-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VgtGkm8VjmIMcC1Gz+dzsKvkT247mAmmuOZtIcqeqXDinvy0wV2K7+Pnb7gWJfOf 2HUQk5Hua3IEoEKwQUE0zg== 0000914427-97-000128.txt : 19971110 0000914427-97-000128.hdr.sgml : 19971110 ACCESSION NUMBER: 0000914427-97-000128 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19971107 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FINLAY ENTERPRISES INC /DE CENTRAL INDEX KEY: 0000878731 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-JEWELRY STORES [5944] IRS NUMBER: 133492802 STATE OF INCORPORATION: DE FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-51845 FILM NUMBER: 97710429 BUSINESS ADDRESS: STREET 1: 521 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10175 BUSINESS PHONE: 2123827400 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LEE THOMAS H CENTRAL INDEX KEY: 0000901269 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 75 STATE STREET CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172271050 MAIL ADDRESS: STREET 1: 75 STATE STREET CITY: BOSTON STATE: MA ZIP: 02109 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Amendment No. 1 Under the Securities Exchange Act of 1934 Finlay Enterprises, Inc. (Name of Issuer) Common Stock, $.01 par value per share (Title of Class of Securities) 317884 20 3 (CUSIP Number) Andrew D. Flaster Thomas H. Lee Company, 75 State Street, Boston, MA 02109 (617) 227-1050 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) October 22, 1997 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP No. 317884 20 3 1. NAME OF REPORTING PERSON - Thomas H. Lee S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON - 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] 3. SEC USE ONLY 4. SOURCE OF FUNDS N/A 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] 6. CITIZENSHIP OR PLACE OF ORGANIZATION Massachusetts 7. SOLE VOTING POWER 254,751 NUMBER OF SHARES 8. SHARED VOTING POWER BENEFICIALLY 1,801,510 OWNED BY EACH 9. SOLE DISPOSITIVE POWER REPORTING 254,751 PERSON WITH 10. SHARED DISPOSITIVE POWER 1,801,510 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,056,261 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.0% 14. TYPE OF REPORTING PERSON IN SCHEDULE 13D Item 1. Security and Issuer The class of equity securities to which this statement relates is the common stock, $0.01 par value per share (the "Shares") of Finlay Enterprises, Inc., a Delaware corporation (the "Issuer"). The principal executive offices of the Issuer are located at 521 Fifth Avenue, New York, New York, 10175. Item 2. Identity and Background. (a) - (c) and (f) This Schedule 13D is being filed jointly on behalf of the following persons (collectively, the "Reporting Persons"): (1) Thomas H. Lee Equity Partners, L.P., a Delaware limited partnership ("Equity Partners"), (2) THL Equity Advisors Limited Partnership, a Delaware limited partnership ("Equity Advisors"), (3) THL Equity Trust, a Massachusetts business trust ("Equity Trust"), and (4) Thomas H. Lee ("Mr. Lee"). The address of each of Equity Partners, Equity Advisors and Equity Trust is c/o Thomas H. Lee Company, 75 State Street, Boston, Massachusetts 02109. The address of Mr. Lee is c/o Thomas H. Lee Capital, L.L.C., 590 Madison Avenue, New York, New York 10022. Equity Partners is principally engaged in the business of investment in securities. Equity Advisors is principally engaged in the business of serving as general partner of Equity Partners. Equity Trust is principally engaged in the business of serving as general partner of Equity Advisors. Mr. Lee's principal occupation is sole proprietor of the Thomas H. Lee Company and Thomas H. Lee Capital, L.L.C. Due to an existing arrangement between Equity Partners, Equity Advisors and Equity Trust, each of Equity Partners, Equity Advisors and Equity Trust could be deemed to be the beneficial owner of all Shares beneficially owned by Equity Partners. Equity Advisors and Equity Trust each disclaim beneficial ownership of such Shares. Mr. Lee could also be deemed to beneficially own all of the Shares beneficially owned by Equity Partners. Mr. Lee disclaims beneficial ownership of such Shares. Attached as Schedule A to this Schedule 13D is information concerning the Reporting Persons and other persons and entities as to which such information is required to be disclosed in response to Item 2 and General Instruction C to Schedule 13D. (d) and (e) None of the Reporting Persons or any of their officers or trustees has been convicted in a criminal proceeding during the past five years (excluding traffic violations and similar misdemeanors). None of the Reporting Persons or any of their officers or trustees has been party to a civil proceeding of a judicial or administrative body of competent jurisdiction during the past five years as a result of which it was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. Each of Equity Partners and Mr. Lee received certain Shares pursuant to a recapitalization of the Issuer in May, 1993. Mr. Lee's shares are held of record by the 1989 Thomas H. Lee Nominee Trust (the "Nominee Trust") as further explained below in Item 5. In April, 1995, in connection with the Issuer's Initial Public Offering, Equity Partners and the Nominee Trust purchased additional Shares, as described in the Issuer's Registration Statement on Form S-1 (No. 33-88938). Item 4. Purpose of Transactions. Equity Partners and the Nominee Trust purchased the Shares for general investment purposes. Equity Partners and the Nominee Trust retain the right to change their investment intent. Subject to market conditions and other factors, Equity Partners and the Nominee Trust may acquire or dispose of shares of the Issuer from time to time in future open-market, privately negotiated or other transactions. Except as set forth herein, the Reporting Persons do not have any plans or proposals which would relate to or result in any of the transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. On October 16, 1997 Equity Partners, the Nominee Trust and other stockholders and the Issuer entered into an Underwriting Agreement (the "Underwriting Agreement") (referenced hereto as Exhibit 2) with Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation and SBC Warburg Dillon Read Inc., as representatives of the several underwriters (the "Underwriters") named therein. Pursuant to the terms of the Underwriting Agreement, the Selling Stockholders (as defined therein) agreed to sell an aggregate of 3,000,000 Shares to the public. The Underwriters were also granted an over-allotment option to purchase an additional 300,000 of the Selling Stockholders' Shares pursuant to the Underwriting Agreement. Equity Partners and the Nominee Trust sold Shares pursuant to such over-allotment option on October 22, 1997. In connection with the sale, Equity Partners and the Nominee Trust sold an aggregate of 274,953 Shares at a price of $19.00 per share. Of such Shares, 247,298 were sold by Equity Partners and 27,655 were sold by the Nominee Trust. Immediately prior to this sale, the Nominee Trust sold 16,315 Shares to certain employees of the Thomas H. Lee Company pursuant to Option Agreements (a form of which is attached hereto as Exhibit 5) between the Nominee Trust and those employees. This Amendment No. 1 to Schedule 13D relates to the sales made by the Reporting Persons pursuant to the Underwriting Agreement, as described above. Item 5. Interest in Securities of the Issuer. (a) and (b) Equity Partners holds 1,801,510 Shares representing approximately 18.7% of the outstanding Shares. Equity Partners has shared voting power and shared dispositive power with respect to such Shares. Each of Equity Advisors, Equity Trust and Mr. Lee could be deemed to share the power to vote or to direct the voting of, and may be deemed, pursuant to the attribution rules of Rule 13d-3 of the Exchange Act, to share the power to dispose or to direct the disposition of the Shares held by Equity Partners. Each of Equity Advisors, Equity Trust and Mr. Lee disclaim beneficial ownership of such Shares. Mr. Lee holds 254,751 Shares pursuant to the Nominee Trust, representing approximately 2.3% of the outstanding Shares. Mr. Lee is general partner of the Thomas H. Lee 1989 Nominee Trust Limited Partnership, the beneficiary of the Nominee Trust. Mr. Lee has sole voting and dispositive power with respect to such Shares, and shared voting and dispositive power with respect to the Shares held by Equity Partners, as described above. (c) The responses to Items 3 and 4 of this Schedule 13D are incorporated herein. (d) Not applicable. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. The responses to Items 3, 4, and 5 of this Schedule 13D and the Exhibits to this Schedule 13D are incorporated herein by reference. Except for the agreements described below, to the best of knowledge of the Reporting Persons, there are no contracts, arrangements, understandings or relationships (legal or otherwise) between the persons enumerated in Item 2, and any other person, with respect to any securities of the Issuer, including, but not limited to, transfer or voting of any of the securities, finder's fees, joint ventures, loan or option arrangements, put or calls, guarantees of profits division of profits or less, or the giving or withholding of proxies. Prior to completion of the Initial Public Offering of the Issuer, the Lee Investors (including Equity Partners and the Nominee Trust), the Desai Investors, the Management Stockholders (each term as defined therein), all employees holding options to purchase Shares, certain private investors and the Issuer entered into an Amended and Restated Stockholders Agreement (the "Stockholders' Agreement") (attached hereto as Exhibit 3 and as amended by the Omnibus Amendment to the Registration Rights and Stockholders' Agreement referenced hereto as Exhibit 4), which sets forth certain rights and obligations of the parties with respect to the Shares and corporate governance of the Issuer. Any employees of the Issuer not parties to the Stockholders' Agreement who received options to purchase Shares in connection with their employment have been, and will continue to be, required to become parties to the Stockholders' Agreement. The Stockholders' Agreement, as amended, provides that the parties thereto must vote their Shares to fix the number of members of the Board of Directors of the Issuer at eight and to vote in favor of six directors who are nominated at follows: two by the Lee Investors; one by the Desai Investors; two by Mr. David B. Cornstein (one of whom must be a management employee of the Issuer); and one by Mr. Arthur E. 