a Participant who has attained age fifty-nine
and one-half (59 1/2), they shall be entitled to make a withdrawal from their
Pre-tax Contribution Account at any time, not more often than once each Plan
Year.
With respect to a Participant who has a Termination of
Employment, the provisions of Article Seven shall apply.
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6.4 Withdrawal of Employer Contributions. No withdrawals are permitted
from a Participant's Employer Contribution Account prior to Termination of
Employment.
6.5 Loans. Upon application of any actively employed Participant or a
former Participant who is a "party in interest" as such term is defined in
Section 3(14) of ERISA, the Trustee, as directed by the Committee in
accordance with a uniform, non-discriminatory policy, will make a loan to such
Participant on a non-discriminatory basis, and that any loans shall be secured
by a pledge by the Participant of 50% of their Pre-tax Contribution Account in
the Trust Fund. Any such loan shall be considered an investment of such
Participant. All loan amounts borrowed will be deducted from each of the
investment funds on a pro-rata basis and shall bear a reasonable rate of
interest, which rate shall be determined at the time the loan is originated,
modified, or renewed. A reasonable rate of interest is one that provides the
Plan a return commensurate with interest rates charged by persons in the
business of lending money for loans which would be made under similar
circumstances.
For the purpose of establishing a reasonable rate of interest,
the Committee shall periodically contact lending institutions in the
Employer's same geographical region(s) to determine the rate of interest
charged by the lenders for similar loans (except that a Plan administered on a
nationwide basis may use a national rate of interest). Participant loans
originated, modified or renewed during the same period shall be charged the
then prevailing rate charged on similar loans made by such lending
institutions.
A higher rate of interest may be charged on Participant loans
which are not repaid through periodic deductions due to the increased
administrative expense of collecting such loan repayments. The interest rate
for the period of the loan will be fixed.
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No loan to any Participant shall exceed the lesser of (a)
$50,000 reduced by the excess (if any) of (1) the highest outstanding balance
of loans from the Plan during the one year period ending on the day on which
such loan was made, over (2) the outstanding balance of loans from the Plan on
the date on which such loan was made, or (b) one-half of the vested Value of a
Participant's Pre-tax Contribution Account. The minimum amount that a
Participant may borrow is $l,000. A Participant may not borrow amounts from
their Employer Contribution Account.
General purpose loans will be required to be repaid within five
(5) years. Loans for the purchase of a primary residence may be repaid over
fifteen (15) years. There shall be no more than one (1) loan of each type
outstanding at any one time to a Participant. Any loan will be required to be
repaid through payroll deduction (for a Participant who is actively employed)
in substantially equal installments with payments not less frequently than
quarterly, unless the Participant repays the entire balance of the loan in a
lump sum prior to the expiration of such loan. Any lump sum repayment may only
be made as of any Valuation Date. Repayment of all loans under the Plan shall
be secured by the portion of the Participant's Account deemed invested in the
loan. Repayments will be invested in accordance with the Employee's investment
election at the time of the repayment.
If a Participant is on an authorized leave of absence and is
receiving Compensation that is less than the amount due as payments on the
Participants' outstanding loan, the Committee may permit the Participant to
miss these payments for a period not to exceed 12 months; provided that the
repayment period does not extend beyond the original maximum period outlined
above, and at the end of the Participant's authorized leave of absence the
loan is reamortized based upon the remaining period. Loan repayment shall be
suspended as permitted under Section 414(u)(4) of the Code for those
Participants in qualified military service.
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If at anytime prior to the full repayment of a loan to a
Participant under Section 6.5, the Participant should cease to be a
Participant by reason of their Termination of Employment, or the Plan should
terminate, or an event of default otherwise occurs under the documents
evidencing the loan, the unpaid balance owed by the Participant on the loan
shall be due and payable immediately, and the amount of the distribution
otherwise payable to the Participant (or, in the case of their death, to their
Beneficiary) shall be reduced by the amount owed on the loan at the time of
such distribution. Such reduction shall constitute a complete discharge of all
liability to the Plan for the loan.
