<PAGE>
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendments No. )
Filed by the Registrant (x)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e) (2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
LILLIAN VERNON CORPORATION
- ------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
same
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and
0-11(1).
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
3) Per unit prict or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------
( ) Fee paid previously with preliminary materials
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identigy the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing
1) Amount Previously Paid:
--------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
[LILLIAN VERNON LOGO]
June 5, 1998
Dear Stockholder:
You are cordially invited to attend our Annual Meeting of
Stockholders, to be held at 10:00 a.m. on Wednesday, July 15, 1998
in the Board Room of the American Stock Exchange, 86 Trinity Place
in New York City. The agenda of the Annual Meeting includes the
election of two directors, the approval of auditors, the adoption
of the Employee Stock Purchase Plan and the adoption of amendments
to the 1997 Stock Option Plan for Non-Employee Directors.
Management will also report on the Company, its activities and
plans for the future. We hope you will be able to join us.
Since your vote is very important, please fill out, sign and date
your proxy card, and return it as soon as possible if you are
unable to attend the meeting.
I look forward to seeing you.
Faithfully yours,
/s/ Lillian Vernon
Lillian Vernon
Chairman of the Board
Chief Executive Officer
LILLIAN VERNON CORPORATION
543 Main Street, New Rochelle, New York 10801/Phone: 914-576-6400/Fax:
914-637-5740
<PAGE>
LILLIAN VERNON CORPORATION
543 MAIN STREET
NEW ROCHELLE, NEW YORK 10801
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Lillian
Vernon Corporation will be held at the American Stock Exchange, 86 Trinity
Place, New York City on July 15, 1998 at 10:00 a.m. for the following
purposes:
1. To elect two (2) directors for a three year term expiring at the annual
meeting of stockholders to be held in the year 2001 and until the due
election and qualification of their successors;
2. To consider and act upon a proposal to ratify the appointment of
Coopers & Lybrand L.L.P. as independent auditors for the fiscal year of the
Company ending February 27, 1999;
3. To consider and act upon a proposal to adopt the Company's Employee
Stock Purchase Plan as described in the accompanying Proxy Statement;
4. To consider and act upon a proposal to adopt amendments to the 1997
Stock Option Plan for Non-Employee Directors as described in the accompanying
Proxy Statement; and
5. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Stockholders of Lillian Vernon Corporation of record at the close of
business on June 1, 1998 are entitled to vote at the annual meeting and any
adjournments thereof. All stockholders are encouraged to attend the meeting
or to vote by proxy.
If you do not expect to attend the meeting, please sign and date the
enclosed proxy and return it promptly in the enclosed envelope in order that
your stock may be voted in accordance with the terms of the Proxy Statement.
By Order of the Board of Directors
Susan C. Handler
Secretary
New Rochelle, New York
June 5, 1998
<PAGE>
LILLIAN VERNON CORPORATION
543 MAIN STREET
NEW ROCHELLE, NEW YORK 10801
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is furnished to the stockholders of Lillian Vernon
Corporation (herein, called the "Company") in connection with the Board of
Directors' solicitation of proxies to be used at the Annual Meeting of
Stockholders on July 15, 1998 at the American Stock Exchange, 86 Trinity
Place, New York City, 10:00 a.m. or any adjournments thereof. The date of
first distribution of this Proxy Statement will be on or about June 5, 1998.
VOTING AT THE MEETING
Only holders of Common Stock of record on the books of the Company at the
close of business on June 1, 1998 will be entitled to notice of and to vote
at the meeting. On that date, there were 9,377,335 shares of Common Stock,
par value $.01 per share, outstanding. Each holder of record of Common Stock
of the Company as of the record date will be entitled to one vote for each
share of stock registered in his or her name. A majority of the shares having
voting power at the meeting will constitute a quorum for the transaction of
business.
Shares entitled to vote, represented by each properly executed proxy in
the accompanying form received by the Company in time to permit its use at
the meeting or any adjournments thereof, will be voted in accordance with
instructions indicated in such proxy. If no instructions are indicated, such
shares will be voted as recommended by the Board. A stockholder who has given
a proxy may revoke it by voting in person at the meeting, or by giving
written notice of revocation or a later-dated proxy to the Secretary of the
Company at any time before the voting.
Directors are elected by a plurality of the votes cast in the election.
The adoption of the Employee Stock Purchase Plan and the approval of the
amendments to the 1997 Stock Option Plan for Non-Employee Directors requires
the affirmative vote of the majority of the outstanding shares of Common
Stock of the Company. The affirmative vote of the holders of a majority of
the shares voted with respect to any other proposals presented at the meeting
is required to approve such other proposals.
An automated system administered by the Company's transfer agent counts
the votes. The Company's Certificate of Incorporation and By-Laws do not
contain any provisions concerning the treatment of abstentions and broker
nonvotes. Delaware law treats abstentions as votes which are not cast in
favor of a proposal or nominee. Delaware law does not address the treatment
of broker nonvotes. Broker nonvotes will be included in the determination of
the presence of a quorum, but will not be counted for purposes of determining
whether a proposal or nominee has been approved.
<PAGE>
EXPENSES OF SOLICITATION
It is expected that the solicitation of proxies will be primarily by mail.
Proxies may also be solicited personally and by telephone by officers and
directors of the Company. The total expense of preparing, assembling and
mailing the proxy statement, accompanying notice and form of proxy will be
borne by the Company. Such expense may also include reimbursement for
out-of-pocket disbursements incurred by brokerage houses and custodians,
nominees or other fiduciaries, for forwarding such documents to stockholders.
1. ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors of the Company presently consists of nine members
divided into three classes. At the Annual Meeting, two Directors are to be
elected to hold office for three year terms until the Annual Meeting to be
held in the year 2001. If no instructions are indicated to the contrary, the
proxy will be voted for election of the two Directors named in the following
table, whose election has been proposed and recommended by the Board of
Directors. If any nominee shall, prior to the meeting, become unavailable for
election as a Director, which is not expected, the persons named in the
accompanying form of proxy will vote for such nominee, if any, in their
discretion as may be recommended by the Board of Directors.
In addition to information regarding the nominees and directors, the
following table and footnotes show the amount and percent of equity
securities of the Company beneficially owned, directly or indirectly, by each
nominee or director, as of June 1, 1998, including stock options which are
presently exercisable or which will become exercisable within 60 days of the
date hereof, held by such individuals.
<TABLE>
<CAPTION>
SHARES OF
NAME, PRINCIPAL OCCUPATION COMMON STOCK
AND SELECTED OTHER BENEFICIALLY PERCENT
INFORMATION CONCERNING OWNED AS OF OF CLASS
NOMINEES AND DIRECTORS JUNE 1, 1998 (IF OVER 1%)
- -------------------------- -------------- ------------
<S> <C> <C> <C>
NOMINEES FOR THREE-YEAR TERM EXPIRING IN 2001
Bert W. Wasserman(b)(c) Director since 1995. 12,500(f) --
Age-65
</TABLE>
Mr. Wasserman served as Executive Vice President and Chief Financial Officer
of Time Warner, Inc. from 1990 through 1994, having served on the Board of
Directors of Time Warner, Inc. and its predecessor company from 1981 to 1993.
He joined Warner Communications in 1966 and had been an officer of that
company since 1970. Mr. Wasserman is a director of several investment
companies in the Dreyfus Family of Funds. He is a director of Malibu
Entertainment International, Inc., Winstar Communications, Inc., and IDT
Corp. Mr. Wasserman is on the Board of Directors of the Baruch College Fund.
Mr. Wasserman is a Certified Public Accountant.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Richard A. Berman President, Manhattanville -0- --
Age 53 College; Director since
1997.
</TABLE>
Mr. Berman has served as President of Manhattanville College since January
1995. From November 1991 until December 1994, he was employed by Howe-Lewis
International, first serving as President of North America, and finally as
President and Chief Executive Officer of that company. Howe-Lewis
International is a company engaged in executive search and management
consulting in a variety of industries. Before joining Howe-Lewis
International, Mr. Berman was engaged, for over 20 years in the health care
industry. Mr. Berman currently is a director of HCIA, Inc. and First Medical
Group. Mr. Berman also serves on the boards of several not-for-profit
organizations including Health Insurance Plan of Greater New York,
Westchester Education Coalition, Inc. and The Independent College Fund.
William E. Phillips, whose term as a director is expiring, has chosen not
to stand for re-election as a director.
DIRECTORS CONTINUING IN OFFICE WHOSE TERM EXPIRES IN 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lillian Vernon(a) Chairman of the Board 2,836,802(g)(h) 28.2%
Age-70 and Chief Executive
Officer; Director since
inception.
</TABLE>
Lillian Vernon is the founder of the Company and has served as its Chairman
of the Board and Chief Executive Officer since the Company's inception. She
served as President from inception until July 1989. Lillian Vernon is the
mother of David Hochberg and Fred Hochberg, principal stockholders.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Leo Salon(c) Partner - Salon, Marrow 555,348(e)(g) 5.5%
Age-78 & Dyckman, LLP;
Director since 1988.
</TABLE>
Mr. Salon is a senior partner of the law firm of Salon, Marrow & Dyckman,
LLP, which firm acts as general and securities counsel to the Company.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Howard P. Goldberg President and Chief 47,800(i) --
Age-58 Operating Officer;
Director since 1996.
</TABLE>
Mr. Goldberg has served as President and Chief Operating Officer since March
1996. From 1994 until he joined the Company, Mr. Goldberg was Vice President,
Catalog Research and Planning and then Senior Vice President, Macy's Catalog
at Federated Merchandising, a division of Federated Department Stores, Inc.
From 1991 until he joined Federated Merchandising, Mr. Goldberg was Vice
President, Marketing at Phillips Van Heusen Corporation, where he had direct
responsibility for all marketing efforts for a national chain of 250 women's
and men's apparel factory outlet stores. Mr. Goldberg has over 30 years
experience in marketing and merchandising positions with major retail and
catalog companies including Hanover Direct, Fingerhut Corporation, and Hecht
Company, a division of May Department Stores, Inc.
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE WHOSE TERM EXPIRES IN 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
David C. Hochberg(a) Vice President - 1,407,834(d) 14.0%
Age-41 Public Affairs;
Director since 1978.
