SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 ss.240.14a-11(c) or ss.240.14a-12
FINLAY ENTERPRISES, INC.
-------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
<PAGE>
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
F I N L A Y E N T E R P R I S E S, I N C.
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 22, 1998
------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Finlay Enterprises, Inc. (the "Company") will be held on June 22, 1998 at 10:00
a.m. (local time) at the Cornell Club, 6 East 44th Street, New York, New York,
for the following purposes:
1. To elect three members to the Board of Directors to serve until the
expiration of their respective terms of office and until their successors are
duly elected and qualified;
2. To consider and vote upon a proposal to amend the Company's 1997
Long Term Incentive Plan to increase by 500,000 the number of shares of the
Company's Common Stock available for issuance thereunder; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed May 8, 1998 as the record date for the
determination of the stockholders entitled to notice of and to vote at such
meeting or any adjournment thereof, and only stockholders of record at the close
of business on that date are entitled to notice of and to vote at such meeting.
A COPY OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JANUARY
31, 1998 IS ENCLOSED HEREWITH.
You are cordially invited to attend the meeting. Whether or not you
plan to attend, you are urged to complete, date and sign the enclosed proxy and
return it promptly. If you receive more than one form of proxy, it is an
indication that your shares are registered in more than one account, and each
such proxy must be completed and returned if you wish to vote all of your shares
eligible to be voted at the meeting.
By Order of the Board of Directors.
Bonni G. Davis, SECRETARY
Dated: May 22, 1998
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.
THE ATTACHED PROXY STATEMENT SHOULD BE READ CAREFULLY. STOCKHOLDERS ARE URGED TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. NO
ADDITIONAL POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU MAY REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY GIVING WRITTEN NOTICE TO THE
COMPANY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON THOUGH YOU
HAVE PREVIOUSLY SENT IN YOUR PROXY.
- --------------------------------------------------------------------------------
<PAGE>
F I N L A Y E N T E R P R I S E S, I N C.
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
------------------------
P R O X Y S T A T E M E N T
------------------------
The enclosed proxy is solicited on behalf of the Board of Directors of
Finlay Enterprises, Inc. (the "Company") pursuant to this proxy statement (to be
mailed on or about May 22, 1998) for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held at the time and place shown in the attached
Notice of Annual Meeting. Shares represented by properly executed proxies, if
returned in time, will be voted at the Annual Meeting as specified or, if not
otherwise specified, in favor of the election as directors of the nominees named
herein and in favor of the amendment to the Company's 1997 Long Term Incentive
Plan (the "1997 Plan"). Such proxies are revocable at any time before they are
exercised by written notice to the Secretary of the Company or by your
requesting the return of the proxy at the Annual Meeting. Any later dated
proxies would revoke proxies submitted earlier.
RECORD DATE
The record date for the determination of holders of common stock, par
value $.01 per share, of the Company ("Common Stock") who are entitled to notice
of and to vote at the Annual Meeting is May 8, 1998 (the "Record Date").
VOTING SECURITIES
As of the Record Date, 10,374,053 shares of Common Stock of the Company
were outstanding. Holders of record of Common Stock as of such date will be
entitled to one vote for each share held. A majority of all shares of Common
Stock issued, outstanding and entitled to vote at the Annual Meeting, present in
person or represented by proxy, shall constitute a quorum. Abstentions and
broker non-votes are considered present for purposes of determining whether the
quorum requirement is met. A broker non-vote occurs when a nominee holds shares
for a beneficial owner but cannot vote on a proposal because the nominee does
not have discretionary voting power and has not received instructions from the
beneficial owner as to how to vote the shares.
With respect to the matters to come before the shareholders at the
Annual Meeting, (i) the election of directors (Proposal No. 1) shall be
determined by a plurality of the voting power present in person or represented
by proxy at the Annual Meeting and entitled to vote thereon and (ii) the
proposal to amend the 1997 Plan (Proposal No. 2) shall be determined by the
affirmative vote of a majority of the voting power present in person or
represented by proxy at the Annual Meeting and entitled to vote thereon. With
respect to the election of directors, only shares that are voted in favor of a
particular nominee will be counted towards such nominee's achievement of a
plurality. Shares present at the Annual Meeting that are not voted for a
particular nominee, shares present by proxy where the stockholder properly
withholds authority to vote for such nominee, and broker non-votes will not be
counted towards such nominee's achievement of a plurality. With respect to
Proposal No. 2, if the stockholder abstains from voting or directs his proxy to
abstain from voting, the shares are considered present at the Annual Meeting for
such matter but, since they are not affirmative votes for the matter, will have
the same effect as votes against the matter. With respect to broker non-votes on
such matter, the shares are not considered present at the Annual Meeting for
such matter and they are, therefore, not counted in respect of such matter. Such
broker non-votes have the practical effect of reducing the number of affirmative
votes required to achieve a majority for such matter by reducing the total
number of shares from which the majority is calculated.
<PAGE>
The following table sets forth certain information with respect to
beneficial ownership of Common Stock of the Company as of the Record Date by (i)
each of the Company's directors, (ii) the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers of the Company
or Finlay Fine Jewelry Corporation, a wholly-owned subsidiary of the Company
("Finlay Jewelry" and, together with the Company and all predecessor companies,
"Finlay"), during fiscal 1997 and (iii) by all directors and executive officers
as a group. No other person is known by the Company to own beneficially more
than five percent of the Common Stock.
NUMBER AND PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
-------------------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT OF CLASS
- ------------------------ ------------ ----------------
Thomas H. Lee (2) 984,340 9.5%
Rohit M. Desai (3) 704,412 6.8%
David B. Cornstein (4)(5) 529,195 5.1%
Arthur E. Reiner (5)(6) 79,279 *
Warren C. Smith, Jr. (7) 12,590 *
Norman S. Matthews (8) 60,667 *
Joseph M. Melvin (5)(9) 10,000 *
Leslie A. Philip (5)(10) 25,333 *
Barry D. Scheckner (5)(11) 2,400 *
James Martin Kaplan (5) 4,000 *
Hanne M. Merriman (12) -- --
All Directors and Executive 2,429,749 22.9%
Officers as a group
(12 persons) (13)
- --------------------------------------
* Less than one percent.
(1) Based on 10,374,053 shares issued and outstanding on the Record Date.
The voting and investment power of the persons named in the table is
subject to the terms of the Amended and Restated Stockholders'
Agreement dated as of March 6, 1995 (as amended, the "Amended
Stockholders' Agreement") by and among the Company and certain
stockholders of the Company. See "Certain Transactions -- Amended
Stockholders' Agreement." Unless otherwise indicated, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock, subject to the terms of the Amended
Stockholders' Agreement.
(2) Includes 884,455 shares of Common Stock held of record by Thomas H. Lee
Equity Partners, L.P., the general partner of which is THL Equity
Advisors Limited Partnership, a Massachusetts limited partnership of
which Mr. Lee is a general partner, and 99,885 shares of Common Stock
held of record by 1989 Thomas H. Lee Nominee Trust (the "Nominee
Trust"). Mr. Lee's address is c/o Thomas H. Lee Capital, LLC, 590
Madison Avenue, New York, New York 10022.
(3) Includes 704,412 shares of Common Stock held of record by Equity-Linked
Investors-II ("ELI-II"). ELI-II is a limited partnership, the general
partners of which are Rohit M. Desai Associates and Rohit M. Desai
Associates-II (together, the "General Partners"). As general partners,
the General Partners have the power to vote and dispose of these
securities. Rohit M. Desai is the managing general partner of each of
the General Partners. Mr. Desai is also the sole stockholder, chairman
of the board and president of Desai Capital Management Incorporated
("DCMI"), which acts as an investment advisor to ELI-II. Under the
investment advisory agreement between DCMI and ELI-II, decisions as to
the voting or disposition of these securities may be made by DCMI. DCMI
and Mr. Desai disclaim beneficial ownership of the securities. The
address of Mr. Desai and ELI-II is c/o Desai Capital Management
Incorporated, 540 Madison Avenue, New York, New York 10022.
- 2 -
<PAGE>
(4) Includes options to acquire 53,333 shares of Common Stock granted in
1995 having an exercise price of $14.00 per share.
(5) The address of Messrs. Cornstein, Reiner, Melvin, Scheckner and Kaplan
and Ms. Philip is c/o the Company, 529 Fifth Avenue, New York, New York
10017.
(6) Includes options to acquire 34,632 shares of Common Stock granted in
1994 having an exercise price of $14.00 per share.
(7) Mr. Smith's address is c/o Thomas H. Lee Company, 75 State Street,
Boston, Massachusetts 02109.
(8) Includes options to acquire 16,666 shares of Common Stock granted in
1993 having an exercise price of $12.00 per share, options to acquire
16,667 shares of Common Stock granted in 1993 having an exercise price
of $16.50 per share, options to acquire 13,334 shares of Common Stock
granted in 1995 having an exercise price of $14.00 per share, options
to acquire 10,000 shares of Common Stock granted in 1996 having an
exercise price of $11.16 per share and options to acquire 4,000 shares
of Common Stock granted in 1997 having an exercise price of $13.875 per
share. Mr. Matthew's address is 650 Madison Avenue, New York, New York
10022.
(9) Includes options to acquire 10,000 shares of Common Stock granted in
1997 having an exercise price of $14.875 per share.
(10) Includes options to acquire 20,000 shares of Common Stock granted in
1995 having an exercise price of $11.19 per share and options to
acquire 5,333 shares of Common Stock granted in 1997 having an exercise
price of $13.875 per share.
(11) Includes options to acquire 2,400 shares of Common Stock granted in
1993 having an exercise price of $7.23 per share.
(12) Ms. Merriman's address is c/o Hanne Merriman Associates, 3201 New
Mexico Avenue, N.W., Washington, D.C. 20016.
(13) Includes options to acquire 202,898 shares having exercise prices
ranging from $7.23 to $16.50 per share.
The Company's fiscal year ends on the Saturday closest to January 31.
References herein to 1993, 1994, 1995, 1996 and 1997 relate to the fiscal years
ended on January 29, 1994, January 28, 1995, February 3, 1996, February 1, 1997
and January 31, 1998, respectively.
- 3 -
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish the Company with copies of
such reports. Based solely on its review of the copies of such forms furnished
to the Company by such reporting persons and on the written representations from
such reporting persons that no reports on Form 5 were required, the Company
believes that during fiscal 1997 all of the reporting persons complied with
their Section 16(a) filing obligations.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company divides the
Board of Directors into three classes, with the directors of each class to be
elected at every third annual meeting of stockholders. The certificate further
provides that the number of directors which shall constitute the full Board of
Directors may be fixed by the Board of Directors from time to time and that
vacancies occurring between annual meetings may be filled only by the Board of
Directors, with the directors so chosen to serve until the next annual meeting.
The Board of Directors has nominated Norman S. Matthews, Hanne M. Merriman and
Warren C. Smith, Jr. for the three-year term in the class whose term expires in
2001. The nominees are presently serving as directors of the Company and have
expressed their willingness to continue to serve as such. If, for any reason not
presently known, any of said nominees is not available for election, the proxies
will be voted for substitute nominees, if any.
Pursuant to the terms of the Amended Stockholders' Agreement, the
parties thereto are required to vote their shares in favor of six directors who
were nominated as follows: Messrs. Lee and Smith were nominated by an affiliate
of Thomas H. Lee Company (together with its affiliate transferees, the "Lee
Investors"); Mr. Desai was nominated by partnerships managed by DCMI
(collectively, the "Desai Investors"); Messrs. Cornstein and Kaplan were
nominated by Mr. Cornstein; and Mr. Reiner was nominated by himself. See
"Certain Transactions -- Amended Stockholders' Agreement."
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR election as directors for
the three-year term in the class whose term expires in 2001 the nominees
identified above.
