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
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(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[_] 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:
N/A
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
N/A
(4) Date Filed:
N/A
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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, 2000
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, 2000 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 four 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 1,000,000 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, 2000 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 29,
2000 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 23, 2000
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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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 23, 2000) 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, as amended (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, 2000 (the "Record Date").
VOTING SECURITIES
As of the Record Date, 10,421,353 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 Proposal No. 1,
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>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
5% STOCKHOLDERS
The following table sets forth information as to each person who, to the
knowledge of the Company, was the beneficial owner as of the Record Date of more
than 5% of the issued and outstanding Common Stock of the Company.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
----------------------
NUMBER PERCENTAGE
NAME OF SHARES OF CLASS
- ---- --------- ----------
FMR Corp.(2) ......................................... 1,041,000 10.0%
Mellon Financial Corporation(3) ...................... 1,014,959 9.7%
Thomas H. Lee(4) ..................................... 984,340 9.4%
David B. Cornstein(5) ................................ 685,439 6.5%
Rohit M. Desai(6) .................................... 674,412 6.5%
Becker Capital Management, Inc.(7) ................... 656,100 6.3%
Neuberger Berman, LLC(8) ............................. 529,000 5.1%
- ----------
(1) Based on 10,421,353 shares issued and outstanding on the Record Date.
Except as noted below, each beneficial owner has sole voting power and
sole investment power, subject (in the case of Messrs. Lee, Desai and
Cornstein) to the terms of the Amended and Restated Stockholders'
Agreement dated as of March 6, 1995, as amended (the "Stockholders'
Agreement"), by and among the Company and certain securityholders of
the Company. See "Certain Transactions - Stockholders' Agreement."
(2) These shares represent shares reported as beneficially owned by FMR
Corp. in a joint filing on Amendment No. 1 dated February 14, 2000 to
a Schedule 13G dated February 1, 1999 filed with the Securities and
Exchange Commission (the "Commission") by FMR Corp., Edward C. Johnson
3d, Abigail P. Johnson and Fidelity Management and Research Company.
According to said Schedule 13G Amendment, members of the Edward C.
Johnson 3d family are the predominant owners of Class B shares of
common stock of FMR Corp., representing approximately 49% of the
voting power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail
Johnson owns 24.5% of the aggregate outstanding voting stock of FMR
Corp. Mr. Johnson 3d is Chairman of FMR Corp. and Abigail P. Johnson
is a Director of FMR Corp. The Johnson family group and all other
Class B shareholders have entered into a shareholders' voting
agreement under which all Class B shares will be voted in accordance
with the majority vote of Class B shares. Accordingly, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR Corp. The Schedule 13G Amendment
further states that Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. and a registered
investment adviser, is the beneficial owner of the 1,041,000 shares
which are the subject of the Schedule 13G Amendment as a result of its
acting as investment adviser to Fidelity Low-Priced Stock Fund (the
"Fund"), a registered investment company which owns all of such
1,041,000 shares. Edward C. Johnson 3d, FMR Corp., through its control
of Fidelity, and the Fund each has sole power to dispose of the
1,041,000 shares owned by the Fund. Neither FMR Corp. nor Edward C.
Johnson 3d, Chairman of FMR Corp., has the sole power to vote or
direct the voting of the shares owned directly by the Fund, which
power resides with the Fund's Board of Trustees. Fidelity carries out
the voting of the shares under written guidelines established by the
Fund's Board of Trustees. According to the Schedule 13G Amendment,
Strategic Advisers, Inc. a wholly-owned subsidiary of FMR Corp. and a
registered investment adviser ("Strategic Advisers"), provides
investment advisory services to individuals. It does not have sole
power to vote or direct the voting of shares of certain securities
held for clients and has sole dispositive power over such securities.
As such, FMR Corp.'s beneficial ownership may include shares
beneficially owned through Strategic Advisers. The address for FMR
Corp., Fidelity, the Fund and Strategic Advisers is 82 Devonshire
Street, Boston, Massachusetts 02109.
(footnotes continued on following page)
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(3) According to Amendment No. 2 dated January 20, 2000 to a Schedule 13G
dated February 4, 1999 filed with the Commission by Mellon Financial
Corporation ("Mellon Financial"), (i) Mellon Financial has sole power
to vote 828,459 shares and sole power to dispose of 900,859 shares,
and shares power to vote 63,100 shares and shares power to dispose of
114,100 shares, (ii) each of Boston Group Holdings, Inc. and The
Boston Company, Inc. has sole power to vote 646,159 shares and sole
power to dispose of 718,559 shares and shares power to vote 63,100
shares and shares power to dispose of 114,100 shares and (iii) The
Boston Company Asset Management, Inc. has sole power to vote 486,550
shares and sole power to dispose of 558,950 shares, and shares power
to vote 63,100 shares and shares power to dispose of 114,100 shares.