</TABLE>
Mr. Hochberg has held the above position since 1986. He joined the Company in
1978 and was subsequently promoted to Director-Public Affairs.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Elizabeth M. Eveillard(c) Managing Director, 2,000 --
Age-51 Investment Banking
Division, PaineWebber
Incorporated; Director
since 1997.
</TABLE>
Ms. Eveillard has served as Managing Director, Investment Banking Division of
PaineWebber Incorporated since April 1988. Prior to her association with
PaineWebber Incorporated, Ms. Eveillard served in various capacities, rising
ultimately to Managing Director at Shearson Lehman Brothers. She is a
director of Gantos, Inc., a company engaged in the retail/apparel industry.
Ms. Eveillard also serves on the board of directors of two private companies.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Jonah Gitlitz(b) Management Consultant; -0- --
Age-69 Director since 1997.
</TABLE>
Mr. Gitlitz served as President, Chief Executive Officer of the Direct
Marketing Association ("DMA") from January 1985 through December 1996. He
joined the DMA in May 1981 as Senior Vice President, Public Affairs. Since
January 1997, when he retired from the DMA, Mr. Gitlitz has been involved in
management consulting activities. He serves on the boards of several
non-profit organizations and private companies.
- ------------
(a) Member of Executive Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
(d) Includes 85,000 shares of Common Stock held by the David Hochberg
Foundation. David Hochberg is the trustee of the David Hochberg
Foundation. Also includes 60,834 options which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(e) Includes options to purchase 17,000 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(f) Includes options to purchase 7,500 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(g) Includes 536,098 shares of Common Stock held by the Lillian Menasche
Vernon Foundation, Inc. (the "Foundation"). Lillian Vernon and Leo
Salon are two of the directors of the Foundation.
4
<PAGE>
(h) Includes options to purchase 140,000 shares which are presently
exercisable or which will become exercisable within 60 days of the date
hereof.
(i) Includes options to purchase 37,800 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
During the last fiscal year, the Board of Directors held six meetings. The
Company believes that attendance at meetings is one means by which Directors
can contribute to the effective management of the Company and that the
contributions of all Directors have been substantial and highly valued.
The Compensation Committee, which administers the Company's employee
compensation plans, met five times in fiscal 1998. The Audit Committee, which
reviews and makes recommendations to the Board of Directors with respect to
the Report of the Independent Accountants and reviews the accounting systems
and controls of the Company on a continuous basis, met two times in fiscal
1998.
All of the Directors attended at least 75% of the aggregate of all Board
meetings and meetings of the Committees of the Board.
The Company does not have a nominating committee.
EXECUTIVE OFFICERS
The following table sets forth the name, age and position of the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lillian Vernon...... 70 Chairman of the Board and Chief Executive Officer
Howard P. Goldberg.. 58 President, Chief Operating Officer and Director
Larry R. Blum....... 50 Executive Vice President
Laura L. Zambano ... 46 Executive Vice President -Merchandising
Kevin A. Green...... 40 Senior Vice President -Marketing
Paul C. Pecorin .... 58 Senior Vice President -Chief Information Officer
Ralph J. Thomann ... 55 Senior Vice President -Operations
Norman Foster....... 54 Vice President -Quality Assurance
Susan C. Handler ... 37 Vice President -Corporate Controller/Secretary
David C. Hochberg .. 41 Vice President -Public Affairs and Director
Robert S. Mednick .. 55 Vice President -Chief Financial Officer
</TABLE>
Larry R. Blum was promoted to Executive Vice President in March 1995. From
January 1993 until his promotion, he served as Senior Vice
President-Administration. Mr. Blum served as Vice President-Human Resources
from August 1990, when he joined the Company until his promotion in January
1993. From September 1986 until he joined the Company, Mr. Blum was Director,
Human Resources for Crazy Eddie, Inc., an electronics retailer. Prior to
joining Crazy Eddie, Inc., Mr. Blum was President of LRB Inc., a consulting
company, and President of Betlar Realty, Inc., a real estate company.
5
<PAGE>
Laura L. Zambano was promoted to Executive Vice President-Merchandising in
January 1996. From July 1989 until her promotion she served as Senior Vice
President-General Merchandise Manager. From 1983 until her promotion in 1989,
she was Vice President of Merchandising. Ms. Zambano joined the Company in
1978 as a catalog coordinator; she became Associate Vice President in 1982.
Prior to joining the Company, Ms. Zambano was employed as an advertising
production manager by H.O. Gerngross & Co.
Kevin A. Green was promoted to Senior Vice President-Marketing in April
1996. From December 1993 until his promotion, he served as Vice
President-Marketing. Mr. Green joined the Company in March 1990 as
Manager-Marketing and subsequently in April 1992 was promoted to
Director-Marketing. Prior to joining the Company, Mr. Green held various
marketing positions at Doubleday Book and Music Club and Better Homes and
Gardens Book Club.
Paul C. Pecorin was promoted to Senior Vice President-Chief Information
Officer in July 1997. Prior to his promotion, he served as Vice
President-Chief Information Officer since joining the Company in 1984. From
1982 until he joined the Company, Mr. Pecorin was Vice President-Systems of
Lands' End, Inc., a direct mail catalog company marketing clothes and related
products. Prior to his employment at Lands' End, Inc., Mr. Pecorin was
manager, systems development for Pratt & Whitney Aircraft Co.
Ralph J. Thomann was promoted to Senior Vice President-Operations in
January 1998. Prior to his promotion, he served as Vice President-Operations
from July 1996. Since joining the Company in February 1984, Mr. Thomann has
held a variety of positions including Vice President-Distribution,
Director-Order Processing, Director-Distribution, and Director-Engineering.
From June 1967 until joining the Company, Mr. Thomann held various
engineering positions with Avon Products, Inc., a manufacturer and
distributor of cosmetics and beauty related products.
Norman Foster joined the Company in August 1983 as Director of
Distribution and served in that position until March 1988, when he assumed
the position of Director of Inventory. In May 1992, Mr. Foster was promoted
to Vice President-Quality Assurance. From 1969 until he joined the Company in
1983, Mr. Foster held various distribution, inventory, operational and
production planning positions for the Sherwin Williams Co., a paint
manufacturing and distribution company.
Susan C. Handler (formerly known as Susan N. Cortazzo) joined the Company
in April 1989 as Corporate Controller and Secretary. She was promoted to Vice
President in July 1994. From 1982 to April 1989, Ms. Handler was employed by
Coopers & Lybrand, Certified Public Accountants, in various capacities, the
last position being as audit manager. Ms. Handler is a certified public
accountant.
Robert S. Mednick joined the Company in June 1996 as Vice President-Chief
Financial Officer. From 1979 until he joined the Company, Mr. Mednick was
Vice President of Finance and Chief Financial Officer of US Sales
Corporation, one of the country's largest privately held direct marketing
catalog companies. Mr. Mednick has over 25 years of corporate finance
experience in the direct mail and retailing industries.
6
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 1, 1998, the beneficial
ownership of the Company's shares by (i) the Chief Executive Officer and the
four other most highly compensated executive officers of the Company at the
end of the fiscal year; and (ii) the directors; and (iii) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES OUTSTANDING
AND OPTIONS
NAME AND ADDRESS AMOUNT OF SHARES EXERCISABLE
OF BENEFICIAL OWNER BENEFICIALLY OWNED WITHIN 60 DAYS
- ------------------- ------------------ --------------
<S> <C> <C>
Lillian Vernon (1)........................................... 2,836,802(2)(3) 28.2%
Howard P. Goldberg (1)....................................... 47,800(4) *
David C. Hochberg (1)........................................ 1,407,834(5)(6) 14.0%
Fred P. Hochberg (7)......................................... 828,274(2)(8) 8.2%
Elizabeth M. Eveillard (1)................................... 2,000 *
Jonah Gitlitz (1)............................................ 0 *
Richard A. Berman (1)........................................ 0 *
Leo Salon (1)................................................ 555,348(2)(9) 5.5%
William E. Phillips (1)...................................... 26,500(10) *
Bert W. Wasserman (1)........................................ 12,500(11) *
Laura L. Zambano (1)......................................... 57,371(12) *
Larry R. Blum (1)............................................ 50,834(12) *
Robert S. Mednick (1)........................................ 22,001(13) *
Lillian Menasche Vernon Foundation, Inc. (14)................ 536,098 5.3%
All Executive Officers and Directors as a group (17 persons). 4,670,967(15) 46.4%
</TABLE>
- ------------
* Less than 1%.
(1) The address of the stockholders is 543 Main Street, New Rochelle, New
York 10801.
(2) Includes 536,098 Shares owned by the Lillian Menasche Vernon
Foundation (the "Foundation"). Lillian Vernon, Leo Salon and Fred
Hochberg are three of the directors of the Foundation.
(3) Includes options to purchase 140,000 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(4) Includes options to purchase 37,800 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(5) Includes 85,000 shares of Common Stock held by the David Hochberg
Foundation. David Hochberg is the sole trustee of the David Hochberg
Foundation.
(6) Includes options to purchase 60,834 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
7
<PAGE>
(7) The address of Fred P. Hochberg is c/o The Heyday Company, 101 Fifth
Avenue, New York, New York 10003.
(8) Includes options to purchase 5,000 shares which are presently
exercisable.
(9) Includes options to purchase 17,000 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(10) Includes options to purchase 21,500 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(11) Includes options to purchase 7,500 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(12) Includes options to purchase 45,834 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(13) Includes options to purchase 17,501 shares which are presently
exercisable or which become exercisable within 60 days of the date
hereof.
(14) The address of the Foundation is c/o Salon, Marrow & Dyckman, LLP,
685 Third Avenue, New York, New York 10017.
(15) Includes 536,098 shares owned by the Lillian Menasche Vernon
Foundation, of which Lillian Vernon, Fred Hochberg, and Leo Salon are
directors. Includes 85,000 shares owned by the David Hochberg
Foundation, of which David Hochberg is the trustee. Includes options
to purchase 551,472 shares which are presently exercisable or which
become exercisable within 60 days of the date hereof.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of June 1, 1998, the beneficial
ownership of the Company's shares by persons who are believed to beneficially
own more than 5% of the Shares of the Company.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES OUTSTANDING
AND OPTIONS
NAME AND ADDRESS AMOUNT OF SHARES EXERCISABLE
OF BENEFICIAL OWNER BENEFICIALLY OWNED WITHIN 60 DAYS
- ------------------- ------------------ --------------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc.(1).. 850,075(2) 8.4%
Gabelli Funds, Inc.(3)............... 925,900(4) 9.2%
</TABLE>
- ------------
(1) The address of Sanford C. Bernstein & Co., Inc., is 767 Fifth Avenue,
New York, New York 10153.