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 Shares then outstanding or in certain cases are no longer an employee of the Issuer. The designees of the Lee Investors currently serving on the Board of Directors are Mr. Lee and Mr. Warren C. Smith, Jr.; the designee of the Desai Investors is Mr. Rohit M. Desai; the designees of Mr. Cornstein are Mr. Cornstein and Mr. James Martin Kaplan; and Mr. Reiner is his own designee. The Stockholders' Agreement also provides for the Executive Committee to consist of five directors, including one director not a party to the Stockholders' Agreement selected by the Board of Directors, one member designated by Mr. Lee (so long as the Lee Investors have the right to designate a nominee for director), one member designated by the Desai Investors (so long as the Desai Investors have the right to designate a nominee for director) and two members designated by Mr. Cornstein (which number will be reduced to one if Mr. Cornstein is only entitled to designate one nominee for director and none if Mr. Cornstein ceases to have the right to designate a nominee for director). When a stockholder or group of stockholders loses the right to designate a director, such director is to be designated instead by a majority of the directors of the Issuer. The Executive Committee of the Issuer's Board consists at present of Messrs. Lee, Desai, Cornstein, Kaplan and Mr. Norman S. Matthews. In addition, the Stockholders' Agreement provides that the parties thereto have (i) certain "come along" rights allowing them to participate in private sales of Shares 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 to require the other parties to the Stockholders' Agreement to sell all or a portion of their Shares to the same purchaser in the same transaction on the same terms. Equity Partners and the Nominee Trust have certain registration rights pursuant to a Registration Rights Agreement, dated as of May 23, 1993, by and among the Issuer, Equity Partners, and certain other stockholders of the Issuer. The Nominee Trust has executed Option Agreements (a form which is attached hereto as Exhibit 5) with certain present and former employees of the Thomas H. Lee Company, pursuant to which the employees, after giving effect to the transactions described in this Schedule 13D, hold options to purchase in the aggregate 53,295 Shares from the Nominee Trust. Item 7. Material to be Filed as Exhibits. Exhibit 1: Joint filing agreement among the Reporting Persons. Exhibit 2: Underwriting Agreement, dated as of October 16, 1997, by and among the Selling Stockholders (as defined therein) and Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation and SBC Warburg Dillon Read Inc, as representatives of the several underwriters, incorporated by reference to Exhibit 1.1 of the Issuer's Registration Statement on Form S-1 (No. 33-34949). Exhibit 3: Amended and Restated Stockholders' Agreement dated as of March 6, 1995 by and among the Issuer, Thomas H. Lee Equity Partners, L.P., the 1989 Thomas H. Lee Nominee Trust and other stockholders of the Issuer listed on the signature pages therein. Exhibit 4: Omnibus Amendment to Registration Rights and Stockholders' Agreements, incorporated by reference to Exhibit 4.9(n) of the Issuer's Registration Statement on Form S-1 (No. 33-34949). Exhibit 5: Form of Stock Option Agreement. Schedule A Each of the following individuals is a United States citizen, and with the exception of John W. Childs, Glenn H. Hutchins and Steven G. Segal, is employed by the Thomas H. Lee Company, 75 State Street, Boston, Massachusetts, 02109. Steven G. Segal and John W. Childs are employed by JW Childs Associates, One Federal Street, Boston, Massachusetts, 02110. Glenn H. Hutchins is employed by the Blackstone Group, 345 Park Avenue, New York, New York, 10154. THL Equity Trust Officers: Chairman Thomas H. Lee 1 Old Farm Road, Lincoln, MA 01773 President David V. Harkins 8 Corn Point Road, Marblehead, MA 01945 Vice Presidents C. Hunter Boll 45 Fletcher Street, Winchester, MA 01890 Thomas R. Shepherd 172 Harvard Road, Stow, MA 01775 Anthony J. DiNovi 3 Ravine Road, Wellesley, MA 02181 Thomas M. Hagerty 256 Beacon Street, Apt #4, Boston, MA 02116 Joseph J. Incandela 139 Abbott Road, Wellesley Hills, MA 02181 Scott A. Schoen 191 Kings Grant Road, Weston, MA 02193 Warren C. Smith, Jr. 38 Coolidge Lane, Dedham, MA 02026 Glenn H. Hutchins c/o The Blackstone Group 345 Park Avenue, New York, NY, 10154 Steven G. Segal 42 Nobscot Road, Newton, MA 02159 Treasurer Wendy L. Masler 11 Waverly Street, #3, Brookline, MA 02115 Assistant Treasurer Andrew D. Flaster 4 Fairfield Drive, Lexington, MA 02173 Clerk Wendy L. Masler 11 Waverly Street, #3, Brookline, MA 02115 Assistant Clerks Charles W. Robins, Esq. 50 Lehigh Road, Wellesley, MA 02181 James Westra, Esq. 5 Stage Hill Road, Wenham, MA 01984 Jeffrey S. Wieand, Esq. 1695 Lowell Road, Concord, MA 01742 Trustees: Thomas H. Lee 1 Old Farm Road, Lincoln, MA 01773 David V. Harkins 8 Corn Point Road, Marblehead, MA 01945 John W. Childs c/o JW Childs Associates, One Federal Street, Boston, MA 02110 Signatures After reasonable inquiry and to the best knowledge and belief of each of the undersigned, such person certifies that the information set forth in this Statement with respect to such person is true, complete and correct. THOMAS H. LEE EQUITY PARTNERS, L.P. By: THL Equity Advisors Limited Partnership, its General Partner By: THL Equity Trust, its General Partner By: /s/ Warren C. Smith, Jr. Name: Warren C. Smith, Jr. Title: Vice President THOMAS H. LEE EQUITY ADVISORS LIMITED PARTNERSHIP By: THL Equity Trust, its General Partner By: /s/ Warren C. Smith, Jr. Name: Warren C. Smith, Jr. Title: Vice President THL EQUITY TRUST By: /s/ Warren C. Smith, Jr. Name: Warren C. Smith, Jr. Title: Vice President /s/ Thomas H. Lee Thomas H. Lee EX-1 2 EXHIBIT 1 TO SCHEDULE 13D Exhibit 1 to Schedule 13D Amendment No. 1 Finlay Enterprises, Inc. AGREEMENT Agreement made this 7th day of November, 1997, by and between each of the undersigned. WHEREAS, each of the undersigned is required to file an amendment to a Schedule 13D with respect to ownership of securities in Finlay Enterprises, Inc.; and WHEREAS, each of the undersigned is individually eligible to use this Amendment No. 1 to Schedule 13D; NOW, THEREFORE, the undersigned agree to file only one Amendment No. 1 to Schedule 13D reflecting their combined beneficial ownership of securities in Finlay Enterprises, Inc. THOMAS H. LEE EQUITY PARTNERS, L.P. By: THL Equity Advisors Limited Partnership, its General Partner By: THL Equity Trust, its General Partner By: /s/ Warren C. Smith, Jr. Name: Warren C. Smith, Jr. Title: Vice President THOMAS H. LEE EQUITY ADVISORS LIMITED PARTNERSHIP By: THL Equity Trust, its General Partner By: /s/ Warren C. Smith, Jr. Name: Warren C. Smith, Jr. Title: Vice President THL EQUITY TRUST By: /s/ Warren C. Smith, Jr. Name: Warren C. Smith, Jr. Title: Vice President /s/ Thomas H. Lee Thomas H. Lee EX-3 3 FINLAY ENTERPRISES STOCKHOLDERS' AGREEMENT FINLAY ENTERPRISES, INC. AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT FINLAY ENTERPRISES, INC. AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT TABLE OF CONTENTS Preamble Page ARTICLE I Definitions 1 ARTICLE II Covenants and Conditions 6 Section 2.1 Come Along. . . . . . . . . . . . . . . . 6 Section 2.2 Take Along. . . . . . . . . . . . . . . . 7 Section 2.3 Corporate Governance. . . . . . . . . . . 7 Section 2.4 Reports Under 1993 Act. . . . . . . . . . 11 Section 2.5 Stock Split . . . . . . . . . . . . . . . 12 Section 2.6 Maintenance of Public Market. . . . . . . 12 Section 2.7 Listing of Shares . . . . . . . . . . . . 13 Section 2.8 Employment Agreement Amendment. . . . . . 13 ARTICLE III Miscellaneous 13 Section 3.1 Remedies. . . . . . . . . . . . . . . . . 13 Section 3.2 Entire Agreement. . . . . . . . . . . . . 13 Section 3.3 Amendment . . . . . . . . . . . . . . . . 13 Section 3.4 Severability. . . . . . . . . . . . . . . 14 Section 3.5 Notices . . . . . . . . . . . . . . . . . 14 Section 3.6 Binding Effect; Assignment. . . . . . . . 15 Section 3.7 Termination . . . . . . . . . . . . . . . 15 Section 3.8 Recapitalizations, Exchanges, Etc.. . . . 15 Section 3.9 Lee Representative. . . . . . . . . . . . 16 Section 3.10 Action Necessary to Effectuate the Agreement . . . . . . . . . . . . . . 16 Section 3.11 Purchase for Investment; Legend on Certificate. . . . . . . . . . . . . . 16 Section 3.12 Effectiveness of Transfers. . . . . . . . 17 Section 3.13 Additional Stockholders . . . . . . . . . 17 Section 3.14 No Waiver . . . . . . . . . . . . . . . . 18 Section 3.15 Counterparts. . . . . . . . . . . . . . . 18 Section 3.16 Headings. . . . . . . . . . . . . . . . . 18 Section 3.17 Governing Law . . . . . . . . . . . . . . 18 SCHEDULE A Schedule of Stockholders 23 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT This Amended and Restated Stockholders' Agreement (the "Agreement") is entered into as of the 6th day of March, 1995, by and among Finlay Enterprises, Inc., a Delaware corporation (the "Company"), David B. Cornstein, Arthur E. Reiner, Robert S. Lowenstein and Ronald B. Grudberg, those persons listed as Investor Stockholders on the signature pages hereof (the "Investor Holders"), those persons listed as Lee Holders on the signature pages hereof (the "Lee Holders") and those persons listed as ELI Holders on the signature pages hereof (the "ELI Holders"). The Management Holders, the Investor Holders, the Lee Holders, and the ELI Holders are sometimes collectively referred to herein as the "Stockholders." Certain terms used in this Agreement as defined terms are defined in Article I hereof. WHEREAS, certain parties hereto entered into a Stockholders Agreement dated as of May 26, 1993 (as amended, the "Original Agreement") for the purpose of regulating certain aspects of their relationships with each other and with the Company; WHEREAS, the Company has sold or is in the process of selling shares of its Common Stock pursuant to a registration under the 1933 Act pursuant to a Registration Statement filed on Form S-1 (No. 33-88938) (the "Offering"); and WHEREAS, certain remaining parties to the Original Agreement desire to amend and restate the Original Agreement; In consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, the parties to this Agreement mutually agree that if the Offering has been consummated on or before