- 4 -
<PAGE>
INFORMATION REGARDING DIRECTORS
Information regarding each of the nominees is set forth below:
<TABLE>
<CAPTION>
YEAR OF ANNUAL
MEETING AT
DIRECTOR WHICH TERM
NAME PRINCIPAL OCCUPATION AGE SINCE WILL EXPIRE
- ---- -------------------- --- ----- -----------
<S> <C> <C> <C> <C>
Norman S. Matthews Retail Consultant 65 1993 2001
Hanne M. Merriman Principal, Hanne Merriman 56 1997 2001
Associates
Warren C. Smith, Jr. Managing Director of 41 1993 2001
Thomas H. Lee Company
The following persons will continue to serve as directors after the meeting:
YEAR OF ANNUAL
MEETING AT
DIRECTOR WHICH TERM
NAME PRINCIPAL OCCUPATION AGE SINCE WILL EXPIRE
- ---- -------------------- --- ----- -----------
Rohit M. Desai Chairman and President of 59 1993 1999
Desai Capital Management
Incorporated
Thomas H. Lee President of Thomas H. 54 1993 1999
Lee Company
David B. Cornstein Chairman of the Company 59 1988 2000
James Martin Kaplan Partner, Tenzer Greenblatt 53 1988 2000
LLP, attorneys-at-law
Arthur E. Reiner President, Chief Executive 57 1995 2000
Officer and Vice Chairman
of the Company and
Chairman and Chief
Executive Officer of Finlay
Jewelry
</TABLE>
DIRECTORS. Messrs. Desai, Lee, Matthews and Smith and Ms. Merriman have
each been engaged in the principal occupation identified above for more than the
past five years. Mr. Kaplan joined the law firm of Tenzer Greenblatt LLP in 1998
and, from 1977 to 1998, was a partner with the law firm of Zimet, Haines,
Friedman & Kaplan. Mr. Desai is also a director of the Rouse Company, Sunglass
Hut International, Incorporated, Independence Community Bank Corp. and several
privately-held companies. Mr. Lee is also a director of First Security Services
Corporation, Livent, Inc., Playtex Products, Inc., Vail Resorts, Inc. and
several privately-held companies. Mr. Cornstein and Mr. Kaplan are also
directors of What A World!, Inc. Mr. Reiner is also a director of Loehmann's,
Inc. Mr. Matthews is also a director of The Progressive Corporation, Loehmann's,
Inc., Lechters, Inc. and Toys "R" Us, Inc. Mr. Smith is also a director of
Rayovac Corporation, Eye Care Centers of America, Inc. and several
privately-held companies. Ms. Merriman is also a director of U.S. Airways Group,
Inc., CIPSCO, Inc., Central Illinois Public Service Company, State Farm Mutual
Automobile Insurance Company, The Rouse Company, Ann Taylor Stores Corporation,
T. Rowe Price Mutual Funds and Ameren Corporation.
- 5 -
<PAGE>
EXECUTIVE OFFICERS. Messrs. Reiner and Cornstein, Joseph M. Melvin
(Executive Vice President and Chief Operating Officer of the Company and
President and Chief Operating Officer of Finlay Jewelry), Leslie A. Philip
(Executive Vice President of the Company and Executive Vice President -
Merchandising and Sales Promotion of Finlay Jewelry), Barry D. Scheckner (Senior
Vice President and Chief Financial Officer of the Company and Finlay Jewelry)
and Edward Stein (Senior Vice President and Director of Stores of Finlay
Jewelry) are the executive officers of the Company. Mr. Melvin, age 47, was
appointed as Executive Vice President and Chief Operating Officer of the Company
and President and Chief Operating Officer of Finlay Jewelry on May 1, 1997. From
September 1975 to March 1997, Mr. Melvin served in various positions with The
May Department Stores Company ("May Department Stores"), including, from 1990 to
March 1997, as Chairman of the Board and Chief Operating Officer of Filene's (a
division of May Department Stores). Ms. Philip, age 51, has served as Executive
Vice President of the Company since May 1, 1997 and as Executive Vice President
- - Merchandising and Sales Promotion of Finlay Jewelry since May 1995. From 1993
to May 1995, Ms. Philip was Senior Vice President - Advertising and Sales
Promotion of R.H. Macy & Co., Inc., and from 1988 to 1993, Ms. Philip was Senior
Vice President - Merchandise Fine Jewelry at Macy's. Mr. Scheckner, age 48, has
served as Senior Vice President and Chief Financial Officer of Finlay Jewelry
since December 1988 and Senior Vice President and Chief Financial Officer of the
Company since September 1992. Prior to September 1992, he was Treasurer of the
Company. Mr. Stein, age 53, has been Senior Vice President and Director of
Stores of Finlay Jewelry since July 1995. From December 1988 to June 1995, Mr.
Stein was Vice President - Regional Supervisor of Finlay Jewelry.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit, Compensation, Nominating and
Executive Committees. No director who serves on the Compensation Committee is an
officer or employee of the Company or any of its subsidiaries.
The Audit Committee reviews the preparations for and scope of the audit
of the Company's annual financial statements, reviews drafts of such statements,
makes recommendations as to the engagement and fees of the independent auditors
and monitors the functioning of the Company's accounting and internal control
systems by meeting with the representatives of management, the independent
auditors and the Company's internal auditors. The Committee has direct access to
the independent auditors, the internal auditors and counsel to the Company, and
it performs such other duties relating to the financial statements of the
Company and other matters as the Board of Directors may assign from time to
time. The Audit Committee met twice during fiscal 1997. The current members of
the Audit Committee are Mr. Smith, its Chairman, Messrs. Kaplan and Reiner and
Ms. Merriman.
The Compensation Committee supervises and makes recommendations with
respect to employee compensation levels and all benefit plans involving
employees of the Company. It also approves, upon the recommendation of the
Chairman of the Board of Directors and President or other appropriate officer,
the terms of employment of all officers of the Company (except the Chairman of
the Board and President) and recommends the terms of employment of the Chairman
of the Board and President to the Board of Directors for approval. The
Compensation Committee also administers the Company's 1993 Long Term Incentive
Plan, as amended (the "1993 Plan"), and the 1997 Plan, including the grant of
options and stock appreciation rights thereunder. The Compensation Committee met
seven times during fiscal 1997. The current members of the Compensation
Committee are Mr. Lee, its Chairman, and Messrs. Desai and Matthews.
The Nominating Committee was appointed by the Board of Directors in
fiscal 1998 and, accordingly, did not meet during fiscal 1997. The Nominating
Committee was established to provide recommendations to the Board of Directors
regarding nominees for director and membership on Board committees. The
Nominating Committee will consider nominees recommended by stockholders. Prior
to the formation of the Nominating Committee, the functions of such Committee
were performed by the full Board of Directors. The current members of the
Nominating Committee are Mr. Reiner, its Chairman, and Messrs. Desai and Lee.
- 6 -
<PAGE>
The Executive Committee has all the powers of the Board of Directors in
the management of the business and affairs of the Company, except as such powers
are limited by Delaware General Corporation Law. The Executive Committee did not
meet during fiscal 1997. The current members of the Executive Committee are Mr.
Lee, its Chairman, and Messrs. Cornstein, Desai, Kaplan, Matthews and Reiner.
The Board of Directors met seven times during fiscal 1997. No director
attended fewer than 75% of the total number of meetings of the Board of
Directors and all committees thereof which he was eligible to attend.
DIRECTORS' COMPENSATION
Directors who are employees receive no additional compensation for
serving as members of the Board. Messrs. Lee, Desai, Smith and Kaplan receive no
compensation for serving as directors of the Company. For a discussion of
certain fees paid to affiliates of Messrs. Lee and Desai and to Mr. Matthews,
see "-- Compensation Committee Interlocks and Insider Participation."
For serving as a director of the Company, Mr. Matthews and Ms. Merriman
each receive aggregate compensation at the rate of $20,000 per year. Ms.
Merriman also receives a fee of $1,000 for each regular and special meeting
attended and a fee of $500 for each committee meeting attended. In addition, Ms.
Merriman was granted, effective as of December 3, 1997, options under the 1997
Plan to purchase 5,000 shares of Common Stock at a price of $21.3125. All of
these options vest on the first anniversary of the grant date and expire on the
tenth anniversary of the grant date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is presently comprised of Rohit M. Desai,
Thomas H. Lee and Norman S. Matthews. All decisions with respect to executive
compensation of both the Company and Finlay Jewelry are currently made by the
Compensation Committee. None of the present Compensation Committee members were,
at any time, an officer or employee of the Company or any of its subsidiaries.
In connection with a series of transactions which recapitalized the
Company in May 1993 (the "Recapitalization Transactions"), the Company, the Lee
Investors, the Desai Investors, certain members of management of the Company
(the "Management Stockholders") and certain other stockholders entered into (i)
a registration rights agreement (the "Registration Rights Agreement"), which
grants certain registration rights to the Lee Investors, the Desai Investors and
the Management Stockholders, and (ii) a stockholders' agreement (the "1993
Stockholders' Agreement"), which granted certain rights to, and imposed certain
restrictions on the rights of, the Lee Investors, the Desai Investors, the
Management Stockholders and certain other stockholders. The 1993 Stockholders'
Agreement was amended and restated in connection with the Company's April 1995
initial public offering (the "Initial Public Offering"). See "Certain
Transactions."
In connection with the Recapitalization Transactions in May 1993, the
Company and Finlay Jewelry entered into management agreements with each of
Thomas H. Lee Company (the "Lee Management Agreement") and Desai Capital
Management Incorporated (the "Desai Management Agreement" and, together with the
Lee Management Agreement, the "Management Agreements"), affiliates of Mr. Lee
and Mr. Desai, respectively. Pursuant to the Management Agreements, Thomas H.
Lee Capital LLC (as assignee of Thomas H. Lee Company) and Desai Capital
Management Incorporated are entitled to receive $180,000 and $60,000 per year
plus expenses, respectively, during the five-year period commencing May 1993 for
consulting and management advisory services rendered to the Company and Finlay
Jewelry. Pursuant to the terms of the Management Agreements, each such
Management Agreement was automatically renewed through May 1999. Thereafter,
each of the Management Agreements will be automatically renewable on an annual
basis unless any party thereto serves notice of termination at least 90 days
prior to the renewal date. Each of the Management Agreements contains provisions
entitling the managing company to indemnification under certain circumstances
for losses incurred in the course of service to the Company or Finlay Jewelry.
- 7 -
<PAGE>
Prior to the Initial Public Offering, Finlay had an agreement to engage
Mr. Matthews as a consultant at a per diem rate of $2,500 for each day he
provided services, with such fees in the aggregate not to exceed $80,000 per
year. Mr. Matthews received a total of $20,000 in each of 1995, 1996 and 1997
for his services as a director and consultant. The consulting agreement between
Finlay and Mr. Matthews was terminated upon completion of the Initial Public
Offering, except that all of the provisions of the consulting agreement relating
to options to purchase Common Stock granted to Mr. Matthews (as described below)
remained in effect. Mr. Matthews was granted, effective as of July 1993, options
under the 1993 Plan to purchase 33,333 shares of Common Stock, 16,667 of which
have an exercise price of $12.00 per share and 16,666 of which have an exercise
price of $16.50 per share. Twenty percent of these options vest on each of the
first five anniversaries of the grant date, with the unvested portion of such
options fully vesting on a "Change of Control" (as defined in the consulting
agreement). On March 30, 1995, Mr. Matthews was granted additional options under
the 1993 Plan to purchase 16,667 shares of Common Stock at a price of $14.00.
Twenty percent of these options vested immediately, and an additional twenty
percent of such options vest on each of the first four anniversaries of the
grant date. On January 30, 1996, Mr. Matthews was granted additional options
under the 1993 Plan to purchase 10,000 shares of Common Stock at a price of
$11.16 per share, which options vested and became exercisable in January 1997.
In addition, on March 6, 1997, Mr. Matthews was granted options under the 1997
Plan to purchase 20,000 shares of Common Stock at an exercise price of $13.875
per share, twenty percent of which options vest on each of the first five
anniversaries of the grant date. All of Mr. Matthews' options are subject to
early termination under certain circumstances and are subject to various
conditions.
Any future transactions between the Company and/or Finlay Jewelry and
the officers, directors and affiliates thereof will be on terms no less
favorable to the Company and Finlay Jewelry than can be obtained from
unaffiliated third parties, and any material transactions with such persons will
be approved by a majority of the disinterested directors of the Company or
Finlay Jewelry, as the case may be.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
compensation of Finlay's Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company or Finlay Jewelry,
including the Company's former Chief Executive Officer, in 1997, 1996 and 1995
(collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- --------------------------
NUMBER OF
SECURITIES
RESTRICTED UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUSES COMPENSATION (1) AWARDS SARS (2) COMPENSATION (3)
------------------ ---- ------ ------- ---------------- ------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARTHUR E. REINER 1997 $750,000 $271,425 $17,706 - 300,000 $28,481
President, Chief 1996 700,000 253,750 - - - 27,495
Executive Officer and 1995 666,660 215,900 - - - 22,315
Vice Chairman of the
Company and Chairman
and Chief Executive
Officer of
Finlay Jewelry
DAVID B. CORNSTEIN 1997 600,000 137,300 42,840 - - 52,609
Chairman and former 1996 600,000 137,500 42,977 - - 51,623
Chief Executive Officer 1995 600,000 65,900 41,011 - 66,667 51,753
of the Company
</TABLE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- --------------------------
NUMBER OF
SECURITIES
RESTRICTED UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUSES COMPENSATION (1) AWARDS SARS (2) COMPENSATION (3)
------------------ ---- ------ ------- ---------------- ------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
JOSEPH M. MELVIN (4) 1997 263,200 120,000 - - 50,000 154,312(5)
Executive Vice President 1996 - - - - - -
and Chief Operating 1995 - - - - - -
Officer of the Company
and President and Chief
Operating Officer of
Finlay Jewelry
LESLIE A. PHILIP (6) 1997 350,500 127,000 - - 46,667 $10,091
Executive Vice President 1996 320,000 116,000 - - - 8,730
of the Company and 1995 213,710 75,000 - - 33,333 1,974
Executive Vice President
- - Merchandising and
Sales Promotion of
Finlay Jewelry
BARRY D. SCHECKNER 1997 300,500 109,000 - - 13,000 9,384
Senior Vice President 1996 300,000 109,000 - - - 8,398
and Chief Financial 1995 300,000 35,000 - - 10,000 8,528
Officer of the Company
and Finlay Jewelry
</TABLE>
- -------------
(1) Represents tax equalization payments made in connection with life
insurance premiums paid by Finlay on behalf of the Named Executive
Officers.
(2) See "-- Option/SAR Grants in Fiscal 1997"
(3) Includes for each Named Executive Officer the sum of the following
amounts earned in 1997, 1996 and 1995 for such Named Executive Officer:
<TABLE>
<CAPTION>
(I) (II) (III)
-----------------------------------------
<S> <C> <C> <C> <C>
Arthur E. Reiner........................ 1997 $20,176 $5,575 $2,730
1996 20,176 5,375 1,944
1995 20,176 - 2,139
David B. Cornstein...................... 1997 44,304 5,575 2,730
1996 44,304 5,375 1,944
1995 44,304 5,310 2,139
Joseph M. Melvin........................ 1997 540 - 2,048
1996 - - -
1995 - - -
Leslie A. Philip........................ 1997 1,786 5,575 2,730
1996 1,786 5,000 1,944
1995 450 - 1,524
Barry D. Scheckner...................... 1997 1,079 5,575 2,730
1996 1,079 5,375 1,944
1995 1,079 5,310 2,139
</TABLE>
(i) Insurance premiums paid by Finlay with respect to life insurance for
the benefit of the Named Executive Officer.