(2) Number of shares is based upon representations made by Sanford C.
Bernstein & Co., Inc.
(3) The address of Gabelli Funds, Inc., is One Corporate Center, Rye, New
York 10580-1434.
(4) Number of shares is based upon an amended Schedule 13-D filed by
Gabelli Funds, Inc. and affiliates, dated May 29, 1998. The shares
include shares owned by entities that may be deemed to be controlled or
under the control of Gabelli Funds, Inc.
8
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company, to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (determined as of February 28, 1998) (the
"Named Executive Officers") for the Company's last three fiscal years:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ------------------------------------------
FISCAL OTHER RESTRICTED LONG TERM
YEAR ANNUAL STOCK NUMBER OF INCENTIVE PLAN ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY(1) BONUS COMPENSATION(2) AWARD(S)(4) OPTIONS PAYOUTS COMPENSATION(5)
- --------------------------- ------- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lillian Vernon 2/28/98 $520,000 $ 0 $463,450(3) $ 0 0 $ 0 $215,551
Chairman of the Board and 2/22/97 520,000 0 0 0 0 0 221,140
Chief Executive Officer 2/24/96 520,000 0 0 0 0 0 225,199
Howard P. Goldberg (6) 2/28/98 $350,000 $ 38,000 $ 0 $ 0 0 $ 0 $ 8,212
President and 2/22/97 310,962 125,000(7) 0 136,300(8) 75,000 0 5,057
Chief Operating Officer 2/24/96 0 0 0 0 0 0 0
Larry R. Blum (9) 2/28/98 $288,846 $ 65,000 $ 29,679(10) $ 0 17,500 $ 0 $ 8,212
Executive Vice President 2/22/97 275,921 0 0 0 12,500 0 8,050
2/24/96 251,988 0 0 0 15,000 0 8,250
Laura L. Zambano 2/28/98 $288,846 $ 64,000 $ 0 $ 0 17,500 $ 0 $ 9,975
Executive Vice President 2/22/97 275,992 0 0 0 12,500 0 9,688
Merchandising 2/24/96 227,404 0 0 0 15,000 0 9,771
Robert S. Mednick (11) 2/28/98 $235,385 $ 21,000 $ 0 $ 0 15,000 $ 0 $ 8,212
Vice President 2/22/97 144,519 0 21,499(12) 61,250(13) 25,000 0 1,385
Chief Financial Officer 2/24/96 0 0 0 0 0 0 0
</TABLE>
- ------------
(1) Consists of base salaries. No amounts were deferred at the election of
the executive officers.
(2) Perquisites to any executive officer (except as noted) did not exceed,
for such individual, the lesser of $50,000 or 10% of compensation.
(3) Represents payment of deferred compensation from fiscal years
1986-1989.
(4) The value of each restricted stock award reflects the closing price of
the stock on the date of grant. Dividends on shares of restricted stock
are paid at the same time and at the same rate as dividends on the
Company's unrestricted common stock. The aggregate number and value of
the restricted stock holdings of the Named Executive Officers are
disclosed in Notes 8 and 13 below.
9
<PAGE>
(5) All Other Compensation consists of employer contributions pursuant to
the Company's Profit Sharing/401-k Plan (current year profit sharing
amounts estimated), compensation related to split-dollar life insurance
premiums, and above-market earnings on deferred compensation, in the
following amounts:
<TABLE>
<CAPTION>
401(K)
PROFIT MATCHING SPLIT-DOLLAR ABOVE-MARKET
SHARING CONTRIBUTION LIFE INSURANCE EARNINGS
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Lillian Vernon...... 2/28/98 $ 0 $ 0 $21,627 $193,924
2/22/97 0 0 19,877 201,263
2/24/96 0 0 18,266 206,933
Howard P. Goldberg.. 2/28/98 $3,462 $4,750 $ 0 $ 0
2/22/97 2,230 2,827 0 0
2/24/96 0 0 0 0
Larry R. Blum....... 2/28/98 $3,462 $4,750 $ 0 $ 0
2/22/97 3,550 4,500 0 0
2/24/96 3,750 4,500 0 0
Laura L. Zambano.... 2/28/98 $3,462 $4,750 $ 1,763 $ 0
2/22/97 3,550 4,500 1,638 0
2/24/96 3,750 4,500 1,521 0
Robert S. Mednick... 2/28/98 $3,462 $4,750 $ 0 $ 0
2/22/97 0 1,385 0 0
2/24/96 0 0 0 0
</TABLE>
(6) The Company entered into an employment agreement with Mr. Goldberg on
March 13, 1996. Mr. Goldberg's employment agreement, which has an
initial term of three years, provides for an annual base salary of
$350,000. The Board may award Mr. Goldberg an annual bonus of up to 50%
of his annual base salary, and agreed to pay Mr. Goldberg a bonus of at
least $75,000 for the fiscal year ending February 22, 1997. The Company
also paid Mr. Goldberg a $50,000 bonus upon signing of the employment
agreement.
(7) Bonus amount includes a $50,000 bonus paid in March 1996 upon signing
of employment agreement, and an annual bonus of $75,000 accrued for the
fiscal year ended February 22, 1997 (see Note 6).
(8) The 10,000 shares of restricted stock were issued on March 29, 1996,
when the value of such shares, based on the stock's closing price of
$13.63, was $136,300. The stock vested over two years; 5,000 shares
vested on March 29, 1997, when the value of such shares, based on the
stock's closing price of $14.00, was $70,000; the remaining 5,000
shares vested on March 29, 1998, when the value of such shares, based
on the stock's closing price of $17.50, was $87,500.
(9) The Company entered into an employment agreement with Mr. Blum on March
1, 1995. Mr. Blum's employment agreement, which has an initial term of
three years, provides for an initial base salary of $250,000. The Board
may award Mr. Blum an annual bonus of up to 50% of his annual base
salary.
(10) Represents forgiveness of balance due on loan principal and interest.
The loan was made to Mr. Blum by the Company to exercise stock options
in fiscal years 1995 and 1996.
(11) The Company entered into an employment agreement with Mr. Mednick on
May 30, 1996. Mr. Mednick's employment agreement, which had an initial
term of one year, commencing June 27, 1996, provided for an annual base
salary of $225,000. The Board may award Mr. Mednick an annual bonus of
up to 40% of his annual base salary. This agreement was extended for
one year on June 27, 1997.
(12) Includes $17,286 related to relocation expenses.
(13) The 5,000 shares of restricted stock were issued on June 27, 1996, when
the value of such shares, based on the stock's closing price of $12.25,
was $61,250. The stock vested on June 27, 1997, when the value of such
shares, based on the stock's closing price of $16.50, was $82,500.
10
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth information concerning grants of stock
options to the Named Executive Officers during the Company's fiscal year
ended February 28, 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
OF
STOCK PRICE
% OF TOTAL APPRECIATION
OPTIONS GRANTED FOR OPTION TERM(1)
NUMBER OF OPTIONS TO EMPLOYEES EXERCISE PRICE ------------------------
NAME GRANTED IN FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- ---- ----------------- ---------------- --------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lillian Vernon 0 -- -- -- -- --
Howard P. Goldberg 0 -- -- -- -- --
Larry R. Blum 5,000(2) 2.39% $13.63 April 17, 2007 $ 42,879 $108,736
12,500(3) 5.97% $16.69 September 22, 2007 $131,400 $333,690
Laura L. Zambano 5,000(2) 2.39% $13.63 April 17, 2007 $ 42,879 $108,736
12,500(3) 5.97% $16.69 September 22, 2007 $131,400 $333,690
Robert S. Mednick 2,500(2) 1.19% $13.63 April 17, 2007 $ 21,440 $ 54,368
12,500(3) 5.97% $16.69 September 22, 2007 $131,400 $333,690
</TABLE>
- ------------
(1) In accordance with SEC rules, these columns show gains that might exist
for the respective options over a period of ten years. This valuation
is hypothetical; if the stock price does not increase above the
exercise price, compensation to the Named Executive Officers will be
zero. There is no guarantee that if and when the options are exercised,
they will have these values.
(2) One third of the options are exercisable on April 17, 1998, 1999, and
2000, respectively.
(3) One third of the options are exercisable on September 23, 1998, 1999,
and 2000, respectively.
11
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise of
options by the Named Executive Officers during the Company's fiscal year
ended February 28, 1998, and the value of unexercised options held by the
Named Executive Officers as of the end of the fiscal year:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END YEAR-END(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME OF INDIVIDUAL ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------ --------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
Lillian Vernon 0 $ 0
Exercisable 140,000 $304,200
Unexercisable 0 $ 0
Howard P. Goldberg 0 $ 0
Exercisable 25,000 $ 93,750
Unexercisable 50,000 $187,500
Larry R. Blum 0 $ 0
Exercisable 59,167 $181,860
Unexercisable 30,833 $ 83,290
Laura L. Zambano 15,000 $52,500
Exercisable 44,167 $108,660
Unexercisable 30,833 $ 83,290
Robert S. Mednick 0 $ 0
Exercisable 8,333 $ 42,748
Unexercisable 31,667 $103,502
</TABLE>
- ------------
(1) Calculated using the fair market value of shares at the close of the
market on February 27, 1998, of $17.38.
12
<PAGE>
DIRECTOR COMPENSATION
The Company pays Messrs. Salon, Gitlitz and Berman and Ms. Eveillard an
annual retainer of $20,000, and William Phillips and Bert W. Wasserman,
Chairpersons of the Compensation and Audit Committees, respectively, an
annual retainer of $22,500. Additionally, all non-employee Directors receive
$1,000 (plus expenses) per Board meeting attended and $1,000 (plus expenses)
per Committee meeting attended.