June 1, 1995, then upon (and only upon) the consummation of the Offering, the Original Agreement shall be amended and restated in its entirety as follows: ARTICLE I Definitions For the purposes of this Agreement, the following terms shall be defined as follows: The "1933 Act" shall mean the Securities Act of 1933, as amended, and the rules, regulations and interpretations thereunder. The "1934 Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules, regulations and interpretations thereunder. An "Affiliate" of a specified person, corporation or other entity shall mean a person, corporation or other entity which, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the corporation or other entity specified. "Applicable Lee Holder" and "Applicable ELI Holder" shall mean the Original Lee Holders and the Equity-Linked Investors, respectively, and (a) the following transferees of Shares pursuant to a Transfer by a Lee Holder: Lee or the officers, employees or consultants of Lee (who spend at least fifty percent (50%) of their business hours consulting for Lee and maintain an office at Lee) or a corporation or corporations or a partnership or partnerships (or other entity for collective investment, such as a fund) which is (and continues to be) controlled by, controlling or under common control with Lee, or any other Person listed as a Lee Holder on a Signature Page attached hereto as of the date of this Agreement; (b), the following transferees of Shares pursuant to a Transfer by an ELI Holder or Lee Equity Partners: any present or future general or limited partner of either of the Equity-Linked Investors or Lee Equity Partners, respectively (other than any person which becomes a partner solely to enable it to be an Applicable Lee Holder or Applicable ELI Holder of the Shares); (c) the following transferees of Shares pursuant to a Transfer by an ELI Holder or a Lee Holder: an Institutional Investor; or (d) the following transferees of Shares pursuant to a Transfer by an ELI Holder: any entity which is (and continues to be) directly or indirectly controlled by such ELI Holder, which does (and will continue to) directly or indirectly control such ELI Holder or which is (and continues to be) directly or indirectly controlled by a Person or entity which also does (and will continue to) directly or indirectly control such ELI Holder. "Business Day" shall mean any day, other than a Saturday, Sunday or legal holiday, on which banks in New York, New York are open for business. "Common Stock" shall mean the Company's common stock, par value $.01 per share, that the Company may be authorized to issue from time to time and any stock into which such Common Stock may hereafter be changed or for which such Common Stock may be exchanged after giving effect to the terms of such change or exchange (by way of reorganization, recapitalization, merger, consolidation or otherwise) and shall also include any common stock of the Company hereafter authorized and any capital stock of the Company of any other class hereafter authorized which is not preferred as to dividends or distribution of assets in liquidation over any other class of capital stock of the Company or which has ordinary voting power for the election of directors of the Company. The "Company" shall mean Finlay Enterprises, Inc., a Delaware corporation, and its successors and assigns. "Cornstein Beneficiaries" shall mean, collectively, after the death of David B. Cornstein, the estate of David B. Cornstein and the spouse and children of David B. Cornstein holding Shares. "ELI Holders" shall have the meaning set forth in the first paragraph of this Agreement and shall also include transferees of the ELI Holders unless prior to such Transfer such transferee was a Management Holder, Investor Holder or a Lee Holder. "ELI Nominees" shall have the meaning set forth in Section 2.3(a). "Equity-Linked Investors" shall mean Equity-Linked Investors, L.P. and Equity-Linked Investors - II. "Institutional Investor" shall mean an insurance company, financial institution, investment fund or other institutional investor. "Investor Holders" shall have the meaning set forth in the first paragraph of this Agreement and shall also include transferees of the Investor Holders unless prior to such Transfer such transferee was a Management Holder, a Lee Holder or an ELI Holder. "Lee" shall mean Thomas H. Lee Company. "Lee Equity Partners" means Thomas H. Lee Equity Partners, L.P., a Delaware limited partnership. "Lee Holders" shall have the meaning set forth in the first paragraph of this Agreement and shall also include transferees of the Lee Holders unless prior to such Transfer such transferee was an Investor Holder, a Management Holder or an ELI Holder. "Lee Representative" shall have the meaning set forth in Section 3.9. "Management Holders" shall mean Ronald B. Grudberg, David B. Cornstein, Arthur E. Reiner and the Estate of Robert S. Lowenstein and other employees of the Company or the Operating Company who from time to time sign a counterpart signature page hereto as Management Holders and their transferees unless prior to such Transfer such transferee was an Investor Holder, a Lee Holder or an ELI Holder. "Original Agreement" shall mean the Stockholders' Agreement dated as of May 26, 1993, as amended, by and among the Company and certain of the other parties hereto. "Operating Company" shall mean Finlay Fine Jewelry Corporation, a Delaware corporation, and its successors and assigns. "Original Lee Holders" shall mean the Lee Holders as of the date of this Agreement. A "Permitted Transferee" shall mean a transferee of Shares from any Management Holder who is a natural person and (i) such Management Holder's spouse, children, parents or siblings or a trust for the benefit of any of them, provided that the Management Holder retains, as trustee or by some other means, the sole authority to vote such Shares, and (ii) such Management Holder's personal representative upon his death for purposes of administration of his estate or upon his disability for purposes of protection and management of his assets. "Person" means an individual, corporation, partnership, trust, or unincorporated association, or a government or any agency or political subdivision thereof. A "Public Offering" shall mean the completion of a sale of Common Stock pursuant to a registration statement which has become effective under the 1933 Act, excluding registration statements on Form S-4, S-8 or similar limited purpose forms. "Registration Rights Agreement" means the Registration Rights Agreement dated as of May 26, 1993 among the Company and the Lee Holders, ELI Holders, Investor Holders and Management Holders, as amended from time to time. "Rule 144 Transaction" means a transfer of Shares (A) complying with Rule 144 under the 1933 Act as such Rule or a successor thereto is in effect on the date of such transfer (but not including a sale other than pursuant to a "brokers transaction" as defined in clauses (i) and (ii) of paragraph (g) of Rule 144 as in effect on the date hereof) and (B) occurring at a time when Shares are registered pursuant to Section 12 of the 1934 Act. "Schedule" shall refer to the Schedule of Stockholders attached hereto as Schedule A. "Shares" shall mean all (i) shares of Common Stock held by Stockholders from time to time (other than shares of Common Stock acquired from the public), and (ii) securities of the Company or any of its Subsidiaries issued in exchange for, upon reclassification of, or as a distribution in respect of, any of the foregoing. For purposes of this Agreement (other than Section 2.3 hereof), "Shares" shall include (i) outstanding options, warrants and other rights to purchase Common Stock held by any Stockholder and (ii) Common Stock purchasable upon exercise of outstanding exercisable options, warrants and other rights to purchase Common Stock held by each Stockholder. For purposes of this Agreement, when calculating the percentage of Shares held by any holder, such calculation shall give effect to any stock splits, distributions, combinations or other recapitalization events involving the Shares. "Stockholder" shall mean any party hereto other than the Company. "Stockholder Group" shall mean any of (A) the ELI Holders taken as a group, (B) the Lee Holders taken as a group, (C) the Management Holders taken as a group, and (D) the Investor Holders taken as a group. The Company shall not in any case be deemed to be a member of any Stockholder Group (whether or not the Company holds or repurchases any Shares). "Subsidiary" with respect to any entity (the "parent") shall mean any corporation, firm, association or trust of which such parent, at the time in respect of which such term is used, (i) owns directly or indirectly more than fifty percent (50%) of the equity or beneficial interest, on a consolidated basis, or (ii) owns directly or controls with power to vote, indirectly through one or more Subsidiaries, shares of capital stock or beneficial interest having the power to cast at least a majority of the votes entitled to be cast for the election of directors, trustees, managers or other officials having powers analogous to those of directors of a corporation. Unless otherwise specifically indicated, when used herein the term Subsidiary shall refer to a direct or indirect Subsidiary of the Company. "Third Party" means any Person (including such Person's Affiliates) other than the Company. "Transfer" shall mean to transfer, sell, assign, pledge, hypothecate, give, create a security interest in or lien on, place in trust (voting or otherwise), assign or in any other way encumber or dispose of, directly or indirectly and whether or not by operation of law or for value, any Shares. ARTICLE II Covenants and Conditions 2.1 Come Along. No Stockholder or group of Stockholders shall Transfer Shares constituting a majority of the outstanding shares of Common Stock in one or a series of related transactions to a Third Party without complying with the terms and conditions set forth in this Section 2.1. (a) The Stockholder or group of Stockholders (collectively, the "Initiating Stockholder") desiring to Transfer such Shares shall give not less than twenty (20) days prior written notice of such intended Transfer to each other Stockholder ("Participating Offeree") and to the Company. Such notice (the "Participation Notice") shall set forth terms and conditions of such proposed Transfer, including the name of the prospective transferee, the number of Shares proposed to