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ARTICLE SEVEN
DISTRIBUTIONS OTHER THAN WITHDRAWALS
7.1 Payment Upon Termination of Employment.
(a) Upon Termination of Employment for any reason, a
Participant shall receive payment of the full Value of their vested Accounts
no later than one hundred and eighty (180) days after the end of the Plan Year
in which the latest of the following occurs:
(i) The Participant's attainment of age sixty-five
(65);
(ii) The fifth (5th) anniversary of the year in which
the Participant began participation in the Plan;
or
(iii) the Participant's Termination of Employment.
(b) Notwithstanding the foregoing, if the Participant is a Five
Percent Owner, the distributions from a Participant's Account shall begin no
later than April 1 following the calendar year in which the Participant
attains age seventy and one-half (70 1/2).
For Plan Years beginning before January 1, 1999, if the
Participant is not a Five Percent Owner and attains seventy and one-half (70
1/2) before 1998, the distributions from a Participant's Account shall begin
no later than April 1 following the calendar year in which the Participant
attains age seventy and one-half (70 1/2). Effective January 1, 1997, a
Participant who is not a Five Percent Owner and who has not had a Termination
of Employment may elect to stop
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distributions that would otherwise commence or continue under the prior
sentence. If a Participant makes such an election, distributions must begin no
later than April 1 following the calendar year in which the Participant has a
Termination of Employment.
For Plan Years beginning after December 31, 1998, if the Participant is
not a Five Percent Owner and attains age seventy and one-half (70 1/2) during
1998 or later, the distributions from a Participant's Account shall begin no
later than April 1 following the later of (i) the calendar year in which the
Participant attains age seventy and one-half (70 1/2) or (ii) the calendar in
which the Paricipant has a Termination of Employment.
All distributions under this Section 7.1(b) shall be made in accordance
with the requirements of Section 401(a)(9) of the Code, including the
incidental death benefit provisions of Section 401(a)(9)(G) of the Code, and
the regulations thereunder, which are hereby incorporated by reference.
Distributions shall be made in a single annual payment. The first distribution
shall be made in March before the April 1 required distribution date and
subsequent distributions shall be made in December of that and all later
calendar years, unless the Participant, on a form provided by the Committee,
elects in an earlier date for distributions for all years.
7.2 Method of Payment. Benefits shall be made available under the Plan as
soon as practicable after Termination of Employment occurs. Payment of
benefits shall be based on the Valuation Date coincident with or next
following a request for payment. Notwithstanding the foregoing, in no event
will payment of benefits be made to a Participant prior to their Normal
Retirement Date without the Participant's consent unless the Value of the
Participant's vested Accounts does not exceed $3,500 ($5,000 effective January
1, 1998). In the event a Participant defers the payment of benefits to their
Normal Retirement Date, such payment may only be made prior to the
Participant's Normal Retirement Date if the Participant dies or suffers Total
and Permanent Disability.
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7.3 Death of a Participant. If a Participant shall die prior to the
distribution of the Value of their Accounts, the Value of such Participant's
Accounts at the time of their death shall be distributed to such Participant's
Beneficiary as a lump sum. Notwithstanding the foregoing, if a Participant is
married on the date of their death, the Value of such Participant's Accounts
shall be distributed to such Participant's Spouse, unless such Participant
had, with the consent (obtained in accordance with the provisions of Section
7.5 hereof) of their Spouse at the time of their death, designated another
Beneficiary. The Value of such Participant's Accounts shall be reduced by the
balance of any outstanding loan.
If the Participant dies before the distribution of their
Account commences, the Participant's entire interest will be distributed not
later than five (5) years after the Participant's death except that if the
Beneficiary is the Participant's surviving spouse, then the latest
distribution date shall not be earlier than the date on which the Participant
would have attained age 70 1/2. If the spouse dies before payment is made,
subsequent distribution shall be made as if the spouse had been the
Participant.
If an unmarried participant dies without having designated a
beneficiary, or if all designated beneficiaries fail to survive the
participant, the value of the account shall be distributed to the
participant's then living issue, per stirpes, and if none, to the
participant's estate.
7.4 Proof of Death and Right of Beneficiary. The Committee may require and
rely upon such proof of death and such evidence of the right of any
Beneficiary to receive the undistributed Value of the Accounts of a deceased
Participant as the Committee may deem proper, and its determination of death
and of the right of such Beneficiary to receive payments shall be conclusive.