The Company has a Stock Option Plan for Non-Employee Directors, which
provides that as of the date of each Annual Meeting that occurs while this
plan is in effect, each individual who is a non-employee director be granted
an option to purchase 2,500 shares of Common Stock of the Company at an
exercise price equal to 100% of the fair market value per share of Common
Stock on the day the option is granted. The Company has proposed to amend the
current option plan to provide for a grant of options to purchase not less
than 2,500, nor more than 5,000 shares of Common Stock to non-employee
directors on the date of appointment to the Board of Directors, as well as on
the date of each Annual Meeting. Such options will have an exercise price
equal to 100% of the fair market value per share of Common Stock on the day
the option is granted. See Proposal 4 herein.
On December 18, 1997 the Board of Directors granted options, outside of
any option plan, to Ms. Eveillard and Messrs. Wasserman, Gitlitz and Berman
to each purchase 2,500 shares of Common Stock at an exercise price of $15.75
per share. Ms. Eveillard and Messrs Wasserman, Gitlitz and Berman were all
appointed to the Board of Directors after the date of the annual meeting in
the year of their appointments, and thus did not receive any options at that
time.
In fiscal 1998, Messrs. Phillips, Salon, Wasserman and Ms. Lilyan
Affinito, a former Board member, each received options to purchase 2,500
shares at an exercise price of $17.00, pursuant to the Stock Option Plan for
Non-Employee Directors.
CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Company presently occupies a 41,000 square foot corporate headquarters
facility in New Rochelle, New York, pursuant to a sublease between the
Company and Fred P. and David C. Hochberg. David Hochberg is an executive
officer and a director of the Company. Fred P. Hochberg was a director of the
Company through November 20, 1995, and continues to be a significant
stockholder of the Company. The sublease is a net lease and the Company,
besides paying an annual rental of $429,788, is responsible for all real
estate taxes, insurance and other expenses associated with the operation and
maintenance of the premises, including repairs, which expenses amounted to
approximately $150,000 in fiscal 1998. The sublease expires on July 30, 1998.
The Company has entered into a sublease with a non-affiliated party for a
65,000 square foot headquarters facility located in Rye, New York. The
Company will relocate to the new facility in July, 1998.
13
<PAGE>
Effective February 27, 1985, Fred P. Hochberg entered into a deferred
compensation agreement with the Company that provided for deferred
compensation for four years commencing in fiscal 1986. This agreement, as
amended, provides that his retirement benefit is $5,525,000, payable over a
10 year period commencing 2017, and that his death benefit calculated as of
February 28, 1998 was $1,736,552. The agreement further provides that these
payments are due Mr. Hochberg or his beneficiaries whether or not he is
employed by the Company.
Effective February 27, 1985, David C. Hochberg entered into a deferred
compensation agreement with the Company that provided for deferred
compensation for four years commencing in fiscal 1986. This agreement, as
amended, provides that his retirement benefit is $3,540,000, payable over a
10 year period commencing 2022, and that his death benefit calculated as of
February 28, 1998 was $867,903. The agreement further provides that these
payments are due Mr. Hochberg or his beneficiaries whether or not he is
employed by the Company.
Leo Salon is senior partner of Salon, Marrow & Dyckman, LLP, which firm
provides legal services to the Company. In fiscal 1998, the Company paid
$530,934 in legal fees to Salon, Marrow & Dyckman, LLP.
In fiscal 1995 and 1996, the Company made loans to Larry Blum, aggregating
$156,064. The loans were made to Mr. Blum to enable him to exercise stock
options which were expiring and to enable him to pay the required taxes due
upon the vesting of certain restricted stock. On July 1, 1997, the balance of
the loans and accrued interest ($29,679) was forgiven by the Company. The
forgiveness has been treated as compensation to Mr. Blum.
On March 13, 1996, the Company entered into a three-year employment
agreement with Howard Goldberg, President and Chief Operating Officer. The
agreement provides for an annual base salary of $350,000, 75,000
non-qualified stock options which are exercisable over a three year period,
commencing on March 29, 1997, and 10,000 shares of restricted stock, of which
5,000 shares vested on March 29, 1997, and the remaining 5,000 shares vested
on March 29, 1998. Additionally, the Company paid Mr. Goldberg a $50,000
bonus upon the signing of the agreement. The Board may award Mr. Goldberg an
annual bonus of up to 50% of his annual base salary, and agreed to pay Mr.
Goldberg a bonus of at least $75,000 for the fiscal year ending February 22,
1997. In the event that Mr. Goldberg is dismissed by the Company without
"cause", as that term is defined in his employment agreement, the Company is
obligated to pay him 100% of his base salary until the earlier of (i) March
28, 1999, (ii) the date which is twenty-four months after the date of such
termination or (iii) the date he becomes employed by or becomes a consultant
to a competitor of the Company.
On May 30, 1996, the Company entered into a one year employment agreement
(which term commenced on June 27, 1996) with Robert S. Mednick, Vice
President and Chief Financial Officer. The agreement provides for a base
salary of $225,000, 25,000 non-qualified stock options, which are exercisable
over a three year period commencing June 27, 1997 and 5,000 shares of
restricted stock which
14
<PAGE>
vested on June 27, 1997. The Board may award Mr. Mednick an annual bonus of
up to 40% of his annual base salary. Mr. Mednick's employment agreement was
extended for one year on June 27, 1997.
In July 1997, the Company entered into agreements with certain members of
the Company's senior management (the "Executives"). The agreements provide,
in part, that if there is a change of control (as defined in the agreement)
on or prior to June 30, 2002 and the Executive is terminated (i) without
cause by the Company within two years of the change of control; or (ii)
without cause by the Company after the execution of the agreement, but prior
to the change in control and the change of control occurs within 6 months of
the agreement; or (iii) with good reason (as defined in the agreement) by the
Executive within two years of the change of control, the Executive shall be
paid a lump sum on the termination date. The lump sum is based upon the time
elapsed since the change of control, the Executive's termination date, and a
formula starting at 200% of the Executive's adjusted income, as defined in
the agreement, if 0-12 months have elapsed, and decreasing, in stages, to 0%
if more than 24 months have elapsed since the change in control.
Additionally, the agreements provide that after a change of control has
occurred, while its stock remains publicly traded, the Company will honor,
whether vested or not, the Executive's exercise of all of his or her stock
options. In the event that the Company's shares are not publicly traded after
the change of control, the Company will pay the Executive an amount,
calculated as set forth in the agreements, which is the equivalent of the
economic value of such options.
REPORT OF THE COMPENSATION COMMITTEE
The Report of the Compensation Committee and the Performance Graph herein
shall not be incorporated by reference into any filing, notwithstanding
anything to the contrary set forth in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934 that might incorporate future filings in whole or in part, including
this Proxy Statement.
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of independent, non-employee directors. The Committee is
responsible for setting and administering the Company's employee compensation
plans, subject to the approval of the Board of Directors. The Committee
applies a philosophy based on the premise that the achievements of the
Company result from the coordinated efforts of all individuals working toward
common objectives.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance, and to enable the Company to attract,
retain and reward competent executives who contribute to the long-term
success of the Company.
o The Company pays competitively. The Company is committed to providing
a compensation program that helps attract and retain highly competent
executive officers. To ensure that pay is
15
<PAGE>
competitive, the Company regularly compares its pay practices with those
of other leading companies in the retail and direct mail catalog
industries.
o The Company pays for sustained and improved performance. Executive
officers are rewarded based upon corporate performance and individual and
team goals. Each year the Committee approves an incentive compensation
plan (Performance Unit Plan) which establishes a dollar bonus pool and
guidelines for bonus payments based upon per share earnings. Performance
is evaluated by reviewing the individual's performance against both
quantitative and qualitative objectives.
o The Company encourages stock ownership by management. The Company
believes stock ownership by management fosters an interest in the
enhancement of stockholder value and thus aligns management's interest
with that of the stockholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Lillian Vernon, the Chairman of the Board and Chief Executive Officer,
founded the Company forty-seven years ago. She has played and continues to
play a pivotal role in the Company and its development. She is involved in
all aspects of the Company's business. In determining Miss Vernon's total
compensation, the Committee considered her leadership and contributions to
the Company during fiscal 1998. In 1992, the Company extended Miss Vernon's
employment agreement for five years. By its provisions, at the end of its
term, the employment agreement continues at will, terminable upon ninety (90)
days written notice. Miss Vernon currently receives a base salary of $520,000
per annum. Her salary is reviewed annually by the Committee and may be
increased at the Board of Directors' discretion. In reviewing Miss Vernon's
base salary, the Board of Directors considers the base salaries paid to the
chief executive officers of other companies in the retail and direct mail
catalog industry. In addition, the Board of Directors, upon the
recommendation of the Committee, may award a bonus to Miss Vernon. The
employment agreement also provides for the full payment of salary to Lillian
Vernon for a two year period should she become disabled and unable to perform
her duties.
Miss Vernon's compensation is tied to the performance of the Company,
specifically earnings per share. Miss Vernon declined to receive a bonus in
fiscal 1998. In fiscal 1997, the Company did not meet the specific goals
previously established by the Board of Directors. The Compensation Committee,
with the approval of the Board of Directors and at the request of Miss
Vernon, did not award her a bonus.
Miss Vernon is eligible to participate in the Company's stock option
program and other benefit plans, as are all other executives of the Company.
Effective February 27, 1985, Lillian Vernon entered into a deferred
compensation agreement with the Company which provided for deferred
compensation for four years commencing in fiscal 1986. Lillian Vernon's
Deferred Compensation Agreement, which was amended on April 30, 1992,
provides that her retirement benefit is $4,634,500 payable over a ten year
period commencing 1997.
16
<PAGE>
Her death benefit consists of the remaining portion of the deferred
compensation payments at the time of her death.
COMPENSATION VEHICLES
The Company uses a total compensation program that consists of cash and
equity based compensation.
Cash Based Compensation
Salary
Individual salary determinations of the Company's executive officers are
based on experience, sustained performance and comparison to peers inside and
outside the Company.
Bonus-Performance Unit Plan
As previously discussed, under the Company's Performance Unit Plan, the
Committee establishes a dollar bonus pool and guidelines for bonus payments
based upon per share earnings. Corporate vice presidents, department
directors and managers participate in the Performance Unit Plan. Generally,
payments are based in part upon the achievement of corporate goals and in
part upon achievement of individual and team goals. Bonus compensation may be
paid in cash or in shares of the Company's Common Stock, at the Company's
option. While the Company's fiscal 1998 results reflected a significant
improvement in earnings per share compared to the prior year's results, due
to various factors, earnings did not fully meet the specific goals previously
established by the Board of Directors. However, the Board, cognizant that
certain factors beyond the control of management affected earnings, wished to
recognize the efforts of management and awarded performance bonuses
aggregating approximately $810,000 to the Company's management.