be transferred (the "Participation Securities") by the Initiating Stockholder, the purchase price per Share proposed to be paid therefor and the payment terms and type of Transfer to be effectuated. Each Participating Offeree may, by notice in writing to the Initiating Stockholder and to the Company given within ten (10) days following the delivery of the Participation Notice to such Participating Offeree, have the opportunity and right to sell to the purchasers in such proposed Transfer (upon the same terms and conditions as the Initiating Stockholder) up to that number of Shares owned by such Participating Offeree as shall equal the product of (x) a fraction, the numerator of which is the number of Shares owned by such Participating Offeree as of the date of such proposed Transfer and the denominator of which is the aggregate number of Shares owned as of the date of such Participation Notice by each Initiating Stockholder and by all Participating Offerees, multiplied by (y) the number of Participation Securities. The amount of Participation Securities to be sold by any Initiating Stockholder shall be reduced to the extent necessary to provide for such sales of Shares by Participating Offerees. (b) At the closing of any proposed Transfer in respect of which a Participation Notice has been delivered, the Initiating Stockholder, together with all Participating Offerees electing to sell Shares who have delivered the notice referred to in paragraph (a) above, shall deliver to the proposed transferee certificates evidencing the Shares to be sold thereto duly endorsed with stock powers and shall receive in exchange therefor the consideration to be paid or delivered by the proposed transferee in respect of such Shares as described in the Participation Notice. (c) The provisions of this Section 2.1 shall not apply to any Rule 144 Transaction or to any Transfer by a Lee Holder or an Applicable Lee Holder to an Applicable Lee Holder or a Transfer by an ELI Holder or an Applicable ELI Holder to an Applicable ELI Holder, other than, in each case, a Person described in Section (c) (and not Section (a), (b) or (d)) of the definition of "Applicable Lee Holder" and "Applicable ELI Holder." 2.2 Take Along. If Stockholders holding at least a majority of the then outstanding Common Stock (the "Take Along Group") determine to sell or exchange (in a business combination or otherwise) in one or a series of related bona fide arms-length transactions to an unrelated and unaffiliated Third Party all of the Shares held by them, then, upon thirty (30) days written notice from the Take Along Group to the other Stockholders, which notice shall include reasonable details of the proposed sale or exchange including the proposed time and place of closing and the consideration to be received by the Stockholders (such notice being referred to as the "Sale Request"), each other Stockholder shall be obligated to, and shall (i) sell, transfer and deliver, or cause to be sold, transferred and delivered, to such Third Party, all of his Shares in the same transaction at the closing thereof (and will deliver certificates for all of his Shares at the closing, free and clear of all claims, liens and encumbrances), and each Stockholder shall receive the same consideration per share of Common Stock upon such sale and (ii) if stockholder approval of the transaction is required, vote his Shares in favor thereof. The provisions of this Section 2.2 shall not apply to any Transfer pursuant to a Public Offering. 2.3 Corporate Governance. Until the tenth anniversary of the date hereof, the Company and Stockholders shall take all action, including but not limited to (i) the Stockholders instructing their director designees provided herein to take such actions and (ii) the Stockholders voting, or executing written consents with respect to, their Shares, so that: (a) Election of Directors. Subject to Sections 2.3(c) and 2.3(d) below, the Company's and the Operating Company's Boards of Directors shall be fixed at ten (10) members, of which one member shall be designated by Arthur E. Reiner (which member shall be Mr. Reiner himself) (the "Reiner Nominee"), two members (one of which members shall be either Mr. Cornstein himself, or if Mr. Cornstein is no longer an employee of the Company, a management employee of the Company) shall be designated by David B. Cornstein (the "Cornstein Nominees"), two members shall be designated by the Applicable ELI Holders (the "ELI Nominees"), and two members shall be designated by the Applicable Lee Holders (the "Lee Nominees"). The directors shall be divided into classes. The initial term of one Desai Nominee and one Lee Nominee shall expire in 1996; the initial term of the Reiner Nominee and the Cornstein Nominees shall expire in 1997; and the initial term of the other Lee Nominee and other Desai Nominee shall expire in 1998. At the option of the Applicable Lee Holders and the Applicable ELI Holders, respectively, the Lee Nominee(s) or the ELI Nominee(s), respectively, shall be reduced by one or by two, and such Lee Nominee(s) or ELI Nominee(s), as the case may be, shall be removed from the Board of Directors and, during such time as the Applicable Lee Holders and the Applicable ELI Holders, respectively, would otherwise have had the right to designate a Director hereunder, a representative of the Applicable Lee Holders or the Applicable ELI Holders, as the case may be, shall continue to have the right to attend meetings of the Board of Directors of the Company and the Operating Company as an observer without a vote or other rights as a director (except the right to receive sufficient notice to enable such attendance and the right to receive all other communications, information and materials furnished, from time to time, to Directors of the Company and the Operating Company and the right to receive reimbursement for travel expenses to the same extent as Directors of the Company and the Operating Company). In addition to any other rights under this Agreement, (x) any transferee of any of the Lee Holders, the ELI Holders and David B. Cornstein, who is an Institutional Investor and who holds pursuant to one or more Transfers Shares constituting at least ten percent (10%) of the Shares then outstanding and (y) a representative of the Cornstein Beneficiaries, so long as they hold, collectively, at least five percent (5%) of the issued and outstanding shares of Common Stock of the Company (and have not designated a director pursuant to this Section 2.3(a)), shall have the right to attend meetings of the Boards of Directors of the Company and its Subsidiaries, and, in the case of the Cornstein Beneficiaries, the Executive Committee, as an observer without a vote or other rights as a director (except the right to receive sufficient notice to enable such attendance and the right to receive all other communications, information and materials furnished, from time to time, to Directors of the Company and its Subsidiaries, and the Executive Committee, as the case may be, and the right to receive reimbursement for travel expenses to the same extent as Directors of the Company and its Subsidiaries). (b) Designation of Director Nominees. One of the Lee Nominees shall be designated by the vote or consent of a majority of the then outstanding Shares owned by Lee Equity Partners and its transferees who are Applicable Lee Holders and one of the Lee Nominees shall be designated by the vote or consent of a majority of the then outstanding Shares owned by the Applicable Lee Holders other than Lee Equity Partners. The Cornstein Nominees shall be designated by the vote or consent of a majority of the then outstanding Shares owned by David B. Cornstein and his Permitted Transferees. The ELI Nominees shall be designated by the vote or consent of a majority of the then outstanding Shares owned by the Applicable ELI Holders. Any group of Stockholders entitled to designate directors hereunder shall also be entitled to require that the director designated by that group pursuant to this Section 2.3 be removed or replaced by another designee of such group. (c) Termination of Right to Elect Directors. The number of directors which Arthur E. Reiner, David B. Cornstein, the Applicable ELI Holders, and the Applicable Lee Holders shall have the right to designate to the Board of Directors of the Company and its Subsidiaries shall be reduced as follows: Mr. Reiner's right to designate a director shall terminate on the date that Mr. Reiner is no longer an employee of the Company. Mr. Cornstein's right to designate one director shall terminate when Mr. Cornstein and his Permitted Transferees own less than fifty percent (50%) of the Shares held by him on the date hereof, and his right to designate the other director shall terminate when he owns less than five percent (5%) of the Common Stock of the Company then outstanding. The Applicable Lee Holders' right to designate one director shall terminate when the Applicable Lee Holders collectively own less than fifty percent (50%) of the Shares held by them on the date hereof, and their right to designate the other director (which shall be the director designated by Lee Equity Partners in accordance with Section 2.3(b)) shall terminate when the Applicable Lee Holders collectively own less than five percent (5%) of the Common Stock of the Company then outstanding. The Applicable ELI Holders right to designate one director shall terminate when the Applicable ELI Holders collectively own less than fifty percent (50%) of the Shares held by them on the date hereof, and their right to designate the other director shall terminate when the Applicable ELI Holders collectively own less than five percent (5%) of the Common Stock of the Company then outstanding. (d) Executive Committee. The Board of Directors of the Company and the Operating Company shall have an Executive Committee empowered, to the fullest extent possible by law, to take all actions which can be taken by the full Board of Directors of the Company and the Operating Company. Each such Executive Committee shall consist of five (5) directors, one of which will be designated by Thomas H. Lee (so long as the Applicable Lee Holders have a right to designate one director pursuant to Section 2.3(a) above), one of which will be designated by the Applicable ELI Holders, (so long as the Applicable ELI Holders have a right to designate one director pursuant to Section 2.3(a) above), two of which (including one management employee of the Company) will be