According to such Schedule 13G Amendment, Boston Group Holdings, Inc.
is a subsidiary of Mellon Financial and is also the parent holding
company of The Boston Company, Inc., and The Boston Company, Inc. is
the parent holding company of The Boston Company Asset Management,
Inc., a registered investment advisor. All of the shares reported in
the Schedule 13G Amendment are beneficially owned by Mellon Financial
Corporation and direct or indirect subsidiaries, including Boston
Group Holdings, Inc., The Boston Company, Inc. and The Boston Company
Asset Management, Inc., in their various fiduciary capacities. The
address for Mellon Financial Corporation is One Mellon Center,
Pittsburgh, Pennsylvania 15258.
(4) 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, 979 shares of
which are subject to options granted to others. Mr. Lee's address is
c/o Thomas H. Lee Company, L.L.C., 590 Madison Avenue, New York, New
York 10022.
(5) Includes options to acquire 66,667 shares of Common Stock having an
exercise price of $14.00 per share. The address of Mr. Cornstein is
c/o the Company, 529 Fifth Avenue, New York, New York 10017.
(6) Mr. Desai is the sole stockholder, Chairman of the Board of Directors,
President and Treasurer of Desai Capital Management Incorporated
("DCMI"). DCMI acts as investment adviser to Equity-Linked
Investors-II ("ELI-II"). Mr. Desai is also the managing partner of the
general partner of ELI-II. ELI-II holds a total of 674,412 shares of
Common Stock of the Company. Under the investment advisory agreements
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.
(7) According to a Schedule 13G dated January 28, 2000 filed with the
Commission by Becker Capital Management, Inc., a registered investment
advisor ("Becker"), the indicated number of shares is owned by
advisory clients of Becker; Becker has sole voting power with respect
to 632,600 of the shares and sole dispositive power with respect to
all of the shares, but disclaims beneficial ownership thereof. The
address for Becker Capital Management, Inc. is 1211 SW Fifth Avenue,
Suite 2185, Portland, Oregon 97204.
(8) According to Amendment No. 1 dated January 28, 2000 to a Schedule 13G
dated February 10, 1999 filed with the Commission by Neuberger Berman,
LLC and Neuberger Berman, Inc., (collectively, "Neuberger Berman"),
Neuberger Berman, LLC is deemed to be a beneficial owner of the
indicated number of shares since it has shared power to make decisions
whether to retain or dispose of, and in some cases the sole power to
vote, such shares, which are held by many unrelated clients. Neuberger
Berman, LLC does not, however, have any economic interest in the
securities of those clients. The clients are the actual owners of the
securities and have the sole right to receive and the power to direct
the receipt of dividends from or proceeds from the sale of such
securities. Neuberger Berman has sole power to vote or direct the
voting of 429,000 shares, shared power to vote or direct the voting of
none of such shares, sole power to dispose of or direct the
disposition of none of such shares, and shared power to dispose of or
direct the disposition of 529,000 shares. Employee(s) of Neuberger
Berman, LLC and Neuberger Berman Management, Inc. own 35,500 shares in
their own personal securities accounts. Neuberger Berman, LLC
disclaims beneficial ownership of these shares since these shares were
purchased with each employee(s)' personal funds and each employee has
exclusive dispositive and voting power over the shares held in their
respective accounts. According to the Schedule 13G Amendment,
Neuberger Berman, Inc. owns 100% of both Neuberger Berman, LLC and
Neuberger Berman Management, Inc. and does not own over 1% of the
Company's shares. The address of Neuberger Berman, LLC and Neuberger
Berman, Inc. is 605 Third Avenue, New York, New York 10158-3698.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of the Record Date by (i) each of
the Company's directors and nominees for director (other than Messrs. Lee, Desai
and Cornstein, information with respect to each of whom is presented above),
(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"), listed in
the Summary Compensation Table and (iii) all directors and executive officers as
a group. The Company owns all of the issued and outstanding capital stock of
Finlay Jewelry.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
----------------------
NUMBER PERCENTAGE
NAME OF SHARES OF CLASS
- ------------------------------------------------------ --------- ----------
Arthur E. Reiner(2)(3) ............................... 79,279 *
Norman S. Matthews(4) ................................ 76,000 *
Leslie A. Philip(2)(5) ............................... 57,333 *
Joseph M. Melvin(2)(6) ............................... 34,000 *
Edward Stein(2)(7) ................................... 29,933 *
Bruce E. Zurlnick(2)(8) .............................. 12,933 *
Warren C. Smith, Jr.(9) .............................. 12,590 *
Michael Goldstein(10) ................................ 12,000 *
Hanne M. Merriman(11) ................................ 10,000 *
James Martin Kaplan(2) ............................... 4,000 *
John D. Kerin(2) ..................................... 1,000 *
All directors and executive officers
as a group (13 persons)(12) .......................... 2,673,259 24.9%
- ----------
*Less than one percent.