(ii) The dollar amount of all matching contributions and profit sharing
contributions under Finlay's 401(k) profit sharing plan allocated to
the account of the Named Executive Officer.
(iii) The insurance premiums paid in respect of the Named Executive Officer
under Finlay's Executive Medical Benefits Plan.
- 9 -
<PAGE>
(4) Mr. Melvin commenced employment with Finlay on May 1, 1997 and the
salary above for 1997 reflects only compensation for the period from
May 1, 1997 through January 31, 1998. Mr. Melvin's annual salary for
1997 was at the rate of $350,000.
(5) In addition to other compensation set forth in Note 3 above, Mr. Melvin
received $151,724 in 1997 for reimbursement of relocation expenses.
(6) Ms. Philip commenced employment with Finlay on May 15, 1995 and the
salary above for 1995 reflects only compensation for the period from
May 15, 1995 through February 3, 1996. Ms. Philip's annual salary for
1995 was at the rate of $300,000.
On January 30, 1996, Mr. Reiner became President and Chief Executive
Officer of the Company. He has also been Vice Chairman of the Company and
Chairman and Chief Executive Officer of Finlay Jewelry since January 3, 1995.
Mr. Cornstein continues as the Chairman of the Company. For a discussion of the
employment arrangements with Messrs. Reiner and Cornstein, see "-- Employment
Agreements and Change of Control Arrangements."
LONG TERM INCENTIVE PLANS
The Company currently has two long-term incentive plans, for which it
has reserved a total of 1,082,596 shares of Common Stock for issuance in
connection with awards. Of this total, 732,596 shares of Common Stock have been
reserved for issuance under the 1993 Plan, of which 117,444 shares have been
issued to date in connection with exercises of options granted under the 1993
Plan and 613,419 shares are reserved for issuance upon exercise of currently
outstanding options. The remaining 1,733 shares of Common Stock are available
for future grants under the 1993 Plan. In 1997, the Company's Board of Directors
and stockholders approved the 1997 Plan (the 1997 Plan, together with the 1993
Plan, being collectively referred to herein as the "Incentive Plans"), which is
intended as a successor to the 1993 Plan. The 1997 Plan is similar to the 1993
Plan and provides for the grant of the same types of awards as are currently
available under the 1993 Plan. The maximum number of shares of Common Stock
available for issuance under the 1997 Plan is 350,000, of which 2,600 shares
have been issued to date in connection with exercises of options granted under
the 1997 Plan and 346,848 shares are reserved for issuance upon exercise of
currently outstanding options. The remaining 552 shares of Common Stock are
available for future grants under the 1997 Plan. The Board of Directors has
adopted, subject to the approval of the Company's stockholders, an amendment to
the 1997 Plan pursuant to which the number of shares available for issuance
under the 1997 Plan shall be increased to 850,000. See "-- Option/SAR Grants in
1997" and "Proposal No. 2 -- Amendment of the Company's 1997 Long Term Incentive
Plan."
The Incentive Plans permit the Company to grant to key employees of the
Company and its subsidiaries, consultants and certain other persons and
directors of the Company (other than, in the case of 1993 Plan, members of the
Compensation Committee of the Company's Board of Directors), the following: (i)
stock options; (ii) stock appreciation rights in tandem with stock options;
(iii) limited stock appreciation rights in tandem with stock options; (iv)
restricted or nonrestricted stock awards subject to such terms and conditions as
the Compensation Committee shall determine; (v) performance units which are
based upon attainment of performance goals during a period of not less than two
nor more than five years and which may be settled in cash or in Common Stock in
the discretion of the Company's Compensation Committee; or (vi) any combination
of the foregoing. The 1997 Plan provides, however, that no participant may be
granted, during any fiscal year, options or other awards relating to more than
175,000 shares of Common Stock.
Under the Incentive Plans, the Company may grant stock options which
are either "incentive stock options" ("Incentive Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-incentive stock options ("Non-incentive Options"). Incentive Options are
designed to result in beneficial tax treatment to the optionee, but no tax
deduction for the Company. Nonincentive Options will not give the optionee the
tax benefits of Incentive Options, but generally will entitle the Company to a
tax deduction when and to the extent income is recognized by the optionee.
The Incentive Plans are administered by the Compensation Committee of
the Company's Board of Directors which, pursuant to the Incentive Plans,
consists of at least two directors. Subject to the provisions of the Incentive
- 10 -
<PAGE>
Plans, the Compensation Committee has sole discretion (i) to select the
individuals to participate in the Incentive Plans, (ii) to determine the form
and substance of grants made under the Incentive Plans to each participant, and
the conditions and restrictions, if any, subject to which grants are made, (iii)
to interpret the Incentive Plans and (iv) to adopt, amend or rescind rules and
regulations for carrying out the Incentive Plans as it may deem appropriate.
The Incentive Plans provide that the per share exercise price of an
option granted under the plans shall be determined by the Compensation
Committee. The exercise price of an Incentive Option may not, however, be less
than 100% of the fair market value of the Common Stock on the date the option is
granted and the duration of an Incentive Option may not exceed ten years from
the date of grant. In addition, an Incentive Option that is granted to an
employee who, at the time the option is granted, owns stock possessing more than
10% of the total combined voting power of all classes of capital stock of the
"employer corporation" (as used in the Code) or any parent or subsidiary thereof
shall have a per share exercise price which is at least 110% of the fair market
value of the Common Stock on the date the option is granted and the duration of
any such option may not exceed five years from the date of grant. Options
granted under the Incentive Plans become exercisable at such time or times as
the Compensation Committee may determine at the time the option is granted.
Options are nontransferable (except by will or intestacy on the death of the
optionee) and during a participant's lifetime are exercisable only by the
participant.
In making grants to employees under the Incentive Plans, the Company
has on occasion utilized a uniform Agreement and Certificate of Option (the
"Option Agreement"), under which the Company grants ten-year options, 20% of
which vest on each of the first five anniversaries of the grant date. The Option
Agreement also contains transfer and certain other restrictions and provides
that options not vested may expire, or shares acquired upon exercise of options
may be repurchased at their exercise price, in the event of termination of
employment under certain circumstances. In addition, the Option Agreement
provides that (i) if an optionee's employment is terminated for "Cause" (as
defined in the Option Agreement), such optionee's options will terminate
immediately, (ii) if an optionee's employment is terminated due to death,
"Disability" or "Retirement" (each as defined in the Incentive Plans), such
optionee's options become fully vested and exercisable for a period of 21 days
following such termination and (iii) if an optionee's employment is terminated
for any other reason, such optionee's options remain exercisable to the extent
vested for a period of 21 days following such termination.
The Incentive Plans may be amended or terminated by the Board at any
time, but no such termination or amendment may, without the consent of a
participant, adversely affect the participant's rights with respect to
previously granted awards. Under the 1993 Plan, the approval of the Company's
stockholders is required for any amendment (i) to increase the maximum number of
shares subject to awards under the 1993 Plan, (ii) to change the class of
persons eligible to participate and/or receive incentive stock options under the
1993 Plan, (iii) to change the requirements for serving on the Compensation
Committee or (iv) to increase materially the benefits accruing to participants
under the 1993 Plan. Under the 1997 Plan, the approval of the Company's
stockholders is required to amend the 1997 Plan if the Compensation Committee
determines that such approval would be necessary to retain the benefits of Rule
16b-3 under the Exchange Act (with respect to participants who are subject to
Section 16 thereof), Section 162(m) of the Code (with respect to "covered
employees" within the meaning of Section 162(m) of the Code) or Section 422 of
the Code (with respect to Incentive Options), or if stockholder approval is
otherwise required by federal or state law or regulation or the rules of any
exchange or automated quotation system on which the Common Stock may then be
listed or quoted, or if the Board of Directors otherwise determines to submit
the proposed amendment for stockholder approval.
Subject to certain limitations set forth in the Incentive Plans, if the
Compensation Committee determines that any corporate transaction or event
affects the shares of Common Stock (or other securities or property subject to
an award under the Incentive Plans) such that an adjustment is determined by the
Compensation Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Incentive Plans, then the Compensation Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and type of shares
(or other securities or property) with respect to which awards may be granted
under the Incentive Plans, (ii) the number and type of shares (or other
securities or property) subject to outstanding awards under the Incentive Plans
or (iii) the grant or exercise price with respect to any awards under the
Incentive Plans or, if deemed appropriate, make provision for a cash payment to
the holder of an outstanding award in consideration for the cancellation of such
award (which, in the case of an option, will be equal
- 11 -
<PAGE>
to the positive difference, if any, between the Market Value (as defined in the
Incentive Plans) of the shares covered by such option, as determined immediately
prior to such corporate transaction or event, and the exercise price per share
of such option).
OPTION/SAR GRANTS IN FISCAL 1997
In 1997, the Company granted options to purchase a total of 505,167
shares of Common Stock, of which options to purchase 300,000, 50,000, 46,667 and
13,000 shares were granted to Mr. Reiner, Mr. Melvin, Ms. Philip and Mr.
Scheckner, respectively, at exercise prices ranging from $13.875 to $23.1875 per
share. All of these options were granted under the 1997 Plan, except for 139,719
of the 300,000 options granted to Mr. Reiner. The options vest and become
exercisable in equal installments on each of the first five anniversaries of the
date of grant, except for the options granted to Mr. Reiner, which vest and
become exercisable on January 2, 2001 so long as Mr. Reiner is employed by the
Company on such date, subject to various terms and conditions regarding early
vesting and early termination.
The following table provides information related to the options granted
to the Named Executive Officers during 1997. No stock appreciation rights were
issued by the Company in 1997.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Term Price
Individual Grants Appreciation for Option
------------------------------------------------------------------------ ------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/share) Date(s) 5% 10%
- ------------------ ------------- -------------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur E. Reiner..... 300,000 59.4% $13.88 & $14.00 3/5/07 & 3/6/07 $2,628,757 $6,661,788
David B. Cornstein... --- --- --- --- --- ---
Joseph M. Melvin..... 50,000 9.9 14.88 5/1/07 467,740 1,185,346
Leslie A. Philip..... 46,667 9.2 13.88 & 23.19 3/6/07 & 1/27/08 524,344 1,328,790
Barry D. Scheckner... 13,000 2.6 13.88 3/6/07 113,437 287,471
</TABLE>
CERTAIN INFORMATION CONCERNING STOCK OPTIONS/SARS
The following table sets forth certain information with respect to
stock options exercised in fiscal 1997 as well as the value of stock options at
the fiscal year end. No stock appreciation rights were exercised during fiscal
1997.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997
AND FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE
ACQUIRED OPTIONS/SARS AT FISCAL MONEY OPTIONS/SARS AT
ON VALUE YEAR-END FISCAL YEAR-END ($)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ----------------------------- ----------- --------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Arthur E. Reiner............... - - 34,632 / 334,631 $311,688 / $3,031,714
David B. Cornstein............. - - 40,000 / 26,667 360,000 / 240,000
Joseph M. Melvin............... - - - / 50,000 - / 406,250
Leslie A. Philip............... - - 13,333 / 66,667 157,498 / 475,834
Barry D. Scheckner ............ - - 13,600 / 21,400 187,392 / 210,473
</TABLE>
- ---------------------------------
(1) The values of Unexercised In-the-Money Options/SARs represent the
aggregate amount of the excess of $23.00, the closing price for a share
of Common Stock at fiscal year end, over the relevant exercise price of
all "in-the-money" options.
- 12 -
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Effective January 3, 1995, Finlay entered into an employment agreement
with Arthur E. Reiner to employ Mr. Reiner as Vice Chairman of the Company and
Chairman and Chief Executive Officer of Finlay Jewelry. On January 30, 1996, as
contemplated by Mr. Reiner's employment agreement, the Company's Board of
Directors appointed Mr. Reiner to the office of President and Chief Executive
Officer of the Company. The employment agreement, as subsequently amended,
provides for Mr. Reiner to serve in such offices for a term expiring on January
31, 2001. Pursuant to the employment agreement, Mr. Reiner received annual base
salary of approximately $666,660 in 1995, which was increased to $700,000 on the
first day of fiscal 1996 and to $750,000 on the first day of fiscal 1997.
Thereafter, further increases will be at the discretion of the Board of
Directors of the Company. In addition to his annual base salary, Mr. Reiner is
entitled to an annual bonus payment based on a target incentive amount equal to
one-half of his base salary for the applicable year (the "Incentive Amount").
The payment of the bonus in respect of a particular year will be based on the
achievement by Finlay of certain financial performance criteria based on
EBITA-FIFO (the "Target Level"), with 20% of the Incentive Amount payable if 90%
of the Target Level is achieved, increasing incrementally on a pro rata basis to
80% of the Incentive Amount payable if 100% of the Target Level is achieved,
increasing further incrementally on a pro rata basis to 160% of the Incentive
Amount payable if 140% of the Target Level is achieved, and if over 140% of the
Target Level is achieved, the annual bonus payment shall equal 160% of the
Incentive Amount plus 1% of the Incentive Amount for each percentage point by
which Finlay's measured performance exceeds 140% of the Target Level.
Notwithstanding the foregoing, with respect to fiscal 1996 and 1997, pursuant to
the terms of his employment agreement, Mr. Reiner received bonuses in the amount
of $253,750 and $271,425, respectively.
Under the agreement, Mr. Reiner received in January 1995 options under
the Incentive Plan to purchase 69,263 shares of Common Stock at an exercise
price of $14.00 per share. Of those options, one-half are time-based and
one-half performance-accelerated, vesting in ten years subject to accelerated
vesting upon achievement of specified performance goals. Of the time-based
options, one-third became exercisable on each of February 3, 1996, February 1,
1997 and January 31, 1998. One-third of the performance-accelerated options will
vest for each fiscal year commencing with 1995 for which EBITA-FIFO in the
applicable year equals or exceeds certain specified target levels in that year
and any subsequent year. To date, none of the performance-accelerated options
have vested.