designated by David B. Cornstein, so long as David B. Cornstein has the right to designate two directors pursuant to Section 2.3(a) above, and thereafter only one of which will be designated by David B. Cornstein (so long as David B. Cornstein has the right to designate one director pursuant to Section 2.3(a) above), and one of which will be an independent director designated by the Board of Directors of the Company. If any Stockholder or group of Stockholders loses its right to designate a member of the Executive Committee in accordance with the foregoing provisions of this Section 2.3(d), such member shall be designated by the Board of Directors of the Company. Notwithstanding any other provision of this Agreement, if all of the members of the Executive Committee vote to remove a director, each Stockholder agrees to vote his or its Shares (whether at a meeting or by written consent) to effectuate such removal. (e) Restrictions on Other Agreements. No Stockholder shall grant any proxy or enter into or agree to be bound by any voting trust with respect to the Shares, nor shall any Stockholder enter into any stockholders agreements or arrangements of any kind with any person with respect to the Shares on terms which conflict with the provisions of this Agreement (whether or not such agreements and arrangements are with other Stockholders or holders of Shares that are not parties to this Agreement), including but not limited to, agreements or arrangements with respect to the acquisition, disposition or voting of Shares inconsistent herewith. (f) Stockholder Action. Each Stockholder agrees that, in such Stockholder's capacity as a stockholder of the Company, such Stockholder will vote, or grant proxies relating to such shares to vote, all of such Stockholder's shares of Common Stock in favor of any transaction pursuant to Section 2.2 hereof (other than a transaction with an Affiliate) if, and to the extent that, approval of the Company's stockholders is required in order to effect such transaction. 2.4 Reports Under 1934 Act. With a view to making available to the Stockholders and their transferees the benefits of Rule 144 and Rule 144A promulgated under the 1933 Act and any other rule or regulation of the Commission that may at any time permit a Stockholder to sell securities of the Company or the Operating Company to the public without registration, the Company agrees to use and to cause the Operating Company to use its best efforts to take all action that may be required as a condition to the availability of Rule 144, Rule 144A or such other rules or regulations, including without limitation to: (a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times subsequent to ninety (90) days after the effective date of the first registration statement covering an underwritten Public Offering filed by the Company or the Operating Company; (b) file with the Commission in a timely manner all reports and other documents required of the Company or the Operating Company under the 1933 Act and the 1934 Act (including, without limitation, under Section 13 or Section 15 of the 1934 Act); and (c) furnish to any Stockholder forthwith upon request a written statement by the Company or the Operating Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of said first registration statement filed by the Company or the Operating Company), and of the 1933 Act and the 1934 Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company or the Operating Company, and such other reports and documents so filed by the Company or the Operating Company as may be reasonably requested in availing any Stockholder of any rule or regulation of the Commission permitting the selling of any securities without registration. 2.5 Stock Split. If, on or after the receipt by the Company of a request for registration of a Public Offering pursuant to the Registration Rights Agreement, the proposed managing underwriter or underwriters of such offering reasonably believes that the number of shares to be registered is less than the minimum number necessary for the success of such offering, the Company will promptly prepare and submit to its Board of Directors, use its best efforts to cause to be adopted by its Board of Directors and stockholders, and, if so adopted, file and cause to become effective, an amendment to its Restated Certificate of Incorporation so as to cause each share of its outstanding Common Stock to be converted into such number of shares of such Common Stock so that the number of shares of Registrable Securities (as defined in the Registration Rights Agreement) to be registered is equal to at least the minimum number which such managing underwriter or underwriters reasonably believes is necessary for the success of such offering. Each Stockholder, together with such Stockholder's Transferees, hereby agrees to vote the Shares held by such Stockholder in favor of adopting such amendment and to cause its director designees pursuant to Section 2.3(a), if any, to vote for such amendment. 2.6 Maintenance of Public Market. The Company will not proceed with a program of acquisition of its own Common Stock, initiate a corporate reorganization or recapitalization or authorize or consent to any action which would have the effect of: (a) removing the Company from registration with the Commission under the 1934 Act, or (b) reducing substantially or eliminating the public market for shares of Common Stock of the Company. However, this Section 2.6 shall apply only as long as there are at least five percent (5%) of the Shares still outstanding and such Shares have not been transferred in a Public Offering of Common Stock of the Company pursuant to a registration statement under the 1933 Act or transferred pursuant to a Rule 144 Transaction. 2.7 Listing of Shares. If any shares of the Company's Common Stock are listed on any national securities exchange (or on the National Association of Securities Dealers Inc., Automated Quotation System or comparable system), then the Company will take such action as may be necessary, from time to time, to list Common Stock included in the Shares on such exchange (or system as the case may be), subject to official notice of issuance, with respect to shares of Common Stock not then issued. 2.8 Employment Agreement Amendments. No amendment may be made to Section 7 or 8 of the Employment Agreement, dated as of January 3, 1995, among the Company, the Operating Company and Arthur E. Reiner without the consent of the holders of a majority of the then outstanding shares held by each of the Applicable ELI Holders and the Applicable Lee Holders. ARTICLE III Miscellaneous 3.1 Remedies. The parties to this Agreement acknowledge and agree that the covenants of the Company and the Stockholders set forth in this Agreement may be enforced in equity by a decree requiring specific performance. Without limiting the foregoing, if any dispute arises concerning the sale or other disposition of any of the Shares subject to this Agreement or concerning any other provisions hereof or the obligations of the parties hereunder, the parties to this agreement agree that an injunction may be issued in connection therewith (including, without limitation, restraining the sale or other disposition of such Shares or rescinding any such sale or other disposition). Such remedies shall be cumulative and non-exclusive and shall be in addition to any other rights and remedies the parties may have under this Agreement or otherwise. 3.2 Entire Agreement. This Agreement, the Stock Purchase Agreement and the Registration Rights Agreement, together with the Exhibits hereto, sets forth the entire understanding of the parties, and supersedes all prior agreements and all other arrangements and communications, whether oral or written, with respect to the subject matter hereof. 3.3 Amendment. The Schedule may be amended to reflect changes in the composition of the Stockholders and changes in stock ownership that may occur from time to time as a result of Transfers of Shares not restricted under Section 2.1 or 2.2 hereof. Amendments to the Schedule reflecting Transfers of Shares not restricted under Section 2.1 or 2.2 hereof shall become effective when the amended Schedule, and a copy of the Agreement as executed by any new transferee in accordance with Section 3.13, are filed with the Company. Amendments to the Schedule reflecting Transfers pursuant to waivers under Article II hereof shall become effective when a copy of each of (i) the amended Schedule, (ii) the waivers, as executed by the holders of a majority of the Shares held by each of the ELI Holders, the Management Holders, the Investor Holders and the Lee Holders (or by the Lee Representative), voting separately, and (iii) the counterpart signature page to this Agreement as executed by any new transferee, are delivered to the Company and to the ELI Holders and the Lee Holders (or the Lee Representative), provided that, for purposes of this sentence, "Management Holders" shall exclude each Management Holder who holds less than 5,000 Shares. Any other amendment, revision or termination of this Agreement shall require the prior written consent of the holders of a majority of the Shares held by each of the ELI Holders, Management Holders, Investor Holders and the Lee Holders (or the Lee Representative), voting separately. 3.4 Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision were omitted. 3.5 Notices. All notices and other communications necessary or contemplated under this Agreement shall be in writing and shall be delivered in the manner specified herein or, in the absence of such specification, shall be deemed to have been duly given three business days after mailing by certified mail, when delivered by hand, upon confirmation of receipt by telecopy, or one day after sending by overnight delivery service, to the respective addresses of the parties set forth below: (a) for notices and communications to the Company: Finlay Enterprises, Inc. 521 Fifth Avenue New York, NY 10175 FAX: (212) 557-3848 ATTN: President (b) For notices and communications to the Stockholders, to the respective addresses set forth in the Schedule, (c) with a copy in the case of the Lee Holders to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 FAX: (617) 951-1295 ATTN: Jeffrey S. Wieand and in the case of the Company to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019 FAX: (212) 757-3990 ATTN: Edwin S. Maynard and in the case of the ELI Holders to: Morgan, Lewis & Bockius 101 Park Avenue New York, NY 10178 FAX: (212) 309-6273 ATTN: Christopher Hilbert and in the case of Cornstein to: Zimet, Haines, Friedman & Kaplan 460 Park Avenue New York, NY 10022 FAX: (212) 223-1151 Attn: James Martin Kaplan By notice complying with the foregoing provisions of this Section 3.5, each party shall have the right to change the mailing address for future notices and communications to such party. 