(1) Based on 10,421,353 shares issued and outstanding on the Record Date.
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
Stockholders' Agreement.
(2) The address of Messrs. Reiner, Kaplan, Kerin, Melvin, Stein and
Zurlnick and Ms. Philip is c/o the Company, 529 Fifth Avenue, New
York, New York 10017.
(3) Includes options to acquire 34,632 shares of Common Stock having an
exercise price of $14.00 per share.
(4) Includes options to acquire an aggregate of 76,000 shares of Common
Stock having exercise prices ranging from $8.50 to $16.50 per share.
Mr. Matthews' address is 650 Madison Avenue, New York, New York 10022.
(5) Includes options to acquire an aggregate of 57,333 shares of Common
Stock having exercise prices ranging from $11.1875 to $23.1875 per
share.
(6) Includes options to acquire an aggregate of 34,000 shares of Common
Stock having exercise prices ranging from $14.875 to $24.3125 per
share.
(7) Includes options to acquire an aggregate of 28,933 shares of Common
Stock having exercise prices ranging from $7.23 to $8.25 per share.
(8) Includes options to acquire an aggregate of 12,133 shares of Common
Stock having exercise prices ranging from $7.23 to $8.25 per share.
(footnotes continued on following page)
4
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(9) Mr. Smith's address is c/o Thomas H. Lee Company, 75 State Street,
Boston, Massachusetts 02109.
(10) Includes options to acquire an aggregate of 5,000 shares of Common
Stock having an exercise price of $13.4375 per share. The address of
Mr. Goldstein is c/o Toys "R" Us, Inc., 461 From Road, Paramus, New
Jersey 07652.
(11) Includes options to acquire an aggregate of 10,000 shares of Common
Stock having exercise prices ranging from $8.50 to $21.3125 per share.
Ms. Merriman's address is c/o Hanne Merriman Associates, 3201 New
Mexico Avenue, N.W., Washington, DC 20016.
(12) Includes options to acquire 324,698 shares having exercise prices
ranging from $7.23 to $24.3125 per share.
The Company's fiscal year ends on the Saturday closest to January 31.
References herein to 1996, 1997, 1998 and 1999 relate to the fiscal years ended
on February 1, 1997, January 31, 1998, January 30, 1999 and January 29, 2000,
respectively.
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
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
1999 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 David B. Cornstein, James Martin Kaplan, John D.
Kerin and Arthur E. Reiner for the three-year term in the class whose term
expires in 2003. 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. See "Certain
Transactions -- Stockholders' Agreement."
RECOMMENDATION OF THE 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 2003 the nominees identified
above.
INFORMATION REGARDING DIRECTORS
Information regarding each of the nominees is set forth below:
5
<PAGE>
YEAR
OF ANNUAL
MEETING AT
DIRECTOR WHICH TERM
NAME PRINCIPAL OCCUPATION AGE SINCE WILL EXPIRE
- ---- -------------------- --- ----- -----------
David B. Cornstein Chairman Emeritus of the 61 1988 2003
Company and Principal,
Pinnacle Advisors Limited
James Martin Kaplan Partner, Blank Rome Tenzer 55 1988 2003
Greenblatt LLP,
attorneys-at-law
John D. Kerin Consultant, The McGraw- 61 1999 2003
Hill Companies, Inc.
Arthur E. Reiner Chairman of the Board, 59 1995 2003
President and Chief
Executive Officer of the
Company and Chairman and
Chief Executive Officer of
Finlay Jewelry
The following persons will continue to serve as directors after the meeting:
Norman S. Matthews Retail Consultant 67 1993 2001
Hanne M. Merriman Principal, Hanne Merriman 58 1997 2001
Associates
Warren C. Smith, Jr. Managing Director of TH Lee 43 1993 2001
Putnam Internet Partners,
L.P.
Rohit M. Desai Chairman and President of 61 1993 2002
Desai Capital Management
Incorporated
Michael Goldstein Chairman of the Board 58 1999 2002
of Toys "R" Us, Inc.
Thomas H. Lee President of Thomas H. Lee 56 1993 2002
Company
DIRECTORS. Messrs. Desai, Lee and Matthews and Ms. Merriman have each been
engaged in the principal occupation identified above for more than the past five
years. Mr. Desai is also a director of The Rouse Company, Sunglass Hut
International, Incorporated, TeleCorp PCS, SITEL Corporation and Independence
Community Bank Corp. Mr. Lee is also a director of Metris Companies, Inc.,
Safelite Glass Corporation, Vail Resorts, Inc. and Wyndham International, Inc.
Mr. Matthews is also a director of Toys "R" Us, Inc., The Progressive
Corporation, Lechters, Inc., Eye Care Centers of America, Inc. and Sunoco, Inc.