Profit-Sharing Plan
The Company maintains a profit-sharing plan for the benefit of all
employees, including its executive officers, who have met certain minimum
service requirements. The Company's annual contribution is discretionary, as
determined by the Board of Directors.
The Company's profit-sharing plan also includes an employee contribution
and employer matching contribution (401(k)) feature. Under the 401(k) feature
of the plan, eligible employees may make pre-tax contributions up to 10% of
their annual compensation. Employee contributions of up to 6% of compensation
are currently matched by the Company at a rate of 50%.
Equity Based Compensation
Restricted Stock and Stock Options
The purpose of these programs is to provide additional incentives to
employees to work to maximize stockholder value. The restricted stock and
stock option plans are administered by the Committee, which
17
<PAGE>
has the authority to determine the individuals to whom, the times at which
options and/or restricted stock may be granted or awarded and the number of
shares to be covered by each such grant or award. The Company may grant stock
options and restricted stock awards to the Company's management -the officers
and departmental directors. Stock options are granted to executive officers
in amounts based upon levels of organization within the Company. The programs
also utilize vesting periods, which are determined by the Committee, to
encourage key employees to continue in the employ of the Company.
The Compensation Committee: William E. Phillips
Jonah Gitlitz
Bert W. Wasserman
PERFORMANCE GRAPH
Set forth below is a performance graph that shows the cumulative total return
(assuming dividend reinvestment) on the Company's Common Stock compared with
the cumulative total return of the Standard & Poor's 500 Stock Index and the
Standard & Poor's Specialty Retail Index for the period of the Company's last
five fiscal years (February 1993 = 100):
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG LILLIAN VERNON, S&P 500, AND S&P SPECIALTY RETAIL
<TABLE>
<CAPTION>
LILLIAN VERNON S&P SPECIALTY
CORPORATION S&P 500 RETAIL
-------------------------------------------------------
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 139.45 108.34 101.57
1995 149.58 116.31 96.39
1996 113.93 156.68 94.27
1997 105.91 197.67 107.83
1998 149.94 266.86 113.93
</TABLE>
The Board of Directors recognize that the market price of stock is influenced
by many factors, only one of which is company performance. The stock price
performance shown on the graph is not necessarily indicative of future price
performance.
18
<PAGE>
2. RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to stockholder ratification, the Board of Directors has appointed
the firm of Coopers & Lybrand L.L.P. as independent auditors for the fiscal
year ending February 27, 1999. Coopers & Lybrand L.L.P. has audited the
accounts of the Company since fiscal year 1985. If the stockholders do not
ratify this appointment, other certified public accountants will be
considered by the Board.
A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Annual Meeting and will be available to respond to questions.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the 1998 Annual Meeting and entitled
to vote is required to ratify the appointment of Coopers & Lybrand L.L.P. as
independent auditors for the fiscal year ended February 27, 1999.
The Board of Directors recommends a vote "FOR" ratifying the appointment
of Coopers & Lybrand L.L.P.
3. PROPOSAL TO ADOPT THE EMPLOYEE STOCK PURCHASE PLAN
On February 24, 1998 the Board of Directors, subject to the approval of
the Company's stockholders, adopted a new Employee Stock Purchase Plan
("Purchase Plan"). The Board reserved 100,000 shares of Common Stock for the
Purchase Plan. The Company's prior Employee Stock Purchase Program terminated
in fiscal 1998 upon the utilization of the shares reserved for the Program.
Pursuant to the Purchase Plan, shares of the Company's Common Stock will be
offered to eligible employees, at a discount of up to 15% from the prevailing
market price. The Board of Directors believes that the Purchase Plan will act
as an incentive to encourage stock ownership by employees of the Company by
acquiring or increasing their proprietary interest in the Company. The
Purchase Plan is designed to encourage eligible employees to remain in the
employ of the Company.
SUMMARY OF EMPLOYEE STOCK PURCHASE PLAN
The following summary of the Employee Stock Purchase Plan is qualified in
its entirety by the complete text of the Employee Stock Purchase Plan, which
is annexed hereto as Exhibit "A".
Administration of the Purchase Plan
The Purchase Plan is administered by the Compensation Committee (the
"Committee"). At the present time, the Committee is composed of the following
directors: William E. Phillips (Chairman), Bert W. Wasserman and Jonah
Gitlitz.
From time to time the Board of Directors or the Committee may grant to
each eligible employee who is a participant in the Purchase Plan, options to
purchase shares of Common Stock during a period to be established by the
Board or the Committee (the "Payment Period").
19
<PAGE>
Shares Available for Distribution
The Company has reserved 100,000 shares for issuance under the Purchase
Plan. Such number of shares is subject to increase or decrease by reason of
stock splits, reclassifications, stock dividends, changes in par value and
the like. The shares subject to the Purchase Plan shall be authorized and
unissued shares of Common Stock or shares reacquired by the Company,
including shares purchased in the open market and shares held as treasury
stock.
Amendment to the Purchase Plan
The Purchase Plan may be terminated at any time by the Board of Directors.
It will terminate when all or substantially all of the shares of Common Stock
reserved for the purposes of the Purchase Plan have been purchased. If at any
time the number of shares reserved for the Purchase Plan are not in
sufficient number to satisfy all of the unfilled purchase requirements, the
available shares shall be apportioned among participants in proportion to
their options and the Purchase Plan will terminate. Upon termination of the
Purchase Plan, all payments not used to purchase stock will be refunded. The
Board of Directors may amend the Purchase Plan, but no amendment may (i)
increase the number of shares to be offered under the Purchase Plan or (ii)
change the class of employees eligible to receive options under the Purchase
Plan.
Interpretation
The interpretation and construction by the Committee of any provisions of
the Purchase Plan or of any option granted under the Purchase Plan shall be
final unless otherwise determined by the Board of Directors.
Eligibility
All employees of the Company and any of its participating subsidiaries,
shall be eligible to receive options under the Purchase Plan to purchase the
Company's Common Stock, except:
(i) employees who have been employed less than two years;
(ii) employees whose customary employment is 20 hours or less per week; or
(iii) employees whose customary employment is for not more than five
months in any calendar year.
Any employee who has satisfied the eligibility requirements under the
Company's Profit Sharing Plan shall be eligible to receive options under the
Purchase Plan to purchase the Company's Common Stock. Notwithstanding the
above, any employee who is a "highly compensated employee" as that term is
defined by Section 414(q) of the Code, and who is an executive officer and/or
vice president of the Company is not eligible to participate in the Purchase
Plan. An employee is eligible to participate in the Purchase 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
20
<PAGE>
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 were participants in the Company's Profit Sharing
Plan on January 1, 1998 are automatically eligible to participate in the
Purchase Plan. An eligible employee who is re-employed after a break in
service and the number of consecutive one-year breaks in service equals or
exceeds 5, shall have to satisfy the aforementioned requirements. Otherwise a
re-employed employee becomes an eligible employee on the first day of the
calendar quarter following his or her re-employment date. No options will be
granted to any employee if he or she owns five percent or more of the total
combined voting power of all classes of stock of the Company.
Payment Periods and Option Price
From time to time, the Board of Directors or the Committee may grant to
each eligible employee options to purchase, during the Payment Period, the
Company' Common Stock at an Option Price established by the Board or the
Committee. In no event may the option period exceed twenty-seven (27) months.
The Board or the Committee shall have the discretion to determine the number
of options granted at a particular time. Any options granted shall be
allocated equally to each Purchase Plan participant. A participant who has
received an option may purchase shares of Common Stock by exercising any and
all options granted to him or her during the Payment Period. The Payment
Period for the grant shall be established by the Board or the Committee at
the time of each grant.
The Option Price for each Payment Period shall be no less than 85% of the
average market price of the Common Stock on the last business day of the
fiscal quarter, rounded up to avoid fractions other than 1/4, 1/2 and 3/4.
The average market price is the average of the high and low prices of the
Common Stock as traded on the American Stock Exchange. Business day for the
purposes of the Purchase Plan means a day on which there is trading on a
national securities exchange.
No employee shall be granted an option which permits his or her rights to
purchase Common Stock to accrue at a rate which exceeds $25,000 of such stock
for each calendar year in which such option is outstanding.
Termination of Rights
An employee's rights under the Purchase Plan terminates when he or she
ceases to be an employee of the Company because of retirement, resignation,
layoff, discharge, death, change of status or for any other reason.
Transferability
Employee's rights under the Purchase Plan are non-transferable.
Exercise of Options
Employees will be deemed to have exercised all or a portion of his or her
grant of options by (i) tendering payment in cash or such other medium
acceptable to the Committee; and (ii) by completing such administrative forms
as prescribed by the Committee. The purchase price and the completed forms
must be completed and tendered before the last business day of the Payment
Period for a particular grant.
21
<PAGE>
Re-Offer of Shares
Although the Purchase Plan is intended to provide Common Stock to
employees for investment and not resale, the Company does not intend to
restrict or influence any employee in the conduct of his or her own affairs.
The Company intends to file a registration statement registering the shares
reserved for the Purchase Plan shortly after the adoption of the Purchase
Plan by the Company's stockholders. Upon the filing and effectiveness of the
registration statement, an employee may sell stock purchased under the
Purchase Plan at any time he or she chooses. Due to certain Federal tax
requirements, each employee pursuant to the Purchase Plan, will agree to give
the Company notice of any sales of stock by the employee within two years of
the grant of the option or within one year of the exercise of the option,
showing the number of shares of stock sold.
Federal Income Tax Considerations
The Company intends the Employee Stock Purchase Plan to qualify as a Code
Section 423(b) Plan. Accordingly, if the employee does not dispose of the
stock acquired through the Purchase Plan within two years from the date of
the granting of the option to purchase and within one year from that date
that such option to purchase is exercised, then no income will be realized by
the employee either at the time of the grant of the option or when the shares
are actually acquired. Where the option price for the stock is between 85%
and 100% of the fair market value of the stock at the time the option was
granted, the employee realizes ordinary income to the extent of the lesser of
(i) the amount by which the fair market value of the stock at the time the
option was granted exceeds the option price; or (ii) the amount by which the
fair market value of the stock at the time of disposition of the stock
exceeded the price paid. Any remaining gains, representing appreciation that
has occurred from the date the stock was acquired to the date the stock was
disposed of, will be taxed at capital gain rates.