3.6 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties thereto and to their respective transferees, successors, assigns, heirs and administrators; provided, however, that the rights under this Agreement may not be assigned except as expressly provided herein. No such assignment shall relieve an assignor of its obligations hereunder. 3.7 Termination. Without affecting any other provision of this Agreement requiring termination of any rights in favor of any Stockholder, or any transferee of Shares, the provisions of Article II of this Agreement shall terminate as to such Stockholder, or transferee, when, pursuant to and in accordance with this Agreement, such Stockholder, or transferee, as the case may be, no longer owns any Shares. 3.8 Recapitalizations, Exchanges, Etc. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Shares, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution of the Shares, by reason of a stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any such events, amounts hereunder shall be appropriately adjusted. 3.9 Lee Representative. Each Lee Holder hereby designates and appoints (and each Permitted Transferee (other than pursuant to an Institutional Transfer) of each such Lee Holder is hereby deemed to have so designated and appointed) Warren C. Smith, Jr., with full power of substitution (the "Lee Representative"), as the representative of each such Person to perform all such acts as are required, authorized or contemplated by this Agreement to be performed by any such Person and hereby acknowledges that the Lee Representative shall be the only Person authorized to take any action so required, authorized or contemplated by this Agreement by each such Person. Each such Person further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Person. Each such Person hereby authorizes (and each such Permitted Transferee will be deemed to have authorized) the other parties hereto to disregard any notice or other action taken by such Person pursuant to this Agreement except for the Lee Representative. The other parties hereto are and will be entitled to rely on any action so taken or any notice given by the Lee Representative and are and will be entitled and authorized to give notices only to the Lee Representative for any notice contemplated by this Agreement to be given to any such Person. A successor to the Lee Representative may be chosen by a majority of the Shares held by the Lee Holders, provided that notice thereof is given by the new Lee Representative to the Company and to the ELI Holders, the Investor Holders and the Management Holders. 3.10. Action Necessary to Effectuate the Agreement. The parties hereto agree to take or cause to be taken all such corporate and other action as may be necessary to effect the intent and purposes of this Agreement. 3.11. Purchase for Investment; Legend on Certificate. Each of the parties acknowledges that all of the Shares held by such party as shown on Exhibit A hereto are being (or have been) acquired for investment and not with a view to the distribution thereof and that no transfer, hypothecation or assignment of Shares may be made except in compliance with applicable federal and state securities laws. All the certificates of Shares of the Company which are now or hereafter owned by the Stockholders and which are subject to the terms of this Agreement shall have endorsed in writing, stamped or printed, thereon the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTION ON TRANSFER, OF A STOCKHOLDERS' AGREEMENT DATED AS OF MAY 26, 1993, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 3.12. Effectiveness of Transfers. All Shares transferred by a Stockholder (other than pursuant to an effective registration statement under the 1933 Act or a Rule 144 Transaction) shall be held by the transferee thereof pursuant to this Agreement. Such transferee shall, except as otherwise expressly stated herein, have all the rights and be subject to all of the obligations of a Stockholder under this Agreement automatically and without requiring any further act by such transferee or by any parties to this Agreement. Without affecting the preceding sentence, if such transferee is not a Stockholder on the date of such transfer, then such transferee, as a condition to such transfer, shall confirm such transferee's obligations hereunder in accordance with Section 3.13 hereof. No Shares shall be transferred on the Company's books and records, and no transfer of Shares shall be otherwise effective, unless any such transfer is made in accordance with the terms and conditions of this Section 3.12 and Sections 2.1, 2.2 and 3.13 hereof, and the Company is hereby authorized by all of the Stockholders to enter appropriate stop transfer notations on its transfer records to give effect to this Agreement. Stockholders are, subject to applicable law, free to Transfer Shares except as explicitly restricted by Sections 2.1, 2.2, 3.12 and 3.13 hereof. 3.13. Additional Stockholders. Subject to the restrictions on transfers of Shares contained in Sections 2.1, 2.2 and 3.12 hereof, any Person acquiring Shares (except for transferees acquiring Shares (a) in an offering registered under the 1933 Act or (b) in a Rule 144 Transaction) shall, on or before the transfer or issuance to it of Shares, sign a counterpart signature page hereto in form reasonably satisfactory to the Company and shall thereby become a party to this Agreement. The Company shall require each Person acquiring an option, warrant or other right to purchase shares of Common Stock under any option or other equity participation plan to execute a counterpart signature page hereto and to the Registration Rights Agreement. 3.14. No Waiver. No course of dealing and no delay on the part of any party hereto in exercising any right, power or remedy conferred by this Agreement shall operate as waiver thereof or otherwise prejudice such party's rights, powers and remedies. No single or partial exercise of any rights, powers or remedies conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 3.15. Counterparts. This Agreement may be executed in two or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signature need not appear on any one counterpart. 3.16. Headings. All headings and captions in this Agreement are for purposes of references only and shall not be construed to limit or affect the substance of this Agreement. 3.17. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE NEW YORK PRINCIPLES OF CONFLICTS OF LAWS). [Remainder of Page Intentionally Left Blank] AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT Signature Page IN WITNESS WHEREOF, the parties have executed this Agreement as an instrument under SEAL as of the date first above written. FINLAY ENTERPRISES, INC. By: /s/ David B. Cornstein Name: David B. Cornstein Title: President MANAGEMENT HOLDERS: INVESTOR HOLDERS: /s/ David B. Cornstein /s/Harold S. Geneen David B. Cornstein Harold S. Geneen /s/ Arthur E. Reiner /s/James Martin Kaplan Arthur E. Reiner James Martin Kaplan Executor of the will of Robert S. Lowenstein /s/Norman S. Mathews Norman S. Mathews /s/Ronald B. Grudberg Ronald B. Grudberg ELI HOLDERS: EQUITY-LINKED INVESTORS, L.P. By: Rohit M. Desai Associates, General Partner By: /s/Rohit M. Desai EQUITY-LINKED INVESTORS - II By: Rohit M. Desai Associates - II, General Partner By: /s/Rohit M. Desai LEE HOLDERS: /s/Warren C. Smith, Jr. Warren C. Smith, Jr., individually and as Lee Representative for Thomas H. Lee Equity Partners, L.P., 1989 Thomas H. Lee Nominee Trust, John W. Childs, David V. Harkins, Thomas R. Shepherd, C. Hunter Boll, Glenn H. Hutchins, Scott A. Schoen, Joseph J. Incandela, Steven G. Segal, Wendy L. Schoen, Sheldon Schoen, SGS Family Limited Partnership, Anthony J. DiNovi, Thomas M. Hagerty, Glenn A. Hopkins, Charles W. Robins, James Westra, Todd M. Abbrecht, Adam L. Suttin, Kent R. Weldon, Andrew D. Flaster, Wendy L. Masler, Kristina A. Weinberg and Terrence M. Mullin Stockholders' Agreement Management Holder Counterpart Signature Page IN WITNESS WHEREOF, the undersigned holder of equity securities of the Company has executed this counterpart signature page to this Agreement as an instrument under SEAL as of the date first above written and agrees to be bound by the provisions hereof as a Management Holder. Name: Date: SCHEDULE A Schedule of Stockholders
Options, Warrants and Other Rights Number of Shares to Purchase Stockholder of Common Stock * Common Stock Thomas H. Lee Equity Partners, L.P. 1,796,509 0 State Street Bank and Trust Company as trustee for 1989 Thomas H. Lee Nominee Trust 99,823 0 John W. Childs 14,618 0 David V. Harkins 4,872 0 Thomas R. Shepherd 2,924 0 C. Hunter Boll 3,654 0 Scott A. Schoen 2,292 0 Warren C. Smith, Jr. 4,872 0 Joseph J. Incandela 1,603 0 Steven G. Segal 1,067 0 SGS Family Limited Partnership 1,125 0 Anthony J. DiNovi 2,192 0 Thomas M. Hagerty 2,192 0 Glenn A. Hopkins 730 0 Charles W. Robins 687 0 James Westra 687 0 Todd M. Abbrecht 274 0 Adam L. Suttin 550 0 Kent R. Weldon 91 0 Andrew D. Flaster 343 0 Wendy L. Masler 320 0 Kristina A. Weinberg 320 0 Terrence M. Mullin 687 0 Equity-Linked Investors, L.P. 318,379 0 c/o Desai Capital Management Incorporated 540 Madison Avenue New York, NY 10022 Equity-Linked Investors-II 235,324 0 c/o Desai Capital Management Incorporated 540 Madison Avenue New York, NY 10022 David B. Cornstein 451,372 0 430 East 56th St. New York, NY 10022 Ronald Grudberg 101,876 6,656 300 East 62nd St. #2302 New York, NY 10022 Estate of Robert S. Lowenstein 76,538 30,008 c/o Zimet, Haines, Friedman & Kaplan 460 Park Avenue New York, NY 10022 Harold S. Geneen 82,588 0 2 East 67th Street New York, NY 10021 James Martin Kaplan 4,000 0 300 Lydecker Street Englewood, NJ 07631 Jeffrey Branman 984 0 Financo, Inc. 535 Madison Avenue New York, New York Arthur E. Reiner 138,525 69,263 29 E. 64th Street Apt. 8B New York, NY 10021 Norman S. Mathews 0 50,000 c/o Tanner & Co. 650 Madison Avenue New York, NY 10022