Ms. Merriman is also a director of US Airways Group, Inc., Ameren Corp., State
Farm Mutual Automobile Insurance Company, The Rouse Company, Ann Taylor Stores
Corporation and T. Rowe Price Mutual Funds and is a member of the National
Women's Forum and a director of the Children's Hospital Foundation (part of the
Children's National Medical Center). Mr. Cornstein served as Chairman of the
Company from May 1993 until his retirement from day-to-day involvement with the
Company
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effective January 31, 1999. Mr. Cornstein is also a director of TeleHubLink
Corporation. Since February 1998, Mr. Goldstein has been Chairman of the Board
of Toys "R" Us, Inc., where he was Vice Chairman of the Board and Chief
Executive Officer from February 1994 to February 1998, and where he served as
acting Chief Executive Officer from August 1999 to January 14, 2000. Mr.
Goldstein is also a director of Houghton Mifflin Company and United Retail Group
Inc. Mr. Kaplan is a partner of the law firm of Blank Rome Tenzer Greenblatt
LLP, counsel to Finlay, which he joined in 1998 and, from 1977 to 1998, was a
partner with the law firm of Zimet, Haines, Friedman & Kaplan. Mr. Kerin has
been a consultant to The McGraw-Hill Companies, Inc. since January 2000, and
from July 1979 to January 2000, he served in various positions with The
McGraw-Hill Companies, Inc., including from May 1994 to January 2000, as Senior
Vice President, Information Management and Chief Information Officer. Mr. Reiner
is a director of Loehmann's, Inc. Mr. Smith has been employed by Thomas H. Lee
Company or its affiliates since 1990 and is also a director of Rayovac
Corporation and Eye Care Centers of America, Inc.
EXECUTIVE OFFICERS. Mr. Reiner, 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 and Chief
Merchandising Officer of the Company and Finlay Jewelry), Edward Stein (Senior
Vice President and Director of Stores of Finlay Jewelry) and Bruce E. Zurlnick
(Senior Vice President, Treasurer and Chief Financial Officer of the Company and
Finlay Jewelry) are the executive officers of the Company. Mr. Melvin, age 49,
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 53, has served
as Executive Vice President and Chief Merchandising Officer of the Company and
Finlay Jewelry since May 1997. From May 1995 to May 1997, Ms. Philip was
Executive Vice President - Merchandising and Sales Promotion of Finlay Jewelry.
From 1993 to May 1995, Ms. Philip was Senior Vice President - Advertising and
Sales Promotion of R.H. Macy & Co., Inc. ("Macy's"), and from 1988 to 1993, Ms.
Philip was Senior Vice President - Merchandise - Fine Jewelry at Macy's. Mr.
Stein, age 55, 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, and occupied similar
positions with Finlay's predecessors from 1983 to December 1988. Mr. Stein held
various other positions at Finlay from 1965 to 1983. Mr. Zurlnick, age 48, has
served as Senior Vice President, Treasurer and Chief Financial Officer of the
Company and Finlay Jewelry since January 2000. From June 1990 to December 1999,
he was Treasurer of the Company and Vice President and Treasurer of Finlay
Jewelry, and from December 1978 through May 1990, he held various finance and
accounting positions with Finlay's predecessors.
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 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 five times during fiscal 1999. The current members of the
Audit Committee are Ms. Merriman, its Chairman, and Messrs. Goldstein and Kerin.
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
7
<PAGE>
Plan"), and the 1997 Plan, including the grant of options and stock appreciation
rights thereunder. The Compensation Committee met five times during fiscal 1999.
The current members of the Compensation Committee are Mr. Lee, its Chairman, and
Messrs. Desai and Matthews.
The Nominating Committee was established in fiscal 1998 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. The Nominating Committee met three times during
fiscal 1999. The current members of the Nominating Committee are Mr. Reiner, its
Chairman, and Messrs. Desai and Lee.
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 the Delaware General Corporation Law. The Executive Committee met two
times during fiscal 1999. 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 1999. No director
attended fewer than 75% of the total number of meetings of the Board of
Directors and all committees thereof which he or she was eligible to attend.
DIRECTORS' COMPENSATION
Directors who are employees, or who receive fees or compensation (directly
or indirectly) other than as directors, 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 and Finlay Jewelry. For a
discussion of certain fees paid to affiliates of Messrs. Lee and Desai, see "--
Compensation Committee Interlocks and Insider Participation."
For serving as a director of the Company and Finlay Jewelry, each
independent non-employee director receives aggregate compensation at the rate of
$20,000 per year and, except for Mr. Matthews, 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 receives an aggregate annual fee of
$3,000 for service as chairperson of the Audit Committee of the Company and
Finlay Jewelry. Each independent non-employee director generally receives, with
respect to each year of service, options to purchase 5,000 shares of Common
Stock, at an exercise price equal to the fair market value on the date of grant.