In the event of Mr. Reiner's termination of employment either by the
Company for "Cause" (as defined in the agreement), by Mr. Reiner for any reason
(other than "Good Reason," as defined in the agreement) or as a result of Mr.
Reiner's death or Disability (as defined in the agreement), all the options, to
the extent not then exercisable, shall terminate. In the event of Mr. Reiner's
termination of employment either by the Company without "Cause" or by Mr. Reiner
for "Good Reason," all the options, to the extent not then exercisable, shall
thereupon become fully exercisable. In the event of Mr. Reiner's termination of
employment for any reason after January 31, 1998, all performance-accelerated
options, to the extent not then exercisable, shall terminate. In addition, in
the event of a "Change of Control" (as defined in the agreement), (i) any
outstanding time-based options shall become exercisable and (ii) the
performance-accelerated options will vest to the extent (a) the "Enterprise
Value" of the Company (as defined in the agreement) exceeds certain established
"Enterprise Value" targets set forth in the agreement with respect to the fiscal
year in which the "Change of Control" occurs or (b) the "Change of Control"
represents a per share of Common Stock transaction price in excess of 130% of
the fair market value per share of Common Stock determined immediately prior to
the public announcement of such "Change of Control."
Upon the commencement of his employment, Mr. Reiner purchased 138,525
shares of Common Stock (the "Purchased Shares") at a purchase price of $7.23 per
share. The aggregate purchase price of the Purchased Shares was paid in the form
of a note issued by Mr. Reiner to the Company, the repayment of which was
secured by the Purchased Shares and certain proceeds received by Mr. Reiner upon
disposition of the Purchased Shares or upon any distribution paid on or with
respect to the Purchased Shares. On April 24, 1998, in connection with the sale
by Mr. Reiner of 100,000 of the Purchased Shares, Mr. Reiner repaid the
outstanding balance of the note. In the event Mr. Reiner's employment is
terminated, the remaining Purchased Shares (together with vested options and
shares issued upon exercise of vested options ("Option Shares")) are subject to
certain call rights and the Option Shares are additionally subject to certain
put rights. In the event the Company does not exercise its call rights, the
rights may be exercised by the Lee Investors and the Desai Investors, pro rata
based on their respective ownership of Common
- 13 -
<PAGE>
Stock. The remaining Purchased Shares and Option Shares are subject to certain
restrictions on transfer and registration rights set forth in the agreement and
will also be subject to the Amended Stockholders' Agreement and the Registration
Rights Agreement other than the provisions thereof relating to restrictions on
transfer. See "Certain Transactions -- Amended Stockholders' Agreement," "--
Registration Rights Agreement" and "-- The 1998 Offering."
Under Mr. Reiner's agreement, subject to certain specified limitations,
Finlay is required to maintain life insurance on the life of Mr. Reiner in the
amount of $5.0 million, payable to his beneficiaries, and to provide Mr. Reiner
with catastrophic health insurance. In addition, Finlay is required to reimburse
Mr. Reiner for any income taxes owed by him as a result of the premiums paid by
Finlay with respect to such life insurance. The employment agreement also
provides for Mr. Reiner to receive an annual automobile allowance of up to
$15,000.
Mr. Reiner's agreement provides that if his employment is terminated
prior to a "Change of Control" either by the Company without "Cause" or by Mr.
Reiner for "Good Reason," Mr. Reiner will continue to receive his base salary
for the balance of the term and bonus compensation (calculated as though 110% of
the Target Level were achieved) as if such termination had not occurred. In the
event he is terminated without "Cause" and coincident with or following a
"Change of Control," Mr. Reiner shall be entitled to a lump sum payment equal to
299% of his "base amount" (as defined in Section 280 G(b)(3) of the Code). In
the event that Mr. Reiner voluntarily terminates his employment within one year
following a "Change of Control" in connection with which the acquirer did not
expressly assume Mr. Reiner's agreement and extend its term for an additional
three years or otherwise offer Mr. Reiner a contract on terms no less favorable
than those provided under the existing agreement providing for a term of at
least three years, or if he terminates his employment following a "Change of
Control" for "Good Reason," he will be entitled to a payment equal to 299% of
the "base amount." In the event that Mr. Reiner is terminated for "Cause" or if
he voluntarily terminates his employment without "Good Reason" prior to the
occurrence of a "Change of Control," he shall be entitled to receive his base
salary through the date of termination and any bonus earned with respect to a
previously completed fiscal year which remains unpaid. Payments made to Mr.
Reiner upon termination of employment are subject to certain restrictions in the
event that such payments constitute "parachute payments" under Section
280G(b)(2) of the Code. In addition, Mr. Reiner is required to mitigate certain
payments made to him under the agreement under certain limited circumstances.
On March 5, 1997, Mr. Reiner received options under the 1993 Plan to
purchase an aggregate of 139,719 shares of Common Stock at an exercise price of
$14.00 per share. Such options vest and become exercisable on January 2, 2001 so
long as Mr. Reiner remains employed by the Company on such date; provided,
however, that such options are subject to early vesting and early termination
under certain circumstances and are subject to various conditions. The Company
has also granted to Mr. Reiner an additional 160,281 options under the 1997
Plan, which options have an exercise price of $13.875 per share and are subject
to similar terms and conditions regarding vesting and termination.
Effective May 26, 1993, Mr. Cornstein entered into an employment
agreement with Finlay providing for his employment as President and Chief
Executive Officer, and his appointment as Chairman of the Board, of the Company
for a term expiring on January 31, 1998. On January 30, 1996, Mr. Reiner was
appointed President and Chief Executive Officer of the Company. Mr. Cornstein
continues as the Chairman of the Company. Mr. Cornstein's employment contract
was extended through January 31, 1999. Upon the expiration of the term of his
employment agreement on January 31, 1999, Mr. Cornstein is expected to become
Chairman Emeritus of the Company.
Under his employment agreement, Mr. Cornstein is entitled to an annual
salary of $600,000 through the term of his agreement. In addition to his annual
salary, Mr. Cornstein is entitled to receive an annual bonus payment up to a
maximum of $250,000. The payment of the bonus in respect of a particular year
will be based on the achievement by Finlay of the Target Level, with 20% of the
maximum bonus payable if 90% of the Target Level is achieved, increasing
incrementally on a pro rata basis to 60% of the maximum bonus level payable if
100% of the Target Level is achieved, and further increasing incrementally on a
pro rata basis to 100% of the maximum bonus payable if 120% of the Target Level
is achieved. In addition, the Board may award bonus compensation outside of the
bonus prescribed under Mr. Cornstein's employment agreement.
- 14 -
<PAGE>
Under Mr. Cornstein's employment agreement, Finlay is required to
maintain insurance of $10.0 million on the life of Mr. Cornstein, payable to his
beneficiaries, and Mr. Cornstein is entitled to reimbursement for the income tax
liability resulting from Finlay's payment of premiums for the insurance.
Furthermore, the agreement requires Finlay to procure and pay for catastrophic
health insurance and the income tax liability related to such payments, if any.
The agreement further provides that if Mr. Cornstein is terminated
other than for "Cause" (as defined therein) or if he elects, as provided in the
agreement, to treat certain acts or omissions of the employer as a termination
of employment without "Cause," Mr. Cornstein will, in addition to continuing to
receive his base salary, bonus and other benefits provided thereunder for the
balance of the term, also be entitled to receive a severance payment equal to
the sum of one year's base salary plus the average of the annual bonuses paid
during the term of the agreement (the "Severance Amount"). The agreement
provides that the Severance Amount will be paid over a two-year period
commencing at the scheduled expiration of the term. In addition, if Mr.
Cornstein's agreement is not extended or renewed at the scheduled expiration of
its term, Mr. Cornstein will also be entitled to a severance payment equal to
the Severance Amount.
Under Mr. Cornstein's agreement, in the event of a "Change of Control"
(as defined therein) of the Company, if at any time within twelve months
following the "Change of Control" Mr. Cornstein is no longer employed by Finlay
(or any entity which succeeds to the obligations of Finlay under the employment
agreement following the "Change of Control") for any reason other than death or
disability, Mr. Cornstein will be entitled to a lump sum payment ("Change of
Control Payment") equal to the net present value of the base salary and bonus
payable to him over the remainder of the term (calculated, in the case of the
bonus, assuming the annual bonuses payable for each remaining year shall equal
the average of the annual bonuses paid to him for preceding years during the
term). However, if the Change of Control Payment does not equal or exceed the
lesser of (i) 299% of the Severance Amount or (ii) the amount, if any, by which
the fair market value of (a) equity interests in the Company and Finlay Jewelry
which Mr. Cornstein continues to hold after the Change of Control, (b) amounts
which he is entitled to receive in exchange for or as a distribution in respect
of his equity interests in the Company and Finlay Jewelry as a result of the
"Change of Control" and (c) any other consideration received as a result of the
"Change of Control" (other than pursuant to his employment agreement) is less
than $7.5 million, then Mr. Cornstein shall receive, in lieu of the Change of
Control Payment, the lesser of (i) and (ii).
Under Mr. Cornstein's agreement, a "Change of Control" occurs when (i)
a person or group other than certain of the Company's existing stockholders
becomes the beneficial owner of 50% or more of the aggregate voting power of the
Company or (ii) during any period of two consecutive calendar years, there are
certain changes in the composition of the Company's Board of Directors.
A portion of any payments which may be made upon such a "Change of
Control" may be deemed an "excess parachute payment" within the meaning of the
Code, in which event such portion will not be a deductible expense for tax
purposes for the Company.
On May 1, 1997, the Company appointed Mr. Melvin to serve as Executive
Vice President and Chief Operating Officer of the Company and President and
Chief Operating Officer of Finlay Jewelry. The Company has agreed to pay to Mr.
Melvin an annual base salary of $350,000 as well as an annual bonus based on the
achievement of certain targets. In addition, Mr. Melvin was paid a $25,000 bonus
upon his joining the Company and, in July 1997, received from Finlay a $295,000
non-interest-bearing loan, which is payable in full upon the earliest of (i) ten
days after Mr. Melvin has closed on the sale of his home in Massachusetts, (ii)
July 16, 1998, and (iii) the date of termination of his employment with Finlay
for any reason. On May 1, 1997, Finlay granted to Mr. Melvin options under the
1997 Plan to purchase 50,000 shares of Common Stock at an exercise price per
share equal to $14.875. The options will vest in equal installments on each of
the first five anniversaries of the grant date. All of such options will be
subject to early termination under certain circumstances and will be subject to
various conditions. Mr. Melvin is also eligible for benefits that are available
to other senior executives of Finlay, including reimbursement of moving and
relocation expenses. In the event Mr. Melvin's employment is terminated by
Finlay without cause (not including death or disability) or his title is changed
to a lesser title, he shall be entitled to receive a lump sum payment equal to
one year's base salary.
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<PAGE>
INDEMNIFICATION AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
Prior the completion of the Initial Public Offering, Finlay entered
into indemnification agreements with each of its directors and executive
officers. For a complete description of these agreements, see "Certain
Transactions -- Certain Other Transactions".
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists of Thomas H. Lee, Rohit M. Desai
and Norman S. Matthews, each of whom is a non-employee member of the Board of
Directors. The Committee met seven times in the fiscal year ended January 31,
1998 to afford the members the opportunity to consider all compensation related
matters. For purposes hereof, the Compensation Committee will be referred to
herein as the "Committee".
GENERAL. The Company's executive compensation policies are intended to
provide competitive levels of compensation in order to attract and retain
qualified executives and to provide incentives to its senior management to
enhance profitability and stockholder returns. The Committee believes such
objectives are best achieved by having a substantial portion of an executive
officer's cash compensation tied to annual earnings of the Company or the
relevant business unit and by providing long-term incentives through the use of
stock options. The Committee also believes in rewarding exceptional performance
and contributions to the development of the Company's business.
To achieve these objectives and to retain the services of senior
management for an extended period, the Company has entered into employment
agreements with certain of its executive officers. The terms of each employment
agreement are more particularly described under the heading "Employment
Agreements and Change of Control Arrangements." These agreements provide for a
competitive base salary plus a cash bonus which is based on the annual financial
performance of the Company. By calculating a major component of the executive's
cash compensation on the basis of annual financial performance, the Committee
seeks to encourage the senior executive to achieve maximum profitability. The
Committee also reviews the performance of each executive officer on an annual
basis and may approve additional compensation or waive requirements of the
executive's employment contract to reward an exceptional individual effort or
performance.
The Committee believes that stock-based compensation arrangements are
beneficial in aligning the interests of management and the Company's
shareholders over the long-term. The principal vehicle for awarding stock-based
compensation is the 1997 Plan. Under the 1997 Plan, the Committee is authorized
to grant to key employees stock options as well as other stock-based awards,
including restricted stock grants, stock appreciation rights and
performance-based stock awards. Of the 350,000 shares of Common Stock available
for issuance under the 1997 Plan, 2,600 of such shares have been issued to date
in connection with exercises of options granted under the 1997 Plan and 346,848
of such shares are reserved for issuance upon exercise of currently outstanding
options. Accordingly, as of the date hereof, only 552 shares of Common Stock are
available for future grants under the 1997 Plan. The number of options granted
to each executive officer under the 1997 Plan (and, prior thereto, under the
1993 Plan) generally depended on the executive's performance, the performance of
the Company or the executive's business unit, the level of his responsibility,
the extent of other forms of compensation payable to him, the terms of his
employment agreement, if applicable, and the number of options previously
granted to him. In fiscal 1997, the Committee awarded options under the 1997
Plan to purchase an aggregate of 349,448 shares of the Company's Common Stock.