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7.5 Consent of Spouse. Whenever the terms of their Plan require that the
consent of a Participant's Spouse be obtained, such consent shall be valid
only if it is in writing, contains an acknowledgement by such Spouse of the
effect of such consent, and is witnessed by a notary public; provided,
however, that the consent of a Participant's Spouse shall not be required in
the event that the Participant establishes to the satisfaction of the Plan
representative that they have no Spouse, that such Spouse cannot be located,
or under such other circumstances as may be permitted under applicable
Treasury regulations. Any consent necessary under this provision will be valid
only with respect to the Spouse who signs the consent. A revocation of a prior
election to waive the Spouse as Beneficiary may be made without the consent of
the Spouse at any time prior to the commencement of benefits. The number of
revocations shall not be limited.
7.6 Form of Payment. Payment of benefits to a Participant or a
Participant's Beneficiary will be made in cash, except that amounts invested
in the Lillian Vernon Common Stock Fund may be, based on the election of the
Participant or Beneficiary, distributed in whole shares of Lillian Vernon
Common Stock with any fractional shares paid in cash.
7.7 Direct Transfer of a Distribution. If a Participant or Beneficiary is
entitled to receive a benefit distribution from the Plan (including a
withdrawal made pursuant to Article Six) after December 31, 1992 which
constitutes an "eligible rollover distribution" (within the meaning of Section
402(f)(2)(A) of the Code, such Participant or Beneficiary shall be entitled to
elect to have the otherwise taxable portion of such distribution transferred
in a direct trustee-to-trustee transfer to any "eligible retirement Plan"
(within the meaning of Section 402(c)(8)(B) of the Code, as modified by Code
Section 401(a)(31)(D) thereof) selected by the Participant or Participant's
Beneficiary in their written election to receive such distribution in this
manner.
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ARTICLE EIGHT
MANAGEMENT OF FUNDS
8.1 Trust Fund. All the funds of the Plan shall be held by a Trustee or
Trustees appointed from time to time by the Company, in one or more trusts
under a trust instrument or instruments approved or authorized by the Company
for use in providing the benefits of the Plan; provided that no part of the
corpus or income of the Trust Fund shall be used for, or diverted to, purposes
other than for the exclusive benefit of Participants or their Beneficiaries.
8.2 Reports to Participants. As soon as practicable after each calendar
quarter, a Participant will receive a written statement setting forth the
Value of each of their Accounts, together with a statement of the amounts
contributed to each such Account by the Employee and by the Employer.
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ARTICLE NINE
PLAN ADMINISTRATION AND FIDUCIARIES
9.1 Committee. The administration of the Plan, the power to construe and
interpret it, and the responsibility for carrying out its provisions shall be
vested in a Committee, which shall consist of not less than 2 nor more than 5
members appointed by the Company. The Committee shall be the named fiduciaries
under the Plan. The Company shall at all times have power of removal,
substitution and filling of vacancies. The members of the Committee shall
appoint a secretary who may be but need not be a member of the Committee. The
Committee may employ counsel and engage such clerical, financial or other
services as it may deem necessary for the effective administration of the Plan
and shall keep such accounts and records as it may deem necessary or proper.
The Committee may authorize one or more of its members or such members'
delegate, to perform the routine administrative functions of the Committee
including, but not limited to, instructions to the Trustee or distributing
notices or other communications to Participants, Beneficiaries or other
persons.
9.2 Quorum. A majority of the members of the Committee at any time in
office shall constitute a quorum for the transaction of business at any
meeting. Any determination or action of the Committee may be made or be taken
by a majority of such members present at any meeting at which a quorum is
present, or without a meeting by a resolution or written memorandum concurred
in by a majority of the members then in office.
9.3 Powers. The Committee shall have the power to interpret the Plan, to
determine all questions of eligibility and the status and rights of
Participants and others and to establish rules for the administration of the
Plan and the transaction of its business. The determination or action
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of the Committee with respect to any question arising out of or in connection
with the administration of the Plan shall be conclusive and binding on all
persons having an interest in the Plan. No bond or other security shall be
required of any member of the Committee in any jurisdiction unless otherwise
required by law.