The options typically vest on the first anniversary of the date of grant, except
Mr. Matthews' options are subject to various vesting periods of up to five
years. Mr. Reiner has an employment contract with Finlay, and a company as to
which Mr. Cornstein is a principal receives compensation from Finlay pursuant to
a consulting agreement. See information under the caption "Executive
Compensation--Employment and Other Agreements and Change of Control
Arrangements."
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 and all decisions with
respect to benefit plans involving employees 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 Company, an affiliate of Thomas H. Lee Company (together with
its affiliate transferees, the "Lee Investors"), partnerships managed by DCMI
(collectively, 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) the 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. See "Certain Transactions."
8
<PAGE>
The Company and Finlay Jewelry have entered into management agreements with
Thomas H. Lee Capital LLC and DCMI (collectively, the "Management Agreements"),
affiliates of Mr. Lee and Mr. Desai, respectively. Pursuant to the Management
Agreements, Thomas H. Lee Capital LLC and DCMI receive $180,000 and $60,000 per
year plus expenses, respectively, for consulting and management advisory
services rendered to the Company and Finlay Jewelry. Each of the Management
Agreements, which terminate in May 2001, 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.
Mr. Matthews receives compensation at the rate of $20,000 per year for his
services as a director. For a discussion of certain options granted to Mr.
Matthews, see "--Directors' Compensation."
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
in fiscal years 1999, 1998 and 1997 of Finlay's Chief Executive Officer and each
of the four other most highly compensated executive officers of the Company or
Finlay Jewelry (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- ---------------------------
NUMBER OF
RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUSES COMPENSATION (1) AWARDS OPTIONS/SARS(2) COMPENSATION (3)
------------------ ---- ------ ------- ---------------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARTHUR E. REINER 1999 $750,000 $447,825 $19,292 -- -- $ 28,064
Chairman, President 1998 750,000 -- 17,642 -- -- 428,016(4)
and Chief Executive Officer of 1997 750,000 271,425 17,706 -- 300,000 28,481
the Company and Chairman and
Chief Executive Officer of
Finlay Jewelry
JOSEPH M. MELVIN (5) 1999 $372,887 $183,528 -- -- -- $ 8,705
Executive Vice President and 1998 367,100 85,000 -- -- 30,000 387,241(6)
Chief Operating Officer of the 1997 263,200 120,000 -- -- 50,000 154,314(6)
Company and President and
Chief Operating Officer of
Finlay Jewelry
LESLIE A. PHILIP 1999 $383,356 $193,345 -- -- -- $ 9,209
Executive Vice President and 1998 376,700 110,000 -- -- 30,000 9,626
Chief Merchandising Officer of 1997 350,500 127,000 -- -- 46,667 10,091
the Company and Finlay Jewelry
EDWARD STEIN 1999 $328,720 $166,028 -- -- 20,000 $ 10,083
Senior Vice President and 1998 307,056 70,000 -- -- 10,000 9,626
Director of Stores of 1997 292,056 106,000 -- -- 12,667 10,091
Finlay Jewelry
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
BRUCE E. ZURLNICK 1999 $213,333 $105,000 -- -- 10,000 $ 8,569
Senior Vice President, 1998 205,000 25,000 -- -- 5,000 8,659
Treasurer and Chief Financial 1997 195,000 50,000 -- -- 3,000 9,098
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 1999".
(3) Includes for each Named Executive Officer the sum of the following
amounts earned in 1999, 1998 and 1997 for such Named Executive
Officer:
LIFE RETIREMENT MEDICAL
INSURANCE (a) BENEFITS (b) BENEFITS (c)
Arthur E. Reiner....... 1999 $ 20,176 $ 5,200 $ 2,688
1998 20,176 5,200 2,640
1997 20,176 5,575 2,730
Joseph M. Melvin....... 1999 $ 817 $ 5,200 $ 2,688
1998 1,079 5,035 2,640
1997 540 -- 2,048
Leslie A. Philip....... 1999 $ 1,321 $ 5,200 $ 2,688
1998 1,786 5,200 2,640
1997 1,786 5,575 2,730
Edward Stein........... 1999 $ 2,195 $ 5,200 $ 2,688
1998 1,786 5,200 2,640
1997 1,786 5,575 2,730
Bruce E. Zurlnick...... 1999 $ 681 $ 5,200 $ 2,688
1998 856 5,200 2,640
1997 793 5,575 2,730
(a) Insurance premiums paid by Finlay with respect to life insurance
for the benefit of the Named Executive Officer.
(b) 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.
(c) The insurance premiums paid in respect of the Named Executive
Officer under Finlay's Executive Medical Benefits Plan.