All options granted by the Committee were issued with an exercise price equal to
the fair market value of a share of Common Stock on the date of grant, generally
vest over a period of five years from the date of grant and are generally
exercisable until the expiration of ten years from the date of grant; provided,
however, that such options are generally subject to early termination under
certain circumstances and are generally subject to various conditions.
The Board of Directors has adopted, subject to the approval of the
Company's stockholders, an amendment to the 1997 Plan pursuant to which the
maximum number of shares available for issuance thereunder will be increased to
850,000. See "Proposal No. 2 -- Amendment of the Company's 1997 Long Term
Incentive Plan."
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<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. On January 30, 1996,
pursuant to the terms of his employment agreement, Mr. Reiner was elected Chief
Executive Officer of the Company. His compensation will continue to be governed
by the terms of his employment agreement described above.
COMPENSATION DEDUCTION LIMITATION. Section 162(m) of the Code limits to
$1 million per year the federal income tax deduction available to a public
company for compensation paid to its chief executive officer and its four other
highest paid executive officers, unless that compensation qualifies for certain
"performance-based" exceptions provided for in that section of the Code. The
Committee will consider ways to maximize the deductibility of executive
compensation, while retaining the discretion the Committee deems necessary to
compensate executive officers in a manner commensurate with performance and the
competitive environment for executive talent.
Submitted by the Compensation Committee of the Board of Directors:
Thomas H. Lee, Rohit M. Desai and Norman S. Matthews.
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<PAGE>
STOCK PERFORMANCE GRAPH
The following graph charts, on an annual basis, the total stockholders'
return over a period from April 6, 1995 to January 31, 1998 with respect to an
investment in the Company's Common Stock as compared to the NASDAQ Stock Market
and the Dow Jones Retail -- All Specialty Index. The Company has paid no
dividends with respect to its Common Stock during the period.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG FINLAY ENTERPRISES, INC., THE NASDAQ STOCK MARKET U.S. INDEX AND
THE DOW JONES RETAILERS, SPECIALTY INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
APRIL 6, 1995 FEBRUARY 3, 1996 FEBRUARY 1, 1997 JANUARY 31, 1998
------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Finlay Enterprises Inc. FNLY 100.00 78.57 105.36 164.29
Nasdaq Stock Market (U.S.) INAS 100.00 132.48 171.83 203.03
Dow Jones Retailers (Specialty) IRTS 100.00 105.27 124.93 189.19
</TABLE>
* Assumes $100 invested on April 6, 1995 in stock or index, with
reinvestment of all dividends.
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<PAGE>
CERTAIN TRANSACTIONS
1985 ACQUISITION AND 1988 LEVERAGED RECAPITALIZATION
From 1968 until 1985, the business of Finlay was operated as a division
of Seligman & Latz, Inc. ("S&L"). S&L was acquired in December 1985 (the "1985
Acquisition") by SL Holdings Corporation ("SL Holdings"), which was formed by
certain officers and directors of SL Holdings. David B. Cornstein's affiliation
with Finlay commenced in 1985 when, concurrent with the 1985 Acquisition, a
wholly owned subsidiary of SL Holdings acquired the outstanding stock of
Tru-Run, Inc., a corporation principally owned by Mr. Cornstein which was
engaged in the operation of licensed jewelry and watch repair departments.
Immediately following the 1985 Acquisition, SL Holdings contributed to S&L
Acquisition Company, L.P., a Delaware limited partnership ("S&L Acquisition"),
all of the businesses and assets of S&L, as well as the business and assets of
Tru-Run, Inc. In connection with a 1988 reorganization, the Company was
organized by certain officers and directors of SL Holdings to acquire certain
operations of SL Holdings. Pursuant to such reorganization, a wholly owned
subsidiary of the Company was merged into SL Holdings, and thereby SL Holdings,
which then changed its name to Finlay Fine Jewelry Corporation, became a wholly
owned subsidiary of the Company.
THE 1993 RECAPITALIZATION
On May 26, 1993, Finlay completed the Recapitalization Transactions,
which were designed (i) to improve the financial and operating flexibility of
Finlay and (ii) generally to reduce the equity interests of then-existing
non-management stockholders and enable the Lee Investors and the Desai Investors
to acquire 36.8% and 24.5%, respectively, of the voting securities of the
Company.
In connection with the Recapitalization Transactions, the Lee Investors
and the Desai Investors invested in units consisting of the Company's 10% Series
C Cumulative Preferred Stock (the"Series C Preferred Stock") and Common Stock.
Concurrently, certain other existing classes of preferred stock and all
outstanding warrants to purchase Common Stock were redeemed. These equity
related transactions resulted in the Lee Investors and the Desai Investors
obtaining beneficial ownership of 52.6% of the outstanding Common Stock.
The Recapitalization Transactions also included the public issuance by
the Company of units consisting of 12% Senior Discount Debentures due 2005 (the
"12% Debentures") and Common Stock, the public issuance by Finlay Jewelry of
10-5/8% Senior Notes due 2003 (the "10-5/8% Notes") and the refinancing of the
Company's outstanding term loans and revolving indebtedness (the "WCC Revolving
Credit Facility") with Westinghouse Credit Corporation ("WCC"). The WCC
Revolving Credit Facility was replaced by a $110 million Revolving Credit
Facility with General Electric Capital Corporation (the "G.E. Capital Revolving
Credit Facility"). The G.E. Capital Revolving Credit Facility was amended in
October 1994 to, among other things, increase the amount available thereunder to
$135 million.
In connection with the Recapitalization Transactions, certain executive
officers and directors of the Company and Finlay Jewelry entered into new
employment agreements with Finlay. Also in connection with the Recapitalization
Transactions, Finlay entered into the Lee Management Agreement with an affiliate
of the Lee Investors and the Desai Management Agreement with an affiliate of the
Desai Investors. In July 1993, Finlay entered into a consulting agreement with
Norman Matthews, which agreement was terminated, in part, upon completion of the
Initial Public Offering. See "Executive Compensation -- Employment Agreements
and Change of Control Arrangements," "Executive Compensation -- Compensation
Committee Interlocks and Insider Participation."
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<PAGE>
THE INITIAL PUBLIC OFFERING AND SERIES C EXCHANGE; STOCKHOLDER PURCHASE
In April 1995, the Company completed the Initial Public Offering, in
which 2,615,000 shares of Common Stock were sold to the public at a price of
$14.00 per share, 2,500,000 of which were sold by the Company and 115,000 of
which were sold by certain non-management selling stockholders. The Company used
$5,789,000 of the net proceeds of the Initial Public Offering to repurchase a
portion of the outstanding 12% Debentures and the balance thereof to reduce a
portion of the outstanding balance under, and accrued interest on, the G.E.
Revolving Credit Facility and to pay transaction costs. As part of the Initial
Public Offering, the Lee Investors, the Desai Investors and Messrs. Cornstein
and Reiner purchased an aggregate of 208,163 shares of Common Stock from the
underwriters of the Initial Public Offering at the initial public offering price
of $14.00 per share. Immediately prior to completion of the Initial Public
Offering, the holders of the Company's Series C Preferred Stock exchanged all
outstanding shares of Series C Preferred Stock with the Company for 2,581,784
shares of Common Stock (the "Series C Exchange"). For the purposes of the Series
C Exchange, the outstanding Series C Preferred Stock was (i) valued at its
liquidation value of $30,000,000 plus $6,145,000 of accrued dividends through
April 13, 1995, paid in kind at a quarterly rate of 2.5%, and (ii) exchanged for
Common Stock at the initial public offering price. In connection with the Series
C Exchange, a $10,000,000 non-recurring, non-cash charge representing the
difference between the liquidation value and the carrying value of the Series C
Preferred Stock was recorded.
AMENDED STOCKHOLDERS' AGREEMENT
Prior to completion of the Initial Public Offering, the Lee Investors,
the Desai Investors, the Management Stockholders, all employees holding options
to purchase Common Stock, certain private investors and the Company entered into
the Amended Stockholders' Agreement, which sets forth certain rights and
obligations of the parties with respect to the Common Stock and corporate
governance of the Company. Any employees of Finlay not parties to the Amended
Stockholders' Agreement who have received or in the future receive options to
purchase Common Stock in connection with their employment have also been
required or will also be required, as the case may be, to become parties to the
Amended Stockholders' Agreement.
The Amended Stockholders' Agreement provides that the parties thereto
must vote their shares to fix the number of members of the Board of Directors of
the Company at eight and to vote in favor of six directors who are nominated as
follows: two by the Lee Investors, one by the Desai Investors, two by Mr.
Cornstein and one by Mr. Reiner. Notwithstanding the foregoing, the right of
various persons to designate directors will be reduced or eliminated at such
time as they own less than certain specified percentages of the shares of Common
Stock then outstanding or in certain cases are no longer an employee of the
Company. The designees of the Lee Investors currently serving on the Board of
Directors are Messrs. Lee and Smith; the designee of the Desai Investors is Mr.
Desai; the designees of Mr. Cornstein are Messrs. Cornstein and Kaplan; and Mr.
Reiner is his own designee. The Amended Stockholders' Agreement also provides
for the Executive Committee to consist of at least five directors, including one
independent director not a party to the Amended Stockholders' Agreement selected
by the Board of Directors, one member designated by Mr. Lee (so long as the Lee
Investors have the right to designate a nominee for director), one member
designated by the Desai Investors (so long as the Desai Investors have the right
to designate a nominee for director) and two members designated by Mr. Cornstein
(which number will be reduced to one if Mr. Cornstein is only entitled to
designate one nominee for director and none if Mr. Cornstein ceases to have the
right to designate a nominee for director). When a stockholder or group of
stockholders loses the right to designate a director, such director is to be
designated instead by a majority of the directors of the Company. The Executive
Committee of the Company's Board consists at present of Messrs. Lee, Desai,
Matthews, Cornstein, Kaplan and Reiner.
In addition, the Amended Stockholders' Agreement provides that the
parties thereto have (i) certain "come along" rights allowing them to
participate in private sales of Common Stock by parties selling at least a
majority of the outstanding shares of Common Stock and (ii) certain "take along"
rights allowing parties who are selling at least a majority of the outstanding
shares of Common Stock to require the other parties to the Amended Stockholders'
- 20 -
<PAGE>
Agreement to sell all or a portion of their shares of Common Stock to the same
purchaser in the same transaction on the same terms.
REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement grants certain registration rights to
the Lee Investors, the Desai Investors, certain other investors and certain
Management Stockholders. Lee Investors and Desai Investors who together hold at
least 31% of the outstanding "Registrable Securities" (as defined in the
Registration Rights Agreement) are entitled to request jointly, and the Company
shall be obligated to effect, up to three registrations of "Registrable
Securities." On or after June 1, 1998, the Lee Investors and Desai Investors may
demand registration without the other under certain circumstances. The
Registration Rights Agreement also provides that stockholders who are parties
thereto (other than the Lee Investors and the Desai Investors) holding in the
aggregate at least 20.0% of the "Registrable Securities" then outstanding will
have the right on one occasion to require the Company to file a registration
statement with the Securities and Exchange Commission covering all or a portion
of their "Registrable Securities" in certain circumstances. In addition, under
the Registration Rights Agreement, if the Company proposes to register shares of
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"), either for its own account or for the account of others (other than a
registration statement relating solely to employee benefit plans), then each
party to the Registration Rights Agreement will have the right, subject to
certain restrictions and priorities, to request that the Company register its
shares of Common Stock in connection with such registration. Under the
Registration Rights Agreement, the holders of "Registrable Securities," on the
one hand, and the Company, on the other, agree to indemnify each other for
certain liabilities, including liabilities under the Securities Act, in
connection with any registration of shares subject to the Registration Rights
Agreement.
THE 1997 OFFERING
On October 21, 1997, the Company completed a public offering (the "1997
Offering") of 3,450,000 shares of Common Stock at a price of $19.00 per share,
of which 2,196,971 shares were issued and sold by the Company and 1,253,029
shares were sold by certain non-management selling stockholders. In connection
with the 1997 Offering, Messrs. Lee, Desai and Matthews sold 410,325 shares,
953,029 shares and 5,722 shares, respectively.
THE 1998 OFFERING
On April 24, 1998, the Company completed a public offering (the "1998
Offering") of 1,800,000 shares of Common Stock at a price of $27.50 per share,
of which 567,310 shares were sold by the Company and 1,232,690 shares were sold
by certain selling stockholders. In connection with the 1998 Offering, Messrs.
Lee, Reiner, Smith and Scheckner sold 1,071,921 shares, 100,000 shares, 13,055
shares and 20,200 shares, respectively. A portion of the proceeds received by
Mr. Reiner from the sale of such shares was used by him to repay the outstanding
balance of a note issued by Mr. Reiner to the Company (the "Receivable
Repayment"). See "Executive Compensation -- Employment Agreements and Change of
Control Arrangements."
Concurrently with the 1998 Offering, (i) the Company sold $75.0 million
aggregate principal amount of its 9% Senior Debentures due May 1, 2008 (the
"Senior Debenture Offering"), (ii) Finlay Jewelry sold $150.0 million aggregate
principal amount of its 8-3/8% Senior Notes due May 1, 2008 (the "Senior Note
Offering") and (ii) the G.E. Capital Revolving Credit Facility was amended to
increase the line of credit thereunder to $275.0 million and to make certain
other changes. The net proceeds to the Company from the 1998 Offering, the
Senior Debenture Offering, the Receivable Repayment and the repayment of $0.9
million (as of January 31, 1998) of an intercompany liability by Finlay Jewelry
(the "Intercompany Repayment") will be used by the Company to redeem its
currently outstanding 12% Debentures, including associated premiums. In
addition, on May 1, 1998, the Company used a portion of such proceeds to prepay
the original issue discount of $39,027,292 on the 12% Debentures. A portion
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<PAGE>
of the net proceeds to Finlay Jewelry from the Senior Note Offering will be used
by Finlay Jewelry to make the Intercompany Repayment and an additional portion
of such proceeds will be used by Finlay Jewelry to redeem its currently
outstanding 10-5/8% Notes, together with associated premiums. The Company and
Finlay Jewelry have set May 26, 1998 as the redemption date for the 12%
Debentures and the 10-5/8% Notes.