9.4 Indemnity. The members and former members of the Committee and all
persons employed by the Company, including, but not limited to, officers and
directors, and those administering the Plan:
(a) shall be fully protected by the Company with respect to any
action taken by them in good faith which is based upon any valuation,
certificate or report furnished by the Trustee or insurance company or by any
accountant selected by the Committee, or which is based upon any opinion given
by legal counsel selected by the Committee; and
(b) shall not be liable for any act of omission or commission,
except as expressly provided by ERISA.
9.5 Claims Procedures. A Plan representative designated by the Committee
will furnish to any Participant, upon request incident to his Termination of
Employment or election to withdraw funds while in employment with the
Employer, an explanation of his rights and benefit amounts under the Plan, and
will render assistance in the completion of all pertinent forms prescribed by
the Committee for the making of elections for which the Participant may be
eligible under the Plan. Upon the death of any Participant while in the
employment of the Employer, the Plan representative will initiate any claim on
behalf of the Beneficiary. If the Plan representative does not do so within
thirty (30) days after death, the Participant's Executor may do so. Subsequent
to elections made by the Participant incident to Termination of Employment,
any further claims of the Participant or the Beneficiary will be submitted by
the Plan representative
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to the Committee. All claims shall be submitted by registered or certified
mail to the Committee c/o the Company Headquarters.
In the event of a denial of a claim to a Participant or
Beneficiary, such person will be given notice in writing of such denial, which
notice will set forth (i) the reason(s) for the denial, (ii) specific
reference to pertinent Plan provisions on which the denial is based, (iii) a
description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such material or
information is necessary, and (iv) an explanation of the Plan's claim review
procedure. The Participant or the Beneficiary may, within a period of sixty
(60) days thereafter, request a review of such denial by filing notice in
writing with the Committee; they may also review pertinent documents and
submit issues and comments in writing. The Committee, at its discretion, may
request a meeting to clarify any related matters it deems appropriate. The
Committee shall issue its decision within sixty (60) days after receipt of the
request for review unless special circumstances (such as, but not limited to,
the need to hold a hearing) require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not later
than one hundred twenty (120) days after receipt of the request for a review.
The decision shall be in writing and shall include specific reasons for the
decision and specific references to the pertinent plan provisions on which the
decision is based. All interpretations, determinations and decisions of the
Committee in respect of any claim will be final and conclusive.
9.6 Fiduciaries.
(a) Any person or group of persons may serve in more than one
fiduciary capacity with respect to the Plan (including service both as Trustee
and administrator).
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(b) A named fiduciary, or a fiduciary designated by a named
fiduciary pursuant to paragraph 9.7(b) of this Article, may employ one or more
persons to render advice with regard to any responsibility such fiduciary has
under the Plan.
(c) A person who is named fiduciary with respect to control or
management of the assets of the Plan may appoint an investment manager or
managers to manage (including the power to acquire and dispose of) any assets
of a plan; such investment manager, who must be (i) registered as an
investment advisor under the Investment Advisors Act of 1940; (ii) a bank, or
(iii) an insurance company which is qualified under the laws of more than one
state to manage, acquire or dispose of assets of a plan, must acknowledge in
writing that he is a fiduciary with respect to the plan.
9.7 Allocation of Responsibilities.
(a) The named fiduciaries may allocate fiduciary
responsibilities (other than Trustee responsibilities) among themselves by a
document in writing which shall be filed with the records of the Plan.
(b) The named fiduciaries may designate by a document in
writing any person or persons to carry out fiduciary responsibilities (other
than Trustee responsibilities) under the Plan.