(4) In addition to the other compensation set forth in Note 3 above,
Finlay made a payment to Mr. Reiner in an aggregate amount of
$400,000, consisting of (i) the reimbursement of Mr. Reiner for the
interest paid in respect of the loan made by the Company to him in
1995 for the purpose of his purchase of shares of Common Stock of the
Company upon the commencement of his employment with Finlay and (ii) a
special bonus of $125,000 in connection with the Company's 1998 public
offering of Common Stock and certain related transactions. See
"Certain Transactions -- The 1998 Offering."
(5) 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.
(6) In addition to the other compensation set forth in Note 3 above, Mr.
Melvin received $378,487 and $151,726 in 1998 and 1997, respectively,
for reimbursement of relocation expenses.
10
<PAGE>
Mr. Reiner was named Chairman of the Company effective February 1, 1999
and, from January 1995 to such date, served as Vice Chairman of the Company. For
a discussion of the employment and other arrangements with Mr. Reiner, see "--
Employment and Other 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 1,582,596 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 157,744 shares have been issued to
date in connection with exercises of options granted under the 1993 Plan and
538,887 shares are reserved for issuance upon exercise of currently outstanding
options. The remaining 35,965 shares of Common Stock are available for future
grants under the 1993 Plan. The 1997 Plan, which is intended as a successor to
the 1993 Plan, is similar to the 1993 Plan and provides for the grant of the
same types of awards as are available under the 1993 Plan (the 1997 Plan,
together with the 1993 Plan, being collectively referred to herein as the
"Incentive Plans"). The maximum number of shares of Common Stock available for
issuance under the 1997 Plan is 850,000. Of this total, 7,600 shares have been
issued to date in connection with exercises of options granted under the 1997
Plan and 830,982 shares are reserved for issuance upon exercise of currently
outstanding options. The remaining 11,418 shares of Common Stock subject to the
1997 Plan include 2,000 restricted shares issued to date, an additional 8,000
restricted shares reserved for issuance and 1,418 shares of Common Stock
available for future grants under the 1997 Plan. See "--Option/SAR Grants in
1999".
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, 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 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
11
<PAGE>
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, subject to various
vesting periods of up to five years. Other vesting schedules have also been
utilized by Finlay. The Option Agreement 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 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 1999
In 1999, the Company granted options to purchase a total of 71,000 shares
of Common Stock, of which options to purchase an aggregate of 30,000 shares were
granted to the Named Executive Officers. All of these options were granted under
the 1997 Plan. All of the options granted vest and become exercisable in equal
installments on each of the five anniversaries of the date of grant.
The following table provides information related to the options granted to
the Named Executive Officers during 1999. No stock appreciation rights were
issued by the Company in 1999.
12
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM ($)
OPTIONS/SARS EMPLOYEES IN BASE PRICE ------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE(S) 5% 10%
- ------------------------ ------------ ------------ ----------- ------------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur E. Reiner........ -- -- -- -- -- --
Joseph M. Melvin........ -- -- -- -- -- --
Leslie A. Philip........ -- -- -- -- -- --
Edward Stein............ 20,000 28.2 13.4219 09-08-09 168,819 427,820
Bruce E. Zurlnick....... 10,000 14.1 13.5625 12-19-09 85,294 216,151
</TABLE>
CERTAIN INFORMATION CONCERNING STOCK OPTIONS/SARS
The following table sets forth certain information with respect to stock
options exercised in fiscal 1999 as well as the value of stock options at the
fiscal year end. No stock appreciation rights were exercised during fiscal 1999.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION/SAR VALUE
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS AT
ACQUIRED AT YEAR-END YEAR-END ($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE (1)
- --------------------- -------- -------- ------------- -----------------
Arthur E. Reiner..... -- -- 34,632/300,000 --/--
Joseph M. Melvin..... -- -- 22,000/58,000 --/$97,500
Leslie A. Philip..... -- -- 45,333/64,667 $51,666/$159,167
Edward Stein......... -- -- 22,733/37,267 $120,004/$84,176
Bruce E. Zurlnick.... -- -- 9,866/16,467 $53,199/$31,525
- ----------
(1) The value of Unexercised In-the-Money Options/SARs represents the aggregate
amount of the excess of $13.125, the closing price for a share of Common Stock
at year end, over the relevant exercise price of all "in-the-money" options.
(2) The options granted under the 1997 Plan generally vest over periods of up to
five years. Other vesting schedules have also been utilized by Finlay.
EMPLOYMENT AND OTHER AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Finlay has entered into an employment agreement with Arthur E. Reiner to
employ Mr. Reiner as President and Chief Executive Officer of the Company for a
term expiring on January 31, 2001. On February 1, 1999, Mr. Reiner became
Chairman of the Company. Pursuant to the employment agreement, Mr. Reiner
receives an annual base salary of $750,000, subject to increases 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 1997 and 1999, pursuant to the
terms of his employment agreement, Mr. Reiner received bonuses in the amounts of
$271,425 and $447,825, respectively. No bonus was paid to Mr. Reiner in 1998
pursuant to the terms of his employment agreement.