CERTAIN OTHER TRANSACTIONS
Prior to completion of the Initial Public Offering, Finlay entered into
indemnification agreements with each of Finlay's directors and certain executive
officers. The indemnification agreements require, among other things, that
Finlay indemnify its directors and executive officers against certain
liabilities and associated expenses arising from their service as directors and
executive officers of Finlay and reimburse certain related legal and other
expenses. In the event of a Change of Control (as defined therein) Finlay will,
upon request by an indemnitee under the agreements, create and fund a trust for
the benefit of such indemnitee sufficient to satisfy reasonably anticipated
claims for indemnification. Finlay will also cover each director and certain
executive officers under a directors and officers liability policy maintained by
Finlay in such amounts as the Board of Directors of the Company finds
reasonable. Although the indemnification agreements offer coverage similar to
the provisions in the Restated Certificate of Incorporation and the Delaware
General Corporation Law, they provide greater assurance to directors and
officers that indemnification will be available, because, as contracts, they
cannot be modified unilaterally in the future by the Board of Directors or by
the stockholders to eliminate the rights they provide.
For information relating to certain transactions involving members of
management or others, see "Executive Compensation -- Compensation Committee
Interlocks and Insider Participation" and "Executive Compensation -- Employment
Agreements and Change of Control Arrangements."
PROPOSAL NO. 2
AMENDMENT OF THE 1997 LONG TERM INCENTIVE PLAN
On March 6, 1997, the Board of Directors of the Company adopted the
1997 Plan, which was approved by the Company's stockholders on June 19, 1997.
The purpose of the 1997 Plan is to provide an incentive and reward for those
executive officers, directors, key employees, consultants and other persons who
are in a position to contribute substantially to the progress and success of the
Company, to closely align the interests of such employees and other persons with
the interests of stockholders of the Company by linking benefits to stock
performance and to retain the services of such persons, as well as to attract
new key employees. In furtherance of that purpose, the 1997 Plan authorizes the
grant, subject to applicable law, to executives, directors, key employees,
consultants and other persons who are deemed to render significant services to
the Company or its subsidiaries of stock options, stock appreciation rights,
limited stock appreciation rights, restricted stock, performance awards or any
combination thereof.
Pursuant to the 1997 Plan as currently in effect, the Company is
authorized to grant awards covering an aggregate of 350,000 shares of Common
Stock. The Board of Directors of the Company has adopted, and recommends that
the stockholders of the Company approve the adoption of, an amendment to the
1997 Plan to increase by 500,000 shares the number of shares of Common Stock
available for awards under the 1997 Plan. A copy of the 1997 Plan, as amended by
the Board of Directors, is attached hereto as Annex A.
The material features of the 1997 Plan as currently in effect are
described above under the heading "Executive Compensation -- Long Term Incentive
Plans."
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<PAGE>
REASONS FOR AND PRINCIPAL EFFECTS OF THE PROPOSAL
As of May 18, 1998, 2,600 shares of Common Stock had been issued upon
exercise of options granted under the 1997 Plan and 346,848 shares of Common
Stock were reserved for issuance upon exercise of options outstanding on such
date. Accordingly, as of such date, only 552 shares of Common Stock were
available for future awards under the 1997 Plan. As the Compensation Committee
believes that the Company's stock-based performance compensation arrangements
are beneficial in aligning management's interests with those of the Company's
stockholders over the long term, the Board has adopted, and recommends that the
stockholders approve the adoption of, the amendment to the 1997 Plan providing
for the increase in the number of shares of Common Stock which may be issued
upon exercise of awards granted thereunder from 350,000 shares to 850,000
shares. If the amendment is approved, the executive officers, directors, key
employees, consultants and other persons who are eligible to participate in the
1997 Plan could receive, in the aggregate, an additional 500,000 shares of
Common Stock.
VOTE REQUIRED FOR APPROVAL
Approval of the amendment to the 1997 Plan requires the affirmative
vote of a majority of the voting power present in person or represented by proxy
at the Annual Meeting and entitled to vote thereon.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors recommends a vote FOR Proposal No. 2.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the next annual
meeting of stockholders, to be held in 1999, must be received by the Company at
529 Fifth Avenue, New York, New York 10017, Attention: Secretary by January 28,
1999 to be included in the proxy statement and form of proxy relating to that
meeting.
AUDITORS
Representatives of Arthur Andersen LLP are expected to attend the
Annual Meeting and, while they are not expected to make a statement, they will
have an opportunity to do so if they desire. They will also be available to
answer appropriate questions.
OTHER INFORMATION
The cost of soliciting proxies will be borne by the Company. Following
the original mailing of proxy soliciting material, regular employees of the
Company may solicit proxies by mail, telephone, telegraph and personal
interview. Arrangements have been made with brokerage houses and other
custodians, nominees and fiduciaries which are record holders of the Company's
stock to forward proxy soliciting material and annual reports to the beneficial
owners of such stock, and the Company will reimburse such record holders for
their reasonable expenses incurred in providing such services. As of the date of
this Proxy Statement, the Company has not retained the services of a proxy
solicitor to assist in the solicitation of proxies; however, the Company may
determine prior to the date of the annual meeting to retain a proxy solicitor,
in which case the Company anticipates that the cost of doing so will not exceed
$5,000.
A copy of the Company's annual report for the fiscal year ended January
31, 1998 is enclosed.
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<PAGE>
The Board of Directors is aware of no other matters that are to be
presented to stockholders for formal action at the Annual Meeting. If, however,
any other matters properly come before the Annual Meeting or any adjournment
thereof, it is the intention of the persons named in the enclosed form of proxy
to vote such proxy in accordance with their judgment on such matters.
By Order of the Board of Directors.
Bonni G. Davis
SECRETARY
Dated: New York, New York
May 22, 1998
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<PAGE>
ANNEX A
FINLAY ENTERPRISES, INC.
1997 LONG TERM INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purpose of the 1997 Long Term Incentive Plan is to promote
the interests of Finlay Enterprises, Inc. (the "Corporation") and its
stockholders by providing an incentive and reward for executive officers,
directors, key employees, consultants and other persons who are in a position to
contribute substantially to the progress and success of the Corporation and its
subsidiaries and thereby encourage such persons to seek such results; to closely
align the interests of such employees and other persons with the interests of
stockholders of the Corporation by linking rewards hereunder to stock
performance; to retain in the Corporation and its subsidiaries the benefits of
the services of such persons; and to attract to the service of the Corporation
and its subsidiaries new executive officers, directors, key employees,
consultants and other such persons of high quality.
2. DEFINITIONS
Unless otherwise required by the context, the terms used in
this Plan shall have the meanings ascribed to such terms in this Section 2.
"Award" shall mean an award granted under the Plan in one of
the forms provided in Section 6.
"Beneficiary," as applied to a participant, shall mean a
person or entity (including a trust or the estate of the participant) designated
in writing by the participant on such forms as the Committee may prescribe to
receive benefits under the Plan in the event of the death of the participant;
PROVIDED, HOWEVER, that if, at the death of a participant, there shall not be
any living person or entity in existence so designated, the term "beneficiary"
shall mean the legal representative of the participant's estate.
"Board" or "Board of Directors" shall mean the Board of
Directors of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. References to any provision of the Code shall be
deemed to include regulations and proposed regulations thereunder and successor
provisions and regulations thereto.
"Committee" shall mean the Compensation Committee of the Board
of Directors, and/or any other committee or subcommittee the Board may appoint
to administer the Plan as provided herein. A Committee composed solely of two or
more members of the Board who meet (i) the definition of "outside director"
under Section 162(m) of the Code, (ii) the definition of "non-employee director"
under Section 16 of the Exchange Act and (iii) any similar or successor laws
hereinafter enacted, shall administer the Plan with respect to participants who
are Covered Employees or who are subject to Section 16 of the Exchange Act at
the time of the relevant Committee action; PROVIDED, HOWEVER, that if, at any
time, no Committee shall be in office, then the functions of the Committee
specified in this Plan shall be exercised by the Board or by any other committee
appointed by the Board.
"Common Stock" shall mean the Common Stock of the Corporation,
$.01 par value, or such other class of shares or other securities as may be
applicable pursuant to the provisions of Section 8.
"Covered Employee" shall mean any employee of the Corporation
or any of its Subsidiaries who is deemed to be a "covered employee" within the
meaning of Section 162(m) of the Code.
A-1
<PAGE>
"Detrimental Activity" shall mean any activity by a
participant or former participant in the Plan that is determined by the
Executive Committee of the Corporation in its sole discretion to be deleterious
to the interests of the Corporation or any Subsidiary.
"Disability" shall mean the permanent and total disability as
defined by Section 22(e)(3) of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended. References to any provision of the Exchange Act shall be deemed to
include the rules and regulations thereunder and successor provisions and rules
and regulations thereto.
"Incentive Stock Option" shall mean any stock option
designated as, and qualified as, an "incentive stock option" within the meaning
of Section 422 of the Code.
"Limited Stock Appreciation Right" shall mean a right granted
pursuant to paragraph 6.6 to receive cash based on the increase in Market Value
of the shares of Common Stock subject to such right in the limited circumstances
set forth therein.
"Market Value," as applied to any date, shall mean the mean
between the highest and lowest sale prices of the Common Stock as reported on
the principal national securities exchange or National Association of Securities
Dealers Automated Quotation/National Market System ("NASDAQ/NMS"), as the case
may be, on which such stock is listed and traded for such date or, if there is
no such sale on that date, then on the last preceding date on which such a sale
was reported. If the Common Stock is not quoted or listed on an exchange or on
NASDAQ/NMS, or representative quotes are not otherwise available, the Market
Value shall mean the amount determined by the Committee to be the fair market
value based upon a good faith attempt to value the Common Stock accurately and
computed in accordance with applicable regulations of the Internal Revenue
Service.
"Non-Employee Director" shall mean a member of the Board who
is not an employee of the Corporation or any of its Subsidiaries.
"Nonqualified Stock Option" shall mean an Option that is not
an Incentive Stock Option.
"Option" or "Stock Option" shall mean an option to purchase
shares of Common Stock granted pursuant to paragraph 6.3.
"Performance Unit" shall mean a contingent right granted
pursuant to paragraph 6.5 to receive an award, payable either in cash or in
Common Stock, if specific goals prescribed by the Committee are attained.
"Plan" shall mean the 1997 Long Term Incentive Plan of the
Corporation set forth herein, as such may be amended and supplemented from time
to time.
"Restricted Stock" shall mean shares of Common Stock issued or
transferred subject to restrictions precluding a sale or other disposition for a
period of time (other than as specifically may be permitted) and requiring as a
condition to retention compliance with any other terms and conditions that may
be imposed by the Committee.
"Retirement" shall mean the termination of the participant's
employment with the Corporation and its Subsidiaries for retirement purposes if
such termination occurs on or after his normal retirement date as defined under
the Corporation's Retirement Income Plan.
"Rule 16b-3," as applied on a specific date, shall mean Rule
16b-3 of the General Rules and Regulations under the Exchange Act as then in
effect or any other provision that may have replaced such Rule and be then in
effect.
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"Stock Appreciation Right" shall mean a right granted pursuant
to paragraph 6.4 to receive cash or Common Stock based on the increase in Market
Value of the shares of Common Stock subject to such right.
"Stock Award" shall mean a form of Award granted pursuant to
paragraph 6.2.
"Subsidiary" shall mean a corporation or other form of
business association of which shares (or other ownership interests) having 50%
or more of the voting power are owned or controlled, directly or indirectly, by
the Corporation.
"Year" shall mean the Corporation's then applicable fiscal
year.
3. SCOPE OF THE PLAN; ELIGIBILITY
3.1. The Plan shall apply to the Corporation and Subsidiaries
other than those specifically excluded by the Board of Directors.
3.2. Awards may be made or granted, subject to applicable law,
to executive officers, directors, key employees, consultants and other persons
who are deemed to render significant services to the Corporation or its
Subsidiaries and/or who are deemed to have the potential to contribute to the
future success of the Corporation. The term "employees" shall include officers
who are employees of the Corporation or of a Subsidiary, as well as other
employees of the Corporation and its Subsidiaries. No Incentive Stock Option
shall be granted to any person who is not an employee of the Corporation or a
"subsidiary" (as defined in Section 424 of the Code) at the time of grant.
4. ADMINISTRATION
4.1. The Plan shall be administered by the Committee. Subject
to the express provisions of the Plan, the Committee shall have the full power
to interpret and administer the Plan, including, but without limiting the
generality of the foregoing, determining who shall be participants in the Plan,
the amount to be awarded to each participant and the form, manner of payment,
conditions, time and terms of payment of Awards. The interpretation by the
Committee of the terms and provisions of the Plan and the administration
thereof, as well as all actions taken by the Committee, shall be final, binding
and conclusive on the Corporation, its stockholders, Subsidiaries, all
participants and employees, and upon their respective Beneficiaries, successors
and assigns, and upon all other persons claiming under or through any of them.
4.2. The Committee may adopt such rules and regulations, not
inconsistent with the provisions of the Plan, as it deems necessary to determine
participation in the Plan, the form and distribution of benefits thereunder and
the proper administration of the Plan, and may amend or revoke any such rule or
regulation.