The Company will not be entitled to a deduction at the grant or exercise
date.
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding is required to approve the adoption of the Employee Stock
Purchase Plan.
The Board of Directors recommends a vote "FOR" the adoption of the
Employee Stock Purchase Plan.
4. PROPOSAL TO ADOPT AMENDMENTS TO THE 1997 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
On April 21, 1998, the Board of Directors adopted, subject to the approval
of stockholders, amendments to the 1997 Stock Option Plan for Non-Employee
Directors (the "Non-Employee Directors Plan"). The Board of Directors adopted
an amendment which provides that non-employee Directors will receive options
to purchase shares of Common Stock upon their appointment to the Board of
Directors, in addition to the grant of options presently provided for on the
date of the Annual Meeting. Additionally, the Board of Directors has amended
the Non-Employee Directors Plan to provide that the number of shares included
in each grant be at least 2,500 shares and not more than 5,000 shares, such
number to be determined by the members of the Board of Directors who are not
eligible to receive grants pursuant to the Non-Employee Directors Plan.
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The Board also amended the Non-Employee Directors Plan to modify the
definition of the directors who are eligible to receive non-employee director
options to comply with changes made by the Securities and Exchange Commission
to Rule 16b-3 of the Securities Exchange Act of 1934.
The Board of Directors also increased the number of shares of stock which
may be granted or awarded under the Non-Employee Directors Plan, from 50,000
shares to 100,000 shares.
The Non-Employee Directors Plan presently provides for the grant of
options to non-employee directors to purchase 2,500 shares of Common Stock on
the date of the Annual Meeting of Stockholders. When a director is appointed
to the Board of Directors, to fill a vacancy or because of an expansion in
the size of the Board of Directors at a time other than at the Annual
Meeting, such directors do not receive options until the date of the next
Annual Meeting. The Board believes that this situation creates inequities
between newly appointed non-employee directors and existing non-employee
directors and can create an impediment to attracting persons to serve on the
Board. In order to correct the aforementioned situation, the Board adopted
the amendment to the Non-Employee Directors Plan.
Changes in provisions of the securities laws allow the Board of Directors
flexibility in determining the number of shares in each of the options that
are granted to non-employee directors under the Non-Employee Directors Plan.
The Board believes that the flexibility provided by the aforementioned
amendments enhance the Company's ability to attract and retain individuals
who possess varied skills and talents and are persons of exceptional ability,
to serve on its Board.
SUMMARY OF NON-EMPLOYEE DIRECTORS OPTION PLAN
The following summary of the Non-Employee Directors Option Plan is
qualified in its entirety by the complete text of the Non-Employee Directors
Option Plan, which is annexed hereto as Exhibit "B".
Administration
The Board of Directors is authorized to administer the Non-Employee
Directors Option Plan in accordance with its terms. However, the Board shall
have no discretion with respect to the selection of Directors to receive
options, or the exercise price thereunder. The Board has limited discretion,
as more fully described herein, with respect to the number of shares of
Common Stock subject to such options.
Eligibility
An Eligible Director is defined as a Director of the Company who is not an
employee or officer of the Company or its subsidiaries and who does not
receive compensation from the Company for services rendered as a consultant
or in any other capacity other than a director, except for an amount that
would not have to be disclosed under the Federal securities laws (presently
$60,000); does not possess an interest in any other transaction that would
have to be disclosed and is not engaged in a business transaction that would
have to be disclosed. There are currently four Eligible Directors.
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Shares Subject to the Non-Employee Directors Option Plan
An aggregate of 100,000 shares of Common Stock shall be available for
issuance upon the exercise of options granted under the Non-Employee
Directors Option Plan. This number is subject to adjustment in the event of a
stock split, stock dividend, subdivision or combination of the Common Stock
or other changes in corporate structure affecting the Common Stock.
Grant, Term and Conditions of Options
As of the date of the 1998 Annual Stockholders' Meeting, and as of the
date of each of the subsequent four Annual Stockholders' Meetings, each
individual who is then an Eligible Director will be granted an option to
purchase shares of Common Stock. Additionally, each individual who is an
Eligible Director will be granted an option to purchase shares of stock as of
the date that the individual is appointed to the Board of Directors. The
number of shares subject to each such option shall be at least 2,500 shares
but not more than 5,000 shares, such number to be determined by the members
of the Board of Directors who are not eligible to receive options pursuant to
the Plan. The options will be nonstatutory stock options not intended to
qualify under Section 422 of the Code as ISO's. The purchase price per share
of the Common Stock deliverable upon option shall be 100% of the fair market
value per share of Common Stock, on the day the option is granted. Eligible
Directors shall pay the exercise price of the options in either cash or in
Common Stock. The Options granted shall be for a term of not more than 10
years from date of grant. Except as set forth below, options shall be
exercisable in whole or in part one year after the date of grant.
All outstanding options held by an optionee shall automatically be
cancelled upon such optionee's termination of service as an Eligible Director
except in the following circumstances -if such termination of service as an
Eligible Director occurs by reason of (i) declining to stand for re-election
or (ii) becoming an employee of the Corporation or a subsidiary or (iii)
becoming disabled (as defined in the Company's Profit Sharing Plan). All
outstanding options held by such optionee on the date of such termination
shall continue to be fully exercisable for up to five years following the
date of such termination but in no event after the expiration date of the
options. In the event of the death of an optionee (whether before or after
termination of service as an Eligible Director), all outstanding options held
by such optionee and not previously cancelled or expired on the date of death
shall be fully exercisable by such optionee's legal representative within
one-year after the date of death (without regard to the expiration date of
the option specified in accordance with the preceding sentence).
Mergers, Sales and Change of Control
In the case of certain mergers, consolidations or combinations of the
Company with or into other corporations, or in the event of a Change of
Control of the Company as defined in the Non-Employee Directors Option Plan,
the holder of each option then outstanding shall (unless the Board determines
otherwise) have the right to receive, on the date or effective date of such
event, a cash or stock payment in an amount calculated as set forth in the
Non-Employee Directors Option Plan, which is equivalent to the economic value
of the option on such date.
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Plan Amendments
The Non-Employee Directors Option Plan may be amended by the Board as it
shall deem advisable. Without the authorization and approval of the
Stockholders, however the Board may not increase the number of shares which
may be purchased pursuant to options granted under the Non-Employee Directors
Option Plan, change the requirement that option grants be priced at 100% of
fair market value on the date of grant, modify in any respect the class of
individuals who constitute Eligible Directors or materially increase the
benefits accruing to optionees under the Non-Employee Directors Option Plan.
Plan provisions relating to the class of Directors eligible to receive
options under the Non-Employee Directors Option Plan and to the price, amount
and timing of option grants under the Non-Employee Directors Option Plan may
not be amended more than once every six months, other than to comply with
changes in applicable law.
Term of Plan
The amendments to the Non-Employee Directors Option Plan have been
approved by the Board and shall become effective upon approval by the
Stockholders. The Non-Employee Directors Plan shall terminate on the day
following the Annual Stockholders' Meeting held in the year 2002 unless the
Non-Employee Directors Option Plan is extended or terminated at an earlier
date by the stockholders.
Federal Income Tax Consequences
Under present Federal income tax laws, options granted under the
Non-Employee Directors Option Plan would have the following tax consequences.
When an optionee exercises an option, the difference between the option
price and any higher market value of the stock on the date of exercise will
be ordinary income to the optionee and will be allowed as a deduction for
Federal income tax purposes to the Company. When an optionee disposes of
shares acquired by the exercise of the option, any amount received in excess
of the market value of the shares on the date of exercise will be treated as
long or short term capital gain, depending upon the holding period of the
shares. If the amount received is less than the market value of the shares on
the date of the exercise, the loss will be treated as long or short term
capital loss, depending upon the holding period of the shares.
The Non-Employee Directors Option Plan is not subject to any provision of
ERISA and is not qualified under Section 401(a) of the Code.
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding is required to approve the adoption of the amendments to
the Non-Employee Directors Option Plan.
The Board of Directors recommends a vote "FOR" the ratification of the
amendments to the Lillian Vernon Corporation 1997 Stock Option Plan for
Non-Employee Directors.
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5. STOCKHOLDER PROPOSALS FOR THE ANNUAL MEETING
TO BE HELD IN 1999
No person who intends to present a proposal for action at a forthcoming
stockholders' meeting of the Company may seek to have the proposal included
in the proxy statement or form of proxy for such meeting unless that person
(a) is a record beneficial owner of at least 1% or $1,000 in market value of
shares of Common Stock, has held such shares for at least one year at the
time the proposal is submitted, and such person shall continue to own such
shares through the date on which the meeting is held; (b) provides the
Company in writing with his or her name, address, the number of shares held
by him or her and the date upon which he or she acquired such shares with
documentary support for a claim of beneficial ownership; (c) notifies the
Company of his or her intention to appear personally at the meeting or by a
qualified representative under Delaware law to present his or her proposal
for action; and (d) submits his or her proposal timely. A proposal to be
included in the proxy statement or proxy for the Company's next annual
meeting of stockholders will be submitted timely only if the proposal has
been received at the Company's principal executive office no later than
February 5, 1999. If the date of such meeting is changed by more than 30
calendar days from the date such meeting is scheduled to be held under the
Company's By-Laws, or if the proposal is to be presented at any meeting other
than the next annual meeting of stockholders, the proposal must be received
at the Company's principal executive office at a reasonable time before the
solicitation of proxies for such meeting is made.
Even if the foregoing requirements are satisfied, a person may submit only
one proposal of not more than 500 words with a supporting statement if the
latter is requested by the proponent for inclusion in the proxy materials,
and under certain circumstances enumerated in the Securities and Exchange
Commission's rules relating to the solicitation of proxies, the Company may
be entitled to omit the proposal and any statement in support thereof from
its proxy statement and form of proxy.
6. OTHER BUSINESS
So far as the Board of Directors is aware, no matters will be presented at
the Meeting for action on the part of the stockholders other than those
stated in the notice of this meeting.