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ARTICLE TEN
AMENDMENT AND TERMINATION
10.1 Amendment. The Board reserves the right at any time and from time to
time, and retroactively if deemed necessary or appropriate to conform with
governmental regulations, to modify or amend in whole or in part any or all of
the provisions of the Plan; provided that no such modification or amendment
shall make it possible for any part of the Trust Fund to be used for, or
diverted to, purposes other than for the exclusive benefit of Participants or
their Beneficiaries; and provided further, that no such amendment shall
increase the duties of the Trustee without its consent thereto in writing. If
an amendment is adopted which changes any vesting schedule under the Plan,
each Participant who has been credited with three (3) Years of Service may
elect to have his nonforfeitable percentage computed under the Plan without
regard to such amendment. The period during which such election may be made
shall begin on the date the amendment is adopted and shall end on the latest
of: (a) the 60th day after the day the amendment is adopted; (b) the 60th day
after the day the amendment becomes effective; or (c) the 60th day after the
day the Participant is issued written notice of the amendment. Except as may
be required to conform with governmental regulations, no such amendment shall
adversely affect the rights of any Participants with respect to contributions
made on his behalf prior to the date of such amendment.
10.2 Termination. The Plan is purely voluntary on the part of the Employer
and the Employer reserves the right to terminate in whole or in part, or
completely discontinue contributions under the Plan, and terminate the Trust
Agreement and the Trust hereunder. If the Plan is terminated or if there a
complete discontinuance of contributions to the Plan, each Participant's
interest in his Accounts shall become fully vested. If there is a partial
termination of the Plan, each affected participant's interest in his Accounts
shall become fully vested. In the
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event of a complete termination of the Plan, Participants' Accounts shall be
distributed as soon as administratively practicable after the termination. In
the event of a partial termination of the Plan or a complete discontinuance of
contributions, payment of benefits shall be made under the provisions of
Articles Six and Seven.
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ARTICLE ELEVEN
GENERAL PROVISIONS
11.1 Expenses. All costs and expenses incurred in administering the Plan,
including the expenses of the Committee, the fees and expenses of the Trustee
and other legal and administrative expenses shall be paid out of the Trust
Fund, except to the extent paid by the Employer.
11.2 Source of Payments. Benefits under the Plan shall be payable only out
of the Trust Fund or under any insurance contract or contracts purchased by
the Trustee, and the Employer shall have no legal obligation, responsibility,
or liability to make any direct payment of benefits under the Plan. Neither
the Employer nor the Trustee guarantees the Trust Fund against any loss or
depreciation or guarantees the payment of any benefit hereunder. No person
shall have any rights under the Plan with respect to the Trust Fund, or
against the Trustee, insurance company or Employer, except as specifically
provided for herein.
11.3 Spendthrift. No benefit under the Plan shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
or charge, and any attempt to do so shall be void. This Section 11.3 shall
also apply to the creation, assignment or recognition of a right to any
benefit payable with respect to a Participant pursuant to a domestic relations
order, unless such order is determined to be a "qualified domestic relations
order", as defined in Section 414(p) of the Code.
Any other provision of the Plan to the contrary
notwithstanding, the Committee is authorized, pursuant to such uniform and
nondiscriminatory rules as it shall establish which shall be consistent with
applicable law and the terms of the applicable qualified domestic relations
order, to cash out benefits to which alternate payees may be entitled prior to
the date such benefits would
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otherwise become payable in accordance with the applicable provisions of the
Plan.
11.4 No Right To Employment. Nothing herein contained nor any action taken
under the provisions hereof shall be construed as giving any Employee the
right to be retained in the employ of the Employer or in any other way
modifying or affecting the terms of employment of any Employee.
11.5 Merger, Consolidation or Transfer of Assets or Liabilities. In the
case of any merger or consolidation with, or transfer of assets or liabilities
to, any other plan, each Participant shall (if the Plan then terminated)
receive a benefit immediately after the merger, consolidation, or transfer
which is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation, or transfer (if the Plan
had then terminated).
11.6 Uniform Administration. Whenever in the administration of the Plan
any action is required by the Committee, such action shall be uniform in
nature as applied to all persons similarly situated and no such action shall
be taken which will discriminate in favor of a highly compensated Participant
or Participants whose principle duties consist of supervising the work of
others.
11.7 Headings. The headings of the sections in this Plan are placed herein
for convenience of reference and in the case of any conflict the text of the
Plan, rather than such headings, shall control.