* This Schedule shall be deemed amended without any further action or delivery by adding the shares issued in exchange for the outstanding shares of the Company's 10% Series C Cumulative Redeemable Preferred Stock. EX-5 4 EXHIBIT 5 FORM OF STOCK OPTION AGREEMENT For the Purchase of Certain Shares of Common Stock, $.01 par value per share of Finlay Enterprises, Inc. Among THE 1989 THOMAS H. LEE NOMINEE TRUST, THOMAS H. LEE and "OPTIONEE" THE OPTION REPRESENTED BY THIS AGREEMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. OPTION AGREEMENT Agreement dated as of May 26, 1993 by and among the 1989 Thomas H. Lee Nominee Trust (the "Trust"), Thomas H. Lee ("Lee") and ___________ of ___________("Optionee"). WHEREAS, the Trust purchased 162,892 shares of the Common Stock, $.01 par value per share (the "Lee Shares") of Finlay Enterprises, Inc., a Delaware corporation (the "Company"), pursuant to a Stock Purchase Agreement dated as of May 26, 1993; WHEREAS, Lee is the sole beneficiary of the Trust; and WHEREAS, the Trust has agreed, subject to the terms and conditions of this Agreement, to grant Optionee an option to purchase ___________ Lee Shares and Optionee has agreed to accept such option. ACCORDINGLY, in consideration of one dollar ($1.00) and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Trust, the parties hereto agree as follows: 1. Grant of Option. The Trust hereby grants Optionee an Option (the "Option") to purchase an aggregate of ___________ Lee Shares. 2. Exercise Price. The exercise price for the Lee Shares (the "Exercise Price") covered by the Option shall be $4.88 per share, which Exercise Price shall be equitably adjusted in the event of any stock split, combination, reclassification or other similar event. 3. Time and Manner of Exercise. (a) Subject to the provisions of this Section 3, termination as set forth in Section 5 hereof and the mandatory exercise and co-sale provisions set forth in Section 12 hereof, the Option shall be exercisable as follows: (i) during the first twelve (12) months from the date hereof, the Option may be exercised as to twenty-five percent (25%) of the Lee Shares covered thereby; (ii) after twelve (12) months from the date hereof, the Option may be exercised as to fifty percent (50%) of the Lee Shares covered thereby; (iii)after twenty-four (24) months from the date hereof, the Option may be exercised as to seventy-five percent (75%) of the Lee Shares covered thereby; and (iv) after thirty-six (36) months from the date hereof, the Option may be exercised as to all of the Lee Shares covered thereby. (b) In the event that the Trust requests the holder of the Option to exercise the Option pursuant to Section 12 hereof, the Option shall accelerate and vest effective as of the date of the notice of such request and the Option shall thereupon become immediately exercisable to the extent required in connection with such request. (c) If there is either (i) a sale of all of the issued and outstanding capital stock of the Company or of all or substantially all the assets of the Company or (ii) an underwritten offering of securities of the Company to the public pursuant to a registration statement (other than on Form S-4, Form S-8 or some other special or limited purpose form) filed under the Securities Act of 1933, as amended (the "Securities Act"), the Option shall accelerate and vest and become fully exercisable as of the effective date of the events specified in the preceding clauses (i) or (ii). (d) To the extent that the right to exercise the Option has accrued and is in effect, the Option may be exercised in full at one time or in part from time to time by Optionee at any time during which Lee or the Trust retains ownership of the Lee Shares by giving written notice of such exercise to the Trust in the form of Exhibit A hereto stating the number of Lee Shares with respect to which the Option is being exercised, accompanied by payment in full, in cash or by certified check, of the Exercise Price for all of the Lee Shares covered by the Option; provided, however, that such exercise shall only be permitted at any one time as to Lee Shares having an aggregate fair market value of more than $50,000 at the time of exercise or as to all of the remaining Lee Shares as to which the Option is then exercisable if the aggregate fair market value of said Shares is less than $50,000 at time of exercise. Upon receipt of such notice of exercise and payment in full of the Exercise Price, the Trust shall, within ten (10) days, instruct the Company and its transfer agent, if any, to transfer to Optionee the number of Lee Shares specified in the notice of exercise, and shall execute and deliver to the Company and its transfer agent, if any, certificates, stock powers, and other instruments of assignment as may be reasonably required in order to reflect and confirm the transfer and assignment of such Lee Shares to Optionee. 4. Withholding Tax. If, in connection with the grant or exercise of the Option hereunder, either Lee or the Trust should determine in their sole discretion that any federal or state withholding tax must be paid, Optionee agrees on behalf of himself and his legal successors, upon the written request of either Lee or the Trust, to pay any such withholding tax in full in the amount determined by Lee or the Trust, as the case may be, in cash or certified check, to the Thomas H. Lee Company for payment to the appropriate taxing authority. Such withholding payment shall be paid within three (3) business days from the receipt of the notice that such a withholding tax payment is due. 5. Term of Option. This Option shall terminate ___________ years from the date hereof, subject to earlier termination as hereinafter set forth in this Section 5: (a) In the event that Optionee ceases to ___________ the Thomas H. Lee Company or one of its controlled affiliates, the Option may be exercised prior to the expiration of the ___________ year term of the Option as to the Lee Shares that are fully vested on the date of such termination but the Option shall terminate as to all Lee Shares that have not vested as of the date of such termination. (b) In the event of the death of Optionee, the Option may be exercised prior to the expiration of the ___________ year term of the Option as to the Lee Shares that are fully vested on the date of death, by the estate of Optionee or by any person or persons who acquire the right to exercise the Option by bequest or inheritance or by reason of the death of Optionee, but the Option shall terminate as to all Lee Shares that have not vested as of the date of death. 6. Reservation of Shares. The Trust shall at all times during the term of the Option reserve and keep available such number of Lee Shares as will be sufficient to satisfy the requirements of the Option; provided that the Trust may pledge the Lee Shares to a financial institution. Until the Option has been duly exercised in accordance with the terms hereof, the Trust shall continue to have all rights as the holder of the Lee Shares held by it, and Optionee shall not have any of the rights of a stockholder in respect of the Lee Shares until a certificate or certificates therefor shall be delivered to him upon due exercise of the Option. 7. Representations and Covenants of the Trust and Lee. The Trust warrants and represents that it is the sole owner of the Lee Shares held by it. The Trust further warrants and represents that the Lee Shares are now, and at all times during the term of the Option shall be, free of all encumbrances, except for those imposed by (i) a pledge of the Lee Shares, (ii) Section 12 hereof, (iii) the Stockholders' Agreement, as defined in Section 10 below, or (iv) certain stock option agreements entered into by Lee with Thomas H. Lee Company employees or consultants concerning the Lee Shares in a form similar to this Agreement; provided, however, that the representations and warranties contained in this Section 7 shall not apply to any Lee Shares transferred to Thomas H. Lee Company employees or consultants. Lee covenants and agrees to cause the Trust to recognize and honor the rights of the holder of the Option hereunder and to comply with the terms hereof in the same manner as Lee with respect to the Lee Shares held by the Trust. 8. Non-Transferability. The right of Optionee to exercise the Option shall not be assignable or transferable by him except that any pledge to a recognized financial institution or any sale, assignment, gift or other disposition of the Option by Optionee for the benefit of the spouse or children of Optionee and any transfer of the Option between Optionee and trustees of a trust for the benefit of Optionee, his spouse or children shall be permitted. If any such pledge, sale, assignment, gift or other disposition is made, the Option shall in all respects and at all times be subject to all of the terms, conditions and provisions of this Agreement, including, without limitation, the mandatory exercise and co-sale provisions set forth in Section 12 hereof. No sale, transfer, assignment, mortgage, pledge, bequest, gift, or transfer by descent, by virtue of any execution or order of court or by operation of law, or any other disposition, of the Option in violation of, or contrary to, any of the terms, conditions or provisions hereof, shall be valid, but every purchaser, assignee, transferee, mortgagee, pledgee, legatee, donee and holder of the Option otherwise than in accordance with this Agreement shall in all respects and at all times be subject to all of the terms, conditions and provisions of this Agreement. Except as hereinabove provided, the Option shall be null and void and without effect upon any attempted assignment or transfer including without limitation, any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition, attachment, trustee process or similar process, whether legal or equitable, upon the Option. 9. Delivery of Investment Representation. Notwithstanding any other provision hereof, the Trust shall be under no obligation to cause or direct the transfer of the Lee Shares with respect to which the Option has been exercised, and the Company shall be under no obligation to make any transfer of such Shares, unless and until Optionee shall give a written representation to the Trust, to the Company, or to both of them, substantially in the form attached hereto as Exhibit A, that Optionee is acquiring the Lee Shares transferred to him upon exercise of the Option for investment and not with a view to, or for sale in connection with, the distribution of any such Lee Shares in violation of applicable federal or state securities laws, and that he will make no transfer of the same except in compliance with the Securities Act and the rules and regulations promulgated thereunder as then in force, and the Company may place an "investment legend" upon any certificate for the Lee Shares transferred to Optionee by reason of such exercise. 