13
<PAGE>
Under the agreement, Mr. Reiner received in January 1995 options under the
1993 Plan to purchase 69,263 shares of Common Stock at an exercise price of
$14.00 per share. Of those options, one-half were time-based and one-half
performance-accelerated, vesting in ten years subject to accelerated vesting
upon achievement of specified performance goals. All of the time-based options
are vested. None of the performance-accelerated options vested.
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. 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. Mr. Reiner was subsequently
reimbursed for the interest paid by him in respect of such note. In the event
Mr. Reiner's employment is terminated under certain circumstances, the remaining
Purchased Shares (together with vested options and shares issued upon exercise
of vested options ("Option Shares")) are subject to certain call 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 Stock. The remaining Purchased Shares and Option Shares are
subject to certain restrictions on transfer and registration rights set forth in
Mr. Reiner's employment agreement and are subject to the Stockholders' Agreement
and the Registration Rights Agreement, other than the provisions thereof
relating to restrictions on transfer. See "Certain Transactions -- Stockholders'
Agreement" and "Certain Transactions -- Registration Rights Agreement."
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 allowance for business use of an
automobile 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 280G(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.
Under Mr. Reiner's agreement, a "Change of Control" occurs when (i) a
person or group other than certain of the Company's existing stockholders and
certain related parties becomes the beneficial owner of 50% or more of the
aggregate voting power of the Company, (ii) during any period of two consecutive
calendar years, there are certain changes in the composition of the Company's
Board of Directors or (iii) there is a sale of all or substantially all of the
Company's assets.
A portion of any payments which may be made upon a "Change of Control" may
be deemed an "excess parachute payment" within the meaning of the Code, in which
event the portion will not be a deductible expense for tax purposes for the
Company.
14
<PAGE>
On February 1, 1999, Finlay and Pinnacle Advisors Limited, a company as to
which Mr. Cornstein is a principal ("Pinnacle"), entered into a two year
consulting agreement pursuant to which Pinnacle was engaged to provide
consulting services and it was agreed that, if available, Mr. Cornstein will
attempt to act for Pinnacle in the performance of services thereunder. The
consulting agreement provides that Pinnacle shall receive compensation in the
amount of $225,000 per year.
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 at least $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 was repaid in full on July 16, 1998.
On May 1, 1997, in connection with Mr. Melvin's agreement, 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, vesting in equal installments on
each of the first five anniversaries of the respective grant dates. Mr. Melvin
is also eligible for benefits that are available to other senior executives of
Finlay, including reimbursement of moving and relocation expenses. If 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 is entitled to
receive a lump sum payment equal to one year's base salary. On February 22,
1999, Finlay agreed with Mr. Melvin that in the event he continues to be
employed by Finlay or an affiliate on February 1, 2001, Finlay shall pay to Mr.
Melvin a special bonus of $125,000, and in the event he continues to be so
employed on February 1, 2002, Finlay shall pay to him an additional special
bonus of $75,000.
On February 22, 1999, Finlay agreed with Ms. Leslie Philip, the Executive
Vice President and Chief Merchandising Officer of the Company and Finlay
Jewelry, that in the event she continues to be employed by Finlay or an
affiliate on February 1, 2001, Finlay shall pay to Ms. Philip a special bonus of
$200,000 and in the event she continues to be so employed on February 1, 2002,
Finlay shall pay to her an additional special bonus of $150,000.
INDEMNIFICATION AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
Finlay has entered into indemnification agreements with each of its
directors and certain of its 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 five times in the fiscal year ended January 29,
2000 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 or
arrangements with certain of its executive officers. The terms of each
employment agreement or arrangement are more particularly described under the
heading "Employment and Other Agreements and Change of Control Arrangements."
These agreements or arrangements 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
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<PAGE>
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 850,000 shares of Common Stock available
for issuance under the 1997 Plan, 7,600 of such shares have been issued to date
in connection with exercises of options granted under the 1997 Plan and 830,982
of such shares are reserved for issuance upon exercise of currently outstanding
options. Accordingly, as of the date hereof, the remaining 11,418 shares of
Common Stock subject to the 1997 Plan include 2,000 restricted shares issued to
date, an additional 8,000 restricted shares reserved for issuance and 1,418
shares of Common Stock 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 1999, the Committee
awarded options under the 1997 Plan to purchase an aggregate of 71,000 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 up to 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
1,850,000. See "Proposal No. 2-- Amendment of the Company's 1997 Long Term
Incentive Plan."