11.8 Actions Against Trustees. No person other than the Employer has the
right to maintain or institute any action or proceeding against the Trustees
for the enforcement of any provision of the Trust, except by written authority
of the Employer or a determination by a court of competent jurisdiction. Any
final judgment which is not appealed or appealable that may be
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entered in any such action or proceeding shall be binding and conclusive on
the Employer, all Participants and all persons having or claiming to have any
interest in the Trust.
11.9 Use of Pronouns. The masculine pronoun as used herein refers to both
men and women, and words used in the singular are intended to include the
plural, whenever appropriate.
11.10 Construction. The Plan shall be construed, regulated and
administered in accordance with the laws of the State of New York; ERISA, as
amended; and the Internal Revenue Code of 1986, and amendments thereto.
11.11 Voting Rights. With respect to any equity securities of the Company,
("Company Stock"), the Trustee shall vote the Company Stock as directed by the
Committee. If the Committee shall fail to provide direction, the Trustee shall
vote the Company Stock in its discretion. The Trustee shall tender or exercise
similar rights with respect to Company Stock according to the Committee's
instructions. If the Committee shall fail to provide direction, the Trustee
shall not tender or exercise similar rights with respect to shares of Company
Stock unless the failure to do so would be a violation of ERISA.
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ARTICLE TWELVE
PROVISIONS RELATING TO TOP-HEAVY PLAN
12.1 Applicability. The provisions of this Article Twelve shall apply to
any Plan Year if, as of the applicable Determination Date, the Plan
constitutes a Top-Heavy Plan.
12.2 Definitions. The definitions apply to this Article Twelve and unless
otherwise specifically stated in another section hereof do not apply to any
other section of this Plan.
A. Determination Date. With respect to each Plan Year, the
Determination Date shall be the final day of the immediately preceding Plan
Year, provided, however, that with regard to the Plan's initial Plan Year, the
"Determination Date" shall be the last day of the first Plan Year.
B. Key Employee. "Key Employee" shall mean any Employee who, at
any time during the Plan Year as of which a determination is made or any of
the four (4) preceding Plan Years, is (in accordance with Code Section 416(i)
and the regulations promulgated thereunder):
(a) an officer of the Company or any Control Group
Company whose annual compensation during any such Plan Year exceeds one
hundred fifty percent (150%) of the maximum dollar limitation under Code
Section 415(c)(1)(A) as in effect for the calendar year of the Determination
Date;
(b) one of the ten (10) Employees of the Company or any
Control Group Company owning or considered as owning (within the meaning of
Section 318 of the Code) the largest interests in the Company or such Control
Group Company, excluding, however, any
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Employee who earns less than the maximum dollar limitation under Section
415(c)(1)(A) as in effect for the calendar year of the Determination Date,
provided that for the purposes of this paragraph (b), if two (2) Employees
have the same interest in the Company or a Control Group Company, the Employee
whose annual compensation from the Company or such Control Group Company is
greater shall be treated as having the greater interest;
(c) an Employee who owns (or is considered as owning
within the meaning of Section 318 of the Code) more than five percent (5%) of
the outstanding stock of the Company or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the Company;
or
(d) an Employee who (i) owns (or is considered as owning
within the meaning of Section 318 of the Code) more than one percent (1%) of
the outstanding stock of the Company or more than one percent (1%) of the
total combined voting power of all stock of the Company and (ii) who receives
annual compensation from the Company or any Control Group Company in excess of
One Hundred Fifty Thousand Dollars ($150,000).
(e) For the purpose of applying Section 318 of the Code
under paragraphs (b), (c) and (d) of this subsection B, the phrase "50
percent" in Section 318(a)(2) of the Code shall be replaced by the phrase "5
percent."
C. Non-Key Employee. Any Employee who is not a Key Employee.
D. Aggregated Plans. "Aggregated Plans" shall mean (1) all
plans of the Company or any Control Group Company (a) that are qualified under
Code Section 401(a) and (b) in which a Key Employee is a participant, and (2)
all other plans of the Company or any Control Group Company that enable any
plan described in clause (1) above to meet the requirements of Code Sec-
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tion 401(a)(4) or 410 (the "Required Aggregation Group"). In addition, the
term "Aggregated Plans" shall include any plan of the Company or any Control
Group Company which is not required to be included in the Required Aggregation
Group, provided that the resulting group, taken as a whole, continues to meet
the requirements of Code Sections 401(a)(4) and 410 (the "Permissive
Aggregation Group"). The Committee may elect to exclude as an Aggregated Plan
any plan in the Permissive Aggregation Group that is a collectively bargained
plan, if the necessary information as to participants and benefits with
respect to such plan is not available.