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K for the year ended February 28, 1998, may be obtained
without charge, by calling or writing David C. Hochberg, Lillian Vernon
Corporation, 543 Main Street, New Rochelle, New York 10801, (914) 637-5624.
By Order of the Board of Directors
Susan C. Handler
Secretary
June 5, 1998
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EXHIBIT A
LILLIAN VERNON CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose
This Employee Stock Purchase Plan (the "Plan") is intended as an incentive
to encourage stock ownership by all eligible employees of Lillian Vernon
Corporation (the "Company") and participating subsidiaries so that they may
share in the success of the Company by acquiring or increasing their
proprietary interest in the Company. The Plan is designed to encourage
eligible employees to remain in the employ of the Company. It is intended
that options issued pursuant to this Plan shall constitute options issued
pursuant to an "employee stock purchase plan" within the meaning of Section
423 of the Internal Revenue Code (the "Code").
2. Eligible Employees
All employees of the Company or any of its participating subsidiaries
shall be eligible to receive options under the Plan to purchase the Company's
Common Stock, except:
(i) employees who have been employed less than two years;
(ii) employees whose customary employment is 20 hours or less per week;
or
(iii) employees whose customary employment is for not more than five
months in any calendar year.
Any employee who has satisfied the eligibility requirements under the
Company's qualified profit sharing plan shall be eligible to receive options
under this Plan to purchase the Company's Common Stock. Notwithstanding the
above, any employee who is a "highly compensated employee" as that term is
defined by Section 414(q) of the Code, and who is an executive officer and/or
vice-president of the Company is not eligible to participate in the Plan. In
no event may an employee be granted an option if such employee, immediately
after the option is granted, owns stock possessing 5 percent or more of the
total combined voting power or value of all classes of stock of the Company
or of its parent corporation or subsidiary corporation, as the term "parent
corporation" and "subsidiary corporation" are defined in Section 424(e) and
(f) of the Code. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply and stock
which the employee may purchase under outstanding options shall be treated as
stock owned by the employee.
3. Stock Subject to the Plan
The stock subject to the options shall be shares of the Company's
authorized but unissued Common Stock or shares of the Company's Common Stock
reacquired by the Company including shares purchased
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in the open market. The aggregate number of shares which may be issued
pursuant to the Plan is 100,000, subject to increase or decrease by reason of
stock split-ups, reclassifications, stock dividends, changes in par value and
the like.
4. Administration of the Plan
The Plan shall be administered by the Compensation Committee (the
"Committee"), which Committee is appointed by the Board of Directors (the
"Board") of the Company . The Committee shall consist of not less than two
members of the Company's Board. The Board may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee,
howsoever caused, shall be filled by the Board. The Committee shall select
one of its members as Chairman, and shall hold meetings at such times and
places as it may determine. Acts by a majority of the Committee, or acts
reduced to or approved in writing by a majority of the members of the
committee, shall be the valid acts of the Committee. No member of the
Committee shall be eligible to participate in the Plan while serving as a
member of the Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of
the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted under it.
5. Payment Periods and Stock Options
From time to time, as the Board or the Committee in its discretion shall
determine, the Board or the Committee may grant to each eligible employee who
is then a participant in the Plan, options to purchase, during the Payment
Period, the Company's Common Stock at an Option Price established by the
Board or the Committee. In no event may the option award exceed twenty-seven
(27) months. The Board or the Committee shall have the discretion to
determine the total number of options which shall be granted at a particular
time; however, any options granted shall be allocated among Plan participants
so that the dollar value of options received by each is the same. A
participant who has received an option grant may purchase shares of the
Common Stock of the Company by exercising any or all of the options granted
to him or her during the Payment Period. The Payment Period for a particular
grant shall be established by the Board or the Committee at the time of each
grant. The Option Price for each Payment Period shall be no less than 85% of
the average market price of the Company's Common Stock on the last business
day of the fiscal quarter, rounded up to avoid fractions other than 1/4, 1/2
and 3/4.
For purposes of this Plan the term "average market price" means, if the
Common Stock is listed on a national securities exchange, the average of the
high and low prices of the Common Stock of the Company on such exchange or
such other national securities exchange as shall be designated by the Board
or Committee or, if the Common Stock is traded in the over-the-counter
securities market, the mean between the bid and asked prices of the Common
Stock.
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For purposes of this Plan the term "business day" as used herein means a
day on which there is trading on any national securities exchange as shall be
designated by the Board or Committee pursuant to the preceding paragraph.
No employee shall be granted an option which permits his or her rights to
purchase Common Stock under the Plan and any similar plans of the Company or
any parent or subsidiary corporations qualified under Section 423 of the Code
to accrue at a rate which exceeds $25,000 of the average market price of such
stock (determined at the time such option is granted) for each calendar year
in which such option is outstanding at any time. The purpose of the
limitation in the preceding sentence is to comply with Section 423(b)(8) of
the Code.
6. Exercise of Option
Each participant in the Plan who has received a grant of options shall be
deemed to have exercised all or any portion of such grant by: (a) tendering
payment in cash, or such other medium acceptable to the Committee; and (b)
completing such administrative forms as may be prescribed by the Committee.
Provided, however, that (a) and (b) above must be completed on or before the
last business day of the Payment Period for a particular grant of options.
7. Issuance of Stock
Certificates for stock issued to participants will be delivered as soon as
practicable after each Payment Period.
Stock purchased under the Plan will be issued only in the name of the
employee, or if his authorization so specifies, in the name of the employee
and another person of legal age as joint tenants with rights of survivorship.
8. No Transfer or Assignment of Employee's Rights
An employee's rights under the Plan are his or hers alone and may not be
transferred or assigned to, or availed of, by any other person. Any option
granted to an employee may be exercised only by him or her.
9. Termination of Employee's Rights
An employee's rights under the Plan will terminate when he or she ceases
to be an employee because of retirement, resignation, layoff, discharge,
death, change of status, or for any other reason.
10. Termination and Amendments to Plan
The Plan may be terminated at any time by the Company's Board. It will
terminate in any case when all or substantially all of the shares of stock
reserved for the purposes of the Plan have been purchased.
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<PAGE>
If at any time shares of stock reserved for the purposes of the Plan remain
available for purchase but not in sufficient number to satisfy all then
unfilled purchase requirements, the available shares shall be apportioned
among participants in proportion to their options and the Plan shall
terminate. Upon such termination or any other terminations of the Plan, all
payments not used to purchase stock will be refunded.
The Board also reserves the right to amend the Plan from time to time, in
any respect provided, however, that no amendment shall be effective without
prior approval of the stockholders, which would (a) except as provided in
Article 3, increase the number of shares of Common Stock to be offered above
or (b) change the class of employees eligible to receive options under the
Plan.
11. Limitations on Sale of Stock Purchased Under the Plan
The Plan is intended to provide common stock for investment and not for
resale. The Company does not, however, intend to restrict or influence any
employee in the conduct of his or her own affairs. Subject to any securities
law restrictions that may apply, an employee may, therefore, sell stock
purchased under the Plan at any time he or she chooses. Due to certain
Federal tax requirements, each employee will agree by exercising an option to
give the Company notice of any such stock disposed of within two years after
the date of the grant of options or within one year of option exercise
showing the number of such shares disposed of. The employee assumes the risk
of any market fluctuations in the price of such stock.
12. Company's Payment of Expenses Related to Plan
The Company will bear all costs of administering and carrying out the
Plan.
13. Participating Subsidiaries
The term "participating subsidiaries" shall mean any subsidiary of the
Company which is designated by the Board to participate in the Plan. The
Board shall have the power to make such designation before or after the Plan
is approved by the stockholders.
14. Optionees Not Stockholders
The granting of an option to an employee shall not constitute such
employee a stockholder of the shares covered by an option until such shares
have been purchased by and issued to him or her.
15. Application of Funds
The proceeds received by the Company from the sale of Common Stock
pursuant to options granted under the Plan will be used for general corporate
purposes.
16. Governmental Regulation
The Company's obligation to sell and deliver shares of the Company's
Common Stock under this Plan is subject to the approval of any governmental
authority required in connection with the authorization, issuance or sale of
such stock.
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17. Withholding of Additional Federal Income Tax
The Company, in accordance with the Internal Revenue Code and the
Regulations and Rulings promulgated thereunder, if it determines that it is
required to do so, may withhold from the wages of participating employees, in
all payroll periods following and in the same calendar year as the date on
which compensation is deemed received by the employee, additional income
taxes in respect of the amount that is considered compensation includible in
the employee's gross income.
18. Approval of Stockholders
The Plan shall not take effect until approved by the holders of a majority
of the outstanding shares of Common Stock of the Company, which approval must
occur within the period beginning 12 months before and ending 12 months after
the date the Plan is adopted by the Board of Directors.
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EXHIBIT B
LILLIAN VERNON CORPORATION
1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of the Lillian Vernon Corporation Stock Option Plan for
Non-Employee Directors (the "Plan") is to increase the proprietary and vested
interest of the non-employee directors of the Lillian Vernon Corporation (the
"Company") in the growth and performance of the Company by granting such
directors options to purchase shares of Common Stock, $.01 par value per
share (the "Stock"), of the Company.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"Board"). Subject to the provisions of the Plan, the Board shall be
authorized to interpret the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Board shall have no discretion with respect to the selection of
directors to receive options under the Plan, the purchase price thereunder or
the timing of grants of options under the Plan. The Board shall have limited
discretion, as provided in paragraph 5 herein, with respect to the number of
shares of stock subject to such options. The determination of the Board in
the administration of the Plan, as described herein, shall be final and
conclusive. The Secretary of the Company shall be authorized to implement the
Plan in accordance with its terms and to take such actions of a ministerial
nature as shall be necessary to effectuate the intent and purposes thereof.
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware.
3. ELIGIBILITY
The class of individuals eligible for grant of options under the Plan
shall be Eligible Directors, as defined below. An Eligible Director shall
mean a director of the Company who is not an employee or an officer of the
Company or its subsidiaries and who does not receive compensation from the
Company for services rendered as a consultant or in any other capacity other
than a director, except for an amount that would not have to be disclosed
pursuant to Regulation 229.404(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), does not possess an interest in any other transactions that
would have to be disclosed pursuant to Regulation 229.404(a) of the Exchange
Act and is not engaged in a business relationship for which disclosure would
be required pursuant to Regulation 229.404(b) of the Exchange Act. Any holder
of an option granted hereunder shall hereinafter be referred to as a
"Participant".