4.3. Unless authority is specifically reserved to the Board of
Directors under the terms of the Plan, the Corporation's Certificate of
Incorporation or By-laws, or applicable law, the Committee shall have sole
discretion in exercising authority under the Plan. The Committee shall select
one of its members as its chairman and shall hold meetings at such times and
places as it shall deem advisable. Any action of the Committee shall be taken
with the approval of a majority of its members present and voting at a meeting
duly called and held at which a quorum is present. A majority of the Committee's
members shall constitute a quorum. Any action may be taken by a written
instrument signed by all members of the Committee and such action shall be fully
as effective as if taken by a majority of the members at a meeting duly called
and held. The Committee may delegate to officers or managers of the Corporation
or any Subsidiary of the Corporation the authority, subject to such terms as the
Committee shall determine, to perform administrative functions and, with respect
to participants not subject to Section 16 of the Exchange Act, to perform such
other functions as the Committee may determine, to the extent permitted under
Rule 16b-3 and applicable law.
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4.4. Each member of the Committee shall be entitled to rely or
act in good faith upon any report or other information furnished to him by any
officer or other employee of the Corporation or any Subsidiary, the
Corporation's independent certified public accountants, or any executive
compensation consultant, legal counsel or other professional retained by the
Corporation to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Corporation or a Subsidiary acting
on behalf of the Committee, shall be personally liable for any action,
determination or interpretation taken or omitted to be taken or made in good
faith with respect to the Plan, and such persons shall, to the extent permitted
by law, be fully indemnified and protected by the Corporation with respect to
any such action, determination or interpretation.
5. SHARES SUBJECT TO THE PLAN.
5.1. Subject to adjustment as provided in Section 8 hereof,
the total number of shares of Common Stock reserved for delivery to participants
in connection with Awards under the Plan shall be 850,000. If any shares of
Common Stock subject to an Award at or after the effective date of the Plan are
forfeited or such Award is settled in cash or otherwise terminates or is settled
without delivery of shares of Common Stock to the participant, such number of
shares shall be available for new Awards under the Plan.
5.2. No Award (including an Award that may only be settled in
cash) may be granted if the number of shares of Common Stock to which such Award
relates, when added to the number of shares previously delivered under the Plan
and the number of shares to which other then-outstanding Awards relate, exceeds
the number of shares of Common Stock deemed available under this Section 5. The
Committee may adopt procedures for the counting of shares under this Section 5
to ensure appropriate counting, avoid double counting (in the case of tandem or
substitute Awards), and provide for adjustments in any case in which the number
of shares actually delivered differs from the number of shares previously
counted in connection with an Award. Any shares of Common Stock delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
6. TERMS OF AWARDS
6.1. GRANTS OF AWARDS. Awards may be granted, in
whole or in part, in one or more following
forms:
(a) A Stock Award in accordance with paragraph
6.2;
(b) An Option, in accordance with paragraph 6.3;
(c) A Stock Appreciation Right, in accordance
with paragraph 6.4.
(d) A Performance Unit in accordance with
paragraph 6.5.
(e) A Limited Stock Appreciation Right in
accordance with paragraph 6.6.
6.2. STOCK AWARDS. Awards granted as Stock Awards shall be in
the form of an issuance of (i) shares of Restricted Stock or (ii) shares which
are not subject to any restrictions on sale or disposition. Such Stock Awards
shall contain such terms and conditions as the Committee shall determine,
including, with respect to a Stock Award of Restricted Stock, provisions
relating to forfeiture of all or any part of the Restricted Stock upon
termination of employment prior to expiration of a designated period of time or
upon the occurrence of other events; PROVIDED, HOWEVER, that upon the issuance
of shares pursuant to a Stock Award of Restricted Stock, the participant shall,
with respect to such shares, be and become a stockholder of the Corporation
entitled to receive dividends, to vote and to exercise all other rights of a
stockholder except to the extent otherwise specifically provided in the Stock
Award. The certificate for any shares of Common Stock issued or transferred as
Restricted Stock shall either be deposited in escrow or carry an appropriate
legend as the Committee shall determine.
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6.3. OPTIONS. Awards granted as Options shall be subject to
the following provisions:
(a) Options granted shall be either Incentive Stock Options or
Nonqualified Stock Options, as the Committee shall specify at the time the
Option is granted.
(b) The price at which shares of Common Stock covered by each
Option may be purchased pursuant thereto shall be determined in each case by the
Committee, but shall not be less than the par value of such shares or, with
respect to Incentive Stock Options, not less than 100% of the Market Value of
the Common Stock on the date the Option is granted. Notwithstanding the
foregoing, in the case of an Incentive Stock Option granted to a participant who
(applying the rules of Section 424(d) of the Code) owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the employer corporation (or a "parent" or "subsidiary" of such
corporation within the meaning of Section 424 of the Code) (a "Ten-Percent
Stockholder"), the exercise price per share shall not be less than one hundred
and ten percent (110%) of the Market Value of the Common Stock on the date on
which the Option is granted.
(c) Each Option shall expire at such time as the Committee may
determine at the time such Option is granted, but not later, in the case of
Incentive Stock Options, than ten years (or, in the case of Incentive Stock
Options granted to a Ten-Percent Stockholder, not later than five years) from
the date such Option is granted. The term of any Nonqualified Stock Option may,
with the consent of the holder of the Option, be extended by the Committee at
any time prior to the expiration of the Option without further consideration to
the Corporation and, except to the extent otherwise provided in the Code, such
extension shall not be deemed the grant of a new or additional Option for any
purpose under the Plan or otherwise.
(d) Each Option shall first become exercisable at such time or
times as the Committee may determine at the time such Option is granted, except
that:
(i) In the event the employment of a
participant is terminated by reason of Retirement, death or
Disability, all unexercised Options shall thereupon, subject
to the other provisions below of this paragraph 6.3, become
exercisable for the period provided in connection with such
termination in paragraph (e); and
(ii) Options granted shall not be affected
by any change in the nature of the participant's employment so
long as he continues to be employed by the Corporation or a
Subsidiary. Approved leaves of absence shall not be considered
a termination or interruption of full-time employment for any
purpose of the Plan.
(e) The Committee shall determine and set forth in each option
agreement governing an Option granted under the Plan rules that specify the
period, if any, after termination of employment during which an Option shall be
exercisable, provided that in the case of an Incentive Stock Option, such Option
shall in no event be exercisable more than ten years (or, in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder, five years) after
the date of grant.
(f) Subject to the provisions of paragraphs 6.3(c), (d) and
(e), Options may be exercised, in part or in whole, at any time or from time to
time during the term of the Option.
(g) An Option shall be considered exercised under the Plan on
the date written notice is mailed to the Secretary of the Corporation, postage
prepaid, or delivered in person to the Secretary, advising of the exercise of a
particular Option and transmitting payment of the Option price for the shares
involved, plus any withholding tax required under any federal, state and local
statutes; PROVIDED, HOWEVER, that this provision shall not preclude exercise of
an Option by any other proper legal method.
(h) Options are not transferable other than by will or by the
laws of descent and distribution, and during a participant's lifetime are
exercisable only by him.
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(i) The Committee may place such conditions on the exercise of
Options and on the transferability of shares received on exercise of an Option,
in addition to those contained herein, as it shall deem appropriate.
(j) No shares shall be issued or transferred upon exercise of
an Option until full payment of the exercise price therefor has been made. Such
exercise price may be paid (i) in cash, (ii) to the extent authorized by the
Committee, in whole shares of Common Stock owned by the participant prior to
exercising the Option, (iii) to the extent authorized by the Committee, by
having the Corporation withhold a number of shares from the exercise having a
Market Value equal to the exercise price, (iv) by delivery of any other property
acceptable to the Corporation or (v) by any combination thereof. Notwithstanding
the preceding sentence, the Corporation and the participant may agree upon any
other reasonable manner of providing for payment of the exercise price of the
Option. For the purpose of such payment, the sum of the Market Value of the
shares of Common Stock and any such other property on the date of exercise plus
any cash payment shall not be less than the option price of the shares to be
issued or transferred. Payments of the exercise price of an Option that are made
in the form of Common Stock (which shall be valued at Market Value) may be made
by (i) delivery of stock certificates in negotiable form or (ii) unless
otherwise determined by the Committee, delivery of the participant's
representation that, on the date of exercise, he owns the requisite number of
shares and, unless such shares are registered in the participant's name as
verified by the records of the Corporation's transfer agent, a representation
executed by the participant's brokerage firm or other entity in whose name such
shares are registered that on the date of exercise the participant beneficially
owns the requisite number of shares ("Certificateless Exercise"). Delivery of
such a representation pursuant to a Certificateless Exercise shall be treated as
the delivery of the specified number of shares of Common Stock; PROVIDED,
HOWEVER, that the number of shares issued to the participant upon exercise of
the Option shall be reduced by the number of shares specified in the
representation.
6.4. STOCK APPRECIATION RIGHTS. Awards granted as Stock
Appreciation Rights shall be the subject of the following provisions:
(a) Stock Appreciation Rights may be granted only in
connection with an Option (the "Related Option"), either at the time of the
grant of such Option or at any time thereafter during the term of the Option.
(b) Each Stock Appreciation Right shall provide that the
holder thereof may exercise the same by surrendering the Related Option or any
portion thereof, to the extent unexercised, and upon such exercise and surrender
shall be entitled to receive other cash or shares of Common Stock in the amount
determined pursuant to clause (ii) of paragraph 6.4(c). Such Option shall, to
the extent so surrendered, thereupon cease to be exercisable.
(c) Stock Appreciation Rights shall be further subject to the
following terms and conditions and to such other terms and conditions, not
inconsistent with the Plan, as the Committee shall from time to time approve:
(i) Stock Appreciation Rights shall be
exercisable at such time or times and to the extent, but only
to the extent, that the Related Option shall be exercisable.
(ii) Upon exercise of Stock Appreciation
Rights, the holder thereof shall receive, at the option of the
Corporation, either (i) cash in an amount equal to the excess
of the Market Value of a share of Common Stock on the date of
such exercise over the exercise price per share of Common
Stock subject to the Related Option multiplied by the number
of shares of Common Stock in respect of which the Stock
Appreciation Rights are exercised (the "Settlement Amount") or
(ii) such number of shares of Common Stock as shall be
determined by dividing the Settlement Amount by the Market
Value of a share of Common Stock on the date of exercise of
the Stock Appreciation Rights.
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(d) To the extent that Stock Appreciation Rights shall be
exercised, the Related Option shall be deemed to have been exercised for the
purpose of the maximum limitation set forth in paragraph 5.1.
(e) Stock Appreciation Rights may be exercised by the form of
notice provided for the exercise of an Option under paragraph 6.3(g).
(f) Any provision of this Section 6 to the contrary
notwithstanding, no payment or exercise of Stock Appreciation Rights by a
participant subject to the Exchange Act shall be made other than in compliance
with Rule 16b-3.
(g) Stock Appreciation Rights are not transferable other than
by will or the laws of descent and distribution, and during a participant's
lifetime are exercisable only by him.
6.5. PERFORMANCE UNITS. Awards granted as Performance Units
shall be subject to the following provisions:
(a) The performance period for the attainment of the
performance goal shall be a cycle of not less than two nor more than five fiscal
years of the Corporation, as determined by the Committee. The Committee may
establish more than one cycle for any particular Performance Unit.
(b) The Committee shall establish a dollar value for each
Performance Unit, the principal and minimum performance goals to be attained in
respect of the Performance Unit, the various percentages of the Performance Unit
value to be paid out upon the attainment, in whole or in part, of the
performance goals and such other Performance Unit terms, conditions and
restrictions as the Committee deems appropriate. The business criteria used by
the Committee in establishing such performance goals shall include (i) return on
equity, (ii) operating income, (iii) earnings and (iv) return on invested
capital, and any such performance goals may be modified by the Committee during
the course of a performance cycle to take into account changes in conditions
that occur. Notwithstanding the foregoing, in the case of a Performance Unit
granted to a Covered Employee, no business criteria other than those enumerated
herein may be used in establishing the performance goal for such Performance
Unit, and no such performance goal may be modified by the Committee during the
course of a performance cycle except in accordance with Section 162(m) of the
Code. As soon as practicable after the termination of the performance period,
the Committee shall determine what, if any, payment is due on the Performance
Unit in accordance with the terms thereof.
(c) In the event of a participant's Retirement prior to the
expiration of the performance cycle established for any Performance Units he may
have been awarded, such units shall, to the extent that they are not fully
vested at the time of Retirement, thereupon become fully vested and be payable
on expiration of the performance cycle; PROVIDED, HOWEVER, that the percentage
of the Performance Unit to be paid out upon the attainment of the performance
goals shall be reduced by multiplying that amount by a fraction, the numerator
of which is the number of months remaining in the performance cycle following
the date of Retirement and the denominator of which is the total number of
months in the performance cycle. If a participant's employment with the
Corporation and its Subsidiaries shall be terminated for any other reason prior
to the expiration of the performance cycle established for any Performance Units
he has been awarded, such units shall be canceled automatically unless the
Committee, in its sole discretion, and subject to limitations as it may deem
advisable, determines to make full or partial payment with respect to such
Performance Units, whether at the time of termination, at the expiration of the
performance cycle or otherwise. Without limiting the generality of the
foregoing, any unpaid portion of a Performance Unit otherwise payable to a
terminated participant shall be forfeited if such participant at any time
engages in Detrimental Activity. Notwithstanding the foregoing, in the case of
Performance Units granted to Covered Employees, this paragraph 6.5(c) shall not
be given effect if, as a result thereof, such Performance Units shall lose the
protection afforded by Section 162(m) of the Code.
