including specialty shops and department stores, many of which have substantially greater
financial resources than the Company. The Company competes on the basis of its exclusive
product selection, its personalization capabilities, its proprietary customer list, the quality of its
customer service and its unconditional guarantee. Although the Company attempts to market
products not available elsewhere, certain products similar to those marketed by the Company
may be purchased through other mail order catalogs, online, or in retail stores.
Acquisition -- Rue de France, Inc.
On April 6, 2000, the Company completed the purchase of the assets of Rue de France, Inc., a
privately owned catalog and online company based in Newport, Rhode Island. The Company
paid a cash purchase price of $2.8 million. Additionally, the Company agreed to make future
payments contingent upon Rue de France, Inc. achieving certain cumulative earnings before tax
targets during the five year fiscal period of the Company commencing on February 27, 2000. No
such payments have been required to date.
Rue de France, Inc., a 17 year-old retailer of home furnishings and accessories, markets its
products through catalogs, a web site and retail stores in Newport and Portsmouth, Rhode
Island. Rue de France, Inc.'s founder joined Lillian Vernon Corporation under a multi-year
employment contract as President of the subsidiary which acquired the assets of Rue de France,
Inc.
ITEM 2. PROPERTIES
The Company's corporate headquarters and administrative offices are located in a 65,000 square
foot building in Rye, New York. The corporate headquarters includes the executive offices,
merchandising, creative, marketing, Internet and finance departments, as well as the Business to
Business division. This facility is leased under a sublease agreement expiring on January 30,
2005. In addition to base rent, the sublease provides that the Company is responsible for
increases in real estate taxes and operating costs over a base year. The Company has two
renewal options, each for five years, from the owners of the building, an unaffiliated entity,
upon the expiration of the sublease, in 2005.
The Company believes that its headquarters facility is adequate for its anticipated growth needs.
The Company's 821,000 square foot National Distribution Center is located on approximately 61
acres in Virginia Beach, Virginia. The facility, which became fully operational during the summer
of 1988, is owned and operated by the Company's wholly-owned subsidiary, Lillian Vernon
Fulfillment Services, Inc.
The Company also owns a 154,000 square foot building in Virginia Beach, which it utilizes for
additional distribution and warehousing space.
Almost all distribution and warehousing activities, as well as mail order processing, customer
service and most telemarketing activities, are conducted at the Virginia Beach facilities.
8
L I L L I A N V E R N O N