E. Top-Heavy Plan. The Plan shall constitute a "Top-Heavy Plan"
for any Plan Year if, as of the applicable Determination Date, the sum of (a)
the accounts of Key Employees under any Aggregate Plan that is of a defined
contribution type and (b) the present value of the cumulative accrued benefits
of Key Employees under any Aggregate Plan that is of a defined benefit type
exceeds sixty percent (60%) of the sum of (a) the accounts of all Employees
under any Aggregate Plan that is of a defined contribution type and (b) the
present value of the cumulative accrued benefits of all Employees under any
Aggregate Plan that is of a defined benefit type. The above determinations
shall be made in accordance with Code Section 416(g).
F. Super Top-Heavy Plan. The Plan shall constitute a "Super
Top-Heavy Plan" for any Plan Year if, as of the applicable Determination Date,
the sum of (a) the accounts of Key Employees under any Aggregate Plan that is
of a defined contribution type and (b) the present value of the cumulative
accrued benefits of Key Employees under any Aggregate Plan that is of a
defined benefit type exceeds ninety percent (90%) of the sum of (a) the
accounts of all Employees under any Aggregate Plan that is of a defined
contribution type and (b) the present value of the cumulative accrued benefits
of all Employees under any Aggregate Plan that is of a defined benefit type.
The above determination shall be made in accordance with Code Sections 416(g)
and 416(h)(2)(B).
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G. Control Group Company. Any member of the controlled group of
corporations of which the Company is a Participant (as determined in
accordance with Sections 414(b), and (c) of the Internal Revenue Code of 1986,
and amendments thereto).
H. Rules for Determining Accrued Benefits and Accounts. In
determining the present value of accrued benefits for Aggregated Plans of the
defined benefit type and accounts for Aggregated Plans of the defined
contribution type, the following rules shall prevail:
(a) The accrued benefit for each current Employee shall
be computed as if the Employee voluntarily terminated service as of the
Determination Date.
(b) The interest rate to be used shall be five percent
(5%) and post-retirement mortality shall be determined based on the 1971
Group Mortality Table for Males. There shall be no assumptions as to
pre-retirement mortality or future increases in cost of living.
(c) If a qualified joint and survivor annuity within
the meaning of Code Section 401(a)(11) is the normal form of benefit, for
purposes of determining the present value of the accrued benefit, the Spouse
of the Participant shall be assumed to be the same age as the Participant.
(d) The present value shall reflect a benefit payable
commencing at normal retirement age (or attained age, if later), provided that
if the Plan provides for a nonproportional subsidy, the benefit shall be
assumed to commence at the age at which the benefit is most valuable.
(e) The employer contribution account shall be
determined as of the most recent valuation occurring within the twelve (12)
month period ending on the Determination Date.
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(f) An adjustment shall be made for any contributions
due as of the Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but before the
Determination Date, except that for the first Plan Year such adjustment shall
also reflect the amount of any contributions made after the Determination Date
that are allocated as of a date in the first Plan Year.
(g) The accrued benefit or account balance with respect
to any Employee shall be increased by the aggregate distributions made to such
Employee from any Aggregated Plan during the five (5) year period ending on
the Determination Date; provided, however, that any distribution made after a
valuation date but prior to the Determination Date shall not be counted as a
distribution to the extent already included as of the valuation date.
(h) Any Employee contributions, whether voluntary or
mandatory, shall be included. However, amounts attributable to tax deductible
qualified employee contributions shall not be considered to be a part of the
account.
(i) For purposes of this Article Twelve, a beneficiary
of any deceased Employee shall be considered a member hereunder.
(j) Notwithstanding anything herein to the contrary, no
individual shall be counted as an Employee or Participant for the purposes of
this Article Twelve if such individual has not received compensation (other
than benefits under the Plan) during the five (5) year period ending on a
Determination Date.