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 $1
million per year the federal income tax deduction available to a public company
for compensation paid to its chief executive officer and its four other highest
paid executive officers, unless that compensation qualifies for certain
"performance-based" exceptions provided for in that section of the Code. The
Committee will consider ways to maximize the deductibility of executive
compensation, while retaining the discretion the Committee deems necessary to
compensate executive officers in a manner commensurate with performance and the
competitive environment for executive talent.
Submitted by the Compensation Committee of the Board of Directors: Thomas
H. Lee, Rohit M. Desai and Norman S. Matthews.
STOCK PERFORMANCE GRAPH
The following graph charts, on an annual basis, the total stockholders'
return over a period from April 6, 1995 to January 29, 2000 with respect to an
investment in the Company's Common Stock as compared to the Nasdaq Stock Market,
the Dow Jones Retailers (Specialty) Index and the S&P Retail (Department Stores)
Index. The Company has paid no dividends with respect to its Common Stock during
the period.
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COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG FINLAY ENTERPRISES, INC., THE NASDAQ STOCK MARKET U.S. INDEX,
THE DOW JONES RETAILERS (SPECIALTY) INDEX AND THE S&P RETAIL
(DEPARTMENT STORES) INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN ($)
-----------------------------------------------------------------------------
APRIL 6, FEBRUARY 3, FEBRUARY 1, JANUARY 31, JANUARY 30, JANUARY 29,
1995 1996 1997 1998 1999 2000
-------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Finlay Enterprises Inc. FNLY 100.00 78.57 105.36 164.29 78.57 93.75
Nasdaq Stock Market (U.S.) INAS 100.00 132.48 171.83 203.03 317.04 488.31
Dow Jones Retailers (Specialty) IRTS 100.00 105.27 124.93 189.19 329.18 305.93
S&P Retail (Department Stores) RSD 100.00 112.82 121.21 158.97 157.20 126.23
</TABLE>
- ----------
* Assumes $100 invested on April 6, 1995
in stock or index, with reinvestment of all dividends.
CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENT
The Lee Investors, the Desai Investors, the Management Stockholders, all
employees holding options to purchase Common Stock, certain private investors
and the Company are parties to the 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 Stockholders' Agreement, as amended, who have received or
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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 Stockholders' Agreement.
The Stockholders' Agreement provides that the parties thereto must vote
their shares in favor of certain directors who are nominated by the Lee
Investors, the Desai Investors, Mr. Cornstein and 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
Stockholders' Agreement also provides for an Executive Committee to consist of
at least five directors, including, under certain conditions, designees of Mr.
Lee, the Desai Investors and Mr. Cornstein. 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 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 Stockholders' 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 15% 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." The Lee Investors and Desai Investors also 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% of the
"Registrable Securities" then outstanding will have the right on one occasion to
require the Company to file a registration statement with the 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 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 a former employee 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. See
"Executive Compensation -- Employment and Other Agreements and Change of Control
Arrangements."
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CERTAIN OTHER TRANSACTIONS
Finlay has 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
and Other 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. An
increase in the number of shares available for issuance thereunder was approved
by the Company's stockholders on June 22, 1998. 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 850,000 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 1,000,000 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."
REASONS FOR AND PRINCIPAL EFFECTS OF THE PROPOSAL
As of May 8, 2000, 7,600 shares of Common Stock had been issued upon
exercise of options granted under the 1997 Plan and 830,982 shares of Common
Stock were reserved for issuance upon exercise of options outstanding on such
date. As of such date, the remaining 11,418 shares of Common Stock subject to
the 1997 Plan include 2,000 restricted shares issued to date, an additional
8,000 restricted shares reserved for issuance and 1,418 shares of Common Stock
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 850,000 shares to 1,850,000
shares. If the amendment is approved, the executive officers, directors, key
employees, consultants and other persons who are eligible to
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<PAGE>
participate in the 1997 Plan could receive, in the aggregate, an additional
1,000,000 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 2001, must be received by the Company at 529
Fifth Avenue, New York, New York 10017, Attention: Secretary by January 27, 2001
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 29,
2000 is enclosed.
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 23, 2000
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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.
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"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.
"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.
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"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.
"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
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perform such other functions as the Committee may determine, to the extent
permitted under Rule 16b-3 and applicable law.
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 1,850,000. 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
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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.
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.
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(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.
(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
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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.
(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
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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 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
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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 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.
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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.
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
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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.
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.
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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.
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[FRONT]
PROXY FINLAY ENTERPRISES, INC.
PROXY SOLICITED BY
THE BOARD OF DIRECTORS OF FINLAY ENTERPRISES, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS-JUNE 22, 2000
The undersigned hereby appoints Arthur E. Reiner, Joseph M. Melvin and
Leslie A. Philip, 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, 2000, 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
David B. Cornstein, James Martin Kaplan, John D. Kerin and Arthur E. Reiner
(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 1,000,000 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.