10. Execution of Shareholders' Agreement. Optionee acknowledges that, in connection with his prior or future purchase of shares of the Common Stock, $.01 par value per share, of the Company, he has previously executed and delivered to the Company a counterpart signature page to the Stockholders' Agreement, dated as of May 26, 1993, as amended through the date hereof (the "Stockholders' Agreement"), by and among the Company and the Purchasers named therein. Optionee further agrees that all Lee Shares acquired by him upon exercise of the Option will be subject to the terms and conditions of the Stockholders' Agreement. 11. Adjustments Upon Changes in Capitalization. In the event that the Lee Shares are changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any reorganization, merger, consolidation, recapitalization, reclassification, stock split, combination of shares or dividend payable in capital stock, appropriate adjustments shall be made in the number and kind of shares as to which this Option shall be exercisable, to the end that the proportionate interest of Optionee in the Lee Shares shall remain as before the occurrence of such event; such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option and with a corresponding adjustment in the Exercise Price per share. 12. Exit Right/Mandatory Exercise and Co-Sale. (a) In the event that the Trust should propose to sell, exchange or otherwise dispose of the Lee Shares held by it at any time during the term of the Option or subsequent to its exercise by Optionee, the Trust shall give Optionee reasonable notice of such sale and a reasonable opportunity to exercise the Option, if it has not yet been exercised, and to participate in any such sale. Optionee shall have the right to join in such sale at the same price per share, on the same terms, to the same extent (in terms of the percentage of Common Stock held) and to the same buyer; provided, however, that the rights and obligations of clause (a) of this Section 12 shall not apply to a transfer of Lee Shares to Thomas H. Lee Company employees or consultants or a person who has acquired the rights of any such employee or consultant by reason of the death of any such employee or consultant. (b) In the event that (i) a pledgee of Lee Shares forecloses upon Lee Shares that have been pledged to such pledgee and such pledgee does not recognize the rights of the holder of the Option hereunder or (ii) the Trust does not recognize the rights of the holder of the Option upon the due exercise thereof, then Lee shall be personally obligated to pay and shall pay to such holder an amount equal to the net fair market value of the Lee Shares covered by the Option; provided, however, that any such payment shall be subject to the withholding tax provisions set forth in Section 4 hereof. For purposes of this clause (b) of this Section 12, "net fair market value" shall be deemed to be the difference between the exercise price per share of the Lee Shares covered by the Option and the price per share paid, or deemed to have been paid, by the pledgee with respect to the Lee Shares upon foreclosure. (c) Upon the Trust's written request set forth in the Trust's notice of sale, Optionee shall be obligated to exercise the Option and join in any sale (including without limitation the sale of Lee Shares to a pledgee upon foreclosure) at the same price, on the same terms, to the same extent (in terms of the percentage of Common Stock held) and to the same buyer; provided further that, except with respect to the sale of Lee Shares to a pledgee, Optionee shall not have any obligation hereunder if and to the extent the sale is not at arm's length. (d) If the holder of the Option does not exercise the Option and participate in a sale as provided in clause (c) of this Section 12, then the Option shall automatically terminate as of the date of any such sale with respect to the number of Lee Shares that could have been included in such sale by the holder of the Option and the Optionee shall have no further rights, obligations or liabilities with respect to the Option or to Lee Shares that could have been included in such sale upon exercise of the Option. 13. Withdrawal of Lee Shares from Trust. Lee covenants and agrees that if any of the Lee Shares are transferred, distributed or released to Lee by the Trust, such Lee Shares shall remain subject to the terms and conditions of this Agreement and Lee shall promptly execute and deliver any documents or instruments necessary to grant to the Optionee the rights afforded by this Agreement. 14. Notices. All notices required hereunder or given pursuant hereto shall be effective when delivered by hand or mailed by certified mail addressed as follows: If to the Trust to: Thomas H. Lee Nominee Trust State Street Bank & Trust Company of Connecticut, N.A. 750 Main Street, Suite 1114 Hartford, CT 06103 Attention: Virginia Glunt If to Lee to: Thomas H. Lee Company 75 State Street Boston, Massachusetts 02109 Attention: Thomas H. Lee With copies in each case to: Charles W. Robins Hutchins & Wheeler 101 Federal Street Boston, Massachusetts 02110 If to Optionee to: Optionee c/o Thomas H. Lee Company 75 State Street Boston, Massachusetts 02109 unless and until notice of another or different address shall be given as provided herein. 15. Modification. This Agreement constitutes the entire Agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements, whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. 16. Governing Law. This Agreement shall be construed under and governed by the laws of the Commonwealth of Massachusetts. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ] IN WITNESS WHEREOF, the parties hereto have set their hands under seal as of the date first above written. State Street Bank & Trust Company of Connecticut, N.A., not personally but as Trustee for the 1989 Thomas H. Lee Nominee Trust Title: Thomas H. Lee Optionee: Exhibit A [Date] The 1989 Thomas H. Lee Nominee Trust State Street Bank & Trust Company of Connecticut, N.A. 750 Main Street, Suite 1114 Hartford, CT 06103 Attention: Virginia Glunt Finlay Enterprises, Inc. c/o Thomas H. Lee Company 75 State Street Boston, MA 02109 P ATTN: President Re: Notice of Option Exercise Gentlemen: Reference is made to the Stock Option Agreement dated as of May 26, 1993, by and among the 1989 Thomas H. Lee Nominee Trust (the "Trust"), Thomas H. Lee ("Lee") and [ Name of Optionee ] ("Optionee"). The Option Agreement pertains to the Trust's grant to Optionee of an option to acquire from the Trust shares of the Common Stock, par value $.01 per share, (the "Shares") of Finlay Enterprises, Inc. (the "Company") at the Exercise Price of $4.88 per share with respect to the Lee Shares. Capitalized terms used as defined terms herein, unless otherwise defined, shall have the same meaning assigned to them in the Option Agreement. Pursuant to Section 3(d) and Section 13 of the Option Agreement, Optionee hereby gives notice to Lee and the Trust of optionee's exercise of the Option with respect to Lee Shares. Lee and the Trust hereby acknowledge receipt of such written notice from Optionee pursuant to Section 3(d) of the Option Agreement. Concurrently with his delivery of this notice of option exercise, Optionee has hereby delivered to the Thomas H. Lee Company (i) the aggregate Exercise Price of $ and (ii) the required Federal and state withholding taxes in the amounts of $ and $ respectively, with respect to the Lee Shares. In connection with the foregoing option exercise, the undersigned hereby represents and warrants that he is purchasing said Shares with his own funds for his own account for investment and not with a view to, or for sale in connection with, any distribution thereof in violation of applicable Federal or state securities laws and that he will make no transfer of the same except in compliance with the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder as then in force (the "Securities Act"). The undersigned understands that you are relying upon such representation and warranty in allowing the issuance and sale of said Shares to the undersigned without registering the same under the Securities Act. In view of the undersigned's representation and warranty, he agrees that there may be affixed to the certificate for the Shares to be issued to the undersigned and to all certificates issued hereafter representing such Shares (until in the opinion of counsel, which opinion must be satisfactory to your counsel, it is no longer necessary or required) a legend as follows: TRANSFER RESTRICTED THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTION ON TRANSFER, OF A STOCKHOLDERS" AGREEMENT DATED AS OF MAY 26, 1993, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE SALE, TRANSFER OR OTHER DISTRIBUTION OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS, AND SUCH SALE, TRANSFER OR DISTRIBUTION MAY NOT BE MADE UNLESS REGISTERED UNDER THE SECURITIES ACT AND SUCH STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM IS AVAILABLE. The undersigned acknowledges that he has been informed by you that: 1. As the Shares to be acquired by the undersigned are unregistered, they must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available; 2. Routine sales of these securities made in reliance upon Rule 144 under the Securities Act can be made only in limited amounts in accordance with the terms and conditions of that Rule and, in the case of sales to which that Rule is not applicable, compliance with Regulation A or some other disclosure exemption under the Securities Act will be required; 3. The availability of Rule 144 is dependent upon adequate current public information with respect to the Company being available and, at the time the undersigned may desire to make a routine trading transaction pursuant to the Rule, the Company may not be able to comply with such requirement; and 4. The Company is under no obligation to register the Shares or to comply with Regulation A or any other exemption under the Securities Act or to supply information necessary to permit routine sales under Rule 144. [Remainder of Page Intentionally Left Blank] SIGNATURE PAGE TO NOTICE OF OPTION EXERCISE Sincerely, [Employee] Lee Shares Remaining Under Option: -----END PRIVACY-ENHANCED MESSAGE-----