(d) Payment of Performance Units shall be made, at the
discretion of the Committee, either in cash in the amount of the dollar value of
the Performance Units awarded or in Common Stock having a
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Market Value at the time such award is paid equal to such dollar amount.
Payments made in the form of Common Stock shall be charged against the maximum
limitations for shares of Common Stock provided in paragraph 5.1.
(e) Performance Units are not transferable other than by will
or by the laws of descent and distribution and during a participant's lifetime
payments in respect thereof shall be made only to the participant.
6.6. LIMITED STOCK APPRECIATION RIGHTS.
Awards granted as Limited Stock Appreciation Rights shall be
subject to the following provisions:
(a) A Limited Stock Appreciation Right may be granted only in
connection with a Related Option, either at the time of the grant of such Option
or at any time thereafter during the term of such Option.
(b) Unless otherwise determined by the Committee, a Limited
Stock Appreciation Right may be exercised only during the period (i) beginning
on the first day following a Change of Control and (ii) ending on the thirtieth
day (or such other date specified by the Committee at the time of grant of the
Limited Stock Appreciation Right) following such date (such period herein
referred to as the "Limited Rights Exercise Period"). Each Limited Stock
Appreciation Right shall be exercisable during the Limited Rights Exercise
Period only to the extent the Related Option is then exercisable, and in no
event after termination of the Related Option. Limited Stock Appreciation Rights
granted under the Plan shall be exercisable in whole or in part in the manner
provided for exercise of Stock Appreciation Rights pursuant to paragraph 6.4.
(c) Upon the exercise of Limited Stock Appreciation Rights,
the holder shall receive in cash an amount equal to the excess of the Market
Value on the date of exercise of each share of Common Stock with respect to
which such Limited Stock Appreciation Rights shall have been exercised over the
exercise price per share of Common Stock subject to the Related Option,
multiplied by the number of shares of Common Stock in respect of which the
Limited Stock Appreciation Rights are exercised.
(d) To the extent that Limited Stock Appreciation Rights shall
be exercised, the Related Option shall be deemed to have been exercised for the
purpose of the maximum limitation set forth in paragraph 5.1.
(e) For purposes of this Section 6.6, a "Change in Control"
shall be deemed to have occurred if:
(i) the stockholders of the Corporation
shall have approved (A) any consolidation or merger of the
Corporation in which the Corporation is not the continuing or
surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other
property, other than a merger of the Corporation in which the
holders of Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (B) any
sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all, or substantially
all, of the assets of the Corporation, or (C) the adoption of
any plan or proposal for the liquidation or dissolution of the
Corporation;
(ii) any person (as such term is defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Corporation or any
employee benefit plan sponsored by the Corporation or any
Subsidiary) (A) shall have purchased any Common Stock (or
securities convertible into the Common Stock) for cash,
securities, or any other consideration pursuant to a tender
offer, without the prior consent of the Board of Directors, or
(B) shall have become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the
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Exchange Act), directly or indirectly, of securities of the
Corporation representing fifteen percent (15%) or more of the
issued and outstanding Common Stock; or
(iii) individuals who on the date of the
adoption of the Plan constituted the entire Board shall have
ceased for any reason to constitute a majority unless the
election, or the nomination for election by the Corporation's
stockholders, of each new director was approved by a vote of
at least a majority of the directors then still in office.
7. LIMIT ON AWARDS.
7.1. Notwithstanding any provision contained herein, the
aggregate Market Value of the shares of Common Stock with respect to which
Incentive Stock Options are first exercisable by any employee during any
calendar year (under all stock option plans of the employee's employer
corporation and its "parent" and "subsidiary" corporation within the meaning of
Section 424 of the Code) shall not exceed $100,000.
7.2. Notwithstanding any provision contained herein, no
participant may be granted under the Plan, during any Year, Options or other
Awards relating to more than 175,000 shares of Common Stock, subject to
adjustment in accordance with Section 8 hereof. With respect to an Award that
may be settled in cash, no participant may be paid in respect of any fiscal year
an amount that exceeds the greater of the Market Value of the number of shares
of Common Stock set forth in the preceding sentence at the date of grant or at
the date of settlement of the Award, provided that this limitation is separate
from and not affected by the number of Awards granted during such fiscal year
subject to the limitation in the preceding sentence.
8. ADJUSTMENTS.
In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, shares of Common
Stock or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange, or other similar corporate transaction or event, affects the
shares of Common Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of participants under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares which may thereafter be delivered in
connection with Awards, (ii) the number and kind of shares that may be delivered
or deliverable in respect of outstanding Awards, (iii) the number of shares with
respect to which Awards may be granted to a given participant and (iv) the
exercise price, grant price, or purchase price relating to any Award or, if
deemed appropriate, make provision for a cash payment with respect to any
outstanding Award; PROVIDED, HOWEVER, that, with respect to Incentive Stock
Options, no such adjustment shall be authorized to the extent that such
authority would cause the Plan to violate Section 422(b)(1) of the Code or
previously issued Incentive Stock Options to lose their status as such and, with
respect to Awards granted to Covered Employees, no such adjustment shall be
authorized to the extent that such adjustment would cause such Award to lose the
benefits of Section 162(m) of the Code.
9. GENERAL PROVISIONS.
9.1. COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The
Corporation shall not be obligated to deliver shares of Common Stock upon the
exercise or settlement of any Award or take other actions under the Plan until
the Corporation shall have determined that applicable federal and state laws,
rules and regulations have been complied with and such approvals of any
regulatory or governmental agency have been obtained and contractual obligations
to which the Award may be subject have been satisfied. The Corporation, in its
discretion, may postpone the issuance or delivery of shares of Common Stock
under any Award until completion of such listing or registration or
qualification of such shares or other required action under any federal or state
law, rule or regulation as the Corporation may consider appropriate, and may
require any participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of shares under the Plan.
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9.2. AWARDS GRANTED TO FOREIGN PARTICIPANTS. Awards granted to
a participant who is subject to the laws of a country other than the United
States of America may contain terms and conditions inconsistent with the
provisions of the Plan (except those necessary to retain the benefits of Section
162(m) or Section 422 of the Code), or may be granted under such supplemental
documents, as required under such laws.
9.3. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor
any action taken hereunder shall be construed as creating any contract of
employment between the Corporation or any of its Subsidiaries and any employee
or otherwise giving any employee the right to be retained in the employ of the
Corporation or any of its Subsidiaries, nor shall it interfere in any way with
the right of the Corporation or any of its Subsidiaries to terminate any
employee's employment at any time.
9.4. WITHHOLDING TAXES. In the event that the Corporation or
any of its Subsidiaries shall be required to withhold any amounts by reason of
any federal, state, or local tax law, rule or regulation by reason of the grant
to or exercise by a participant of any Award, the participant shall make
available to the Corporation or its Subsidiaries, promptly when required,
sufficient funds to meet the Corporation's or Subsidiary's requirement of such
withholding, and the Corporation shall be entitled to take such steps as the
Committee may deem advisable in order to have such funds available to the
Corporation or its Subsidiary at the required time or times. This Committee
authority shall include authority to deduct and withhold such required amounts
from any other cash payment or payments to be made by the Corporation or its
Subsidiaries (including from payroll) to such participant or to withhold or
receive shares of Common Stock or other property, on a mandatory basis or at the
election of the participant, and to make cash payments in respect thereof in
satisfaction of a participant's tax obligations (which may include mandatory
withholding obligations and obligations of the participant in excess of such
mandatory obligations relating to an Award).
9.5. CHANGES TO THE PLAN AND AWARDS. The Board may amend,
alter, suspend, discontinue or terminate the Plan or the Committee's authority
to grant Awards under the Plan without the consent of stockholders or
participants, except that any such action shall be subject to the approval of
the Corporation's stockholders if the Committee determines that such approval
would be necessary to retain the benefits of Rule 16b-3 (with respect to
participants who are subject to Section 16 of the Exchange Act), Section 162(m)
of the Code (with respect to Covered Employees) or Section 422 of the Code (with
respect to Incentive Stock Options) or if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Common Stock may then be listed or
quoted or if the Board of Directors otherwise determines to submit any such
action to stockholder approval; PROVIDED, HOWEVER, that, without the consent of
an affected participant, no amendment, alteration, suspension, discontinuation
or termination of the Plan may materially impair the rights of such participant
under any Award theretofore granted to him. The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue or terminate,
any Award theretofore granted and any Award agreement relating thereto;
PROVIDED, HOWEVER, that, without the consent of an affected participant, no such
amendment, alteration, suspension, discontinuation or termination of any Award
may materially impair the rights of such participant under such Award.
9.6. NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. Nothing
contained in the Plan shall be deemed to give any person eligible to receive an
Award hereunder, or any heir, distributee, executor, administrator or personal
representative of any such person, any interest or title to any specific
property of the Corporation or any of its Subsidiaries, or any other right
against the Corporation or any of its Subsidiaries other than as set forth in
the Plan. Neither the establishment of the Plan nor any other action taken now
or at any time with regard thereto shall be construed as giving any person
whatsoever any legal or equitable right against the Corporation unless such
right shall be specifically provided for in the Plan. There is no obligation for
uniformity of treatment of participants and employees under the Plan. Except as
otherwise provided in Section 6.2 with respect to Restricted Stock, no Award
shall confer on any participant any of the rights of a stockholder of the
Corporation unless and until shares of Common Stock are duly issued or
transferred and delivered to the participant in accordance with the terms of the
Award.
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9.7. UNFUNDED STATUS OF AWARDS. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such participant any
rights that are greater than those of a general creditor of the Corporation.
9.8. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the
Plan by the Board nor its submission to the stockholders of the Corporation for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
9.9. BINDING EFFECT. The provisions of the Plan shall be
binding upon the heirs, distributees, executors, administrators and personal
representatives of any person participating under the Plan. A person claiming
any rights under the Plan as a beneficiary or otherwise through a participant
shall be subject to all of the terms and conditions of the Plan and any
additional terms and conditions as may be imposed by the Committee.
9.10. NO FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards, or other property shall be
issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
9.11. COMPLIANCE WITH CODE SECTION 162(M). In the event it is
determined by the Committee prior to the grant of an Award to a Covered Employee
that such Award shall constitute "qualified performance-based compensation"
within the meaning of Code Section 162(m) of the Code, then, unless otherwise
determined by the Committee, if any provision of the Plan or any Award agreement
relating to such an Award granted to a Covered Employee does not comply or is
inconsistent with the requirements of Section 162(m) of the Code or the
regulations thereunder, such provision shall be construed or deemed amended to
the extent necessary to conform to such requirements, and no provision shall be
deemed to confer upon the Committee or any other person discretion to increase
the amount of compensation otherwise payable to a Covered Employee in connection
with any such Award upon attainment of the performance objectives to which such
Award is subject.
9.12. GOVERNING LAW. The Plan and all related documents shall
be governed by, and construed in accordance with, the laws of the State of
Delaware (except to the extent provisions of federal law may be applicable). If
any provision hereof shall be held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions of the Plan shall continue
to be fully effective.
9.13. HEADINGS. Headings are given to the sections of the Plan
solely as a convenience to facilitate reference and neither such headings or
numbering or paragraphing shall be deemed in any way material or relevant to the
construction of the Plan or any provision thereof.
9.14. TERMINOLOGY. In order to shorten and improve the
understandability of the Plan document by eliminating the repeated use of the
phrase "his or her", any masculine terminology herein shall also include the
feminine.
9.15. EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become
effective as of March 6, 1997; PROVIDED, HOWEVER, that the Plan shall have been
approved by the affirmative votes of the holders of a majority of voting
securities present in person or represented by proxy and entitled to vote at the
June 19, 1997 annual meeting of the Corporation's stockholders, or any
adjournment thereof, in accordance with applicable provisions of the Delaware
General Corporation Law. Any Awards granted under the Plan prior to such
approval of stockholders shall not be effective unless stockholder approval is
obtained, and, if stockholders fail to approve the Plan as specified hereunder,
any previously granted Award shall be forfeited and cancelled. Unless earlier
terminated under Section 9.5 hereto, the Plan shall terminate on and no further
Awards may be granted under the Plan after March 5, 2007.
A-11
<PAGE>
[FRONT]
PROXY FINLAY ENTERPRISES, INC.
PROXY SOLICITED BY
THE BOARD OF DIRECTORS OF FINLAY ENTERPRISES, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS-JUNE 22, 1998
The undersigned hereby appoints David B. Cornstein, Arthur E. Reiner and
Barry D. Scheckner and each of them, with power of substitution and
resubstitution to each, as the proxies and attorneys of the undersigned to vote,
as designated below, all shares of common stock which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders of
Finlay Enterprises, Inc. to be held at the Cornell Club, 6 East 44th Street, New
York, New York at 10:00 a.m. (local time) on June 22, 1998, and at any
adjournment thereof.
1. Election of Directors:
/ / FOR all nominees listed below / / WITHHOLD
(except as marked to APPROVAL to vote
the contrary below) for all nominees
listed below
Norman S. Matthews, Hanne M. Merriman and Warren C. Smith, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below)
-------------------------------
2. Approval of an amendment to the Company's 1997 Long Term Incentive Plan to
increase by 500,000 the number of shares of the Company's Common Stock
available for issuance thereunder:
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
If no direction is given, this proxy will be voted FOR the election of the
nominees set forth in Proposal No. 1 and FOR Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINEES SET FORTH IN PROPOSAL NO. 1
AND FOR PROPOSAL NO. 2
TO BE VALID, THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE
<PAGE>
[BACK]
Please sign exactly as name appears at
left. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give your full title
as such. If a corporation, please sign in
full corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated:------------------------------------
------------------------------------------
Signature
------------------------------------------
Signature
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS.