I. Top-Heavy Plan Year. "Top-Heavy Plan Year" shall mean a Plan
Year in which a Year of Service is accrued by the Top-Heavy Participant
provided that no Plan Year shall be classified as a Top-Heavy Plan Year if in
such Plan Year the Plan was not a Top-Heavy Plan.
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J. Top-Heavy Compensation. "Top-Heavy Compensation" shall mean
compensation of the Top-Heavy Participant from the Employer within the meaning
of Section 415 of the Code.
K. Top-Heavy Participant. "Top-Heavy Participant" shall mean
each Participant and any Employee who is excluded from being a Participant (or
who accrued no benefit) because their compensation was less than a stated
amount or any Employee who is excluded from being a Participant because of a
failure to make mandatory employee contributions.
L. Testing Period. "Testing Period" shall mean with respect to
a Top-Heavy Participant the five (5) consecutive Top-Heavy Plan Years of
employment of such Top-Heavy Participant by the Employer or any Control Group
Company during which the aggregate Top-Heavy Compensation paid by the Employer
or any Control Group Company to such Top-Heavy Participant was the highest, or
if the Plan was a Top-Heavy Plan for less than five (5) Top-Heavy Plan Years,
the number of Top-Heavy Plan Years. Exclusion of a Plan Year as a Top-Heavy
Plan Year because a Year of Service was not accrued or because of subparagraph
I. above shall not be deemed to break the consecutiveness of the surrounding
Top-Heavy Plan Years.
12.3 Minimum Contribution.
A. Subject to B. and C. below, for each Plan Year during which
the Plan constitutes a Top-Heavy Plan, the Employer shall contribute on behalf
of each Top-Heavy Participant other than a Key Employee who is employed on the
last day of the Plan Year (and without regard to whether such Participant was
credited with a Year of Service for such Plan Year) an amount equal to the
lesser of (a) three percent (3%) of such Top-Heavy Participant's Top-Heavy
Compensation for such Plan Year or (b) if the greatest percentage of Top-Heavy
Compensation contributed by the Employer on behalf of a Key Employee during
such Plan Year
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is less than three percent (3%), the greatest percentage of such Top-Heavy
Participant's Top-Heavy Compensation contributed for a Key Employee.
B. If the Top-Heavy Participant (other than a Key Employee) is
also a participant in a qualified defined benefit plan of the Employer and
such qualified defined benefit plan does not constitute a Top-Heavy Plan, the
additional contribution due under A. above shall be reduced by the actuarial
equivalent of the benefits derived by the Top-Heavy Participant under such
defined benefit plan calculated on the basis of the Actuarial Assumptions of
the Plan.
C. If the Top-Heavy Participant (other than a Key Employee) is
also a participant in a qualified defined benefit plan of the Employer and
such qualified defined benefit plan constitutes a Top-Heavy Plan, no minimum
contribution under this Section 12.3 shall be required.
12.4 Section 415 Adjustments. In the event the Plan is a Top-Heavy Plan
for any Plan Year, 1.0 shall be substituted for 1.25 in Section 415(e) of the
Code unless (a) the Plan is not a Super Top-Heavy Plan for such Plan Year and
(b) each Top-Heavy Participant is credited with a benefit not less than the
lesser of four percent (4%) or the amount determined under Section 13.3(A)(b)
hereof.
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IN WITNESS WHEREOF, Lillian Vernon Corporation has caused this instrument
to be executed this _____ day of ______, 1998.
By:
------------------------------
Susan C. Handler
------------------------------
(Name of Corporate Officer)
Vice President-Controller
Secretary
------------------------------
(Title of Corporate Officer)
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Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of Lillian Vernon Corporation on Form S-8 of our report dated April
11, 1997 on our audits of the consolidated financial statements and financial
statement schedules of Lillian Vernon Corporation and Subsidiaries as of
February 22, 1997 and February 24, 1996, and for each of the three fiscal years
in the period ended February 22, 1997, which report is included in its Annual
Report on Form 10-K of Lillian Vernon Corporation filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1934. We also consent to
the reference to our Firm under the heading "Experts".
COOPERS & LYBRAND, LLP
Stamford, Connecticut
March 26, 1998