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 6, an aggregate of 100,000
shares of Stock shall be available for issuance upon the exercise of options
granted under the Plan. The shares of Stock deliverable
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<PAGE>
upon the exercise of options may be made available from authorized but
unissued shares or shares reacquired by the Company, including shares
purchased in the open market or in private transactions. If any option
granted under the Plan shall terminate for any reason without having been
exercised, the shares subject to, but not delivered under, such option shall
be available for other options.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS
Each individual who is an Eligible Director will be granted an option to
purchase shares of Stock as of the date of each Annual Stockholders Meeting,
commencing with the Annual Stockholders Meeting following the meeting
approving the Plan. Additionally, each individual who is an Eligible
Director, will be granted an option to purchase shares of stock as of the
date that the individual is appointed to the Board of Directors. The number
of shares subject to each such option shall be at least 2,500 shares but not
more than 5,000 shares, such number to be determined by the members of the
Board who are not eligible to receive options pursuant to the Plan. The
options granted will be nonstatutory stock options, not intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and shall have the following terms and conditions:
(a) Price. The Purchase price per share of Stock deliverable upon the
exercise of each option shall be 100% of the Fair Market Value per share
of the Stock on the date the option is granted. For purposes of this Plan,
Fair Market Value shall be the closing price per share as reported for
consolidated trading of issues listed on the principal securities exchange
where the Stock is traded on the date in question, or, if the Stock shall
not have traded on such date, the closing price per share on the first
date prior thereto on which the Stock was so traded or if the Stock is not
traded on a securities exchange, Fair Market Value shall be deemed to be
the average of the closing bid and asked prices of the Stock in the
over-the-counter-market on the date the option is granted or on the next
preceding date on which such closing bid and asked prices were recorded.
(b) Payment. Options may be exercised only upon payment of the purchase
price thereof in full. Such payment shall be made in cash or in Stock,
which shall have a Fair Market Value (determined in accordance with the
rules of Paragraph (a) above) at least equal to the aggregate exercise
price of the shares being purchased, or a combination of cash and stock.
(c) Exercisability and Term of Options. Options shall be exercisable in
whole or in part at all times during the period beginning one year from
the date of grant. The options granted shall be for a term of not more
than 10 years or until terminated, as provided in Paragraph (d) below.
(d) Termination of Service as Eligible Director.
(i) Except as provided in subparagraph (ii) of this Paragraph (d),
all outstanding options held by a Participant shall be automatically
cancelled upon such Participant's termination of service as an
Eligible Director.
(ii) Upon termination of a Participant's service as an Eligible
Director by reason of such Participant's declining to stand for
reelection, becoming an employee of the Company or a
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subsidiary thereof or becoming disabled (as defined in the Company's
Profit Sharing Plan) all outstanding options held by such Participant
on the date of such termination shall expire up to five years from the
date upon which the Participant ceases to be an Eligible Director but
in no event after the specified expiration date of such option. In the
event of the death of a Participant (whether before or after
termination of service as an Eligible Director), all outstanding
options held by such Participant (and not previously cancelled or
expired) on the date of such death, shall be fully exercisable by the
Participant's legal representative within one year after the date of
death (without regard to the expiration date of the option specified
in accordance with the preceding sentence).
(e) Nontransferability of Options. No option shall be transferable by a
Participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Participant to whom an option
is granted it may be exercised only by the Participant or by the
Participant's guardian or legal representative. Notwithstanding the above,
options may be transferred pursuant to a qualified domestic relations
order.
(f) Listing and Registration. Each option shall be subject to the
requirement that if at any time the Board shall determine, in its
discretion, that the listing, registration or qualification of the Stock
subject to such option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with,
the granting of such option or the issue or purchase of shares thereunder,
no such option may be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any condition not acceptable to the Board.
(g) Option Agreement. Each option granted hereunder shall be evidenced by
an agreement with the Company which shall contain the terms and provisions
set forth herein and shall otherwise be consistent with the provisions of
the Plan.
6. ADJUSTMENT OF AND CHANGES IN STOCK
In the event of a stock split, stock dividend, subdivision or combination
of the Stock or other change in corporate structure affecting the Stock, the
number of shares of Stock authorized by the Plan shall be increased or
decreased proportionately, as the case may be, and the number of shares of
Stock subject to any outstanding option shall be increased or decreased
proportionately, as the case may be, with appropriate corresponding
adjustment in the purchase price per share of Stock thereunder.
7. MERGERS, SALES AND CHANGE OF CONTROL
In the case of (i) any merger, consolidation or combination of the Company
with or into another corporation (other than a merger, consolidation or
combination in which the Company is the continuing corporation and which does
not result in its outstanding Stock being converted into or exchanged for
B-3
<PAGE>
different securities, cash or other property, or any combination thereof) or
a sale of all or substantially all of the assets of the Company or (ii) a
Change in Control (as defined below) of the Company, the holder of each
option then outstanding immediately prior to such Change in Control shall
(unless the Board determines otherwise) have the right to receive on the date
or effective date of such event an amount equal to the excess of the Fair
Market Value on such date of (a) the securities, cash or other property, or
combination thereof, receivable upon such merger, consolidation or
combination in respect of a share of Stock, in the cases covered by clause
(i) above, or in the case of a sale of assets referred to in such clause (i),
a share of Stock, or (b) the final tender offer price in the case of a tender
offer resulting in a Change in Control or (c) the value of the Stock covered
by the option as determined by the Board, in the case of Change in Control by
reason of any other event, over the exercise price of such option, multiplied
by the number of shares of Stock subject to such option. Such amount will be
payable fully in cash or stock.
Any determination by the Board made pursuant to this Section 7 will be
made as to all outstanding options and shall be made (a) in cases covered by
clause (i) above, prior to the occurrence of such event, (b) in the event of
a tender or exchange offer, prior to the purchase of any Stock pursuant
thereto by the offeror and (c) in the case of a Change in Control by reason
of any other event, just prior to or as soon as practicable after such Change
in Control. A "Change in Control" shall be deemed to have occurred if
following (i) a tender or exchange offer for voting securities of the Company
(other than any such offer made by the Company), or (ii) a proxy contest for
the election of directors of the Company, the persons who were directors of
the Company immediately before the initiation of such event (or directors who
were appointed by such directors) cease to constitute a majority of the Board
of Directors of the Company upon the completion of such tender or exchange
offer or proxy contest or within one year after such completion.
8. NO RIGHTS OF SHAREHOLDERS
Neither a Participant nor a Participant's legal representative shall be,
or have any of the rights and privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of any option in whole or
in part, unless and until certificates for such shares shall have been
issued.
9. PLAN AMENDMENTS
The Plan may be amended by the Board, as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of
shareholders; (i) increase the number of shares which may be purchased
pursuant to options hereunder, either individually or in the aggregate, (ii)
change the requirements of Section 5(a) that option grants be priced at Fair
Market Value, (iii) modify in any respect the class of individuals who
constitute Eligible Directors; or (iv) materially increase the benefits
accruing to Participants hereunder. The provisions of Sections 3 and 5 may
not be amended more often than once every six months, other than to comply
with changes in the Code, the Employee Retirement Income Security Act, or the
rules under either such statute.
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<PAGE>
10. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the day following the Company's Annual
Stockholders Meeting at which the Plan is approved by the holders of a
majority of the outstanding shares of common stock of the Company. The Plan
shall terminate on the day following the fifth Annual Stockholders Meeting at
which Directors are elected following the fifth Annual Stockholders Meeting
following the annual stockholders meeting at which the plan was approved by
shareholders, unless the Plan is extended or terminated at an earlier date by
Stockholders.
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<PAGE>
LILLIAN VERNON CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING ON JULY 15, 1998 AT
THE AMERICAN STOCK EXCHANGE, 86 TRINITY PLACE,
NEW YORK CITY, 10:00 A.M.
The undersigned hereby appoints Lillian Vernon and Susan C. Handler and
each of them, the attorneys and proxies of the undersigned, with full powers
of substitution, to vote all shares of stock of Lillian Vernon Corporation
which the undersigned is entitled to vote at the Annual Meeting of
Stockholders thereof, to be held on July 15, 1998 and any adjournments
thereof, with all powers the undersigned would have if present, upon the
proposals set forth on the reverse side and in their discretion on all other
matters properly coming before the meeting, including those described in the
Notice of Meeting of Stockholders and Proxy Statement therefor, receipt of
which is acknowledged.
This Proxy will be voted as directed, or where no direction is given, will
be voted "FOR" Proposals Nos. 1, 2, 3 and 4. If any nominee for the Board of
Directors named in the Proxy Statement is unavailable to serve, this Proxy
will be voted for such substitute nominee as may be recommended by the Board
of Directors. The Board of Directors is not aware of other matters to come
before the meeting.
The Board of Directors recommends a vote "FOR" Proposals 1, 2, 3 and 4.
1. Election of Bert W. Wasserman and Richard A. Berman to serve as
directors for a term expiring in 2001.
<TABLE>
<CAPTION>
<S> <C>
FOR ALL NOMINEES LISTED WITHHOLD AUTHORITY
ABOVE (except as marked to FOR ALL NOMINEES
the contrary below) LISTED ABOVE
- ------------------------------ ----------------------
[ ] [ ]
</TABLE>
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below).
- -----------------------------------------------------------------------------
(CONTINUED, AND TO BE VOTED, SIGNED AND DATED ON THE REVERSE SIDE.)
<PAGE>
P 2. Proposal to approve the appointment of Coopers & Lybrand L.L.P. as the
independent auditors of the Company.
R [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to adopt the Employee Stock Purchase Plan.
O [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to adopt amendments to the 1997 Non-Employee Directors Option
X Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Y 5. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
Dated:
, 1998
------------------------------------
------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
(PLEASE SIGN EXACTLY AS NAME APPEARS
HEREIN. WHEN SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN OR
ATTORNEY, PLEASE GIVE FULL TITLE AS
SUCH. FOR JOINT ACCOUNTS OR
CO-FIDUCIARIES, ALL JOINT OR
CO-FIDUCIARIES SHOULD SIGN.)
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS.
